Ahead of the game: 4 November 2024

Global stocks drop amid tech woes, pre-election jitters

United States (US) equity markets are on track to finish lower this week as disappointing earnings from tech giants Microsoft and Meta, along with pre-election jitters, weigh on investor sentiment.

Closer to home, the ASX 200 saw a second consecutive weekly decline as traders moved to the sidelines. Next week is expected to be pivotal for markets, with outcomes likely to shape trends into year-end.

Key events next week include the US election and interest rate decisions from the Reserve Bank of Australia (RBA), Bank of England (BoE), and the Federal Reserve (Fed). Additionally, the National People’s Congress (NPC) Standing Committee in China may reveal details on fiscal stimulus.

The week that was: highlights

• US economy grew by 2.8% in the third quarter (Q3) of 2024, missing the forecasted 3%
• Job Openings and Labor Turnover Survey (JOLTS) job openings fell by 418,000 to 7.443 million in September, the lowest since January 2021 and below expectations of 7.99 million
• ADP employment report showed US private businesses added 233,000 workers in October 2024, the highest increase since July 2023
• Conference Board (CB) consumer confidence rose sharply in October, climbing to 108.7 from 99.2
• Core personal consumption expenditures (PCE) price index increased 2.7% year-on-year (YoY) in September, slightly above the 2.6% forecast
• Initial jobless claims dropped to 216,000, marking the lowest level since mid-May and falling short of the expected 230,000
• European Union (EU) gross domestic product (GDP) rose by 0.4% quarter-on-quarter (QoQ) in Q3, up from 0.2%, with annual growth hitting 0.9%, the highest since early 2023
• EU core inflation increased to 2% YoY in October from 1.7% prior
• United Kingdom (UK) purchasing managers’ index (PMI) fell to 51.7 in October from 52.6 prior
• Bank of Japan (BoJ) left its monetary policy settings unchanged as expected
• National Bureau of Statistics (NBS) manufacturing PMI in China (CN) rose to 50.1 in October from 48.9 prior
• Australian (AU) inflation saw headline inflation rise 0.2% in Q3, bringing the annual rate down to 2.8% from 3.8%
• RBA trimmed mean inflation increased 0.8% in Q3, with the annual rate falling to 3.5% from 4.0%
• Retail sales rose 0.1% month-on-month (MoM) in September, below the expected 0.3%
• Crude oil fell 1.6% to $70.61
• Gold hit a record high of $2790
• Volatility Index (VIX) rose to 23.15 from 20.32.

Key dates for the week ahead

Australia & New Zealand

• AU: RBA interest rate decision (Tuesday, 5 November at 2.30pm AEDT)
• AU: RBA press conference (Tuesday, 5 November at 3.30pm AEDT)
• New Zealand (NZ): Q3 employment report (Wednesday, 6 November at 8.45am AEDT)

China & Japan

• CN: NPC Standing Committee (Monday, 4 November – Friday, 8 November)
• CN: Caixin services PMI (Tuesday, 5 November at 12.45pm AEDT)
• Japan (JP): BoJ meeting minutes (Wednesday, 6 November at 10.50am AEDT)
• CN: Trade balance (Thursday, 7 November at 2.00pm AEDT)
• CN: Consumer price index (CPI) and producer price index (PPI) (Saturday, 9 November at 12.30pm AEDT)

United States

• US: Presidential election (Tuesday, 5 November)
• US: Federal Open Market Committee (FOMC) interest rate decision (Friday, 8 November at 6.00am AEDT)
• US: University of Michigan consumer sentiment index preliminary (Saturday, 9 November at 2.00am AEDT)

Europe & United Kingdom

• UK: BoE interest rate decision (Thursday, 7 November at 11.00pm AEDT)

Key events for the week ahead

• CN

NPC Standing Committee

Monday, 4 November – Friday, 8 November

Weak economic conditions in China have driven authorities into rescue mode as they strive to meet the 5% GDP growth target this year. In September, Chinese authorities launched several economic measures, including lowering interest rates, reducing mortgage rates for existing homeowners, and cutting the reserve requirement ratio (RRR) for banks by 0.5%.

While these monetary measures aim to support liquidity, markets are also hoping for further fiscal policies to stabilise critical sectors such as housing and consumer markets. Many expect further guidance on these policies from the NPC meeting.

Recent speculation suggests China may approve over 10 trillion yuan in additional borrowing over the coming years. Although this figure is well above the previously expected 2 – 4 trillion yuan, it largely focuses on helping local authorities address off-balance-sheet debt and fund regional governments’ purchases of idle land and properties. As a result, the overall net fiscal impact on the economy remains uncertain. Markets are therefore hoping for more direct stimulus aimed at boosting consumer demand in the upcoming meeting.

China GDP annual growth rate chart

• AU

RBA interest rate decision

Tuesday, 5 November at 2.30pm AEDT

As expected, the RBA kept its official cash rate on hold at 4.35% in September. The tone of the accompanying statement and press conference leaned hawkish.

The RBA noted that while higher interest rates are helping balance supply and demand, underlying inflation remains above the midpoint of the target and has shown limited improvement over the past year.

The RBA also repeated that “the Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome,” while keeping open the possibility of future adjustments.

However, the tone of the press conference was slightly more dovish. RBA Governor Bullock confirmed that a rate hike was not explicitly discussed, focusing instead on messaging changes.

With the Q3 trimmed mean inflation easing to 3.5% from 4%, there is growing anticipation of an RBA rate-cutting cycle. The resilient labour market, which has seen an additional 267,000 jobs over the past six months, may, however, delay rate cuts until early 2025.

We expect the RBA to mainain the cash rate at 4.35%, with a potential rate cut anticipated by February 2025.

RBA cash rate chart

• US

FOMC interest rate decision

Friday, 8 November at 6.00am AEDT

The FOMC cut rates by 50 basis points (bp) in September, bringing them to a range of 4.75% to 5%. This marked the Fed’s first rate cut in more than four years, aimed at supporting the US labour market

Fed Chair Powell stated, 'This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labour market can be maintained alongside moderate growth and inflation moving sustainably to 2%.'

Powell emphasised the resilience of the US economy, underscoring that significant cuts should not be seen as a new norm. Projections now indicate an additional 50 bp of cuts this year and another 100 bp next year, with a long-term stabilisation rate of 2.875%.

Recent economic data, including September’s non-farm payrolls, the S&P Global Composite PMI, and initial jobless claims, have led traders to temper expectations for aggressive Fed cuts into year-end. Most now expect a 25 bp cut at the November FOMC meeting, followed by another 25 bp cut in December.

Fed funds rate chart

• CN

CPI and PPI

Saturday, 9 November at 12.30pm AEDT

China’s inflation data for September reflects a subdued demand backdrop, despite government monetary easing efforts. Consumer inflation came in at 0.4%, below the anticipated 0.6%, with the increase largely driven by food prices. Deflationary pressures continue across non-food sectors, while producer prices contracted by 2.8% in September, worse than the expected 2.5% decline.

Looking ahead, October consumer prices are expected to show a slight uptick to 0.6% from 0.4%, though recent underperformance over two consecutive months suggests a risk of further downside. This could add pressure on Chinese authorities to take additional actions at the upcoming NPC meeting to achieve the 5% GDP growth target.

CPI and PPI chart

• US

Q3 2024 earnings season

The Q3 earnings season continues next week, with scheduled reports from companies including Palantir Technologies, Qualcomm, Lyft, and Airbnb.

Q3 2024 earnings season chart