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Week Ahead: A Week to Digest

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Fundamental analysis of Forex market

It was a busy week of central bank meetings, which included the FOMC, BOE, and RBA. Jobs data from both the US and Canada last week also had investors excited. This week, events quiet down a bit.  But that doesn’t mean that the markets won’t have action!  There was a ton of new information last week for the markets to chew on, and that is likely to carry over into this week.  The coronavirus is picking up steam once again in the northern hemisphere as the winter season begins.  Should markets be worried?  Also, will the UK trigger Article 16 this week?  We are in the thick of earnings season, however there are only a few notables to speak of this week. And important macro data this week consists of China and US inflation, UK GDP, and the Australian jobs report.

Central Banks

The RBA met on Tuesday last week and decided to dump its yield curve control program.  This doesn’t necessary mean that the RBA is now hawkish, however they may be less dovish.  The statement dropped the reference of not raising rates until 2024.  However, Lowe was sure to be dovish during the press conference as he noted that current forecasts don’t warrant a rate rise in 2022.

The FOMC met on Wednesday last week, where Chairman Powell and gang decided to begin tapering their bond purchase program at a pace of $15 billion per month.  The monthly tapered amount will consist of $10 billion in Treasuries and $5 billion in MBS and is expected to end in June 2022.  At that time, the Fed will look at the jobs data to determine if their goal to maximize employment has been met.  Of course, they always retain the right to “adjust as needed”.  Inflation shifted from being “transitory”, to “expected to be transitory”.  However, Powell maintained his dovish stance and thus, even with a taper, stocks moved higher (but so did the US Dollar!).

The BOE met on Thursday last week with high expectations of a liftoff in interest rates given recent comments by Governor Bailey. However, the Committee voted 7-2 to keep rates at current levels and voted 6-3 to maintain the GBP 895 billion bond purchase program (which expires at the end of the year). Bailey noted in his press conference afterwards that it will be important to watch employment data moving forward, as there has not been a report since the furlough program ended on September 30th.  The MPC also revised their inflation forecast to peak at 4.8% in Q2 2022, as opposed to 4.02% in Q1 2022.

Coronavirus

On November 8th, the US is opening its borders again for vaccinated travelers with residences outside of the country. This comes as Europe sees a 50% increase in new cases since last month.  In addition, new daily cases are roughly at their highest levels since February.  In the UK, the number of new cases is near January’s higher due to a variant know as Delta Plus.  Although the number of cases is higher, the number of deaths and hospitalizations are not. In France, President Macron is speaking to the nation on Tuesday regarding the increase in the number of cases.  Will France re-introduce some Covid-restrictions? On the bright side, the UK approved an oral antiviral medicine for coronavirus treatment.  The resurgence of the coronavirus in Europe will be a topic to watch throughout the winter.  If the number of cases gets too high, it may feed through to economic data in Q1 2022.

Brexit

On Friday, the UK said that they will not trigger Article 16 “today”.  Yikes!  Does that mean it may happen “tomorrow”?  The protocol, as it stands, allows for the free movement of goods between Northern Ireland and the Republic of Ireland.  However, goods now must be checked flowing between Great Britain and Northern Ireland.  If Article 16 is triggered, this would suspend cooperation between the UK and the EU over Northern Ireland.  In addition, there has ben no progress on the agreement on the fishing rights between the UK and France.  Watch as the situation continues next week, as Article 16 may be triggered.

Earnings

We are in the thick of earnings season, as more than 1250 US companies report this week.  However, most of the large, household names have already reported.  There are a few of notable names of interest this week.  They are as follows: SFTBY, SPCE, NAB, AMC, PYPL, RBLX, COIN, DASH, NIO, PLTR, DIS, AFRM, AMAT, PDD, AZN, ADDY, AVV, BMBL, ITV, MKS, TCEHY, BHP, BRBY, CPNG, TW, SMWH, DTEL

Economic Data

The second week of the month is usually reserved for lower level economic data.  However, there are a few notables this week which may affect the markets.  They include Germany’s ZEW, US and China CPI, and Australia’s Employment Change. Other economic data to watch this week is as follows:

Sunday

  • China: Trade Balance (OCT)Monday
  • Japan: BOJ Summary of Opinions
  • US: Fed’s Powell Speech
  • US: 3-Year Note AuctionTuesday
  • Australia: HIA New Home Sales (OCT)
  • Australia: NAB Business Confidence (OCT)
  • Germany: Trade Balance (SEP)
  • Germany: ZEW Economic Sentiment Index (NOV)
  • US: PPI (OCT)
  • UK: BOE’s Bailey Speech
  • EU: ECB’s Lagarde Speech
  • US: Fed’s Powell Speech
  • US: 10-Year Note Auction

Wednesday

  • Australia: Westpac Consumer Confidence Index (NOV)
  • China: Inflation Rate (OCT)
  • China: PPI (OCT)
  • Germany: Inflation Final (OCT)
  • US: Inflation Rate (OCT)
  • Crude Inventories
  • US: 30-Year Bond Auction

Thursday

  • Japan: PPI (OCT)
  • Australia: Employment Change (OCT)
  • UK: Trade Balance
  • UK: GDP Growth Rate Prel (Q3)
  • UK: Manufacturing Production (SEP)
  • UK: Industrial Production (SEP)
  • Mexico: Interest Rate Decision

Friday

  • New Zealand: Business NZ PMI (OCT)
  • Australia: Consumer Inflation Expectations (NOV)
  • EU: Industrial Production (SEP)
  • US: Michigan Consumer Sentiment Prel (NOV)

Chart of the Week: Russell 2000

Source: Tradingview, Stone X

Stocks are at all-time highs. Leading the way is the small-cap Russell 2000.  The index is up nearly 6% this week and has broken out of a range it has been in since the beginning of 2021 between 2066 and 2360!  On October 27th, the Russell 2000 bounced off a confluence of support at a rising trendline and the 50-Day and 200-Day Moving Averages near 2250.  The index hasn’t looked back since, accelerating at the breakout above the top horizontal trendline on FOMC Day.  On Friday, the index continued to make all-time highs near 2449.14. It’s tough to determine resistance up here, but the height of the channel gives a good target for price, which is near 2650.  Support is at the previous highs before the breakout at 2360.17 and then the 50 Day moving average at 2267.05 and the upward sloping trendline just below near 2250.  Notice that the RSI has moved into overbought territory.

Last week was an extremely eventful week, from central bank meetings to payroll data.  As a result, there were some large moves, as the US Dollar made new yearly highs and stock indices made new all-time highs.  Will it continue?  Or were they just blow-off tops?  As the dust settles this week, watch for the next catalyst that may determine future direction!

Don’t forget to change your clocks this weekend if you need to!

Have a great weekend!