Week Ahead: Prepare for the Q3 earnings blitz

Week Ahead

Wall Street will be alive with the sound of incoming earnings reports when Q3 earnings season kicks off in earnest this week. On the data side, we get US CPI data plus a look under the Fed hood with the latest FOMC meeting notes.  

Key inflation metric with US CPI report 

First up is Wednesday’s Consumer Price Index report, gauging inflation in the US. 

Following September’s release of August’s numbers, Jerome Powell and his colleagues are sticking to the script: that all this high inflation is simply transitionary. Will Wednesday’s data back this view up? 

For context, the last CPI report published in September showed things had cooled a little in August. Underlying prices rose at their slowest rate for six months up to then. Overall CPI rose 0.3% after gaining 0.5% in July. In the 12 months through August, CPI increased 5.3% after soaring 5.4% year-on-year in July. 

Some Fed members are not worried though. 

“I’m comfortable in thinking that these are elevated prices, that they will be coming down as supply bottlenecks are addressed,” Chicago Fed President Charles Evans told CNBC. “I think it could be longer than we were expecting, absolutely, there’s no doubt about it. But I think the continuing increase in these prices is unlikely.” 

Fuel prices are on the rise though. Oil & gas skyrocketed across last week. Higher oil prices generally points towards higher input and transport costs across multiple sectors, which may then be lumped onto the consumer, resulting in higher prices across the board. That said, high energy costs and their knock on effects may be expressed more clearly in next month’s CPI print, rather than Wednesday’s. 

FOMC meeting minutes to give insights into Fed thinking 

Wednesday also sees the release of the FOMC’s meeting minutes for its September get together. 

We know the script now: rates to stay low; tapering to come soon. 

That said, we also know some of the more hawkish fed members are projecting earlier-than-anticipated rate hikes. There is a feeling that higher rates could come next year.  

Chairman Powell also added his voice to the chorus of those warning against failing to raise the debt ceiling. Treasury Secretary Janet Yellen warned at the end of September the US government could run out of cash if action isn’t taken. 

Defaulting on US debt would cause “significant damage” to the US economy, according to Powell. President Biden has indicated that there is a real possibility for a debt hike, so the crisis may be averted.  

In terms of steering the economy, however, tapering is probably the big one. It’s thought that the Fed will remove support incrementally until it’s gone altogether by the end of 2022. 

It’s a strong sign that the US is aiming to get back to normal economic times quickly. But the threat of new COVID-19 variants still looms large. Let’s hope there’s not another new Delta forcing a fresh wave of lockdowns in 2022 or the Fed will be left holding the bag once again. 

Earnings season is here again 

Let’s head to Wall Street. Third-quarter earnings are about to start pouring in from the mega caps as earnings season begins anew this week.  

As ever, we’re kicking things off with the big investment banks who reported stunning growth numbers in Q2. Will the momentum roll on? JPMorgan, Wells Faro, Citigroup and Goldman Sachs, amongst others, will start the earnings ball rolling with the first report landing from JP landing on Wednesday. 

Although growth looks like it is slowing from Q2 2021’s bumper results, we could still be on for a high-performing quarter. US financial data group FactSet predicts S&P500 companies will enjoy Q3 earnings growth of 27.6% – the third highest year-on-year earnings growth rate reported by the index since 2010. 

There are also supply chain snags to contend with in Q3. They existed across the first half of the year, but with the prices of raw material and energy increasing, we may see a slowing down of results. 

Certainly, the likes of Apple warned that sales growth will drop off towards the end of the year, but let’s see what happens. 

Our US earnings season calendar will keep you up to date of which mega caps are reporting and when so you can plan your trades based on this quarter’s earnings reports. You’ll also a preview of companies reporting this week below. 

Major economic data 

Date  Time (GMT+1  Asset  Event 
Tue Oct-12  10:00am  EUR  ZEW Economic Sentiment 
  10:00am  EUR  German ZEW Economic Sentiment 
  3:00pm  USD  JOLTS Job Openings 
       
  6:01pm  USD  10-y Bond Auction 
Wed Oct-13  1:30pm  USD  CPI m/m 
  1:30pm  USD  Core CPI m/m 
  6:01pm  USD  30-y Bond Auction 
  7:00pm  USD  FOMC Meeting Minutes 
       
Thu Oct-14  1:30am  AUD  Employment Change 
  1:30am  AUD  Unemployment Rate 
  1:30pm  USD  PPI m/m 
  1:30pm  USD  Core PPI m/m 
  1:30pm  USD  Unemployment Claims 
  4:00pm  USD  Crude Oil Inventories 
       
Fri Oct-15  1:30pm  USD  Core Retail Sales m/m 
  1:30pm  USD  Retail Sales m/m 
  1:30pm  USD  Empire State Manufacturing Index 
  3:00pm  USD  Prelim UoM Consumer Sentiment 
  Tentative  USD  Treasury Currency Report 

 

Key earnings data 

Wed 13 Oct  Thu 14 Oct  Fri 15 Oct 
JPMorgan Chase & Co (JPM) PMO  Bank of America Corp (BAC) PMO  Goldman Sachs Group Inc (GS) PMO 
     
Wells Fargo & Co (WFC) E  Citigroup Inc (C) PMO  Goldman Sachs Group Inc (GS) PMO 
     
  Morgan Stanley (MS) PMO   

 

Week ahead: US PCE data to nudge Fed tapering?

Week Ahead

On the agenda this week: We bid farewell to Angela Merkel as Germany faces a future without her leadership for the first time in over a decade. We’ve also a range of big data releases from the US including the Fed’s preferred inflation metric – and Canadian GDP stats. Will it backslide again? 

We all know the Fed loves PCE data. Personal Consumption Expenditures is its favourite inflation metric – and one that could force that ever-discussed tapering through earlier, depending on August’s print. 

The broad market consensus is that the Fed will begin pulling back its economic support in either November or December, so the question now is one of liftoff for rates. The Fed has already raised its core CPE inflation forecast for 2021 to 3.7% from 3% in June – they know it’s hot. Chair Powell has also pretty much announced that the Fed will start tapering this year. The question now is whether the Fed has to revise these expectations still higher, and what that might mean for the path of interest rate hikes. An expectation-beating print this week would stoke concerns that this is the case. 

