Today is singles day in China. The heralded event for internet sales has not lost its glitter even with the moving on of Alibaba’s Ma. As of midday, Alibaba had chalked up 149 billion yuan -- $21.5 billion -- in sales – with $1bn in the first minute, $10bn in the first hour, so with hours remaining, the 2017 record of $25.3 billion in sales has already broken.

With or without Ma, business goes on. Politics matter but just how much is the question. The pressure of Chinese politics is opaque in comparison to that of the US and yet those risks remain just like they do in the US.

After last week’s US mid-term elections, the power of democracy shines through markets. Perhaps the largest voter participation in history doesn’t hit a home run but it’s a solid single against those that argue stability is better than giving the power to the ballot.

Economics may return to dominate markets into the last 1 ½ months of the year, but politics particularly in Europe continue to be the key with Brexit, Germany, Italy and the ECB replacement for Draghi all essential to keeping the EU intact. The EUR is fast becoming the favorite trade to short into 2019 as the economic divergence, political issues and policy divides make 1.10 more likely than 1.20. Compare this to the USD views at the beginning of the year where 1.30 targets were more plentiful than the snow in London.

Against this view is the growing consensus that the US goes into a recession in 2020. The risk of an FOMC mistake rises with jobs, the unwinding of the US tax cuts, fear of a prolonged China trade war (if not cold war) and the ever-growing debt weighing on the dollar and equities.

No one is sure that the rally into year-end for risk isn’t a screaming opportunity for shorting into 1Q2019. The world wants clarity but can’t find it in autocracy whether in politics or policy. Singles maybe less fun than doubles, less powerful than home runs, but more sustainable in the long run.

For the week ahead, the EUR/USD is the key FX barometer for measuring politics over economics. Oil will be in play given the Iran sanction waivers from the US and the weekend Saudi efforts to shore up prices at $70 Brent. The US bond market will be watching CPI and Powell while the US stock market gets the last dribbles of earnings and more on the rotation plays post the mid-terms. For risk players, EUR/USD is about watching for 1.05 bets over 1.20 to dominate into year-end.

What Happened over the Weekend?  

Beyond US politics and recounts and the tragedy of yet more fires in California and the horror of a mass-shooting, markets will be watching the oil market and EM. The pain in both last week stands out and could be in play for a bit of reversal.

• Argentina – IMF calls a bottom - “The bottom of the recession, the floor, will be hit the first quarter of 2019, and in the second quarter we are going to see a recuperation,” IMF mission chief for Argentina Roberto Cardarelli told reporters at a press briefing in Buenos Aires. The fund expects Latin America’s third biggest economy to contract by 2.8 percent this year and by 1.7 percent in 2019.  “Average growth for the year will be negative, particularly because the end of this year will be negative. There will be a ‘carry over’ effect,” Cardarelli said.  Analysts forecast 2018 inflation at about 47.5 percent and the peso has lost about half its value this year. 
• OPEC – considers new output cut - Saudi Arabia is discussing a proposal that could see OPEC and non-OPEC oil producers cut output by up to 1 million barrels per day, two sources told Reuters on Sunday. Riyadh was surprised by the waivers granted to customers such as China and India, a move which hit oil prices, at least three industry and OPEC sources

Question for the Week Ahead:

Is it inflation, US politics, China growth, Italy’s budget or UK Brexit that drive markets next?

When you have a swarm of issues that nag investors, the best course is to figure out the timeline for resolutions for each concern, rather than panic. The slow start to the week and an opportunity for trading the markets with some cold logic and hard facts. November isn’t October as the last two weeks become an exercise in year-end positioning, where fear usually loses out to greed. There is a need for certainty but few expect total resolution to the list of worries above, though many seem on course to resolution.

