Stocks, FX and commodities face testing week

Next week will see the earnings season kick into a higher gear, so there should be more volatility for the stock markets.

As we had warned in our weekly outlook last Friday, this week’s lack of significantly important data was by no means an indication for volatility. We were concerned about an equity market sell-off after the major US indices had stalled at record highs following the upsurge in government bond yields and despite recent concerns about trade disputes between China and the US. As it turned out, unfortunately our concerns were realised and the markets endured one of their worst sell-offs this year, in mid-week. Things had calmed down a little on Friday as short sellers probably took profit ahead of the weekend, but given the technical damage on major indices we think more losses could be on the way for stocks in the near-term outlook – if not later on Friday then perhaps early next week.

Earnings kick into higher gear next week

Next week will see the earnings season kick into a higher gear, so there should be more volatility for the stock markets. Also, the economic calendar is a little bit busier than it has been this past week with at least one potentially market-moving data release scheduled for release in each day of the week. So, FX traders will have lots to look forward to as well as the stock market participants.

Among the key company earnings next week, Bank of America will report its results on Monday, while Tuesday will be a massive day for banks and some technology companies as Goldman Sachs, Morgan Stanley, Johnson & Johnson, Black Rock, United Health, eBay, IBM and Netflix all publish their results. Wednesday will see U.S. Bancorp produces its numbers ahead of Bank of New York Mellon on Thursday, which is when PayPal and American Express will also report their results. Then on Friday we will have results from Procter & Gamble, State Street Corp and Honeywell International.

Thanks to Trump’s corporate tax cuts, a healthy economy, and to not to mention the recent upsurge in oil prices and share buybacks, third quarter US earnings are expected to be strong once again.  According to FactSet, the S&P 500 is expected to post earnings growth of 19.2% and revenue gains of 7.3% for the third quarter, following a 25% rise in earnings and a 10% increase in revenues in Q2. FactSet thinks the energy sector will produce the best earnings and revenue growth this reporting season.

UK wages and inflation among data highlights

Meanwhile on a macro level, things will kick off with US retail sales on Monday followed late in the day by New Zealand GDP (Early Tuesday NZ time). Then we will have the first of the three major UK economic data releases on Tuesday as the ONS publishes the latest wages data. On Wednesday we will have the UK CPI measure of inflation followed by retail sales a day later on Thursday. Also on Wednesday, we will have the FOMC’s last meeting minutes, while Australian employment figures will be released on Thursday. Friday will see the release of Chinese GDP and Canadian CPI and retail sales.

So, there’s plenty to look forward to next week and hopefully we could see more than just a “risk-on-risk-off” types of moves in the FX markets.

Brexit optimism, UK data could lift pound further

From above it is clear that there will be more key data releases from the UK next week than anywhere else, which therefore means the pound will be in sharp focus. Sterling has been on an uptrend in recent weeks, making back a big chunk of its recent losses against the dollar while doing particularly well against the euro. It is all to do with optimism that the UK and EU are close to forming an agreement over Brexit. In the event there is more progress then we should expect to see the pound remain bid.

Focus remains on stock markets

But once again, the stock markets could trump any volatility we may see in the FX markets given this week’s developments and next week’s upcoming earnings results. If further losses are seen for the global indices then once again the USD/JPY and yen crosses could be the main focal point for FX traders. Meanwhile in commodities markets, gold looks like it could expand further to the upside after its breakout above the key $1205/$1215 resistance level on Thursday while crude oil is in danger of breaking down after major oil forecasters revised downwards their demand growth projections.

Source: eSignal and Please note, this product is not available to US clients

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account