Of course, there are other external factors at play. It should also be pointed that July’s 0.4% jump was in line with expectations and showed a cooling off against June’s figures. 

In July, the overall rate of inflation reached 4.2%. Going by the Consumer Price Index data reported recently, the cost of consumer goods rose 5.3% in August. This was in line with expectations. It may also be an indicator of where PCE data is headed.  

The Fed is on record as saying its content to let inflation run above its 2% target as it considers the current high levels as “transitionary”.  

The United States, like pretty much all major economies, is moving out of the pandemic economy and attempting to find some semblance of normality. It could be the case that hot inflation continues to singe the economy before burning out in 2022 and fading away. 

The latest PCE reading comes on Friday. 

Tethered to this is US consumer confidence. Logically, higher prices suggest a lowering in consumer sentiment. This has been reflected in August’s data, and it may be the case when we get September’s data on Tuesday afternoon. 

In August, consumer confidence dropped to a six-month low. The Conference Board’s index fell to 113.8 from a revised 125.1 reading in July.  

“Concerns about the Delta variant — and, to a lesser degree, rising gas and food prices — resulted in a less favourable view of current economic conditions and short-term growth prospects,” Lynn Franco, senior director of economic indicators at the Conference Board, said in a statement, explaining the dip. 

Over 39 million COVID-19 cases have been recorded in the US across the course of the pandemic so far. 

Moving away from the US, Germany closes the book on Angela Merkel’s tenure as Chancellor. After 16 years, Merkel is stepping aside, which gives today’s elections an air of exciting new change. 

By the end of play today, Germany will have a brand-new Chancellor. SPD leader Olaf Scholz was the front runner in the build-up to election, outstripping rivals from the CDU and the Greens. 

That said, the belief is the Greens, who were on course to their best-ever results prior to Germans hitting the polls, may become the SPD’s chief partner in a brand-new coalition. 

Our macroeconomics and political guru Helen Thomas previewed Germany’s latest federal elections. Have her predictions been proved correct?  

Speaking of elections, Canadians recently voted in a fresh wave of political changes, with PM Trudeau holding onto the reins for a third term. The Liberals’ majority was compromised – which could make the nation’s economic moves interest. 

Canada’s month-on-month GDP figures are released this month, following a 1.1% contraction. Estimates called for 2.5% growth, so even with the snap election keeping Trudeau in power, the same challenges he was facing before are his same challenges once again. 

Economic recovery will “continue to require the same extraordinary level of support”, according to Bank of Canada Governor Tiff Macklem. No changes to economic policy are expected – despite the lacklustre GDP showing from last month. Perhaps we’ll see a reversal this month, or a possible muddying of the waters caused by election fervour.  

Major economic data 

Date  Time (GMT+1)  Asset  Event 
Sun 26-Sep  All Day  EUR  German Federal Elections 
       
Tue 28-Sep  2.30am  AUD  Core Retail Sales m/m 
  3.00pm  USD  CB Consumer Confidence 
       
Wed 29-Sep  3.30pm  OIL  US Crude Oil Inventories 
       
Thu 30-Sep  2.00am  CNH  China Manufacturing PMI 
  1.30pm  CAD  GDP m/m 
       
Fri 01-Oct  8.55am  EUR  German Final Manufactuing PMI 
  1.30pm  USD  Core PCE Index m/m 
  3.00pm  USD  ISM Manufacturing PMI 

 

Week ahead: Fed set to announce tapering?

Week Ahead

All eyes are on the Federal Reserve and whether it will use this week’s September FOMC meeting to announce its long-awaited tapering of asset purchases. Meanwhile a hot inflation reading last week will have the Bank of England thinking about whether it should be pivoting to a more hawkish position.  

Fed to announce QE taper? 

Whilst markets do not expect the Federal Reserve to race towards tapering asset purchases, there is a broad consensus in the market that it will begin dialling back the pace of its QE programme from November. That means this week’s meeting may be an appropriate moment for the Fed to give the market fair warning. 

Last week’s CPI inflation clouded the outlook a touch – it was a little softer than expected, giving the Fed some more breathing space. More importantly, the very weak August jobs report suggests the Fed might not want to nail its colours to a November taper launch just yet. It could signal it still believes that tapering is appropriate this year without giving a fixed schedule. 

Investors will be most interested in how policymakers assess the pace of the labour market recovery, and whether they believe inflationary pressures are becoming less transitory than they thought. Close attention will be paid the latest round of economic projections for a guide on whether the Fed is changing its mind on the pace of inflation and growth. 

Bank of England responds to hot inflation print 

The Bank of England will need to respond to biggest jump in inflation on record when it convenes this week. Inflation accelerated to 3.2% in August from 2% in July, well above the central bank’s 2% target. Could this force the BoE to tighten monetary policy sooner than had been expected? A hawkish-sounding Bank of England would be a boost for sterling. 

Eco data to watch 

In addition to the above, markets will be on the hook for a raft of economic data releases this week, including Thursday’s round of flash PMIs for the euro area, UK and US. The Bank of Japan is due to meet, with governor Kuroda recently remarking that the central bank will further relax monetary policy such as by reducing interest rates, if necessary. 

Nike, FedEx earnings 

The earnings calendar is light but there are updates from Nike and FedEx among others. Nike posted very strong Q4 results in June, sending the stock to a record high. Q4 sales rose 96% against the year-ago quarter and were up 21% compared to 2019. Margins are also improving fast as the company’s pivot to supplying consumers directly pays off. “FY21 was a pivotal year for NIKE as we brought our Consumer Direct Acceleration strategy to life across the marketplace,” CEO John Donahoe said. But shares have come off lately amid worries about supply chain problems, with millions of units of lost production in Vietnam due to covid. 

“Over its history, Nike’s stock has been most tightly correlated with sales growth, so with growing evidence that sales will likely stall, we believe Nike’s stock will at best tread water until more clarity is had around its manufacturing issues, and at worst suffer from reduced sales guidance and ensuing multiple compression,” BTIG analysts said in a note downgrading the stock to neutral. 

Also look out for earnings from Adobe, General Mills and Costco. 

