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A Look At Global Economic Events In The Upcoming Most Important Week Of The Year - All Aboard The QE2!

Tyler Durden's picture




 

Week in review

Intense speculation over what the Fed will do and uncertainty over how much is priced kept markets trading in a relatively tight range through most of the week. European peripheral spreads have started widening again as sovereign concerns have started to re-surface. Reports late Friday afternoon that the Portuguese government has reached an agreement with the socialists on the 2011 budget should provide some relief to markets. Reports that the US Administration is considering extending middle income tax cuts permanently and higher income tax cuts temporarily may also provide some boost to sentiment.

Week Ahead

The macro calendar does not get any more packed than this. We kick off with the usual monthly global PMIs, in particular the China PMI and US ISM (slight moderation is expected for both, more details below). We get our final GLI reading as well, which is important to watch for confirmation of stabilizing momentum. The initial reading showed a positive uptick after four months of negative momentum.

The US mid-term elections is on Tuesday, followed by the all important FOMC meeting on Wednesday. Our US economists’ baseline view is for a program of about $500 bn in Treasury purchases, to be accomplished over a period of about six months, but it is quite possible that a program of similar implied size might instead be specified in terms of a monthly purchase rate. In either case, there should be a clear indication that the program could extend beyond the initial commitment. Ultimately, our US economists expect the cumulative easing to reach a possible $2trn..

We also have important central bank meetings on either side of the FOMC decision, with the latter weighing heavily on the individual response functions. The RBA meets the day before the FOMC and it is likely that they hold rates steady (although our Australia economists think they go ahead with a hike in December). BOE, ECB and BOJ are all scheduled to meet soon after the FOMC. The BoJ meeting was advanced to allow an earlier start of its asset purchases program. For the MPC, our UK economists do not expect an announcement of additional QE. Policymakers around the world will no doubt be closely watching the market reaction following the FOMC decision.

We end the week with the key non-farm payrolls release. We expect the headline at +50k and private sector payrolls at +75k, below consensus at +60k and +80k respectively. We and consensus expect the unemployment rate to stay unchanged at 9.6%.

Overall, whether or not the FOMC outcome is seen as dovish enough relative to market expectations will dictate the immediate price action. But if global cyclical indicators show further signs of global decoupling, the backdrop of Fed easing plus the expected political buy-in for burden sharing in adjusting global imbalances means the underlying dominant macro theme that will persist after the dust settles is likely one of broad USD weakness still.

Monday Nov 1

Global PMIs (Oct) PMI releases around the world will give us the latest update on ‘global decoupling’. On the China PMI, we expect slight moderation on seasonality. Consensus is expecting unchanged at 53.8.

Korea CPI, trade (Oct) We expect inflation in October to remain elevated at above 3%, despite the recent normalization of vegetable prices. On exports, we believe growth will be robust at around 25% yoy.

US ISM (Oct) We expect a moderation to 53.0, below consensus of 54.0

US PCE Core price index (Sep) We expect a slight rise of +0.05% mom versus consensus expectations of +0.1%.
 
US personal income and spending (Sep) We expect a flat reading for income and +0.2% for spending vs consensus at +0.2% and +0.4% respectively

Tuesday Nov 2

European final PMI (Oct) The flash readings showed a surprise improvement to 54.1 from 53.2.

India central bank meeting We think the Reserve Bank of India will hike the policy repo and reverse repo rates by 25 bp each in the upcoming policy meeting, in-line with consensus.

Australia central bank meeting Following the benign September quarter CPI report, markets have pared back expectations of a rate hike. While we agree that the Board will find it difficult to publicly justify a move and our central forecast is for an 'unchanged' outcome, we think the economic case for a 25bp rate hike can still be made. We expect a hike in December.

US Midterm Elections

Wednesday Nov 3

ADP employment (Oct) Consensus expects a rebound to +20k from -39k previously.

ISM non-manufacturing (Oct) We expect 53.0 versus consensus of 53.5.

US FOMC decision Although changes in the statement designed to provide greater commitment to low short-term interest rates are possible, the centerpiece is likely to be a return to large-scale asset purchases. Our baseline view is that the FOMC will announce a program of about $500 bn in Treasury purchases, to be accomplished over a period of about six months, but it is quite possible that a program of similar implied size might instead be specified in terms of a monthly purchase rate. In either case, we expect a clear indication that the program could extend beyond the initial commitment.

