Without many catalysts for the markets over the last few weeks, potential market moving events will return in force this week! After a few weeks out of the limelight for major central banks, the BOC, BOJ, and ECB meet to discuss monetary policy. In addition, politics return to the spotlight as the UK releases its autumn budget and the US tries to hash out the final details of Biden’s proposed $3.5 billion social spending plan. And although always looming in the background, the coronavirus is making headlines once again. Earnings will also be front and center this week as all the FAANGs release earnings, except for Netflix, which beat expectations last week. It’s also end of month and markets will get their first look at Q3 GDP. Has the world economy already peaked?
The Bank of Canada is the first of the major central banks to kick things off this week on Wednesday. With elections out of the way, the economy is back in focus. Higher jobs data and higher inflation will likely result in bond purchase tapering. The BOC is currently buying C$2 billion per week, and is likely to cut that in half, down to C$1 billion per week.
The Bank of Japan will meet on Thursday, and although no changes are expected, new forecasts will be released. Note that for the first time in a year, Japan’s CPI was positive at 0.2% for September. In addition, core prices, which exclude fresh food, were up 0.1%! The Services preliminary PMI was also in expansion territory at 50.7 for the first time since January 2020. Has Japan finally turned a corner to the post-pandemic economy? Watch for more data from Japan this week.
Finally, the European Central Bank meets on Thursday. No changes are expected, as the ECB has told markets they are gearing up for changes at the December meeting when new staff forecasts will be presented. However, traders will be carefully monitoring the statement for wording regarding the end of PEPP in March 2022. Some officials have suggested that the ECB adjust APP to move away from buying bonds by fixed amounts based on a countries size. Another suggestion has been to possibly start a new bond buying purchase program. Watch for clues.
Return to watching budgets and spending
After the US kicked the can down the road on the debt ceiling and decided not to close the doors on the US government just yet, markets have had a slight break from politics. However, politics heat up again this week. First, the UK will release its autumn budget on Wednesday. Now that the furlough program has ended, the government is left with a hefty bill they must determine how to pay for. The one question everyone has, “Will taxes go up?”. A Health and Social Care Levy has already been announced. However, the spending isn’t over in the UK. The government is still helping people recover from the pandemic. Watch to see if the government can close the gap spending and income.
The US spending bill is also back in the headlines, as Democratic Senate Majority Leader Schumer gave a deadline of Friday to put together a deal for Biden’s initially proposed $3.5 trillion spending package on social infrastructure and climate change. The amount seems to be under $2 trillion now, with Biden conceding last week that corporate taxes won’t be raised. Once this is passed, the House of Representatives will vote on the $1 trillion infrastructure plan that has already been passed by the Senate.
Parts of Australia have been released from lockdown. Japan’s State of Emergency are lifted. International travelers will soon be allowed back in the United States if they are vaccinated. Canada lifts the advisory for non-essential travel. However, the virus isn’t gone yet! in other parts of the world the coronavirus is making a comeback. Russia is reporting new record highs in daily cases. Russian President Vladimir Putin issued a “stay at home” mandate for 1 week. The UK is seeing its highest level of one-day cases since March. Netherlands is also reaching its highest level of one-day cases since July. Why? Some are attributing it to a new variant of the Delta variant (that’s a mouthful!). Keep an eye on the number of new cases in countries around the world. On another note, Pfizer-BioNTech said that its booster restores efficacy to 95.6% in trials. The firm also said on Friday that the vaccine trials in children show a 90.7% efficacy.
