• U.S. elections will be held today; regardless of the outcome, we believe the dollar will continue gaining; data highlight will be October ISM services PMI; the Boeing strike has ended; BOC publishes the Summary of Deliberations from its October 23 meeting
  
• France reported soft September IP; ECB easing expectations have been pared back after last week’s firm data; U.K. BRC reported weak same store retail sales data
  
• RBA kept rates steady at 4.35%, as expected; Australis reported firm October services and composite PMIs; RBNZ released its November FSR; Caixin reported firm October services and composite PMIs; Korea reported soft October CPI data

The dollar remains under pressure as America goes to the polls. DXY is trading lower for the second straight day near 103.700. AUD is outperforming, after the RBA delivered the expected hold (see below). The yen is underperforming, with USD/JPY trading flat near 152.15. Sterling is trading higher near $1.2995 while the euro is trading higher near $1.090 on broad dollar losses today. We remain a bit skeptical that this week's price action is all related to unwinding of the Trump Trade. The election is finally upon us and yet the outcome seems as uncertain as ever. Looking through the distortions and noise, we believe the strong U.S. fundamental story continues to favor higher UST yields and a higher dollar. Recent data have showed that the labor market remains firm and supportive of continued robust consumption that is fueling above-trend growth. While the Fed is likely to cut rates 25 bp this week, we believe it will continue to take a cautious tone going forward.

AMERICAS

U.S. elections will be held today. Exit polls will start to get reported after 500 PM EST. Polls in the seven key battleground states close at the following times: Georgia 700 PM EST, North Carolina 730 PM EST, Pennsylvania and Michigan 800 PM EST, Wisconsin and Arizona 900 PM EST, and Nevada 1000 PM EST. Given past experience, it’s quite possible that we may not know the winner until days later.

Regardless of the outcome, we believe the dollar will continue gaining. If Trump wins, we expect USD and Treasury yields to rise as fiscal and trade policies under a Trump presidency would be inflationary. This could force the Fed to keep the policy rate restrictive for longer. However, Trump’s ambiguous currency policy is a USD headwind. If Harris wins, we expect USD and Treasury yields to have a kneejerk drop before staging a recovery that’s underpinned by the strong U.S. economy. Fiscal and trade policies under a Harris presidency are less likely to complicate the Fed’s price stability mandate and this has neutral implications for USD and Treasury yields.

We also may not know the makeup of Congress immediately. Democrats have greater odds of winning a majority in the House of Representatives and Republicans are favored to win the Senate. As such, a divided Congress is the most likely scenario in our view. The political gridlock will make it hard for the next president to implement major fiscal changes, meaning fiscal policy will become a drag to growth over the next few years as the 2017 tax cuts expire in 2026. Please see our special piece here for an in-depth analysis of what the different election outcomes could mean for financial markets.

Data highlight will be October ISM services PMI. Headline is expected at 53.8 vs. 54.9 in September. The regional Fed services surveys point to upside risk. In addition, the S&P Global services PMI rose to 55.3 vs. 55.2 in September. Of note, employment is expected to drop a tick to 48.0 while prices paid is expected to drop nearly a point and a half to 58.0. We see upside risks to prices paid as this component in the ISM manufacturing PMI last week rose to 54.8, the highest since May.

Growth remains solid in Q4. The Atlanta Fed GDPNow model's initial estimate for Q4 GDP stands at 2.3% SAAR and will be updated today after the data. Elsewhere, the New York Fed’s Nowcast model is tracking Q4 growth at 2.0% SAAR and will be updated Friday, while its initial forecast for Q1 2025 will come at the end of November. Bottom line: the US economy continues to grow at or above trend as we move into 2025.

The Boeing strike has ended with a wage deal. This is positive for the economic outlook. Indeed, the 53-day strike will end just ahead of the BLS survey week next week and so the November jobs data should see a noticeable boost from this. Stay tuned.

The Bank of Canada publishes the Summary of Deliberations from its October 23 meeting. At that meeting, the BOC slashed the policy rate 50 bp to 3.75%, as expected. Governor Macklem confirmed there was a “clear consensus” for a 50 bp cut. Importantly, more easing is in the pipeline as the BOC highlighted “we anticipate cutting our policy rate further.” The market is pricing in over 55% odds of follow-up 50bp cut in December and sees 100 bp of total easing over the next 12 months that would see the policy rate bottom near 2.75%.

