Next week's macro outlook: “Trump deal” is back, before the quiet period, the Fed's rate cut is expected to change dramatically
October 26, despite the stalemate in the U.S. election, but the market's bets on Trump's victory is driving the resurgence of the “Trump trade”, the Federal Reserve's surprise decision in September to cut interest rates by 50 basis points to start the easing cycle now seems to be a distant memory, and even questioned as a “policy blunder”. policy blunder”. Since the September meeting, US economic indicators have been strong, including the CPI report. The market narrative is shifting toward a “no-landing,” which has spurred a sharp reversal in U.S. bond yields, which in turn has pushed the U.S. dollar higher, and a number of Fed officials have gone on record in favor of gradual rate cuts.
According to the CME's FedWatch tool, the market is pricing in a 95.6% probability that the Fed will cut rates by 25 basis points at its November meeting. By comparison, a month ago, the market fully priced in a rate cut of at least 25 basis points by the Fed in November, with a 57.4% chance of a 50 basis point cut. The Fed's next rate resolution will come after the U.S. election, and the market will digest a lot of economic data before then. Here are the macro market highlights to focus on in the new week:
Monday 22:30, U.S. Dallas Fed Business Activity Index for October;
Tuesday at 1:00, Bank of Canada Governor McCollum participates in a conference fireside chat;
Tuesday 22:00, U.S. JOLTs job openings for September, U.S. Conference Board consumer confidence for October;
Wednesday, 18:00, Eurozone preliminary annualized Q3 GDP, Eurozone industrial sentiment for October, Eurozone final consumer confidence for October, Eurozone economic sentiment for October;
Wednesday 20:15, U.S. ADP employment for October;
Wednesday 20:30, the United States third-quarter real GDP annualized quarterly preliminary value, the United States third-quarter real personal consumption expenditures quarterly preliminary value, the United States third-quarter core PCE price index annualized quarterly preliminary value
Thursday 18:00, the euro zone October CPI annualized preliminary value, the euro zone October CPI monthly rate, the euro zone September unemployment rate;
Friday 20:30, U.S. October quarterly non-farm payrolls, U.S. October unemployment rate, U.S. October average hourly wage monthly rate;
Friday 21:45, U.S. final S&P Global Manufacturing PMI for October.
With the Fed now more worried about the job market than inflation, weak jobs data could return the market to a more dovish tone. In addition, any sign that the U.S. economy is cooling could push up market bets that the Fed will cut interest rates in successive meetings over the next few sessions. However, if growth remains strong and the PCE data suggests some stickiness in inflation, rate cut bets could take a further hit. Currently, only one additional 25 bps rate cut is fully priced in for the year by the Fed. If expectations of a November rate cut begin to be questioned, the dollar could climb to new highs and stocks could come under selling pressure.
As the decisive moment for Americans to vote for a new president draws closer, uncertainty about who will win on Nov. 5 is growing. While Harris still leads in most polls, her lead has narrowed significantly over the past ten days, with voter intent to vote for Trump rising sharply. The betting markets are betting that Trump is more likely to win, which may be a spectacle that well-heeled Trump supporters are trying to shape, or it may be distorted by sampling bias, as Trump's supporters overall may be more likely to place a bet than Harris's supporters.
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