Investors will turn their attention to the Fed while earnings will continue to dominate the schedule. On the economic calendar, we have Nonfarm Payrolls, the Unemployment Rate and ISM Manufacturing PMI.
FOMC Statement: On Wednesday (11/2), the Fed will release a statement where everybody is expecting the Fed not to raise rates since its less than one week before the US Presidential election. Even though the Fed states that they are apolitical (that’s a joke), and the data is pointing to a rate hike with the Fed also hinting at it, the market does not expect a hike. If the Fed were to (shockingly) follow the data by surprising the markets and raise rates, we can expect to see significant volatility following the statement release. Some of the results of an interest rate increase include a strengthening in the US Dollar, a spike in Utilities & Financial companies, a weakening of foreign currencies, oil and metals. We would also see mortgage rates go up as Treasury yields will increase. There is also the chance that the increase in interest rates may lower Treasury Yields as investors may see it as the US Dollar strengthening, pouring money into Treasuries lowering bond yields even further.
Earnings: We are now past the half way point for 3Q earnings season. This week has 134 S&P 500 companies expected to report Q3 earnings. Traders can see individual stocks have huge price swings if a company’s earnings outpace or fall short of what the street expected. According to Thomson Reuters I/B/E/S, of the 290 S&P 500 companies that have so far reported, 56% reported revenue above expectations while 73% have reported earnings above expectations. With the earnings long term average being 64% and the past four quarters being 70%, analysts continue looking very conservative this quarter.
Non-Farm Payrolls & Unemployment Rate: On Friday (11/4), Non-Farm Payrolls and the Unemployment Rate are released. This is the last Unemployment Rate report to be released before the election. A strong reading would help the Democrats position pushing the markets higher, while a weak reading would help the Republicans pushing the markets lower. Either way, expect 0 manufacturing jobs to be created with another 50K waiters and bartenders being added to the economy. Than watch the White House spin it saying everything is great. This would be a repeat of US GDP figures for last week which was 2.9%. They promoted strong economic growth but when you dig into the numbers, 0.9% of that number was soybean exports, inventory build and Obamacare premiums were roughly 1%, leaving the US with less than 1% GDP growth.
Election: Last Friday (10/28), the FBI Director announced that he is reopening the probe into Hillary Clinton’s emails. This was done because of a connection with the FBI’s probe into the Anthony Weiner (aka Carlos Danger) sexting case. With the election now less than 10 days away, investors will have their last chance to hedge positions (bets) around certain sectors or the broader markets. In case the polls get tighter, we may see money go to the sidelines and volatility increase in the markets as uncertainty drives volatility. In addition to the continuing onslaught of emails by Wikileaks, if any update by the FBI is given, expect markets to react.
Bank of Japan: On Tuesday (11/2) the Bank of Japan has a Press Conference scheduled after announcing its Outlook Report & Policy Rate. Investors are not expecting any massive monetary policy shift. However, if BOJ Governor Haruhiko Kuroda announces some type of stimulus that disappoints, expect markets to react negatively.
Bank of England: The Bank of England is scheduled this week to publish its policy decision, Inflation Report Official votes and new forecasts. Bank of England Governor will also give us his latest outlook after the rhetoric going on around Brexit. Investors do not any additional QE at this time. If they were to announce additional quantitative easing, we can expect to see British stocks continue to climb and the Sterling fall to new 30 year lows. Investors will also look to see if BOE Governor Mark Carney announces his resignation after being a vocal member of the “Project Fear” to stay in the European Union. Since the UK vote, the UK has now seen the FTSE reach new highs, unemployment come down and Q3 GDP surpass forecasts. He also doesn’t get along well with the new British Prime Minister Theresa May. Should Carney resign, expect to see the British Sterling fall even further. However, whoever may be his replacement will likely be more hawkish, which would push the sterling higher. At this moment, the British markets movements don’t seem to correlate with the US markets.
Bond Yields Rising: In the previous week, global bond yields continued to rise on speculation that central banks may take the punch bowl away (rein in stimulus). Some of the bond sell off is due to certain countries selling off government bonds to balance their respective budgets, inflation data is helping to push yields higher. Investors will watch to see if the selloff in bonds continues, pushing yields higher. This will also see global markets go lower as free money goes away.
Manufacturing PMI: PMI readings from across the globe are due out this week. More than double the amount of PMI readings we had last week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.