Week Ahead: BoC and PMIs vie with Tesla earnings

This week could be the calm before the storm. We do get megacap tech earnings, another major central bank cutting rates and PMI survey data which led to the ECB embarking on a back-to-back rate reduction. But the first week or so of November brings with it the maelstrom of the non-farm payrolls report, the US elections and the FOMC meeting. (Plus, more company results from the biggest companies on the planet!)

Equity markets are eyeing up a Trump 2.0 victory on November 7 with both the S&P 500 and the Dow Jones Industrial Average surging to new record highs on Friday. That sealed six straight weeks of gains, the best win streak of 2024. The increasing probability of a Trump win, with a clean Republican sweep, is seen boosting stocks and also the broad USD. That said, the latest swing state polls signal the race remains closer than prediction market odds suggest. Experts say the result will depend on just a few tens of thousands of voters in these states. Typically, stocks do well after the election when uncertainty abates, so whether we see that idea upended will be key. In any event, expect US politics to increasingly impact markets as we get closer to the big day.

Regarding company results, more than 70 S&P 500 companies have reported earnings so far. 75% of those have beaten expectations, according to FactSet. Focus this week will be on Tesla announcing their numbers after the US closing bell on Wednesday. Their shares have sharply underperformed the market this year, losing nearly 12% compared to the S&P 500’s 23.5% gain. A disappoinitng report could reignite concerns about tech stock valuations, which have climbed along with the broader indices.

In Brief: major data releases of the week

Wednesday, 23 October 2024

– Bank of Canada Meeting: Markets expect the bank to cut the overnight rate by 50bps to 3.75%, though analysts are more split. Softer, recent inflation and activity data are likely to force the BoC’s hand. The latest monetary policy report and economic forecasts will also be in focus. The loonie has endured a wretched run in October versus the dollar. Is last week’s top at 1.3838 a near-term top?

Thursday, 24 October 2024

– Global PMIs: The October flash PMIs are expected to signal ongoing contraction in manufacturing activity and modest growth in services on both sides of the Atlantic. Slowdown concerns pushed the ECB into a back-to-back rate cut. The UK services sector has been ticking lower with output prices cooling markedly. With better recent news on services inflation, the BoE could speed up policy easing in the coming months. Major support sits around 1.30 in GBP/USD.  

Friday, 25 October 2024

– Tokyo CPI: Inflation is forecast to remain at 2.2%. But a sharp rise in the monthly comparison is forecast. This data acts as a forerunner to the national figures. They have slowed recently, but less so than expected. Markets see the BoJ on hold in October. USD/JPY has resistance at 150 which is capping the upside so far.

– German IFO Survey: German business morale may steady after falling for four months in the last five. Soft global demand remains a key headwind, adding to signs the euro zone’s biggest economy may have tipped into recession. EUR/USD dropped to a 10-week low after last week’s ECB meeting, as markets toyed with a 50bps rate cut at its next meeting. The hawks might have something to say about that, so a rebound could be on the cards. Strong resistance resides around 1.09.

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