Will the ‘Trump trade’ remain a big driver of markets with the US election day now so close? The dollar continued its October rally, and yields edged higher last week. The moves were reversed modestly by the end of the week, as investors possibly questioned the sustainability of the recent sharp rise in US rates. Oil prices retraced some of the decline from recent weeks which has weighed on energy-importing currencies such as euro and yen. The latter has been the big loser in October in general amid the moderation in the Fed pricing as US recession fears have been placed on the back burner.
This week will be eventful with the US monthly jobs report likely the marquee data release. Markets will also look out for the number of job openings in the JOLTS report, which is an important measure of labour demand for the Fed. Non-farm payrolls are likely to slow dramatically from the previous month. But how much impact will the weather-related distortions, favourable seasonal adjustment and Boeing strikes have on the figures, and influence on next week’s FOMC rate decision?
Given the backdrop of 3% growth, low unemployment, stock markets at all-time highs, and inflation still above 2%, many on Wall Street are questioning why the Fed cut rates 50bps in September. Added too that feeling is why the market expects the Fed to cut rates down to 3%. Those questions could intensify over the coming week on any strong data surprises.
It’s the biggest week for megacap tech earnings with five of the Magnificent Seven reporting their quarterly results. Google parent, Alphabet, release on Tuesday, Microsoft and Facebook parent, Meta, on Wednesday and Apple and Amazon on Thursday, all after the US closing bell. These companies’ results will have an outsized influence on markets due to their huge market caps and weightings in the major indices.
Otherwise, it’s busy in the build-up to next’s week crackerjack few days. We get eurozone GDP and inflation updates on Wednesday and Thursday, which won’t likely affect the ECB too much. They have shifted to a more dovsh bias with growth now front and centre. After the Japanese election over the weekend which brought polictical uncertainty, the BoJ meeting will be in focus. We are likely to see more fiscal stimulus on the political side, whoever gains power. There’s no chance of a rate hike on thursday.