In the coming month, an overall picture for investors will be formed by the OPEC meeting, progress in tax reform in the US, corporate reporting on both sides of the Atlantic, and the name of the new chairman of the Fed. Below is a list of key events that investors will follow in the next four weeks.
OPEC and reduction in production
OPEC ministers of oil, as well as a number of independent producers outside the cartel, will meet on November 30 in Vienna. The agenda is expected to be an extension of the historic agreement on the limitation of production. Almost a year after OPEC and such exporters as Russia agreed for the first time to cut supply by 1.8 million barrels per day, world oil surplus fell, and last week the international benchmark Brent exceeded $ 60 for the first time since 2015 . The original deal was already extended and is now due to expire in March next year. But the producers propose to prolong the agreement until the end of 2018. The Crown Prince of Saudi Arabia, Muhammad bin Salman, last Sunday confirmed the intention of the kingdom to support the initiative with the extension of the pact.
In October, Russian President Vladimir Putin promised that Moscow, which together with Saudi Arabia makes almost a fifth of the world’s oil, is ready to support the extension of the deal “at least until the end of 2018”. Paul Horsnell of Standard Chartered noted that such statements “can completely dispel the market’s doubts and convince it that exporters will continue to take proactive measures throughout the next year.” Also, these actions will help maintain prices above $ 60, unless supplies suddenly increase.
Corporate reporting in the US and Europe
Completion of quarterly reports in the US will be important. Companies are making efforts to justify rising stock prices. More than 2/3 of the corporations in the S & P 500 index have already reported their results, according to which the cumulative increase in earnings per share is approaching 5%, which is 1% higher than analysts’ forecasts. The main question for the markets is what the following reports will show. Those companies that are about to publish their indicators are unlikely to spoil the overall positive picture, although at this stage it is noteworthy that stock prices are not so eagerly growing in response to expectations that have exceeded expectations, but are showing a more vigorous decline in case of lower yields, than it was predicted. This is a classic signal, characteristic for the end of the cycle. According to Goldman Sachs, in Europe, where stocks have significantly increased in price over the past weeks, more than 50% of companies that have already reported profits met expectations, and 24% exceeded forecasts.
What will bring the appointment of a new head of the Fed
The November meeting of the Federal Reserve, as expected, did not interest the markets. The attention of investors is now entirely focused on who Trump will choose to be the next chairman of the Central Bank. The favorite for this post is now a member of the committee on open market operations, and the market perceives his candidate in two ways, expecting a softer regulation, which will be good news for banks, and a similar trajectory in monetary policy, which Yellen follows. The moderate pace of tightening monetary policy in the US is likely to push the yield of short-term government bonds. bonds to growth (especially 2 and 5-year securities). However, if inflationary pressure does not gain momentum, this will constrain the growth of long-term bonds yield, and high-quality corporate bonds will be in demand regardless of who will head the Fed after Yellen expires in February.
What will happen to the tax reform?
In the third quarter, the US economy grew by 3%, and for the first time since 2014, such rates were achieved for two consecutive quarters. The next important report from the US is Friday’s employment data for October. It is expected that last month the figure recovered by 300 thousand after a fall of 33 thousand due to hurricanes. Particular attention will be paid to the growth rate of salaries. It is important for market participants to see whether the tightening of conditions in the employment market contributes to an increase in the amount of wages – this link in the chain of economic recovery is still missing.
Equally important will be signs of progress in the Congress on the issue of tax reform, the implementation of which can raise inflation expectations and cause an acceleration in the rate of tightening of the monetary policy of the Fed. The December rate increase is already in prices, but investors still do not believe that next year the regulator will decide on more than one act of tightening. If these modest forecasts change, the yield of government bonds may continue to grow, which in turn will support the dollar and partially undermine the rally in the stock markets. David Bianco, a senior investment strategist for the US at Deutsche Bank Asset Management, notes that, given the steady economic growth and prospects for a smooth tightening of the Fed’s policy, the environment for the growth of yields remains positive