November promises to be relatively calm

November promises to be relatively calm

November promises to be relatively calm

 

In October, the attention of market participants was mainly focused on the meetings of the world Central Bank, which were quite a lot. It was a meeting of the Bank of Japan, Bank of England, Bank of Canada, ECB and US fed. In addition, investors closely followed the financial statements of companies.

 

As for the Bank of Japan meeting, two meetings were held in October-October 6-7 and October 30. The first meeting was held without surprises - the Central Bank left its monetary policy unchanged. The Central Bank also did not change its assessment of the economy, saying that it continues to recover moderately. The second meeting turned out to be more important - the Central Bank remained committed to its previous course, but lowered its forecasts for economic growth and inflation. Now the Central Bank expects that the target rate of inflation of 2% will be reached by about the 2nd half of 2016 fiscal year, and not about the 1st half of 2016 fiscal year, as mentioned in April.

 

Then attention shifted to the meeting of the Central Bank of England, the results of which fully confirmed the expectations of experts - the rate remained at 0.5%, and the volume of the bond purchase program at the level of 375 billion pounds. The Central Bank said that this decision was made against the background of signs of slowing growth in Britain and the global economy. The minutes of the meeting also showed that 8 out of 9 MPC members voted to leave the rate unchanged. Only McCafferty opposed, demanding an immediate rate increase to 0.75%. Many experts believe that the rate will not change until the end of 2016 or even until the beginning of 2017.

 

After that, the Central Bank of Canada held a meeting, the results of which indicated a tendency to soft policy. Recall that the Central Bank of Canada left the key interest rate at 0.50%, but lowered its expectations for economic growth in 2016 and 2017, citing the recent fall in prices for oil and other commodities, as well as a further decline in planned investment by canadian companies. The Central Bank also said that earlier interest rate cuts and the weakening of the canadian dollar help in the transition to economic growth at the expense of the non-resource sector of the economy.

 

One of the key events of the month was the ECB meeting. As expected, the Central Bank left the main refinancing rate at a record low of 0.05%. However, during the press conference, ECB President Draghi expressed his position much more clearly than expected. He hinted at the possibility of expanding the quantitative easing program in December. In addition, he said that members of the Governing Council discussed the option of reducing the Deposit rate. With this in mind, experts say that the prospects for further easing of the ECB's monetary policy will negatively affect the Euro, and by the December meeting, its rate may reach the lows of 2015 against the dollar.

A pleasant surprise for many market participants also turned out to be the decision of the Central Bank of China, which on October 23 lowered the key rate, as well as reserve norms for banks, thereby increasing the stimulus of the slowing economy. This decision is in line with the policy of the Chinese authorities, who are striving to achieve the target of GDP growth of 7% this year. Moderate growth in consumer prices in the face of a noticeable decline in producer prices gave the authorities room for maneuver. This move by the Central Bank of China is also important for global markets, primarily in that it increases the likelihood of the US Federal reserve raising rates in December after no changes were made in October.

 

Recall that the results of the fed meeting, which ended on October 28, coincided with expectations, but the accompanying FOMC statement was unexpectedly "hawkish". Probably, this perception was due to the fact that the fed urged not to exaggerate the recent global turmoil in the markets. In addition, the fed signaled that an increase in interest rates could be made as early as December, as the impact of factors that prevent this, including uncertainty about the prospects for the Chinese economy and turbulence in financial markets, began to weaken. Such statements again instilled confidence in investors and contributed to the strengthening of the us currency. If before the meeting, Federal funds futures estimated the probability of a rate increase at the December meeting at 40%, then after this assessment increased to 43%.

The fed's statement also focused on us labor market data for September, which caused investors to revise their expectations about the timing of the fed's interest rate hike. At the same time, weak data justified the FOMC's decision not to raise the rate in September. Recall that the number of people employed in the non-agricultural sector increased by 142 thousand in September against expectations of +203 thousand.

 


An important topic in the market was also the reporting season for the third quarter. Even before it started, many experts noted that the reporting season may be extremely weak, given the events in China that took place during the third quarter. According to FactSet estimates, based on reports from about 40% of s&P 500 companies, total earnings decreased by 3.8% per annum in the third quarter, while revenue fell by 3.5% per annum. Profit of 77% of the reported companies was higher than expected, while only 43% reported higher-than-forecast revenue. Despite the fact that many companies in the S&P 500 index have not yet reported, experts do not expect a significant change in the situation.

 

November promises to be relatively calm. It is likely that investors will gradually prepare for the December meeting of the fed and ECB, while analyzing incoming data and statements from Central Bank representatives in an attempt to get new clues. Important will be the report on the number of jobs outside of us agriculture for October, which can provoke a weakening of the Euro against the us dollar and dramatically affect the prospects for changing rates in the run-up to the fed meeting on December 15-16. Employment is expected to have increased by 182,000 after rising by 142,000 in September. Any signs that employment growth is starting to accelerate will increase expectations for a fed interest rate hike at the December meeting.

 

Also in November, the Central Bank of England will hold a meeting. On November 5, the Central Bank will announce its decision on the rate and present new economic forecasts. The Bank of England was quite optimistic about the economic Outlook, so many analysts believe that at least two MPC members will vote to raise interest rates. Most economists, however, still believe that only McCafferty will disagree with the majority opinion in November.

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