Traders will have their work cut out for them to keep up with Japan’s snap election, US jobs data, the UK budget, euro zone growth figures and a slew of third-quarter results.
As the US presidential election draws nearer, the fluctuations in global markets are becoming greater.
Here’s everything you need to know about the week ahead: Lewis Krauskopf in New York, Kevin Buckland in Tokyo and Naomi Rovnick, Amanda Cooper and Sinead Cruise in London.
1/ MEGA CAPITALIZATIONS, THEN EMPLOYMENT
A full week of US earnings is capped by Friday’s key jobs data.
Five of the “Magnificent Seven” American titans publish their quarterly results: Alphabet, the parent company of Google, on October 29, Meta Platforms, the parent company of Microsoft and Facebook, on October 30, and Apple and Amazon on October 31. These companies have significant influence on the markets due to their massive stock market capitalization.
Tesla, the first of the “Magnificent Seven” to report earnings, said Wednesday it expected slight growth in vehicle deliveries this year and reported a higher-than-expected third-quarter profit margin. Economists expect the US economy to create 140,000 new jobs in October, compared to 254,000 in September.
Two significant headwinds could distort this data, coming just before the November 5 US election and a potential 25 basis point Federal Reserve rate cut on November 7.
2/ SNAP
When Japan’s new Prime Minister Shigeru Ishiba called snap elections a few weeks ago, he hoped to consolidate his ruling party’s position.
But his Liberal Democratic Party could lose its absolute majority after Sunday’s election and not have enough seats to govern with its coalition partner Komeito.
Japanese stocks, affected by uncertainty, are in decline.
A catastrophic defeat could force Ishiba to fall on his sword and wrest the dubious title of shortest-lived prime minister from Sosuke Uno, who held the post for less than 10 weeks in 1989.
The arrival of a new coalition partner could force Ishiba to abandon some unmarket-friendly policies he has favored, such as increasing corporate and capital gains taxes.
The policy could make the Bank of Japan’s task more difficult, as policy normalization is already complicated by a fragile economy and volatile markets. She is not expected to move at her meeting, which ends Thursday.
3/ A trick OR narrow-mindedness?
Britain’s new Labor government will unveil its first budget on Wednesday.
Finance Minister Rachel Reeves has few options to reconcile high debt, public spending promises and a promise not to raise income tax. Markets fear further borrowing and tax relief on capital gains, dividends and inherited assets.
The 10-year bond yield has risen 18 basis points this week, partly due to rising US Treasury yields, although low inflation has fueled hopes of rate cuts in the UK.
Plagued by budget uncertainty, UK stocks are again underperforming after a promising run-up to the election for these long-time laggards.
But a dwindling number of optimistic British investors say British markets could bounce back if Mr Reeves’ budget, presented on Halloween, is less dire than Labour’s gloomy assessments of the economy suggested.
4/ ANOTHER SICK MAN
The euro is experiencing one of the worst crises in its history.
It recorded just four days of gains in the past month, its weakest performance since May 2012, when the sovereign debt crisis threatened the currency bloc’s survival.
The prospect that US interest rates will not fall as quickly as expected has boosted the dollar, while expectations of a victory by Republican Donald Trump in the November election hit the euro, given the risk of a sharp increase in US tariffs on European products.
The European Central Bank is expected to accelerate rate cuts as the currency bloc’s economy falters, particularly in Germany. Europe’s engine is deteriorating faster than any other industrialized country, and the coming week will bring data on growth and inflation that is unlikely to calm.
5/ TRUST IN THE USA
UBS and HSBC are the main European banks to publish their third-quarter results in the coming days, after Deutsche Bank and Barclays.
The sector is in better health than at any time since the global financial crisis, but investors want reassurance that they can have confidence in its long-term earnings potential as interest rates fall.
In addition to evidence of resilience in asset quality, they want a sharper strategy, lower costs and the ability to outperform in a low-growth global economy.
HSBC has already set the tone this week, unveiling a streamlined executive committee and a merger of some costly banking operations in a radical restructuring in an east-west pattern.
But as Deutsche has shown, past problems can still hurt future goals. The German lender blamed a sluggish national economy for the rise in provisions against a possible rise in bad debt, which rose from 1.5 billion euros last year to 1.8 billion euros ($1.95 billion) for the full year.
($1 = 0.9239 euros)
