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Week Ahead: posturing in Brussels and Black Friday in America
Our preview of the main financial events of the coming week, one that is likely to be marked by deadlocks on both sides of the Atlantic.
Tick. China’s new set of leaders has been named, removing another source of uncertainty for global investors.
However, the resultant perceived shift towards more conservatism, coupled with the predictability of Chinese leadership changes, means markets have taken little succour.
Rather, concern over the lack of a compromise to prevent a ‘fiscal cliff’ in the US – when taxes rise and automatic spending cuts kick in, potentially pushing the economy into recession – has seen global markets lurch lower since Barack Obama was re-elected as president 10 days ago.
This issue will likely continue to sap investor sentiment over the coming week as Democrat and Republican leaders meet to thrash out a deal. Bank of America Merrill Lynch provides the following advice to investors: ‘fasten your seatbelts and remain seated until co-pilots Obama and Boehner turn off the fasten seatbelt sign’.
Americans might choose to temporarily loosen their buckles for the Thanksgiving holiday on Thursday and ‘Black Friday’, traditionally the busiest shopping day of the year.
A US consumer sentiment reading due on Wednesday may reflect worsening morale amid this political bickering. The fallout from hurricane Sandy will continue to be reflected in economic data, subduing numbers on housing starts and building permits due over the coming week.
Europe has a budgetary impasse of its own, with discussions to continue between Greece and eurozone finances ministers as they attempt to restore debt sustainability for the country, and work out a deal to release the country’s next aid bung. A final resolution is not expected.
They will meet against a backdrop of a worsening eurozone economy, with the recent confirmation that the troubled currency union slipped back into recession in the third quarter of the year to be followed by more weak survey results on Thursday, when the November PMIs are published.
More Brussels-based posturing will follow on Thursday, when EU leaders negotiate over the bloc’s long-term spending plans. British prime minister David Cameron – himself under pressure from eurosceptic MPs – has called for the budget to be frozen in real terms.
‘The EU has got to start living within its means,’ Cameron told reporters at a recent meeting with Italian prime minister Mario Monti, where the two failed to find agreement.
Meanwhile Cameron’s neighbour, chancellor George Osborne, will next week be focusing on public finance figures due to be published on Wednesday, which are expected by economists to show a slight improvement in the shortfall. Osborne is due to deliver his Autumn Statement exactly two weeks later.
As well as a fiscal update, investors can also look forward to monetary enlightenment on Wednesday as the Bank of England publishes the minutes from its Monetary Policy Committee (MPC)’s latest meeting.
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