Trade Talks, Fed Minutes & October sell off. Big economic events including Eurogroup meeting..also a week that comes on the back of some hefty declines across global equity markets. With Jasper Lawler, Head of Research.

 

Introduction Looking ahead to the week beginning October 7th, there are some big economic events including the Eurogroup meeting and the release of Federal Reserve minutes. It is also a week that comes on the back of some hefty declines across global equity markets.

Markets backdrop: Indeed we’ve had a rough start to October and that could well be set to continue. US stock markets led the falls last week after the weakest manufacturing print in a decade worsened fears of an economic slowdown. Oil too is now back well below pre-drone strike levels. The dollar fell in suit as traders began to price in an October rate cut from the Federal Reserve, while gold staged a recovery

Eco highlights: Fed minutes will be most widely watched but it could be US CPI data released later in the week – that gives the markets the best indication of what the Fed’s next short-term move in interest rates will be. Another monthly decline in Germany factory orders could put a lid on recent euro-strength – acting as a reminder that Europe remains in a much more fragile economic position than the US.

Trade talks: The upcoming trade talks had been a source of optimism for most of September – but as of the last week – we now find ourselves back at 30-day lows in US indices – so in essence all that optimism has been unwound. It’s not clear that expectations for the talks have changed – but the bar for getting a deal has been set higher – because of the other issues including impeachment, the weak data and new tariffs to be imposed by the US on Europe. So we think the view in markets has shifted from being neutral about the outcome of these talks to more in a need of a positive given everything else. Thus an extension of the drop in equities is possible if talks can’t produce anything concrete – for example the rollback of some existing tariffs.

Fed minutes: Fed minutes have been made out-of-date thanks to the weak economic data since – but will still make for interesting reading about the Fed’s thinking. For us, the important thing is how many members share the view that the rate cuts the Fed is currently embarked on are a mid-cycle adjustment. At the time of the meeting- the Fed won’t have seen some of the best evidence yet that Trump’s trade war is damaging the US manufacturing sector at the end of an economic cycle. That means the minutes will probably play out a bit more hawkish and help sure up the dollar temporally.

October jitters: The beginning of the 4th quarter can be an especially jittery time given October’s reputation as the month with the most notable historic stock market declines. For that reason we wouldn’t read too much specifically into the multi-day decline that started the month- in terms of how the month finishes up. The bigger consideration is given the year-to-date gains in US and European indices – how brave are investors feeling given the economic and political headwinds?

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Financial Markets and Political Commentary
 

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About the author

Jasper delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Jasper hosts a weekly charting analysis webinar. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.