- Eurozone & US 'flash' PMIs and UK CBI Industrial Trends dominate data
schedule; final round of Fed speak and deluge of corporate earnings
also on tap
- Eurozone PMIs: modest recovery in Services PMI expected, Manufacturing
seen little changed, orders and price components in focus
- US Manufacturing PMI: seen unchanged vs September, stuck in a tight range
for much of the year; focus on orders, output & employment
- Week Ahead: raft of provisional Q3 GDP readings accompany Eurozone and
Japan CPI prints; US Durables, Oz CPI, South Korea GDP also on tap
- Week Ahead: Riksbank and Bank Rossi likely to underline easing bias,
Norges Bank, Bank of Israel and Hungary MNB rather more neutral
- Week Ahead: busier week for govt bond supply features US 2, 5 & 7-yr and
UK 2065 syndication
- VIX, MOVE indices, HY ETF and EM bond spreads ostensibly suggesting
largely unfettered risk asset appetite
- Charts: VIX vs. MOVE; US HY ETF vs S&P500, JPM EMBI spread, Deutsche
Bank EUR Coco, Energy CFTC positioning, Baker Hughes Rig Count
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** EVENTS PREVIEW **
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Flash PMIs from Japan (showing a notable pick-up, paced by orders, echoing the monthly Tankan), Eurozone and the US accompanied by the UK's CBI Industrial Trends survey dominate the day's statistical schedule, while Fed and ECB speak and the start of a very busy week for US and other corporate earnings top the events schedule. A sizeable lead in the electoral college is seen by many as allaying US political risks, though this appears to ignore that the battle for both houses in Congress will be just as important for the US political outlook, the more so given that the idea that Mrs Clinton will be either Obama 2.0 or indeed Bill Clinton 2.0. The closed door meeting of China's Communist Party Plenum will doubtless spawn a number of headlines (from sources and officials) about President Xi's agenda, with markets particularly sensitive to CNY related headlines, even though the latter appear likely to be a reprise of the mantra about keeping the Yuan 'broadly stable'. The better than expected overnight Japanese Trade data still saw exports falling, with a marginal rise in EU Exports (0.7% y/y) offsetting continued weakness to Asia (-8.4% y/y) and the US (-8.7% y/y), which mirrors last week's Singapore Non-oil Exports, and leaves questions about the sustainability of the pick-up, which was also seen in the PMI. Be that as it may, the most notable feature of the moment remains the ostensibly high level of "risk appetite" as evidenced by the US HY bond ETF being at its highs, despite the S&P 500 being off its best levels for the year, while both the VIX and the MOVE (US treasuries) volatility indices head back towards their lows, and the JPM EM Bond spread also being close to its lows, despite 2016 being on course to be a level of record high issuance, even Deutsche Bank's 6.0% EUR denominated Cocos have recovered to just below their average for 2016. It remains the case that this risk appetite is far more a function of financial repression and a desperate reach for yield, and is certainly predicated on any sense of perceived absolute value, with relative value considerations pacing the churn of portfolios.
** Eurozone / U.S.A. - October 'flash' PMIs **
- Outside of a bounce in the German Services PMIs, the array of Eurozone PMIs are in principle seen little changed vs. October, with the Eurozone Manufacturing PMI seen at 52.6, locked in a tight range for most of 2016, and the Service PMI seen edging up to 52.4 from a 21 month low of 52.2 in September. Price sub-indices will liekly be the most closely watched element barring headline surprises. The US Manufacturing PMI has been in slightly wider but still quite narrow range as the Eurozone version, and is forecast to be unchanged at 51.5, in contrast to a rather more volatile profile to the Manufacturing ISM; Orders, Output and Employment indices look likely to be the key sub-components.
RECAP: updated: The Week Ahead - Bullet point highlights: 23 to 28 October 2016
- It will be something of a hiatus week, given that next week brings the BoJ, Fed and BoE meetings along with the November labour data, however there is a heavily backloaded run of data in the US, Japan and Eurozone, and there will be a deluge of US (ca. 1/3 of S&P 500 companies report this week) and indeed European and Asian Corporate Earnings (see listings below).
