This coming week is a short one for US markets as Thanksgiving falls on Thursday. However, there is still some decent macro data being released before the holiday, including the minutes from the November FOMC Meeting, the Richmond Fed survey, the University of Michigan Consumer Sentiment survey, and October New Home Sales figures.
Global Spotlight
On Nov. 23, Vladimir Putin will travel to Armenia for the meeting of Collective Security Treaty Organization heads of state. The member states will be discussing a broad range of topics at the upcoming summit, including international and regional security, improving the organization’s crisis response mechanisms, and joint measures to assist Armenia following clashes with Azerbaijani forces in recent months. Some reports suggest that Putin may arrive in Yerevan earlier than expected, possibly as early as Nov. 22. He would then have additional meetings with Armenian Prime Minister Nikol Pashinian to discuss peace negotiations between Armenia and Azerbaijan, as well as the future status of Russian peacekeepers in Nagorno-Karabakh.
On Nov. 20, Nepal will have national and provincial elections to decide between the current ruling coalition–led by Nepali Congress under Prime Minister Sher Bahadur Deuba–and the opposition alliance headed by Communist Party Nepal-Unified Marxist-Leninist’s leader and former prime minister, K.P. Sharma Oli. Because both China and India have economic and strategic interests in Nepal, they will be closely monitoring the election results. The current government, led by Deuba, is expected to maintain good relations with both countries if it wins. However, should the Oli-led opposition win, they would be more likely to favor Chinese development plans for the country.
From Nov. 23-25, Mexican President Andres Manuel Lopez Obrador will host left-wing Latin American leaders in Mexico City to discuss regional integration. The presidents of Chile and Argentina have tentatively accepted; the invitations for Colombia, Peru, and Brazilian President-elect Luiz Inacio Lula da Silva are still pending. In 2023, Latin America’s six largest economies will be headed by left-wing presidents, which will probably lead to the region work together more on diplomatic, trade, and security issues. Many experts believe that protectionist trade policies will hinder economic integration. However, the convergence of left-wing leaders may align countries’ efforts with institutions such as the Organization of American States, Inter-American Development Bank, and the United Nations.
Malaysian voters will go to the polls Nov. 19 in the nation’s 15th general election. The race is tight, and it’s possible that no party will win a majority of seats. The Barisan Nacional (BN) coalition has been in power for many years and is still favored to win, even though there is a desire among the people for change. The BN Coalition is well-known and has been governing the country steadily for decades. The possible coalition between the opposition Pakatan Harapan (PH) and BN could be significant, considering Anwar Ibrahim’s leadership of PH. The recent lowering of the voting age to 18 also determines that many youths vote in favor of PH given BN’s unpopularity among this age group. Even if PH won the greatest number of seats, it would need a coalition to govern majority-wise.
The U.K. Supreme Court will rule on Nov. 23 whether the Scottish Parliament has the power to pass a law organizing an independence referendum, in regard to the question of Scottish independence. The Scottish government asked the Supreme Court whether the regional parliament can approve a vote for independence without Westminster’s permission, due to the majority of voters choosing to stay in the United Kingdom during the 2014 referendum. If the Scottish government ruling is in favor, there will most likely be a referendum in October 2023; however, because the vote is not binding, even if there is a majority vote for independence, Scotland may not necessarily secede from the United Kingdom. If the British Supreme Court rules against the Scottish government, Scottish nationalists will see this as an opportunity to campaign for independence in the next general election.
Stratfor.com
Economic Calendar
We will be focused next week on reviewing the minutes from the most recent FOMC meeting, new home sales data from October, and any scheduled remarks from several voting members of the FOMC.
As expected, the Federal Reserve hiked interest rates by 75 basis points at their November meeting. However, they also indicated that the pace of future rate hikes would slow down. We think that minutes from this meeting will show officials worrying about inflation and wanting to keep rates low for now so that they can assess how effective policy changes are.
New home sales are projected to drop 3.8% from last month to a total of 580k. This would mark the second straight decline in new home sales.
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Week’s Numbers
This week, the S&P 500 dropped by 0.2%. The Communication Services sector did best with a 2.8% increase, while Real Estate had the worst performance of any sector at -3.1%. I predict that the S&P 500 will be at 3600 (-8.8%) by the end of 2023.
Review Last week’s numbers here.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 22Q3 Y/Y earnings are expected to be 4.2%. Excluding the energy sector, the Y/Y earnings estimate is -3.6%.
- Of the 475 companies in the S&P 500 that have reported earnings to date for 22Q3, 70.3% have reported earnings above analyst estimates. This compares to a long-term average of 66.2% and the prior four-quarter average of 78.1%.
- During the week of Nov. 21, ten S&P 500 companies are expected to report quarterly earnings.
Macro Market
In the United States, I predict that GDP growth will slow to 1.9% in 2022 and 1.1% in 2023 as a result of tighter financial conditions. There is a 35% chance (which is below consensus) of entering a recession within the next year, although any recession that does occur would likely be mild. I believe that core PCE inflation will decline to 4.6% by the end of 2022, though further supply chain disruptions, stronger wage growth or firmer shelter inflation could lead to inflation remaining somewhat higher for longer than predicted. Finally, I expect the unemployment rate to stand at 3.6% by end-2022 before rising slightly to 4.1 %by end-2023 and 4.2% by 2024.
I am predicting that the Fed will deliver a 50bp hike in December, followed by three additional 25bp hikes spread out through February, March, and May. This would result in a peak funds rate of 5.00-5.25%. As far as fiscal policy goes, the most recent midterm elections delivered a divided government. Because of this division, we are expecting that any potential recession will receive less financial support from the government than what was previously planned.
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