Major economic events 

Mon Sep 20  12:01am  GBP  Rightmove HPI m/m 
  All Day  JPY  Japan Bank Holiday 
  All Day  CNH  China Bank Holiday 
  7:00am  EUR  German PPI m/m 
  Tentative  EUR  German Buba Monthly Report 
  3:00pm  USD  NAHB Housing Market Index 
  All Day  CAD  Canada Federal Election 
  10:00pm  NZD  Westpac Consumer Sentiment 
Tue Sep 21  All Day  CNH  China Bank Holiday 
  2:30am  AUD  Monetary Policy Meeting Minutes 
  7:00am  CHF  Trade Balance 
    GBP  Public Sector Net Borrowing 
  11:00am  GBP  CBI Industrial Order Expectations 
  1:30pm  CAD  NHPI m/m 
    USD  Building Permits 
    USD  Current Account 
    USD  Housing Starts 
  2:00pm  CNH  CB Leading Index m/m 
  3:30pm  AUD  CB Leading Index m/m 
  Tentative  NZD  GDT Price Index 
Wed Sep 22  Tentative  JPY  Monetary Policy Statement 
  Tentative  JPY  BOJ Policy Rate 
  Tentative  JPY  BOJ Press Conference 
  2:00pm  CHF  SNB Quarterly Bulletin 
  3:00pm  EUR  Consumer Confidence 
    USD  Existing Home Sales 
  3:30pm  Oil  Crude Oil Inventories 
  7:00pm  USD  FOMC Economic Projections 
    USD  FOMC Monetary Policy Statement 
  7:30pm  USD  FOMC Press Conference 
Thu Sep 23  12:00am  AUD  Flash Manufacturing PMI 
    AUD  Flash Services PMI 
  All Day  JPY  Japan Bank Holiday 
  Tentative  EUR  German Import Prices m/m 
  8:15am  EUR  French Flash Manufacturing PMI 
    EUR  French Flash Services PMI 
  8:30am  CHF  SNB Monetary Policy Assessment 
    CHF  SNB Policy Rate 
    EUR  German Flash Manufacturing PMI 
    EUR  German Flash Services PMI 
  9:00am  EUR  Flash Manufacturing PMI 
    EUR  Flash Services PMI 
    EUR  ECB Economic Bulletin 
  9:30am  GBP  UK Flash Manufacturing PMI 
    GBP  UK Flash Services PMI 
  12:00pm  GBP  Bank of England monetary policy decision 
  1:30pm  CAD  Core Retail Sales m/m 
    CAD  Retail Sales m/m 
    USD  US unemployment Claims 
  2:45pm  USD  US Flash Manufacturing PMI 
    USD  US Flash Services PMI 
  3:00pm  USD  CB Leading Index m/m 
  3:30pm  Nat Gas  Natural Gas Storage 
  10:45pm  NZD  Trade Balance 
Fri Sep 24  12:01am  GBP  GfK Consumer Confidence 
  12:30am  JPY  National Core CPI y/y 
  1:30am  JPY  Flash Manufacturing PMI 
  7:00am  EUR  German GfK Consumer Climate 
  9:00am  EUR  German ifo Business Climate 
  3:00pm  USD  New Home Sales 

 

 

Week ahead: US & UK bite into meaty inflation data

Week Ahead

Inflation is the focus this week. CPI reports are at the top of the agenda, gauging inflation statements in two key global economies. They may be on similar paths but there are some key differences between US and UK inflation data. We’ll see more in the week ahead. 

US Consumer Price Index data is the week’s key release. With talk of tapering on the agenda in coming months, the Fed will no doubt be keeping a close eye on Tuesday’s CPI numbers – as will the markets at large. 

After July’s CPI inflation of 5.4%, a 13-year high, market observers will be hoping the US has reached peak inflation. Indeed, there are some indicators that this may have been the case. 

For example, core CPI rose 4.3% on an annualised basis in July after advancing 4.5% in June.  

The same incremental drops were seen in other key areas.  

Prices for cars and trucks, something which took up a significant chunk of the US’ recent inflation boost, rose 0.2% in July against 10.2% in June, for instance.  

Excluding the volatile food and energy components, the CPI rose 0.3% after increasing 0.9% in June. That was the smallest gain in four months and the first deceleration in the so-called core CPI since February. 

So, the signs are there but with weaker jobs growth pulling the US away from some of its tapering targets, this week’s CPI report has double importance. Markets have continued to price in inflation, and there’s no real indicator that the Fed sees the current high prices as anything but transitory. 

The important thing to watch with this week’s CPI data is any more measurable month-on-month drops to back up this claim.  

Interestingly, US retail sales dropped at a faster rate than expected in July – possibly due to higher consumer good prices. We’ll see August’s US retail stats when the report lands on Thursday.  

Along with high prices, there has been a general shift away from consumers purchasing goods. Instead, they’re looking for services and experiences.  

It makes a bit of sense when you look at it. Millions of Americans have spent the past 18 months cooped up inside. Given lockdowns are fading away in America, it stands to reason that shoppers are less concerned with retail therapy and want to go out and enjoy life again. 

Other aspects like supply chain issues affecting product availability have also impacted the drop off in retail numbers. Vehicle sales in particular have taken a dent thanks to a worldwide shortage of computer chipsets integral to modern vehicle manufacturing. 

Overall sales fell 1.1% in July. However, there are still some reasons to be optimistic about US retail. They are actually up 17.2% on pre-pandemic levels. Household incomes are rising too, which may feed into better performance – although if inflationary prices stick around for longer than anticipated, month-on-month drops may continue. 

Sticking with inflation, the UK’s own CPI data comes this week too. Inflation, a tax rise, and slowing growth are not exactly the ideal ingredients for a health UK economy, but the week’s release concerns the state of play prior to Rishi Sunak’s proposed tax hike. 

July’s figures surprised some. CPI inflation reached 2.0% in the 12-months up to July – the first time it had dropped back to the Bank of England’s target level. For context, the forecast level was 2.3%. June CPI inflation rate was also measured at 2.5%. 

While the BoE will be happy that inflation trended downwards in July, it will have to be cautious that this wasn’t just a blip.  

There are some signals that this isn’t the start of CPI inflation solidifying around the 2% mark. Factory input and output costs rose fairly significantly in July, for instance (9.9% rise in input, 4.3% rise in output). 

Some of the more hawkish members of the BoE monetary policy committee are angling to raise rates if inflation proves more than transitionary.  

