Nov 13, 2016 - Weekly Macro Overview W46 - post election hangover to be treated by macro data flood

After the US elections the coming week we can focus again on the hard data. We will have Chinese Industrial Production, a few inflation figures coming out from Europe and overseas as well as Monetary Policy Minutes which could give us a hint how the central bankers view economies. There will be plenty of speeches, especially on Friday. As there is usually lower liquidity later Friday, watch out for bigger moves.

After the victory of Donald Trump in the US Presidential Election that came as a surprise to many, the attention is increasingly focused on how his policy will affect the US economy. More and more people tend to believe that it will boost growth in US and this helped to bring back US stocks to all-time highs. However we still have Fed rate decision and Italian referendum ahead before we will see at least how Trumps team will look like. The markets will definitely need time to digest what happened and therefore we can’t rule out the possibility of dramatic changes in the direction of the markets. Let’s take a quick look at the overview of economic promises Trump made during his election campaign based on a Financial Times article comparing Trump-Clinton election policies:

Corporate Tax:

• To be reduced from 35% to 15%
• All investments to become reducable from taxable income
• A one-off 10% tax to be imposed on companies offshore cash to deter tax-avoidance

Personal Tax:

• To reduce top rate of tax from 39.6% to 33% only
• To simplify tax system by reducing tax brackets from 7 to 3 (12% - 25% - 33%)
• Childcare costs to become deductible from taxable income

Budget:

• The republican’s plan to spend $5.3 tn. more than they collect in Tax revenues in the next decade

Trade:

• Renegotiating or withdraw from the Trans-Pacific Partnership (TPP)
• Renegotiating or withdraw from North American Free Trade Agreement (Nafta)

Infrastructure:

• Wants to spend double the amount Clinton promised ($275 bil) to improve infrastructure in the US but never said an exact number. The approximately $550 bil investment was proposed to be financed by selling Government Infrastructure Bonds

Healthcare:

• Trump promised a new healthcare system which will replace Obamacare
• The new system is supposed to erase the wall between state-based markets to encourage competition

Energy and Climate:

• The climate change he consider a “hoax cooked by China”…
• Fossil energy is supposed to get more support and coal mines to open again (the later could have been a populist part of the campaign promising Laid off coal miners to get back their jobs.
• The question is whether and by how much will be slashed the green energy support.

Now about the next week. After the election hangover the market will start to focus again on the macro data as we’re approaching to December and the last FOMC meeting of the year.

Sunday:

At midnight the prelim Japanese quarterly GDP will be released, which is the first of the two releases. No change is expected on quarterly bases, annually the growth rate can fall back to 0.5%.

Monday:

The main data of the day is the change in Chinese Industrial Production. The pace of growth has bottomed out last year and since seems to gradually growing. Analysts are however cautious with their predictions but a positive surprise can support the current fragile optimism on the markets. On Monday also keep an eye on Draghi’s speech at the Italian Treasury and later the evening the change of Kiwi Retail Sales are due. RBNZ cut benchmark interest rate last week in line with market expectations and the NZDUSD declined modestly but still in the uptrend channel.

Tuesday:

We are going to have a busy day. After midnight the Australian Monetary Policy Minutes will be released giving us an insight what was behind the last decision not to cut the key interest rate. We have also a speech of the governor later in the morning. In Europe we have first prelim GDP from Germany (which has been increasing recently on an annual bases), later flash GDP from Eurozone with ZEW Economic sentiment index. The UK Inflation Hearings will give us an insight how policy makers asses the UK economy 6 months after Brexit vote. Approaching December FOMC meeting the US Retail Sales in the afternoon may add to the volatility. Last month the core data positively surprised the market but a downside revision could erase some of the optimism. The API Oil Stock will be watched by commodity traders as they are desperately looking for a sign the supply glut is not that bad as it seems. Late evening the New Zealand GDT price index will give ua the taste of the mood among farmers after interest rate cut and weakening Kiwi dollar.

Wednesday:

We start the day with UK Labor Market stats where the growth of average earnings and jobless claims are worth to watch. In the afternoon Canadian Manufacturing Sales will be released the same time as US PPI. While both figures used to be volatile the US PPI could signal if the inflation is on track to reach the Feds target next year. Later afternoon the Capacity utilisation rate will show whether the US economy is pushing further toward its potential output and higher inflation. The crude inventories from EIA will come out late afternoon, watch Loonie and NOK reactions. Later the New Zealand PPI can support the Kiwi dollar as last time it surprised to the upside.

Thursday:

The Australian Employment Report will kick-start the day after midnight. At the beginning of the European session UK Retail Sales which missed estimates last months are expected to rise 0.5% as pound weakened. The Final European CPI and ECB minutes will be released but likely with less impact on the markets as investors will be waiting for the US macro figures in the afternoon. In the housing sector Building Permits surprised to the upside a month ago but a decline is forecasted by the concensus this time. The Housing Starts on the other hand failed to deliver the expected growth second month in a row and from its peak this year it’s down 13%. Analyst expect a rise but be cautious as it seems there is something under the surface. We have also US CPI and the annual core figure is above 2% the last 12 month however couldn’t exceed 2.3%. A positive surprise could add to the odds for a rate hike in December. Later Yellen testifies before the Joint Economic Committee in DC. Watch for hints regarding December hike.

Friday:

A data light day but full of speeches (Draghi-ECB, Maechler-SNB, Weidmann-Buba, Bullar-Fed, George-Fed) the only significant data will be the Canadian inflation. The BOC is battling with the same enemy as the rest of the central banks, slow inflation but analyst expects a rise, the ques tion is if we will see an increase this time.

Remember to watch your risk and be consistent

Mr. Tech Man

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. 

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