PMI Data, UK Inflation And The Soft Landing Conundrum

Retail sales rose 0.4% month-on-month (m/m) in October, down from the upwardly revised September 2024 gain of 0.8%, but ahead of the consensus forecast calling for an increase of 0.3% m/m.

Trade in the auto sector rose 1.6% m/m, as the decline at automotive parts and accessory stores (-2.0%) was more than offset by the large increase at motor vehicle dealers (+1.9%).

Sales at gasoline stations rose 0.1 % m/m in October, driven by higher volumes as gas prices fell on the month. The building materials and equipment category rose by 0.5% m/m.

Sales in the “control group”, which excludes the volatile components above (i.e., gasoline, autos and building supplies) and is used in the estimate of personal consumption expenditures (PCE), fell 0.1% m/m, a sizeable deceleration from the upwardly revised 1.2% monthly gain in September.

Modest gains were recorded at non-store retailers (0.3% m/m) and department stores (0.2% m/m).

Sizeable declines were recorded by miscellaneous stores (-1.6% m/m), sporting goods, hobby, book, & music stores (-1.1% m/m), and health & personal care stores (-1.1% m/m).

Food services & drinking places – the only services category in the retail sales report – rose 0.7% m/m. September’s data was also revised up to 1.2% (previously 1.0%).

Key Implications

Retail sales were higher than expected in October due to an outsized uptick in motor vehicle sales, however if motor vehicles are excluded then retails sales were flat on the month. Nevertheless, the 3-month average for retail sales rose from 0.2% in September to 0.6% in October on the back of material upward revisions to the prior month’s data. It’s possible that Hurricane Milton may have distorted sales readings last month, although clean-up and recovery efforts may lead to higher readings in the months ahead.

U.S. consumption remains healthy on aggregate, supported by a stable labor market and solid real income gains. Our tracking currently puts fourth quarter annualized consumption growth above 3% and only slightly below the third quarter’s strong reading. While we currently expect the Federal Reserve to cut by 25 basis points in December, risks surrounding a potential pause to end the year have risen, with markets pricing in roughly 40% odds of that outcome as of the time of writing.

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[Today's Focus]

Latest Political News

President-elect Donald Trump has begun shaping his administration, starting with a White House meeting with outgoing President Joe Biden, symbolising the peaceful transfer of power. His cabinet picks have sparked debate, including Rep. Matt Gaetz as Attorney General, a move that drew mixed reactions from Republicans and Justice Department officials. Trump also nominated Robert F. Kennedy Jr. to lead the Department of Health and Human Services (HHS), attracting attention for Kennedy’s controversial views on vaccines. As the transition continues, Trump’s bold choices are shaping the direction and priorities of his upcoming term.

Volatility Index

VIX Last Week

Open: 15.80 High: 16.33 Low: 14.47 Close: 15.53

Summary

The continued effects of Trump’s win influenced the VIX at the start of the week, pushing the index lower. However, by the end of the week, the VIX found support around the 15 level as controversial cabinet picks and weakness in U.S. equities added uncertainty. While concerns over Trump’s leadership choices persist, market volatility remains lower than pre-election levels.

VIX Weekly Chart

Market Analysis (Technical, Sentiment, and Fundamental Analysis)

The VIX has found support at the critical 15 level, with the downside appearing limited due to the continued risk of controversial decisions by Trump. If U.S. equities continue to decline, the VIX is likely to rebound toward the 17.5 level, making a move higher in volatility a possibility in the short term.

Potential Impact of the Trump Presidency

With Trump’s clear majority victory, the VIX is expected to settle at lower levels as market confidence grows around continued business-friendly and market-stabilizing policies. However, anticipate periods of quick VIX spikes as new policies, especially those related to trade and international relations, are introduced.

