Week Ahead: US Election, Fed, BoE and RBA Meetings

The US election is finally upon us and to say it is the biggest risk event of the year, at a minimum, is a probably mild understatement. In fact all in, it’s an incredibly busy week, no doubt historic in many ways and with much volatiltiy, so risk management for all traders will be hugely important. And yet, even though probably around 70% of states will have been called by the time the European session opens on Wednesday (going off the previous 2020 election), it is the crucial seven swing states that hold the keys to who is in power for the next four years.

Markets have already placed their bets on a virtual red victory and the Republicans are expected to win a majority in the Senate. But House elections remain uncertain while the race in polls is very close for the Oval Office. Results from Pennsylvania, Michigan and Wisconsin will get the most focus, with Harris expected to have to win all three, whereas Trump only needs one, assuming he takes Georgia and North Carolina. Results from the three rust belt states are likely to be known only by late Wednesday, or even after that.

Stock markets, the dollar and cryptocurrencies have all performed well recently. Trump 2.0 means tax cuts and deregulation are positive developments for Wall Street, but tariffs and higher borrowing costs are not. A delayed vote and possible Harris win see these recent moves reversed. A Democrat victory implies continuity and a highly probable split Congress. That ultimately puts more pressure on the Fed to deliver rate cuts to keep the economy ticking along.

Thursday will see the FOMC do that with a quarter point cut priced in. Forward-looking guidance, from Fed policymakers, as well as from the Bank of England who meet hours before, will be all-important for markets. GBP has been upset by recent jitters caused by the government’s budget. The dollar has been consolidating recently just below recent cycle highs.

In Brief: major data releases of the week

Tuesday, 5 November 2024

– RBA Meeting: Consensus expects rates will be left unchanged at 4.35%. Q3 trimmed mean inflation was broadly in line with the bank’s forecast. The risks of more policy tightening seem to have eased. Updated projections will be in focus.  

– US Election: Opinion polls remain neck and neck, but betting markets have swung sharply to a Trump victory. Treasury yields, the dollar and stocks have all risen in line with the latter. These trends will likely continue with a confirmed Trump win but could retrace dramatically on a blue triumph.

– US ISM Services: Expectations are for non-manufacturing ISM to slip to 53.5 from 54.9 in September, which was a one and a half year high. Services activity remains firmly in expansionary territory.

Thursday, 7 November 2024

– Bank of England Meeting: Markets predict an 80% chance that the MPC will cut rates by 25bps to 4.75%. The latest Monetary Policy Report and the impact of the UK Budget will be in focus. The MPC is likely to raise inflation forecasts, which means less policy easing than previously forecast.  

– FOMC Meeting: The Fed is nailed on to cut rates by 25bps. Recent activity data continues to remain solid, though price pressures are benign. Guidance is likely to highlight that a moderate easing cycle is expected as rates are still restrictive.

Friday, 8 November 2024

– Canada Jobs: Analysts forecast 39,000 jobs to be added and the unemployment rate to remain at 6.5%. The recent BoC statement noted that population growth has continued to expand the labour force with hiring relatively modest.