Outlook for the week ahead; The stock market is looking for a new direction, focusing on the financial reports of companies

Source link: outlook for the week ahead; The stock market is looking for a new direction by focusing on the financial reports of companies. At a glance, the US stock indices have been under pressure, and the increase in risk aversion in the markets has supported the price of these bonds by reducing the yield of government bonds. In the conditions of the weakness of technology stocks, the financial reports of American companies and the mid-term elections of this country will be in the focus of investors' attention. His data

US stock indices have been under pressure and increased risk aversion in the markets has supported the price of these bonds by reducing the yield of government bonds.

In the conditions of the weakness of technology stocks, the financial reports of American companies and the mid-term elections of this country will be in the focus of investors' attention.

UK employment and inflation data could challenge current market expectations for a Bank of England rate hike.

Euro zone PMI indicators and Chinese economic data will be the key events of the week; While the euro and the Australian dollar are both looking for fresh support factors.

The weakness of the US stock market led to the strengthening of government bonds

It has been a difficult week for investors; Because the publication of the US CPI inflation report, which was higher than expected, and the strong start of the season of corporate financial reports, failed to create the expected reactions in the markets. Except for the Australian dollar, the US dollar has only recorded limited growth against other major currencies and its rally after the release of the CPI index was also short-lived; Especially in the situation where the dovish statements of the Federal Reserve officials continue. However, the weakness of the Nasdaq index has become one of the main topics of the market and has increased the concern of investors.

After two months of positive performance, tech stocks have entered negative territory in October despite promising early financial reports from AI-related companies. For the first time since the end of March, this sector is on the verge of recording the second consecutive week of negative performance; When the stock markets were under severe pressure due to the conflict between the United States and Iran and the jump in oil prices. Similarly, the S&P 500 index is also giving up last week's gains; Because the increase in the share price of companies in the energy sector and essential consumer goods has not been enough to keep the index in the positive range.

It seems that the reduction in risk appetite in the markets has managed to do what US Treasury Secretary Scott Bessant was unable to do with his statements and debt buyback plan. The yield of US Treasury bonds has decreased and the yield of 10-year bonds has reached the lowest level in the last three weeks by dropping to 5%. Eurozone and UK bond yields have also experienced smaller, but still significant, declines.

The prevailing risk-averse atmosphere in the markets can also explain gold's behavior after the initial negative reaction to the CPI report. However, the precious metal's ability to form a strong uptrend remains limited; Because the real yields of bonds have remained at high levels.

Corporate financial reports and US mid-term elections in the spotlight

As the countdown to the Federal Reserve's October 28 meeting begins, and with speeches by the bank's officials expected to be limited next week due to the start of the usual period of media silence, investors will turn their attention to the release of US economic data, corporate financial reports, and political and geopolitical news.

The current season of financial reports started with a positive performance from US financial institutions, and more importantly, TSMC and other AI-related companies that reported last week provided a promising outlook. Now the focus of the market shifts to Tesla, Netflix, Lam Research and Western Digital. Also, the financial reports of Procter & Gamble (P&G), American Express (Amex) and Eni (Eni) can provide valuable information about most of the key sectors of the US economy before the financial results of the tech giants are released next week. However, overly high expectations for profitable growth threaten the market's enthusiasm for AI; Especially when analysts are starting to question the profitability goals of these companies.

As seen so far, stocks of technology companies have been under pressure, and considering that a large part of investors have allocated a high weight of their portfolio to this group, the continuation of poor performance of these stocks could lead to a widespread wave of selling in the market. Such conditions are likely to drag down riskier assets such as Bitcoin, but could also benefit the US dollar and bond markets.

Meanwhile, according to Ambassador Arjan's economic calendar, a broad set of data from the housing sector and the auction of 20-year treasury bonds constitute other economic events for next week. Although higher yields may help boost demand in this auction, 20-year bonds remain the least popular part of the yield curve. However, the most important factor complementing the week's outlook will be political developments.

There are only 20 days left until the US midterm elections and the election races are heating up. Democrats appear poised to regain control of the House after six years, according to polls, with the main race focused on the Senate. The prospect of President Donald Trump's continued confrontation with a Democratic-controlled Congress could have significant implications for fiscal policy and the advancement of legislation, thereby greatly increasing uncertainty in markets.

