Bullwaves Week Ahead Snapshots

US Midterm Elections Take Centre Stage

The biggest political event of the week arrives on Tuesday, when Americans head to the polls for the midterm elections.

All 435 seats in the House of Representatives are being contested, alongside roughly one third of the Senate and several state governorships. The outcome will determine who controls Congress during the second half of President Donald Trump’s current term.

Current expectations point to a strong possibility that Democrats could regain control of the House, while the Senate remains considerably more competitive.

A change in control of the House could significantly affect the administration’s ability to pass legislation related to taxation, government spending and trade.

For financial markets, divided government can sometimes reduce the probability of major policy changes. While this can slow legislative activity, it may also provide investors with greater visibility over the direction of fiscal policy.

The final result could therefore influence expectations across equities, bonds, currencies and other major asset classes.

Oil Markets Watch Iran Diplomacy Closely

Energy markets remain closely connected to the political developments taking place this week.

Oil prices moved lower at the beginning of the week after President Trump indicated that additional time would be given to diplomatic efforts before considering further military action involving Iran.

Qatar is also reportedly involved in discussions aimed at reopening the Strait of Hormuz, one of the most strategically important shipping routes for global energy markets.

The developments reduced some of the geopolitical premium that had accumulated in crude prices throughout October.

Brent crude fell by approximately 3 percent at Monday’s open, trading near $110 per barrel, while US WTI crude moved closer to $103.

However, uncertainty remains elevated.

Military activity could potentially resume after the US election, while Iran has warned that it would respond strongly to renewed attacks.

A new escalation could quickly push oil prices higher again, with some analysts seeing the possibility of Brent returning towards the $120 level.

Oil remains particularly important because sustained increases in energy prices can feed directly into inflation.

This means developments in the Middle East could influence not only energy markets, but also expectations for global interest rates.

Friday’s Jobs Report Becomes the Next Test for the Federal Reserve

The main economic release of the week arrives on Friday with the latest US Non Farm Payrolls report.

Economists currently expect the US economy to add approximately 55,000 jobs, following the weak increase of 29,000 reported in the previous month.

The unemployment rate is expected to remain close to 4.2 percent.

The labour market therefore presents an increasingly complicated picture for the Federal Reserve.

Economic growth remains relatively strong, with the US economy expanding at an annualised rate of approximately 3.4 percent during the previous quarter.

Employment growth, however, has clearly slowed while inflation remains elevated.

The Federal Reserve increased interest rates in September and maintained a relatively restrictive message, while choosing to keep rates unchanged during its October meeting.

Markets are now placing significant attention on the possibility of another rate increase in December.

Current expectations suggest that the probability of a December hike remains around 75 percent.

A surprisingly weak employment report could make another increase more difficult to justify, while stronger employment numbers would reinforce expectations that rates could move higher again before the end of the year.

Earnings Season Enters Its Final Major Week

Corporate earnings will also remain important after technology stocks experienced heavy selling pressure last week.

Investors have become increasingly concerned about the enormous amounts of capital being committed to artificial intelligence infrastructure, particularly when the financial returns from that investment remain uncertain.

The Nasdaq fell almost 3 percent on Friday, while major technology companies including Alphabet, Amazon and Intel came under significant pressure.

Apple becomes one of the final technology giants to report results, with its earnings scheduled after the market close on Monday.

Analysts expect earnings per share of approximately $2.00 and revenue close to $113 billion.

The artificial intelligence investment story will continue throughout the week.

AMD, Arista Networks and Astera Labs report on Tuesday, while Qualcomm reports on Wednesday.

Palantir and Arm will also attract significant attention from investors looking for indications about the strength of demand surrounding artificial intelligence infrastructure and software.

Outside the technology sector, companies including Pfizer, McDonald’s, Uber, Airbnb, ConocoPhillips and Monster Beverage are also scheduled to report.

International companies including Novo Nordisk and Toyota will provide additional signals about conditions across healthcare, consumer demand and the global economy.

Australia and the United Kingdom Face Interest Rate Decisions

Central banks outside the United States will also play an important role this week.

The Reserve Bank of Australia announces its latest interest rate decision on Tuesday.

Markets currently see a high probability of a 25 basis point increase, which would bring the benchmark interest rate to approximately 4.85 percent.

Persistent inflation remains the main reason behind expectations for another increase.

Attention then moves to the Bank of England on Thursday.

Markets widely expect the Bank of England to increase rates by 25 basis points, as inflation remains close to 3 percent and policymakers continue to evaluate the strength of price pressures across the British economy.

Investors will focus not only on the decisions themselves, but also on the guidance provided by both central banks.

Any indication that additional increases could follow would reinforce the broader message currently coming from several major economies.

Despite weaker areas of economic activity, inflation remains difficult to control and many central banks are still considering higher interest rates rather than preparing for significant cuts.