The Week Ahead - preview: 20 to 24 November 2017
Thanksgiving week is upon us, which signals the start of the rundown of market liquidity and turnover volumes as year end approaches. The data schedule is rather more sparse than the week just passed, while the Fed and ECB minutes top another relatively busy week for central bank events, including speeches by Draghi and Yellen. Politics will continue to provide plenty of headlines, both via way of the UK Budget and the enduring themes of Brexit, German coalition negotiations (due to conclude over the weekend), US tax reform progress and of course the investigations into alleged interference by Russia into the US election.
- Statistically, it will be a week dominated by second division data, along with a raft of surveys in UK/Europe and the USA, including flash PMIs for Eurozone, USA and Japan. The US looks to Durable Goods Orders, which are expected to post modest gains across the board, after September's 1.7% m/m surge in core Orders (and worth considering in the context of the strength in road and air freight volume growth in the attached charts); it also has Existing Home Sales. The UK has PSNB, final GDP and both CBI surveys, while the Eurozone has numerous national surveys, including the Ifo Business Climate and final German GDP. Japanese Trade data are seen underlining continued strength in Asian Trade data with a 15.7% rise in Exports and a 20.2% y/y rise in Imports (in part due to oil prices). The first key component release for Australian Q3 GDP, Construction Work Done is forecast to dip 2.3% q/q after surging 9.3% in Q2, while Canada eyes Retail Sales. Inflation data in Brazil, Mexico and South Africa tops the EM schedule, which also has Thai GDP, with the full run of monthly activity and labour market indicators due in Poland and Russia.
- Central banks: Draghi's quarterly testimony on Monday and the 'account' of the ECB's October council meeting are likely to be the highlights of the week. The latter may well shed some light on the extent of the disagreement among council members about not setting an end date for the QE programme, when it announced the extension for 9 months at EUR 30 bln as of January. It may well offer some hints on how the proportion (govts relative to corporates) of the QE programme may change, and perhaps some hints on changes to staff forecasts, following a hefty hint from Mersch about an unsurprising upgrade to GDP forecasts in a recent speech. The Fed minutes are unlikely to offer much in the way of fresh insights, particularly as the majority of Fed speakers have dropped broad hints about a further rate hike in December. It will be interesting to note if there were any discussions about the tax reform bills, and how that might impact policy. Elsewhere policy meetings in Hungary and South Africa will be closely watched, even though key policy rates are expected to be held. In the case of the former, Hungary's MNB is expected to introduce some further measures aimed at lowering long-term rates via unconventional measures (though not QE), while emphasizing its antipathy to HUF appreciation (above all vs EUR). South Africa's SARB will inevitably on hold until it is clear what emerges from the ANC leadership conference in December, and it will also be wary of next Friday's S&P and Moody's sovereign ratings reviews, and how that all plays out for the ZAR.
- UK Budget: The inevitable question about this week's budget is how much it will be encumbered by faction fighting within the Conservative party, and indeed by uncertainty related to Brexit negotiations (NB this is not referring to the "Brexit bill). It is expected to contain a number of measures related to Housing, with much speculation about a cut in stamp-duty for first time buyers, but what measures will or will not be adopted to address the chronic housing shortage, above all in London and the South East? Some tinkering with National Insurance, Income tax and pensions contributions are also expected, and a shake-up of VAT thresholds. While there have been plenty of calls for Chancellor Hammond to be 'big and bold', this would appear to run counter to is nickname of 'spreadsheet Phil'. The OBR will also provide its update on the economic and fiscal outlook, with particular interest in its expected (quite sharp) downward revisions to its productivity growth assumptions, which will in turn impinge on what is available as a so-called Brexit "war chest".
- Corporate Earnings: the earnings season is now winding down, but reports from Deere & Co, Dollar Tree, EasyJet, Hewlett Packard Enterprise, Intuit, Lowe's, Medtronic, Remy Cointreau & ThyssenKrupp will likely attract attention.
- Govt bond supply: it will be a very quiet week for auctions, as is typical for the time of year, with Germany selling 30-yr and the UK offering 10-yr I-L Gilts. It is worth noting that this week's (Nov 13-17) EUR 26 Bln total govt bond issuance is more than is scheduled total issuance for the rest of 2017 for the Eurozone.
- Commodities: OPEC's Economic Commission Board meets ahead of the key November 30 meeting, and follows the IEA's downbeat assessment on the demand outlook, and by extension prospects for bringing down the inventory overhang. Russian oil majors have notably been making negative noises about any extension of the OPEC/Non-OPEC production cap, though OPEC countries have been hinting at an extension beyond March. JODI oil export data are also due. Elsewhere the World Platinum Investment Council publishes its report on supply and demand prospects.
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Marc Ostwald
Strategist
ADM Investor Services International