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The Week Ahead: G20; OPEC; U.S. Payrolls; PMI; BOC; RBA; Berkeley Group

Published 30/11/2018, 14:24
Updated 03/08/2021, 16:15

This weekend’s G20 meeting has continued to hang over stock market sentiment today like a bad smell, with investors content to remain cautious and on the side-lines as we head towards the final trading month of 2018. The constant raising and lowering of expectations in this week’s lead-up appears to have been enough to prompt a significant reluctance to do anything in the short term on the part of investors.

The main question remains around whose voice will win out in terms of keeping the discussions going without any further escalation. With expectations low, a positive outcome would be a pledge to delay the January increase in tariffs with a view to further discussions, a pledge to retain the current status quo, if you like.

Further escalations would be unlikely to be well received given the slowdowns we are already seeing in most global benchmark economic indicators, and given President Trump’s preoccupation with the stock market it would be surprising if he weren’t incentivised to come away with something this weekend in the hope that we’ll see stock markets rise into the Christmas period..

US payrolls – 07/12

The penultimate payrolls report of 2018, and the last one before a December rate rise isn’t likely to provoke too much of a reaction, unless the wages numbers beat expectations on either the upside or the downside. In October wages hit their highest levels in a decade at 3.1% and this trend is expected to continue in November, with an increase to 3.2%.

We also saw a strong rebound in jobs growth in October to 250k after a hurricane induced slowdown of 134k in September, and the November numbers could well see a pre-Thanksgiving boost as retailers hire hundreds of extra staff to cope with the upcoming holiday season. Expectations are for 205k, however don’t be surprised to see a number well above that.

OPEC meeting – 06/12

The sharp dive in oil prices over the last eight weeks has been extraordinarily painful for OPEC members, having seen prices briefly reach four year peaks in mid-October, we’ve seen losses of over 30% peak to trough, and the worst monthly performance in over ten years. Aside from the fact that these falls are good news for consumers, the speed of the falls has caught out Saudi Arabia, which is producing output at record levels, as is the US, in terms of shale.

Oil producers could well decide to cut output by over 1m barrels a day, with Russia also starting to express concern about falling prices. Even if production is cut concerns about slowing demand could still weigh on prices, which means a pledge to cut production may not do much to lift prices significantly in the short term, though we could see a rebound towards $63 if an agreement is reached.

RBA rate meeting – 04/12

In November the RBA left rates unchanged at 1.5% for the 27th month in a row, citing weak household consumption, despite further falls in the unemployment rate.

Fears of a slowdown in China has weighed on some parts of the Australian economy, however we’ve also seen the Australian banks announce increases to their own variable mortgage rates, which appears to be weighing on consumer spending power.

Could the RBA react to the higher funding costs being felt by Australian banks, or will they hold pat as they have done for over two years now. A slowing housing market might prompt the RBA to be more dovish than normal, however it is unlikely they’ll give any signs of a policy move in that direction

Bank of Canada rate meeting – 05/12

Having raised rates in October on the back of a rising oil price, the recent USMCA agreement to replace NAFTA which removed a significant layer of uncertainty over the Canadian economy, it’s highly unlikely that the central bank will move again until we’ve seen what the Federal Reserve does later this month.

It is true that unemployment is around 15 year lows, but the recent sharp fall in the oil price and recent sharp falls in headline inflation may well be enough keep Canadian policymakers on hold until next year, given that the Canadian dollar has weakened sharply in the past few weeks towards its summer lows.

Manufacturing PMI’s– 03/12

We’ve continued to see sustained weakness in this sector with Japanese manufacturing hitting a two year low last week, while the latest Germany and France flash numbers also showing similar weakness for the month of November, with France only 0.7 points away from outright stagnation. If this weakness is confirmed in this week’s numbers it really calls into question expectations about the policy path of central bank withdrawal of monetary stimulus, or quantitative tightening that has been the hallmark of this year’s price action, particularly with respect to European Central Bank monetary policy.

Services PMI’s – 05/12

It’s a big week for services PMI’s in light of concerns about a slowdown in the global economy as we get a further look into economic activity in Q4 from across the globe.

Recent data has shown that manufacturing activity has slowed considerably from the beginning of the year, and while services has proved to be slightly more resilient, it still appears to be slowing. We have seen some improvement in France and China but trade concerns continue to remain a worry.

This week’s November readings from Japan, France, Germany, Italy, Spain and the UK could well reinforce these concerns, while the latest US data also appears to be showing signs of softening having outperformed for most of this year due to the US tax cuts that came into effect at the beginning of the year.

Stagecoach (LON:SGC) group H1 - 05/12

One of the UK’s largest transport companies got off to a good start to its latest financial year in August this year, helped by decent summer weather in the UK which prompted a lot of people to stay at home and use buses and trains more to get around the UK.

In London bus revenue was lower, however elsewhere in the UK revenues in the regions held up well. Its rail franchise business at East Midlands trains and Virgin Rail West Coast trains also performed well. Its US bus division turned out to be disappointing.

Berkeley Group H1 - 07/12

Uncertainty over house prices, particularly in London and the South East has hit Berkeley Group (LON:BKGH) share price this year, down over 15% so far this year.

In June the house builder warned that profits would be down 30% from the record numbers it posed last year. Changes to stamp duty thresholds have hit demand for high end properties despite average selling prices of £715k, however the slowdown in house prices, as well as the phasing out of help to buy over the next few years could well see a cap put on house prices in the short term, as well as putting a lid on house builders profit potential, at a time of rising costs.

Kroger (NYSE:KR) Q3 - 06/12

It’s been an up and down year for this big US grocery chain, having recently come into the spotlight in the wake of its recent deal with Ocado (LON:OCDO) earlier this year, as it looks to invest in improving its on-line presence in order to stave off the threat of Amazon (NASDAQ:AMZN) into the grocery space.

Krogers’ investment into on-line has been a key component behind the outperformance seen in the share price so far this year in a sector that has struggled for gains.

Same store sales were a weak spot in Q2 but that does appear to be the direction of travel across the board. Online sales were still strong and it is expected that this week’s Q3 numbers will be good, however they’ll need to be very good if they are to push above this year’s highs and the 200 week MA at $32.50 for the first time since early 2017.

Brown Forman (NYSE:BFb) Q2 – 05/12

Even if you’ve never heard of Brown Forman you will have heard of some of their products, as the company updates the markets on the effects the recent imposition of tariffs have had on its Q2 numbers. In its Q1, sales of Jack Daniels whisky surged, as buyers brought forward inventory purchase of their most well-known brand, in order to beat the imposition of EU tariffs in retaliation for President Trump’s levies on European goods earlier in the year. As a result the higher costs seen in its Q2 numbers could well see a slowdown the company warn of a hit to its full year sales numbers.

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No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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