Stock Indices

Dow Jones Index Last Week

Open: 44,077 High: 44,526 Low: 43,374 Close: 43,483

Nikkei 225 Last Week

Open 39,125 High 39,862 Low 37,756 Close 38,039

Summary

The Dow Jones fell last week as the “Trump Effect” continued to fade, with market attention shifting to Fed Chair Jerome Powell’s cautious approach to rate cuts. Powell emphasised that the central bank was “not in a hurry” to lower rates, citing strong economic growth as a reason for patience, while avoiding comments on how Trump’s potential policies might influence future decisions. October retail sales data showed a 0.4% increase, slightly above the 0.3% forecast, following an inflation report that met expectations, signalling steady economic conditions. Meanwhile, the Nikkei failed again to break the 40,000-yen resistance, despite the USD/JPY testing higher levels, as the market prepares for possible Bank of Japan intervention to address yen weakness and the potential of a December rate hike.

Dow Weekly Chart

Nikkei 225 Weekly Chart

Market Analysis (Technical, Sentiment, and Fundamental Analysis)

The Dow Jones has returned to support at levels that previously acted as resistance before Trump’s victory, making the start of the week’s price action crucial. In the short term, the market appears more likely to test lower, suggesting that selling into weakness could be the best strategy this week. Meanwhile, another failure by the Nikkei to break above the 40,000 Yen level reinforces the focus on selling opportunities in the Nikkei for the week ahead.

Potential Impact of the Trump Presidency

A Trump win is expected to benefit the Dow, with the market anticipating tax cuts and deregulation. However, Trump’s ‘America First’ policies and potential tariff increases could pose challenges. This outcome may be less favorable for the Nikkei, as Trump could push for a stronger yen to support U.S. exports, which may hurt Japanese exporters and place downward pressure on the index.

Energy

Oil (WTI) Last Week

Open: 70.31 High: 70.65 Low: 66.91 Close: 67.06

Summary

WTI remained under pressure throughout the week as the bearish trend following Trump’s victory continued, negatively impacted by a strengthening USD. Additional pressure came from increasing supply from non-OPEC producers, particularly the US, Brazil, and Canada. Meanwhile, weak economic data from China encouraged selling, reducing demand expectations and contributing to the downward momentum.

Oil (WTI) Weekly Chart

Market Analysis (Technical, Sentiment, and Fundamental Analysis)

Support at $67 just held last week, but with the negative close, a break of this level seems likely at some point this week. Predicting the exact timing of a support break can be challenging, so selling around $69 could be the most effective strategy for the week ahead.

Potential Impact of the Trump Presidency

The Trump victory is expected to boost US oil production, potentially putting downward pressure on prices as supply rises. Additionally, Trump’s efforts to end unrest in the Middle East could further soften prices if successful. A strong USD under his presidency could also weaken WTI prices.

Crypto

Bitcoin Last Week

Open: 76,379 High: 93,346 Low: 76,318 Close: 90,894

Summary

The post-Trump rally continued last week, with Bitcoin surging past $90,000 as the market eyes the $100,000 milestone. While Trump’s pro-crypto stance fuels optimism, concerns are growing over the size of U.S. government debt, raising fears of dollar devaluation and inflation. Additionally, Elon Musk’s growing influence within the Trump administration is being viewed as a positive development for Bitcoin’s prospects.

Bitcoin Weekly Chart

Market Analysis (Technical, Sentiment, and Fundamental Analysis)

With Bitcoin up over 30% in the past month, concerns about the market being overbought in the short term are growing. A break below $90,000 could trigger profit-taking and lead to a test of support at $85,000, offering short-term traders an opportunity to sell this week. However, the medium-term uptrend remains strong, and a decline toward the $80,000 to $85,000 support zone could present a solid medium-term buying opportunity.

Potential Impact of the Trump Presidency

A Trump victory is clearly bullish for Bitcoin, as Trump and his team are openly crypto-friendly. This supportive stance could drive Bitcoin toward $100,000 or higher in a favourable policy environment.

Upcoming Political & Economic Events

It’s a relatively quiet week for economic releases, aside from Friday’s U.S. PMI data, leaving the market to digest the impact of Trump’s election win and the Federal Reserve’s potential slowdown in the pace of interest rate cuts. With significant recent market movements, trader and investor sentiment will play a key role in driving market direction this week.

