The week ahead will see a flurry of central bank meetings and economic indicators that could guide trades.
Nevertheless, the market conditions could be very different from our current view with tunnel vision attributed to the two key factors set to unfold ahead of Monday – November US non-farm payrolls (NFP) data and the Italian Referendum.
The Trump effect
President-elect Donald Trump’s policy projections have propelled the financial and industrial sectors into the spotlight lately and has the cabinet appointment to reinforce the beliefs that the proposed regulations will be implemented. Nevertheless, we are often reminded that the stock market attempts, but is not the full reflection of the real economy. Therefore until the economic impact has been realized, there remains risks on the downside for the S&P 500.
For Asia, that would indicate that the positive leads from Wall Street could also deliver a higher-than-proportionate blow on Asian markets upon the reversal, as with what was seen on Friday, 2 December. The 0.35% dip on the S&P 500 saw the likes of HSI and KOSPI shed more than 0.5% losses when last checked (09:00GMT) on Friday while the local STI was down 0.3%.
Nevertheless, the current market conditions could see the November NFP data, set to be revealed later today, pointing at higher numbers and could add to the oversaturated sense of optimism for US markets. The market’s preference for US equities could also be sustained with jitters ahead of the Italian referendum and concerns over the ECB monetary policy decisions. These are concerns that could also help to buoy the USD dollar should the NFP data disappoint.
Central bank meetings
The week ahead will see the Reserve Bank of Australia (RBA), Bank of Canada (BoC) and the European Central Bank (ECB) line up to announce their interest rate decisions one after another. All three central banks are expected to hold rates, in contrast to the 100% probability assigned to a Fed hike due just a week later.
Notably, despite the fact that the ECB is likely to keep interest rate unchanged, the central bank could still influence the market via two channels. Firstly, the market will be expecting an address of the Italian referendum regardless of the results. Secondly, the ECB is expected to make a decision with regards their asset-purchase program. Both issues could extend an impact on the Euro with more downside risks that up on the back of the Italian referendum concerns.
For Asia, more Chinese data will flow through next week including November’s trade balance, CPI and PPI data that could shake up Asian markets. As it stands, the market consensus is looking at an improvement in trade and price conditions, taking a positive lead from the manufacturing PMI data seen on Thursday, potentially lifting Asian markets.