This week shapes up as one of the biggest for 2024 with the US election and US Fed rate decision.
Global investors largely looked past the somewhat distorted data last week and focused on this week’s hugely consequential policy events.
The US election takes place on Tuesday, with the magnitude of Chinese fiscal stimulus reported to be partly dependent on the outcome.
Several central banks, including the Federal Reserve, are also likely to cut interest rates this week, while the RBA is expected to hold on Melbourne Cup Day tomorrow.
Asset prices retreated last week, ahead of the significant events scheduled over the next few days.
The American presidential election takes place on Tuesday. The outcome will impact a range of policy outcomes, ranging from the domestic fiscal outlook and Treasury yields to the willingness to support Israel and Ukraine in overseas conflicts and the impact on commodity supply.
For months the polls have predicted a very tight election, with a resurgent Donald Trump contributing to a rise in bond yields and improving equity sentiment flowing from a likely extension of the 2017 corporate tax cuts. However, results from early voting and some historically more reliable polls have begun to tilt in the Democrats' favour, suggesting that Kamala Harris is more likely to win the White House, even if the House and Senate are likely to be held by the Republicans. With the former president’s chances fading and also set to be sentenced in New York later this month on 34 felony counts, the share price of Trump Media & Technology, the owner of the Truth Social platform, fell by -21.5% last week.
China's top legislative body, the Standing Committee of the National People's Congress (NPC), also meets this week with the much-anticipated fiscal stimulus likely to be announced. On Tuesday, Reuters reported that the committee is considering issuing “over 10 trillion yuan (US$1.4 trillion) in extra debt in the next few years to revive its fragile economy, a fiscal package which is expected to be further bolstered if Donald Trump wins the U.S. election, said two sources with knowledge of the matter”.
There are also several central bank meetings scheduled for this week. The RBA meets tomorrow and is unlikely to alter the policy settings, but investors will be paying close attention to the Statement on Monetary Policy for signs of when rates might eventually be cut. Last week’s third-quarter CPI reading slowed from an annual increase of +3.8% to just +2.8%, slightly below expectations. However, the government electricity subsidies were a significant factor in the slowing, and the RBA has already vowed to look past the impact and to base decisions on longer-term drivers. With services inflation at +4.6% yoy, significantly above goods inflation of +1.4% yoy and more closely related to wages, the RBA is unlikely to cut before 2025.
The Norwegian central bank is also set to hold this week. RBA Deputy Governor Andrew Hauser recently said that the Norwegian economy is “freakishly similar” to Australia for “reasons that are not entirely clear”.
In contrast, the Swedish Riksbank is likely to be the latest central bank to cut by a larger than usual -0.5% to 2.75%.
The Bank of England is also widely expected to cut by -0.25% to 4.75%. Last week the British Chancellor Rachel Reeves unveiled the first budget of the recently elected Labour government, aiming to raise an additional £40 in taxes while investing in public services. The tax increase was larger than expected. But the increased spending and borrowing plans sent the UK 10yr gilt yield +0.19% higher over the week.
The FOMC is also expected to the US policy rate by -0.25% to 4.50% to 4.75% on Thursday. In a speech on 14th October Governor Waller warned, “unfortunately, it won't be easy to interpret the October jobs report to be released just before the next FOMC meeting. This report will most likely show a significant but temporary loss of jobs from the two recent hurricanes and the strike at Boeing. I expect these factors may reduce employment growth by more than 100,000 this month, and there may be a small effect on the unemployment rate, but I'm not sure it will be that visible. Since the jobs report will come during the usual blackout period for policymakers commenting on the economy, you won't have any of us trying to put this low reading into perspective, though I hope others will.”
The report showed just +12k new jobs being added to the American economy in October with the unemployment rate holding steady at 4.1%. For the reasons given by Governor Waller, as well as a low response rate, the October figures were easily set aside by investors.
However, the report also signalled a significant -112k of prior two-month revisions, pushing the August figure down from a first release of +142k to just +78k. Excluding the October data, the trend of slowing employment growth is clear. At the same time, the JOLTS Job Openings figure (7,443k) fell by more than anticipated, and the ISM Manufacturing survey registered another contraction, the 23rd negative month in the last 24.
The first estimate of US Q3 GDP was below forecasts but still a relatively good and above-trend +2.8% (annualised) was driven by the consumer contribution (+2.5% annualised), while fixed investment (+0.2% annualised) was notably soft, consistent with slowing employment growth.
After more tech earnings last week, the annual increase in S&P500 profits picked up to +8.3% with 352 / 500 companies having reported. Amazon shares appreciated by +5.4% last week after a positive forecast and lifting sentiment in Friday’s session. In contrast, the Apple stock price slipped by -3.7% after reporting weaker-than-anticipated sales in China and, over the weekend, it emerged that Warren Buffett had continued to reduce the Berkshire Hathaway stake. His company now holds more than $325 billion in cash, an increase of nearly $50 billion from last quarter.
In the Australian market, Macquarie Group slipped -4.3% after reporting A$1.6 billion in profits for the six months ending 30th September, up +14% on the same period last year but missing consensus expectations.
US Reporting summary
This week will see 103 S&P 500 companies report results for the third quarter. So far 70% of S&P 500 companies have reported their Q3 results with 75% reporting EPS ahead of estimates which is equal to the 10 year average. On aggregate earnings have been 4.6% above estimates.
Refer to the link for a full briefing: https://insight.factset.com/sp-500-earnings-season-update-november-1-2024?utm_source=Direct&utm_medium=Email&utm_campaign=FO-11-01-2024&utm_content=httpsinsightfactsetcomsp500earningsseasonupdatenovember12024
Companies reporting for the week
Monday 4th Constellation Energy (CEG)
Tuesday 5th Palantir Technologies (PLTR), Apollo Management (APO),
Wednesday 6th CVS Health (CVS),
Thursday 7th Energy Transfer (ET), Gilead (GILD), Lyft Inc (LYFT), Williams Cos (WMB), Qualcomm (QCOM), Carlyle Group (CG), Warner Bros (WBD), Transdigm (TDG),
Friday 8th Block (SQ), Fortinet (FTNT), Axon Ent (AXON),
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