Synopsis of the week
- A risk-off mentality is becoming increasingly prevalent as markets begin to show the jitters ahead of the US elections now just over a week away.
- Economic data releases continue to confound FX traders as they infer the UK’s economic landscape is considerably stronger than Sterling strength would suggest.
- US economic data releases drive the expectation of US rate hikes in December up to 85% boosting the already strong US Dollar.
- Scottish First Minister Nicola Sturgeon on leaving 10 Downing Street stated that she was “No clearer on the government’s Brexit negotiating stance” offering little optimism for a soft Brexit.
The Week Ahead
Economic Data
Over the course of the last week, traders have seen improvements in both Services and Manufacturing PMI data and further signs that global inflation is beginning to move in the right direction. Levels of contentment with central bankers, on the other hand, has been a little less clear cut with US FOMC voting members sounding increasingly convincing that December would indeed be the month where the Fed increase interest rates again.
In Europe however, both the Bank of England’s Mark Carney and the European Central Bank’s Mario Draghi are showing signs of the pressure they are under, with far too much uncertainty to enable either to envisage a more convincing economic recovery.
The focus for the week ahead will shift to the first completed set of Manufacturing and Services data releases out of the UK since the Brexit vote. The second half, of the first week in November will once again see the important US Non-Farm payroll figures garner the majority of the attention. The speed with which these are correlated always leaves the possibility of surprise.
Corporate releases
Last week I mentioned the tussle between Tesco and Unilever driven on by the inflationary price issues due to the weak Pound. This week it’s the turn of Apple. Midway through the week the mobile communication device and personal computer manufacturer increased the cost of their UK sold goods by 20%. Considering the value of Sterling has fallen against the US Dollar by 18-19% over the last couple of months that is maybe understandable. Of course how understanding the UK customers will be over the price hike is something else.
The balance of US and European companies continues to shift with the likes of WPP, BP, Royal Dutch Shell, Allergan, Credit Suisse, Swiss Re, L’Oreal, Tate & Lyle and Cie Financiere Richemont all posting figures in Europe.
Across the Atlantic, we still have plenty of big firms releasing data with Pfizer, Ford, Molson Coors, Time Warner, Facebook, AIG, Starbucks & Liberty Global all worthy of our attention.
Elections
The next twelve months will see general elections in many of the most important nations around the world. Obviously, we are just over a week away from the US elections and as things stand Hillary Clinton has a lead over Donald Trump. I am still of the belief that many of the people claiming to be undecided will end up being persuaded to vote for the Republican party. Even with this swing, I don’t think it will ultimately be enough to prevent the Democrats from winning. But as the saying goes “a week is a long time in politics”
In 2017 we will see election fever sweep Europe with the Netherlands in March and both France and Italy holding elections between April and May while Germany is due to hold elections between August and October.
Although spread out over the course of the year these nations combined account for just over 75% of the Euro area’s annual GDP the collective political importance of 2017 can not be underestimated for the long term future of the EU and Eurozone.
