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Week Ahead: US consumer in focus with retail sales and earnings
Will there or won’t there be a Brexit deal this week? Who knows, talks continue for now but the deadline approaches. Meanwhile we are looking to the US consumer this week with retail sales figures for October and earnings updates from Wal-Mart, Home Depot and Target among others.
At the time of writing, Brexit talks are rumbling on but with no end in sight. We have a seen a lot of the usual posturing but so far the two sides remain at odds over the so-called level playing field and fishing rights. As ever, the pound will remain sensitive to headline risk. GBPUSD rallied to 1.33 last week, hitting its highest since early September, but how will markets position in the even of a cliff-edge no deal exit from the transition period at the end of December?
US retail sales & earnings
US consumer confidence will be tested this week as we look at the retail sales figures for October and some big earnings updates from the likes of Wal-Mart, Target, Home Depot, Lowe’s and TJX. Retailers have done well during the pandemic as consumers have spent less on experiences like holidays and dining out and more on stuff from gadgets to groceries. But how have consumers in the US fared since the end of $600-a-week stimulus cheques?
September saw a blow-out month as retail sales grew at the fastest pace in three months, rising 1.9% after a +0.6% move in August. Consumers have built up a lot of savings and are ready to deploy these in the economy – October may see another strong month though the election may be a factor. Department stores sales rose 9.7%, whilst clothing sales were up 11%, but are still down 7.3% and 12.5% respectively on last year.
Watch the rotation
Last week saw a big move out of growth and momentum into value and cyclical stocks with the vaccine news from Pfizer driving a reflationary trade. Although there was some moderation in the flows later in the wee, the Nasdaq 100 came under pressure while industrials and the small cap Russell 2000 rallied well. European equities also jumped with the FTSE 100 notably making multi-month highs with its strong cyclical components. Find out what Wall Street’s big investment banks think will happen to the markets this year and in 2021.
Will Donald Trump continue to press his claims? Georgia is recounting all votes by hand. The market has all but counted out the president, but are investors too sanguine about a potential constitutional crisis in the US? The truth is most Republicans know he has lost but they have one eye on the Georgia Senate run-off votes in January and they appreciate that Trump can get the vote out to counter the Democrats. If the Democrats take both seats, the Senate is split 50:50 with the casting vote in this situation resting with the Vice President.
Top Economic Data This Week
|Sun Nov 15||11:50pm||JPY||Prelim GDP Price Index y/y|
|JPY||Prelim GDP q/q|
|Mon Nov 16||12:01am||GBP||Rightmove HPI m/m|
|2:00am||CNH||Fixed Asset Investment|
|CNH||Industrial Production y/y|
|CNH||Retail Sales y/y|
|4:30am||JPY||Revised Industrial Production m/m|
|USD||Empire State Manufacturing Index|
|3:30pm||AUD||CB Leading Index m/m|
|Tue Nov 17||12:30am||AUD||Monetary Policy Meeting Minutes|
|USD||Core Retail Sales m/m|
|USD||Retail Sales m/m|
|USD||Import Prices m/m|
|2:15pm||USD||Capacity Utilization Rate|
|USD||Industrial Production m/m|
|Wed Nov 18||12:30am||AUD||Wage Price Index q/q|
|GBP||Core CPI y/y|
|GBP||PPI Input m/m|
|GBP||PPI Output m/m|
|10:00am||EUR||Final CPI y/y|
|EUR||Final Core CPI y/y|
|Tentative||GBP||Bank of England Monetary Policy Report Hearings|
|3:30pm||USD||Crude Oil Inventories|
|Thu Nov 19||12:30am||AUD||Employment Change|
|1:30pm||CAD||ADP Non-Farm Employment Change|
|USD||Philly Fed Manufacturing Index|
|3:00pm||USD||CB Leading Index m/m|
|USD||Existing Home Sales|
|3:30pm||USD||Natural Gas Storage|
|11:30pm||JPY||National Core CPI y/y|
|Fri Nov 20||12:01am||GBP||GfK Consumer Confidence|
|12:30am||JPY||Flash Manufacturing PMI|
|7:00am||EUR||German PPI m/m|
|GBP||Retail Sales m/m|
|GBP||Public Sector Net Borrowing|
|1:30pm||CAD||Core Retail Sales m/m|
|CAD||Retail Sales m/m|
|All Day||All||G20 Meetings|
Top Earnings Reports This Week
Don’t forget to tune into XRay for more updates.
|17-Nov||Walmart||Q3 2021 Earnings|
|18-Nov||NVIDIA||Q3 2021 Earnings|
|17-Nov||Home Depot||Q3 2020 Earnings|
|18-Nov||Lowe’s Companies||Q3 2020 Earnings|
|19-Nov||Intuit Inc||Q1 2021 Earnings|
|20-Nov||Naspers||Q2 2021 Earnings|
|18-Nov||Target Corp||Q3 2020 Earnings|
|18-Nov||TJX Cos. Inc||Q3 2021 Earnings|
|16-Nov||Vodafone Group||Q2 2021 Earnings|
As Trump-Xi prepare to meet, Beijing jabs at Washington
This G20 meeting might as well be the G2 this time around. The United States and China are the main topic, the two having hit economies across the globe with their trade dispute.
