Week Ahead UK election campaign steps up a gear

I’d be lying if I said the week ahead is going to be super exciting and that I am very much looking forward to it. The reality is, the economic calendar will be rather quiet in the first half of the week and with the third quarter reporting season practically over, there is really not too much to look forward to initially. But despair not. The calendar will get busier in the second half of the week and will contain some market-moving data then.

How high will stocks go?

Meanwhile, there will likely be plenty of US-China trade-related headlines to drive stock indices, which hit new highs in the US on Friday. You would have to think that much of the optimism is already priced in given the sharp gains on Wall Street over the past several weeks. So, if the two sides were to agree on some sort of a phase one deal then the potential upside move for stocks could be limited. While we are still expecting to see a correction, there has been no evidence of that so far. Therefore, the bullish trend remains intact for now and until the indices show a major reversal pattern on their charts. Could it be next week when the rally finally runs out of juice? If so, you won’t have to worry about the economic calendar if volatility is what you are after.

Parties likely to publish their manifestos

Elsewhere, the main political parties in the UK are expected to publish their manifestos and pollsters will be busy providing updates as the general election campaign steps up a gear or two, ahead of the December 12 polling day. The pound will become headline-driven as the election gets closer, with investors anticipating a win for business-friendly Tories, who are also pursuing a soft exit from the EU.

Here is what’s on the agenda next week:

There’s nothing significant or exciting in terms of data on Monday or Tuesday. But at least on Tuesday we do have the RBA’s last meeting minutes, Canadian manufacturing sales, and US building permits and housing starts, which could potentially be market-moving.

Wednesday will see the release of Canadian CPI, crude oil inventories and FOMC meeting minutes, among other things. The Loonie has been falling since the end of last month on the back of a dovish Bank of Canada. So CPI should be important in so far as shaping investors’ expectations over future interest rates are concerned. The FOMC minutes may not contain much in the way of new information, as we have had plenty of Fed speakers over the past couple of weeks providing their views on the economy. Overall, it looks like the Fed is guiding traders to expect no change in rates through December 2020. Going forward, any noticeable changes in the trend of incoming data or the trade situation should impact the Fed’s forward guidance, and in turn the dollar.

Thursday will be a day for North American traders as we will have the latest Philly Fed Manufacturing Index, Existing Home Sales and a speech by BOC Governor Poloz.  

Friday will be the busiest day, particularly in so far as Eurozone data is concerned. We have German final GDP, Eurozone flash manufacturing and services PMIs, Canadian retail sales and Flash US manufacturing PMI.

•  If the third quarter German economic growth is unexpectedly revised lower to a negative number from +0.1% in the initial estimate, then the Eurozone’s largest economy will fall in a technical recession because it had already declined 0.1% in Q2. This will be negative for the euro.
• But it is more likely that the single currency will respond to the latest Eurozone PMIs, which are forward-looking economic indicators. Recently, we have seen some improvement in data and if the trend continues then the EUR could stage a more meaningful come back
• ECB President Lagarde will speak at the European Banking Congress, in Frankfurt. It will be interesting to see if she comments on monetary policy and what he views would be.
• Canadian retail sales will be very important for the CAD as we have outlined above. Watch the USD/CAD closely after it recently pushed higher on the back of a dovish BOC.