Duncan Donald

Mon, Oct 15

Weekly Markets Update - 15/10/2018

Weekly Markets Update 15th October 2018

In the UK the Brexit saga continues, with frequent new views and positions being leaked from both sides of the negotiating table. This week is however, potentially a crunch week, with Wednesday’s EU Summit in Brussels looking to provide clarity and agreement on the EU’s backstop proposal for Northern Ireland. Although progress apparently continues to be made, the question is rally whether PM Theresa May has the political power and backbone to push forward, with the possibility of cabinet resignations and fears of a removal of parliamentary support from the DUP.

Putting Brexit to one side, this week see a batch of significant data released for the UK, with focus on the Employment report on Tuesday, inflation data Wednesday and Retails Sales Thursday. Although all of this data could have a significant impact on UK markets, clearly the spotlight remains on Brexit negotiations.

Turning to Europe, Monday sets the focus to Budget plans that Eurozone countries must submit to the European Commission. The particular spotlight will be on Italy ,with the Italian Government still aiming at a loosening of fiscal policy, which will likely put upside pressures on Italian yields (whilst safe haven Bonds in Germany area more likely to fall).

The chief catalyst for the spike higher in volatility across global asset classes last week was the plunge in global equity markets, driven by a far more aggressive sell off in the S&P, Dow and Nasdaq. As we noted in our update last week, this had been triggered by a more hawkish tone from Jerome Powell in which he was particularly positive on the US economy and warned that rates had a considerable way to go towards neutral and could rise above the neutral level. Although European and Asian equity markets suffered the initial price deterioration, once US equity averages fully joined in with liquidation pressures, significant intermediate-term trend support levels were violated, which saw more aggressive, capitulation type selling into mid-October. However, Friday consolidation activity led by Asian markets extended through European and US sessions, which has given hope for at least short-term bases early this week, with the potential at least for corrective rebounds.

This week also sees important data releases from the US, including Retails Sales on Monday, Industrial Production on Tuesday, but probably of greatest significance, will be Wednesday’s release of the Fed FOMC Minutes from the 26th September Meeting. This should deliver some context to the slight upward revisions to interest rate projections by Fed officials’ for 2019. The minutes could also offer more clarity regarding the view of the neutral level of interest rates.

Finally, earnings season kicked off in earnest on Friday with the Financials, with J P Morgan, Citigroup and Wells Fargo all reporting ,with mostly positive reports. This week coming will see the attention turn to Bank of America and Johnson & Johnson on Monday; Netflix, Goldman Sachs and Morgan Stanley on Tuesday; Wednesday sees earnings from eBay; Thursday from Phillip Morris and PayPal; Friday focusses on Proctor & Gamble and Honeywell. There is a plethora of other blue chips reporting, but these are just some of the headline grabbers.

Have a great week all.