Saxo Spotlight: What’s on investors and traders radars this week?
APAC Strategy Team
Summary: There are some big macro worries as we enter the final quarter of the year. We are looking at not just how the UK crisis could develop further, but also which other country/market could succumb to the US yields or dollar strength as market disruptions are likely to widen. Geopolitics also remains a key focus amid Putin’s military losses, as this could mean he could further try to choke Europe and the world of key supplies. A significant production cut from OPEC+ is already making headlines, but China markets are away for the Golden Week. Reserve Bank of Australia may need to delay slowing down its pace of rate hikes, and brace for more profit warnings as well ahead of the Q3 earnings season which goes into full swing in two weeks.
US ISM indices and payrolls data to continue the economic optimism, spurring risk off in the markets
As the US economy continues to stay strong despite the aggressive Fed tightening, markets continue to be beaten out. Some respite was seen in the US yields and the US dollar last week, but data due this week could bring further risk-off with markets starting to price out some rate hike expectations for next year with the risks emerging from crisis in UK and possibly more crisis coming due to the run higher in US yields and USD. Data will likely show continued strength in the US economy and labor markets, especially ahead of the midterm elections. ISM manufacturing for September is due in the US session today, and Bloomberg consensus estimates signal some signs of a slowdown to 52.1 in September from 52.8 in August – that should likely be underpinned by improving supply chains, while new orders should remain upbeat and keep the sentiment positive. ISM services follows on Wednesday, and may also moderate as the services sector cools down from a peak, but will stay robust. Finally, the payrolls data on Friday is set for another positive surprise after sub-200k weekly jobless claims last week. Bloomberg consensus estimate as of now stand at gains of 250k for September from 315k last month, with unemployment rate and average hourly earnings steady at 3.7% and 0.3% respectively.
Russia’s counter-attack risks
Less than a day after Russia’s annexation of four Ukrainian cities and claims for these to be Russian territory, parts of these cities have been recaptured by Ukraine over the weekend. That is another military setback for Russia, and would possibly mean that Putin would be keen to press Europe’s energy nerves further as winter demand for energy starts to flow in. There are two key risks to highlight here: 1) Russia could cut supplies from Ukraine as well further to choke Europe and the world of energy and food supplies; and 2) there is an imminent threat of use of some low-yield nuclear weapons given how desperate Russia is now. Any of these moves could spur further risk off in the markets this week, and potentially, the effect will spill over to energy and agriculture markets, so think oil, gas, wheat, soybeans and the likes.
OPEC+ meeting on October 5 may bring production cuts
Oil prices were supported at the end of last week amid hopes of a production cut by OPEC+ members at their meeting this week. There were some reports that OPEC members have started talking about cuts with Russia proposing a 1 mln barrels per day cut, a reduction towards which they are unlikely to contribute much as they are already producing below their quota. At its last meeting on September 5, the group agreed a token reduction of 100,000 barrels a day for October, despite calls from consuming nations to help tame rampant inflation by keeping the taps open. With gasoline prices retreating in the US, some of that external pressure may now be easing, and that further raises the prospects of some price-supportive action.
Reserve Bank of Australia may step away from moving to a slower rate hike pace
The Reserve Bank of Australia is scheduled to announce its next rate decision on Tuesday, October 4. Governor Lowe had previously signalled that the pace of rate hikes is likely to slow from here after four consecutive rate hikes of the magnitude of 50bps. However, money markets and Bloomberg consensus forecast is still calling for another 50bps rate hike at the October meeting suggesting that RBA may delay taking the foot off the pedal just yet. The recent slide in the Australian dollar and worries over a turmoil in global financial markets may prompt the policymakers to front-load more of the rate hikes while the economy is still holding up. Retail sales data last week was upbeat while the first monthly inflation data reading at 6.8% is only slightly off the 7% levels seen in the preceding month. So, even as a monthly meeting can ensure a steady pace of rate hikes even with a smaller 25bps rate move, policymakers would possibly prefer to make a larger move this week to provide some support to the AUD. Likewise, the Reserve Bank of New Zealand is also expected to hike rates by another 50bps at their October 6 meeting.
Japan’s Tokyo CPI to see impact of reopening
Japan’s inflationary pressures are likely to continue to reign amid higher global prices of food, electricity as well as a weak yen propping up import prices. Bloomberg consensus estimates point to a slightly softer headline print of 2.7% YoY from 2.9% YoY previously, but the core is pinned higher at 2.8% YoY from 2.6% YoY previously. Further, the reopening of the economic from the pandemic curbs likely means demand side pressures are also broadening, and services inflation will potentially pick up as well.
Slow earnings week but watch for further profit warnings ahead of the Q3 reporting season
Last week, Biogen and its Japanese partner Eisai announced positive results in a phase-3 study on a treatment that slows Alzheimer’s disease. Analysts are eager to learn more about the treatment from the company’s presentation of more data at the Clinical Trails on Alzheimer’s Disease conference on Nov 29. For Q3 results, analysts expect Biogen’s revenue and adj. EPS to fall by around 11% to 12% Y/Y.
Analysts are expecting beverage company, Constellation Brands’ (STZ:xnys) revenues to grow at 5.6% Y/Y in the quarter ending Aug 31, led by its core bear portfolio of Modelo Especial and Corona Extra which recent channel surveys from Beverage Bytes and Nielsen suggested outperformance. The consensus estimate is optimistic and anticipates over 18% Y/Y growth on Adj. EPS with margin expansion.
Tesco’s (TSCO:xlon) FY23 1H results (ending Aug 31), scheduled to release this week, are worth watching it can let us have a glimpse of the state of U.K. consumers and some insights into the latest development in the inflation in the U.K. Analysts are expecting the U.K. grocer to report margin compression as a result of high energy costs and wage increases.
Key economic releases & central bank meetings this week
Monday, Oct 3
Japan Tankan survey (Q3)
ISM US manufacturing survey (Sep)
Indonesia inflation (Sep)
Tuesday, Oct 4
Australia home loans, building permits (Aug)
Australia RBA policy decision
Eurozone PPI (Aug)
US factory orders, JOLTS (Aug)
Wednesday, Oct 5
ISM US non-manufacturing survey (Sep)
S Korea inflation (Sep)
New Zealand RBNZ policy decision
Philippines inflation (Sep)
Thailand inflation (Sep)
Australia retail sales (Aug)
Germany trade balance (Aug)
ECB non-monetary policy meeting
US MBA mortgage applications/30-year mortgage rate
US trade balance (Aug), ADP employment (Sep)
Canada trade balance, building permits (Aug)
Thursday, Oct 6
Australia trade balance (Aug)
Taiwan inflation (Sep)
Germany factory orders (Aug)
UK & eurozone construction PMIs (Sep)
Eurozone retail sales (Aug)
US jobless claims
Friday, Oct 7
Japan household spending (Aug)
Germany industrial production (Aug)
UK Halifax house prices (Sep)
Canada labour market statistics (Sep)
US employment report (Sep)
US consumer credit, wholesale inventories (Aug)
Key earnings releases this week
- Tuesday: Biogen
- Wednesday: Keurig Dr Pepper, Aeon, Lamb Weston, Tesco, RPM International
- Thursday: Seven & I, Conagra Brands, Constellation Brands, McCormick & Co
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.