While it’s a holiday shortened week in the US, the focus for markets is likely to stay with the UK with Brexit and the implications of the result of a likely confidence vote on PM May. Outside of that, DB’s Craig Nicol notes that we will also get the flash PMIs around the globe, and the European Commission’s opinions on the budget plans of Euro Area countries, possibly including Italy.
To be sure, it is hard to look past Brexit developments as being the centre-piece for the focus in markets next week. Following a turbulent last few days, much will rest of on whether or not there is a confidence vote on PM May. The latest headlines suggest this is likely and could happen at any moment. DB’s Oliver Harvey believes that the implications of May losing are very negative. Unlike 2016, Oliver believes that there is a strong probability that a full Conservative leadership contest results, with an ultimate vote taken to the Conservative Party membership, likely including a hard Brexiteer. The winner of the contest is likely to run on a no deal platform. He anticipates that the EU27 will make a no deal outcome their base case and both sides step up no deal planning.
The flipside of this is that May staying on would be a market positive as the tail of a hard Brexit would be reduced. The dilemma for Brexiteers voting against May’s Withdrawal Agreement is that this may lead to a series of events which brings a second referendum and the possibility of no deal at all. DB’s house view remains that PM May is likely to stick with the current deal and attempt to weather the political storm. Oliver Harvey’s indicative probability of this at 35% with the indicative probability of a second referendum raised to 30% after events of this week. May losing a confidence vote and resigning with the risk of an early election is assigned 20%, while a pivot to a soft Brexit is given a 15% probability in Oliver’s view.
Outside of Brexit, the data highlight next week are the global flash November PMIs on Friday. Following the – albeit less than expected – decline in the composite PMI for the Euro Area in October to 53.1, expect there to be plenty of focus on whether or not we get some stabilization in the data, or if there’s any further signs of deterioration in Q4. At the time of writing the consensus is for a 52.9 print for the composite with the manufacturing reading expected to slide further to 51.7 (from 52.0), and the services reading to fall a smaller 0.2pts to 53.5.
In the US, the PMIs are expected to improve slightly. The manufacturing print is expected to rise 0.2pts to 55.9 and the services reading rise 0.2pts to 55.0. Outside of that, given the holiday shortened week there isn’t a huge amount of data due. The preliminary October durable and capital goods orders data on Wednesday will help to further firm up Q4 growth expectations. On Tuesday we also get October housing starts and building permits data while also due on Thursday will be the final University of Michigan consumer sentiment survey revisions and October leading index.
In Asia it’s a fairly thin calendar next week too with nothing of note in China, while the highlights in Japan will be the October CPI report on Wednesday and the manufacturing PMI on Friday. Japan core CPI is expected to remain steady at +1.0% yoy but the core-core measure to slip one-tenth to +0.3% yoy. DB notes that one condition for a change in the BoJ’s 10y JGB yield target is steady core CPI above 1% for three to six months.
As for central banks next week, we’ll get the ECB meeting minutes from the October meeting on Thursday. As a reminder this wasn’t the most exciting of meetings with the ECB largely treading water and buying time ahead of next month’s meeting when we get updated forecasts and the latest decisions on QE and reinvestments. Away from that next week’s ECB speakers include Mersch, Weidmann, Knot and Visco all on Thursday, and de Guindos on Friday. Over at the Fed the only scheduled speaker is Williams on Monday while the BoJ’s Kuroda will also be speaking on Monday. The BoE’s Carney then appears before the UK Parliament’s Treasury Committee on Tuesday to discuss the Inflation Report.
Also worth noting next week are the European Commission’s opinions on the budget plans of the Euro Area countries on Wednesday. While the EC formally has three weeks to provide an opinion on Italy’s new fiscal plan following Italy’s submitted budget plan this week, it’s possible that the EC will issue an opinion on Italy also on Wednesday. This raises the possibility of the EC informing the Eurogroup that in its view, an EDP exists for Italy. A Eurogroup meeting is scheduled for December 3rd which raises the possibility of an EDP being launched at the beginning of next month, depending on whether or not the EC opines on Italy on Wednesday.
Other things to keep an eye on the Euro Area finance ministers gathering on Monday to seek to make progress on Franco-German plans to shore up the currency union, the latest OECD economic forecasts on Wednesday, and German Chancellor Merkel speaking on the German economy on Thursday.
With Thanksgiving Day in the US on Thursday, both equity and bond markets in the US will be closed. The day after also marks the traditional start of the US holiday shopping season with Black Friday, so expect plenty of focus on how retailers have fared over the weekend.
Breaking down key events in the week ahead by day, courtesy of Deutsche Bank:
- Monday: It’s a fairly quiet start to the week on Monday with the only data of note being November house price data for the UK, September construction output data for the Euro Area and the November NAHB housing market index reading in the US. Away from that, the Fed’s Williams is due to speak in the afternoon, while BoJ Governor Kuroda, Bank of France Governor Villeroy de Galhau and his predecessor, Noyer, will all speak at the Europlace Financial Forum. Euro Area finance ministers are also due to gather in Brussels to seek to make progress on Franco-German plans to shore up the currency union.
