PANews reported on October 26 that despite the stalemate in the US election, the market's bet on Trump's victory is driving the "Trump trade" back. The Fed's unexpected decision in September to cut interest rates by 50 basis points to start an easing cycle now seems to have become a distant memory, and is even questioned as a "policy mistake." Since the September meeting, US economic indicators have been strong, including the CPI report. The market narrative is shifting towards "no landing", which has stimulated a sharp reversal in US bond yields, which in turn has pushed up the dollar. Several Fed officials have publicly supported gradual rate cuts.
According to the CME's FedWatch tool, the market is pricing in a 95.6% chance of a 25 basis point rate cut at the Fed's November meeting. In contrast, a month ago, the market fully priced in a 25 basis point rate cut by the Fed in November, with a 57.4% chance of a 50 basis point cut. The Fed's next rate decision will be held after the U.S. election, and the market will digest a lot of economic data before then. Here are the key macro market points to watch in the new week:
At 22:30 on Monday, the U.S. Dallas Fed Business Activity Index for October will be released;
At 1:00 on Tuesday, Bank of Canada Governor Macklem will participate in a fireside chat at a conference;
Tuesday at 22:00, US JOLTs job vacancies for September and US Conference Board consumer confidence index for October;
At 18:00 on Wednesday, the preliminary annual GDP rate of the euro area in the third quarter, the industrial sentiment index of the euro area in October, the final consumer confidence index of the euro area in October, and the economic sentiment index of the euro area in October will be released;
Wednesday 20:15, U.S. ADP employment data for October;
At 20:30 on Wednesday, the preliminary value of the annualized quarterly rate of real GDP in the third quarter of the United States, the preliminary value of the quarterly rate of real personal consumption expenditure in the third quarter of the United States, and the preliminary value of the annualized quarterly rate of the core PCE price index in the third quarter of the United States
At 18:00 on Thursday, the preliminary annual CPI rate of the euro area in October, the monthly CPI rate of the euro area in October, and the unemployment rate of the euro area in September;
At 20:30 on Friday, the seasonally adjusted non-farm payrolls in the United States in October, the unemployment rate in the United States in October, and the monthly rate of average hourly wages in the United States in October;
At 21:45 on Friday, the final value of the US S&P Global Manufacturing PMI for October will be released.
With the Fed now more worried about the job market than inflation, weak employment data could shift the market back to a more dovish tone. In addition, any signs that the U.S. economy is cooling could push up market bets on a series of rate cuts from the Fed in the coming meetings. However, if growth remains strong and the PCE data suggests some stickiness in inflation, rate cut bets could be further dampened. Currently, only one additional 25 basis point rate cut from the Fed this year is fully priced in. If expectations of a November rate cut begin to be questioned, the dollar could climb to new highs and stocks could face selling pressure.
As the decisive moment draws near for Americans to vote for a new president, uncertainty grows about who will win on November 5. While Harris still leads in most polls, her lead has narrowed significantly over the past ten days, with voters' voting intentions for Trump rising sharply. Betting markets are betting that Trump is more likely to win, which could be an attempt by deep-pocketed Trump supporters to shape the picture, or it could be distorted by sampling bias, as Trump supporters overall may be more likely to bet than Harris supporters.