For example, the US inflation fear after the PPI Friday was high enough to make the CPI release in the week ahead important but unlikely to shift the FOMC reaction function which already has a December hike planned, apropos the meeting statement last week. Powell’s speech may be the more important risk for rates in the US and EM for the week ahead as he explains his forecasts. What matters with CPI and the Fed is how much overshooting of 2% targets will be tolerated. Short-term, inflation fears will be resolved sufficiently after CPI and Powell, longer term the credibility of the central bank rests on its forecasts being right and their reaction to surprises being benign.

This leaves the US political hangover after the mid-terms with recounts in a few states leaving many worried about the wider rift in US politics as the Democrats elect further left-leaning leaders and the Republicans further Trump-leaning representatives, effectively squeezing out the middle-ground.

The blue wave may have been a trickle but the House control flips to the Democrats and the next two years will be difficult for US President Trump as he faces more investigations, less support on budgets and more pushback on policy. The common wisdom is that the US is more divided after the election, but the preferences of the majority clearly leaned to the democrats and this puts the 2020 election very much in play with the republicans losing ground overall.

The UK Brexit plans and its politics are coming to a head in the next week. Over the weekend, 4 UK ministers were on the verge of quitting per the UK Sunday Times. The paper also reported that the EU rejects the latest plan for an independent mechanism to oversee the UK departure from temporary Irish border fixes. A senior cabinet minister was quoted in the paper as saying: “This is the moment she has to face down Brussels and make it clear to them that they need to compromise, or we will leave without a deal.” The issue for investors is where to reflect a negative outcome as the GBP remains significantly below the pre-Brexit level and seems cheap on many value metrics. The binary outcome risk for November and the UK continues.

Over the weekend, Italy’s leaders agreed to rethink their GDP forecasts and so their budget in response to the EU commission forecasts. La Repubblica newspaper said Tria was considering cutting the estimate for 2019 GDP growth to 1 percent and another daily, Il Messaggero, said he would cut the GDP forecast for next year to 1.2 percent. Italy has until Tuesday to submit a new draft budget to Brussels. EU rules require it to revise its 2019 structural deficit, so that it falls by 0.6 percent of GDP versus this year, rather than rise by 0.8 percent as planned now.

Market Recap:

The US mid-terms came and went with the expected outcome – Democrats winning the House, Republicans retaining the Senate. Gridlock was taken as bullish for stocks, supportive for bonds, though infrastructure spending is the next key. The FOMC followed with no change in policy or guidance leaving a hawkish tilt to rates despite recent market volatility.

The biggest price story was in oil which flipped into bear market territory as US inventories rose and global demand worries matched leaving OPEC a key focus into next week. Much of the data on global growth was mixed at best. The EU commission forecasts cut growth in the region and for Italy in particular. The EU warned Italy that it is poised to breach the EU’s 3% budget deficit limit in 2020 if the government proceeds with its current spending plans.

Eurozone composite final purchasing managers’ indexes (PMIs) fell in October to 53.1, their lowest level since September 2016, and Eurozone manufacturing grew at its weakest pace in more than two years, with export orders falling for the first time since 2014. China reported a surprisingly large increase in October exports, underscoring strong global demand for the country’s goods despite the imposition of U.S. tariffs. Chinese exports climbed 15.6% in dollar terms in October y/y. This wasn’t sufficient to keep concerns about China growth at bay and 7.00 CNY fears remain high. The other EM story for the week was in Mexico where discussion about reducing bank fees led to a sharp drop in the IPC stock index Thursday, all of which reversed Friday with AMLO saying he wouldn’t change the law.

Equities:

The MSCI all-country World Index up 0.92% on the week to 494.48, MSCI EM fell 2.11% on the week to 976.17. The hit to EM was notable and revolved around oil and China along with a return to rate hike fears in the US. In the major exchanges, India and the US led while Hong Kong and China suffered.

