Central Banks and Trade Conflicts Dominate The Agenda

Ahead of the meeting between US President Trump and Chinese President Xi Jinping, everyone is hoping for an amicable trade agreement. As a result, the stock markets are on the rise. Apart from that, the week will be dominated by central banks – and the many quarterly figures.

High oil prices, US-Canadian tensions, rare earth export controls – none of this seems to be having much of an impact on the stock markets. Following signs of easing tensions in the US-China trade dispute and favorable inflation figures, US markets had already climbed to new highs on Friday. The DAX is on the rise at the start of the new week. On Monday morning, the index stood at 24,340 points, approaching its all-time high of 24,771 points. The Stoxx Europe 600 has already reached a new high. 

This Thursday, US President Donald Trump and Chinese President Xi Jinping will meet in South Korea on the sidelines of the APEC economic summit. “Tensions between the two sides had escalated significantly in the last three weeks due to China’s export restrictions on rare earths and an announcement by US President Trump of 100 percent additional tariffs on Chinese goods from November 1,” reports Deutsche Bank. However, following recent de-escalating statements by members of the US government, the financial markets are now assuming that a negotiated solution will be reached, perhaps as early as Thursday.

Gold price decline: “Just a counter-movement”

There is also a jubilant mood in Japan: today, Monday, the Nikkei closed above the 50,000-point mark for the first time in its history. Hopes are also pinned on government spending by the new Prime Minister, Sanae Takaichi. The gold price rally has not continued. After peaking at US$4,380 a week ago, the price of a troy ounce is now “only” US$4,068. However, according to Helaba analyst Claudia Windt, the issue of security will remain on the agenda. “Therefore, the 3.5 percent decline in gold over the week should not be overinterpreted,” she says. She sees this more as a counter-movement after an exceptionally strong run – and not as a departure from a safe haven.

Other than the ECB’s monetary policy standstill, a ‘big surprise’

This week is a week of central banks. Both the ECB and the Fed will decide on key interest rates, as will the central banks of Japan and Canada. The US Federal Reserve, which meets on Wednesday, is widely expected to cut interest rates. This is supported by the fact that consumer prices in September, published on Friday, rose more moderately than expected.

The ECB is already much further ahead with interest rate cuts. No interest rate move is expected on Thursday. “The central bank’s leaders have recently made it clear that they believe they are currently well positioned with regard to the key interest rate,” explains Christian Reicherter of DZ Bank. Against this backdrop, anything other than monetary policy inaction would be a “huge surprise.” 

Encouraging start to the season

According to Marthel Edouard of Weber Bank, the stock markets are currently receiving a boost from the convincing start to the US reporting season. “Around 80 percent of US companies that have reported so far have exceeded earnings expectations – an encouraging start to the season,” he notes. Nevertheless, valuations remain ambitious, especially in the US. The bank is therefore sticking to a selective equity strategy. “We continue to see short-term setbacks as a good opportunity to expand positions in the technology, finance, and industrial sectors.” 

Moment of truth: Tech giants’ figures

While many economic figures are coming out of Europe this week, little is expected from the US. Due to the government shutdown, US statistical agencies remain closed. For example, the GDP figures for the third quarter, which were due to be released, will probably not be published. 
However, the quarterly reporting season is picking up speed again: this week, 90 companies from the Stoxx 600 are presenting their earnings, including Société Générale, Shell, Puma, TotalEnergies, Credit Agricole, Volkswagen, Mercedes-Benz, Deutsche Bank, Adidas, BASF, UBS, ASM International, Novartis, BNP Paribas, and Deutsche Börse. From the S&P 500, 172 companies are reporting, including the “Magnificent Seven” members Alphabet, Meta, Apple, Microsoft, and Amazon, as well as PayPal, Visa, Boeing, Kraft Heinz, and Exxon Mobil.

Important economic and business data

Wednesday, 29 October

7:00 p.m. USA: Interest rate decision by the US Federal Reserve.

Thursday, 30 October

Japan: Interest rate decision by the Bank of Japan.

10:00 a.m. Germany: Third quarter GDP. DekaBank expects another quarter without growth in Germany. With German gross domestic product likely to shrink in the third quarter, the technical recession is making a comeback.

11:00 a.m. Eurozone: Third quarter GDP. Gross domestic product in the eurozone is expected to have grown by 0.2 percent in the third quarter, albeit with significant differences between countries, according to Commerzbank. While the economies in France and Germany are likely to have stagnated, the Spanish economy has once again grown quite strongly.

2:00 p.m. Germany: October consumer prices. The market expects an increase of 2.2 percent compared to the previous year.

2:15 p.m. Eurozone: ECB interest rate decision. 

Friday, 31 October

11:00 a.m. Eurozone: October consumer prices. According to Commerzbank, inflation is likely to have fallen slightly to 2.1 percent in October, driven by lower energy and food prices. Core inflation is expected to remain at 2.4 percent.