Key Events and Data to Watch This Week [21st October to 25th October 2024]

Monday

• 09:15 - PBoC Interest Rate Decision

• 14:00 - Germany Producer Price Index (Sep)

Wednesday

• 22:00 - Eurozone Consumer Confidence (Oct) PREL

• 22:00 - US Existing Home Sales (Sep)

Thursday

• 06:00 - Australia Judo Bank Composite PMI (Oct) PREL

• 15:30 - Germany HCOB Composite PMI (Oct) PREL

• 16:00 - Eurozone HCOB Composite PMI (Oct) PREL

• 16:30 - UK S&P Global Composite PMI (Oct) PREL

• 21:00 - BoE Monetary Policy Report Hearings

• 21:45 - US S&P Global Composite PMI (Oct) PREL

• 22:00 - US New Home Sales (Sep)

Friday

• 23:00 - Japan Tokyo Consumer Price Index (Oct)

• 07:30 - US Durable Goods Orders (Sep)

• 22:00 - US Michigan Consumer Sentiment Index (Oct)

U.S. Election and Fed's November Meeting: Markets Brace for Critical Economic Signals

This week is relatively quiet for U.S. economic data, with the Purchasing Managers' Index (PMI) among the few key indicators to watch. Markets are focused on next week’s U.S. growth and inflation reports as the debate around the Federal Reserve's rate cut pace intensifies.

Recent data showed a resilient labor market and strong household spending, raising concerns that inflation might slow less than expected as the Fed begins easing. This casts doubt on how quickly the Fed will lower rates.

Atlanta Fed President Raphael Bostic emphasized patience, stating at a Friday event that he isn't rushing to reduce rates to the neutral level—a rate that neither stimulates nor slows the economy, estimated at 3-3.5%. He stressed that the current rate is still above neutral and that inflation must continue its downward trend before significant cuts are made. Bostic cautioned that lowering rates too soon could risk stalling inflation progress.

On the political front, markets are watching the November 5 U.S. presidential election, in which Donald Trump and Kamala Harris are in a tight race. Despite differences in their economic policies, economists don’t anticipate a drastic divergence in overall economic impact.

A Bloomberg survey predicted that inflation will average 2.2% over the next four years, regardless of the winner, slightly above the Fed's 2% target for next year. Economists expect lower borrowing costs under Harris compared to Trump, whose plans for higher tariffs could drive inflation up while slowing growth.

With the Fed’s November meeting just two days after the election, markets have priced in a 92.6% chance of a quarter-point rate cut. Investors are also looking to future guidance on rate policies, with expectations for another cut in December. However, next week’s inflation and labor market data will be crucial in shaping these projections, especially with Fed policymakers likely in a pre-meeting blackout period.

Gold Hits Record High Amid Middle East Tensions and U.S. Election Uncertainty

Gold surged to a record high this week, trading around $2,730 per ounce after a 2.5% rise last week. This bullish momentum has also lifted other precious metals, with silver reaching its highest level since 2012 following Friday’s sharp gains. Palladium and platinum also saw notable increases.

The surge in safe-haven demand is driven by escalating tensions in the Middle East and uncertainty surrounding the upcoming U.S. elections. Over the weekend, a Hezbollah drone explosion near Israeli Prime Minister Benjamin Netanyahu’s residence and Israel’s subsequent strikes on Hezbollah strongholds in Lebanon added to market anxiety. Investors are also watching for Israel’s potential response to Iran, further fueling gold’s appeal as a safe asset.

While doubts persist about the Federal Reserve’s pace of rate cuts, ongoing easing is expected to weaken the dollar, supporting further gains for gold. Commonwealth Bank of Australia economists forecast gold prices to hit $3,000 by Q4 2025. However, in the short term, concerns over stalled U.S. inflation could provide some resilience for U.S. Treasury bonds, potentially slowing precious metals’ rally.

Oil Prices Slide Amid Middle East Tensions and Weak Demand Outlook

Oil prices rebounded slightly this week after a sharp 9% decline last week, influenced by renewed tensions in the Middle East. However, the recovery remains limited.

A report from the Washington Post suggesting that Israel is more likely to target military objectives than oil or nuclear facilities in Iran has eased fears of disruptions to Middle Eastern oil supply. According to CFTC data, long positions on oil have dropped to their lowest since February, reflecting a bearish sentiment in the market.

Weak demand projections, particularly due to economic struggles in China, are weighing heavily on the market. The International Energy Agency (IEA) recently forecasted that oil supply will exceed demand next year, reinforcing the bearish outlook. While supply concerns have diminished, the market remains on edge as traders await Israel’s next move regarding Iran.

PBoC Surprises with Larger-Than-Expected Rate Cut, Signals More Easing Ahead

In a continued effort to stimulate economic growth and address challenges in the real estate sector, the People's Bank of China (PBoC) announced a larger-than-expected interest rate cut today. The one-year loan prime rate (LPR) was reduced by a quarter-point from 3.35% to 3.10%, and the five-year LPR was cut from 3.85% to 3.60%. These reductions exceeded the 20-basis-point cuts predicted by all 17 economists in a Bloomberg survey and aligned with the upper end of the range suggested by PBoC Governor Pan Gongsheng.

The central bank also hinted that more easing could be on the horizon. Governor Pan indicated that the reserve requirement ratio (RRR) for banks might be lowered by 25 to 50 basis points by year-end, signaling the PBoC's commitment to faster monetary easing.

Market discussions are ongoing about whether the PBoC will continue to lower rates through the rest of the year. Some economists believe the central bank may pause until next year, while others foresee a more aggressive policy. Despite the surprise rate cut, which followed disappointing stimulus measures last week, market reactions were subdued. The yuan remained stable, 30-year bond yields hovered around 2.3%, and stocks gave up their early gains after a brief rally.

Economists note that markets are looking for stronger liquidity injections and more substantial fiscal spending to drive significant change, beyond the current monetary policy measures.