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Talking Points:
If you can look beyond the US election over the coming week, you may find that there is a significant wave of scheduled event risk tapping more traditional (and potentially market-moving?) themes over the coming week. Historically, the 45th week of the calendar year sees a step down in the S&P 500’s average performance and a deflation via the VIX volatility index. Then again, the 44th week of the year is historically the best of the second half of the year; and this past week registered a noteworthy drop in a break of bullish pace. There are always exceptions and fundamentals are usually the foundation of that deviation.
Chart of Historical S&P 500 Performance and Volatility by Calendar Week
Source: John Kicklighter, StoneX
For top scheduled event risk to watch over the coming week, it is impossible to completely ignore the US election as a force on the market – both an anchor on progress awaiting the results and potential wash after the results are in. That said, it is not a small chance that monetary policy updates are a more distinctive driver of markets over the coming week – perhaps amplified by assumptions following the vote.
For central bank rate decisions this week, the run starts with the Reserve Bank of Australia (RBA), which is expected to cut its benchmark lending rate by -25bps on Tuesday morning. Historically, a carry currency, this currency hasn’t exactly aligned to its yield potential given the generally high level of rates. Top listing is undoubtedly the FOMC rate decision on Thursday – a rare deviation from Wednesday announcements owing to the election. This group is also expected to cut by -25bps which would be a throttling from last meeting’ aggressive -50bp cut first move. Later Thursday, the Bank of England (BOE) is also expected to reduce its benchmark by a quarter percent as the country registers budget restrictions and troubled growth forecasts.
FOMC Scenario Table with Market Impact
Source: John Kicklighter, StoneX
Speaking of ‘growth’, it is important to keep tabs on the course of economic activity as a foundational fundamental measure of market health. There are a number of economic indicators that can be considered representative of global health, but I think none can make the claim quite like the US ISM services survey for October. The service sector is responsible for over three-quarters of economic activity and employment in the world’s largest economy. It’s hard not to consider this a particularly insightful reading.
Now, fundamental importance should not be misconstrued as immediate market mover. This data point will print on Tuesday morning in the US, which is hours before the US ballots are being tallied towards an inevitable outcome. Curb expectations of immediate volatility after this report – even, potentially with a significant surprise – but don’t forget its insights on the economy as we move forward.
Chart of S&P 500 Overlaid with US Recessions and ISM Services, Manufacturing Activity
Source: ISM, StoneX
From particular event risk, a theme to keep in mind this week is the general health of China. There are a number of key Chinese indicators and a very important meeting that can give both important insight into the health of the economy and potentially a commitment of greater external support from the government. On the data side, the Caixin service sector PMI is due Tuesday, foreign exchange reserves and trade are due Thursday, while the National People’s Congress Standing Committee will be meeting all week. The PMIs at the start of the week carry the least weight despite their timeliness owing to international scepticism around the data. Trade and FX reserves has international data points to compare against and importantly speaks to themes of trade wars which is taking on a greater prominence as the West flirts with tariffs, regardless of leadership. As for the week-long conference, it would be unusual to not see updated measures meant to boost economic activity and capital market stability. That said, it is more likely that those efforts are announced towards the end of the week – if not at the close of the summit.
Table of Major Global Macro Events Scheduled for Week
Source: John Kicklighter, StoneX
-- Written by John Kicklighter, Global Head of Content
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