Markets have long been hoping that the gathering in Osaka might provide an opportunity for presidents Trump and Xi to meet and work through their differences. It was only a few days ago that state officials confirmed this was happening. Trump had previously dashed any hopes of a discussion.
But while Trump and Xi are preparing to meet to smooth things over, back in Beijing the rhetoric was still accusatory. Vice Commerce Minister Wang Shouwen stated that China wanted the US government to cease “inappropriate” actions against domestic companies.
Beijing hits back at US Commerce Department
On Friday the US Commerce Department blacklisted five Chinese companies from buying components made in the US. It already hit Huawei – the Chinese smartphone giant – which such a ban in May.
CNBC reported that Mr Wang, speaking in Mandarin, commented Monday that:
“We hope the US side, under the principles of free trade and the spirit of WTO principles, can cancel these inappropriate measures against Chinese companies, and remove them from the entity list. This has benefits for both sides.”
Markets are currently holding their breath, but today’s response from China is a good reminder that nothing has changed until the two leaders agree a deal.
We’ve been much closer to expecting a resolution before – there was even a deadline – only for things to worsen again. Trump and Xi are sure to make positive noises after their talk, and that will likely boost stocks, but behind their leaders, the governments of the US and China continue to throw punches.
Bitcoin jumps, stocks steady ahead of G20
All that glitters is not gold. Bitcoin is sparkling again but beware…breakdown’s coming up ‘round the bend.
Bitcoin jumped above $11,000, taking it to its highest level since March 2018. Futures are back down to $10,855 around send time. Investors are ignoring what happened the last time we saw parabolic rises like this. Is it different this time? No, but people have short memories. Facebook’s Libra white paper may have stoked renewed interest in cryptos at a time when the buzz had already returned.
Bitcoin is more mature etc, but the fundamentals of this scheme remain unaltered. What I would say is that arguably big money is starting to view this differently and think it could be very costly to ignore if they get left behind.
It may also be that the sharp liquidity boost we’ve seen from central banks is helping bitcoin. As we noted last week, it was only a matter of time before the $10k level was taken out it and now ultimately a retest of the ATHs near $20k looks very plausible.
Once this market builds up a head of steam, it’s hard to stop it. As previously argued, this is a big momentum play and the more buzz there is, the more that traders will pile in behind the rising wave. Bears could get burned before the market turns – maybe better to wait and let it fizzle out, which it will eventually. The more it rallies, the bigger the blow-up when it comes. However, we should expect some pullbacks and retracements along the way.
Stocks are maybe looking a little softer with the S&P 500 easing off its all-time highs on Friday and we’ve had a mixed bag from Asia overnight. Japan closed a shade higher at 21,285.
Futures indicate European shares are trading on the flatline as investors take a breather and look ahead to the G20 later in the week. FTSE 100 finding support at 7400, with resistance at 7460.
Coming up this week the G20 is centre stage for markets. President Donald Trump is expected to meet Chinese counterpart XI Jinping at this week’s G20 meeting in Osaka.
Last week Mr Trump tweeted: “Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.” No one thinks the US and China will do a deal in Osaka, but there is some hope that we will have a positive development that marks a shift in the rhetoric and a re-energising of talks following the breakdown in the recent discussions.
Iranian tensions are not going away, providing some support for oil. Brent was trading around the $65 mark, with WTI at $58. Fundamentals remain bearish but the uncertainty in the Middle East, specifically the risk of a closure of sea lanes, is enough to keep crude above water.
Since last week we’ve had news of the US launching a cyberattack on Iran and warnings from Iran about what a war would mean. Expect lots of turbulence from this but ultimately it does not look like the White House is spoiling for a fight. The risk is, as ever, in a miscalculation.
Gold remained firm, holding above $1400 as a weaker dollar combined with dovish central banks kept traders happy to bid up the metal. Geopolitical tensions may be a small factor, but ultimately gold has huge negative correlation with real yields, which have come right down. Friday’s move off the lows later in the session were key and the bull trend remains intact. A rebound in USD could trap bulls.
The dollar is softer with the euro and sterling holding gains. The euro is holding at a three-month high around 1.1380 – look for a push to 1.14.
Trading around 1.2760, GBPUSD is facing stiff resistance from previous highs and a big Fib level coming in, so we need to see this level breached on the upside to be more confident that the pound can maintain its gains.
Coming up this week – Fed speakers and the PCE inflation print will keep the FX market interested.