8 min readWeekly Recap
News of Donald Trump’s election victory was met with a euphoric response from the financial markets. Wall Street and Bitcoin surged to record highs, while the US dollar rallied to a four-month high. Optimism of lower corporate taxes, deregulation, and a pro-business stance lifted the S&P500 to 6000 and the Nasdaq above 21k.
While the Federal Reserve cut interest rates by 25 basis points and is expected to cut rates by a further 25 basis points in December, the market is paring back its bets on how many times the Fed will cut interest rates over 2025.
Should Trump implement his core policies of lower taxes and higher tariffs, inflation could rise amid an increase in domestic demand and higher import costs, which could give the Fed little choice but to keep interest rates higher.
Separately, the BoE also cut rates by 25 basis points, a move this widely expected. However, the central bank reined in expectations of aggressive rate cuts following the Labour government’s budget, which is broadly considered inflationary.
What to watch
UK jobs data (Tuesday)
Expectations are for the unemployment rate in the three months to September to rise to 4.1%, up from 4%. Headline average earnings are forecast to increase to 3.9% after falling to 3.8% from 4.1% in September. The data comes as the Bank of England watches wage growth closely, given its close ties to service sector inflation, which remains sticky. Still, from a policy perspective, markets are pricing in just a 20% chance of a December cut with the view that the MPC is unlikely to cut at back-to-back meetings. Instead, the next rate cut could be due in February if data continues to show cooling inflation. With two more inflation reports between now and the December meeting, those reports will probably carry more sway than employment figures.
GBP/USD hovers around 1.29 at the start of the week.
US CPI (Wednesday)
On Wednesday, October, CPI inflation data will be released and is expected to be the main focus this week. It will be the first post-election test for rate cut expectations. September CPI fell to 2.4% yearly; however, economists expect this to rise to 2.6% in October. Month on month, the rate is expected to be 0.2%, unchanged from the previous month. Meanwhile, core CPI is also expected to increase from 3.3% to 3.4% in October. The data comes after Federal Reserve chair Jerome Powell stated in the latest policy meeting that inflation had eased significantly, although core inflation remains elevated. Cooler-than-expected inflation could see treasury yields on the US dollar come under pressure and correct lower following their recent sharp gains. However, a surprise to the upside could give the US dollar fresh legs to rise further, which may also be problematic for gold.
Gold fell sharply last week on bets the Fed would cut rates at a slower pace and could fall lower if inflation is higher than expected.
Australian jobs (Thursday)
The Australian jobs market is expected to show an additional 25k jobs added in October, down from 64.1k in September, while the unemployment rate is seen rising to 4.2% from 4.1%. The strength of the labour market has been one of the reasons why households have been able to weather high inflation and interest rates. However, shrinking job adverts and vacancies suggest an emerging weakness in employment. Still the RBA will want to see further weakness before cutting interest rates. With little pressure on the RBA to cut rates, the central bank is not expected to start reducing rates until February next year. Stronger than expected jobs data could lift AUDUSD.
ECB Minutes (Thursday)
After weaker forecast inflation and activity data, the ECB cut rates by 25 basis points in the September meeting. The meeting took the interest rate to 3.25%, and the ECB reaffirmed its data-dependent position, reiterating that it will keep policy rates restrictive for as long as necessary. In the press conference following the meeting, Christine Lagarde noted that there was still much data to come before the December 12 meeting, suggesting that the governing council was still unclear over what might happen in the final meeting of the year. The market will scrutinize the minutes closely for further clears over the likelihood of another rate cut by the ECB in December ahead of further cuts next year. A dovish-sounding ECB could pull EUR/USD lower towards 1.06.
Chinese industrial production & retail sales (Friday)
Chinese industrial production is expected to remain unchanged at 5.4%, while retail sales are forecast to rise to 3.8%, up from 3.2%. The data will provide a good gauge of the health of the Chinese economy, particularly domestic demand. The stronger-than-forecast PMI data released recently paves the way for a solid industrial production figure while retail sales could remain subdued. It comes off the singles day in China, which is the start of the week, and could provide more insight into how our consumers are holding up amid the ongoing housing crisis and after more stimulus was announced at the end of last week.
The Hang Seng continues to trade in a holding pattern ahead of the data. Traders will look for a break-out trade below 20k or above 21.3k.
US retail sales (Friday)
US retail sales will be released on Friday after September sales rose 0.4% month on month amid signs of resilience in US consumers. The data comes after US retail sales rose in the previous month by more than forecast, highlighting strong consumer spending that continued to power the economy. In earnings, retailers are seeing positive trends; Amazon noted that its retail business is seeing favorable trends, including bigger baskets and more frequent shopping, although customers remain price-conscious. Stronger than forecast data could support the view that the Fed will adopt a more gradual pace of two rate cuts.
US earnings & Fed speakers
With 91% of S&P 500 companies having reported results, 75% of those companies have posted positive earnings surprises, and 60% of S&P 500 companies have posted stronger-than-expected revenue. Earnings growth for Q3 2024 is 5.3%, which will mark the fifth straight quarter of year-over-year earnings growth for the index and is also ahead of the estimated earnings growth rate of 4.3%. Earnings will still be coming through this week from names such as Home Depot, Cisco Systems, and Walt Disney.
As earnings approach, there are plenty of Fed speakers in focus this week, with Federal Reserve chair Jerome Powell due to speak as well as many other Fed officials. The market will be watching closely for clues about the Fed’s outlook for rate cuts in light of Trump’s victory.
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