Thursday Nov 4

Indonesia central bank meeting We expect the central bank to stay on hold, in-line with consensus.

Czech monetary policy meeting No change to rates expected, in-line with consensus

ECB meeting No significant changes in policy are expected. The ECB will likely acknowledge that the overall data has been quite encouraging since the last meeting but also to caution against any premature ‘all clear’.

UK MPC meeting Our UK economists expect no additional QE purchases by the BoE.

US Jobless claims Consensus is expecting initial claims to creep back up to 445k after the surprise drop to 434k last week.

Friday Nov 5

BoJ Meeting The November monetary policy meeting was advanced, to allow the bank to start its asset purchases sooner. The BoJ will be watching the market reaction to the preceding FOMC meeting but even in the event of a major market reaction, our Japan economists see little room for additional measures by the BOJ, in part because it has not yet begun implementing its comprehensive easing measures. However, we do think the BOJ may respond by clearly reiterating its monetary easing stance.

Spain Industrial production (Sep)  The recovery in Spanish IP is still virtually non-existent as production levels remain only marginally above their recession-time trough. We do not expect this sluggish trend to change any time soon, and we expect IP in September to have recorded only a minor +0.3%mom increase.

US Nonfarm payrolls (Oct) We expect headline at +50k and private sector payrolls at +75k, below consensus at +60k and +80k respectively. We and consensus expect the unemployment rate to stay unchanged at 9.6%

Canadian payrolls (Oct) Consensus expects a 10k gain in jobs after last month’s decline of -6.6k.

Fed’s Bernanke, Evans, Fisher, Bullard, Kocherlakota, Lacker, and Plosser speak at Atlanta Fed Conference

From Goldman's Tan/Stopler dynamic duo

 

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Sun, 10/31/2010 - 19:47 | 689513 bugs_
bugs_'s picture

Friday and Saturday: Breeder's Cup @ Churchill Downs!

Sun, 10/31/2010 - 22:09 | 689784 66Sexy
66Sexy's picture

I wager $10 that we get non-specifics, implications, nonsensical blabber, and a basic evaluation of bernakes neatly trimmed beard and jesus christ pose ... and perhaps we can guess the cup size of the libertarian looking blonde aid sitting behind him ...

they will tell us nothing; no numbers... nuthin'.

Mon, 11/01/2010 - 09:36 | 690254 flacon
flacon's picture

If that is the case then people will flock to safety (gold/silver). If we get less than expected QE people will flock to safety (gold/silver). If we get more QE than we thought, people will flock to safety (gold/silver). 

 

One thing is for sure - Bernankass won't get it "just right". He is dancing on a razor blade; either he falls to one side or the other, or else he gets cut in half. 

Sun, 10/31/2010 - 19:55 | 689524 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Bernanke's not going to meet the markets great expectations this week.

This whole 2 month ramp job on wild expectations was just to allow the criminal insiders and good old boys to distribute their shares to the suckers who will be left holding the bag.

Sun, 10/31/2010 - 20:40 | 689586 Walter_Sobchak
Walter_Sobchak's picture

Yeah, they'll probably crash it, then do QE...something to the tune of 5-7trl.  Banks have massive short positions.

Mon, 11/01/2010 - 08:36 | 690161 Ethics Gradient
Ethics Gradient's picture

Got any back-up for any of that? It would make monkeys out of a lot of people if you do.

Sun, 10/31/2010 - 19:56 | 689527 Silverhog
Silverhog's picture

Hey wait a minute, this QE2 has no life boats.....

Sun, 10/31/2010 - 20:07 | 689537 Endstrategy
Endstrategy's picture

When will we hear about QE2?  Is that the same as the "US FOMC decision"?

Sun, 10/31/2010 - 20:35 | 689571 DosZap
DosZap's picture

All this hinges on Tuesday night.

If the GOP,takes House & Senate, the QE Shit is over.

Commods, will tank for a couple of weeks, or maybe longer......FALSE hope will be born anew.

Obammy will still be his usual gregarious,race healing self.

But, his Boyeeez,Weekend at Bernies, LiL' Timmay, will be history..............

If they take(and  they will) the House, and leave the  DemoNcrats Senate in control(even 2 seats), then we get QE 2 in increments of 100 B per mo(or, as Prescribed).

And business as usual, except for no legislation will get done, some undone, and the rest of the next 2yrs,will be TRIALS.