• US S&P500 up 2.13% to 2781.01 on the week. The DJIA rose 2.84% to 25,989.30 and the NASDAQ rose just 0.68% to 7406.90 on the week. The large-cap indexes outperformed the technology-heavy Nasdaq Composite Index and the smaller-cap benchmarks, and slower-growing value stocks outpaced higher-valuation growth shares. Within the S&P 500 Index, health care stocks outperformed in part because of the election result. 
• The Stoxx Europe 600 rose 0.46% to 365.74 on the week, Tuesday lows and Thursday highs were linked to US mid-terms and FOMC. The German DAX rose just 0.09% to 11,529.16. The French CAC440 rose 0.09% to 5106.75 and the UK FTSE rose 0.16% to 7105.34 on the week. The Spanish IBEX rebounded on the supreme court ruling about banks up 1.58% to 9134.80, while the Italian FTSE MIB fell 0.68% to 19,258.11. The Swedish OMX fell 1.35% to 1530.51 tracking tech shares. 
• The MSCI Asia Pacific Index fell 0.9% to 152.26 on the week with Thursday highs not holding. The Japan Nikkei rose 0.03% to 22,250.25 on the week. The Japan TOPIX rose 0.86% to 1672.98- with about half of the companies in the TOPIX reporting results - net earnings for the 708 companies that have reported were up 8% year over year. Hong Kong Hang Seng fell 3.34% to 25,601.92 while the China Shanghai Composite fell 2.90% to 2598.87 for the week. The Korea Kospi fell 0.47% to 2086.09 while the Australia ASX 200 rose 1.24% to 5921.85. The winner for Asia was India with the Nifty 50 up 1.97% to 10,585.20. 

Fixed Income:

The US FOMC and mid-terms were the key drivers for the week with PPI Friday high enough to worry. Markets in fixed income trade on equity risk mood first, politics second, but for Italy. Focus is on China growth story next.

• US bonds see bull flattening after FOMC, mid-terms and PPI: For the week: 2Y up 2bps to 2.924%, 3Y up 2.5bps to 2.993%, 5Y flat at 3.035%, 10Y off 3bps to 3.182%, 30Y off 7bps to 3.384%
• Canadian 10-year bond yields fell 3bps to 2.50% on the week. Data, Poloz and Oil keep market in check – still tracking US.
• Japan JGB yields off 0.5bps to 0.11% on the week – with BOJ on hold, market on edge with risk focus is on GDP next.
• Australian 10-year bond yields up 6.5bps to 2.755% on the week - tracking RBA on hold, RBNZ losing rate cut credibility – risk mood key, China growth. 
• UK Gilt yields flat at 1.488% on the week – despite more Brexit deal hopes, data weaker, politics look worse. 
• German Bund yields off 2bps to 0.404% on the week – mostly Italy and German politics driving with equities driving the noise
• French OAT yields up 0.5bps to 0.783% on the week – Macron politics still key, PMI growth notable in comparison to Germany.
• Italian BTP yields up 8bps to 3.398% on the week – with EU budget battle, EU growth outlooks driving 3.30-3.60% keys. 
• Spanish Bono up 2.5bps to yields 1.593% on the week – better growth, better auctions, supreme court ruling key driver. 
• Portugal 10-year bond yields up 6bps to 1.937% on the week – with focus on Italy still as driver
• Greek 10-year bond yields up 10bps to 4.338% on the week – worse than Italy?Market watching ECB talk next. 

Foreign Exchange:

The US dollar index rose 0.5% to 96.90 on the week, with focus now on 96.40-97.20 for bigger breaks. 

In Emerging Markets, USD mostly bid, EMEA: ZAR off 0.4% to 14.358, TRY off 0.5% to 5.456, RUB off 2.6% to 67.956; ASIA: TWD off 0.35% to 30.768, KRW off 0.55% to 1128.10, INR off 0.1% to 72.495, CNY off 0.95% to 6.9565; LATAM: ARS up 0.25% to 35.407, BRL off 0.75% to 3.7300, MXN off 0.6% to 20.136. 

