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- What to expect next week – 19.02 – 23.02.2018
What to expect next week - 19.02 - 23.02.2018
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Loading...In the new week, investors will once again focus their attention on the indices, keeping an eye on whether the promotion will continue after the mass sell-offs they have undergone. The US indices climbed for the sixth straight day and wiped out their losses this year. While Wednesday's data showed faster-than-expected inflation for the past month, a separate report revealed weak retail sales that questioned the strength of the economy. However, bonds fell, with yields on 10-year bonds rising above 2.9% to a 4-year high. If nothing else, the last two weeks have forced us to ask ourselves many questions about what is good and what is not about the stock market. Undoubtedly, question number one among investors was: "How will 4 interest rates hikes affect the US market?" If we judge the behavior of S&P500 and Dow Jones, which rose by more than 4% since the beginning of the week, against a bonds yield of 2.90%, the high Fed rates have had a positive impact on the shares. Looking historically, statistics show that since 1971, the average gains during a raise period is 20% and the maximum drawdown was 4%. The main reason for strong stock growth in rising interest rates is, in fact, the same and this is strong economic growth. On the one hand, strong growth is the result of good performance of companies, which is reflected in the reports, and hence investors reflect this growth in stock prices. On the other hand, the Fed as the main responsible for moving the economy in the right direction needs robust growth and economic data to ensure that a step up of the base interest rate will not negatively impact the markets and lead to a recession.
In the past, two or three consecutive weeks of declining shares and, at the same time, bonds was extremely rare. The last time the markets, together with the bonds, entered such a correction was in 2004, and in the last 20 years it has only happened 3 times. Such deviations are extremely rare but provide a perfect opportunity for investors to position themselves with long positions at a lower price as history shows that in any such market behavior, after Selloffs, the stock price reaches the last formed peak before it. Despite the impeccable historical data, this may be a warning sign of a subsequent crisis, as the economic cycle is evolving and ending. Taking into account the way the central banks take over, namely the withdrawal of massive government and corporate bond purchase programs, everything will depend on consumer behavior from now on.
Over the last two years, there is no doubt a serious race for the oil market. Somewhat aroused by the US's drive to become a leader in shale oil exports, and partly because of the craze of electrification of much of the vehicle, the price of oil collapsed to record low prices. OPEC then intervened through its short-term mining program, involving both countries and outside the organization. Recent data on the success of the abstraction program show that OPEC + (OPEC + countries participating in the abstraction agreement) almost achieved its goal. With these actions, they have significantly increased the cost of raw materials and have prompted US Drills to drastically increase shale yields. As a result, shale oil yields reached record levels of 7,560 million barrels per day. The only option for Member States in the cartel is to increase redundancies. However, this will not appeal to Russia, which is opposed to the fact that the US occupies an increasing part of the oil market. On the other hand, the smaller countries in the organization are already having serious difficulties in successfully filling their budgets as their exports have dropped dramatically. The next OPEC meeting will take place on 22 June in Vienna, and market participants expect it to be very controversial. We expect major producers such as Saudi Arabia and Iran to request an extension of the abstraction program after the end of 2018. or increase the volume of redundancies. On the other hand, as we have mentioned, there will be Russia and smaller producers, which hardly cover budget deficits. Ultimately, it is unlikely that a final decision will be reached, and that would lower the price of black gold.
In the new week, traders will focus on a bunch of economic data that will affect the short-term movements of the FX market. On Thursday, at 11:30, UK Gross Domestic Product data is expected to show whether BoE is willing to raise interest rates in May. For the moment, chances of raising the base interest rate are 71%. The news will also show how the economy is doing in anticipation of Brexit. On Friday, market participants will set their spotlight on several inflation figures. At 01:30 Japan will report Consumer Price Index (CPI) values, followed by Germany at 09:00, Europe at 12:00 and Canada at 15:30. CPI is the most preferred indicator for measuring inflation in the country so that these publications will affect the respective currencies of the countries.
EUR/USD has been relatively quiet as attention focuses mostly on the yen, but that will soon change with the pair taking out the January high at 1.2537. The ECB may wheel out board members for verbal intervention, but there's not much they can do given the negatives from the USD side are mounting. Investor fears of a return to the dark days of U.S. twin deficits are generating powerful downward forces for the dollar. In contrast, Germany's current-account surplus remains huge and shows no signs of slipping. Even fears the Italian elections would sink the euro are rapidly disappearing into the background.
Economic calendar for next week - 19.02 - 23.02.2018
Monday
01:50 Japan - Trade Balance
Tuesday
09:00 Germany - Gfk Consumer Climate
12:00 UK - Inflation Report
12:00 Europe - ZEW Economic Sentiment
Wednesday
10:30 Germany - Manufacturing PMI
11:30 UK - Average Earnings + Bonuses
17:00 USA - Existing Home Sales
21:00 USA - FOMC Meeting Minutes
Thursday
11:00 Germany - Ifo Business Climate Index
11:30 UK - GDP
14:30 Europe - ECB Account of Monetary Policy Meeting
15:30 Canada - Retail Sales
23:45 New Zealand - Retail Sales
Friday
01:30 Japan - Core CPI
09:00 Germany - CPI
12:00 Europe - CPI
15:30 Canada - CPI
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