Risks are skewed slightly hawkish going into this week’s FOMC meeting due to stronger-than-expected core inflation, sustained wage pressure, and the recent risk asset rally. We expect the pace of hikes to slow to 50bp in December after a widely expected 75bp rate hike this week – but for the “step down” rate increase to be paired with hawkish rhetoric emphasizing that rates may later move higher again and remain at these levels once increased. If the risk is not realized at the meeting this week, we would see the possibility of repricing the policy path as hawkish in upcoming jobs and inflation reports or at the mid-December FOMC meeting.
The Hot Zones this Week
Each week there are zones where trading can get wild. I call these the hot zones.
Global Spotlight
In the presidential runoff election, current President Jair Bolsonaro and former President Luiz Ignacio Lula da Silva will face off. After the first round vote, Bolsonaro has made a strong recovery in the polls with da Silva’s lead decreasing from 15 points to five. This is due to the government’s recent successes on economic and security fronts—issues that are important to Brazilian voters. The close margin in preelection polls and a last-minute scandal surrounding radio airtime may give Bolsonaro the tools he needs to contest the election results if he unfortunately loses. The next few days, including how the winner and loser react, will have a significant impact on democratic institutions and political polarization over the next four years.
Israel’s religious right has a chance at power in the upcoming elections. On Nov. 1, Israelis will vote for the fifth time since 2019, and this time, the far-right Religious Zionism party is expected to make significant gains in the Knesset, potentially becoming the third-largest party. Although polls suggest another deadlocked result, coalition negotiations could yield a government that brings Religious Zionism into power, where its leaders like Itamar Ben Gvir have made clear they want posts such as Defense and Interior ministries. If they don’t enter government, they will still try to use their newfound influence to shift the nation’s discussion toward more extreme ideas. Some of these include getting rid of Israeli Arabs, expanding West Bank settlements rapidly, and adding land that Israel controls.
On October 31, Putin will be hosting Armenian Prime Minister Nikol Pashinian and Azerbaijani President Ilham Aliyev for trilateral talks in Sochi, Russia. The talks, proposed by Russia, will center on maintaining regional security and stability through previous trilateral agreements. However, the restoration and development of trade, economic, and transport ties will also be discussed. Moscow will look to reaffirm Russia’s place as the go-to mediator in the South Caucasus, especially since it is becoming more apparent that EU mediation between Armenia and Azerbaijan has been more successful in promoting a peace deal. Additionally, many people in Armenia believe that Russia wants Armenian to stay weak so they will be forced to rely on Russia, which plays in Moscow’s favor.
On Nov. 4, German Chancellor Olaf Scholz will visit Beijing at the invitation of outgoing Chinese Premier Li Keqiang. Accompanying Scholz on this one-day trip will be representatives from Germany’s industrial sector. The purpose of the visit is to address human rights concerns as well as China’s market access for European businesses. Germany’s relationship with China is gradually growing more complicated as Security concerns about trade reliance on China and Chinese investment in European infrastructure mount. Given Germany’s central role in the European economy, the future of EU-China relations could be based on this visit. Leaders from Vietnam, Pakistan and France are visiting Beijing soon. Scholz’s visit also falls during this high-level wave of visits to China that has come after the 20th Party Congress. Despite China’s “zero-COVID” restrictions,
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Week’s Numbers
Review Last week’s numbers here.
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 22Q3 Y/Y earnings are expected to be 4.1%. Excluding the energy sector, the Y/Y earnings estimate is -3.5%.
- Of the 263 companies in the S&P 500 that have reported earnings to date for 22Q3, 73.4% have reported earnings above analyst estimates. This compares to a long-term average of 66.2% and prior four quarter average of 78.1%.
- During the week of Oct. 31, 167 S&P 500 companies are expected to report quarterly earnings.
