The past week was marked by the Federal Reserve's interest rate decision and data from the US labor market. Next week, on the other hand, will be the mid-term elections for the US Congress and the anticipation of the publication of inflation also from the United States.
Next week's data could be important for determining the further path for interest rate hikes in the US. The consumer price index seems to be important, with attention likely to focus on the monthly core index (excluding food and energy). As ING calculates, over the past six months we have had one reading of 0.7%, four of 0.6% and one of 0.3%. We would need to see data closer to 0.2% to bring the annual inflation rate down toward the 2% target over time. Consensus at the moment may point to 0.5%. There is still a second chance for a drop in inflation before the next FOMC meeting on December 14, as the November CPI will be released on December 13.
However, this U.S. by-election could also be key to the Joe Biden administration's ongoing fiscal policy. Tuesday, November 8, could be a significant day for the United States. Opinion polls seem to indicate that Republican party candidates are gaining momentum, and winning majorities in the House of Representatives and the Senate now seems the most likely outcome, according to ING. If Republicans gain control of Congress, President Joe Biden's ability to pass legislation could be severely curtailed. Then there might be less likelihood of any fiscal support for the economy due to the recession than if the Democrats retain control of Congress, given that Republicans would look to block it. Consequently, if the Democrats lose, we are more possibly to see interest rate cuts in the second half of 2023 to provide stimulus to help the economy rebound, ING concludes.
Source: Conotoxia MT5, VIX, Weekly
Is the market worried about the US data?
It seems that the market is not worried about either the inflation data or the outcome of the U.S. elections, at least looking at these concerns through the lens of the VIX index contracts. Here we can observe a third consecutive week of decline from over 32 points to 25 points today. As a result, the market is pricing in a possible drop in volatility during the month in the U.S. stock market, which could help the bulls there. In the past week, the strongest company in the Dow Jones index seems to have been Boeing with an increase of more than 11 percent, followed by Caterpillar with a gain of almost 4 percent and Goldman Sachs with a gain of 3.88 percent for the week. In the broad S&P500 index, on the other hand, the biggest weekly increase is recorded by ABIOMED. We are talking about an almost 45 percent upward movement. The catalyst for the increases was said to be this week's news that Johnson & Johnson is to acquire the company, with the deal expected to be worth more than $16.5 billion.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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