This is LCG’s preview for the week starting December 18th 2017. Please note there will be no week ahead report next week but look out for videos and reports looking ahead to 2018. Topics discussed this week include another possible US government shutdown, UK GDP data and the move to 2nd phases of Brexit, the Bank of Japan interest rate decision and possible near-term drivers for gold and oil. We will also rundown highlights from the week’s economic and corporate calendar.
US government shutdown risk returns to stocks
Two weeks later, we’ve arrived down the road where the US government kicked the debt-ceiling can. The government must pass a spending bill by December 22 to avert the shutdown, or delay the decision again. Until tax reform is signed off and with end of year profit-taking already happening, fear about a US government shutdown could impair the march to new record highs in US stock markets this week. US stocks are still firmly trending higher but any upset could present buy-the-dip opportunities.
UK GDP could impact GBP with Brexit on hold until March
UK GDP is expected to have expanded by 0.4% q/q according to the final release of data on Friday. The EU has accepted Britain’s proposals for phase one of the Brexit deal but phase two discussing trade won’t begin until March, according to EU officials. Economic data could start to move back into the forefront for factors driving the pound in the meantime. We think GBP/USD has an upward bias while above 1.33, below which could trigger a deeper pullback towards 1.30.
Yen to stay range bound unless BOJ move yield target
With the ECB and the Bank of England on hold with dovish guidance, the BOJ is unlikely to make any changes at its policy meeting this week. Markets are looking for signs the Bank of Japan will move its 10-year yield target above zero. But JGB’s with 10-year yields have been very flat in 2017 so that move is probably a way off. This means the catalyst for USD/JPY and EUR/JPY to move out of their trading ranges may need to come from elsewhere.
A post-FOMC comeback for gold?
Gold prices rallied off the lows as the dollar fell back following the Fed’s decision to raise rates. The markets don’t buy the Fed’s optimism and plans for 3 rate hikes in 2018. That leaves two scenarios we think could support gold. 1) The Fed keeps hiking despite low inflation and risks inverting the yield curve (an omen for a recession), sending investors to havens. 2) The Fed revises down its dot-plot forecast for rate hikes, sending investors out of the dollar and into gold. In the short-term, former support at $1265 per oz may offer strong resistance to further gains.
Forties pipeline crack a last gasp for Brent crude at $65?
Severe supply disruption in the UK caused a price spike in oil that proved surprisingly short-lived. The crack in the pipeline will only cause a temporary drop in oil output from the North Sea so the market is already pricing it out. The bigger implication could be the lack of conviction shown my oil bulls at the $65 handle in Brent. There may still be room for a deeper oil pullback post-OPEC if Brent can’t move back beyond $65 this week.
Earnings
Highlights include:
Monday
N/A
Tuesday
Aberdeen Asset Management
Cable and Wireless Ltd
Carnival (LON:CCL)
FedEx Corp (NYSE:FDX)
Micron Technology (NASDAQ:MU)
Wednesday
Bed Bath & Beyond (NASDAQ:BBBY)
General Mills (NYSE:GIS)
Thursday
Bradford & Bingley
ICAP (LON:NXGN)
CarMax (NYSE:KMX)
Conagra brands
NIKE Inc
Toys R Us
Friday
N/A
Economic data
Highlights include:
Eurozone inflation (CPI) for November
German IFO survey for December
The Bank of Japan monetary policy decision
US third-quarter GDP
US core PCE inflation
UK third-quarter GDP
US durable goods orders for November