Weekly Market Outlook

Five Things You Need to Know to Start Your Day

Japanese shares surge, it’s a big week for Carney, and markets are rising. Here are some of the things people in markets are talking about today.

Japan stimulus bets

Japanese Prime Minister Shinzo Abe’s conservative coalition is set for a super-majority in the upper house of parliament following the weekend election. A win would allow his administration to push ahead with constitutional reform. Abe has also promised to take action on the economy, saying he wants “the swift formulation of comprehensive, bold economic measures.” Shares in Japan surged higher following the election, with the Nikkei 225 Stock Average adding 4 percent and the Topix index gaining 3.8 percent. The yen was trading at 102.27 to the dollar at 6:03 a.m. ET.

Big week for Carney

Bank of England Governor Mark Carney faces the U.K. parliament’s Treasury Select Committee from 5:00 a.m. ET tomorrow, ahead of Thursday’s first post-Brexit interest rate decision for the central bank. The majority of economists surveyed by Bloomberg are expecting the monetary policy committee to cut rates for the first time since 2009 at Thursday’s meeting, with most seeing a 25 basis point reduction to 0.25 percent. British Chancellor George Osborne is spending the week on a tour of global financial capitals in an attempt to shore up confidence in the U.K. economy, while the leader in the race to be next prime minister, Theresa May, has promised a crackdown on corporate irresponsibility in a speech given this morning. The pound was trading at $1.2876 at 6:13 a.m. ET.

Markets rise

Abe’s election victory and last Friday’s U.S. jobs report combined to give a lift to shares in Asia, with the MSCI Asia Pacific Index climbing 2.1 percent overnight. China’s Shanghai Composite Index only managed a 0.2 percent gain at the close despite easing factory-gate deflation and state pension funds preparing to invest in equities. In Europe, the Stoxx 600 Index was 0.7 percent higher at 6:05 a.m. ET, with commodity producers rising most. S&P 500 futures were up 0.3 percent.

Banks like commodities, think bond rally is done

Citigroup Inc. has said that it is “especially bullish commodities for 2017,” and sees the impact of the U.K. vote to leave the European Union as fading. The bank see crude oil rising to $60 a barrel in 2017 as non-OPEC production continues to fall. Morgan Stanley, meanwhile, has cooled on government bonds. The bank, which advised investors to bet on sovereign debt ahead of the Brexit vote has switched its outlook on G4 — U.S., Japanese, German and U.K. — debt to “neutral.”

S&P earnings recession

The S&P 500 Index closed less than a point below its all-time high on Friday following the U.S. jobs report and dovish expectations on global central bank policy. So it may come as a surprise that the S&P 500 is also poised to match its longest earnings recession since 1936. At 25 times reported profit, the S&P 500 is trading at a higher multiple than it has for 90 percent of the time in the past eight decades. The one saving factor for the index is the shallowness of the decline in earnings, which is nothing close the previous three drops.