Weekly Recap: Q3 Earnings, Labour Data In Play Ahead of US Election Uncertainty

US Election Looms Large
The upcoming US presidential election has cast a shadow of uncertainty over the global markets. As the two candidates remain neck-and-neck, investors brace for potential market volatility, especially in the immediate aftermath of the election. The USD/JPY pair has been particularly volatile, with the yen strengthening following the Bank of Japan’s press conference and a decline in stock markets ahead of key tech earnings. However, the recent uptick in US inflation and consumer spending has lent support to the US dollar.

Q3 Earnings

Mega-cap technology stocks, including Google, Microsoft, Meta, Apple, and Amazon, reported mixed earnings trends this week. While most companies exceeded expectations for revenue and earnings growth, guidance for next quarter and spending outlooks sparked volatility. Microsoft and Apple offered guidance below analyst expectations, while Meta discussed increased spending on artificial intelligence (AI), which investors worried may impact profit margins. Analysts believe AI is still in its early stages of growth and adoption phase, benefiting sectors beyond technology, including healthcare, financial services, and manufacturing.


Earnings growth is expected to be positive and a driver of returns this year and through 2025. S&P 500 earnings growth for this year is on track for about 9% annually, well above last year’s 1% growth rate. For 2025, analysts see double-digit earnings growth, especially as interest rates moderate and inflation remains in the 2% range, which should support household consumption and corporate spending.

Investors should remember that stock-market returns are typically a combination of valuation expansion and earnings growth. Earnings growth will likely be the key driver for market returns, and analysts believe it will expand in the coming quarter, supported by both tech and non-tech parts of the market.

Labour Market Shows Significant Signs of Cooling

The latest US economic data suggests a “soft landing” scenario, with a cooling labour market and easing inflationary pressures. The nonfarm payrolls report for October came in significantly below expectations, primarily due to labour strikes at Boeing and the impact of hurricanes. The employment cost index also showed a slower-than-expected increase, indicating a potential decline in wage growth. These developments provide the Federal Reserve with more flexibility to gradually reduce interest rates.

The US nonfarm-jobs report for October showed a total of 12,000 new jobs, well below expectations of 113,000. The last two months were revised lower by 112,000, but still relatively healthy at 78,000 and 223,000. The average monthly jobs added this year are now at about 170,000, below last year’s average of 250,000 but still above the long-term average of 148,000. The weakness in last month’s jobs was largely due to two factors: labour strikes at Boeing and impacts from Hurricanes Helene and Milton. The Bureau of Labour Statistics estimates that the Boeing strike may have reduced jobs by around 46,000, while the hurricanes are estimated to have had a negative impact of between 40,000 and 70,000 jobs. Analysts believe the jobs data in both the US and Canada indicate a cooling labour market after a period of strength post-pandemic.

In terms of the labour market, initial jobless claims fell to 216,000, but the employment cost index grew only 0.8% q/q (vs. 0.9% expected), marking the weakest rise since mid-2021. This cooling in employment costs is crucial for the Fed, as it indicates subsiding inflationary pressures and a trend towards pre-pandemic labour norms. The Fed’s preferred inflation gauge, the core PCE deflator, came in around the expected figure of 0.3% m/m or 2.7% y/y for September, suggesting a more cautious approach to future interest rate cuts.

Fed’s Path Forward

The Fed’s policy trajectory remains uncertain, with the potential for a rate cut in December still on the table. However, the recent economic data has tempered expectations for a more aggressive rate-cutting cycle. The market is now pricing in a higher probability of rate cuts at both the November and December meetings. Beyond 2024, the Fed is likely to adopt a more cautious approach to rate cuts, aiming to balance economic growth and inflation control.

Markets expect the Federal Open Market Committee to cut interest rates again by 0.25% on November 7. That’s according to a forecast by the CME FedWatch Tool. The decision will be announced at 2 p.m. ET, with a press conference 30 minutes later. This would be the second cut of this cycle after a 0.5% reduction on September 18 and would take the target range for the federal funds rate to between 4.5% and 4.75%.

Global Economic Outlook

The softening macroeconomic data has also impacted the Bank of Canada’s policy stance. The central bank is expected to continue its rate-cutting cycle, with further reductions likely in December. Both the Fed and the BoC are aiming to bring interest rates closer to neutral levels, supporting economic growth and financial market stability.

Oil Market Outlook

Crude oil prices have faced downward pressure due to concerns over global demand and potential supply increases. The US presidential election and China’s stimulus package are key factors that will influence oil prices in the near future.

While the US election adds an element of uncertainty to the market, the underlying economic fundamentals remain relatively strong. Investors should maintain a long-term perspective and consider taking advantage of any short-term market volatility to position themselves for future growth.

Euro, Eurozone

EUR/USD has strengthened as traders reassessed their bets on a large interest-rate cut from the European Central Bank (ECB) in the December monetary policy meeting. The major currency pair saw faster-than-expected Eurozone GDP growth and hotter-than-forecasted inflation data. Eurostat reported that the Eurozone expanded at a faster pace of 0.9% in the third quarter of the year compared to the same period a year earlier. Germany, the largest nation in the Eurozone, managed to avoid a technical recession, with the economy surprisingly rising by 0.2% compared to the previous quarter.

Spain’s growth rate was higher than expected in France and slower than anticipated in Italy. The Eurozone flash Harmonized Index of Consumer Prices (HICP) for October accelerated at a faster pace of 2% on year, suggesting that the battle against inflation is not over. Analysts also suggest that the flash estimate of German inflation in October could make some members of the ECB regret the latest rate cut and the ECB’s new openness to more aggressive cuts.

XAU/USD

XAU/USD had its first weekly loss since early September, as gold prices broke out after a seven-week climb into uptrend resistance. Risk of exhaustion or price inflection for XAU/USD into November RBA, BoE, Fed, and US Elections on tap.

Support: 2643/71, 2602 (key), 2524;

Resistance: 2804 (key), 2900, 3000/031.

Although gold prices have surged to new record highs this week, they are expected to end a seven-week winning streak on Friday. October saw a roughly 3.9% increase in XAU/USD, and prices are currently up more than 33.8% so far this year. Although the overall view is still positive, the rally’s extension into uptrend resistance this week may make the near advance susceptible into the beginning of the month.

The Week Ahead

Important events this week include the domestic labour force survey and the results of the upcoming US presidential election and of course FOMC meeting on Nov. 6-7.