Investors Cautious Ahead of Slew of Economic Data

Investors are overly cautious today and they have adopted a wait and see strategy. This is an immensely important week in terms of economic data and we may see some serious firecrackers which lightens up some bonfire. We could potentially see massive swings in the forex and equity markets as investors scrutinized the third quarter GDP number for the US economy which is due at the end of the week.

What traders want to know is that if the US economy is regaining traction given that we have seen a number of quarters declaration. The GDP growth was at 3.3% during the first quarter of 2015 and it slipped all the way to 1.3% in 2016- thanks to rout in the energy sector and the consistent slowdown in the Chinese economy. The forecast is for 2.5% growth and if this number is achieved, then it means that y/y the growth is stabilising at 1.4%. Therefore, we do not need much push from the current quarter and we will have the number which the Fed was trying to achieve.

Under these circumstances, we will have higher odds stacked in favour of another rate hike at the end of this year. Equally important in this context will also be to pay attention to the upcoming speeches from a number of Fed members representing their views about the economy and paving the way for more volatility in the market.

If you look at the dollar index, it is trading at a level which is not seen nearly in eight months. Similarly, if you look at the dollar against the euro, things have become more prominent in terms of the weakness for the Euro. Although, the ECB president failed to lay down the foundation for the future path of their current policies, but not in so many words, he has delivered this message that they will extend the current timeline and this has pushed the currency lower.

In terms of earning, it is all about the world’s most valuable company, Apple, and what numbers it is going to produce. Investors are going to look at two important things in this quarter for Apple; firstly how the company’s performance has been throughout this quarter and finally how unveiling of new models for its Mac computer line and new iPhone has performed. Google parent Alphabet will also grab a lot of headlines and investor’s attention. So far nearly $3 trillion value of global equities has been added after a third quarter rally but if we are going to continue, that is a different question.

Crude oil is under fresh pressure today after Iraq has threatened that they may not join other members in curbing the oil supply. Traders are taking profit off the table on the back of this news. The country is saying that they should be allowed to increase their production given how much turmoil they have faced. This is causing a fresh threat to supply which investors thought that OPEC will be able to repair.

As for today, we will have fresh readings for Flash manufacturing PMI and services PMI for Germany and any improvement in these numbers will make the Bundesbank’s position more stronger which will try to bend the ECB to start thinking about the tapering process of the current QE. We also have the same readings for France and in the light of recent upgrade in country’ rating, a stellar number be rewarded by investors.

Naeem Aslam
Chief Market Analyst
ThinkMarkets UK Ltd

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