HIGHLIGHTS FOR THE WEEK AHEAD
Tuesday: JN BoJ Core CPI, US Trade Balance, Wholesale Inventories, Consumer Confidence, Richmond Manufacturing Index, API Weekly Inventories
Wednesday: JN Consumer Confidence, FR Prelim GDP, US Prelim GDP, Pending Home Sales, US DoE Weekly Inventories, Informal meeting of EU defence ministers
Thursday: JN Retail Sales, GE Import Prices, SP Flash CPI, GE Unemployment Change, UK Mortgage Approvals, M4 Money Supply, CA GDP, US Personal Spending & Income, Core PCE Price Index, Weekly Jobless Claims, Informal meeting of EU defence ministers & EU foreign affairs ministers
Friday: JN Unemployment Rate, Tokyo Core CPI, Prelim Industrial Production, CN Manufacturing & Non-Manufacturing PMI, GE Retail Sales, FR Prelim CPI, EU CPI Flash Estimate, Unemployment rate, US Chicago PMI, Revised University of Michigan Sentiment, EU foreign affairs ministers
In almost inevitable fashion, the S&P 500 hit new heights yesterday surmounting the highs seen before the inflation scare of February this year. The latest catalyst helping lift sentiment has been progression in a deal on trade between the US and Mexico. Although the deal has come as light relief for the market following several months of indecision, a definitive conclusion is far from clear, with Canada yet to be included in the agreement.
This relationship is likely to be key for the week ahead with a spokesperson for the Canadian foreign minister stating that “we will only sign a new NAFTA deal that is good for Canada and good for the middle class”.
An interesting point highlighted by the FT this morning was that even if a comprehensive deal was reached including Canada, approval by all three countries’ legislatures presents a complicated final hurdle, this due to the impending US mid-terms and potential shift in political forces in Congress. As such, once calm is restored the ability for this news to continue lifting sentiment may well diminish quickly without further positive developments.
My view is that this is purely a short-term fix for markets which have been lifted by other factors such as a dovish sounding Fed and strong corporate earnings season. An interesting graphic by Bloomberg showed that the recent run higher could well be running on fumes as the disparity between the record highs in the S&P 500 and the spread between US and global Citi economic surprise index have been diverging.
Of course, the main threat to 3,000 in the spoos is the on-going US-China trade talks which is the bigger macro driver at play. Mid-level talks in Washington last week broke down without any progress and the latest noises from Beijing is that any negotiations maybe temporarily suspended until after the US mid-terms in November. This I think makes sense, but means that between now and post the US political event, you can quite clearly envisage Trump ramping up the rhetoric on “America First” policies which carries associated risk with equities at these lofty levels.
No deal is better than a bad deal…
Cable is on course for its fourth monthly loss in a row as the Brexit countdown ticks on the spectre of a “no deal” continue to grow. On her tour of the African continent, the Prime Minister has reissued her call that Britain’s exit from the EU can be successful even without a pact, but to put into context her trip this week the combined exports from the UK to South Africa, Nigeria and Kenya make up just 3% of the value of exports to Europe alone.
A survey of analysts conducted by Bloomberg in July put the prospect of a “no deal” at 20% and following the comments earlier this month from Trade Secretary Liam Fox, that percentage is likely to be much higher if the survey were conducted today. The PM has also had little joy in building bridges with key counterparts in the mainland with French President Macron ruling out any compromises that risk the EU “unravelling”.
German sentiment rebounds…
Encouraging signs emerged from the latest German Ifo data yesterday which saw a “noticeable” improvement on what had been a persistent downturn from the beginning of the year.
The data will come as welcome news to the EUR bulls with the currency pair now threatening a key trend line over the past three months. From a calendar point of view it’s worth keeping an eye out for the EU CPI flash estimate due on Friday.
Slow and steady
After the nose dive in oil seen after the year-to-date high printed in July, prices have slowly but surely clawed back the losses and are now back in close proximity to a multi-week high, despite the looming uncertainty emanating from the US-China trade war.
The persist threats of supply disruptions, whether in the form of political chaos in Venezuela, fragile economies in Nigeria and Libya, or stern words from Iranian President regarding US sanctions, has kept oil on the front foot. As a reminder, EU defence and foreign affairs ministers meet throughout the week.
If you missed the market briefing delivered earlier today you can catch up by clicking HERE.