The Week Ahead - Five Events That Could Shape Global Markets

The Asia-Pacific, European and U.S. calendars will be filled with long lists of potentially market moving economic data, as well as several corporate events, providing investors with little respite as the month of November comes to a close.

The following items are only a fraction of what’s in store, amid a recent uptick in volatility across the financial markets, as well as a myriad of geopolitical headwinds, including ongoing trade disputes between the U.S. and China, uncertainties over the UK’s Brexit negotiations with the EU, and Italy’s fiscal battles with Brussels.

For more items, select the Event Calendar option in the IBKR Trader Workstation and receive a full list of U.S. and global economic data, corporate events and earnings, dividend schedules, IPOs and more.

U.S.

1. Personal Income & Outlays (Oct)

The highlight of the week will arguably come on Thursday, with an update on personal income and spending for October.

Personal income rose 0.2% in September to US$35.7bn, according to the Bureau of Economic Analysis. Disposable personal income (DPI) also climbed 0.2% to just north of US$29bn, and personal consumption expenditures (PCE) – the Federal Reserve’s preferred gauge of inflation – notched up 0.4% to US$53bn.

 

The BEA attributed the increase in personal income mainly to increases in wages and salaries, as well as to government social benefits and rental income.

Against this backdrop, Jefferies chief financial economist Ward McCarthy recently noted that consumer spending has also been growing “gradually, erratically and moderately, but continues to be the primary driving force behind GDP growth.”

GDP rose 3.5% in the preliminary reading of the third quarter of 2018, with real PCE up 4.0%. The figures compare to average quarterly growth of 2.5% since the beginning of the recovery.   

Ward added that the pace of consumer spending going forward will “continue to be the primary determinant of the pace of GDP growth in the recovery,” and as long as consumers continue to spend, “the economy will continue to grow.”  

The second reading of Q3’18 GDP growth is scheduled for release on Wednesday, while investors will also be eying the Federal Open Market Committee’s (FOMC) release Thursday of the minutes from its November 7-8 monetary policy meeting for any further insights into the central bank’s plans for normalization.

The market widely expects a 25bp rake hike at the Fed’s December meeting, which would mark the fourth increase in the target range for the federal funds rate in 2018. 

In the meantime, investors Monday will receive a regional manufacturing report from the Federal Reserve Bank of Dallas, followed by consumer confidence figures for November on Tuesday, as well as new home sales on Wednesday. The Chicago PMI will also be released ahead of the weekend.

Asia-Pacific

2. China – NBS Manufacturing PMI, Caixin General Manufacturing PMI (Nov) 

The National Bureau of Statistics of China (NBS) is slated Thursday to unveil its Manufacturing Purchasing Managers Index (PMI) for November, followed by the Caixin General Manufacturing PMI on Sunday.

China’s manufacturing sector has served as a strong signal of broader weakness in the country’s economic well-being.

The country’s previous PMI fell 0.6% in October from the prior month to 50.2%, as expansion in manufacturing decelerated. Among the factors leading to the slowdown, new orders fell 1.2% month-over-month to 50.8%, and production declined 1% to 52%. 

 

Similarly, the Caixin Manufacturing PMI – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – rose only slightly from 50.0 in September to 50.1 in October.

IHS Markit / Caixin noted that the latest reading indicated that operating conditions were “broadly unchanged" at the start of the fourth quarter, after stagnating in the previous month.

Prior to September, the health of the sector had improved for 15 consecutive months.

Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said that production and business confidence in October “continued to cool despite stable demand,” and that pressure on production costs “didn’t ease,” while China’s economy "has not seen obvious improvement.”

Indeed, the Chinese economy has been facing a gradual, steady slowdown since its last quarterly rate of double-digit growth of 10.2% more than seven years ago. The nation’s most recent reading of 6.5% disappointed market expectations and marked the slowest pace of growth since the first quarter of 2009.

The latest GDP data also spurred uncertainties over the potential harm China’s trade feuds with the U.S. may be inflicting on the country’s economy, casting a shadow of bearish sentiment among many market participants about the nation’s financial health.

Meanwhile, the People's Bank of China has made frequent cuts to banks' reserve requirements in 2018 – likely to boost liquidity and promote growth.

Chinese central bank governor Yi Gang said at the International Monetary and Financial Committee meeting in mid-October that downside risks to global growth “warrant close attention, with trade protectionism and rising trade tensions being major risks facing the global economy.”

Gang noted that “rising trade protectionism, friction and policy uncertainties have begun to dampen global business confidence and resulted in increased financial market volatility. Investment and trade as well as economic growth have also been dragged.”

