Trading Week Ahead

Middle East tensions continued to soak up the headlines for last week, Fed Chair Jerome Powell suggested no hike in the November FOMC meeting, and the Chinese economy grew faster than anticipated. The ECB policy meeting is likely the highlight for the coming week, followed by the US Q3 GDP, with the BOC meeting on monetary policy.

Top Events in Review

The week's main event was Fed Chair Powell's speech at the Economic Club of New York, often a venue for providing guidance for the market on policy. His comments were viewed as neutral, but leaving the door open for further rate hikes precipitated a steepening in the yield curve, with the inversion falling to below -20bps. The yield curve deinverted immediately ahead of the market downturn in several past recessions. 

Geopolitics dominated headlines, with potential escalation of the conflict in Gaza after initial reports suggested that Israel had bombed a hospital. This led to the cancellation of a summit between US President Joe Biden and Arab leaders, giving markets a decidedly risk-averse position. 

Earnings in the early part of the week were better than expected, but some notable disappointments hurt risk sentiment later in the week. 

Over the weekend, the National Party in New Zealand won the general election, the move to the political right bolstering the Kiwi. NZD/USD fell to a nearly 1-year low at 0.5813, eying lower support at 0.5770 if bearish momentum increases. 0.59 remains a top.

The focus turned on Chinese real estate developers mid-week as a second major housebuilder, Country Garden, failed to pay US-denominated debt on time, risking default. That came in the context of China's GDP growing faster than expected at an annual rate of 4.9% compared to the 4.4% forecast. 

UK inflation was slightly higher than expected at 6.7% compared to 6.6% after the statistics agency delayed some of its labour data to next week.

Biggest Market Movers

Gold continued to rise on global risk-off sentiment and falling short-term yields in the US, pending a possible extension to the $2k round resistance.

Tensions in the Middle East pushed up crude prices over the week, with WTI testing $90/bbl after pulling off an over 5% reversal.

USDJPY crawled back towards the 150 level that recently sparked verbal intervention, as Japan inflation was below expectations and BOJ Governor Kazuo Ueda stuck to the easing narrative.

Top Events in The Week Ahead

Thursday is expected to be the most active day for the markets as that's when the ECB will have its second-to-last policy meeting this year, and the US will report its Q3 GDP figures. 

Barrage of Data Thursday, ECB Highlight

The shared central bank is broadly expected to keep rates unchanged and repeat its signal that rates will remain high for a long time. The current market consensus is that there won't be a cut from the ECB through 2024. What happens to its bond-buying programs is another matter, with traders looking to see if there is any mention of new mechanisms to adjust the rolloff of the balance sheet. EUR/USD gained 1% at some point during the weekly session but failed to surpass the regional resistance at $1.064, with first support settled at $1.055 and lower at $1.05.

US Q3 GDP is expected to grow at an annualised 4.7%, a significant increase from the 2.1% reported in the prior quarter. There could be extra scrutiny given Powell's latest comments about the fast-growing economy being a challenge to bringing inflation down, with the potential for more tightening if GDP overshoots. USD/JPY above the 150 barrier exposes 152.11, whereas support lies at 148.50.

Still on the monetary policy track, the BOC is also expected to keep rates unchanged, with a focus on potential comments on the inflation outlook that could raise expectations that the current rate pause could come to an end. USD/CAD seems to have resistance at $1.3750 and support at 1.36.

Inflation Drivers for the Market

On Tuesday, the UK is expected to release its delayed employment figures, with labour tightness being a factor in the BOE's fight against inflation. That's also the day when flash PMIs from major economies will be released, with German and UK manufacturing expected to remain in contraction but continue improving trend. In contrast, the US is expected to tip over marginally into contraction. The pound remains above $1.20, but the risk of a breakdown appears natural while below $1.2270.

Later in the week, Australia will release its quarterly inflation report, expected to show a substantial decline in the pace of cost increases to 5.1% from 6.0% prior. Aussie failed to get through 64 cents, with 0.6250 back into the spotlight.

At the end of the week, France will report its preliminary October inflation figures, expected to come down to 4.1% from 4.9% prior. The US will release the Fed-tracked core PCE index, expected to also come down slightly to 3.6% from 3.9% prior.

Other Events, Earnings

On Tuesday, RBA Governor Michelle Bullock will give an anticipated speech. Wednesday sees German Ifo business climate data. For Thursday, US durable goods are on the docket. Friday has Tokyo CPI as well as French GDP. 

Earnings season ramps up towards its peak, with around 20% of S&P companies expected to report during the week. Major earnings include Microsoft, Alphabet, Visa, Meta, Thermo Fisher, Amazon, Shell, and Exxon Mobil.