Michael Saunders, part of the BoE council, recently said “If the economy continues to recover, and inflation shows signs of being more persistent, then it might be right to think of interest rates going up in the next year or so. But that is not a promise and depends on economic conditions.” 

We’ll see the lay of the land when the UK CPI figures for August land this week. 

Major economic events 

Date  Time (GMT+1)  Asset  Event 
Tue 14-Sep  1.30pm  USD  CPI m/m 
  1.30pm  USD  Core CPI m/m 
       
Wed 15-Sep  7.00am  GBP  CPI y/y 
  1.30pm  CAD  CPI m/m 
  3.30pm  OIL  US Crude Oil Inventories 
  11.45pm  NZD  GDP q/q 
       
Thu 16-Sep  2.30am  AUD  Employment Change 
  2.30am  AUD  Unemployment Rate 
  1.30pm  USD  Core Retail Sales m/m 
  1.30pm  USD  Retail Sales m/m 
  3.30pm  GAS  US Natural Gas Inventories 
       
Fri 17-Sep  7.00am  GBP  Retail sales m/m 

Week ahead: Nonfarm payrolls take the spotlight

Week Ahead

It’s all about major economic movers this week. The US jobs report for August is released on Friday, while we kick off the week with the latest Chinese manufacturing PMI numbers. OPEC and allies are due to hold meetings too, making it a busy week for the global economy. 

The US jobs market has taken us to abyssal lows and new dizzying growth heights across the past 18 months. The pandemic has certainly taken its toll, but we’ve seen new life flow through the US’ economic veins too with more workers filling job gaps. 

Just take last month’s nonfarm payrolls. July’s data saw an expectation-smashing 943,000 new jobs added to the economy.  

Friday is when August’s job data is published. Markets of course will be looking at it closely. It’s the big release of the month, after all. But this week’s job’s report takes on a new character given trends we’ve seen in 2021. 

For instance, April’s nonfarm payrolls stood at 785,000 new roles, registering a month-on-month increase of over 200,000. But in May, the NFP report shrank by over 500,000 to 269,000. 

June and July showed consecutive growth months, but it’s important to not get too carried away. We’ve previously seen a bumper report give way to stunted growth in the following month fairly recently.  

The Federal Reserve has explicitly tied policy decisions to labour market health, so this report will be of particular interest in the wake of last week’s Jackson Hole symposium. 

As the start of another month brings another US jobs report so too does it bring another set of OPEC+ meetings. 

Last week WTI and Brent benchmark dropped to 3-month lows, though they have since staged a bit of a rally with Brent crossing over the $70 threshold and WTI pushing over $67. 

Changing demand expectations have weighed on crude prices. Key importers have introduced travel restrictions or new lockdowns. Some Chinese oil ports, for example, have been shuttered as Delta-variant COVID-19 cases rise. 

But OPEC+ has so far stuck to its guns. It’s still committed to upping production by some 400,000 bpd per month from August onwards. It also saw no reason to push those numbers high at the urging of President Biden. For now, 400,000 bpd per month is the level. 

It’s important to reiterate everything OPEC and its allies have done this year has been to support oil prices. With COVID-19 cases mounting worldwide, the supply/demand tightrope the cartel is walking may have narrowed but OPEC+ is likely banking on vaccine rollout to help pick up the slack. 

We all know oil is a key ingredient in economic growth in our current fossil-fuel based worldwide economic system. China is the world’s largest importer of crude, so the nation’s manufacturing output falls under intense scrutiny – especially in the light of potentially lower oil imports in the past couple of months. 

We may be able to see the effects of less oil and a surge in Delta-variant cases across the past month in August’s manufacturing PMI reading. 

July’s reading of 50.4 was the lowest reading for 15 months. June’s 51.3 was a slight bump on May’s 51.0, but the trend seems to be factory output is slowing in the world’s second-largest economy.  

Shutting ports isn’t going to do factory output any favours. Neither will current high commodity prices. Labour shortages and higher input costs have factored into slowdowns in UK and US manufacturing too. This isn’t a localised Chinese phenomenon.  

A PMI reading above indicates that there is still growth, but we’re seeing China perilously close to slipping under that. Tuesday’s PMI release will reveal all. 

Major economic events 

Date  Time (GMT+1)  Asset  Event 
Mon 30-Aug  3.00pm  USD  US Pending House Sales 
       
Tue 31-Aug  2.00am  CNH  Manufacturing PMI 
  1.30pm  CAD  GDP m/m 
  2.45pm  USD  Chicago PMI 
  3.00pm  USD  CB Consumer Confidence 
       
Wed 01-Sep  ALL DAY  OIL  OPEC Meetings 
  ALL DAY  OIL  OPEC-JMMC Meetings 
  2.30am  AUD   GDP m/m 
  8.55am  EUR  German Final Manufacturing PMI 
  1.15pm  USD  ADP Nonfarm Employment Change 
  3.00pm  USD  ISM Manufacturing PMI  
  3.30pm  OIL  US Crude Oil Inventories 
       
Thu 02-Sep  3.30pm  GAS  US Natural Gas Inventories 
       
Fri 03-Sep  1.30pm  USD  US Nonfarm Payrolls 
  1.30pm  USD  Average Hourly Earnings 
  1.30pm  USD  Unemployment Rate 
  3.00pm  USD  ISM Services PMI 
  Tentative  GBP  Monetary Policy Report Hearings 

Week Ahead: All eyes on Jackson Hole

Week Ahead

The Jackson Hole Symposium is the big one this week. 

This annual gathering of top US and international finance policymakers, movers, and shakers has long been used to break major policy shifts. Markets are anticipating Fed Chair Jerome Powell will be using this year’s meeting to announce QE and stimulus policy changes. 

Powell could use the Symposium to announce a pullback from its current bond-buying programme. The Fed hinted as much in its July meetings, and there’s been plenty of rumblings that tapering is on the way, but as yet traders and investors are yet to receive an official green light.  

At present, the Fed is currently buying $120bn in fixed-income assets every month. $80bn comes from Treasury securities and the remaining $40bn is sourced from mortgage-backed securities. All of this was part of a package of ideas to help support the COVID-ravaged US economy. 