3. Japan – Unemployment Rate (Oct)

Japanese unemployment had fallen to a four-month low in September to 2.3% from 2.4% in the prior month.

According to the Bank of Japan, supply-demand conditions in the country’s labor market have been steadily tightening, with the rate of increase in employee income having recently accelerated. In fact, the degree of labor market tightening has not been seen since the first half of the 1990s, or in the first half of the 1970s.

However, the BoJ noted that wage increases have remained relatively weak compared to the labor market tightening, partly due to protracted employment adjustments, as well as the high wage elasticity of labor supply in recent years, mainly among women and seniors.

 

Japan is scheduled Thursday to release its unemployment rate for October.

Meanwhile, the BoJ said at its meeting at the end of October it remained committed to monetary easing measures with yield curve control, as it aims to achieve its price stability target of 2%.

Japanese inflation, which has languished at low levels, had fallen a bit in September, further cementing the central bank’s case for economic stimulus.

Among other items on the Asia-Pacific calendar in the week ahead, investors in the early part of the week will receive South Korean consumer and business confidence data, followed by Japanese retail sales on Wednesday, along with consumer confidence in Japan, and Q3’18 GDP growth in India ahead of the weekend.

Coming off the week, the Reserve Bank of Australia will announce its interest rate decision.  

Europe

4. Germany – Unemployment Rate (Nov)

Germany’s Bundesbank recently boasted that the nation’s economy is experiencing the longest period of expansion since the country’s reunification.

The bank noted that the upbeat economic situation and “sound financing conditions” have contributed to the decline in the German unemployment rate.

Germany's unemployment rate remained steady at 3.4% in September, a low last reached around 38-years ago, amid a drop of 11k in the population of unemployed, while employment was little-changed.

 

However, while the Bundesbank said that the economy is expanding at a “robust pace,” amid still-low interest rates, and high asset prices, risks to future activity are “today skewed to the downside.”

Geopolitical risks, for example, have intensified, while global trade tensions remain unresolved and could harm the German economy. Also, the UK’s path to withdrawal from the EU remains unclear.

Although the German economy appears to have tremendous upside, the country’s auto and manufacturing sectors have recently been suffering.

Chris Williamson, chief business economist at IHS Markit, recently said that while there was “some evidence” the Eurozone’s auto sector acted as a “drag again in October, with car makers struggling with new emission regulations, the manufacturing sector’s problems look broad-based.”

Williamson continued that growing risk aversion, “linked in turn to worries about the global economic environment, trade war worries, political uncertainty and rising prices, appears to be hitting demand for a wide variety of goods.”

In this environment, growth in Germany was the weakest in nearly two-and-a-half years in October, while France and Spain registered only modest gains in manufacturing activity.

Furthermore, the Bundesbank said credit risk in the country could be another area of concern. The bank highlighted a “relatively strong increase in loans to financially vulnerable enterprises. Thus, the share of loans to enterprises with low capital ratios and high interest burdens has increased over time.”

In the meantime, a lower value-at-risk for market risk in the past two years has helped boost capital ratios, with a sharp rise in financial market volatility potentially placing pressure on banks.

Germany will release an updated picture on its unemployment rate on Thursday.

5. Euro Area – Business Confidence (Nov)

The Eurozone Business Climate Indicator (BCI) fell in October by 0.20 points to +1.01 – the lowest level since May 2017.

The European Commission said managers' “appraisals of their overall and export orders books deteriorated, as did, to a lesser extent, their assessments of past production and the stocks of finished products.” The EC added that, by contrast, managers' production expectations, “remained virtually unchanged.”

 

Researchers at the European Central Bank recently blamed slower growth across the region on weaker global trade. However, the ECB said that while monetary policy stimulus, improving employment conditions, and stronger balance sheets should help euro area expansion maintain a healthy pace, trade conditions and labor supply shortages are likely to lead to slower growth at least through 2020.

The Euro Area will provide an updated reading on business confidence for November on Thursday.

Also, on Europe’s calendar in the week ahead, investors Monday will get Germany’s Ifo business climate for November, followed on Tuesday by Nationwide housing prices in the UK, then the latest reading of GfK consumer confidence for Germany on Wednesday. In the latter part of the week, Swiss Q3’18 GDP will be released, along with a preliminary gauge of German consumer prices on Thursday, then, ahead of the weekend, Switzerland will announce its KOF leading indicators, Germany will unleash retail sales numbers, and the Euro Area will provide a flash reading of its inflation rate.