Equity Fundamental Forecast: Bearish
- Fed to issue rate decision on Wednesday, followed by a press conference with potential to spur the Dow
- FTSE will look to Brexit and the BOE decision with a watchful eye on events across the channel
- CAC concerned with protests and reaction from Brussels on budgetary infractions
Global Geopolitical Concerns Weigh
This past week saw a mixed bag of trading days. A trade war breakthrough on Tuesday spurred markets but most gains were forfeited before the close. The latter half of the week erased any earlier gains as the major US indices sold off Friday. The outlook for global equities remains bearish on a lack of upside potential and persistent threats from Brexit, the Italian budget debate and similar concerns arising in France. One area with upside potential is the Fed’s decision on Wednesday.
Dow, S&P 500 Await Fed Decision
The Fed is scheduled for their final rate decision Wednesday. At present CME Fed Funds futures have the probability of a hike at 77.5%. With a hike largely priced in, the real price action will arise from Chairman Powell’s discussion with the press afterwards. The Q&A will allow Mr. Powell to expand upon his view for rate hikes in 2019 and given a series of dovish comments in recent weeks, could make the case for a bullish reaction in US equities.
CME FedWatch Tool (Chart 1)
FTSE 100 Looks to EU’s No-Deal Documents, Bank of England Rate Decision
The FTSE 100 will again await Brexit news. On Wednesday the European Union is scheduled to release documents regarding their preparation for a no-deal Brexit. If their findings are particularly bleak, expect a slump in the FTSE along with the other European indices.
The FTSE will also look to the Bank of England. With virtually no chance the bank hikes their interest rate, any reaction will come from commentary on the case for future hikes. Expect this event to be overshadowed by the Brexit news and the Fed.
FTSE 100 Price Chart (2) Daily, Year-to-Date
CAC 40 Gets Stung
The French equity index will eye the ongoing yellow-vest protests. Already the movement has secured concessions from French President Emmanuel Macron, but the movement’s leaders say the protest will continue into next week. The tax cuts and wage increases offered by President Macron will draw the eye of the European Commission along with the French people.
See the other economic events in the week ahead with our Economic Calendar.
France may now find itself in a position like Italy with an unacceptable budget to GDP ratio and could face the ire of European Commission President Jean-Claude Juncker. The civil unrest and budgetary overspending will undoubtedly weigh on the French index and could spread across the continent as the bloc attempts to reel in its members.
CAC 40 Price Chart (3) Daily, Year-to-Date
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As with last week, trade wars remain in the picture. There are no scheduled events but talks between US and Chinese officials are ongoing. With that in mind, be wary of trade war developments that could impact your equity positions. There appears to be little upside potential in many equity markets, so the forecast for the week ahead remains bearish.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact Peter on Twitter at @PeterHanksFX