Bond traders and currency markets in particular are watching Thursday’s get together with interest. Clarity on the economy’s course, and navigational ideas to make it through a Delta-dominated landscape, will do much to allay their fears. It’s up to Powell now. 

Since the start of the year, the economy has been accelerating rapidly – even if last quarter’s GDP growth failed to meet expectations. But rapid rises can bring other challenges. In this case, they’re inflation shaped. CPI and PPI keep growing at record rates too, and while Powell has been content to let the economy run hot, he’d best put on some oven gloves, lest his fingers get burned. 

Speaking of inflation, further data on its impact is on its way with Friday’s release of Personal Consumption Expenditure index numbers, the Fed’s preferred gauge of inflation. 

PCE growth clocked in at 0.4% in July, below the expected 0.6%, but an increase of 3.5% on an annualized basis. Seeing as it has been rapidly rising across the past couple of months, no doubt Powell and co. will be keeping a very close eye on Friday’s print. 

Further economic health indicators are on their way in the shape of a Monday morning PMI blitz. We’ll get releases judging American business output then, as well as IHS Markit insights into British and European activity too.  

US flash PMI readings for manufacturing and service productivity are released on Monday. There will be a lot to unpack when these are published, particularly as July’s numbers reported solid-but-slowing growth in American business activity. 

Both services and manufacturing sectors continue to feel the twin fangs of inflation and COVID-19. Factory output caused the manufacturing index to drop from June’s 63.7 reading to 59.7 in July (a four-month low), while the services sector also pulled back from 64.6 to 59.8.  

Higher input costs, staff shortages, and rising raw material costs are limiting growth. Let’s be clear: a reading over 50 indicates growth, but it does appear there’s a slowdown occurring in American productivity. 

Much the same can be said of the UK, according to its own PMI figures. August’s index readings are published on Monday morning, but we’ve seen supply chain bottlenecks and low worker numbers hold back output.  

July’s IHS Markit UK services PMI score was 59.6, a quite significant drop from June’s 62.4. Manufacturing showed a similar drop to 59.2 from 62.2.  

“More businesses are experiencing growth constraints from supply shortages of labour and materials, while on the demand side we’ve already seen the peak phase of pent-up consumer spending,” said IHS Markit’s economics director, Tim Moore. 

Conversely, EU productivity showed a July surge. IHS Markit’s final composite Purchasing Managers’ Index reached 60.2 in July – the highest level since June 2006 – indicating a strong showing from both services and manufacturing. 

However, to sustain this, the EU will have to be careful to avoid the logistical and labour market snags that have hit the UK and US. It’s unlikely to do so, so we could be looking at a lower reading in August. 

Major economic data 

Date  Time (GMT+1)   Asset  Event 
Mon 23-Aug  8.15am  EUR  French Flash Manufacturing PMI 
  8.15am  EUR  French Flash Services PMI 
  8.30am  EUR  German Flash Manufacturing PMI 
  8.30am  EUR  German Flash Services PMI 
  9.00am  EUR  Flash Manufacturing PMI 
  9.00am  EUR  Flash Services PMI 
  9.30am  GBP  Flash Manufacturing PMI 
  9.30am  GBP  Flash Services PMI 
  2.45pm  USD  Flash Manufacturing PMI 
  2.45pm  USD  Flash Services PMI 
       
Wed 24-Aug  3.30pm  OIL  US Crude Oil Inventories 
       
Thu 25-Aug  ALL DAY  USD  Jackson Hole Symposium 
  1.30pm  USD  Preliminary GDP q/q 
  1.30pm  USD  Unemployment Claims 
       
Fri 26-Aug  ALL DAY  USD  Jackson Hole Symposium 
  1.30pm  USD  Core PCE Price Index m/m 

 

Week ahead: FOMC minutes to lift the veil on Fed’s thinking

Week Ahead

This week sees the release of the latest batch of FOMC meeting minutes, giving insight into the Fed’s inner workings. We also get some big data releases. US retail sales are in focus after an unexpected jump in June, as well as latest CPI figures for the UK economy. 

Minutes from July’s FOMC meeting are published this week.  

Things remained pretty much where they started when the Fed met for its monthly two-day meeting last month.  

It did not lift interest rates from their current historically low level, nor did the Fed announce when it planned on altering its $120bn monthly bond-buying programme.  

“Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgagebacked securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals,” said the FOMC in a statement. “Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.” 

The basic undercurrent is that the economy is recovering, despite rapidly rising Covid-19 case numbers. However, prevailing changes in the economy, resulting from the pandemic, may force Chairman Powell to act quicker than expected. 

We’ve seen core inflation rise in successive CPI prints – but we’ve also seen the employment rate drop too. Last month’s nonfarm payroll print was one of the strongest for years, with 943,000 new jobs added to the US economy. The unemployment rate fell to 5.4% too. 

Job participation is one of the key metrics the Fed is using to gauge the United States’ economic health to make policy adjustments. We’ve already seen some chinwagging suggest that tapering is on the way, so this may supersede the insights we’ll gain on Wednesday’s FOMC minutes release. 

Switching to data, US retail sales figures are released this week. Markets will be looking to see if June’s surprise increase was a one-off or the start of a new trend. 

Core retail sales rose 1.1% and retail sales as a whole grew 0.6% in June, something which markets weren’t expecting. From a year-on-year perspective, sales surged 18% against June’s 2020 levels. 

According to the US Commerce Department cited Covid-19 vaccinations, low interest rates, and huge fiscal stimulus as underpinning retail sales. But, as mentioned above, this was a bit of a shock for US economists. With the US economy reopening, consumer spending was trending more towards experiences and trips, rather than consumer goods. 

In fact, at the last retail data reading, May’s stats were revised down. It was a 1.7% monthly decline in May, rather than the 1.3% originally reported. Again, this was due to the switch from consumer goods to experiences. 

Staying on the data front, July’s UK consumer price index readings come on Wednesday morning.  

June’s print showed a CPI three-year high. At 2.5% in June, up from 2.1% in the previous month, consumer price inflation is now at its highest level since 2018. That may prompt the Bank of England into changing its stance on rate hikes sooner than expected. 

That said, Governor Bailey maintained the UK central bank’s dovish stance at its August meeting, deeming CPI inflation as transitionary. No major tweaks to UK monetary policy were made at this time.  

