UPCOMING EVENTS:
- Monday: Japan on holiday.
- Tuesday: China Caixin Services PMI, RBA Policy Decision, Canada Services PMI, US ISM Services PMI, BoC Meeting Minutes, New Zealand Labour Market report, US Presidential Election.
- Wednesday: Eurozone PPI.
- Thursday: Japan Average Cash Earnings, Eurozone Retail Sales, BoE Policy Decision, US Jobless Claims, FOMC Policy Decision.
- Friday: Canada Labour Market report, US University of Michigan Consumer Sentiment.
Tuesday
The RBA is expected to keep the Cash Rate unchanged at 4.35%. The latest data has been pretty strong with the Australian labour market report beating expectations by a big margin and the underlying inflation figures remaining high. Although the data didn’t change much in terms of interest rate expectations, it still supports the RBA’s patient stance.
The US ISM Services PMI is expected at 53.8 vs. 54.9 prior. This survey hasn't been giving any clear signal in the past couple of years as it’s just been ranging since 2022.
Nonetheless, the services sector showed resilience in these years, and it looks like it’s been picking up steam in the recent quarters.
The S&P Global Services PMI noted that “demand has strengthened, as signalled by new order inflows hitting the highest for nearly one-and-a-half years, albeit with both output and sales growth limited to the services economy.”
And added “businesses nevertheless remain cautious about hiring, leading to a third month of modest payroll reductions. Firms are worried in particular about uncertainty caused by the Presidential Election.”
Therefore, everything hinges on the US Presidential Election.
The New Zealand Labour Market report is expected to show a contraction of -0.5% in Q3 vs. 0.4% in Q2 and the Unemployment Rate to jump to 5.0% vs. 4.6% prior. The Labour Cost Index Y/Y is expected at 3.4% vs. 3.6% prior, while the Q/Q measure is seen at 0.7% vs. 0.9% prior.
As a reminder, the RBNZ cut interest rates by 50 bps at the last meeting and the market expects another 50 bps cut at the upcoming meeting. In 2025, the market sees four more 25 bps cuts.
The US Presidential Election is the main event of the week. Nothing else will really matter. This week will be divided into three phases: the pre-election noise, the election and the post-election trading. For the US Dollar, a red sweep is likely the most bullish scenario, while a blue sweep is the most bearish. Newsquawk prepared a nice and comprehensive Election Guide here. Definitely check that out!
Thursday
The Japanese Average Cash Earnings Y/Y is expected at 2.8% vs. 3.0% prior. Wage growth adjusted for inflation has turned positive lately, which is a good sign for the BoJ. Nonetheless, the central bank is in no hurry to hike rates and it’s unlikely that we will see a hike anytime soon.
The BoE is expected to cut interest rates by 25 bps and bring the Bank Rate to 4.75%. The UK data recently has been consistently missing expectations and we saw the central bank’s most watched services inflation measure dropping to 4.9% vs. 5.6% prior.
Further out, the market scaled back the expectations for a back-to-back cut in December after the UK budget announcement but if the data continues to soften, we could see the market increasing the probabilities for a move in December from the current 20% chance.
The US Jobless Claims continues to be one of the most important releases to follow every week as it’s a timelier indicator on the state of the labour market.
Initial Claims remain inside the 200K-260K range created since 2022, while Continuing Claims after an improvement in the last two months, spiked to the cycle highs in the last couple of weeks due to distortions coming from hurricanes and strikes.
These distortions are fading out as Initial Claims dropped back to the lower bound of the range and Continuing Claims seem to be turning around.
This week Initial Claims are expected at 223K vs. 216K prior, while there’s no consensus for Continuing Claims at the time of writing although the prior reading saw a dip to 1862K vs. 1888K prior.
The FOMC is expected to cut interest rates by 25 bps bringing the FFR to 4.50-4.75%. The economic data has been consistently showing strength in the US economy with even some acceleration following the latest rate cut.
This led the market to price out the aggressive rate cuts expectations which now sees the Fed pausing earlier in 2025 with 3 cuts priced in vs. 4 according to the Fed’s projections.
It goes without saying that the market’s expectations will be influenced by the US Presidential Election result, so the monetary policy outlook will be shaped by that.
In case we get a red sweep, we can expect the Fed to change its stance and although they will likely cut by 25 bps in December anyway, the December cut could be a hawkish one. The market, on the other hand, could be even more aggressive in pricing out the rate cuts.
Friday
The Canadian Labour Market report is expected to show 33.2K jobs added in October vs. 46.7K in September and the Unemployment Rate to tick higher to 6.6% vs. 6.5% prior. As a reminder, the BoC has switched its focus from inflation to growth now, so they will keep on cutting rates with the market seeing 33% chance of another 50 bps cut in December and four more 25 bps cuts in 2025.
