The minutes of the last Fed meeting will be published on Wednesday. Consumer confidence data is expected to be one of a number of data that will attract attention such as the Purchasing Managers’ Index and other important data in the United States and Europe. The recent rise in the number of people infected with corona across the European continent may have led to damage to economic sentiment already. Uncertainty will once again be reflected in the volatility markets with the strengthening of the dollar and the weakening of the euro. Data from China include, among other things, the industry earnings figure on Saturday. In the rest of the Asian continent we will get the export and import figure in Hong Kong on Thursday and the industrial production figure in Singapore on Friday. Oil prices may be volatile in light of expectations of a full release from the national reserve pool. The coming week will be quiet in the central banks sector but the New Zealand central bank will convene on Tuesday. The reporting season for the 3rd quarter is coming to an end with only 13 companies in the 500s index reporting their results this week.
Economic events log:
Euro – Consumer Security (November).
Eurozone, UK – Markit’s Purchasing Managers’ Index (November).
Germany – IFO Survey (November).
United States – Sustainable Product Orders (October), University of Michigan Consumer Confidence Index (November).
United States – Thanksgiving.
Germany – GDP for Q3, GFK Consumer Confidence Index (November).
Japan – Tokyo Consumer Price Index (November).
China – Manufacturing Profits (October).
Market update: Click below the surface
Markets look more uneasy this morning in light of a combination of growth concerns, the Fed’s downturn and the corona in Europe. The 10-year US bond yield is trading at 1.55% this morning and most Asian stock markets are trading weakly after a moderate 0.3% rise in the 500-day S&P index last week. (China is unusual in light of the attention the markets are giving to the Chinese central bank statement). Oil prices continue to fall this morning, with the price of a WTI barrel trading at $ 75.8 a barrel. The dollar continues to strengthen and is trading at 1.13 against the euro, its lowest level since July 2020. Volatility is expected to continue, especially due to the fact that markets are pricing several rate hikes by the Fed next year, which seems too ambitious in our view (we expect one rate hike per quarter Last of 2022). The gold price is trading around a price of 1845 dollars per ounce.
The Bottom Line: Relative stability in bond yields last week hid the pressure below the surface. Market expectations regarding interest rates still play a significant role in dollar and euro movements.
Europe: Concerns about Corona and sentiment
The data on the Purchasing Managers’ Index in continental Europe (Europe and the United Kingdom) is expected to be published tomorrow. The markets will focus their attention on the figure in light of the increase in the number of cases infected in Corona and the recent closures announced in a number of countries on the continent. The IFO survey in Germany (Wednesday) will provide more details from the business perspective, with the consumer confidence index in the eurozone (later today) and the GFK consumer confidence index in Germany (Thursday) showing the other side of the coin. Full closures are not expected, but the slowdown in economic growth in the 4th quarter is expected to occur before the acceleration in 2022. There are few quantitative macro data (not surveys) this week in Europe but note the GDP figure for the 3rd quarter in Germany and Switzerland on Thursdays and Fridays. The European Central Bank is not expected to meet until December 16.
The Bottom Line: Sentiment data in Europe may reflect the recent increase in the number of people infected with the corona virus on the continent but any economic slowdown will be temporary.
United States: Data are expected to indicate a continued recovery.
The Fed has managed to calm the markets for now (despite high consumer and producer price indices). The minutes of the last Fed meeting to be published on Wednesday will be carefully examined by the markets in search of clues about the Fed’s next steps, the next meeting of the Fed is not expected to take place before December 14-15. This week we will get some interesting data. Sustainable Product Orders for October, PCE Price Index, New Home Sales alongside the University of Michigan Consumer Confidence Index (all on the Wednesday before Thanksgiving Thursday). These figures are expected to indicate a continued economic recovery. Strong data may further complicate the discussion around fiscal support. But the bigger question is the possible impact of the policy on the fiscal incentives: the infrastructure plan has already been signed into law and a $ 1.75 trillion “build back” plan has been approved by the House of Representatives, but a period of Senate struggles seems particularly realistic given the expiring debt ceiling And has an extension. Oil prices continue to be the subject of internal and international debate as Japan considers releasing oil supplies from its strategic reservoirs at the request of the United States.
The Bottom Line: Additional evidence of strong growth in the United States may complicate fiscal policy and the general debate regarding the need for economic incentives.
China: Monetary policy may change
China’s markets are trading higher this morning Contrary to the global trend, the Chinese central bank’s monetary policy report released on Friday said the bank would leave the policy flexible, focused and appropriate – which is seen as another balance between encouraging growth and risk management. Existing data for October illustrate the impact of corporate pressures on the real estate sector (22% decrease in the value of properties sold), but the impact of the housing sector on overall growth, so far has been low, with retail sales gaining momentum in October alongside rising car sales Compared to the previous month (still recording a decrease of 10% compared to the same period last year). Employment has not suffered so far either. The figure for investments in fixed assets indicates that the decline in investments in the real estate sector is offset as a result of an increase in investments in infrastructure. The industry earnings figure to be released on Saturday may give an indication of the impact this has on companies. There are several reasons for optimism about future credit terms in light of the easing of mortgage restrictions and the new central bank facility of the Chinese central bank.
The Bottom Line: Problems in the real estate sector in China are not yet making a big impact on the rest of the Chinese economy.
Reports: The reporting season for the 3rd quarter is coming to an end
A total of 475 companies in the 500s index published their results for the 3rd quarter (Europe is slightly behind). The rate of beating profit forecasts remains above the historical average but lower than that recorded in the 2nd quarter and inflated upwards mainly due to the release of reserves of the banks kept for losses. The consensus now points to a 39.6% increase in profit alongside a 17.8% increase in revenue in the 3rd quarter compared to the same quarter last year. Overall positive results last week from retailers reflected the strong data we saw of retail sales and industrial production. Although we are starting to see a growing number of companies indicating equipment shortages and rising raw material prices, the results in the 3rd quarter indicate healthy gross profit rates with differences between the various sectors. A smooth and quick solution to the existing shortage does not seem feasible but evidence regarding consumer demand indicates that companies have good pricing power for the near future.
The Bottom Line: The reporting season for the 3rd quarter is still hitting forecasts and companies may offset the impact of the rise in raw materials by pricing power.