Six Things to Focus on in the Fourth Quarter – Introduction
The final quarter of the year starts today. In this article, I will look at the most important news to look at during the quarter.
In November, US voters will go to the voting booth to vote for their representatives. This will be a major election because republicans will be looking ahead to defend their majority in the house and in the senate. In the latter, they will be defending two seats and in the house, they will be defending about thirty votes. A democratic win in the senate and congress will be big news for the Trump administration. This is because they will do the best to obstruct the president’s agenda and start more investigations. A republican win will mean more of the same in the Trump’s administration.
In the third quarter, trade was a major issue in the market. This is after the United States initiated a trade war with China and key allies. Already, it seems like there is a breakthrough between the United States and the NAFTA countries. Just last week, the United States initiated tariffs worth more than $200 billion. China responded with tariffs worth more than $60 billion and announced that it won’t negotiate a deal with the US until after the mid-terms. Therefore, traders will stay focused on the new developments on trade.
The rout on the emerging markets continued in the quarter. This was after the major disagreements between the United States and Turkey. The US placed sanctions on Turkey for their continued arrest of an American pastor. In addition, Turkish president won an election promising low interest rates. This led to the inflation rising by more than 18% and the currency declining by more than 60% against the USD. Later on, the central bank gave in and provided support to the currency by raising interest rates. The rout on Turkey continued in Indonesia, South Africa, and Argentina. This quarter, traders will continue to watch out for these countries.
The yield curve is defined as the spread between longer and shorter-term yields. The most common definition is that of the ten-year and the two-year. In the past quarter, the yield curve of the US treasuries continued to narrow. It reached the narrowest level since 2007. Experts believe that a more hawkish period by the Fed will lead to a yield curve inversion. This happens when the spread crosses zero. This will likely happen in the final quarter if the Fed continues to insist on higher rates. Therefore, there is a likelihood that we will se a yield curve inversion which will likely lead to a sharp decline in stocks.
At the end of every quarter leads to a new wave of corporate earnings. This period is known as the earnings season. In the second quarter, US corporate earnings continued at the fastest rate in years. This was attributed to the increased government spending, high consumer confidence, and a general healthy economy. The earnings strength led to an increased performance by stocks despite the major challenges of trade. In this quarter, traders will continue to pay close attention to this.
This will be the final quarter before the UK completes its divorce with the European Union. In the quarter, traders will pay a close attention to the ongoing discussion between the EU and the UK. A good deal will lead to a rally in the sterling while the prospects of a hard Brexit will lead to more pessimism for the UK economy.
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