Last week, interest rate hikes were delivered by the Bank of Canada and the ECB.  The BOJ left rates unchanged.  This week, the RBA, FOMC, and the Bank of England will meet to discuss interest rate policy, and all are expected to hike.  But it’s the statements that need to be watched to see if these central banks will pivot!  In addition, given that Monday is October 31^st, markets will get end-of-month data including the first look at the EU CPI for October.  Later in the week, beginning of the month data will be released, including US Non-Farm Payroll.  Also, earnings releases continue to roll along.  After disappointment from many of the FAANG stocks (excluding Apple and Netflix), will this week bring better news?  Watch releases from UBER, AMD, and PYPL!

Central Bank recap

The Bank of Canada surprised markets and only hiked rates by 50bps vs an expectation of 75bps.  This brought the target rate to 3.75%.  However, the BOC noted that although it sees signs that underlying inflation is coming down, it still expects that it will need to raise rates further due to high inflation.  Governor Macklem said that the next rate hike could be “larger than normal” or just a “normal sized” one.  In other words, it sounds like the BOC is going to be data dependent until it meets again on December 7^th.

The ECB hiked rates by 75bps, as expected, bringing its overnight rate to 2%. This is the highest level since 2009.  The central bank removed the phrase that the central bank will hike rates “over the next several meetings”.  Instead, the ECB said that it will raise rates on a meeting-by-meeting basis, although it intends to raise rates further based on evolving inflation and the economy.  Preliminary EU CPI is due to be released on Monday, with an expectation of 9.8% YoY vs a September reading of  9.9% YoY.  Whichever way you slice it, inflation is still running rampant throughout the EU.

The Bank of Japan kept to its word and remained on hold, leaving rates at -0.1%, as expected.  In addition, it kept the cap on the 10-year JGB at 0.25%.  Some were hoping this cap would be lifted or even removed.  The central bank also raised its inflation forecast and lowered its growth forecasts.  The BOJ also said that it will continue to provide additional easing measures as needed. At the same time, Prime Minister Kishida announced a $200 billion new budget to boost growth and fight inflation.  Recall that Japan has been intervening in the fx markets to try and strengthen the value of the Yen.  It is possible they may try again this week.

Central Banks this week

The RBA is expected to hike rates on Tuesday by 25bps, to bring the key rate to 2.85%.  At its previous meeting on October 4^th, the central bank surprised markets by only raising rates by 25bps vs an expectation of a 50bps hike.  However, it noted that inflation is too high and further rate hikes are expected. On October 25^th, Australia released its Q3 CPI.  The print was higher than expected at 7.3% vs and expectation of 7% and a Q3 reading of 6.1%.  Given the larger than expected jump in inflation, is it possible the RBA could surprise again, however this time with a rise of 50bps?  Also watch the guidance.  At the last meeting, the central bank said it expected inflation to be near 7.75% for 2022.  Look for any wording that may suggest this rate will be higher, which may cause the terminal rate to increase for Australia.

The FOMC will meet on Wednesday this week and is widely expected to hike rates by 75bps to bring the Fed Funds are to 4.00%.  The WSJ’s Fed whisperer, Nick Timiraos, did his best to confirm this on Friday by tweeting that “the Fed isn’t data-point dependent and the decision for next week of 75bps seems unlikely to change…”.  CPI for September was still high at 8.2% (slightly lower than August), however the Core-CPI print was 6.6%, up form 6.3% in August.  Jobs data has remained strong through September and October’s NFP data, which will be released Friday, is expected to remain firm with 220,000 new jobs added to the economy.

Finally, the Bank of England will meet to discuss interest rate policy on Thursday.  Since the last meeting, interest rate expectations have been all over the place as former PM Truss disappointed markets with her “mini-budget” plan.  At one point, expectation was for an increase as high as 150bps!  However, more recently, Liz Truss has resigned, and Rishi Sunak is now the PM.  Markets have settled down, with bond yields and fx rates returned to near the pre-Truss era.  Expectations are pricing in a 75bps rate hike for this week’s meeting, which will bring the key interest rate to 3%.  Note that CPI for September was 10.1% YoY vs 9.9% YoY previously.

Earnings

Earnings were the talk of Wall Street last week as some of the biggest names in tech missed on earnings.  First up was GOOG, which showed an EPS of 1.06 vs an expectation of 1.25.  Revenues were also lower than expected.  Next was META, which posted a gain of 1.64 vs an expectation of 1.88.  The company said that it faces near-term challenges on revenue and sees its reality labs operating losses in 2023 significantly higher.  Although AMZN beat on EPS, it guided its Q4 sales lower to $140B-$148B vs an estimate of $155B.  This week will bring more earnings from large companies in all different sectors.   Some of the more important companies to report this week are as follows: AIG, Airbnb, AMD, BP, Pfizer, Uber, Aston Martin, GSK, Marathon Oil, Robinhood, Amgen, Coinbase, Conoco Philips, DBS Group, DoorDash, Moderna, PayPal, Sainsbury’s Starbucks and Woolworths.

