Weekly Market Outlook (04-08 November)

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.