Weekly Market Outlook

Another week rich in important events in the financial world kicks off. In the limelight are three major central banks holding their interest rate meetings, namely: the FED, the Bank of Japan and the Bank of England. Some of the most significant economic data include the Chinese retail sales and industrial production, and the UK jobless claims and retail sales. On the corporate front, the Apple product event and the Adobe Systems Q3 results are due on Tuesday and warrant special attention from stock investors and speculators alike.

China August Retail Sales and Industrial Production (Tuesday)

Although not on the same levels as prior to the lockdown, China retail sales for July offered grounds for optimism. The good news for the economy was confirmed by the recent auto sector figures. Companies like Apple and Daimler also contributed to the positive expectations with their data for the Chinese markets. Chinese manufacturing in July also pointed toward a solid recovery, with PMI rebounding to its best level in around a decade. The most recent figures indicated a 2.1% decline in imports, which came short of the expected 0.2% gain. Retail sales are not expected to yield a change, but a rise of 5.2% in industrial production is expected. Any serious surprises in these data could potentially result in high volatility, so watch out!

UK August Jobless Claims & Retail Sales (Tuesday-Friday)

The jobless claims are in focus, as the ILO measure for UK unemployment is apparently not fit to be applied in the current situation. It has been staying unchanged at 3.9% for the last three months until July, as it does not include workers that have not yet returned from furlough, which means that these workers are not factored in as unemployment.

Job losses in sectors like retail, airlines and aerospace have already come out in the news. Some companies, such as Amazon and Tesco, are offering jobs for online and delivery operations, but these are not enough to compensate for the losses. The Claimant count for July increased by 94,400, and as for the headline Claimant count rate, it increased to 7.5%. There is another important figure, indicating losses of further 220,000 jobs in the three-month period until June, so the total number of the March-June period amounted to 730,000. The trend is likely set to continue in the next two months, including August too.

Adobe Q3 Results (Tuesday)

Work from home has boosted the demand for the products and services of Adobe Systems. As a result, its shares have skyrocketed to record highs in the past months. In this mode, the company will easily surpass its annual revenue of $11.17 billion, achieved last year. Its product mix, a diversity of not just digital media, but also cloud, print and publishing, is having its contribution to that. Adobe’s cloud business has been exhibiting an outstanding performance, as it has been offering increasingly more tools: for designing, for publishing, for photographers and for graphic designers. Added to these are products for vaster functionality in the areas of marketing, analytics and advertising. With all that said, the Q3 profit for Adobe is expected to come in at $2.41.

Apple Product Event (Tuesday)

Markets are eagerly awaiting the event, as the company is due to deliver information about key new products, as well as upgrades to existing ones. Among the upgrades, those for the iPad, the Apple Watch, and the new iPhone 12 are the most thrillingly anticipated. Apple’s plan for a 5G model is also expected to be on the agenda, though the obstacles raised by Covid-19 may have moved the deadline further in the future. The company’s new iPhone SE has reaped vast success, so Apple is expected to shift its focus increasingly on the lower end of the market, given the current global shutdown situation.

There is still a lot to be done by Apple to help it justify its current $2 trillion valuation. The recent split has made the company’s stocks easier to grab by Robin Hood traders. But the risk remains that the current valuation does not truthfully reflect the underlying fundamentals.

US August Retail Sales (Wednesday)

Economic data in recent months suggest that the recovery is still underway after the April shutdown. This recovery, however, is by far not all round, which would continue to keep markets on the edge. With the labour market resilience, August retail sales expectations are optimistic. The $600 unemployment aid expiration is a factor that has probably adversely affected last month’s spending patterns. The sharp slump of consumer confidence to 84.8, the lowest since mid-2014, points in the same direction. With this in mind, the expected 1.3% gain seems a bit too optimistic.

US FOMC Rate Meeting (Wednesday)

Following the Fed chair’s recent speech, no monetary policy changes are on the agenda for the Wednesday meeting. The Average Inflation Targeting (AIT) policy, which Powell announced the Federal Reserve would stick to, effectively means that the central bank would be willing to tolerate a price rise over 2% in certain periods as compensation for periods of inflation getting below target. The success of the policy has yet to be seen, but it does not offer much difference to the policies of central banks in the last 12 years. The only difference is that now the policy is openly acknowledged, and by doing that the Fed shows that the focus of its concern is not so much inflation, but employment. Many Fed officials have recently voiced support of the appropriateness of more aggressive quantitative easing. The Wednesday meeting is likely to offer a clearer outline of the new policy’s parameters.

Bank of Japan Rate Decision (Thursday)

The recent GDP data for Japan showed a contraction in the country’s economy by 7.9% in the second quarter. The largest contribution was made by household spending. In a bid to drive inflation to levels close to 2%, for the past 30 years, the Bank of Japan, has predominantly kept interest rates down on the floor, purchasing all items that are not nailed down. The latest policy of the Bank of Japan has been a $1 trillion loan programme, a close copy of the US Fed most recent programme, aiming to provide assistance to companies suffering a corona-induced financial distress. Central banks’ policies in the past years have resulted in the emergence of zombie companies. Japan has been in the forefront, with no competitiveness, as per OECD data. The Bank of Japan has set its latest loan programme to continue through March next year, and no policy changes are on the horizon, as the country’s economic recovery is lagging behind other major economies around the globe.

Bank of England Rate Meeting (Thursday)

In the past few months, we have witnessed increasing speculations on whether BoE would introduce a negative rate. The Bank’s officials have not indicated such an option was impossible, but the implication remains of the destructing effect of such a move on the UK financial sector, which is crucial for the country’s economy. The US Fed has hinted such a move was to be ruled out, perhaps on the grounds of the destructive effect it already exerted on Europe and Japan. No major changes are likely to be announced at this rate meeting, as recent economic data pointed out the UK economy hardly needed a change. The situation is uncertain, so consumers take time before taking on extra liabilities. The latest consumer credit data showed £1.2 billion were borrowed in July, and more than £16 billion were repaid in the previous four months, which is more than the whole amount borrowed in 2019.