Following this week’s busy schedule with lots of central bank meetings, company earnings and important macro data, the week ahead will be slightly quieter. Although earnings will continue to come thick and fast, we are approaching the twilight of US earnings season, though there is still some important US-listed companies that haven’t reported yet such as Uber and Baidu, while M&S is among the earnings highlights in the UK. Brexit, meanwhile, has been paused ahead of the UK election on December 12, while with the APEC meeting in Chile cancelled, it remains to be seen where and when – and whether – the US and China will sign that phase one of their trade agreement.
Still, as laid out below, there will be plenty of important macro data to look forward to for currency traders next week, which should provide pockets of elevated volatility here and there. Meanwhile, North American clocks will go back by one hour on Sunday, meaning the time distance between London and New York will be the usual 5 hours again and Wall Street will open at 14:30 GMT instead of 13:30 GMT. With the US stock markets at record highs, we think investors will soon run out of reasons to justify buying at these extremely elevated levels. So, a correction in the US stock markets is a possibility. If seen next week, this could trigger lots of volatility – not just in stocks, but in safe-haven and commodity currencies as well as gold and silver.
- Japanese banks will be closed in observance of Culture Day
- Australian retail sales +0.4% expected, same as last month
- Spanish and Italian flash manufacturing PMIs and final Eurozone sector PMI – will the run of sub-50 readings continue for another month? Analysts expectations point to 47.5 readings for both, while the Eurozone PMI is expected to be left unrevised at 45.7.
- UK construction PMI expected a whole 1 point higher at 44.3, which would still mean falling activity. This won’t be a surprise in any case, given the growing Brexit uncertainty in the UK.
- US factory orders expected to drop 0.5% m/m following a 0.1% decline the month before – if so, it won’t be a great sign for the economy given the weakness in ISM manufacturing PMI over the past few months.
- Christine Lagarde is due to speak at Publishers' Night 2019, in Berlin – will the ECB’s brand-new President offer any new information about monetary policy?
- Caixin Services PMI for China – the services sector has remained in the expansion territory and everyone has been concentrating on weakening manufacturing sector. But activity in the services has also slowed down repeatedly and at 51.3 last time, it just about managed to stay on the positive side of the boom/bust level of 50.0. An unexpected drop below 50.0 increase concerns demand concerns and impact risk assets.
- RBA rate decision – after lowering interest rates to a new record low of just 0.75% at the previous meeting, the Reserve Bank of Australia is unlikely to loosen its belt at this one. However, the Aussie could still move sharply depending on the language the RBA uses to describe the future path of interest rates.
- UK services PMI – this is unlikely to cause too much reaction in the pound as the focus is still firmly fixated on politics but if there is a massive beat or miss then that should move sterling. Expectations point to a slight improvement to 49.6.
- US ISM non-manufacturing PMI – this is usually released before the nonfarm payrolls report, but no so this time. The US services has so far remained resilient and this time analysts expect activity in the sector to have risen by nearly a whole point to 53.5 from 52.6 previously. There is therefore plenty of scope for disappointment given the high expectations. Watch out for a sharp dollar reaction – especially in the event we have a very poor PMI.
- New Zealand Employment Change – for traders in Europe and Americas, this will actually come out late in the day on Tuesday, which will make it Wednesday morning in Wellington. Unlike most other countries, employment data from NZ is published quarterly rather than monthly. This makes it very important in so far as trading the kiwi is concerned. Employment is expected to have risen 0.2% in the last quarter compared to a 0.8% increase in Q2. Meanwhile, the unemployment rate is seen rising to 4.1% from 3.9% previously.
- German Factory Orders will signal whether manufacturers will increase activity as they work to fill industrial orders or decrease activity if there aren’t many orders to fill. So, it is a good indicator of economic health and if the actual figure comes sharply either side of the expected +0.1% reading, it should move the euro and possibly European indices.
- Wednesday morning’s other Eurozone data will include Spanish and Italian flash services PMIs which will be released alongside final Eurozone sector PMIs, followed by Eurozone retail sales – with the latter expected to print 0.1% m/m.
- Bank of England’s Super Thursday will see the central bank publish the latest Inflation Report which will contain updated forecasts of prices and growth figures. Interest rates are almost guaranteed to remain at 0.75% in a unanimous vote. With Brexit and election uncertainty hanging over the UK economy, this BoE meeting will likely be far from super in so far as the pound’s potential reaction is concerned.
- The day’s key Eurozone data include German Industrial Production (expected -0.3% m/m vs. +0.3% last) and Italian retail sales (+0.3% expected). The former has the potential to cause the euro to move sharply should the actual reading deviates significantly from expectations.
- Chinese trade figures will be the day’s key data from Asia. They should reveal falling exports in the US due to the tariffs. But if exports have declined to other important economic regions too, then this could raise concerns over global demand. Meanwhile the import figure will give a snapshot of Chinese demand
- German trade and french industrial production figures will be among the day’s important Eurozone data. We have already stated the importance of incoming Eurozone data in as far as ECB is concerned and these numbers are no different.
- Canadian employment report will be the key event for North American traders, although we will also have US Prelim UoM Consumer Sentiment index. Canadian jobs growth has easily exceeded expectations in the previous couple of months with prints of +81K and +54K. The stronger jobs and other economic pointers have helped to fuel a rally in the Canadian dollar. However, the Bank of Canada brought the currency’ rally to an abrupt halt this week with a dovish policy statement. This jobs report has the potential therefore to either help resume the CAD’s rally or provide the final nail in the coffin.
Chart to watch: S&P 500
Source: Trading View and FOREX.com.
The US benchmark index has hit new record highs this week, thanks in part to mixed earnings, continued central bank support and thawing US-China trade frictions. But as we approach the twilight of the US earnings season and with the Fed potentially done for the year in terms of rate cuts, I think the markets may struggle to push significantly higher from these elevated levels. The S&P had managed to peak above the rising wedge pattern on Friday, meaning that the path of least resistance remained to the upside. However, if the index goes back below, and breaks key support around the 3020/25 region then that could trigger a wave of technical selling, which could cause a correction back to last year’s high and key support around 2940/2 region. The bears must see the breakdown first, for currently they have little technical reasons (apart from overbought conditions) to step in meaningfully.