- CPI data from Japan, Germany, Spain, France combine with preliminary Q3 GDP readings from the US, UK, France, Spain, Austria and to top the bill; the US also sees Durable Goods Orders, FHFA House Prices and Pending Home Sales; Australia has Q3 CPI. The usual end of month raft of surveys on business and consumer confidence is also on offer, including the Ifo in Germany, CBI surveys in the UK and today's 'flash' PMIs in Japan, Eurozone and USA. US Q3 GDP is forecast to rise 2.5% SAAR, which is more optimistic than the Atlanta Fed's GDPnow estimate at 2.0%, and the NY Fed's GDP 'nowcast' estimate of 2.2% (with Q4 currently projected at just 1.4%). French and UK GDP are both projected at 0.3% q/q, while Spain's Q3 GDP is seen slowing marginally to 0.7% from Q2's 0.8% q/q.
- Rate decisions in Sweden, Norway, Hungary, Israel and Russia are all expected to see rates and unconventional measures left unchanged, though the Riksbank and Bank Rossi are likely to emphasize a dovish bias. Central bank speakers are a little less plentiful as the Fed enters its purdah period from Tuesday, with Bullard, Dudley, Evans and Powell all on tap on Monday.
- A rather antagonistic tone continues to dominate EU/UK negotiations, while the EU continues to struggle to display large differences of opinion on numerous key issues from migration to budgets, which will be closely monitored. Russia / OPEC negotiations on the oil production cap will also be on hand, with the ostensible co-operative tone masking a good deal of exceptionalism by the likes of Iraq and Nigeria, while Russia's position on capping or even reducing output remains ambivalent at best. Attention will also be given to the various pronouncements of Clinton and Trump as the final intensive period of campaigning for the presidential election enters its last two weeks.
- Government bond supply is also quite plentiful as the US sells $88 Bn of 2s, 5s and 7s; the UK reopens its 2065 Gilt via syndication, Japan offers 2 and 20 yr JGBs; Germany sells a modest 3 Bln, Belgium sells EUR 1.5-1.8 Bln of 10, 15 & 30-yr, Italy offers medium & Long-dated BTPs (details on Monday), Finland sells EUR 1.0 Bln of 15-yr, and there is the possibility that Portugal may also offer bonds after the DBRS review last week, as Portuguese 10-yr yields hit a six week low on the open.
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Not busy next Monday evening? Then may be you would be interested in attending this, where I will be speaking:
Bloomberg, CBOE and XFA Global "Equity Volatility Symposium" - London
When & Where: Monday 31 October 2016 16:30 — 20:00
Bloomberg L.P.
City Gate House
39 - 45 Finsbury Square
London - EC2A 1PQ
To Register:
See
https://go.bloomberg.com/promo/invite/cboe-xfa-symposium/
Agenda:
16:30 Registration and refreshments
17:00 Welcome and introductions
Sujit Nagda, Equity Derivative Application Specialist, Bloomberg
Paul O'Donnell, Managing Director, XFA Global
17:15 The Changing Face of Political Risk in a Low Rate and Volatility Environment
Marc Ostwald, Strategist, ADM Investor Services International Limited
17:45 Below Zero - Trading Opportunities for Derivatives in a a "Post-Yield" World
Pete Clarke, Global Head of Equity Derivatives Strategy, UBS
18:15 Panel on Volatility-Based Investment Strategies
Moderator Paul Stephens, Vice President, CBOE
Panelists
Stephen Crewe, Portfolio Manager, Fulcrum Asset Management
Sebastien Fredenucci, Global Derivatives Sales Manager, XFA Global
Anthony Limbrick, Principal – Portfolio Manager – Head of Quantitative Research, 36 South Capital Advisors LLP
Sujit Nagda, Equity Derivative Application Specialist, Bloomberg
19:00 Networking reception
from Marc Ostwald
