German election & European inflation | THE WEEK AHEAD

A preview of the news, earnings, and economic data to expect in the week ahead. This week includes the first German election in 16 years without Angela Merkel and CPI data from Germany and the Eurozone.

What happened this week

5-day performance as of Friday September 24, 9am CET

Source: Finviz.com

US Stock markets slumped at the start of the week and the S&P 500 finally fell 5% from its peak for the first time in over 300 days but then rallied strongly off the 50-day moving average to erase all the weekly losses. The Swiss Market index fell below 12,000 to its lowest since June but also rallied off the lows.

Gold got an early lift with haven flows but erased the gains in the preceding two sessions. Oil had another strong week, reaching its highest levels since the July peak (look out for double top resistance).

Anticipation of (and reaction to) Fed tapering sent the dollar higher through Wednesday but the strong risk-on mood on Thursday saw it fall back from near multi-month peaks versus the pound and the euro. This Swiss franc saw a notable bout of strength versus the euro. EUR/CHF found support just ahead of 1.08.

Top 5 stories for next week:

The 5 events, news stories or market price action that could shape the week ahead:

1.     German election

The chance of major market disruption seems minimal but are higher than usual with Merkel’s absence. The biggest surprise would be if one party won a majority. The more likely source of volatility would be if one of the smaller (more extreme right or left) parties made it into a coalition. Most likely the split German electorate results in a coalition with weak power form major change.

For longer term investments, it’s worth considering which stocks might stand to benefit under different governments. Read more in our blog: German election 2021: Primer for Investors | Stocks to watch

2.     Evergrande (not out of the woods)

The past week saw a mixture of concern and relief after missed coupon payments and the injection of Chinese central bank liquidity. The big question remains: will Beijing really let it fail? A piece in the Wall Street Journal said officials are preparing for a ‘possible storm’.

3.     European inflation

The ECB started tapering this month, acknowledging the higher inflation in Europe but still have no plans in place for higher interest rates. The very dovish and slow return to normal policy from the ECB is weighing on the euro for now but if data starts to show they need to speed up quickly, that could change things considerably.

4.     S&P 500: Was that “it” ?

The S&P 500 offered the perfect ‘buy the dip’ setup, rebounding perfectly off the 50 day moving average after the first 5% drop in over 300 days. But was that it? Is Evergrande and the risk it poses to the Chinese property market / economy just a reason for short term jitters? Perhaps.

5.     Oil double top?

The price of oil sits at an interesting price point. It is re-testing the July peak ($78 in Brent) while WTI is softer near $74. The next big psychological price level is $80 per barrel. Whether the price breaks higher or puts in a double top will probably hinge on wider market risk sentiment.

Economic Calendar:

Source: FXStreet.com

Corporate earnings:

Source: markets.businessinsider.com/earnings-calendar