Week of novemBER 11th

Last week, the Fed and BOE executed their respective interest rate cuts while the RBA kept its current monetary policy stance.

Attention will shift to economic data releases in the coming week, with key market movers including US inflation and UK employment and GDP data.

The Week in Review

Markets were cautious at the beginning of the week, awaiting significant events, namely the US Presidential Election and the Fed's rate decision, that ultimately favoured risk appetite in the latter half.

Former President Donald Trump won a second non-consecutive term, with Republicans gaining control of the Senate. Vote counting continued for disputed House seats, favouring a Republican sweep of both chambers of Congress.

As widely expected, the Fed cut its interest rates by 0.25%, leading to declining yields on the final day of the week. Fed Chair Powell emphasised maintaining a neutral stance and a data-dependent approach and stated that the US election would have no near-term impact. The Nasdaq rose over 5% in the week, entering the 21,000 territory.

The BOE also reduced its own rates by 0.25%, with an 8-1 vote split. Its statement highlighted the need for a gradual approach to existing restrictive policy and noted the Budget would likely increase inflation by just under 0.5%, peaking in 2026-2027. The Bank's emphasis on gradualism was perceived as hawkish, strengthening the pound. GBPUSD still closed the week unchanged, forming a range between 1.2850 and 1.3050.

European services PMIs exceeded expectations, while ECB Vice President de Guindos acknowledged inflation in the services sector remained problematic but expressed confidence in achieving inflation targets. EURUSD closed the week near 1.08, below the 50-week moving average of 1.0875.

In Germany, disputes over the budget reached a critical point, with Chancellor Scholz dismissing Finance Minister Christian Lindner and dissolving the "traffic light" coalition. Opposition leaders called for an immediate vote of confidence in Scholz, but the Chancellor insisted on January 15, with a prospective general election in March.

As anticipated, the RBA kept rates unchanged, reiterating that inflation was too high and not ruling out any options. Following rumours of a substantial stimulus from China, AUDUSD received support closer to the end of the week, holding above the 0.6600 handle.

Biggest Market Movers

• Following the election, the Russell 2000 small-cap index soared over 10% before profit-taking trimmed some momentum.
• USDJPY soared 1.70% in the aftermath of the election, but its trajectory was reversed due to verbal intervention from Japanese authorities.
• Silver experienced a nearly 5% drop after the election results, stemming from expectations of rising inflation under the incoming Trump administration.

Top Events in the Week Ahead

The upcoming week holds fewer significant economic data releases, with the highlight likely being the US CPI figures scheduled for Wednesday and economic data from the UK.

US CPI in Focus After FOMC

The inflation read comes after Chair Powell indicated that the Fed's decision on whether to cut interest rates again in December would depend on incoming data. Markets currently price in a 75% chance of a 25 basis point rate cut.

The headline inflation rate is expected to rise to 2.6% from 2.4%, driven by temporary factors such as higher fuel prices, while the core rate is projected to remain unchanged at 3.3%. Gold could lose the 50-day moving average of $2,650 per ounce, signalling a potential drop to $2,600 and $2,530. Conversely, a rebound could see a re-acceleration past $2,800.

Following the release of the inflation data, Powell will deliver his first public remarks since the rate decision on Thursday at the Federal Reserve Bank of Dallas.

The UK Sailing into Headwinds

The United Kingdom faces economic challenges this week as various data releases are anticipated.

On Thursday, the monthly GDP figures will be a key focus, providing insights into whether the BOE can maintain its gradual approach to monetary policy easing if the economy slows as expected. Preliminary estimates suggest that the third-quarter GDP growth rate will be 0.3% on a quarterly basis, down from the previous 0.5%. The September monthly GDP is projected to decelerate to 0.1%, compared to the prior 0.2% growth. Missing estimates by a large margin could see the UK's FTSE 100 index confirm the breakdown below the 200-day moving average of 8,110 and the 8,000 handle and perhaps pause declines by the 7,900 swing. Rising above the major support could see increased demand towards 8,200.

On Friday, Japan will also report its third-quarter GDP figures, with expectations of a slowdown to 0.3% growth from the previous 0.8%. GBPJPY failed to reclaim the 200.00 barrier, leaving the door to 195.00 wide open.

The UK employment figures are scheduled for release prior to the UK's GDP release. Analysts anticipate that the unemployment rate may rise slightly to 4.1%, up from the previous 4%. Furthermore, average earnings are expected to slow down to 4.6%, a decrease from the prior 4.9%.

Other Events and Earnings

The forthcoming week holds several key economic data releases and corporate earnings reports. On Monday, the BOJ will publish a summary of opinions from its recent policy meeting. Tuesday brings NAB and Westpac business confidence measures for Australia, along with the influential ZEW economic sentiment index for Germany. Wednesday's economic calendar features Chinese new loan data and the Australian wage price index. The US PPI is scheduled for release on Thursday. Friday will see the publication of house price figures from China.

While the corporate earnings season is winding down, a number of major companies are still due to report their latest quarterly results over the coming days. These include Home Depot, AstraZeneca, Shopify, Cisco, Walt Disney, Applied Materials, Alibaba, Experian, and Burberry.