In Crypto Currencies – still calm - $6,335 off 0.2% on the week. ETH $209.30 up 0.4% on the week.

• EUR: 1.1335 off 0.45% on the week with 1.13 -1.15 prison holding but risk for 1.1250 stop-fest rising.
• JPY: 113.85 up 0.55% on the week with EUR/JPY 129.00 flat – focus is on 112.80 against 114.20 with equities and US rates driving.
• GBP: 1.2975 flat on the week with EURGBP .8735 up 0.5% with focus on Brexit deal and politics more than economic data – 1.2880-1.3150 keys. 
• CHF: 1.0055 up 0.2% on the week with EUR/CHF 1.1395 up 0.25% - risk mood key with Italy/UK concerns. 1.00 remains the pivot for USD while 1.1450-80 is key cross resistance.
• AUD: .7225 up 0.45% on the week and NZD up 1.4% to .6735. The RBNZ and the jobs report drive. A$ caught with RBA on hold and China growth doubts. 
• CAD: 1.3205 up 0.70% on the week. The market reacts to lower oil, weaker data, Poloz doubts with 1.3250-1.3400 risks. 

Commodities:

S&P/GSCI total return index fell 2.56% to 2591.71 Biggest winner thanks to snow and cold weather hitting the lower 48 states – NatGas, while Sugar, Coffee and Oil all retreated.

• Oil: $60.19 off 4.67% on the week. Brent off 3.64% to $70.18. Focus is now on OPEC and its response to US inventories and global demand doubts with $60 WTI and $70 Brent pivotal supports with $58 and $68 the next shot-term support. 
• Gold: $109.65 off 1.88% on the week. Failure at $1236 again with USD gains the main story, focus now is back on $1206 and $1200.Silver off 3.8% to $14.16 with a full washout as $17.85 caps and $17.50 pivotal support breaks with $17.00 next key. Platinum off 0.2% to $853.10 and Palladium off 0.96% to $1116.70.
• Corn: $369.75 off 0.4% on the week. Harvest finished – it’s on to China/trade/rest of world with focus back on Soybeans flat at $886.75. Wheat off 1.35% to $502. WASDE
• Copper: $2.7520 fell 2.90% on the week. Futures fell 4.35% to $2,.6845 on the week – blamed on stocks and China trade.Iron Ore Dec $73 up 2.45% on China trade story. 

Calendar for the Week Ahead:

Slow start to the week ahead but plenty of key data for markets to consider with inflation and growth focus central. The ECB and Fed speakers will be watched for their guidance while the biggest data will be from China as it reports retail sales, industrial production and fixed investments.The US CPI/PPI, retail sales and Industrial Production is a close second.The GDP reports from UK, Germany, Japan also likely to matter with keen focus on inventories.Wages and jobs will round out the data from UK and Australia next week.

Monday, November 12: Veterans’ Day, Remembrance Day, Armistice Day holidays (US, Canada, France)

• 0650 pm Japan Oct Domestic PPI (m/m) 0.3%p 0.1%e (y/y) 3%p 2.7%e
• 0100 am Japan Oct machine tool orders (y/y) 2.8%p
• 0130 am French 3Q ILO unemployment 9.1%p
• 0400 am Italy Sep industrial output (m/m) 1.7%p-0.7%e( y/y) -0.8%p -1.4%e
• 0545 am Italy sells 12M BOT
• 0700 am India Oct Inflation 3.77%p 3.67%e
• 0230 pm Fed Daly Speech

