This Week In Markets: 22nd - 26th November 2021

Okay, very good morning to you. It is Monday, 22nd of November. Hope you are doing well. And as per usual, I'm going to get up to speed in some of the major headlines from the weekend, and we're going to talk about the week ahead. In particular, it's a holiday-shortened week because we've got Thanksgiving on Thursday in the States, which means it's a market holiday, and that means then Friday normally is a shortened trading session as well. So A lot of the economic data from the US is concentrated on Wednesday, which we'll talk about more in a moment. But let's have a look at the charts to start with and have a look at the overall sentiment for this morning. And equity index futures continue to reside up and around these record levels that we saw at the close of last week. So despite kind of a pivot to some slightly more hawkish commentary coming out of a variety of Federal Reserve officials, The fact that we have some decent data and as well we had some strong retailers come out with some positive earnings updates, they helped bumped us up there. The question mark remains then, further catalysts likely to come, as I said, on Wednesday, whether or not we can stay at these elevated levels. Otherwise, as far as this morning is concerned, we do have a slightly firmer dollar, up around just over 0.1%, so it's weighing just a little bit on the major pairs. Cable relatively unchanged on the session, but EURUSD is down about 16 pips, perhaps explainable the slight underperformance in the euro on one of the stories we'll talk about in a moment, which is COVID-19 and the response turning more violent for protests across Europe to more onerous lockdowns because of the COVID case spikes we're seeing at the moment across the mainland. So EURUSD is down about 16 to 20 pips, albeit has stabilized a little bit from APAC lows. And then elsewhere, T-notes and gold lower amid the moderate dollar strength. So US yields a little bit firmer, the 10-year down 8.5 ticks, gold down $6. Oil's pretty much unchanged, trading us close to a $76 handle. And that's pretty much the flavor of the morning. But getting straight into it then. So as you can see here, and as per the headline in the FT, Europe's protests against COVID-19 curbs spread to Brussels. On Sunday, with tens of thousands of demonstrators marching through the city in protests that later turned a little bit more violent. Demonstrations followed the second night of rioting in the Netherlands on Saturday over the reintroduction of coronavirus restrictions, and protests also broke out, as you can imagine, in Austria, which starts its national lockdown for the next 20 days for everyone as of today. And we also saw protests as well happening in Italy and Croatia over the weekend. So yeah, for sure, this, I guess, a necessary measure given the government's decisions following the cases that we've been seeing. You can see here, looking at daily new confirmed COVID-19 cases, if you're looking at a 7-day rolling average, and Austria way up there, followed by the Netherlands, then Ireland. So just scrolling through these at the top, Netherlands, Ireland, then you get to Greece, UK, and then Germany, which has been accelerating to its highest level since the actual outbreak of the, the pandemic itself since the beginning of March of 2020. France, Portugal also seeing upticks, probably the latter, um, the height of the incline is a little lower just given much higher vaccination take-up than say, for example, Germany, which currently resides under 70% at the moment. Um, so yeah, that was, that was all over the weekend and certainly warrants monitoring further going forward. And as per what we've seen in the last week or two, explains, underpins all of that rationale of that policy divergence with the likes of the Fed and the Bank of England getting more hawkish, the ECB remaining static because of these aforementioned reasons, and inflation not being as hot in those other areas as well, meaning that the euro's had a bit of a rough ride of late against the US dollar. Um, before I go on to the other stories, um, just a reminder, don't forget you can access the content hub on AmplifyMe.com, specifically aimed if you're a student. So whether you're at college, university, or a graduate and you're looking to break into finance, this hub has kind of everything you need from market analysis to career sessions, and of course an opportunity to get involved in our latest technology simulation as a sales trader, market maker, and asset manager. So you can just book on to the Finance Accelerator. So You can access the hub, just go to ampfindme.com. And also when you're on there, you can scroll to the bottom. And if you want to get my daily newsletter kind of deconstructing a major market event each day, then you can just pop your email in there as well. But going back to other headlines in the weekend, the Bank of England— this is of course is the governor Andrew Bailey, who's been quite criticized, as we know, because of his perceived poor communication to the market on the back of the non-delivery of a rate hike despite a lack of pushback from him at the beginning of the month. So the latest here from the governor is the UK economic activity is slowing and supply-side issues are stoking prices underlying the two-side debate over inflation. The proximate cause of many of these inflation issues is the supply side, and monetary policy isn't going to solve those directly. Um, again, I