The mood music in the markets remains pretty much unchanged – the standoff between Catalonia and Madrid continues while we have no real progress on Brexit.

Trump’s tax reforms have moved forward but a lot of work still needs to be done to get a bill over the line.

Spotlight this week is first on Asia with the snap election in Japan an important test for the economic reforms of Shinzo Abe, while the European Central Bank (ECB) is in action on Thursday.

Japan Elections

The prime minister calls a snap election because the government has a healthy lead in the polls over a floundering opposition – sound familiar? Japan’s Shinzo Abe gambled on calling Sunday’s snap poll but unlike Theresa May, looks set to win an easy victory and cement his power.

At stake is the future of Abenomics and the ultra-loose monetary policy pursued by the Bank of Japan as one of the three ‘arrows ‘of the doctrine. But after years of expansionary policy, sustained inflation has yet to materialise. A victory for Abe means keeping monetary policy looser for longer and kicking the can down the road for a few more years.

Voting takes place on Sunday, October 22nd with polls closing at 20:00 local time. TV networks will release exit polls immediately after.


The saga continues. Will this week’s meeting finally see an announcement on a taper of asset purchases or will policymakers get cold feet?

At the last meeting in September, Mario Draghi said the “bulk” of any decision on tapering would be discussed when the Governing Council convenes this week.

Complicated by the rules on which bonds it can buy and the strength of the euro, it is believed the ECB will seek to taper more slowly than markets had previously expected. It is now anticipated that the bank will shrink the €60bn monthly asset purchase to as little as €20bn per month, but remain in the market for a lot longer, perhaps to the end of 2018. Such a move could help keep delay any interest rate hike chatter and keep on a lid on the euro’s recent strength.

GDP Prints

The main macro data comes from the UK and US Q3 GDP initial readings. US numbers will come with the usual hurricane health warnings but nevertheless growth is expected to run at around 2.5%. Whilst short of the Trump administration’s target it should still be enough to warrant gradual tightening by the Federal Reserve.

In the UK, the picture is clouded by Brexit uncertainty which appears to have dimmed economic growth in the first half of the year. For Q3, PMI surveys put the economy on course for another 0.3% expansion. The big question as far as sterling goes is whether this would be enough to justify the Bank of England raising rates in November. If it misses this estimate expectations for an imminent rate hike would fall considerably and might take the pound with them.

Earnings – Tech Thursday

Earnings season continues on Wall Street with more from the Dow 30 components. Boeing, Coca-Cola, 3M, McDonald’s, Visa and United Technologies are among the big-hitters releasing Q3 earnings updates. On Friday it’s the energy special with Chevron and Exxon Mobil reporting.

But it’s Thursday that arguably holds the most interest right now as tech giants, both young and old, report earnings that could help shape the direction of the major US indices, particularly the Nasdaq. Amazon, Alphabet, Microsoft, Intel and Twitter will report earnings on Thursday, October 26th.

In the UK there are Q3 trading updates from UK-focused banks Lloyds, Barclays and RBS, as well as some production updates from miners to watch for.

Source: ETX Capital

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