Intro: Investors have a lot on their plate this week including the fear of a Fed rate hike, earnings weakness, election uncertainty, a “Hard” Brexit, EU referendums, Dogs and Cats living together (just kidding on the last one). On the economic calendar, we have the Philly Fed and Empire State Manufacturing Index, Building Permits and CPI.
Fed Members Speak: This week, we have multiple FOMC members scheduled to give speeches across the country including Stanley Fischer, Chris Dudley and Daniel Tarullo. Investors will continue to listen to hints as to the timing of a potential interest rate hike. If we continue to see slight hints of a rate hike happening later this year, expect the US Dollar to strengthen amongst a handful of currencies. We will also see Treasury yields increase as institutions sell Treasuries.
Earnings: Earnings season picks up with 86 S&P 500 companies expected to report Q3 earnings this week. Traders can see individual stocks have huge price swings if a company’s earnings outpace or fall short of what the street expected. According to Thomson Reuters I/B/E/S, of the 34 S&P 500 companies that have so far reported, 62% reported revenue above expectations while 79% have reported earnings above expectations. With the earnings long term average being 64% and the past four quarters being 70%, this is either an anomaly with a small pool (less than 7%), or analysts are really worried to not over shoot their estimates.
CPI: On Friday (10/21), CPI is released. Should CPI come in weaker than expected, we could see the Fed delay an interest rate increase this year. However, if we do see increases in CPI, this will provide further ammunition that the consumer will be able to absorb an interest rate hike before year end. It could also be a talking point amongst the candidates regarding the state of the economy.
Oil: Currently, oil is trading above $50 per barrel, even with the US Dollar trading higher which is unusual as oil is traded in dollars. The tentative deal with OPEC has seen the price go higher even though most members are likely cheating against the agreement because, they traditionally always undercut each other, which would null the agreement. Should chatter become louder of members continuing to undercut each other, we will likely see oil fall. Geo political concerns between Russia and the US in regards to Syria also have the chance to push the price of oil higher.
Central Banks: During the week, multiple central banks will be making policy statements including the ECB and Bank of Canada. Traders will be listening for announcements of any additional monetary easing to further strengthen their nations’ economies. Individual countries that announce any stimulus will see their respective currencies depreciate against the US Dollar and a basket of other currencies. Also up to speak is German Buba Presideent Jens Weidmann. Traders will listen for any signs as to what Germany is thinking about their banks and their latest plans, which will affect European markets and potentially the US.
Hard Brexit: The latest Brexit talk speaks of a $20 billion divorce bill (Don’t you feel better Dmitry Rybolovlev) from the EU, which has sent the British Pound lower finishing last week at $1.21. The EU is listing demands which will likely be a part of the negotiating process including the UK’s share of liabilities, along with payments to access the common market. The EU is also listing as a demand the free movement of persons, which is ironic since the main reason the Brits want out was to limit free movement of Non-British citizens. As the negotiations go along, the more draconian the measures the EU asks for, the further the British Sterling may fall. This will help companies that export goods from the UK but unfortunately will hurt firms that import into the UK as import prices will sky rocket hurting their bottom lines. Investors will monitor the latest rhetoric from both sides which will put pressure on the Pound or the Euro. If investors feel a trade war could potentially be brewing, expect to see European stocks fall.
China: Last week, China released trade date for September that came in well below expectations. Imports and exports both fell in the latest period helping to push the Yuan to a six-year low against the greenback. This helped push global stocks lower on worries about the world’s 2nd largest economy slowing down. The only bright spot was China’s producer prices which rose for the first time since 2012. Investors will monitor Chinese data this week which includes Industrial Production and GDP. If figures continue to struggle, we could see a global sell off. This would also send the Dollar higher while oil and Treasury yields would fall.
Election: The last debate is scheduled for this Wednesday (10/19). As the rhetoric climbs to an 11 on both sides and by the media, the market will react as to who they think won the debate and how each candidate is doing in the overall polls. Even though the market is expecting a Clinton win. Be on the lookout for investors to start hedging their portfolios including shorting certain sectors or the S&P, buying up precious metals and people flat out taking money out of the market and leaving it on the sidelines. As the level of journalism continues to hit rock bottom, most investors can’t wait for the election so Americans can go back to posting pictures of their kids and pets on Facebook and not memes about the candidates.