What a month it has been for volatility so far! We have seen a vicious correction in the stock markets, big drops for the euro and the pound, while in commodities, crude oil has been on a slippery slope and safe haven flows have supported gold. Sentiment has been hit by a number of factors, not least ongoing trade tensions, Brexit stalemate and the stand-off between Italy and the EU regarding the former’s budget. For the stock markets, rising interest rates and stretched valuations were additional factors weighing on sentiment. But is the sell-off overdone, especially for Chinese and European markets? Are we going to see an oversold rebound? Or will the downward trend continue and we get to see more wild swings in the last week of October?
Oversold stocks could bounce back
We wouldn’t rule out the possibility of a rebound for stocks next week given the extent of this week’s drop. Clearly, there are some strong companies out there with solid fundamentals which may have fallen below their fair values. We think Europe could outperform in the event of a stock market rebound because of the US markets’ outsized rally over the past several years. Monetary conditions in the Eurozone are still much looser compared to the US. But we have to see those reversal sticks first, before establishing our bullish bias on the markets.
FTSE at long-term support ahead of BoE’s Super Thursday
The UK’s FTSE 100 is a particularly interesting market to watch next week with the Bank of England’s Super Thursday on top on Thursday as it tests long term support around 6865. Over the past five days it has only fallen 2.3% and has therefore outperformed other global indices. In large part this has been due to the weakness of the pound, while the rising gold and silver prices have kept a floor under precious metals miners. Therefore if and when the markets were to turn around, we are likely to see the FTSE 100 outperform. It would help UK stocks if the BoE happen to be a bit more dovish on Thursday.
Two central bank meetings, US jobs report
There will be two major central bank meetings and lots of important economic data releases – not least the US monthly jobs report – to look forward to next week. In addition, there will be more US tech earnings to come and judging by the reaction of Google and Amazon, they could easily move the major US indices.
Here is some of the key data highlights:
- Monday: US Core PCE Price Index, Personal Spending
- Tuesday: German Prelim CPI, Eurozone Prelim Flash GDP and US CB Consumer Confidence
- Wednesday: Aussie quarterly CPI, Chinese PMIs, BOJ policy decision, German retail sales, Eurozone CPI, US ADP, and Canadian GDP and employment cost index
- Thursday: UK manufacturing PMI; BoE’s Super Thursday (rate decision, meeting minutes, Quarterly Inflation Report), and US ISM manufacturing PMI
- Friday: New Zealand ANZ Business Confidence, Aussie Retail Sales, US non-farm payrolls report and Canadian jobs report
The following are among the key US company earnings for next week
- Tuesday: Coca-Cola Co, General Electric, Mastercard, Pfizer, Facebook and eBay
- Wednesday: General Motors Co
- Thursday: Berkshire Hathaway, Starbucks and Apple
- Friday: Exxon Mobil, Chevron and AbbVie
Please remember that most European countries, including the UK, exit the Day Light Saving and clocks are moved back by 1 hour on Sunday. This means that London will be just 4 hours behind New York until the DST ends in North America the following Sunday, 4th November.
Source: eSignal and FOREX.com. Please note, this product is not available to US clients