Canada data highlight will be S&P Global reports services and composite PMIs. Last week, S&P Global manufacturing PMI came in at 51.1 vs. 50.4 in September. Ivey PMI will be reported tomorrow.

EUROPE/MIDDLE EAST/AFRICA

France reported soft September IP. IP came in at -0.9% m/m vs. -0.6% expected and a revised 1.1% (was 1.4%) in August, while the y/y rate came in at -0.6% vs. -0.4% expected and a revised 0.1% (was 0.5%) in August. Other key industrial data will be reported this week and with the eurozone manufacturing PMI at 46.0 in October, we expect this sector to remain weak. Germany reports September factory orders tomorrow. Germany and Spain report IP Thursday. Germany reports trade data Thursday. Italy reports IP Friday. Eurozone IP will be reported November 13.

European Central Bank easing expectations have been pared back after last week’s firm data. The swaps market is now pricing in 125 bp of total tightening over the next 12 months that would see the policy rate bottom near 2.0% vs. 1.5% in mid-October. We believe the recent bounce in the data is a head fake, and that headwinds to the eurozone economy are as strong as ever. Vujcic, Lagarde, and Schnabel speaks today.

The U.K. BRC reported weak same store retail sales data. The value of same store sales increased by just 0.3% y/y in October vs. 1.4% expected and 1.7% in September. This was the weakest reading since July but was partly due to the later timing of the school half-term. Still, the data do not bode well for official retail sales scheduled to be reported November 22. This Thursday, the Bank of England is widely expected to cut the policy rate 25 bp to 4.75%.

ASIA

Reserve Bank of Australia kept rates steady at 4.35%, as expected. The bank also stuck to its neutral policy guidance and reiterated “the Board is not ruling anything in or out” and that “the need to remain vigilant to upside risks to inflation.” The RBA cautioned again that underlying inflation remains too high and “that it will be some time yet before inflation is sustainably in the target range” but added “and approaching the midpoint.” Updated forecasts will be contained in the Statement on Monetary Policy and the RBA still projects trimmed-mean inflation to reach the midpoint of the 2-3% band in December 2026 despite lowering its growth forecasts across the forecast horizon.
Governor Bullock’s press conference was balanced. Bullock pointed out that the Board “didn’t explicitly discuss rate hike or cut scenarios” and emphasized “I think we have the right settings at the moment.” The markets is not fully pricing in the first 25 bp cut until May 2025, which seems too long to wait given signs of weakness in the economy.

Australia reported firm October services and composite PMIs. Services came in at 51.0 vs. 50.6 in September, which pushed the composite PMI up to 50.2 vs. 49.8 in September. The composite has been gyrating around the key 50 level for five straight months now and so this rise above 50 does not undermine our belief that the economy remains at risk.

The RBNZ released its November Financial Stability Report. The FSR highlighted that financial stability risks remain contained. Specifically, the FSR noted that while weakness in the domestic economy has become more pronounced, banks are in a strong financial position to manage loan defaults as capital ratios are comfortably above the RBNZ minimum requirements. Nonetheless, the FSR warned that a severe recession remains the key risk to the New Zealand financial system. As such, the RBNZ has scope to keep easing aggressively to avoid a deeper economic downturn. The market has fully priced in a 50 bp cut at the November 27 meeting, along with more than 30% odds of a larger 75 bp move.

Caixin reported firm October services and composite PMIs. Services came in at 52.0 vs. 50.5 expected and 50.3 in September, which pushed the composite PMI up to 51.9 vs. 50.3 in September and was the highest since June. These readings are much stronger than the official PMIs but we still can’t get excited about the mainland growth outlook as long as the huge debt overhang remains in place.

Korea reported soft October CPI data. Headline came in a tick lower than expected at 1.3% y/y vs. 1.6% in September, while core came in a tick lower than expected at 1.8% y/y vs. 2.0% in September. Headline was the lowest since January 2021 and further below the 2% target. At the last meeting October 11, the Bank of Korea started the easing cycle with a 25 bp cut to 3.25% but there was one dissent in favor of steady rates. Governor Rhee said five board members saw steady rates over the next three months, while one was open to another cut. Since that meeting, the data have been coming in soft. Next meeting is November 28 and risks of a follow-up 25 bp cut have risen. The swaps market sees 50 bp of total easing over the next 12 months that would see the policy rate bottom near 2.75%. However, the market is starting to price in the possibility of another 25 bp of easing over the subsequent 12 months.