And so the first week of 2017 begins relatively quietly. If on the hunt for trading opportunities, it may be best to sit on those hands. However, despite the Christmas and New Year hangover, there could be some interesting data points to keep an eye on.
On Tuesday morning we have the release of the Caixin Manufacturing PMI. Expected at 50.7, the figure decreased to 50.90 in November from 51.20 in October of 2016. If this figure comes in above expectation, it will be considered another positive boost for the recent rally in equities. It will be interesting to see if the Dax responds to this in anyway. That being said, if the number is a miss, I don’t foresee this derailing the bullish sentiment on equities at the moment as this seems to be driven more by what President Elect Trump tweets or doesn’t tweet.
Tuesday also gives us our first data point of note for the US, in the form of the ISM Manufacturing PMI. The Manufacturing PMI rose to 53.2 in November 2016 from 51.9 in October – the highest reading in five months. Expected at 53.5, it will interesting to see if the recent run of strong figures can continue. Despite the increased outlook for inflation, the better trading opportunity may arise in the event PMI comes in below expectations as this may not be fully priced in given the recent optimism around the US economy.
On Wednesday the 4th, it’s time for the UK Construction PMI. This figure has been solidly above 50 since August 2016, and is expected at 53. But there is a somewhat mixed sentiment when it comes to Cable and the UK economy on a whole. Whereas inflation is a certainty given the currency depreciation, the recent data points have implied a certain level of optimism. But still the Brexit shadow has proven to be a long one, and any sign of economic fragility threatens to knock the legs from under the Sterling currency.
Wednesday evening we will then get to see the minutes from the recent FOMC meeting. Here we will be given the opportunity to pick amongst the bones of the decision, and look for any additional clues as to forward expectations. However it seems no surprises are expected.
To end the week, we have some jobs data for the US, starting with the ADP Employment Change on Thursday, and the US Non Farm Payrolls. This data is currently expected to come in worse than previous, with ADP expected at 170k down from 216k, and Non Farms expected at 175k down from 178k. However average hourly earnings are expected to increase by 0.3%.
Given the above, I will maintain a bearish viewpoint for US 10 Year Treasuries through the week, unless the data (and possibly FOMC minutes) suggest otherwise. There is still reason to expect further inflation in the weeks to come, which will only serve to increase yields. An Ideal entry price to sell could be 124’160, which is in the area where price fell sharply on the 14th of December
For the last few weeks, the Trump rally has been the big thing with Equities, as companies anticipate higher profits from the increased spending and deregulation Trump has pledged. However just at the end of 2016, we saw a strong sell off in the S&P500. Although expected data appears positive, the sell off towards the end of the year could have been a sign indicating some traders feel the S&P is overvalued. It could be that the next real driver for US equities will once again come from Mr Trump or one of his tweets. Meaning the S&P could be range bound in this first week. As such i’ll keep an eye on price between 2256 and 2230.
There is not much data from the UK this week, so in the event of positive US data, we can expect cable to retreat a little. However as the big US event risk comes towards the end of the week it can be expected that cable ranges between 1.2300 and 1.2420 until then. However in the event of poor US jobs data, there would be limited upside in this pair, unless there is further evidence of the “soft Brexit” or other comments to suggest a more robust UK economic plan.
Although there are more data points for the Euro this week, there doesn’t appear to be anything that can change the fundamental outlook for the single currency. It’s quite possible that the Euro is at a price that the ECB are happy with right now, and the prospect of increased inflation in the Eurozone should be enough to prevent the Euro coming to parity with the dollar. Considering the information that has already been priced in, it would take a significant unplanned announcement to bring the Euro to parity anytime soon. Expecting price to range between 1.05400 and 1.06890.