The Bank of England has adjusted its long-term inflation outlook, however. It now believes inflation will run at 3.1% throughout the next 12 months – up from the 2.8% rate forecast in June. 

Will we see another estimate-beating CPI reading this month – and will this be enough to spur Governor Bailey and co. into action?  

Speaking of central banks, the Reserve Bank of New Zealand gives its August rate statement next week.  

Rumours are flying that the RBNZ could raise rates as early as this month. It’s already committed to removing its QE programme in a move that surprised onlookers in July.  

“Our current expectation is that the RBNZ will hike interest rates in the August Monetary Policy Statement (MPS), followed by a subsequent hike in each MPS till [the] interest rate reaches 1.75% in 2022,” said Finn Robinson, economist at Australia and New Zealand Banking Group (ANZ). 

Currently, New Zealand’s cash rate is 0.25%, the same rate it has been for the past year. 

This is likely a response to rising CPI inflation. July’s print saw New Zealand’s consumer price index rising by 1.3%, bringing total inflation to 3.3%, passing the RBNZ’s 1-3% target. 

If a rate hike is coming, New Zealand would be one of the first, if not the first, country to do so. 

It’s also the final week of this quarter’s earnings season this week. We’re not expecting too many large caps to report in, with Walmart being the largest firm still yet to report, but you can see which companies are sharing their quarterly with our earnings calendar 

Major economic events 

Date  Time (GMT+1)  Asset  Event 
Tue 17-Aug  2.30am  AUD  Monetary Policy Meeting Minutes 
  1.30pm  USD  Core Retail Sales m/m 
  1.30pm  USD  Retail Sales m/m 
       
Wed 18-Aug  3.00am  NZD  Official Cash Rate 
  3.00am  NZD  RBNZ Monetary Policy Statement 
  3.00am  NZD  RBNZ Rate Statement 
  4.00am  NZD  RBNZ Press Conference 
  7.00am  GBP  UK CPI m/m 
  1.30pm  CAD  CPI m/m 
  3.30pm  OIL  US Crude Oil Inventories 
  7.00pm  USD  FOMC Meeting Minutes 
       
Thu 19-Aug  2.30am  AUD  Employment Change 
  2.30am  AUD  Unemployment Rate 
       
Fri 20-Aug  7.00am  GBP  Retail Sales m/m 

 

Key earnings data 

Mon 16 Aug  Tue 17 Aug  Wed 18 Aug 
Roblox Corporation  Walmart   Lumentum Holdings 
 
Cisco Systems 
 
NVIDIA  

 

Week ahead: OPEC+ meets as Delta variant puts pressure on oil markets

Week Ahead

OPEC-JMMC August meetings, pushed back after July’s tough negotiations, take place this week. Traders will look to the cartel for a response to potential dents to demand recovery caused by rising Delta variant numbers worldwide.

Elsewhere, UK Q2 GDP figures are released on hopes of strong growth while US CPI inflation is in focus too with July’s stats coming this week.

It’s fair to say July was a bit of a tense month for OPEC and its allies. It will be hoping to avoid further conflicts when it meets on Thursday this week.

The Cartel has been doing its best to not go overboard with production tapering. Given the relative strength of prices, despite last week’s wobble, its efforts to curb output to protect prices have been broadly successful.

Come July’s meeting, fractures began to appear in the OPEC façade. It’s always a balancing act when its members and allies get together in order to weigh each individual member state’s interests. Oil production is an integral part of all their economies after all. In this case, the UAE was pushing hard to lighten restrictions and redress base levels – something which Saudi Arabia was resisting.

That’s all spilt milk under the bridge now. A deal was reached, after delayed and reorganise meetings and hectic negotiations on both sides. The stoppers have been loosened. New baselines were awarded to members, including chief agitator the UAE, at the eventual outcome.

An extra 400,000 bpd will be added to OPEC+ production monthly volumes from August onwards. That should bring production up to about 2m bpd by the end of 2022. OPEC also confirmed it had extended its production cut deal until April 2022.

This month’s meeting, however, takes on a different hue as rising Delta variant COVID cases continue to mount worldwide. That could majorly impact demand recovery, and thus instigate some kind of retooling to OPEC+’s plans going forward.

A slowdown in Chinese manufacturing could also affect OPEC’s thinking. China is the world’s largest crude importer, so if less oil is needed to fuel its factories then prices could drop as markets recalibrate to lowered Chinese crude imports.

Whatever happens, OPEC will no doubt be extremely keen to avoid any fortnight-long negotiations as happened in July. Either way, Thursday’s meetings will be an interesting watch.

This week also sees the publishing of the UK’s preliminary Q2 growth figures.

Strong vaccine rollout coupled with dropping COVID cases are expected to have supported growth in Q2, following the UK’s1.6% contraction in Q1. Higher consumer spending is likely to be the main growth engine, however, accounting for roughly 70% of gross domestic product between May-July.

So, what are the forecasts? The British Chamber of Commerce (BCC) believes Q2 growth will clock in at 4.1% in 2021’s second quarter.

“The UK economy is in a temporary sweet spot with the boost from the release of pent-up demand, if restrictions ease as planned, and ongoing government support expected to drive a substantial summer revival in economic activity, underpinned by the rapid vaccine rollout,” the BCC said in a statement.

Looking long term, overall GDP growth predictions float between the 7-8% mark. The Confederation of British Industry’s forecasts sit at the optimistic end of the scale at 8.1% for the year.

As it stands, however, the UK’s domestic output is still some 8.8% lower than before the pandemic. Long term growth will likely cool with the effects of inflation and lower government support as we move into 2022.

Speaking of inflation, the week’s other key data release is the US consumer price index figures for July.

If the pace of inflation continues, then it will really test the Fed’s resolve. Chairman Powell has committed to the historically low cash rate, and seems content to let the economy run hot, but is this really sustainable?

June’s CPI inflation already caused alarm for some economists. By rising 5.4% year-on-year, the index had risen at its fastest pace since August 2008.

So far, the Fed has characterised inflation as “transitionary” and is still sticking to its dovish outlook. Its data modelling calls for 3% headline inflation by the end of 2021, before falling back to 2.1% in 2022.