- Tuesday: The main data highlight on Tuesday is October housing starts and building permits data in the US. Prior to this in Europe we’ll get Q3 employment data in France and October PPI in Germany. Meanwhile, BoE Governor Carney will appear before the UK Parliament’s Treasury Committee to discuss the Inflation Report.
- Wednesday: The data releases pick up on Wednesday, especially in the US where we’ll get preliminary October durable and capital goods orders, the latest weekly initial jobless claims print, October leading index, October existing home sales and final November University of Michigan consumer sentiment survey revisions. In the UK we’ll get October public finances data while late in the evening in Japan we get October CPI. Away from all that, the European Commission is due to publish its opinions on the budget plans of Euro Area countries, including Italy. The OECD is also due to present new economic forecasts.
- Thursday: With it being Thanksgiving Day in the US on Thursday, equity and bond markets in the US will remain closed. Data releases are also fairly sparse with November confidence indicators in France and the November consumer confidence reading for the Euro Area the only scheduled releases. The minutes of the latest ECB policy meeting are also due, while the ECB’s Mersch, Weidmann, Knot and Visco are all due to speak. German Chancellor Merkel will also speak on the economy to the BDA employers’ federation in Berlin.
- Friday: It’s a busy end to the week as we get a look at the flash November PMIs around the world. Overnight, we get the flash manufacturing PMI for Japan followed by the release of flash manufacturing, services and composite PMIs for France, Germany and the Euro Area, before the US PMIs are out in the afternoon. We’ll also get Germany’s final Q3 GDP revisions. Away from that, ECB Vice President de Guindos is due to speak.
Finally, looking at the US alone, Goldman notes that the key economic release this week is the durable goods report on Wednesday. New York Fed President Williams will speak on Monday.
Monday, November 19
- 10:00 AM NAHB housing market index, November (consensus 67, last 68)
- 10:45 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will speak in a moderated Q&A session in the Bronx in New York City. Audience Q&A is expected.
Tuesday, November 20
- 08:30 AM Housing starts, October (GS 2.7%, consensus 1.6%, last -5.3%); Building permits, October (consensus -0.8%, last 1.7%): We estimate housing starts increased 2.7% in October after a decline in September (-5.3%). We expect a modest drag from Hurricane Michael, but starts look somewhat low relative to building permits. Over the next few quarters, we expect higher interest rates and tax reform to continue to weigh on homebuilding.
Wednesday, November 21
- 08:30 AM Durable goods orders, October preliminary (GS -3.5%, consensus -2.5%, last +0.7%); Durable goods orders ex-transportation, October preliminary (GS +0.1%, consensus +0.4%, last flat); Core capital goods orders, October preliminary (GS +0.1%, consensus +0.2%, last -0.1%); Core capital goods shipments, October preliminary (GS +0.4%, consensus +0.2%, last -0.1%): We expect durable goods orders to decrease in the October report, given a sharp decline in commercial aircraft orders. We expect stagnant growth in core capital goods orders given trade tensions and slowing global growth. Manufacturing production growth was slightly above expectations in October, with significant growth in the capex-sensitive business equipment category of industrial production. Accordingly, we see scope for a 0.4% increase in core capital goods shipments, especially after two consecutive months of declines.
- 08:30 AM Initial jobless claims, week ended November 17 (GS 215k, consensus 215k, last 216k); Continuing jobless claims, week ended November 10 (consensus 1,652k, last 1,676k): We estimate jobless claims edged down by 1k to 215k in the week ended November 17, following a 2k increase in the prior week.
- 10:00 AM Existing home sales, October (GS -0.3%, consensus +1.0%, last -3.4%): We look for existing homes sales to decline by 0.3% in October based on regional housing data, following a 3.4% decline in September. Existing home sales are an input into the brokers’ commissions component of residential investment in the GDP report.
- 10:00 AM University of Michigan consumer sentiment, November final (GS 97.9, consensus 98.3, last 98.3): We expect the University of Michigan consumer sentiment index to edge down 0.4pt from the preliminary estimate for November due to renewed stock market declines and the potential impact of midterm election results on sentiment. The report’s measure of 5- to 10-year inflation expectations stood at 2.6% in the preliminary report for November.
Thursday, November 22
- Thanksgiving holiday. NYSE closed. SIFMA recommends bond markets also close.
Friday, November 23
- NYSE will close early at 1:00 PM. SIFMA recommends an early 2:00 PM close to bond markets.
- 09:45 AM Markit Flash US manufacturing PMI, November preliminary (consensus 55.8, last 55.7); 09:45 AM Markit Flash US services PMI, November preliminary (consensus 55.0, last 54.8)
Source: Deutsche Bank, Bank of America, Goldman Sachs
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