News & Analysis

Week Ahead – Focus on Europe

September 9, 2019

Week Summary

After a busy week charged with positive geopolitical developments, the US and China’s economic data has dampened the risk-on sentiment. The US economy added only 130k jobs in August, missing the 158k estimates. As investors are looking for signs to gauge if the trade war has further spread to the US economy, Wall Street ended mixed on the monthly jobs report and the Fed’s Chair Powell speech.

Week Ahead

China’s trade balance has been released over the weekend, and will likely set the tone for markets on Monday. China’s exports contracted to -0.1% in August amid slowing global growth and the escalating trade war with the US. The fall in exports happened despite the drop in the yuan. Market participants have expected to see some front-loading of exports. The data published also shows that the trade surplus with the US has narrowed in August.

ECB- The Final Act by Mario Draghi

The European Central Bank is expected to set a significant package of monetary stimulus this Thursday and will also mark Mario Draghi’s last meeting as the head of the central bank before Christine Lagarde takes over.

It is widely expected that the bank will cut interest rates to stimulate growth in the Eurozone. Economic data in Europe and more specifically in Germany have been quite disappointing which is fuelling expectations of an interest rate cut.

However, the comments from the ECB in the last few days have cast some doubts on the stimulus program. The Eurozone economy has been struggling with low growth and inflation and there are uncertainties that more monetary easing will generate much of a growth effect.

Mario Draghi will have a tough job of delivering his last plan of action. Even though the markets have already priced in additional easing, European stocks and the shared currency can bear the brunt of the move if the central bank falls short of expectations or strike a more aggressive move.

Brexit and the UK economy

It will be another crucial week for Brexit. We saw Parliament defeating the Prime Minister last week, and the developments over the weekend reiterated a divisive Conservative Party. The work and pensions secretary, Amber Rudd resigned citing:

“I no longer believe leaving with a deal is the Government’s main objective”

“The Government is expending a lot of energy to prepare for ‘no deal’ but I have not seen the same level of intensity go into our talks with the European Union, who have asked us to present alternative arrangements to the Irish backstop.”

She also accused the Prime Minister of “political vandalism” over the sacking of the 21 Tory MPs who opposed to the no-deal Brexit.

Monday will see Boris Johnson’s second attempt to seek for a general election. Attention will also be on a series of economic data as fears that the UK may fall into a technical recession before it leaves the European Union are rising.

Monday: Manufacturing and Industrial Production and Gross Domestic Product

Tuesday: Average Earnings, ILO Unemployment Rate, and Claimant Count Change

US Economic Data

After the disappointing nonfarm payrolls, the US inflation and Retail Sales figures will help to set the tone for the upcoming Fed’s meeting. Investors are expecting the Fed to cut interest rates for a second time this year at the September meeting. Even though the Fed does not see any recession looming, the August jobs reports have somewhat fuelled those fears.

The fresh new CPI and Retail Sales figures will help traders to gauge the next move of the Fed and determine whether the tone and language will be more dovish than expected.

Tuesday, 09 September 2019 Indicative Index Dividends ^{Dividends are in Points}
ASX200	WS30	US500	US2000	NDX100	CAC40	STOXX50
4.385	0	0.104	0.052	0	0	0
ESP35	ITA40	FTSE100	DAX30	HK50	JP225	INDIA50
0	0	0	0	4.738	0	0

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