PANews, October 26 - Although the US election situation remains deadlocked, the market's bet on Trump's victory is driving the "Trump trade" to make a comeback. The Fed's surprise decision in September to cut rates by 50 basis points to kick off an easing cycle now seems like a distant memory, and has even been questioned as a "policy mistake." Since the September meeting, US economic indicators have been consistently strong, including the CPI report. The market narrative is shifting towards a "soft landing," which has triggered a sharp reversal in US Treasury yields, in turn pushing up the US dollar, with several Fed officials now openly supporting a gradual rate cut.
According to the FedWatch tool from the Chicago Mercantile Exchange, the market is pricing in a 95.6% probability of the Fed cutting rates by 25 basis points at the November meeting. In contrast, a month ago, the market had fully priced in at least a 25 basis point rate cut by the Fed in November, with a 57.4% chance of a 50 basis point cut. The Fed's next rate decision will be made after the US election, and the market will digest a lot of economic data before then. The key macroeconomic market highlights for the coming week are as follows:
Monday 22:30, US October Dallas Fed Business Activity Index;
Tuesday 1:00, Bank of Canada Governor Macklem participating in a fireside chat;
Tuesday 22:00, US September JOLTS Job Openings, US October Conference Board Consumer Confidence Index;
Wednesday 18:00, Eurozone Q3 GDP YoY preliminary, Eurozone October Industrial Confidence, Eurozone October Consumer Confidence final, Eurozone October Economic Sentiment;
Wednesday 20:15, US October ADP Employment Change;
Wednesday 20:30, US Q3 Real GDP QoQ annualized preliminary, US Q3 Real Personal Consumption Expenditures QoQ preliminary, US Q3 Core PCE Price Index QoQ annualized preliminary
Thursday 18:00, Eurozone October CPI YoY preliminary, Eurozone October CPI MoM, Eurozone September Unemployment Rate;
Friday 20:30, US October Nonfarm Payrolls SA, US October Unemployment Rate, US October Average Hourly Earnings MoM;
Friday 21:45, US October S&P Global Manufacturing PMI final.
As the Fed is now more concerned about the labor market than inflation, weak employment data may push the market back to a more dovish stance. Additionally, any signs of a slowdown in the US economy could increase bets on the Fed cutting rates further in the coming meetings. However, if growth remains strong and PCE data indicates some stickiness in inflation, the rate cut bets may be further undermined. Currently, only one additional 25 basis point rate cut by the Fed this year is fully priced in. If expectations for a November rate cut start to be questioned, the US dollar may rise to new highs, and the stock market may face selling pressure.
As the decisive moment for American voters to elect a new president draws nearer, the uncertainty over who will prevail on November 5th is growing. While Harris is still leading in most opinion polls, her lead has narrowed significantly in the past ten days, with a sharp rise in voter intention to vote for Trump. The betting markets are now betting on Trump being more likely to win, which could be an image that wealthy Trump supporters are trying to create, or it could be distorted by sampling bias, as Trump supporters may overall be more likely to place bets.
