Week of NOVEMBER 3

Last week was very active, with rate decisions from the Fed, ECB, BOJ, and BOC, as well as the Eurozone publishing inflation figures and a deal being reached on US-China trade.

The week ahead features a significantly calmer economic calendar, with key events including the BOE and RBA's rate decisions, as well as Chinese trade data.

Week in Review

Markets were given a heavy dose of data to digest this week, but geopolitics managed to take the spotlight away from four major rate decisions that met market expectations.

The FOMC agreed to cut rates by 25 basis points, as widely expected, and also announced the end of its QT programme starting in December. However, the main takeaway was unexpected hawkishness. Two voters dissented, but this time one of them was in favour of keeping rates unchanged. Then Fed Chair Jerome Powell cast some doubt on whether the Fed would cut rates again in December. The odds of a rate cut by the end of the year dropped, but remained a majority.

Economists unanimously expected the ECB to keep rates unchanged. The central bank largely maintained its previous outlook, with President Christine Lagarde reiterating that inflation is favourable. As expected, a day later, Eurozone inflation dropped from 2.2% to 2.1%.

The BOJ also kept rates unchanged, but there were two dissenting votes in favour of a 25bps hike. Governor Kazuo Ueda adhered to the plan, suggesting that a rate hike might be imminent due to ongoing inflationary pressure from rising wages.

The BOC cut rates by 25 bps, as a majority of analysts had expected, but also signalled that it might not conduct further easing. Governor Tiff Macklem warned that the economic issues facing Canada are structural and can't be fixed by monetary policy, making the case for maintaining rates at the current level despite the potential for economic underperformance.

China's October PMIs disappointed, with the NBS manufacturing reading falling to 49.0 from 49.8 the previous month, indicating that the world's second-largest economy was still facing challenges.

In geopolitics, the much-anticipated Trump-Xi meeting occurred on the sidelines of the APEC meeting, followed by an announcement that both countries had agreed to reduce the intensity of the trade war. However, analysts noted that there were still many details to be resolved, which explained the somewhat cautious market reaction to the news.

The US government remained shut down, but there were increasing signals that both sides might be willing to compromise and pass bills that would at least partially reopen the government.

Biggest Market Movers

• Nasdaq scored a new record high mid-week amid a flurry of tech stock earnings and following Nvidia's announcement of a series of partnerships.
• Gold trended lower throughout the week amid easing trade disputes and a more hawkish Fed.
• GBPUSD was the worst-performing of the major pairs amid a stronger dollar and increasing odds of BOE rate cuts after OBR downgraded UK productivity.
• USDCAD trended lower after the BOC cut rates and warned that economic conditions would remain challenging but gather some momentum Friday.

Top Events in the Week Ahead

With fewer main data points, the primary concern for the markets next week may be the US government shutdown that would become the longest in history if not resolved by the weekend. Regular data releases, including the NFP, which would otherwise be released on Friday, will remain suspended in the meantime.

BOE to Hold Before Budget

There is a near-unanimous consensus that the BOE will hold rates unchanged at the end of its meeting on Thursday. Inflation has improved, and the economy is sluggish, but the view among economists is that it isn't enough for the BOE to ease just yet. The focus remains on the Budget, which is expected to be released at the end of November, with the central bank likely to avoid making significant changes before then. As usual, the focus will be on the vote split to gauge how willing the MPC members are to cut rates at the next meeting. Cable is heading towards the 1.3000 handle on Friday. If it holds, a bounce could reopen the door to 1.3200 and 1.3300, while a breakdown would expose 1.2800.

RBA Holding After Inflation Bump

Economists believe that the RBA will keep rates unchanged on Tuesday while maintaining its easing bias. The surprise jump in Q3 inflation is cited as the reason for the RBA to keep rates tighter until more information is available. Traders will pay close attention to Governor Michelle Bullock's comments after the decision for clues as to how long the Reserve Bank might be on hold, as there is considerable disagreement among economists about when rates might be resumed. Large Australian banks are evenly split on the odds of a rate cut at the start of next year. With resistance at 0.6600 and support just above 0.6500, Aussie could move either way.

Private US Jobs in Focus

The government shutdown is likely to hinder the regular release of the October NFP figures. The BLS will need time to adjust its publication schedule, even if they reach a spending agreement before Friday. Therefore, the markets might turn their attention to other labour metrics that emerge during the week, such as the private ADP survey. The data management company announced a shift to weekly reports. Analysts have noted that, although the ADP figures have a poor record of predicting the NFP numbers that are released a couple of days later, once the official data has been adjusted, they tend to correlate. Without official figures, the market may react more strongly to the ADP release on Wednesday. The consensus is for 15K jobs added in October, up from -32K in September. Gold would react positively if the ADP disappoints, establishing support at $4k and heading towards $4200 per ounce. On the other hand, a strong print would weigh on the yellow metal, with the focus shifting to $3800.

China Trade Seen Buoyant

China's October trade surplus is expected to rise to $97.0 billion from $90.5 billion in September, amid a slight moderation of exports. Goods leaving China are expected to slow a bit to 7.3% growth from 8.3% a month earlier. Imports are also seen decelerating slightly to 7.0% from 7.4% in September.

Other Events and Earnings

Monday is the US ISM manufacturing PMI. The RBNZ financial stability report comes out on Tuesday. Wednesday includes the US Treasury refunding announcement. Thursday sees Australia's trade balance. Friday includes Germany's trade balance.

Earnings season will be moving past its peak next week. However, there are still a large number of names expected to report, including Palantir, Marks & Spencer, AMD, Uber, Pfizer, Novo Nordisk, McDonald's, Qualcomm, AstraZeneca, ConocoPhillips, Parker-Hannifin, and International Consolidated Airlines.