Given consumer spending is the US economy’s major growth engine, accounting for roughly 68% of GDP, it’s little wonder why some observers are feeling tetchy and calling for more action. Gross domestic product missed growth expectations in Q1, for instance, as high prices limited consumer spending.

July’s CPI reading may thus be doubly important for the Fed.

It’s a subdued week for earnings on Wall Street, but we still have some large caps reporting. Headliners this week include Walt Disney, Palantir, and Airbnb who all report in on Thursday.

Make sure you check out our US earnings season calendar to see which large caps are still due to share quarterly earnings this week and beyond.

Major economic data

Date Time (GMT+1) Asset Event
Tue 10-Aug 10.00am EUR ZEW Economic Sentiment
10.00am EUR German ZEW Economic Sentiment
Wed 11-Aug 1.30am AUD Westpac Consumer Sentiment
1.30pm USD CPI m/m
1.30pm USD Core CPI m/m
3.30pm OIL US Crude Oil Inventories
Thu 12-Aug ALL DAY OIL OPEC-JMMC Meetings
7.00am GBP Prelim UK GDP
1.30pm USD PPI m/m
1.30pm USD Core PPI m/m
3.30pm GAS Natural Gas

 

Key earnings data

Mon 9 Aug Tue 10 Aug Thu 12 Aug
The Trade Desk (TTD) PMO Coinbase Global (COIN) AMC Palantir Technologies (PLTR) PMO
Viatris (VTRS) PMO Airbnb (ABNB) AMC
Walt Disney (DIS) AMC

Week Ahead: All eyes on US jobs report

Week Ahead

A busy week ahead for the markets with the US nonfarm payrolls as the marquee event, as well as two major central bank statements.

Let’s start with the latest US nonfarm payrolls print.

June’s reading performed way above expectations, and the markets will be watching closer than ever when the latest data is released on Friday.

850,000 payrolls were added to the US economy in June – way above the 720,000 forecast. This was also the sixth consecutive month where new additions were made.

However, the unemployment rate rose from 5.8% to 5.9% – higher than the predicted 5.6% rate forecast. Labour force participation, the go-to metric for gauging workforce shortages nationwide rate didn’t budge at 61.6%.

Hiring appears to have dipped a little overall throughout the spring. There are a couple of reasons for this: virus fears; childcare costs; better unemployment insurance; stimulus & furlough schemes. However, it’s been reported that firms have upped wages in order to entice workers into taking new positions.

The employment rate is also an important measure for Fed Chairman Jerome Powell when assessing stimulus and support levels for the US economy.

We know Powell and co. are relatively comfortable about letting the economy run hot, even in the face of rising inflation. As Powell pointed out at the last Fed meeting, there remains a gap of 7.5 million jobs missing from the US economy, although some reports suggest the figure is 6.8m. Until these open positions are filled, expected more Fed stimulus and support.

In terms of indices, the S&P 500 and Nasdaq responded very well to last month’s bumper jobs report, reaching new record highs. Indices traders will be hoping for more of the same with July’s print.

Sticking with US-related data, ISM, one of the key purchasing manager index reporters for the American economy, shares its manufacturing and services outlooks this week.

US manufacturing was still robust last month, according to ISM’s PMI report, but supply chain issues continue to inhibit growth. The factories printing was rated at 60.6 – down from the 61.2 score registered in May.

Momentum is still strong. Four out of the five subindexes rated by ISM showed high growth. Consumer interest in new goods is still high, despite rising prices. But labour shortages, coupled with the rising price of commodities and materials, has caused bottlenecks and shortages as manufacturers struggle to keep up with demand.

“Record-long raw-material lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

The same can be said for the services sector: it expanded in June, but that expansion had softened compared with a best-ever May rating. In this case, the index fell from 63.5 to 60.1.

“The rate of expansion in the services sector remains strong, despite the slight pullback in the rate of growth from the previous month’s all-time high,” explained Chair of the ISM Services Business Survey Committee Anthony Nieves. “Challenges with materials shortages, inflation, logistics and employment resources continue to be an impediment to business conditions.”

Keeping that momentum going is all important for America’s economic health – especially as the US is expected to be the driving force behind the global economic recovery across the rest of this year and beyond.

Moving away from data, a pair of central bank statements are on the way next week.

Starting with the Bank of England, rising inflation is the big one here.

In June, inflation reached 2.5%, thanks to widespread increase in consumer goods. This could just be pent-up demand in the British economy finally being unleashed, but as inflation is now at its highest levels for three years, economists’ nerves may be tested.

Governor Bailey has already made his stance clear: the price jumps are only temporary, and we could see it run as high as 3% by the year’s end. It should then fall away back to acceptable levels after that. Currently, the BoE has a mandate to steer inflation towards 2% and keep it there.

However, Bailey has stated he would be ready to pitch rate hikes should inflation run out of this control.

The Reserve Bank of Australia also shares its latest policy thinking and direction this week.

Chances are, no big changes are coming. Governor Philip Lowe has been very clear that no rate hike will be forthcoming until at least 2024. That’s despite Australia’s strong economic fundamentals.

The historic low cash rate of 0.1% isn’t going anywhere. What’s interesting, however, is that July’s meeting led to some tweaks in Australia’s QE programme. The scale has been pulled back. From September onwards, the rate of RBA bond purchases will slow from AUD$5bn to AUD$4bn per week.

The groundwork for more tweaks to policy has been laid by Governor Lowe. Let’s see what this week’s meeting brings in terms of any small-scale changes.

We can’t finish a preview of the week’s key events without touching on US earnings season.

Week three of large cap earnings reports for Q2 2021 begins on Monday. It’s not as busy as the previous week’s reporting flurry, but we still have some significant reports coming in, namely Alibaba and Uber.

Check out our US earnings calendar for more information on which major firms are sharing earnings reports this week or see below.

