Monthly Market Outlook

Markets shifted their focus to the U.S. elections in October, as many equities, currencies, and commodities experienced reduced volatility and a lack of clear direction amid the anticipation. The first week of November is set to be intense, with a very close U.S. presidential race, followed just two days later, the FOMC meeting. The impacts of this week could reverberate through the rest of 2024 and possibly even into 2025.?

Macro View?

The primary focus of the market will be on the U.S. elections, as the two candidates’ economic policies differ greatly. Harris is viewed by the markets as a status quo candidate, while Trump’s economic ideas could significantly impact various markets. So far, the race is extremely close according to average poll data, even tighter in swing states. However, based on market sentiment and betting odds, Trump appears to be the frontrunner. This discrepancy may stem from polling firms’ difficulty in accurately capturing Trump’s voter base, though many have since made adjustments. How effective these adjustments will be, however, remains uncertain.?

Another factor is Trump’s recent momentum. Following the debates, Harris had a clear advantage, but Trump managed a strong comeback in October. In the end, polls suggest a statistical tie. Given that the market has largely priced in a Trump victory, a Harris win could trigger significant volatility, especially on election night. But how might a Trump or Harris victory affect the markets? Here are some of our predictions:?

Excluding the elections, the U.S. economy has been faring well despite ongoing risks, high interest rates, and recent hurricanes. Inflation is gradually moving towards the target, albeit with a slight lag. The latest nonfarm payrolls report, however, is the weakest since 2020 and may prompt caution among traders. Two factors contributed to this downturn. Firstly, hurricanes have had a temporary effect, though it’s difficult to predict how much of this impact will persist. The temporary job losses weren’t reflected in claims and ADP data, which led to some surprise in the markets, albeit limited. The second factor is the Boeing strike, with over 40,000 workers not working. Although these employees are still technically employed and thus not included in payroll data, the strike’s effects on the supply chain are beginning to show, raising concerns. Manufacturing payrolls saw the weakest net change since 2009, excluding the April 2020 COVID shock. If the strike isn’t resolved soon, these effects could intensify.?

In October, the U.S. economy showed no significant spike in unemployment. Overall, the data wasn’t particularly weak, and there is no basis for strong bets on a hard landing. With improved sentiment and the “Trump trade,” bond yields, inflation expectations, and the dollar index all rose, tightening financial conditions. Just two days after the U.S. election, the FOMC will need to decide on further rate cuts. Although the October data suggests a slower pace of cuts might be warranted, another rate cut remains the base case for the November meeting. The Fed will likely want to avoid an uptick in unemployment unless inflation worsens.?

Global PMI data remains strong, with services sectors supporting economies while manufacturing lags behind. In the Eurozone, PMI is still below 50, indicating weak momentum. However, recent positive surprises in GDP data could shift sentiment and potentially trigger a recovery chain reaction with lower rates. In China, the latest stimulus measures have fallen short of expectations, though PMI data for both manufacturing and services shows modest recovery.?

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Japan is currently facing political turmoil after the ruling coalition lost its majority in Congress. This development will likely prompt the Bank of Japan to hold rates steady for now, which also could negatively impact investments and market sentiment. In the United Kingdom, PMI remains above 51 despite a slight loss of momentum. The recent budget discussions didn’t cause panic, and the Bank of England appears to be preparing for rate cuts.?

Central Bank Meeting Calendar?

Technical View?

The U.S. 10-year government bond yield is testing a critical resistance level ahead of the election and the FOMC meeting. Both the broken longer-term trendline and the upper boundary of the downtrend channel, which began in October last year, are just below the 4.5% level. This resistance could signal the direction for the coming weeks.?

Brent oil saw high volatility within a narrow range in October due to weak data from China and retaliatory strikes between Iran and Israel. Slowing global growth is putting pressure on Brent toward key support levels. If geopolitical risks ease somewhat, oil prices below $70 may become a possibility.?

Precious metals continued their upward momentum for another month. October was particularly strong for palladium, which surged on discussions of a potential ban on Russian titanium and palladium. Although it gave back much of the gains, palladium still ended the month up 8.5%. Recent inflows into ETFs and managed money positions offer hope to palladium bulls. Gold and silver also gained nearly 3% on the back of “Trump trade” sentiment and tensions between Israel and Iran.?

Gold continues its uptrend. In the past three months, the first half of each month has been slow for gold, followed by stronger recoveries in the second and third weeks. Now, with the start of November, the trend appears similar, as gold has retreated below the midpoint of the trend channel. However, the ultimate direction will likely be determined by the FOMC meeting and the election results. A 'buy the rumor, sell the news' type of selloff remains a possibility, even if Trump wins the election.?

Silver has tested its broken uptrend channel, as well as the previous resistance at 32.25, which is now acting as support. If this level fails, silver could retreat toward 30 in the coming weeks. However, remaining above 32.25 remains favorable for silver bulls.?

The dollar index has rebounded sharply after dropping to 100 following the Fed’s jumbo rate cut. The rapid move from 100 to 105 came with little correction, and the index is now attempting to hold above its moving averages. A choppier month seems likely after such a swift surge. If it falls below 103, upward momentum may start to weaken.?

The S&P 500 and Nasdaq had a decent month in October, at least until the final week. The MSCI World Index, however, told a different story, reflecting the impact of a slowing global economy, which is beginning to weigh on markets. The 'Trump trade' hasn’t had the same impact outside the U.S., and the continued weakness in manufacturing is affecting industry-heavy indices like the DAX and Dow Jones. Nasdaq and S&P 500 held onto some gains with support from tech and AI optimism, but these gains started to fade by the end of October.?

Despite U.S. markets nearing record highs, the VIX index continues to flash warning signals. The newly formed ascending triangle below 23.65 is concerning, as a breakout would indicate a selloff in the S&P 500, though this has not yet occurred.?

The S&P 500 recently formed a rising wedge pattern before breaking downward. The index is now testing the former resistance, now turned support, at 5725. This level has previously served as both resistance and support multiple times, making it a key indicator for future direction. If the S&P 500 breaks below this level, the selloff could extend toward 5525 in the coming weeks.?

The strong dollar index dominated FX markets in October, with EUR, GBP, JPY, CHF, and AUD all falling more than 3% against the dollar. Although EURUSD and other currencies have shown some mild upward movement against the dollar at the end of the month, these reactions have been relatively subdued so far.?

EURUSD fell sharply from the 1.12 resistance, extending down to the uptrend line from last October. The main support now stands at 1.0770, while 1.09 and, more importantly, 1.10 act as resistances. Fundamentals still favor the USD, and just above 1.12 lies a 16-year downtrend. However, after such a sharp decline, a correction to 1.10 is possible.?

USDJPY regained the 150 level and the 200-day moving average, driven by the strong dollar index and increased political risk within Japan. If it holds above these levels after the FOMC meeting and U.S. elections, further upward movement is possible. On the downside, the support levels to watch are 151.55, 150, and 148.70.?

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