Reserve Bank of Australia
It was another difficult week for financial markets as both rising global bond yields and the end of the US Presidential campaign saw market volatility remain elevated. This week sees the US Presidential election (5th Nov) along with the RBA (Reserve Bank of Australia) Board meeting. On the RBA front, we expect that it will remain on hold, despite (y/y) inflation declining to 2.8% (-1.0% y/y). However, we still see the Dec meeting as a ‘live’ meeting with the potential for the RBA to move. That said, the downward trajectory of domestic inflation remains in place, which will support several rate cuts through 2025.
Retail Spending
The other domestic data point from last week was the weaker than forecasted retail spending data, with increasing evidence that consumers are looking to increase savings as the continued high cash rates remain. We believe that consumer spending will remain muted as we head into the back end of the year.
United States Federal Reserve
In the US, the weaker than forecasted payroll numbers (forecast 100k, act 12k) highlighted the impact of the recent natural disasters in the US. We believe these numbers are an aberration with Un remaining steady at 4.1%, although continued weakness in US labour market data may see United States Federal Reserve increase the speed of future rate cuts. With the United States Federal Reserve meeting this week (6th), we do believe that they will remain on hold with the next move down (-0.25%) at its Dec Federal Open Market Committee meeting.
China’s Inflation
In China, the release of Purchase Managers Index and inflationary data (forecast 0.3% y/y, -0.1% y/y) will be the major focus, in addition to which candidate will take the White House. At present market polls have both Trump and Harris statistically tied leading to the potential outcome of no winner confirmed until several days post polling day. This will only add to market volatility in the near term.
US Election
In addition, the Congressional election will add another dimension to the Presidential race. Why we do not envisage a ‘clean sweep’ for either Party, the elections will be another issue for markets to deal with, although we see the status quo being maintained between the House (Republican) & Senate (Democrat). However, despite the vagaries of the US election we expect the United States Federal Reserve to remain on course to reduce rates further, against an economic backdrop that remains sound. Accordingly, while markets are set for a difficult period, our longer term view around the growth outlook still remains.
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