Major economic data

Date Time (GMT+1) Asset Event
Mon 2-Aug 8.55am EUR German Final Manufacturing PMI
  3.00pm USD US ISM Manufacturing PMI
 
Tue 3-Aug 5.30am AUD RBA Rate Statement
  5.30am AUD Cash Statement
  11.45pm NZD Employment Change q/q
  11.45pm NZD Unemployment Rate
 
Wed 4-Aug 2.30am AUD Retail Sales m/m
  1.15pm USD ADP Nonfarm Employment Change
  3.00pm USD US ISM Services PMI
  3.30pm OIL US Crude Oil Inventories
 
Thu 5-Aug 12.00pm GBP Asset Purchase Facility
  12.00pm GBP BOE Monetary Policy Report
  12.00pm GBP MPC Asset Purchase Facility Votes
  12.00pm GBP Monetary Policy Summary
  12.00pm GBP MPC Official Bank Rate Votes
  12.00pm GBP Official Bank Rate
  3.30pm GAS US Natural Gas Inventories
 
Fri 6-Aug 2.30am AUD RBA Monetary Policy Statement
  1.30pm CAD Employment Change
  1.30pm CAD Unemployment Rate
  1.30pm USD Average Hourly Earnings q/q
  1.30pm USD Nonfarm Employment Change
  1.30pm USD Unemployment Rate

 

Key earnings data

Mon 2 Aug Tue 3 Aug Wed 4 Aug Thu 5 Aug
Arista Networks Alibaba General Motors Ball Corp
Activision Blizzard The Kraft Heinz Co Beyond Meat
Roku Inc Illumina
Uber Technologies Square Inc
The Trade Desk
Virgin Galactic Holdings

Week Ahead: The Fed meets as inflation bites

Week Ahead

The Fed meets as inflation starts to bite into the US economy. Will we see any major changes from Powell and co? US GDP is in focus too with forecasts calling for more record quarterly growth. Meanwhile, Tesla hits the accelerator on the busiest US earnings season week so far this quarter.

Earnings reports aside, the week’s big event is July’s FOMC meeting.

Inflation and a hot-running economy are likely to take centre stage during July’s talks. We’ve recently seen Chairman Powell pledge “powerful support” for the US economy post-pandemic amidst a backdrop of rising inflation.

According to Powell, current rising consumer prices is down to the nation’s reopening and will fade. In a testimony to the US House of Representatives, Powell stuck to the jobs script, pointing out there is still 7.5 million jobs missing from the US’ pre-pandemic economy.

A reduction in stimulus is some way off, according to Powell. The Fed’s $120bn a month bond purchasing programme is probably not going to change. As mentioned above, this is tied in with labour markets. Bond-buying and Fed support will likely remain in place until those job gaps are filled.

No rate hike is expected until 2023 at the earliest.

But for all the Fed’s talk of inflation being broad-based, stemming from heightened economic activity, many remain unconvinced on the plan to let the economy run hot.

June’s headline CPI print of 5.4% was the highest reading for nearly 13 years. Observers on both the Democratic and Republic side will be hoping this can be tamed relatively soon.

Powell has promised that if inflation runs rampant, “we will use our tools to guide inflation back down.”

But “it would be a mistake to act prematurely.”

Sticking with the US economy, we are due the first reading of the nation’s Q2 GDP on Thursday.

So far, predictions are good. Deloitte cites technological advances may help power the US towards another bumper quarter – outstripping pre-pandemic growth levels.

The Conference Board has predicted the US economy will grow at an annualised 9% in 2021’s second quarter.

“As the economy fully reopens and consumer confidence continues to rise, we expect consumer spending to help drive the recovery forward – especially spending on in-person services,” TCB said. “These outlays will be underpinned by a strengthening labour market and a large pool of savings derived from three rounds of fiscal stimulus checks dispersed over the last year.”

We’ve also seen in previous PMI releases that manufacturing and services sectors have continued to act on a growth footing into June following a strong April and May. Three months of solid PMI performance should help power US GDP growth this quarter.

But again, all of this pent up demand being unleashed is leading into the higher core consumer goods prices the US is currently experiencing. We’ve also had reports of high input prices starting to affect manufacturing output too. June’s manufacturing PMI reading was actually slightly lower than May’s for instance.

But, if predictions are correct, the US is about to experience one of its best periods of quarterly growth since the Second World War.

Moving away from data, it’s the busiest week for earnings season this quarter so far.

Nearly 40 US large caps are due to share their Q2 earnings this week. This includes the bulk of the FAANG stocks. Netflix reported last week, but these remaining tech giants, Alphabet (Google), Amazon, Facebook, and Apple, are all reporting in.

Tesla, however, kicks off proceedings with its earnings summary coming on Monday after US market close.

This is interesting because Tesla has rocketed 330% in terms of share price between May 2020-May 2021 and traditionally share prices tend to rise prior to Tesla releases. They have done so at an average of 1.6% ahead of all quarterly releases for the past three years.

Elon Musk’s carmaker has much to celebrate this quarter. It delivered 200,000 in a quarter for the first time. Tesla has also unleashed a range of new automation services, based on an $199-per month subscription service.

Earnings forecasts are strong, but we’ll know more on Monday.

For more information on which large caps are reporting, be sure to check out our US earnings calendar.

Major economic data

Date Time (GMT+1) Asset Event
Mon 26-Jul 9.00am EUR German ifo Business Climate
 
Tue 27-Jul 3.00pm USD US Consumer Confidence
 
Wed 28-Jul 2.30am AUD CPI q/q
  2.30am AUD Trimmed Mean CPI q/q
  1.30pm CAD CPI m/m
  3.30pm OIL US Crude Oil Inventories
  7.00pm USD FOMC Statement
  7.00pm USD Federal Funds Rate
  7.30pm USD FOMC Press Conference
 
Thu 29-Jul 1.30pm USD Advanced GDP q/q
  3.30pm GAS US Natural Gas Inventories
 
Fr 30-Jul 9.00am EUR Germany Preliminary GDP q/q
  1.30pm CAD GDP m/m
  1.30pm USD Core PCE Price Index m/m

 

Key earnings data

Mon 26 Jul Tue 27 Jul Wed 28 Jul Thu 29 Jul Fri 30 Jul
Tesla 3M Automatic Data Processing CME AbbVie
General Electric Boeing Keurig Dr Pepper Aon
Advanced Micro Devices McDonald’s Mastercard Caterpillar
Alphabet (Google) Pfizer Merck Chevron
Apple Shopify Amazon Exxon Mobil
Microsoft Spotify Gilead Procter & Gamble
Mondelez Facebook Liberty Global Takeda Pharmaceutical
Starbucks Ford Pinterest Berkshire Hathaway
Teladoc Health PayPal Twilio
Visa Qualcomm

 

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