This week, Italy obviously comes into focus. After Italy, the attention will be focused on the ECB meeting and other volatile news, which we will discuss below. Recall that last week at the EU-27 summit, the draft budget of the new government of Italy was peremptorily rejected. We discussed the reasons in previous reviews of the situation on the market, therefore we will not repeat.
On Monday, Rome must submit a test budget that will comply with the rules and regulations of the European Union. Will the Italian government go through with the meeting and cut budget spending (which was included in the election promises of the current government), in order to not end up becoming another burden for the EU, like Greece? Or will the negotiations drag on, which will put even more pressure on the single European currency? The first news will become available today.
Looking at the economic calendar of this week you realize that the most volatile and important (Disregarding the Italian issue) days will be Wednesday and Thursday. At the equator of the five-day trade, the EU will report the business activity (PMI) from Markit, business activity in the manufacturing and services sectors. As you know, although there isn’t any positivity, since there is an expected decline in the indicators. However, on Thursday a meeting of the European Central Bank will be held, at which interest rates on deposits, marginal lending, and the regulator's base rate will be announced.
The plans of the ECB can be prevented separately, stressing that the prospects for raising the interest rate are already postponed until the end of 2019. Several months earlier there were discussions about the possibilities for raising the interest rate until the departure of the current ECB President Mario Draghi, that is, in September. The uncertainty associated with the UK separation from the EU, due to which many large companies and banks are developing plans of action in the case of a worse outcome. On the other hand, Italy, whose government has promised all the “golden mountains” for the voters, has included those “mountains” in the countries budget. All these factors are increasingly disappointing the investors.
In addition to geopolitics, we expect the release of volatile statistics for the week. On Wednesday, the Eurozone will tell about business activity in the manufacturing and services sectors, and a composite indicator of business activity from Markit is also expected. Due to geopolitical tensions and the risk of introducing sanctions from the EU to Italy, it is imprudent to expect an improvement in business activity. The US will report the same performance and sales of new housing in September.
Later, on Wednesday evening after the marathon of speeches by members of the Open Market Committee of the Fed, the Beige Book of the Fed will be released. All the nuances of which we will be notified by James Bullard and Raphael Bostic, who spoke before the release.
On Thursday, a meeting of the ECB will be held, at which the interest rates of the regulator will be announced. No changes are expected, for reasons already understood. Germany will report business expectations, an assessment of the current situation and an index of business climate in Germany. At 15:30 Moscow time, a press conference of the ECB will be held, the chairman of the regulator will comment on the current state of the Euro economy and present forecasts and prospects.
The United States will publish the state of basic orders for durable goods and their volume. The balance of foreign trade should be reduced, in the conditions of a trade war with China, this indicator is also interesting. Toward the end of the working day (Moscow time), the release of indices of sales in the real estate market will take place.
The end of the week, most often, is the most volatile. After a slight slowdown in US economic statistics, caused by as many as two hurricanes, the release of US GDP for the third quarter will be extremely volatile. After which the University of Michigan will publish the expectations and moods of consumers in October. Later in the evening, the head of the ECB, Mario Draghi, and the member of the ECB, Benoit Coeure, will speak.
The week is expected to be extremely tense, we recommend to be extremely attentive to geopolitical news, because today they have no less significance than macro statistics!
USD / CAD
On Wednesday, we highly recommend to pay attention to the Canadian dollar! The regulator of the country of the wedge sheet will meet at 05:00 P.M. Moscow time and announce the decision on the interest rate. The Bank of Canada’s Monetary Policy Report and the Bank of Canada accompanying statement will also be published. A press conference of the regulator will take place a bit later, to which no less attention will be paid than to the release of the decision of the Bank of Canada itself.
The third overnight rate increase is expected from the BC, but the decision to admit is dubious. We have already discussed the unjustified expectations of the head of the regulator Stephen Poloz regarding the labor market. Therefore, representatives of the regulator were wrong and did not take into account the risks and tensions due to the negotiations on NAFTA.
In general, the Canadian economy looks dubious, to say the least. The labor market showed a weakening, inflation slowed down, although GDP showed growth in the second quarter. Which is most likely caused by record oil prices. Recall that in light of the US-China trade conflict, the Celestial Empire abandoned American crude oil in favor of Canadian.
As a rule, raising interest rates supports the currency, the central bank of which tightens the monetary policy. However, in this case, the rhetoric of representatives of the Bank of Canada will be important. If you raise the rate, but the rhetoric will be a pigeon and not convincing, the pair is likely to grow. If the rate is not raised at all, but left at the same level, such an outcome will provoke a massive sale of the Canadian dollar. But, a raised rate with a confident performance of the head of the Bank of Canada Stephen Poloz will provide support.
As you can see, a very interesting day for the Canadian. After the release, it will be immediately clear where and how to trade a pair, and you will be able to see both on the medium term and on the long term.
Crude oil slightly wins back the losses from last week, the first key resistance at 70.00 exactly. Support is coming on November 4, when US sanctions on Iranian oil will come into force. Since June, the OPEC member countries have been increasing production, which would level up the absence of Iran in the oil market.
It is also worth considering that consumers have already begun to stock up on raw materials, waiting for supply failures. “China has higher seasonal needs and projected stock increases, while the US and OPEC continue to build up stocks in anticipation of potential supply disruptions this winter,” said Steven Innes, head of trade for Asia / Pacific at Oanda futures brokerage in Singapore. At the same time, Innes noted that at the moment the supply on the market is enough to satisfy the demand.
American drillers added four oilrigs in the week to October 19th. As a result, the total number of drilling rigs in the United States reached 873, the energy service of Baker Hughes reported last Friday. The number of drilling rigs has risen to the highest level since March 2015. US drilling rig is an early indicator of future drilling and production. From which it follows that with an increase in activity after several months of stagnation, an increase in US crude oil production is expected.