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Ahead of the game: 28 October 2024

US market volatility and anticipation of major tech earnings reports have the ASX 200 heading for a negative close this week, with inflation data and interest rate expectations in focus.

Stock market Source: Adobe images

Market volatility anticipated as tech earnings loom

US equity markets are poised for their first losing week in seven, fuelled by profit-taking ahead of major tech earnings reports next week and as the ballooning US national debt boosts yields.

Closer to home, the ASX 200 appears set to finish the week in negative territory, influenced by losses on Wall Street and higher yields.

The week that was: highlights

  • The S&P Global composite manufacturing purchasing managers' index (PMI) for October rose to 54.3 from 54 in the previous reading, driven by expansion in the services sector, while the manufacturing sector remained in contractionary territory for a third consecutive month
  • Initial jobless claims fell to 227,000 from 242,000 the previous week
  • In Europe, the Hamburg Commercial Bank (HCOB) composite PMI edged higher in October to 49.7 from 49.6, but was below the expected 50.1
  • In the UK, the S&P Global composite PMI fell in October to 51.7 from 52.6
  • Crude oil gained 2.5% this week to $70.42, recovering after its 9% fall the previous week
  • Gold hit a fresh record high of $2758 as its record-breaking run continues
  • Wall Street's gauge of fear, the volatility index (VIX), increased to 19.07 from 18.02.

Key dates for the week ahead

Australia & New Zealand

  • AU: Monthly consumer price index (CPI) indicator (Wednesday, 30 October at 11.30am AEDT)
  • AU: Thursday retail sales (Thursday, 31 October at 11.30am AEDT)
  • AU: Building approvals and producer price index (PPI) (Friday, 1 November at 11.30am AEDT)

China & Japan

  • JP: Consumer confidence (Wednesday, 30 October at 4.00pm AEDT)
  • CN: National Bureau of Statistics (NBS) manufacturing PMI (Thursday, 31 October at 2.00pm AEDT)
  • JP: Bank of Japan (BoJ) interest rate decision (Thursday, 31 October AEDT)
  • CN: Caixin manufacturing PMI (Friday, 1 November at 12.45pm AEDT)

United States

  • US: Job openings and labor turnover survey (JOLTS) job openings (Wednesday, 30 October at 1.00am AEDT)
  • US: Third quarter (Q3) gross domestic product (GDP) (Wednesday, 30 October at 11.30pm AEDT)
  • US: Core personal consumption expenditures (PCE) price index (Thursday, 31 October at 11.30pm AEDT)
  • US: Non-farm payrolls (Friday, 1 November at 11.30pm AEDT)
  • US: Institute for Supply Management (ISM) manufacturing (Saturday, 2 November at 1.00am AEDT)

Europe & United Kingdom

  • EA: Q3 GDP (Wednesday, 30 October at 9.00pm AEDT)
  • EA: Inflation (Thursday, 31 October at 9.00pm AEDT)

Indices image Source: Adobe images

Key events for the week ahea

  • AU

Monthly CPI indicator

Wednesday, 30 October at 11.30am AEDT

In the second quarter (Q2) 2024, headline inflation rose by 1%, resulting in an annual rate of 3.8% year-on-year (YoY). This was the first increase in annual CPI since the fourth quarter (Q4) 2022. The RBA’s preferred measure, the trimmed mean inflation, increased by 0.8% quarter-on-quarter (QoQ), bringing the annual trimmed mean to 3.9% YoY. Although lower than the previous period’s 4%, it remains above the Reserve Bank of Australia's (RBA's) 2 - 3% target range, marking the lowest reading since the first quarter (Q1) 2022.

The most recent monthly CPI indicator, for August (released in late September), showed a sharp decline in inflation. The indicator rose by 2.7% YoY, easing from 3.5% in July. The ex-volatile measure fell to 3.0% in August, down from 3.7% in July. Similarly, annual trimmed mean inflation eased to 3.4% YoY from 3.8%.

The significant drop in headline inflation was largely expected, driven by government rebates lowering electricity prices and declining fuel prices. However, the drop in underlying inflation measures was unexpected and welcome, marking their lowest level in two and a half years.

Looking ahead to Q3 2024, preliminary expectations suggest that headline inflation will rise by 0.4% QoQ, with an annual rate of 2.8%. The trimmed mean is expected to rise by 0.7% QoQ, reducing the annual trimmed mean inflation to 3.4%.

The Australian interest rate market is currently pricing in an 8 basis point (bp) probability of a 25 bp RBA rate hike in December. If next week’s trimmed mean prints at or below 3.4%, it could significantly increase the likelihood of an RBA rate cut before year-end.