Tuesday, November 13: UK jobs, China M2, German ZEW, US NFIB and budget

• 0730 pm Australia Oct NAB business conditions 15p 14e / confidence 6p 8e
• 0200 am German Oct final HICP (m/m) 0.4%p 0.1%e (y/y) 2.2%p 2.4%e
• 0245 am French 3Q payrolls 0.2%p
• 0330 am China Oct M2 8.3%p 8.4%e / new loans CNY1.38trn CNY0.826trn / TSF CNY2.21trn p CNY2.30trn e
• 0300 am ECB Praet speech
• 0430 am UK Oct claimant count 18.5k p +4k e / ILO unemployment rate 3M Sep 4%p 4%e / avg earnings 2.7%p 3.0%e / ex bonus 3.1%p 3.1%e
• 0430 am Spain sells 6M and 12M bills
• 0500 am German Nov ZEW economic sentiment -24.7p -25.0e / current 70.1p 65e / Eurozone sentiment -19.4p -20e
• 0540 am Germany sells 2Y Schatz
• 0545 am Italy sells 3-7-30Y BTPs
• 0600 am US Oct NFIB business optimism 107.9p 107e
• 1130 am US 1M, 3M, 6M bill sales
• 0200 pm US Oct budget statement $119bn p -$980bn e

Wednesday, November 14: Japan GDP, OPEC and IEA Oil monthly, China retail sales, IP, German GDP, UK PPI/CPI, US CPI and Fed Powell

• 0630 pm Australia Nov Westpac consumer confidence 101.5p 103e
• 0750 pm Japan 3Q preliminary GDP (q/q) 0.7%p -0.2%e (y/y) 3%p -1%e / deflator 0.1%p
• 0830 pm Australia 3Q wage price index (q/q) 0.6%p 0.6%e (y/y) 2.1%p 2.3%e
• 0900 pm China Oct retail sales (y/y) 9.2%p 9.1%e 
• 0900 pm China Oct industrial production (y/y) 5.8%p 5.7%e
• 0900 pm China ytd Fixed Asset Investment 5.4%p 5.5%e
• 1130 pm Japan Sep final industrial production (m/m) 0.2%p -1.1%e (y/y) 0.2%p -2.9%e
• 0130 am India Oct WPI inflation 5.13%p 5% e
• 0200 am German 3Q preliminary GDP (q/q) 0.5%p -0.1%e (y/y) 2%p 1.3%e
• 0245 am French Oct final HICP (m/m) -0.2%p0.1%e (y/y) 2.5%p 2.5%e
• 0300 am Spanish Oct final HICP (m/m) 0.6%p 0.7%e (y/y) 2.3%p 2.3%e
• 0330 am Sweden Oct CPIF (m/m) 0.5%p 0.4%e (y/y) 2.5%p 2.5%e / Inflation 2.3%p 2.4%e
• 0400 am IEA Oil market report
• 0430 am UK Oct PPI output (m/m) 0.4%p 0.2%e (y/y) 3.1%p 3.1%e / core 2.4%p 2.4% e / input (m/m) 1.3%p 0.6%e (y/y) 10.3%p 9.6%e
• 0430 am UK Oct CPI (m/m) 0.1%p 0.2%e (y/y) 2.4%p 2.5%e / core 1.9%p 2.0%e
• 0430 am UK 3Q labor productivity (q/q) 0.5%p 0.3%e
• 0500 am Eurozone 3Q revised GDP (q/q) 0.4%p 0.2%e 2.2%p 1.7%e
• 0500 am Eurozone 2Q employment change (q/q) 0.4%p 0.3%e (y/y) 1.5%p 1.4%e
• 0500 am Eurozone Sep industrial production (m/m) 1%p -0.3%e (y/y) 0.9%P 0.3%e
• 0540 German 30Y Bund sale
• 0830 am US Oct CPI (m/m) 0.1%p 0.3%e / core 0.1%p 0.2%e
• 1000 am Fed VC Quarles testimony
• 0430 pm US weekly API crude oil stocks 7.83mb p 2.9mb e
• 0600 pm Fed Chair Powell speech