Big-time company earnings will be reported this week and they have potential to spread volatility throughout markets. All but one of the FAANGS will be reporting, as well as many other tech firms. The results will be important, however even more important will be the guidance. Traders will be eagerly waiting to see if firms are concerned about supply chain issues and inflation, especially in prices of raw materials and energy prices. Are these firms expecting bottom lines to take a hit during Q4? Note also that Facebook will have special conference on Thursday, in which they are expected to announce a name change, as well as their entrance into the “metaverse”. The following are a list of potential market movers releasing earnings this week: FB, HSBC, MMM, GOOGL, LLY, AMD, GE, LMT, WTB, MSFT, V, PINS, TXN, TWTR, UPS, AAPL, BMY, BA, KO, F, GSK, SPOT, MCD, GM, EBAY, EAD, LLOY, RDS, SHOP, AMZN, X, SBUX, CAT, MA, XOM, CVX, AIR, NWG
End of month brings end of month data, including Q3 Advanced GDP. Economist have been revising down their forecast for Q3 for the latter half of the summer due to supply chain issues. How much of that contributed to a slowdown from Q2? On Friday, the US will release the Fed’s favorite measure of inflation, core PCE. However, speaking last Friday, Powell has all but told the markets the Fed will announce tapering at next week’s FOMC meeting. In addition to the BOC, BOJ, and ECB meetings this week, other important economic data to be released is as follows:
- Germany: Ifo Business Climate (OCT)Tuesday
- US: S&P/Case-Schiller Home Price (AUG)
- US: New Home Sales (SEP)
- US: CB Consumer Confidence (OCT)
- US: 2-Year Note Auction
- New Zealand: Trade Balance (SEP)
- New Zealand: ANZ Business Confidence Final (OCT)
- Australia: Inflation Rate (Q3)
- Germany: GfK Consumer Confidence (NOV)
- US: Durable Goods (SEP)
- Canada: BOC Interest Rate Decision
- US: 5-year Note Auction
- Crude Inventories
- Japan: Retail Sales (SEP)
- Japan: BOJ Interest Rate Decision
- Japan: Quarterly Outlook Report
- Germany: Unemployment Rate (Q3)
- EU: Economic Sentiment (OCT)
- EU: Consumer Confidence Final (OCT)
- EU: ECB Interest Rate Decision
- US: GDP Growth Rate Adv (Q3)
- US: Pending Home Sales (SEP)
- US: 7-Year Note Auction
- New Zealand: ANZ Roy Morgan Consumer Confidence (OCT)
- Japan: Unemployment Rate (SEP)
- Japan: Tokyo CPI (OCT)
- Japan: Industrial Production (SEP)
- Australia: Retail Sales (SEP)
- Australia: PPI (Q3)
- Japan: Housing Starts (SEP)
- Japan: Consumer Confidence (OCT)
- Germany: GDP Growth Rate Flash (Q3)
- UK: Nationwide Housing Prices (OCT)
- EU: Inflation Rate Flash (OCT)
- EU: GDP Growth Rate Flash (Q3)
- Canada: PPI Final (SEP)
- US: Personal Income (SEP)
- US: Personal Spending (SEP)
- US: Employment Cost Index (Q3)
- US: PCE Price Index (SEP)
- US: Chicago PMI (OCT)
- US: Michigan Consumer Sentiment Final (OCT)
Chart of the Week: Daily Bitcoin (BTC)
Source: Tradingview, Stone X
Bitcoin is currently up nearly 38% for the month of October. On Wednesday the cryptocurrency reached an all-time high of 67,016.50, taking out the previous high on April 14th of 64.895.22. Just below is support horizontal support at 59,603 and then the 38.2% Fibonacci retracement from the September 21st lows to the October 20th highs, near 56,642.5. Below there is the 50% retracement from that same time period at 53,448.50. Resistance is at Wednesday’s all-time highs and then the top, upward sloping trendline dating back to October 6th near 70,000. If price breaks above that psychological round number, the next resistance level is at the 127.2% Fibonacci retracement level from the April 14th highs to the June 22nd lows, at 75,401.
Notice the correlation coefficient at the bottom of the chart at -0.95. This is the correlation between Bitcoin and EUR/AUD. There is a very high inverse correlation between the two assets. Therefore, if BTC moves in one direction, EUR/AUD should move in the opposite direction, and vis-a-versa. As we discussed earlier in the month, this could allow an opportunity for fx traders to substitute EUR/AUD for Bitcoin is they don’t have access to trade cryptocurrencies. However, note that the correlation coefficient shows the relation in direction, not magnitude.
Without much fanfare the last 2 weeks, headline trading will return to the markets this week. With the BOC, BOJ, and ECB on the docket, currency pairs are sure to move. In addition, traders will be closely watching earnings and economic data, looking for clues as to how Q4 is shaping up. And don’t forget about the coronavirus. Increases in new daily cases are returning in some countries, just as the colder months are beginning to hit!
Have a great weekend!