don't think that's economically— that what he's saying there, I think, makes a lot— makes complete sense. Something that Piers and I have talked about in the podcast before. These are supply-side-based issues that are really promoting the inflationary pressures. Doesn't go really a great deal of a way to help provide us with any more greater clarity, I'd say, from, from the governor's stance, which still remains at this point a bit indecisive of real clarity. And so markets still aggressively pricing for that December rate hike and further subsequent inclines thereafter in rates. Otherwise, just jumping elsewhere geopolitically, you might have read a few headlines about Russia and Ukraine. So just to get up to speed on what exactly has been going on, this isn't really a brand new thing. We've been commenting on it for a couple of weeks. It's just that the US have now shared intelligence including maps with European allies that shows a buildup of Russian troops and artillery to prepare for a rapid large-scale push into Ukraine from multiple locations if Vladimir Putin decides to invade, according to people familiar with the conversation. So before, the US were quite, quite aggressive with their rhetoric with Russia in positioning itself more likely for further sanctioning and they had kind of splintered away from the Europe where Merkel was having actually talked directly with Putin. And we know Germany's dependency on gas flows coming from that region. So now the US has come forward and just provided more, more clarity and intel on the, on the matter is what this latest development is. In terms of two sides, Putin and Biden. So Putin, he sees Ukraine as part of Russia, hence the kind of 2014, the annexation of Crimea and Russia and all the tensions that happened several years ago. And he does not like the outreach that Ukraine has had with the West, especially with military engagement with NATO. And on the flip side, for Biden, the actions of Putin are kind of tricky on multiple fronts. For one, they're going to test his administration's appetite to intervene militarily again in foreign affairs or foreign shores. And if you think about it, we've just had a very messy exit coming out of Afghanistan. Probably the last thing he needs in terms of his political favorability, which has been declining, is to now jump into a Russia-Ukraine situation, which really doesn't carry too great a sway with the American voter at the ballot, at the ballot box. Biden has to focus more, one would think from a strategy perspective, on political strength on domestic priorities like his economic agenda, dealing with what's happening with rising gas prices for the consumer, um, things like that. And so yeah, it's a tricky one again and just goes to show the multiple fronts that Biden's challenged with at the moment, um, going forward. The other thing from the weekend then is the PBOC. I don't find this incredibly surprising at all, but the latest being that we've had some communication out of the central bank where the Chinese have said they signal possible easing measures to aid the economy's recovery after a sharp recent downturn that we've had and also the impact on sentiment from the property slump. The thing that people are looking at from the comms from the central bank is the omission of key phrases, which basically is not saying they're going to do something, but the lack of talking about the way they're describing the economy in certain ways. Would suggest that potentially more easing is on the way. So something to just be aware of. As far as the calendar is concerned for this week, as I said, we do have Thanksgiving holiday in the US, meaning a shortened week. A lot of the US data is concentrated on, on Wednesday. But before we get to the data, one of the things, of course, that we're looking out for is the end outcome of Biden's decision. Does he go with Brainard or Powell And so the latest here is that he's expected to reveal his nomination for Fed chair this week. The latest reports would suggest an announcement is due before Thanksgiving. So no set day or time, just in the coming days we're going to be looking out for this. And the likelihood is we'll get sources and rumors and things like that in the buildup. So do be on the lookout. Most accept that the choice is between just these two candidates. So there's really no one else in the running, and Powell is tipped as the slight favorite as far as the betting odds are concerned at the moment. Analysts write that some Democrats have expressed concerns over the recent Fed investment disclosures. You remember there's been a really bad PR job for, for Powell himself and the Fed, given a number of Federal Reserve officials have been seen to be taking out slightly dubious stock positions, let's say, or investment opportunities ahead of their major policy announcements, which is definitely bad practice, to put it lightly. And that's, that's impacted Powell's credibility a little bit. There's also been quite a bit of talk about Powell's lack of green credentials, which is obviously a big part of the agenda for President Biden. And those would be key considerations among more progressive Democrats. Powell's oversight of banks has also been cited as a bit of concern. Brainard is seen to be slightly tougher on that issue. Meanwhile, Brainard is seen as more dovish option, which some lawmakers might find a little bit concerning though, given the context of the economic climate right now, which is