It was been a huge week for markets after a fractious start in the wake of the Paris terrorist attacks. That sets up an interesting week ahead with traders wondering about the sustainability of the moves while grappling with some important data and Thanksgiving week in the US.
The resilience shown over the past week on markets in the face of Paris, and the FOMC minutes, which showed that the Fed is on track for its first rate hike in 9 years at the December meeting, is remarkable.
It seems the Santa Claus rally is here. With promises of more ECB easing from Mario Draghi during the week and the market’s comfort that the Fed will tighten gradually, and that the economy can handle it, seem to be the predominating trader thinking. That suggests, for the moment at least, that traders appear to be taking a very sanguine outlook on the road ahead.
Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia told MarketWatch on Friday that, “any siren call from a central bank, particularly a systemically important one, about more largesse on the part of that central bank’s balance sheet to try to reflate economic activity is sort of a cause and effect for why financial assets then accompany in that rally.”
That’s a flash way of saying that quantitative easing hasn’t lost its touch. No wonder the DAX in Frankfurt is breaking higher.
All that positivity in global stock markets saw the S&P 500 up more than 2%, while here in Australia the ASX200 was more than 4% higher.
That’s despite the Baltic Dry Index, a benchmark for the cost of global shipping, hitting a new all-time low on Friday.
It’s also despite copper falling to $2.04, another fresh 6-year low, crude oil languishing near $40 a barrel, and continuing concerns about global growth.
Looking at the week ahead it’s likely traders want to push on with the stock market recovery. Take this email from NYSE Floor governor Rich Barry on Friday. Akin Oyedele reports Barry wrote:
What a week we’re having! At last look, the S&P 500 is up a whopping 75 handles from Monday, which makes this the best week for the index for the year. Oh, and it gets better. At last look, the Dow is up an insane 653 points since Monday, which makes this the single best week for that index in the last FOUR years…
The reason? Investors/traders have grown more comfortable with the prospect of higher rates as recent U.S. economic data has only served to bolster the perception that the economy is strong enough to withstand them… That is good news.
Which is the key to the next week. If Barry is right, and certainly the price action suggests he is onto something, then we could be in for another good week.
The turn in stocks might also be the key to the Australian dollar’s remarkable rally. Remarkable because, like stocks, the rally last week flies in the face of the weakness in commodities, worries about growth, US dollar strength elsewhere and the punditry’s expectations that the Aussie will fall toward 65 cents. Of course at 72 cents it’s hardly strong, but the Aussie was the strongest currency against the majors over the past week and perhaps a better stock performance is a sign that risk appetite has improved. That’s never a bad thing for the Aussie.
Looking ahead it’s Thanksgiving week in the US with a holiday on Thursday. That means that Wednesday and Friday are likely to be fairly thin, but not necessarily quiet given data and other events.
Here in Australia the NAB economics team said in a note Friday that:
There are some meaty items on the agenda this coming week both in terms of data and speeches. Data-wise, there is the quarterly investment duo of Construction Work Done and New Private Capital Expenditure for the September quarter, the first of the big quarterly releases ahead of the national accounts the week after. In addition there is also Skilled Vacancies weekly ANZ-Roy Morgan consumer confidence.
On the speech front, RBA Governor Glenn Stevens is speaking to the annual Australian Business Economists’ forecasting conference in Sydney on Tuesday evening. No speech title is available yet, however the market will be disappointed if this does not have some further official update on the economic outlook.
RBA Assistant Governor (financial markets) Guy Debelle is speaking to a FX Week conference in London on Tuesday night our time. He indicated he would be speaking about FX conduct issues in London.
That may not be a busy calendar but it certainly an important one. Both construction work and private capex feed directly into calculations for the third quarter GDP to be released Wednesday week. Bob-mining capex is also the missing link, and one of the big drags on economic growth at the moment. So traders will be watching closely come Thursday.
As the NAB said, its “estimate for overall Capex in the quarter is a decline of 4%, a decline hard to avoid, a larger decline than the market consensus decline of 2.9%. Note also that this spending has had a large import content, the decline heavily affecting foreign suppliers as much as local ones, lessening the impact on GDP.”
Looking offshore and the week kicks of with the preliminary estimates of the Markit PMIs for both services and manufacturing for France, Germany, the EU and the USA. Chicago Fed national activity is also out.
It’s a big day for German traders Tuesday with GDP out along with IFO business climate and expectations. In the US the next update for Q3 GDP is out Tuesday as well. Also out are personal consumption, consumer confidence, and Richmond Fed manufacturing.
Wednesday we get a speech from BoJ board member Shirai as well as the leading index for Japan. Retail sales are out in Italy and then in the US it’s more personal consumption and income data.
Jobless claims are out a day early on Wednesday night, as is the super important durable goods. Also out are new home sales, Michigan consumer sentiment and Markit services.
Thursday is Thanksgiving in the US and the only interesting highlight might be the UK’s financial stability report.
Friday it’s Japan with CPI and the unemployment rate along with household spending. Consumer confidence is out in the UK along with house prices and Q3 GDP. EU business and industrial confidence and sentiment data is out as well.
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