Mon 17:00 | Eurozone HCOB Manufacturing PMI (Oct) |
Mon 17:30 | Eurozone Investor Confidence (Nov) |
Mon 23:00 | US Factory Orders (Sep) |
Tue 09:45 | China Caixin Services PMI (Oct) |
Tue 11:30 | Australia RBA Interest Rate Decision |
Tue 23:00 | US ISM Services Employment Index (Oct) |
Tue 23:00 | US ISM Services PMI (Oct) |
Wed 15:00 | Germany Factory Orders (Sep) |
Wed 17:00 | Eurozone HCOB Composite PMI (Oct) |
Wed 18:00 | Eurozone Producer Price Index (Sep) |
Thu 15:00 | Germany Industrial Production (Sep) |
Thu 18:00 | Eurozone Retail Sales (Sep) |
Thu 20:00 | UK BoE Interest Rate Decision |
Thu 21:30 | US Unit Labor Cost (Q3) PREL |
Fri 03:00 | US Fed Interest Rate Decision |
Fri 23:00 | US Consumer Sentiment Index (Nov) PREL |
Election Results and Fed Policy Awaited as Markets Reevaluate Dollar Positioning
Following a week full of economic events, market focus has now shifted entirely to the U.S. presidential elections and the subsequent Federal Reserve monetary policy meeting.
On the eve of the elections, the Dollar Index started the week down by approximately 0.7%, reflecting traders' reassessment of Republican candidate Donald Trump's potential victory. Weekend poll numbers indicated that Democratic candidate Kamala Harris may have gained an edge in some swing states, which has tempered "Trump trade" enthusiasm. In addition to traditional polls indicating that the race is still neck and neck, the decrease in bets for a Trump victory in prediction markets reflects increasing uncertainty in the market.
Prediction markets like PredictIt indicate a lead for bets on Harris’s win, whereas Kalshi shows Trump ahead with a 52% probability. Last week, bets on Trump’s victory were at 60% or above; thus, the reduced betting odds are putting pressure on the dollar.
On the other hand, last week’s data revealed that payroll growth has slowed to its lowest pace since late 2020. The U.S. economy added only 12,000 jobs in October compared to the previous month. The report also showed that job gains in August and September were revised downward by 112,000, indicating lower figures than initially estimated. The unemployment rate remained steady at 4.1%.
The report released by the U.S. Bureau of Labor Statistics reveals that employment in the manufacturing sector dropped by 46,000. This marks the largest decline since April 2020, though it largely reflects the loss of 44,000 jobs due to the Boeing strike.
Separate data released by the BLS indicated that 512,000 people could not work in October due to adverse weather, while an additional 1.41 million full-time employees worked only part-time due to these conditions.
Last week, several data releases prior to the nonfarm payroll report increased optimism about the U.S. labor market. When assessed alongside sticky inflation figures, they supported expectations that the Fed would slow the pace of its rate cuts. However, following the surprising payroll figures that reversed these expectations, U.S. Treasury yields dropping by roughly 10 basis points before recovering losses by session close.
The weakness in payroll growth largely stems from temporary factors, making it unlikely that the Fed will use this report as a reference point. However, taking into account the downward revisions in prior month’s figures, the labor market appears to remain healthy but is gradually cooling—a trend that justifies the Fed staying on its easing path.
The pace of easing, on the other hand, will likely depend on the economic policies implemented post-election and the data released in the coming months. According to futures market data, traders are pricing in a 57 basis point cut by the end of January, suggesting that a pause in the Fed’s first meeting of next year is still on the table.
Markets Brace for U.S. Election Volatility: How Gold and Treasury Yields React
As markets brace for one of the most competitive U.S. elections in history, the increasing flow into safe-haven assets had led gold to record consecutive historic highs. On the other hand, expectations of rising inflation in the U.S., regardless of the election outcome, have pushed U.S. Treasury yields above 4.20%. Traditionally, high yields are negative for non-yielding gold. Indeed, last week, due to the pressure from rising yields and the impact of profit-taking, gold retreated from its historic peak levels.
With just one day left until the election, both traditional polls and prediction markets indicate a close race. Some observers even suggest that the margin between votes will be so narrow that the winner may need to be determined by the Supreme Court. Besides, on Donald Trump's side, his weekend speeches hinted that he is prepared to initiate a legal challenge if the election does not go as he desires.
In the current environment, the fading of the "Trump trade" is weighing on the greenback, and supports upward movement in precious metals. As votes begin to be counted tomorrow, the closeness of the race could be crucial for market volatility. A tight race is expected to increase uncertainty, driving more flows into safe-haven assets. Conversely, if the Republican candidate Trump maintains a lead in the race, this could strengthen the dollar and intensify downward pressure on precious metals. However, the belief that U.S. fiscal deficits and inflation will rise in the event of either candidate's victory may limit downside pressures.
Oil Prices Climb as OPEC+ Delays Production Increase Amid Rising Middle East Tensions
Oil started the week with a nearly 2% rise as OPEC+ postponed its planned production increase for December by a month and tensions in the Middle East escalated.
OPEC+ had initially planned to begin producing 180,000 barrels per day starting next month, but the production increase was postponed for another month. The increase, originally delayed to October due to weak demand in China and high supply from the U.S., has now been postponed for a second time.
Meanwhile, Iran's leader Ayatollah Ali Khamenei escalated regional tensions on Saturday by warning Israel of an "crushing response." According to a report by the Wall Street Journal, Tehran informed its allies that any attack on Israel would likely occur between the U.S. presidential election and the inauguration ceremony in January, and it would go beyond previous assaults involving missiles and drones.
Israel has so far refrained from targeting oil or nuclear facilities in its responses to Iran. However, market observers suggest that the growing tension between Israel and Iran could increase the likelihood of these facilities becoming targets. This situation is raising the geopolitical risk premium on oil, causing prices to rise despite ongoing demand concerns.
This week, the oil market will be closely watching a series of major events, including the U.S. election and a meeting of China’s top legislative body.
China’s Recovery at a Crossroads as Key Meeting and U.S. Election Loom
Chinese officials are expected to convene this week for the Standing Committee of the National People's Congress meeting. This meeting is set to finalize the recent measures taken by the Chinese government to address economic challenges and boost growth.
Following the wave of stimulus announced by Beijing, several recent indicators have shown some signs of recovery in the Chinese economy. Data released last week revealed that both official and private manufacturing activity indices surpassed market forecasts, moving into expansion territory, while home sales rose for the first time this year.
According to preliminary data from China Real Estate Information Corp., the value of new home sales by 100 major real estate companies rose by 7.1% year-on-year and 73% month-on-month, reversing a 37.7% drop in September. However, Bloomberg data indicates a mixed recovery, with six state-owned enterprises seeing a 26% increase in home sales, while sales at 13 private companies fell by 24%. This suggests that a lack of fiscal support has led to an uneven recovery.
While markets eagerly await the outcomes of this week’s meeting, the U.S. election results will also be critical for China’s economy. Should Republican candidate Donald Trump, who plans to impose heavy tariffs on Chinese goods, win the election, Beijing may need to make further efforts to boost domestic demand. International Monetary Fund (IMF) Director Kristalina Georgieva warns that without measures to increase domestic demand, China’s economic growth could fall well below 4% in the coming years.