Last Friday, the world saw a strong report on the US labor market, which confirms the forecast of members of the Federal Reserve Open Market Committee regarding the resumption of the economic expansion in the fourth quarter of this year. However, a strong report is not enough for today. Tomorrow will be held the mid-term elections for the House of Representatives and the Senate in the United States of America.
Given the controversial views of the leading parties, these elections are of paramount importance. According to public opinion polls, Democrats can take control of the House of Representatives, while Republicans, for the most part, remain in the Senate. The whole intrigue lies in the fact that both parties are going "nose to nose". Dollar bulls want to see the Republicans in both, the House, and the Senate, since the Republicans support the policies of their president, Donald Trump. Whereas the Democrats can block the work for both, the Senate and the House of Representatives, in the case of winning the elections, which in turn can lead to the split of the government. Understandably, this does not bode well for the dollar.
Regarding economic news, the following events will be the most important in the week.
Monday, the US will publish business activity indexes in the services sector and in the non-manufacturing sector. The data will come from both PMI and Markit, a slight slowdown is expected in some indicators. However, the most important thing is for the data to be higher higher than the value of 50.0, and corrections after strong growth are always admissible.
Tuesday, in the United States, all of the attention is focused on the mid-term elections, which were aforementioned. Europe will report business activity from Markit and business activity in the services sector. It is expected to keep the previous values, which is better than slowing down the indicators.
Wednesday is particularly unremarkable, the markets are likely to digest the outcome of the elections in the United States. Germany will try to salvage its industrial output from the red zone, after which it will hold a treasury auction. The EU will publish retail sales, where the first positive for the euro is expected.
Thursday is one of the most volatile days of the week up to November 9th. The EU will publish the ECB's monthly report and its economic forecasts. The current pigeon rhetoric is not able to support a single European course. The market expects more news from Italy about its draft budget, which Brussels rejected at the summit two weeks ago. However, the positive notes in the negotiations with Britain, on the contrary, supported the euro. It can be seen that London will still be able to negotiate with Brussels with the least loss for themselves.
Also on Thursday, but later in the evening a meeting of the Federal Reserve Open Market Committee will take place. After the statement of the regulator, the decision on the interest rate of the Federal Reserve will be announced. The market does not expect a rate increase in November, however a rate increase in December is more likely. After a strong report on the US labor market, this probability is growing exponentially.
The week will end with the US producer price index. The indicator is closely correlated with wages and, as a result, with inflation itself. After all, increasing salaries for employees, the manufacturer is forced to raise prices for the product (product or service).
An extremely interesting week is ahead of us, where from the election results you can safely make trading plans for the week.
British bulls found support in the negotiations on Brexit, as reported by London last week, the financial sector will have full access to the EU markets after leaving the European Union. This is extremely important and positive news for the financial capital of Europe.
In addition to this good news for the United Kingdom, important releases are also expected on the five-day trading day by November 9th. Already on Monday, the publication of the index of business activity in the services sector, one of the most important sectors of Great Britain, will take place, since this sector alone generates 3/4 of the GDP of Britain.
Until Friday, you should pay attention to the US statements, because only on Friday the United Kingdom will once again publish volatile data. At 12:30 (Moscow time) a whole list of important economic indicators will be released. Business-investments for the third quarter, Britain's GDP on a monthly, quarterly and annual basis. Volumes of industrial production, volumes of production in the manufacturing industry, trade balance excluding EU countries.
Black gold continues the strongest bearish rally this year. The US last week issued a memorandum on Iran’s sanctions. The market was reassured by the statement that America does not insist on a radical rejection of Iranian oil to countries that cannot do this at all. Hence, the ban on the purchase of Iranian oil will not spread to India, South Korea, and Japan. However, this does not mean that mining in Iran will not continue to decline.
Stocks in the United States continue to maintain growth for the sixth consecutive week, but growth in the number of drilling rigs (as reported by Baker Hughes on Friday) has slowed. Even dropped by one rig. However, this light negative is leveled by a large-scale oil pipeline construction in Texas.
In addition, the pressure continues to have the consequences of the US-Chinese trade war as it became known last week. American President Donald Trump spoke with Chinese leader Xi Jinping on phone. The talk seemed to be productive, however the details are not yet known. Only the fact of their meeting at the G20 summit in Buenos Aires is known, will the leaders of the two largest economies find a consensus? For now, the decline in stock indices due to lower profitability of many companies will continue to put pressure on oil prices.