Potential Market Impact

The market is currently evaluating the effects of President Trump’s election victory and the potential for the Federal Reserve to decelerate its interest rate cuts. The VIX has stabilised around the 15 mark, with limited downside as traders monitor Trump’s controversial decisions and their potential impact on market volatility. Should U.S. equities continue to weaken, the VIX could rise toward 17.5, presenting short-term trading opportunities. Meanwhile, the Dow Jones has returned to pre-election support levels, making early-week price action crucial. Selling into weakness appears to be the most effective short-term strategy, while the Nikkei’s repeated failure to breach the 40,000 Yen level reinforces selling opportunities in that index.

WTI remains under pressure after just holding the $67 support level. The close near the lows of the week increases the likelihood of a breakdown, making selling near $69 a favourable short-term approach. Bitcoin has surged over 30% in the past month, driven by speculation on the pro-crypto stance of Trump’s administration and its potential to boost demand. However, concerns about overbought conditions are rising. A break below $90,000 could lead to profit-taking, testing support at $85,000 and presenting a short-term selling opportunity. Despite this, Bitcoin’s medium-term uptrend remains strong, with a pullback to the $80,000–$85,000 range potentially offering a compelling buying opportunity for longer-term investors.

This Week’s Trump Trades

The initial shine of Trump’s victory is beginning to fade as the market shifts its focus to potential drawbacks of a Trump presidency. This is a natural progression, as markets are shaped by competing opinions and rarely move in a straight line. Investors will now closely watch for any new policy announcements or cabinet appointments that could signal a more optimistic direction for the market.

Tesla Inc. (TSLA)

Tesla surged higher last Monday, but momentum reversed midweek as profit-taking and broader U.S. stock market weakness pushed the stock lower. This week, support near the 10-day moving average and the $300 level may provide another buying opportunity to capitalise on the uptrend. With elevated volatility and strong momentum, traders are advised to target large gains while managing risk with small losses, as multiple opportunities are expected to arise throughout the week.

Tesla Daily Chart

Bitcoin

Bitcoin has surged over 30% in the past month, raising concerns that the market may be overbought in the short term. A break below $90,000 could spark profit-taking, potentially driving the price down to test support at $85,000, creating a short-term selling opportunity for traders this week. Despite these short-term risks, the medium-term uptrend remains intact, and a pullback into the $80,000 to $85,000 support zone could offer a strong buying opportunity for medium-term investors looking to capitalise on Bitcoin’s continued momentum.

Bitcoin Daily Chart

S&P 500

While the medium and long-term uptrend remains bullish, the S&P 500 is at a critical turning point in the short term. The index has returned to support at 5,875, a level that previously acted as resistance before the election. How the market reacts at the start of the week will be crucial. Short-term traders should follow momentum, buying if the market rebounds from support or taking advantage of a short-term selling opportunity if the market breaks below this level. Medium- to long-term traders should remain buyers if support holds or wait for a significant drop to establish new positions.

S&P 500 Daily Chart

Trump’s election raises bets for a Fed pause

The US dollar continued flexing its muscles for this week, with the so-called ‘Trump trades’ showing no signs of cooling as the president-elect Republican party will control both chambers of the US Congress, which will make it very easy for Donald Trump to turn his pre-election promises into legislation.

The newly elected US president has been advocating for massive corporate tax cuts and tariffs on imported goods from around the globe, especially China, measures that are seen by the financial community as fueling inflation and thereby prompting the Fed to delay future rate reductions.

With the US CPI data already pointing to some stickiness in price pressures during October and Fed Chair Powell noting just yesterday that they do not need to rush in lowering interest rates, more market participants are becoming convinced that the Fed may need to take the sidelines soon. They are assigning a decent 37% chance for this happening in December and a stronger 57% for a January pause.

Will the PMIs seal the deal for a Fed pause?

With that in mind, this week, dollar traders may closely monitor the preliminary S&P Global PMI data for the month of November, due out on Friday, for clues as to whether the state of the US economy can indeed allow Fed officials to proceed at a slower pace.

The prices charged subindices may attract special interest as traders may be eager to find out whether the October stickiness rolled over into November. If this is the case, the probability for a January pause may increase further, driving Treasury yields and the US dollar even higher.