IMHO

Sun, 10/31/2010 - 21:23 | 689704 treemagnet
treemagnet's picture

Even without a majority, our esteemed senator from the great state of Kentucky(?), Mr. Ron Paul will become the head of the committee that will put Ben on a tight leash.....so I think QE2 is much ado about nothin.  That plus the fact that China just put a couple of shots across our bow as well as the complete destruction of far, far too many completely U.S. gov't dependents - nope for the big QE.  Remember, newly created dependent are way more appealing to this corrupt gang of thieves than current "customers".

Sun, 10/31/2010 - 21:45 | 689748 Endstrategy
Endstrategy's picture

treemagnet, are you talking about American citizens that are now dependent on the gov? Or about foreign coutnries that are newly dependent on the US?

What else has China done recently besides ramp up rhetoric and temporarily restrict REE?

Sun, 10/31/2010 - 20:16 | 689550 spanish inquisition
spanish inquisition's picture

I would like to see emerging markets follow China's lead and peg to the dollar. I think that would make QE2 more fun to watch.

Sun, 10/31/2010 - 20:18 | 689552 RobotTrader
RobotTrader's picture

Smells like intervention going on.

 

 

 

Sun, 10/31/2010 - 20:25 | 689561 Humpty Pundit
Humpty Pundit's picture

Everyone is expecting the announcement on QE2 during the FOMC release Tuesday at 2:15 ET.

Sun, 10/31/2010 - 21:44 | 689745 bull-market_3.0
bull-market_3.0's picture

Isn't it happening on Wednesday?

Sun, 10/31/2010 - 20:54 | 689636 Miss Expectations
Miss Expectations's picture

"BOE, ECB and BOJ are all scheduled to meet soon after the FOMC. The BoJ meeting was advanced to allow an earlier start of its asset purchases program. For the MPC, our UK economists do not expect an announcement of additional QE. Policymakers around the world will no doubt be closely watching the market reaction following the FOMC decision...."

And then I thought of this scene from The Great Dictator:

http://www.youtube.com/watch?v=IJOuoyoMhj8

Sun, 10/31/2010 - 22:01 | 689778 arthur darrell
arthur darrell's picture

I sailed the QE2 years ago fabulous lobster bisque. As a student it was only $300 to Southhampton. When I passed the white cliffs of Dover thought of Jimi Hendrix and the 2 grand i lossed in their casino.

Sun, 10/31/2010 - 22:11 | 689795 Eric Cartman
Eric Cartman's picture

 

"From Goldman's Tan/Stopler dynamic duo"

So did Tyler write this or these GS douchebags?

Select ratingCancel ratingPoorOkayGoodGreatAwesome

 

Sun, 10/31/2010 - 22:50 | 689832 lawrence1
lawrence1's picture

I predict silver will go up at least 3 percent this week.  If it goes down, I´m buying more.

If it goes up, Im buying more.  If it doesnt move, I´m buying more.  As Wilde quipped about someone, ¨He knows the price of everying and the value of nothing.¨ Silver and gold are fantastic values.  And Im buying good smooth Nicaraguan rum to sip as the show unfolds.

Thanks Tyler for this great site.

 

Mon, 11/01/2010 - 10:27 | 690412 flacon
flacon's picture

I'm loaded to the hilt with silver - but dang, I forgot about rum! I'll buy a couple cases of Johnnie Walker "Black Label".

 

http://www.sommelier.dn.ua/eng/whisky-new/images/Johnnie-Walker-1.jpg

Mon, 11/01/2010 - 01:10 | 689975 HarryWanger
HarryWanger's picture

Everyone in on the same side of this "expected QE2 trade" when that happens expect the opposite. They all say sell on the news, I think we rally big on the announcement.

Just how the game works.

Mon, 11/01/2010 - 08:11 | 690125 Robslob
Robslob's picture

Which Rally are we on...getting confused with QE Rally, Split Congress Rally or now the Republican House and split Senate Rally...?

Mon, 11/01/2010 - 05:53 | 690065 viator
Mon, 11/01/2010 - 10:32 | 690439 flacon
flacon's picture

Hhahaha

Mon, 11/01/2010 - 06:33 | 690081 asianist
asianist's picture

I'm starting to cringe at the thought of any new intervention in Japan. It's like one of those movies where the hero tries in vain to resuscitate a dead loved one; refusing to give up and screaming "start, damn you!" while hammering and punching the victim's chest, to the distress of everyone watching. And then a truckload of defibrilators pulls up behind...

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