MARKET UPDATE – October 21^st – November 1^st

In a Nutshell: A volatile week for markets as we entered the busy end of earnings season with mixed results from some of Magnificent 7.  The S&P 500 was still only down 2% over the two week period though volatility spiked by 30% (VIX).  Markets recovered modestly on Friday as investors cautiously await the outcome of next week’s U.S. Presidential Election.

 

U.S. Labour Markets

U.S. job openings were lower than anticipated in September, slipping to their lowest level since January 2021.  The Job Openings and Labor Turnover Survey (JOLTS) also showed resignations inched down slightly, suggesting that Americans are becoming less confident that they can find new employment.  The number of layoffs, meanwhile, inched upwards.

Initial Jobless Claims decreased over the past two weeks, with both weeks also being well below analyst expectations.  Two weeks ago, the number of claims dropped to 227,000 while last week is dropped again to 216,000.  This indicates that there is still strength in the U.S. labour market.

 

U.S. Economy

The U.S economy grew at a slower than expected rate in the third quarter rising by 2.8% in the July-September period, despite signs of waning inflationary pressures and solid wage gains.  This was below analyst expectations of 3%.

U.S. consumer spending, which accounts for more than two-thirds of U.S. economic activity increased slightly more than expected in September, rising 0.5% last month after an upwardly revised 0.3% gain in August, slightly above expectations.

U.S. Durable Goods Orders, a significant indicator of the health of the U.S. manufacturing sector, remained a steady figure at -0.8% and above the forecasted drop of -1.1%, indicating a more stable market for long-lasting manufactured goods than anticipated.

The Commerce Department's Personal Consumption Expenditures (PCE) price index, closely watched by the Federal Reserve, increased 0.2% in September after an unrevised 0.1% gain in August.  Economists had forecast PCE inflation climbing 0.2%.  September’s increase in PCE of 2.1% is the smallest year-on-year rise in PCE inflation since February 2021.

U.S. manufacturing activity slumped to a 15-month low in October and factories faced higher prices for inputs.  ISM manufacturing PMI fell to 46.5 last month, the lowest level since July 2023.

 

Canadian Economy

Canada's economy is likely to miss the Bank of Canada's revised third-quarter growth forecast while Economic growth for July also was revised downwards to 0.1% from 0.2%.  August’s growth reading was flat, but this was expected by analysts. Money markets increase the weight of bets on another 50-basis point rate cut in December on the news.

Canada's retail sales in August increased marginally however missed expectations growing by 0.4% in August on a monthly basis, slower than growth of 0.9% seen in the previous month.  Analysts had forecast growth of 0.5%.

Canadian manufacturing activity increased at a faster pace than expected in October, however, as production and employment picked up and the S&P Global Canada PMI rose to 51.1 from 50.4 in September, its highest level since February 2023.

 

Eurozone and UK Economy

German inflation rose more than expected in October, to 2.4%, with economists expecting a reading of 2.1% and well above September’s 1.8% annualized figure.  France's harmonized inflation rate, increased to 1.5% year-on-year in October which was in line with expectations, while Italy came in a little hotter than median forecast at 1% rise.  As a whole Eurozone inflation accelerated to 2% from 1.7% in September slightly above expectations.

Germany's gross domestic product unexpectedly increased in the third quarter, skirting a recession, with the economy expanding by 0.2% in the third quarter from the previous three months.  German retail sales unexpectedly rose in September, extending an upward trend started in June, although growing at a slower pace.

 

Energy

Oil prices are flat over the last two weeks with reports that Iran was preparing a retaliatory strike on Israel from Iraq in the coming days, China's manufacturing activity swung back to growth in October and reports of larger than expected U.S. inventory build ups all weighing in.

 

 

Reuters Market Updates http://www.reuters.com

Bloomberg Market Updates - https://www.bnnbloomberg.ca/markets

 

Market Data	S&P/TSX	S&P 500	DOW	NASDAQ	STOXX EU	WTI	GOLD
Last Week	-1.4%	-1.0%	-2.7%	0.2%	-1.0%	3.7%	0.9%
This Week	-0.9%	-1.4%	-0.1%	-1.5%	-0.02	-3.4%	-0.3%

Market data taken from https://www.marketwatch.com/

 

 

 

 

ECONOMIC FLASH! Bank of Canada: A bolder step on a more certain road by Avery Shenfeld Link to Article

The recent Bank of Canada to reduce interest rates by half a point, has moved them much closer to their goal of a sustainable 2% inflation target.  The current interest rate stands at 3.75%, which is still considered restrictive for economic growth.  The Bank has not specified the size of future rate changes but is expected to implement another 50-basis point cut in December, contingent on economic conditions.

Despite some slight adjustments to inflation expectations, the Bank's economic outlook remains largely unchanged.  However, there are concerns about consumer spending and housing market dynamics, which may affect these projections.  The Bank is also encouraged by the suggestion of slower wage growth and anticipates a gradual decrease in shelter inflation.  While inflation may fluctuate around the 2% mark, there could be instances of sub-2% inflation until economic growth accelerates.

BoC’s announcement last week matched CIBC Economics’ expectations, and therefore doesn't alter either economic or financial market outlooks.  U.S. policy developments will be more closely watched though, given risks to trade policies, fiscal outcomes can spillover into Canada. 

 

 

MacroMemo - October 29th – November 18^th, 2024 by Eric Lascelles Link to Article

U.S. election countdown

Ultimately, this race will come down to a handful of states, and possibly no more than a few tens of thousands of votes in those swing states – likely just 0.1% or so of the entire American population.

The U.S. presidential election is just a week away.  Recently there has been a shift in momentum favoring former President Trump, who is now perceived to have regained the lead over his opponent, Harris.  Betting markets reflect this change, with PredictIt assigning a 57% chance of a Trump victory and Polymarket a higher 65%.  These markets can be unreliable however, as Polymarket allows unlimited bet sizes, which could lead to market manipulation, while PredictIt has stricter limits that may hinder informed betting.

PolyMarket has Trump with a sizable lead

Despite the apparent advantage for Trump, there is still significant uncertainty surrounding the election outcome due to declining poll reliability and the complexities of the Electoral College.  The election will hinge on a few key swing states and could take days or weeks to resolve, especially given the potential for disputes.  Additionally, there are further implications in the Congressional elections, with a likelihood of Republicans gaining the Senate, and a more uncertain outcome in the House.  If Trump does win, there is a very real chance that Republicans pick up the House, Senate and the White House, however it is less likely that Democrats will win both chambers of the legislative branch given a Harris win, meaning that a President Trump would be in a better position to deliver on his policy agenda than a President Harris.

While Trump may have a slight edge, significant uncertainty remains regarding the election results and their impact on policy, particularly for small businesses, which are experiencing heightened uncertainty.

 

U.S. activity holds up

While the U.S. labor market is not as robust as it was two years ago, the changes are part of a return to normalcy rather than a sign of significant weakness. The unemployment rate stands at 4.1%, which is within a sustainable range, and other labor metrics, such as job openings and the quits rate, have returned to pre-pandemic levels. However, the stability of this labor market is not guaranteed, as historical trends show that rising unemployment can lead to further declines. Initial indicators are positive, with a slight decrease in the unemployment rate and stabilization in hiring and job openings. The upcoming October payroll report is anticipated to show weaker job growth, influenced by recent hurricanes, with a consensus forecast of 110,000 new jobs, down from 150,000 in September. As such, there is the potential for larger-than-normal deviations in job creation due to these external factors.

 

Job openings and quits in U.S. have returned to normal