Week ahead: market insights for the 8th of November
Markets navigated a load of big event risk last week.
Overly-aggressive central bank pricing was talked down.
Rate-setters preached patience on inflation while walking the tightrope between ‘things are getting better’ & ‘don’t get too excited, we’re not quite there yet’.
CPI data from the US is the key focus this week. Will inflation prove transitory?
Will Powell be re-confirmed as Fed Chair? Markets would be surprised if he wasn’t…
The Bank Of England is not in traders' good books…
Cable was severely punished on Thursday when the BOE didn’t follow through with an anticipated rate hike.
GBPUSD shed 180 pips in just a few hours.
Friday also saw some early weakness before GBP recovered some of those losses in the afternoon session.
Signs of selling exhaustion or just profit-taking before the weekend?
Three key levels to watch for cable traders:
Bulls will want to see the 1.3411 support level defended, with an eye on breaking above Friday’s high at 1.3509, and targeting the pre-BOE support level at 1.3605.
Thursday’s preliminary GDP figures and trade data from the UK could have an influence, although US CPI the day before is arguably the key driver for the pair.
US Indices are on an amazing run. Printing one all-time-high after another!
Take a look at the US100 here. It’s barely paused since the 22nd October and once the September highs ~15700 were taken, there was no looking back.*
Eight straight days of new highs and green candles. Contrarians are crying and the bears are extinct…
But it can’t go on like this, right?
Old trader sayings are no comfort…
“The trend is your friend (until it ends)”
Who’s gonna short this momentum?
“Don’t pick up pennies in front of a steamroller”
This steamroller’s got Elon’s rockets attached!
You’ve gotta be brave to jump in front of a market moving like this…
So, what could flip the story?
That all important US CPI data on Wednesday.
See, the Fed freely admits that they’re working with a lot of humility right now. Powell even said as much at the press conference.
There are no models to confidently lean on and interpret what’s happening with inflation right now.
The other side of the picture is employment.
NFP’s were very positive on Friday, with 531,000 jobs added plus another 235,000 from revisions of prior months. The US jobs recovery is not yet complete, and still 4.2 million fewer jobs than pre-pandemic levels.
At some point the balance will shift. High inflation is being tolerated partly to allow people to get back to work.
If jobseekers are finding work, yet inflation remains stubbornly high, rate hikes may arrive sooner than anticipated, and stock indices could find themselves flying a little too close to the sun!
Pay close attention to the Monthly Core Inflation change. It’s expected to come in at 0.3%.
The Year Over Year figure doesn’t tell us much. No point comparing to October 2020 (before the vaccines were even approved!) when the economy was far from normal.
Look out for the U. of Michigan 5 Year Inflation Expectations on Friday afternoon too. Fed officials will be squirming if that goes above 3%!
*Past performance is not indicative of future results.
OPEC+ stuck to their plans of increasing output by 400,000 bpd each month and pushed back strongly against US pressure to ramp up production faster.
US Energy Secretary Granholm continued the war of words on Friday, criticising the OPEC ‘cartel’ and talking up prospects of the US tapping their Strategic Petroleum Reserve (SPR).
A short term fix for a long-term problem?
Markets certainly seemed to think so. WTI pushed up over 2% on Friday.
Again, we look for a change to the supply picture.
US production is still way below pre-Covid levels, and domestic producers are being held back by a combination of shareholder interests and green policies from the Biden administration.
US Rigs are gradually returning with the Baker Hughes oil rig count back to 450 last week.
But it’s still waaaaay shy of the near 700 active oil rigs from 2019...
Some are calling for $100+ oil prices in the coming months.
They argue that some OPEC+ nations are already falling short of production levels, and at some point the Saudis, Russia & Iraq won’t be able to increase production enough to meet that shortfall....
Others caution that at high prices US producers won’t be able to resist ramping up their activity again and supply will quickly overcome demand. OPEC+ would respond to protect market share and prices would fall across the board.
It’s very tough to call.
Mobility restrictions in China will dampen demand slightly, but how long will that last?
For now at least, the trend is intact after a healthy pre-OPEC pullback, and the post-meeting low of 77.59 is the key support now.
Oil bulls look to be in the mood for higher prices from here. Let’s see if the bears fight back next week!
Not investment advice. Past performance does not guarantee or predict future performance.
Key Upcoming Events
CPI data from the US
CPI data from the US is the key focus this week. Will inflation prove transitory?2021-11-11Thursday 11 November, 2021