AU monthly CPI indicator chart

AU monthly CPI indicator chart Source: Australian Bureau of Statistics
AU monthly CPI indicator chart Source: Australian Bureau of Statistics
  • EA

Q3 2024 GDP and inflation

Wednesday, 30 October and Thursday, 31 October, both at 9.00 pm AEDT

For Q2 2024, the Eurozone's GDP expanded by 0.2% QoQ, easing from 0.3% in the prior quarter. This resulted in an annual GDP rate of 0.6% YoY, in line with expectations.

Within the details, France and Spain recorded stronger-than-expected growth, while Germany's GDP unexpectedly contracted. Concerns were raised that Germany’s economic downturn, traditionally the economic heart of Europe, stemmed from its disrupted business model, which relied on cheap Russian energy and strong trade with China.

Since then, forward indicators, including business surveys, have pointed to a broader slowdown. The decline in these indicators has been accompanied by a fall in inflation, which prompted the European Central Bank (ECB) to deliver a third 25 bp interest rate cut last week.

In its accompanying statement, the ECB noted that 'the disinflationary process is well on track' and that 'the inflation outlook is also affected by recent downside surprises in indicators of economic activity.'

  • Preliminary expectations for Q3 2024 GDP are a 0.2% QoQ rise, with an annual growth rate of 0.8%.
  • Market expectations for annual headline inflation in October are a rise to 1.9% YoY from 1.7%. Core inflation is expected to remain stable at 2.7% YoY.

The rates market has fully priced in another 25 bp cut from the ECB at its December 12 meeting, with a 23% chance of a larger 50 bp cut.

EA GDP annual growth rate chart

EA GDP annual growth rate chart Source: TradingEconomics
EA GDP annual growth rate chart Source: TradingEconomics
  • JP

BoJ interest rate decision

Thursday, 31 October at no set time

After raising its short-term policy target to 0.25% in July, the BoJ has since taken a cautious approach. It is widely expected to leave short-term interest rates unchanged this week while continuing to slowly taper its bond purchases.

BoJ Governor Kazuo Ueda recently commented that it is 'still taking time' to achieve the 2% inflation target sustainably, suggesting that no immediate policy changes are planned. The upcoming US election also adds uncertainty, making the BoJ less likely to provide strong forward guidance.

New economic projections will be closely watched for clues about potential rate hikes. While there has been some wage growth, particularly among small and medium-sized businesses, concerns about weakening consumer demand due to rising costs may encourage the BoJ to hold off on rate increases.

JP policy rate chart

Japan’s policy rate chart Source: Refinitiv
Japan’s policy rate chart Source: Refinitiv
  • US

Q3 GDP

Wednesday, 30 October at 11.30pm AEDT

In Q2 2024, the US economy grew at an annualised rate of 3.0%, a slight increase from earlier estimates of 2.8%. This growth was driven by consumer spending, private inventory investment, and non-residential fixed investment. However, there were slight declines in residential investment and government spending.

Looking ahead, Q3 2024 GDP is expected to grow by 3.0% QoQ, reflecting the continued resilience of the US economy. This bolsters hopes of a soft landing and suggests that the Federal Reserve (Fed) may take a gradual approach to easing monetary policy. The Atlanta Fed’s GDPNow forecast is even more optimistic, projecting Q3 2024 growth at 3.4%, which could bring upside surprises.

US GDP growth QoQ chart

US GDP growth QoQ chart Source: Investing.com
US GDP growth QoQ chart Source: Investing.com
  • US

Non-farm payrolls

Friday, 1 November at 11.30pm AEDT

In September, the US added 254,000 jobs, significantly surpassing expectations of 147,000. Although earlier data for July and August showed weaker gains, revisions boosted those numbers, reinforcing the view that the US labour market remains strong.

For October, expectations are more moderate, with forecasts of 140,000 new jobs, indicating some cooling from the previous month. However, labour market weakness may be partly due to temporary disruptions from Hurricanes Helene and Milton, along with US port strikes.

The unemployment rate is expected to stay steady at 4.1%, while average hourly earnings are predicted to ease slightly to 0.3% month-on-month (MoM), down from 0.4%.

The Fed will likely factor in the upcoming jobs report when considering a rate cut in November. As the Fed aims to balance strong employment with inflation control, the continued resilience of the labour market suggests that smaller 25 bp rate cuts are likely in the near future.

US non-farm payrolls chart

US non-farm payrolls: 3-month rolling average chart Source: Refinitiv
US non-farm payrolls: 3-month rolling average chart Source: Refinitiv
  • US

Q3 2024 earnings

The Q3 earnings season continues next week with reports from companies including Alphabet, Meta, Microsoft, Apple, and Amazon. You can read our preview of Microsoft’s earnings report here.

US Q3 2024 earnings chart

US Q3 2024 earnings chart Source: Eikon
US Q3 2024 earnings chart Source: Eikon

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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