In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.

Morgan Stanley

In a nutshell: Nascent signs of a tactical risk consolidation continue to emerge. The US 2s10s curve has flattened for the fourth day in a row – interestingly, this took place on Friday even despite yields rising (as opposed to bull flattening). This may be a signal that the rally in risk assets may have gone too far and confirms to us that we should trade risk assets more cautiously in the near term. In our FX Pulse portfolio, we pivoted from AUDJPY long to a tactical USDJPY short. Election headlines have pushed GBPUSD towards the top of its recent range. We look to enter long GBPUSD in our FX Pulse portfolio at market with a target of 1.3500 and stop of 1.2740. EURGBP breaking the key 0.8540 level would open room to more downside potential. The USDCAD rally may have lost steam at the high of 1.3270; we maintain our NZDCAD bullish bias. EURNOK has broken below the 50DMA, but a break of the key level of 10 may be needed for further downside momentum.

RBC Capital Markets

Week ahead: This week’s data releases include CA manufacturing sales (Tue), CA CPI (Wed), JN CPI (Thu), CA retail sales, EZ ‘flash’ PMIs for Nov (Fri). Ahead of the UK general election, the first televised debate between Boris Johnson and Jeremy Corbyn will happen on Tuesday. On Wednesday, FOMC October minutes and Riksbank’s Financial Stability Report are out. On Thursday, the ECB publishes the account of its October meeting, the SARB meets (BBG consensus: majority expect no change), and the OECD Economic Outlook is out. On Friday, S&P is expected to review South Africa’s rating, which is already in junk.

CAD: On Tuesday, our economists forecast a 0.4% m/m decline in manufacturing sales in September after a 0.8% gain in August. Volumes are expected to see a more modest 0.2% m/m decline. On Wednesday, our economists see headline CPI rising 0.2% m/m in October and the YoY rate edging down to 1.8%. The BoC’s core measures have averaged 1.9–2.1% since February 2018 (last 2.07%). Our economists see some downside risks this time, though the average should remain in the well-worn range. While inflation has been a positive story for the BoC, it is more a reflection of past economic activity and would not prevent a cut if their outlook sufficiently deteriorated. With a renewed focus on consumption from the BoC, the September retail sales report on Friday will be the pick of the data this week. Consumption rose just 0.5% ann. in Q2 despite strong labour markets and income growth, and even though there has been some improvement in retail sales (volumes up 1.6% ann. through August), it is more to a trend level rather than any make-up. Our economists project a 0.3% m/m decrease in nominal sales in September on expected 1% declines in gas prices and autos. Outside these two categories, (core) sales should see a 0.5% m/m bump. Volumes should be little changed in the month.

EUR: The October PMIs showed a small improvement in the composite index to 50.6 from September’s 6.5-year low of 50.1. Whilst the PMI in France and Italy improved, the German PMI continued to show a contraction for a second consecutive month and the Spanish PMI fell to its lowest level in six years. It still remains the case that the epicenter of the euro area slowdown is in Germany, which narrowly escaped a technical recession in Q3 this year. Up to now, the slowdown in Germany has been concentrated in the manufacturing sector. This has been reflected in the PMIs also, which have shown a clear divergence between the performances of the two sectors. Some sub-sectors within services are already worse off due to their close relationship with the manufacturing sector (read here for more), but our economists see the main pass-through of weakness to services coming through the labour market channel. The October PMIs suggest that this could already be happening, with the composite employment index having fallen below 50 for the first time in six years. Unless global uncertainties are lifted, which are weighing down on the manufacturing sector, it is only a question of when, not if, the weakness in manufacturing spreads to the rest of the economy.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

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