Investors have a busy week ahead starting with the results of the Italian Amendment Vote and the blackout period for Fed speakers starting on Tuesday. On the economic front, we have ISM Services and University of Michigan Consumer Sentiment.
Italexit: On Sunday (9/4), Italians headed to the polls and overwhelmingly voted no to constitutional changes. With the ‘no” votes winning the referendum, Italy’s Prime Minster resigned. It was not a vote to leave the EU, but the result could be the first step to the Italians potentially going down that road. Stocks on both sides of the Atlantic will likely go lower with Italian bonds and Italian bank stocks really getting hurt. The Euro will also go lower as concerns over the future of the single currency will come back to the forefront.
FOMC Members Speak: 2 FOMC members (William Dudley and James Bullard) are scheduled to speak this week before the blackout period begins. With data predicting a 90% chance of a rate hike next week, investors will likely now start listening for any hints as to the trajectory of interest rates in 2017. A rate hike next week is all but certain as the Fed has been saying all year there would be at least one and this is their last chance.
ECB Press Conference: On Thursday (12/8, also the day Jim Morrison was born and John Lennon died), investors will be listening to the European Central Bank’s press conference to see if the ECB will extend their bond purchase program, which is scheduled to end in March. Should Mario Draghi announce the expansion of the program, expect stocks on both sides of the Atlantic to go up with the Euro and European bond yields going lower. If he does not mention any additional stimulus measures, and the program ends as scheduled, expect the markets to potentially fall. Additionally, if he extends the bond purchases but signals a concrete end date a few months after March, markets will likely reaction the same as if he did not mention any stimulus.
PMI Readings: PMI readings will continue this week as we get readings on Services. Traders will listen to see if new orders, production and business inventories have expanded in the latest period. If readings are weaker than expected, it could cause central banks to take further steps to stimulate their respective nation’s economies.
Oil: In the previous week, OPEC reached a deal to cut oil production sending the price of Brent crude up over $6 for the week. Even though OPEC members and Russia agreed to a production cut, countries that also produce oil such as Mexico and Brazil have not. If enough nations come out against the cut, the OPEC deal will likely fall apart and oil will lose all of its gains. In this scenario, expect equities to fall with energy companies getting hit hard.
University of Michigan Consumer Sentiment: This is our first reading on consumer sentiment since the election. If the reading comes in above expectations, traders will point to Trump’s policies of lower taxes putting more money in people’s pockets. If the reading comes in below expectations, it will be blamed on Hillary supporters being too upset to spend money.