The stability of oil prices means the stability of monetary policy expectations of central banks

Despite the gradual and quiet increase in the supply of oil and gas from the region, the lack of progress in the US-Iran negotiations and the new Houthi attacks on Saudi Arabia have kept oil prices at high levels. However, the more important issue is the provision of refined petroleum products, which has become a complex problem for most governments; An issue that partly justifies the decision of Donald Trump, the president of the United States, to agree with Russia on the gradual supply of millions of barrels of diesel.

The absence of another sharp jump in the price of WTI oil above $100 has made the expectations for an interest rate increase by the Federal Reserve and the European Central Bank to remain limited; The two banks are expected to keep interest rates unchanged at their meetings in the next 10 days.

In contrast, the Bank of England and the Bank of New Zealand are expected to raise interest rates by 25 basis points each. Also, the release of a higher-than-expected CPI report from Canada next Wednesday could significantly strengthen expectations for an interest rate hike by the country's central bank.

Can UK data defy strong interest rate hike expectations?

The Bank of England is scheduled to meet on November 5, a week after the Federal Reserve and European Central Bank meetings. Members of the Monetary Policy Committee (MPC) will also have ample time to assess the important budget announcements on October 28. With the contractionary members of the committee, Green, Mann and Peel, pushing for a rate hike at the next meeting, and Bank of England Governor Andrew Bailey leaning towards them, next week's labor market, inflation and retail sales reports will be particularly important.

A set of better-than-expected economic data could fully confirm the market's current expectations for interest rate hikes. On the other hand, only a significant reduction in inflationary pressures, for example a significant drop in core inflation below 2.4%, could cause investors to doubt and encourage expansionary members of the monetary policy committee to express their views more clearly.

Meanwhile, the pound has undoubtedly performed very well against other major currencies.

British Prime Minister Burnham's comments on rapprochement with the EU, moderated expectations about the mix of measures to be outlined in the budget (which look overly optimistic given the projected deficit) and continued expectations for a Bank of England rate hike have supported the pound against the weak euro; So that the euro/pound currency pair has fallen to the lowest level in the last 18 months.

Will the weakness of the euro continue?

Political tensions and conflicts have become a very serious obstacle for the currency of the Eurozone. The EUR/USD currency pair fell to 1.1112 this week, which is the lowest level since May 2025; That too, in a situation where the French Parliament has started reviewing the 2027 budget bill and the yield of government bonds remains at very high levels. Meanwhile, a wave of reports has been published about the possibility that the European Central Bank is preparing to buy French government bonds in the secondary market; However, the implementation of such a program, even if it can successfully curb French bond yields, will further reduce the attractiveness of the euro.

With EU leaders, as expected, failing to agree on the bloc's next seven-year budget, the main burden of changing negative market sentiment towards the euro now rests on preliminary PMI surveys due out on Friday.

Germany's PMI indicators have been gradually improving, with the country's manufacturing sector index near its highest level since mid-2022. However, the same index in France is still hovering around 50, despite a more promising performance of the services sector.

"The release of a set of weak data can also weaken market expectations for the European Central Bank to adopt a contractionary stance in the upcoming meeting."

Important Chinese economic data is coming

Finally, after a series of public holidays and fruitful trade talks between the EU and China, next week's economic data could provide valuable information on the state of China's economy. A broad set of economic data will be released on Monday, with the September PMI once again returning above the 50 mark despite the continued strengthening of the yuan, and the September producer price index (PPI) gaining momentum. The reports will include new home prices, retail sales and industrial production for September, along with third quarter quarterly gross domestic product (GDP) growth figures.

With the AUD/USD pair down 4.5% since early September, the release of strong economic data from China will undoubtedly be welcome news for the Australian dollar. Such data, along with the Australian CPI report on October 28, could tip the scales in favor of another rate hike by the Reserve Bank of Australia (RBA) in early November.

✔️ Read more: Worries about artificial intelligence did not stop the dollar; What is the market waiting for?

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