obviously rampant inflation in the US tracking at 6.2%, the highest in 31 years. So that's the trade-off a little bit. She might be deemed a little bit more tighter on the regulatory front, he might look a little bit more equipped to deal with then the current economic climate with inflation because of her more kind of dovish disposition. But at the same time, again, the green credential element, green credential element is kind of not that she is, but he's, she's, he's probably less so in that sense. So that's what they're weighing up. And obviously it comes in the context of, well, we'll be keeping a close eye on Fed speak because because at the end of last week we had Vice Chairman Richard Clarida. We've also had the hawks. So like people like Waller and Bullard, they've all signaled the topic potentially at the next Fed meeting in December about accelerating tapering given what we've just mentioned on inflation. And certainly at the moment we've had rate rises being pulled in closer. We've had a number of big banks, JP Morgan, I think Citi, Credit Suisse, GS, they've all brought forward now their rate hike kind of timing in terms of for next summer, generally speaking. And now there's been some more hawkish commentary as well coming from these Fed members. So we'll look out for more clarity of any speeches this week. But going back to the calendar then, Monday, today is pretty quiet overall. It's not too much going on. European flash consumer confidence figures coming out this afternoon. You've also got the German coalition. Reports suggest over the weekend they could there could be an agreement to be attained as early as today or tomorrow in terms of the formation of their coalition. I wouldn't be looking for any immediate intraday market reactions on the back of that, though. But just, just so you're aware, Tuesday is kind of the main data point as far as eurozone is concerned. But more broadly, we get the global— so eurozone, France, Germany, UK, US— market flash PMI data points. For service and manufacturing for the month of November. These are always potentially market-moving. They unexpectedly showed improved growth momentum in October, and while analysts are expecting a bit of a deceleration in November, a positive surprise might feed into expectations on whether the Bank of England will increase interest rates in December, which they're leaning towards at the moment. Also, you've got German flash GDP coming out tomorrow morning as well. So on Wednesday, that's really where it's at as far as the scheduled calendar events are concerned. So RBNZ rate decision and German IFO aside, it's very much a stateside focus. In the evening, we get the US FOMC minutes. They obviously could be quite interesting given the commencement of tapering we had at that November 3rd meeting. Then we also get the PCE data, so kind of the preferred measure that the Fed like to look at to gauge inflationary conditions. So while US PCE for October will be monitored for further signs of price pressures following the heightened CPI reading, to remind you, PCE data reflects changes in household expenditures. A subsection of the data known as core PCE, which discounts the effects of volatility of food and energy sectors, is the one that's going to be particularly closely scrutinized by the market when it comes out on Wednesday. On the same day as well, we also get GDP coming out of the US. You can see here US Q3 second estimate, so it's not the advanced, it's the preliminary reading, so potentially slightly less impactful than the first reading. But analysts at ING are looking for a moderate— modest upward revision, but the October personal spending will be more significant as it can tell us a little bit more as to how the, uh, kind of consumer is feeling in terms of personal spending going into the fourth quarter. Um, home sales numbers, uh, not expected to be, uh, move much on the month. That's also coming out the same time. Uh, but the increase in homebuilder sentiment suggests buyer traffic is on the rise, and that should lift housing activity into the new year. And then weekly US jobless claims— I know they're written down here on Thursday, they're actually coming out Wednesday. So that's a mistake on this calendar, and everything will be coming out on that same day given the market closure that we'll see on Thursday. And then just skipping over to Friday, pretty quiet overall. As I said, there'll be a shortened trading session as well in the US, so most traders typically stateside would just take off Friday and have the extended run into the weekend. There's obviously a lot of travel that goes on in North America through the Thanksgiving, uh, weekend. So Friday could be quite quiet. You do have Bank of England Chief Economist Hugh Pill gives a speech on the economic outlook at the CBI. Could be of interest given, uh, his more kind of hawkish commentary of late, and as people look for more guidance on the potential for a Dec, uh, rate hike. Uh, so that is really it. So pretty slow calendar start to the day. Really the main action is going to really peak Tuesday and Wednesday. The PMIs on Tuesday and that whole batch of US data coming on Wednesday is, is what the, the look of the land is at the moment. But that is it. I'm going to leave it there. Any questions at all, feel free to drop me a comment. Don't forget to like and subscribe to the video and the channel. Be much appreciated. And check out AmplifyMe.com. All right. Take care. See you tomorrow.