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Week Ahead: 25 October 2021

Fawad Razaqzada Fawad Razaqzada 22/10/2021
Week Ahead: 25 October 2021 Week Ahead: 25 October 2021
Week Ahead: 25 October 2021 Fawad Razaqzada
  • Stocks: S&P at records amid reflation trade and positive earnings
  • Techs in focus ahead of busy earnings week
  • Gold breaks out above 200-day
  • Central banks: ECB and BOJ inaction, BOC likely to taper QE further
Sentiment remained overall positive towards risk assets once again throughout much of this week, due, in part, to mostly better-than-expected earnings, ahead of a busy next week, and as Evergrande China narrowly avoided default. The S&P 500 hit a new record high, as too did Bitcoin, while the Turkish Lira slumped to a fresh low on Turkey’s bizarre policy response to surging inflation. The dollar weakened most notably against commodity dollars, as well as the Chinese Yuan and Russian Ruble. News that Evergrande has avoided a default for now, provided the Renminbi relief and supported global stock markets on Friday. The Rubel surged, driving the USD/RUB momentarily to below 70.00, following a larger-than-expected rate hike by Russia’s central bank on Friday. The Dollar Index fell but remained trapped between 93.50 support and 94.00 resistance.  Crude oil held near multi-year highs, while gold edged higher, and silver rose for the fourth consecutive week, even as yields on US 10-year bonds climbed higher.
 

Looking Ahead

 
Looking ahead to the wee ahead, central banks and tech earnings will take centre stage, while on the economic data front, there is not much on the agenda until the US GDP data is published on Thursday (see the economic calendar below, for more). Judging by the ongoing risk-on sentiment, we might see some further follow-through in risk-taking in the early parts of this week. Whether the markets will be able to kick on from there will depend, in part, by the outcome of the US technology sector earnings that will be released throughout the week (see below for more).
 

Precious metals shine

 
Away from earnings, reflation trade is the dominant theme given the rallying commodity dollars and equities in the face of rising inflation. Investors – judging by their collective actions as reflected in price on the global markets – reckon that a prolonged period of above-trend inflation, combined with weaker economic growth, is not very likely as the impact of temporary factors and supply bottlenecks are likely to subside in the not-too-distant future.

 
As such, the markets probably don’t expect central banks to tighten their policies meaningfully anyway – something that the Fed, BoE and others have indicated. This is something that the ECB, BOC and BOJ will all echo as well in the week ahead. Central banks wouldn’t want to choke off economic growth by being too aggressive when they tighten their policies especially as there have been some signs of weakening recovery of late.

This partly explains why the gold-silver ratio has dropped, with silver, being more of an industrial material has been able to shine more brightly of late, despite 10-year bond yields having remained elevated near their recent highs. But gold has also broken out above key resistance the 200-day average around $1800.

Figure 1: Gold daily chart
GoldSource: ThinkMarkets and TradingView.com

If the breakout can be sustained, we might see the yellow metal come back more meaningfully.
 

Techs in focus

 
It is a big week for technology stocks. We will hear from the likes of Alphabet, Apple, Amazon, eBay, Facebook, Microsoft. Heading into arguably the most important week of the earnings season, investors are expecting to hear decent numbers from these tech giants. The earnings season has started quite strongly with Wall Street banks producing results that beat expectations previously, while this week saw the likes of Netflix and Tesla shares reach for new highs following upbeat numbers. 

So far, positive earnings have kept the markets supported. However, the key risk is that the global supply chain bottlenecks and surging prices might prove to be a much bigger issue than expected, something which could hurt fourth quarter revenue and profits.

Company CEOs have not been shy discussing these matters abundantly in their earnings calls or reports. Apple, for one, is already expected to slash its projected iPhone 13 production targets for 2021 by a growing number of analysts. The prolonged chip shortage could see Apple miss as many as 10 million units of its flagship iPhone 13, which could ultimately hit its shares. Meanwhile corporates may have been forced to slash their ads campaigns, which could be particularly bad news for social media platforms like Facebook and Twitter and Google.  If Snap Inc is anything to go by then then the fourth quarter results could be weak as companies spend less on ads in the current quarter due to supply issues and other reasons.

So, as well as keeping a close eye on Q3 earnings, watch out for any major warnings about Q4 numbers by major companies reporting this week.  
 

Data and earnings highlights

 
  • Monday and Tuesday will be dominated by earnings as the macro calendar is quiet.  Facebook earnings will come out on Monday after the close, while on Tuesday we will hear from the likes of Alphabet, Microsoft, Twitter, AMD, Visa, GE, UPS among many others.
 
  • Wednesday will see the release of inflation figures from Australia, followed by BOC’s rate decision where the North American central bank is expected to slash QE by C$1bn from the current C$2bn per week. On the earnings front, we will hear from the likes of eBay, Ford, Boeing, McDonalds, Coca-Cola, GM
 
  • Thursday will see the release of US Advance GDP, while both the Bank of Japan and the European Central Bank will make decisions – likely to be inaction – on monetary policy.  We will also have earnings from Apple, Amazon, Mastercard and Starbucks.
 
  • Friday morning will be dominated by Eurozone data, including German and French GDP estimates; Eurozone CPI and German retail sales, then in the second half of the day we will have US Core PCE Price Index, as well as earnings from Exxon Mobil, Chevron, AbbVie and others.
 
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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