There is no shortage of event-risk for financial markets to try and navigate over the course of the next seven days, with top tier US macro data ready to drop and then the US election on November 5th. In coming days, US GDP, Core PCE data and Non-Farm Payrolls (NFP) figures could each have interest rate implications for the Fed at their remaining two meetings for the year. A hot reading on the growth, inflation or jobs front could crate some second-guessing from the market about the Fed’s willingness to deliver consecutive rate cuts in November and December.
Of these three key macroeconomic data releases, the NFP data probably holds the most weight given that recent Fed rhetoric has been focused on risks stemming from a softening jobs market. From a risk-appetite perspective, markets would be happy to see a number not too hot so as to create a rate pause from the Fed, but not too cold that it generates recessionary concerns. Consensus forecasts are that we will see NFP come in at 110k, down from 254k in the previous month.
Yen weakness has continued in the aftermath of the Japanese election (held last weekend), with the Liberal Democratic Party (LDP) losing its majority and therefore creating legislative uncertainty. The weaker yen has however helped to prop up the Nikkei, with the currency devaluation helping Japan’s export sector. The Bank of Japan (BOJ) meet this week, though no change on rates is expected, and given the politically uncertain landscape on the home front it’s hard to see them being overly hawkish with their outlook.
The move lower in the yen has given fresh momentum to the USD this week with the DXY (Dollar Index) making the best of the conditions to have gained around 3.5% this month. Trump’s move to favourite for the US election in the betting markets has given support to the greenback and contributed to the rise in bond yields. The DXY has just backed off from the highs, which has opened the door for gold to post fresh all-time highs once again.
Gold was seen trading at $2774 during Asian trading hours on Wednesday. The precious metal still seemingly has designs on getting to $2800 in the near-term and with a US election lurking this could help its cause further from an uncertainty standpoint. On the flip side, the risk to gold this week is if any of the upcoming key US macro releases creates a move higher in the USD and a move lower in US interest rate expectations on an upside data beat. Support for gold awaits at $2729 on pullbacks.
The slump in oil prices has given a boost to equity markets, with lower energy prices bosting risk appetite. The WTI contract (US crude) is currently trading $4 lower than where it ended last week, with risk premium being removed from the price after Israel struck at non-energy targets in relation to Iran. An argument could be made that oil is currently underpriced given that an OPEC member (Iran) is involved in an active conflict and therefore supply concerns could be renewed at any time. But for the moment at least, sellers are keeping the price under pressure although that could change quickly on any new escalations in the Middle East.
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