Week Ahead Brexit Fed NFP and Earnings Galore

The big events from the calendar are likely to be the Bank of Canada, Federal Reserve and Bank of Japan rate meetings and the key US macro data that includes GDP and non-farm payrolls, with Brexit also likely to take centre stage in the early part of the week, as per above:

• The Bank of Canada are likely to keep interest rates unchanged on Wednesday for the ninth consecutive meeting, after a hiking cycle that started back in the summer of 2017 ended in October last year. Unlike other major banks that have started to cut interest rates again, the BOC has kept policy steady thanks to stable economic conditions in the nation. The Canadian dollar has responded by being one of the stronger performers in recent quarters. But could that change? If the BOC is surprisingly dovish at this meeting then the Loonie could start to weaken again.
• The Bank of Japan’s rate decision will be an interesting one to watch. The pressure is growing on the central bank to provide more policy accommodation due above all to the recent falls in exports. Governor Kuroda has pointed to the possibility of additional easing and last month the bank promised to take a more thorough look at the economy before its October meeting. However, there are doubts as to whether the BoJ will make its move at this meeting, with some market commentators suggesting the central bank may decide to save the ammunition for a time when economic conditions are even worse. What’s more, concerns about a global slowdown have eased somewhat in recent weeks with the apparent progress in US-China trade talks. So, waiting a bit longer may make more sense.
• The Feder Reserve is likely to cut interest rates another 25 basis points on Wednesday, although the need for doing so has arguably been reduced with the stock markets at record highs again on apparent progress in the trade talks between the US and China. Still, the FOMC wouldn’t want to cause unnecessary turmoil in the markets by not acting now given the recent slowdown in global economic activity - especially in manufacturing. Traders will also be keen to figure out how likely or otherwise the Fed will be in cutting rates again in December. If the Fed’s forward guidance appears to be more dovish than expected, then this should trigger a bearish response in so far as the dollar is concerned. However, a bullish-looking Fed could see the greenback resume its longer-term bullish trend. We will have our full FOMC preview article ready well before the rate decision, so more details will be available soon.
• Data: The Fed’s upcoming rate decisions will likely be influenced more by the ongoing US-China trade situation rather than incoming data, although if the latter starts to turn alarmingly soft then even a trade deal may not be enough to prevent the Fed from further rate cuts. With that in mind, we will be watching the upcoming publications of US GDP estimate and non-farm payrolls report closely. If these numbers turn out to be okay then the greenback could resume its bullish trend, otherwise the recent weakness may continue for a while yet.

This week’s key company earnings highlights, courtesy of colleague Ken Odeluga:

• Alphabet (Monday after US market close)

Steady end-market demand should abate concerns following the cliff-drop in paid clicks earlier this year. Advertising sales should also rebound as yearly comparisons become less demanding. Expenses are eyed, in case of further overruns. Adjusted EPS forecast: $14.59, +8%. Revenue forecast: $32.72bn, +20.5%

• Facebook (Wednesday after US market close)

Boosted advertising sales growth on the back of Stories should remain evident in Q3, despite softer guidance. Rising video adoption and better-managed pricing volatility pose upside risks to forecasts. Early Instagram monetisation is in focus. Libra dropouts/blow back are a headache, though immaterial.  Adjusted EPS forecast: $2.25, +8.6%. Revenue forecast: $17.34bn, +26%

• Apple (Also Wednesday after US market close)

The lack of 5G in the latest iPhone suggests that total growth should be modest till that facility’s launch, scheduled for September 2020. Instead investors want to see confirmed growth from increasingly critical Services. The 21% surge Wall Street expects from that segment’s revenues would be one of the biggest Apple has reported. The potential impact on Apple’s gross margins should the trade war escalate will be a conference call hot topic. Adjusted EPS forecast: $2.18, -5.7%. Revenue forecast: $53.81bn, +1%.