Week Ahead Key for Risk Week Ahead Key for Risk Week Ahead Key for Risk

Week Ahead Key for Risk

Equities 5 minutes to read

Summary:  Growth is still trending lower and incoming data continues to confirm that a bottom has not yet been reached but market focus will be set to turn back to central bank easing next week as the FOMC are set to deliver a 25bps rate cut. Fed aside we have a big week of data ready to try the recent optimistic market sentiment.

Markets continue to take cues from ongoing optimism on Trade developments as it was announced that Trump is considering delaying the Dec 2019 tariffs earlier this week, as well as Brexit developments. After a turbulent few months of chaotic headlines markets are buoyant and reaching for optimism, no news/”less bad news” is good news this week. It’s been relatively quiet on the data front, but with Aussie shares taking cues from Wallstreet we ended the trading week on a decidedly upbeat tone taking out a weekly high.

US Earnings so far have had something for everyone. For the bulls, the bar has been lowered significantly so companies are beating headline numbers more than historical averages. However, CEOs are continuously guiding lower and estimates for 2020 are being cut aggressively. When we cut through the noise of positive trade headlines to the economic data and company outlooks, the message is clear that the global economy continues to slow, and companies are suffering ongoing margin degradation, weaker demand and trade war woes. At some point, the continuously deteriorating earnings outlook where companies meet a lowered bar each quarter will not be enough to sustain the S&P 500 at these levels. This calls into question the sustainability of the present optimism resounding through markets, particularly once the smoke and mirrors optimism of a partial deal on trade fades.

Growth is still trending lower and incoming data continues to confirm that a bottom has not yet been reached. Green shoots are not visible in the most recent US data with Durable Goods Orders collapsing -5.4% Y/Y overnight. Europe fared marginally better as French manufacturing and services PMIs showed some improvement. But denting that positivity was further indication that the recent manufacturing slump continues to bleed into the services sector as Germany Services PMI ticked lower. As we have previously noted, this dynamic is key to whether the ongoing global slowdown will accelerate or stabilise.

The problem is that the manufacturing sector typically leads the services sector lower, which represents a larger part of the economy and is where the bulk of employment sits, so heightens the impact on consumption and raises recession risk. To date recessionary dynamics in the manufacturing sector has not yet spread into the services sector more broadly, with the impact being limited to trade sensitive services as we have highlighted back in July. But with the ongoing deterioration in services PMIs and retail sales data it appears the risks are increasing, which would deepen the slowdown already under way. This nascent spill over into the services sector puts the so far resilient consumer, currently underpinning the economic expansion, at risk because services is where a larger part of the workforce sits. 

With this backdrop in mind market focus will be set on turn back to central bank easing next week as the FOMC are set to deliver a 25bps rate cut. A 25bp rate cut next week is a done deal in our view, certainly most share that sentiment with market pricing now over 90% odds of another rate cut. But for markets the question will be what the probability of further easing is, with the Fed already meeting the threshold of what would be a mid-cycle adjustment and markets still pricing in another cut by April next year. It is clear that the global slowdown has continued into Q4, so we think another 25bps rate cut in December is on the table. However, the Fed are unlikely to communicate this full easing cycle and instead communicate their data dependence meaning markets will be highly sensitive to the incoming data in November.

With risks tilted to the downside and leading indicators still deteriorating the Fed will find it hard to deliver a hawkish cut. But by the same token with substantial easing already discount in markets and the committee divided on the path of rate cuts delivering a dovish enough message for the markets may also be a hard task.

Fed aside we have a big week of data ready to try the recent optimistic market sentiment. US ISM manufacturing, GDP and non-farm payrolls will be key and locally we have CPI and building approvals. Plus, China manufacturing PMIs towards the end of the week, so plenty of opportunity to test the complacent calm and see volatility return. Any turn in risk sentiment could also see the resilient bounce in the aussie dollar faded by month end if volatility returns and sentiment is dented.


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.