Thursday, November 15: Australian jobs, UK retail sales, US Philly Fed

• 0730 pm Australia Oct jobs 5.6k p 20k e / rate 5.0%p 5.1%e / participation 65.4%p 65.5%e
• 0800 pm Australia Nov consumer inflation expectations 4%p 3.9%e 
• 0830 pm China Oct house prices (y/y) 7.9%p 8%e
• 0430 am UK Oct retail sales (m/m) 0.0%p 0.2%e (y/y) 3%p 2.8%e / ex-fuel -0.8%p 0.2%e (y/y) 3.2%p 3.3%e
• 0500 am Eurozone Sep trade surplus E16.6bn p
• 0830 am US Nov NY Empire State manufacturing 21.1p 20e
• 0830 am US Oct retail sales (m/m) 0.1%p +0.5%e / ex-autos -0.1%p 0.5%e / control 0.5%p 0.3%e
• 0830 am US weekly jobless claims 214k p 215k e
• 0830 am US import prices (m/m) 0.5%p 0.1%e (y/y) 3.5%p / export (m/m) 0.0%p 0.1%e
• 0830 am US Nov Philly Fed Manufacturing 22.2p 21e
• 0830 am Canada Oct ADP employment change 28.8k p
• 1000 am US Sep business inventories 0.5% 0.3%
• 1030 am US weekly EIA crude oil stocks 5.78mb p 1.9mb e
• 0200 pm Mexico central bank rate decision – no change from 7.75% expected. 

Friday, November 16: ECB Draghi, Eurozone final HICP, US industrial production

• 0430 pm New Zealand Oct Business NZ PMI 51.7p
• 0200 am German Oct WPI (m/m) 0.4%p (y/y) 3.5%p
• 0330 am ECB Draghi speech
• 0400 am Italian Sep Industrial orders / sales
• 0500 am Eurozone Oct final HICP (m/m) 0.5%p 0.2%e (y/y) 2.1%p 2.2%e / core 1.1%p 1.1%e
• 0830 am Canada Sep Manufacturing sales (m/m) -0.4%p 0.4%e
• 0915 am US Oct Industrial Production (m/m) 0.3%p 0.2%e / Cap Utils 78.1%p 78.2%e
• 0400 pm US Sep TIC net capital flows $108.2bnp $128bn e / Long-term $131.8bn p $57bn e

Conclusions: Does the calendar win? 

The list of concerns seems to be heading towards resolution in the next week, leaving the power of year-end and risk-on seasonals to potentially dominate. The risk of a sharper drop in US growth seems to be the fear factor that isn’t in the equation or the data so far. If last week highlighted anything, its that politics didn’t hurt the economy. The University of Michigan preliminary consumer sentiment suggests 4Q is just fine for the consumer with jobs plentiful and gasoline prices moderating. 

The issue for business and growth in capital spending maybe more difficult to monitor. The Phildelphia Fed ADS index also flashes green for 4Q growth – albeit less robust than 1H it’s still going to be a good 2H. What seems to be the key driver for fear is jobs - and any signal of a real slowdown there would be taken as trouble - but the JOLTS report continues to flash green as well with the FOMC still believers in the Phillips' Curve. 

Most of the earnings (90%) have reported and the blended rate so far is 25.2% - best since 3Q 2010 – but the fear of peak earnings drives markets and that rests on GDP and FOMC rates hitting back at the margins for 2019. The other thing that markets have been focused on – US/China trade hasn’t been the key for 3Q – in fact, as Factset highlights this week, the use of tariffs as an excuse for performance in 3Q was lower than 2Q – making this prolonged China risk less scary for some. The US/China relationship remains central to global growth into 2019 and seems to be the key for trading risks in the big picture. 

The CNY and 7.00 remains the big level for traders but one that last week officials in China tried to downplay as they see the USD bid tone everywhere and don’t want to spend their $3 trillion in reserves in defending a losing battle.How the US dollar index, RMB index and CNY interrelate will be the stuff of headlines but most now see 7.05 and 7.20 as the next level to worry.