S&P: The Week Ahead in Finance

It’s Halloween, but ghosts and ghouls may not be the only things spooking investors this week. There are plenty of key macro events that could cause markets to take fright, with the US non-farm payrolls a particular focus. Latest ISM survey readings will also be keenly watched stateside. The Federal Reserve and European Central Bank hold rate-setting meetings, with Mario Draghi taking the helm at the ECB. In the UK, all eyes will be on the first reading of 3Q GDP. Meanwhile, a G20 summit is to be held in Cannes on Thursday and Friday.

Starting with the eurozone, Monday sees the release of flash inflation figures for October. The market expects HICP inflation to ease back to +2.8% year on year from September’s 3.0%. September unemployment figures are also due, with a stable rate of 10% anticipated. German unemployment numbers for October follow on Wednesday. A 10k drop in unemployment is predicted. Final eurozone October PMI surveys will be released, with manufacturing on Wednesday and services on Friday. These are expected to be in line with the flash readings at 47.3 and 47.2 respectively. 4cast believes that a recession in the eurozone is now virtually certain.

The ECB announces its latest decision on interest rates on Thursday. New president Mario Draghi is seen as more dovish than predecessor Jean-Claude Trichet, but nonetheless European rates are expected to stay on hold at 1.5% in November. The latest Reuters poll of economists suggests a 25bps cut to 1.25% is likely to be forthcoming in December. Sarasin thinks the repo rate will come down to 1.0% during 4Q11. 4cast says one of the main points of interest at this week’s meeting will be the ECB’s purchases of Italian and Spanish bonds, and the extent to which such purchases will be ongoing.

In the UK, focus will be on the first estimate of third quarter GDP. 4cast anticipates +0.4% expansion quarter on quarter, helped by resilience in the service sector. Says such an outturn would be reasonably solid growth given the financial market backdrop during July-September. However, the data provider says a slip back into recession looks like a high possibility for the UK as well as the eurozone.

Turning our attention stateside, the Chicago PMI for October will be published on Monday. The market anticipates a 1.4 point decline to 59.0. 4cast comments that the Chicago area still has an advantage over the rest of the US due to the resilient auto sector. The ISM manufacturing survey for October is due on Tuesday and is expected to move up to 52.2 from 51.6. These levels suggest a moderate pace of sector expansion, 4cast says. The corresponding non-manufacturing reading follows on Thursday and is forecast to edge lower to 52.8 from 53.0.

October employment surveys will be a key focus of the US week. As ever, the ADP survey is first up on Wednesday. Consensus looks for a 101k ADP payrolls gain. 4cast comments that there is room for substantial volatility in the outcome, as labour market indicators have given conflicting signs. Non-farm payrolls follow on Friday. Forecasts show wide variations, with consensus looking for 100k while 4cast sees 50k. The unemployment rate is expected to be unchanged at 9.1%.

Meanwhile, Wednesday heralds the latest rate-setting meeting from the Fed. Goldman Sachs thinks there is a good chance that the Fed will provide substantially more information about its own expectations for the path of monetary policy. Thinks the Fed will ultimately announce a return to balance sheet expansion some time in 1H12. 4cast believes this week’s meeting may see the Fed announce an explicit inflation target, but thinks it unlikely that a numerical target for unemployment would be announced.