Interactive Investor

Market-moving events to watch like a hawk

30th November 2015 14:34

Harriet Mann from interactive investor

As weeks go for economic data, the next five days rank as pretty important for financial markets. Investors are waiting anxiously for the final piece of data before the Federal Reserve decides whether to raise US interest rates in December, and for the European Central Bank’s (ECB) decision on extra monetary stimulus. While markets will remain volatile, there are deals to be done here.

ECB

Europe's headline stealer will be the ECB's monetary policy announcement on Thursday. President Mario Draghi has already warned that risks to growth and inflation could trigger a raft of stimulus options, which investment bank Investec reckons could include extending Europe's quantitative easing (QE) programme beyond September 2016 and cutting rates to -0.40%. That said, the broker "would not be at all surprised" if Draghi did something else; perhaps increasing the pace of asset purchases.

"Combined with an extension/expansion, [broadening the range of QE assets] could help with asset purchase limit constraints. Newswires buzzed this month with rumours that the ECB is considering buying regional government bonds. Corporate bond purchases are another option. However, market depth low liquidity levels could be an operation issue here. A decision to buy riskier assets, such as equity ETFs (as currently conducted by the Bank of Japan), is unlikely."

Following Draghi's pre-announcement, equities have enjoyed a reprieve, although UBS strategist Nick Nelson reckons there will be a pull back if further stimulus isn't granted. But he does think the update will help cyclicals rebound from new lows. Even when energy and banking sectors are excluded, compared to defensive stocks, cyclicals are below March 2009 and summer 2012 levels. Rising bond yields, economic growth and livelier earnings momentum will also help.

Since the first round of QE was launched at the beginning of this year, oilfield services firm Petrofac has outperformed the market by 50%, miner Boliden is beating the market by 44%, and Rightmove by 30%, according to UBS. On the other side of the coin, airline Lufthansa has underperformed by 28%, miner Fresnillo and telecoms group OTE by 26%, and supermarket delivery group Ocado 19%.

In the lead up to Thursday's announcement, economists will be digesting a slew of important numbers, including November's flash consumer price index (CPI) and purchasing managers index (PMI), as well as jobs data.

In the UK, the Bank of England's Financial Stability Report will give central bankers a slice of the action, along with monetary policy decisions from Australia and Canada. A set of PMIs from China could also trigger market movement. Last Friday, weak data and inquiries into alleged dodgy stockbrokers caused China's main stockmarket to crash 5.5%, its largest drop since the August crash.

OPEC

Oil company budgets have been slashed by around 40% this year as companies navigate the oversupplied energy market. UBS expects this to fall by another 28% next year, although whether any of this will come from OPEC is unclear. In the cartel's previous meetings in November and June, members maintained their production quota despite the falling oil price, choosing instead to defend market share.

Analyst Jon Rigby doesn't expect this strategy to change in Vienna on Friday. In fact, with Indonesia asking to be back in the OPEC club, the output ceiling will likely rise from 30 million barrels per day (mbpd) to 31mbpd.

US

US jobs data will be the final piece in the puzzle before the Federal Reserve's much-anticipated decision on whether to raise US interest rates for the first time in almost a decade. Investec reckons a similar performance to last month's 271,000 surge in non-farm payrolls this Friday makes a December hike a "dead cert". With unemployment falling to 5%, commentators expect wages, another key factor in the debate, to rise significantly.

The market will also look to Fed Chair Janet Yellen's talk in Washington on Wednesday and Thursday's Joint Economic Committee of Congress.

What's certain is that we are entering a week that could be very volatile. Still, chief executive and founder of financial advisor deVere Group, Nigel Green, thinks there are reasons to be cheerful.

"Despite this unsettled period, I would urge investors to be optimistic. First, history teaches us that volatility creates important buying opportunities. And where we are now is no exception. And second, it has never been easier and cheaper to invest globally. Investing across geographical regions is one of the cornerstones of a well-diversified portfolio.

"Those with a well-diversified portfolio are best-placed to mitigate risk in times of market turbulence and best-placed to take advantage of the opportunities. With the current market environment, I would argue that now is the time for many investors to think about taking a more global perspective."

It's not been a bad year for global stockmarkets so far, with many indices, reflecting growth over the period, explains Green. Even though the FTSE has been lagging, it’s still 80% higher than in early 2009, he adds.

“Yet despite this, in several sectors and many shares pessimism is keeping a stranglehold on prices, creating excessively low valuations and, therefore, major opportunities for long-term investors," he concludes.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.