Last week was packed with earnings and data. Five of the Magnificent 7 stocks announced magnificent earnings. Some, like Google and Amazon, kept their investors on their sides, whereas others, like Microsoft and Meta failed to impress as their investors couldn’t get over the weaker forecast and further AI spending that they announced. Big Oil came up with lower profit but share buybacks and higher dividends at some of them helped weathering the bad news Then, the US GDP growth came in slightly lower than expected by analysts, at 2.8% for the Q3, but the consumer spending remained robust. And finally, on Friday, the US announced the official jobs data. The US economy ended up adding a meagre 12K jobs last month, the manufacturing and private nonfarm payrolls printed negative numbers. But the bright spot was that unemployment remained steady at 4.1% – suggesting that the NFP number probably took a one-off hit, and the wages continued to grow by 4% on a yearly basis – high compared to where the Federal Reserve (Fed) would like to see it, but well aligned with the market expectations. The market is now convinced that the Fed will announce another 25bp cut when it meets this week. That announcement is due Thursday, as before that we have the US election – on Tuesday.
Anyway, Friday’s NFP figure didn’t necessarily bring a relevant information on the table. The S&P500, Nasdaq and Dow Jones were better bid on Friday, but all three closed the week on a negative note. The US 2-year yield consolidated around 4.20% and the 10-year around 4.30% after the release. This morning, both are pushing higher, especially the 10-year yield – which spiked to 4.38% in Asia, as investors are closing their US treasury positions before the US election.
US election
The clock is ticking, and soon the suspense will break over who will be the next US president. Even though the prediction markets have been in favour of a Trump victory, the CNN poll this morning prints a 48% chance for a Harris win, versus 47% assessed to a Trump victory. The worst possible outcome for the market would be a too close race and a contested outcome.
In the short run, a Harris victory could bring relief to treasury and international markets, while a Trump victory could resonate louder – and not necessarily in a good way – for the euro and the European markets, due to the tariff threat. The Stoxx 600 index rebounded on Friday, but the index could bear the brunt of a potential Trump victory later this week.
In China, the Chinese equities start the week on a bullish note as the National People’s Congress began its five-day meeting, where policymakers are expected to provide more details on debt and fiscal initiatives to revive growth. There are media reports suggesting that China may announce a stimulus package exceeding 10 trillion yuan to boost economy. I can’t tell what amount of stimulus China will announce, if they put any number on it at all. But a Trump presidency could increase the size of the package and provide a safety net to Chinese investors in case of a Trump win.
USD offered ahead of US election
The US dollar kicks off the week on a bearish note. The USD index slid below the 200-DMA in Asia, the EURUSD is testing the 1.09 level at the time of writing, and Cable, which has been pressured by last week’s budget has jumped to flirt with the 1.30 psychological resistance. One of the safest harbours is gold, bid this morning near an ATH. The Swiss franc and the Swiss equity index are also seen as interesting defensive names in preparation of a contested US election outcome and heightened short-term volatility. The USDCHF has been testing an important Fibonacci resistance – the major 38.2% retracement on May to September selloff and which should determine whether the pair should remain in the bearish trend or step into a medium term bullish consolidation zone. Last week’s softer-than-expected Swiss inflation and sales data came to reinforce the dovish Swiss National Bank (SNB) expectations, weakened the franc bears’ hands, but the crucial Fibonacci resistance hasn’t been pulled out, and the USDCHF bulls may have to wait until the US election dust settles to continue betting in favour of a weaker franc. For the equities, the Swiss market is heavy in healthcare, pharmaceuticals, consumer staples and financials. Therefore, Swiss equities should weather increased market volatility.
Elsewhere, oil kicked off the week better bid on weekend news that OPEC could delay the planned December increase to oil production by a month – or more – on the back of a persistent selloff in oil prices due to the unfavourable combination of weaker demand and strong output prospects. The Middle East rumours also hint at a possible revival of tensions between Iran and Israel – a factor that could help bring tactical long positions back to the market this week. But price rallies are considered as interesting top selling opportunities as long as the gap between demand and supply widens.
