Market Round Up: The Week Ahead 🙈 – Business Growth for Real? 🔓

by | 1 Oct, 2018

 

1.  The Week Ahead

After the big news that Canada and the U.S. have finally managed to broker a compromise over their part of the NAFTA trade agreement there’s some suggestion of a reprieve for global markets in the pipeline as progress on the trade front should provide an appetite for more risk taking. Meanwhile, the consensus is that the purchasing index (PMI) for September will be moderate and inflation pretty flat. Other than that, the highlight on the data card this week is the monthly payrolls report scheduled for Friday. Note also that there is a deluge of Fed speakers due to comment this week – including Fed Chair Powell who will be speaking on Tuesday and Wednesday.

In the UK, while the Tory party implodes at its annual conference, a plethora of data is due today, of which the most notable release will be mortgage approvals for August, money supply data (M4), and the Manufacturing PMI data. Money supply figures hold significance at this stage of the cycle in informing the inflation outlook – a core concern of the Bank of England with unemployment so low.

In Asia, there are further PMI reports due for Japan and China. But the greatest worry will be focused on the effect U.S. tariffs have on China’s real economy, which will in turn affect Japanese manufacturers. Also, note that market liquidity is expected to be lower as China and certain Australian states enjoy public holidays.

Finally, for Europe, unemployment data and PMI figures will provide valuable insight into the current and prospective state of the Eurozone economy. Also, the ECB’s François Villeroy is set to speak in Paris, which will be closely monitored by investors for clues of future monetary policy decisions, after the ECB’s Benoit Coeure reminded markets over the weekend that plenty of monetary stimulus is still needed for the ECB to achieve its goal of price stability.

Related: Global stock markets turn bearish on confirmation of Trump’s tariff move

 

 

2. Business growth for real?

Interesting fact; S&P 500 companies bought back a record $189 billion of their own shares in the first quarter of 2018. But why?

Normally, companies buy back their shares to strengthen overall ownership or because they believe the company is undervalued on the stock market, or as an alternative to paying out dividends. And sometimes they do it in order to boost their financial results by ‘adjusting’ key financial ratios. By reducing the number of outstanding shares, a company’s earnings per share ratio (EPS) is automatically increased. Also, short term investors can be lured by the get-rich-quick approach of investing in a company leading up to a buyback. This way, the rapid influx of investors artificially inflates the stock’s valuation and boosts its price earnings ration (PE).

So does this buy-back boom signal that companies’ profits are not so healthy after all and that they are creating the illusion of higher profits through the buy-back?

 

Related: Market Round Up: US Record Bull Run & Aramco Float Founders

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ALL RIGHTS RESERVED © INVSTR LTD. 2018

Risk Disclosure:
Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order.
Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.
Brokerage services are provided by the following:
US-traded securities, including fractional trading, are provided to Invstr users by DriveWealth LLC, a regulated member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. For more information, including disclaimers, risk and transaction fees click here.
India account traded securities are provided by SIC Stocks & Services PVT Ltd. SIC does not make any personal recommendations to buy, sell or otherwise deal in investments. Investors make their own investment decisions. The services and securities provided by SIC may not be suitable for all customers and, if you have any doubts, you should seek advice from an independent financial adviser. For more information and disclaimers, click here.

 

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