Economic Data

The week kicks off with PMI data from China, where data has been weak lately.  In addition, markets will get their first look at October CPI from the EU.  Expectations are for 9.8% YoY vs a previous reading of 9.9% YoY last.  Markets will also see employment data from New Zealand, Germany, Canada, and the US, with the most market moving potential from the US Non-Farm Payrolls.  Expectations are for the US to have added 220,000 jobs to the economy in October and for the unemployment rate to have ticked up to 3.6% from 3.5%.  Other important economic data due out this week is as follows:

Monday

• Japan: Industrial Production Prel (SEP)
• Japan: Retail Sales (SEP)
• Australia: Retail Sales (SEP)
• China: NBS Manufacturing PMI (OCT)
• China: NBS Non-Manufacturing PMI (OCT)
• China: NBS General PMI (OCT)
• Japan: Consumer Confidence (OCT)
• Japan: Housing Starts (SEP)
• Germany: Retail Sales (SEP)
• EU: GDP Growth Rate Flash (Q3)
• EU: CPI Flash (OCT)
• US: Chicago PMI (OCT)
• US: Dallas Fed Manufacturing Index (OCT)

Tuesday

• Global (ex-Europe): Manufacturing PMIs Final (OCT)
• New Zealand: Building Permits (SEP)
• China: Caixin Manufacturing PMI (OCT)
• Australia: RBA Interest Rate Decision
• US: ISM Manufacturing PMI (OCT)

Wednesday

• Europe: Manufacturing PMIs Final (OCT)
• New Zealand: RBNZ Financial Stability Report
• New Zealand: Unemployment Rate (Q3)
• New Zealand: Employment Change (Q3)
• Japan: BOJ Monetary Policy Meeting Minutes
• Australia: Building Permits Prel (SEP)
• Australia: RBA Chart Pack
• Germany: Trade Balance (SEP)
• Germany: Unemployment Change (OCT)
• US: ADP Employment Change (OCT)
• US: Fed Interest Rate Decision
• Crude Inventories

Thursday

• Global (ex-Europe): Services PMI Finals (OCT)
• Australia: Trade Balance (SEP)
• China: Caixin Services PMI (OCT)
• Euro Area: Unemployment Rate (SEP)
• UK: BOE Interest Rate Decision
• Canada: Trade Balance (SEP)
• US: Trade Balance (SEP)
• US: Unit Labor Costs Prel (Q3)
• US: ISM Non-Manufacturing PMI (OCT)

  Friday

• Europe: Services PMI Finals (OCT)

• Australia: RBA Statement on Monetary Policy
• Australia: Retail Sales Final (SEP)
• Germany: Factory Orders (SEP)
• EU: PPI (SEP)
• Canada: Employment Change (OCT)
• US: Non-Farm Payrolls (OCT)
• Canada: Ivey PMI s.a. (OCT)

Chart of the Week: Monthly Dow Jones Industrial Average

(Click on image to enlarge)

Source: Tradingview, Stone X

Firstly, I’ll admit that I’m jumping the gun and showing this monthly chart one day before the end of the month.  However, the reason we’re showing this chart is unprecedented.  If price remains near current levels (or higher) on Monday for the Dow Jones Average, it will be the largest percentage gain on a monthly timeframe for the index, possibly EVER! In October, the DJIA is up over 14%.  Going back in the history of my data, I could not find a month prior to 1990 in which the DJIA was up more over 14%. There have been some large candlesticks on the monthly timeframe, such as November 2020 when the index rose 11.84% or April 2020 when the index rose 11.08%.  In October 2002, the DJIA was up 10.6% and in April 1999 it was up 10.25%.   Even in January 1987, the index was up less than this October: 13.82%.  In January, the DJIA made an all-time high at 36,952.  In September, the index made a near-term low of 28,715.  During October alone, the index retraced 50% of that move, which was 32,834. Will it continue higher?  Will we see a Santa Clause rally into the end of the year?  Regardless, October was an extremely impressive move for the Dow!

Volatility should continue this week with the RBA, FOMC, and BOE all meeting to discuss interest rate policy.  In addition, some big economic data prints are due out, such as the Euro Area CPI and the US Non-Farm Payrolls. Also, more earnings reports will be out this week.  Watch for surprises!

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