Hint: It’s not the President, and not in a Dr. Evil kind of way.
And we’re back, after a brief hiatus. Investors will be concentrating on 3Q earnings and the latest on the potential new Fed Chair, and the ECB has their interest rate statement. On the economic front, we have GDP First Release and PMI readings.
Earnings: Earnings intensity continues to increase as we have 172 S&P 500 companies scheduled to report this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, we have now seen 18% of S&P 500 companies report 3rd quarter earnings so far. Of them, 72% reported revenue above expectations while 71% have reported earnings above expectations.
Head of the Fed: President Trump has been interviewing 5 candidates to be the next Fed chair including the current Chair Janet Yellen, Gary Cohn, Jerome Powell, Kevin Warsh and John Taylor. Whoever does get picked will basically be the most powerful person on Earth with the power to create trillions of dollars out of thin air, literally. Way more powerful than the President, and incredibly an unelected official. PredictIt.com latest odds have Jerome Powell as the leading candidate to be the next Fed Chair. We could see movements in the markets along with the US Dollar as the Fed Chair decision comes nearer. However, anything can happen as Trump even mentioned putting John Taylor and Jerome Powell in charge together (however that would work).
ECB Interest Rate Statement: On Thursday (10/26), Super Mario Draghi will be speaking at the ECB’s press conference to announce their interest rate statement. These are scheduled 8 times per year. Investors are expecting the ECB to start unwinding its asset purchases and potentially hint at when they may start raising interest rates. Should they announce tapering their bond purchases (taking away the punch bowl) more than expected, we can expect to see markets globally fall and the Euro to strengthen. Should the ECB not announce any tapering, we could see markets rally higher.
GDP First Release: On Friday (10/27), we get our first release of US GDP for the 3rd quarter. We get 3 releases per quarter, Advance, Preliminary and Final. The first release is the most impactful. If the reading comes in above 3%, which is Trump’s target to get the economy moving, expect to see markets increase. There is always the wildcard of a lackluster reading from the multiple hurricanes we witnessed which could disappoint the street, sending markets lower.
Catalonia: The latest out of Spain had the Spanish Government invoking the “nuclear option” of Article 155 and suspending Catalonia Autonomy and powers of the local government. If they do indeed trigger this, we may see Catalonia leaders announce a declaration of independence. If the parties continue to go down the rabbit hole as it seems, besides emboldening other break away regions, the Euro will dip and markets will also go lower.
China 5 Year Meeting: In Beijing, China had their 19th National Congress of the Communist Party start a few days ago. This 7-day meeting happens once every 5 years and gives the world some hints as to what the new administration may do in the next 5 years. Investors will be looking for hints as to potential economic reforms and structural reforms which has the potential to affect global markets. They could announce the GDP goal for the next few years. If they are to raise it above the 7% level (currently running around 6.5% – 6.9%), we could see an issuance of a lot new debt which will push global markets higher.
So Many PMI readings: Flash Manufacturing PMI readings from across the globe are due out this week. Traders will watch these readings as potential weak readings could cause central banks to halt any potential tapering of current stimulates pushing markets higher. So bad news is good news for markets.