Key Events To Follow This Week

Tuesday

• 07:30 - Japan Unemployment Rate (Sep)

• 15:00 - Germany Consumer Confidence (Nov)

• 22:00 - US Consumer Confidence (Oct)

• 22:00 - US JOLTS Job Openings (Sep)

Wednesday

• 08:30 - Australia Consumer Price Index (Sep)

• 08:30 - Australia Retail Sales (Sep)

• 18:00 - Eurozone Gross Domestic Product (Q3) PREL

• 20:30 - US Gross Domestic Product (Q3) PREL

• 20:30 - US Personal Consumption Expenditures Prices (Q3) PREL

• 21:00 - Germany Consumer Price Index (Oct) PREL

Thursday

• 09:30 - BoJ Interest Rate Decision

• 15:00 - Germany Retail Sales (Sep)

• 18:00 - Eurozone Consumer Price Index (Oct) PREL

• 18:00 - Eurozone Unemployment Rate (Sep)

• 20:30 - US Personal Consumption Expenditures Price Index (Sep)

Friday

• 20:30 - US Nonfarm Payrolls (Oct)

• 22:00 - US ISM Manufacturing PMI (Oct)

Data-Driven Week: How Growth, Inflation, and Jobs Reports Could Impact Fed Policy?

Markets ended a turbulent week driven by the re-adjustment of expectations for U.S. elections and Federal Reserve rate cuts, despite a relatively quiet economic calendar. This volatility is expected to persist this week, during which key data on growth, inflation, and employment will be released.

As confidence grows that the Fed will lower rates at a slower pace, uncertainty surrounding U.S. presidential race has accelerated the flight to quality. The U.S. 10-year benchmark yield climbed above 4.2% for the first time since July, while the U.S. dollar ended the week with gains. Bank of America’s bond market volatility gauge surged to its highest level of the year, signaling further potential turbulence.

Recent national polls for the upcoming election showed Donald Trump and Kamala Harris tied at 49% support with just a week to go. Compared to previous polls, Trump has increased his support, fueling speculation that he may win the race. Concerns that Trump’s tax cuts and tariff plans could widen deficits and re-stoke inflation are boosting demand for safe-haven assets.

On the other hand, markets are awaiting this week’s critical data for further clues on how quickly the Fed will reduce borrowing costs. Following recent data that has lifted expectations for economic growth, the initial estimate of Q3 GDP will be released on Wednesday. While the Atlanta Fed’s GDPNow model projects 3.3% growth, economists surveyed by Bloomberg expect a figure of 3%.

Furthermore, the Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) price index, is expected to show a modest uptick. The core index, which excludes volatile food and energy prices, is anticipated to rise by 0.3% in September, the highest monthly increase in five months. Personal income and spending are also expected to grow month-over-month, signaling continued momentum in consumer demand, a growth driver.

Finally, Friday’s jobs report is expected to show a modest increase of 140,000 in payrolls. This figure considers the effects of hurricanes and worker strikes and represents a significant decline from the 2024 average of 200,000. The unemployment rate is expected to hold steady at 4.1%.

As the U.S. economy grows robustly, questions are mounting about whether inflation will keep advancing toward the target. Market observers suggest that even if the data released this week show modest gains, it may not impact the Fed’s upcoming rate cut decision next week, as inflation remains downward. Futures market data show a 96.3% probability of a quarter-point cut on November 7.

However, market participants also see the potential for a pause in rate cuts at either the December or January meetings. Interest rate swaps indicate an expectation for a 122-basis-point cut by September 2025, compared to 195 basis points about a month ago.

In conclusion, this week’s data will be crucial in determining whether the declining expectations for Fed rate cuts are justified. However, given the upcoming U.S. elections, even if the data deviates from expectations, the market’s response may remain limited in the short term.

Gold Faces Pressure from Geopolitical Calm and Weakening Chinese Demand

Precious metals came under pressure as geopolitical risk premiums declined following Israel's weekend retaliation against Iran, which turned out to be more limited than expected.

On Saturday, Israel avoided targeting oil and nuclear facilities, focusing instead on military sites in Iran. Following Iran's missile attacks earlier this month, speculation around Israel's potential response to Iran was suppressing market risk appetite and keeping safe-haven demand strong. However, Israel's measured response over the weekend alleviated market fears, slightly reducing demand for safe assets.

Gold's climb to new record highs last week was fueled not only by geopolitical risks but also by uncertainty surrounding the U.S. elections. Concerns about a resurgence in U.S. inflation and bets on a slower pace of Fed rate cuts have boosted demand for non-yielding gold. According to data from Bank of America, gold funds recorded their largest weekly inflow since July 2020 last week.

This week, markets will focus on U.S. data for rate cut expectations; however, safe-haven demand will likely remain strong until election uncertainty subsides.

Meanwhile, gold demand in China, the world’s largest consumer, continues to decline due to record prices and ongoing economic challenges. Data from the China Gold Council indicates that total demand in China dropped by 22% in the three months through September. Jewelry consumption fell by 29%, and demand for bullion and coins declined by 9%.

Additionally, one of the most significant buyers, the People’s Bank of China, has paused its purchases for a fifth consecutive month. The decline in Chinese demand leaves a substantial gap in global gold demand. As China’s demand continues to fall, it may be a limiting factor on upward momentum in gold prices.

Supply Worries Fade: Oil Markets Shift Focus to Demand Risks

Oil began the new week with a nearly 5% drop after Israel's limited strike on Iran. Israel’s action was confined to military targets and did not impact oil, nuclear, or civilian infrastructure.

With concerns over supply easing, markets will likely shift their focus to demand-related risks. In particular, the possibility of weak oil demand in China, where economic challenges persist despite recent stimulus, reinforces expectations for lower oil prices. Some investment banks have already started lowering their oil price forecasts.

However, tensions in the Middle East have not fully subsided. It’s important to remember that potential geopolitical developments could quickly reverse the current scenario.

Japan's Ruling Coalition Loses Majority: Yen Under Pressure Amid Political Uncertainty

In Japan's snap general election held over the weekend, the ruling Liberal Democratic Party and its coalition partner lost their majority in the parliament. This marks the first time since 2009 that the ruling coalition has failed to secure a parliamentary majority.

The growing political uncertainty has led to expectations that the Bank of Japan (BoJ) may be less likely to raise interest rates again, which could pressure the Japanese yen. Typically, political instability is seen as negative for currency and stock markets.

However, confidence that newly-appointed Prime Minister Shigeru Ishiba could garner enough support to remain in power has limited market volatility. Losses in the Japanese yen against the U.S. dollar have remained modest, while Japanese stock markets rose over 1% on the first trading day.

Meanwhile, markets are eyeing the BoJ's rate decision on Thursday. Governor Kazuo Ueda’s recent comments have suggested no changes in rates. Ueda emphasized that they have sufficient time to act and highlighted the impact of developments in the U.S. economy on Japan. With political uncertainties in Japan and additional concerns surrounding the U.S. elections, the BOJ appears unlikely to rush into rate hikes.

Most of the yen's weakness stems from Japan's much lower interest rates than those of other major economies, particularly the United States. Even if the BoJ pauses its rate hikes, continued rate cuts by other major central banks will keep narrowing interest rate differentials, which could help limit the yen’s depreciation.