Macro Week Ahead: Markets Face a Flood of Economic News Before U.S. Election
By:Ilya Spivak
Wall Street was in defensive mode last week, thanks to a familiar story. Bond yields pushed higher across the curve, two- and 10-year rates up close to 4% each. That kept the U.S. dollar marching higher. Against this backdrop, the bellwether S&P 500 shed 1%. The tech-minded Nasdaq 100 traded flat with help from strong Tesla (TSLA) earnings.
Against this backdrop, these are the macro waypoints likely to shape what comes next.
The U.S. economic calendar is bursting at the seams this week. Three big releases are likely to take top billing amid a sea of numbers. If they extend the string of upside surprises on key data since late August, a push lower in bonds may see yields and the U.S. dollar higher while stocks wobble as Federal Reserve rate cut expectations cool.
First, the Fed’s favored inflation gauge, the personal consumption expenditure (PCE) price index, is seen falling to 2.1% year-on-year. That would be the lowest since February 2021. Next, third-quarter gross domestic product (GDP) is expected to see the economy growing at a brisk annualized rate of 3%, unchanged from the previous period.
Finally, October’s official employment report is projected to bring a meager 140,000 rise in nonfarm payrolls, the smallest since June. The unemployment rate is penciled in at 4.1%, unchanged from the three-month low set in September. Wages are expected to sustain a growth rate of 4% year-on-year.
Soggy Australian consumer price index (CPI) and Chinese purchasing managers index (PMI) data might keep the Aussie dollar under pressure. The currency has slid to the lowest level since mid-August despite a stubbornly hawkish stance from the Reserve Bank of Australia (RBA) amid a broad-based rebound in its U.S. counterpart.
If rate cut speculation builds, that seems likely to strengthen the pull downward. That could be just what happens as CPI inflation cools to 2.9% year-on-year in third-quarter data, marking the lowest reading since the three months to March 2021. Chinese PMI figures highlighting ongoing standstill in Australia’s largest export market might help, too.
Pressure from a dovish shift in monetary policy expectations may also strike the euro. CPI inflation is expected to come down to 1.9% year-on-year in October, marking a slight uptick from 1.7% in September. Third-quarter GDP figures are seen showing growth of 0.8% year-on-year, a touch higher than 0.6% previously.
Analytics from Citigroup suggest Eurozone economic news continues to tend toward disappointment relative to baseline forecasts. That means markets anticipating a slightly improved euro yield profile after this week’s data releases may be forced into a dovish rethink, sending the single currency lower.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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