Market news

The risk event calendar goes up another notch this week with major central bank meetings, top tier economic data and US corporate earnings on the roster. Markets remain cautious and volatile, not least highly sensitive to the latest developments in the Middle East. Gold, the classic safe haven asset, has now rallied 10% from this month’s low. But crude oil prices fell last week as escalation concerns receded modestly while demand worries grew. The conflict will continue to weigh heavily on markets with “headline havoc” in full effect.

The FOMC meeting will be the marquee event of the week, even though the chances of a rate hike have disappeared in recent weeks. The bar for more policy tightening appears to be high after Fed Chair Powell, plus numerous other officials, signalled a preference to keep policy on hold. Policymakers expect the disinflation trend to continue, and demand and supply in the labour market to increasingly come into balance. Attention will be on what is needed for another rate hike, as signposted in the median dot plot for 2023 and then what conditions are required for the FOMC to start cutting. Friday’s non-farm payrolls report should see more solid job gains, especially this late in the economic cycle. The three-month average is more than twice the number of jobs needed to offset population growth.

The outcome of the Bank of Japan meeting has been prone to feverish speculation as markets are desperate to see policymakers follow other major central banks and bow to inflationary pressures. No major changes are expected with a slightly higher chance of another tweak to the Yield Curve Control policy. An upward revision to inflation forecasts has been mooted in the press. That could imply that longed-for policy normalisation is fast approaching. USD/JPY has been oscillating around the symbolic, intervention level of 150. No official confirmation from the Japanese authorities has been forthcoming so far, though falling Treasury yields on a dovish Fed would likely help out.

The Bank of England meets a day after the FOMC and could be the most predictable central bank meeting of the week. The (surprise) pause in September should be repeated with many economists speculating that a peak in rates is now in. Prices pressures are cooling but the unemployment rate is ticking up as growth appears to be grinding to a halt. This warrants the MPC’s caution, though inflation probably remains elevated enough for the bank to repeat that rates need to stay “sufficiently high” for “sufficiently long”.

Among the other highlights in a packed calendar include Apple Q3 earnings released after the US close on Thursday. The benchmark S&P 500 stock index has fallen more than 10% from the high above 4,600 made earlier this year. That meets the popular definition of a “correction” with high rates, geopolitical worries and mediocre company results in play. Positioning seems stretched in some stocks after big rallies this year.

Major data releases of the week:

31 October 2023, Tuesday

–Bank of Japan Meeting: Consensus points to no changes in the current policy settings. But there is a lot of speculation about the chance of another YCC tweak with forward guidance changes. Attention will also be on the quarterly forecasts for growth and inflation.

–Eurozone CPI and GDP: Expectations are for headline inflation to cool to 3.4% from 4.3% and the core to 4.5% from 5.3%. This is primarily due to base effects from government support last year. GDP could contract in Q2 with the y/y figure modestly positive.

01 November 2023, Wednesday

-US ISM Manufacturing: Economists forecast an unchanged print at 49.0. This is still in contractionary territory but well above levels typically seen during a recession. Focus will also be on the prices paid and new order components. The latter should show a continued easing in price pressures. The USD is currently looking past solid data and seemingly focusing on falling price pressures.

-FOMC Meeting: Markets expect no change with the target range kept at 5.25% to 5.50%. The recent surge in Treasury yields is tightening financial conditions so doing some of the work for the Fed. Powell recently said as much while also pointing to lags in hikes impacting the economy.

02 November 2023, Thursday

–Bank of England Meeting: Money markets predict the MPC will stand pat on rates, with only around a 10% chance of a 25bp hike. A 7-2 vote is likely in favour of no change, against the 5-4 previously. Inflation and wage growth are on a downward trend. A “higher for longer” bias by the BoE could underpin support for GBP. Cable hovers just above 1.21 with recent cycle lows not far below.

03 November 2023, Friday

–US Non-Farm Payrolls: Analysts forecast a headline print of 170k, down from the prior 336k, plus 119k of revisions. The September print saw the 3-month average jump to 270k from 150k. The jobless rate is expected at 3.8% and average hourly earnings at 0.3%.

–Canada Jobs: The economy added more than three times the number of jobs expected in September (63.8k) and wage growth accelerated. Forecasts are for a small gain which will still suggest demand remains strong despite high interest rates. CAD made long-term lows last week against the dollar with 1.3862 a key level in USD/CAD.

–US ISM Services: Expectations are for the services sector to tick modestly lower to 53.0 from 53.6. A resilient consumer continues to drive relatively healthy growth. Going forward, headwinds are likely to appear as financial conditions remain tight, energy prices elevated, and the restart of student loan payments kicks off.