Election Concerns Weigh on Global Markets (4-8 November)

Gold gained early in the week before retreating with silver also losing as Fed rate cut expectations weakened.

The Dollar Index ended a four-week rise with mixed US data affecting rate cut hopes. In forex, strong growth data strengthened the euro, while UK tax hikes and expected BoE cuts weakened the pound. Japan held rates steady, the Australian dollar dipped amid mixed economic signals, and the yuan remained stable on solid PMI data. The Canadian dollar neared a two-year low as economic softness continued. Stocks declined due to election concerns and strong US data, though Google and Amazon gained on positive earnings, while Nvidia and Microsoft saw drops.

Gold and Silver

Metals experienced a mixed outlook with gold starting the week with gains but losing some of its value toward the end. Silver finished the week with a loss. As expectations for interest rate cuts from the Fed diminished and the perception grew that the Fed is in no hurry to lower rates, non-yielding metals pulled back. However, factors such as the upcoming elections in the US, and last week's positive manufacturing PMI data from China could still provide support for precious metals.

The Dollar Index

This week, US data presented a mixed picture. Weak growth figures and non-farm payroll data increased appetite for interest rate cuts while promising unemployment figures and a PCE Price Index that exceeded forecasts created the perception that the Fed may not need to rush into rate reductions. Additionally, the upcoming presidential elections are viewed as a source of uncertainty in the markets. Despite this, the four-week streak of gains ended with a modest pullback this week.

Forex Market

In Europe, rate cut expectations eased as stronger-than-expected growth and inflation data from Germany and Eurozone inflation surpassing forecasts led money markets to adjust anticipated cuts from 42 basis points to 34. As a result, the euro gained against the dollar.

In the UK, the Autumn Forecast Statement included substantial tax hikes to address budget deficits, negatively impacting the market. Additionally, a 25 basis point rate cut expected from the Bank of England weakened the pound, which closed the week down against the dollar.

In Japan, the central bank held interest rates steady, as anticipated. However, Governor Ueda’s comments were seen as hawkish, hinting at diminished US economic risks and potential rate cuts. A 50 basis point hike is expected as early as January, contingent on currency fluctuations and the economic outlook. The yen strengthened this week but remains at a three-month low.

The Australian dollar ended the week lower against the US dollar, near August lows as the US dollar rose on signs of economic strength and election speculation. China’s unexpected manufacturing PMI growth offered some support, given the Australian dollar’s correlation with the yuan. Mixed economic signals in Australia complicated the RBA outlook, with producer prices rising in Q3 but retail sales slowing. While annual trimmed mean CPI decreased to 3.5%, still above the 2-3% target, markets expect the RBA to hold rates at 4.35%.

The Chinese yuan finished the week steady against the US dollar as October’s manufacturing PMI returned to expansion, slightly exceeding forecasts. Official figures showed manufacturing activity expanding for the first time since April. Yet, export orders and employment declined, with traders eyeing the November 4-8 National People's Congress for possible fiscal support.

The Canadian dollar closed near a two-year low against the US dollar as markets assessed recent economic data. Canada’s GDP grew by 0.3% in September, bringing Q3 growth to 0.2%, supported by finance, construction, and retail. Bank of Canada Governor Macklem noted signs of economic response to recent rate cuts, including a 50 basis point reduction last meeting. Since June, the BoC has enacted four rate cuts to support growth amid slowing inflation, which fell to 1.6% in September, and a softening labor market with 6.5% unemployment.

Stock Market

Last week, indices faced heavy selling pressure due to political uncertainty ahead of elections, stronger-than-expected PCE data, and better-than-anticipated unemployment figures, which dampened hopes for imminent Fed rate cuts. The S&P 500 ended down about 1.5%, with similar losses in the Nasdaq and Dow Jones.

Despite these declines, some stocks performed well. Google rose roughly 5% after reporting earnings on Tuesday, and Amazon also closed the week positively following its Thursday earnings release.

Apple’s earnings met expectations, though not enough to keep the stock in positive territory. Tesla, which rallied strongly the previous week, could not sustain its momentum.

Among stocks that declined, Nvidia and Microsoft saw notable drops, with Microsoft down about 5% and Nvidia nearly 6%.