Amidst tariff clouds, euro awaits PMIs as well

On the same day, ahead of the US data, S&P Global will release the Eurozone and UK flash PMIs for November. In the Euro-area, the better-than-expected GDP data for Q3 and the rebound in CPI inflation for October have lessened the likelihood of a 50bps rate cut by the ECB at the upcoming decision.

Nonetheless, concerns that higher tariffs by a Trump-led US government could weigh on the Euro-area economy revived speculation for bold action by the ECB in December, with the euro tumbling to a more-than-one-year low.

Even if the PMIs point to some further improvement in business activity for November, concerns about the impact of Trump’s policies could remain elevated. Therefore, a potential rebound in the euro on the PMIs is likely to stay limited and short-lived.

The uncertainty surrounding Germany’s political scene could also be a headache for euro traders as a lengthy process to form a new coalition government may result in delays in entering negotiations with the US for finding common ground on trade.

Will the UK CPIs reveal early signs of rebound?

In the UK, there are more important releases for pound traders coming in ahead of Friday’s PMIs. On Wednesday, the CPI data for October are coming out, while on Friday, ahead of the PMIs, retail sales are due.

At its latest gathering, the BoE cut interest rates by 25bps but signaled it will proceed with caution on the pace of further easing, prompting market participants to push back their rate cut expectations. There is only an 18% chance for another reduction in December, with a quarter-point cut being fully penciled in for March 2025.

And this is despite the headline inflation rate dropping to 1.7% y/y in September. Perhaps investors have taken into account the still-elevated core rate and the upward revisions of the BoE itself. Just for the record, the Bank has raised its inflation forecast for 2025 to 2.7% y/y from 2.2%.

If Wednesday’s CPI data indeed show early signs of a rebound in price pressures, investors could push further back the timing of the next interest rate cut, something that could prove positive for the pound, especially if Friday’s retail sales come in on the bright side as well.

Canadian and Japanese inflation numbers also on tap

More CPI numbers are coming out this week. On Tuesday, the inflation chorus will start with the Canadian numbers, while on Friday, it will end with Japan’s Natonwide CPI data.

In Canada, there is a decent 35% chance for the BoC to deliver a back-to-back 50bps rate cut in December. The jobs data for October have been on the mixed side, with the unemployment rate holding steady at 6.5%, instead of rising to 6.6% as expected, but with the net change in employment slowing more than expected.

The report was not enough to stop the loonie from tumbling against the almighty US dollar, with dollar/loonie now trading at levels last seen in May 2020. Both the headline and core CPI rates stood at 1.6% y/y in October, while the closely watched trimmed CPI held steady at 2.4%. Further cooling may corroborate the notion that there are no upside inflation risks in Canada and may convince more traders to bet on a 50bps reduction in December, thereby pushing the loonie even lower.

In Japan, the BoJ kept interest rates untouched on October 31, but signaled that the conditions for raising rates again are falling into place. This and the latest slide in the yen convinced market participants that Japanese policymakers could hike again at the turn of the year, seeing rates 13bps higher in December and 20 in January.

Having said that though, even if Friday’s CPI data corroborates the view of higher rates soon, any yen recovery is likely to stay limited and short-lived due to further potential strength in the US dollar and due to the hikes being already priced in.

This week, more countries will release their estimates for October consumer inflation.

Canada will do so on Tuesday. The pace of price increases here is below the 2% target, allowing the Bank of Canada to cut interest rates by 50 basis points at the end of October. But how will the economy react to the 4% drop in the Canadian dollar against the US dollar since the beginning of October? With USDCAD reaching 1.40, its highest level since 2020, traders will also be keeping a close eye on inflation data.

The UK will release its inflation figures on Wednesday. Here, headline inflation is well below 2%, with core inflation, which excludes food and energy, hovering between 3.2-3.5% and 3.5% for the past five months. This is despite the negative annual rate of producer prices due to the impact of services prices.

The Japanese inflation estimate will be released on November 22nd, which may also play a key role in the future dynamics of the Yen and the Bank of Japan’s sentiment.

In the European session, all eyes will be on the preliminary business activity estimates for November. The release of the PMI indices often causes volatility in the Euro, and this time, it may determine the fate of the single currency for the next month.

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