The Congressional elections to be held in the USA will determine the political balance of the next two years. Non-agricultural employment data will offer new clues to investors about the course of the world’s largest economy. As signs increase that the appetite for artificial intelligence investments is weakening, the balance sheets of large technology companies and companies operating in the field of artificial intelligence will be closely monitored.
On the other hand, some of the world’s leading central banks will hold meetings. Investors will examine developments in emerging markets such as Brazil and Indonesia.
1. CONGRESS ELECTIONS IN THE USA
Democrats in the US aim to take control of Congress from President Donald Trump’s party, the Republicans, in Tuesday’s elections. Election results may reshape policy expectations in markets.
While Democrats are expected to gain the majority in the US House of Representatives, uncertainty continues about whether they will be able to take control of the Senate. During Trump’s second term, Republicans were in the majority in both the House of Representatives and the Senate.
If Democrats win the election, regulations on artificial intelligence could be tightened, new data centers could become harder to build, and inspections of major US banks and crypto companies could increase.
Election results can also shape expectations for public spending. Shares of defense and health sector companies are seen as the stocks that will be most affected by the election results.
2. NON-FARM EMPLOYMENT DATA IN THE USA
October non-farm employment data, which will be announced next Friday in the USA, may shape expectations regarding the steps the US Federal Reserve (Fed) will take in the coming period.
Non-farm employment increased by 29,000 in September, below expectations.
However, the labor market maintained its resilient appearance. While the unemployment rate remained at 4.2 percent last month, weekly jobless claims remained close to the lowest levels in the last 57 years.
The Fed kept its policy rate steady on Wednesday and raised its characterization of the US economy from “robust” to “strong”.
While markets give an 80% chance that the Fed will raise interest rates in December, non-farm employment data may be decisive in expectations regarding the timing of the Fed’s next interest rate step.
3. BALANCE SHEETS ARE ON THE AGENDA IN THE USA AND EUROPE NEXT WEEK
The balance sheet to be announced by Apple, one of the major technology companies called the “Magnificent Seven”, will be closely watched. In addition to Apple, important companies operating in the artificial intelligence industry will also announce their balance sheets next week.
The artificial intelligence sector is being watched especially closely after the balance sheets of Google’s parent company Alphabet, Amazon and Intel, which did not meet expectations, caused sharp declines in stocks.
The balance sheets to be announced by Qualcomm and its rival company Advanced Micro Devices may alleviate or increase concerns that the demand for artificial intelligence is losing momentum.
In Europe, the balance sheets of companies affected by both US President Donald Trump’s customs duties and the high energy costs caused by the Iran war are expected.
Among the companies that will announce their balance sheets are automobile manufacturers BMW, Daimler, Ferrari RACE.MI and airline companies Lufthansa, Ryanair and ICAG, the umbrella company of British Airways.
4. CENTRAL BANKS CONTINUE TO STAY ON THE AGENDA
Central banks will have a busy meeting schedule next week. The Reserve Bank of Australia (RBA) will announce interest rate decisions on Tuesday, the Swedish Central Bank (Riksbank) on Wednesday, the Bank of England (BoE) and the Norwegian Central Bank on Thursday.
The US Federal Reserve (Fed), European Central Bank (ECB) and Bank of Japan (BOJ) left the policy rate constant this week, but markets expect the central banks of Australia, Sweden and England to increase interest rates.
If market expectations are realized, the Reserve Bank of Australia, which is struggling with inflation that continues its high course, will increase interest rates for the fifth consecutive time this year. The central banks of Sweden and England will increase interest rates for the first time this year.
Both Swedish and British central banks had adopted a wait-and-see approach, but the increase in inflation risks strengthens the justification for an interest rate increase.
The Norwegian Central Bank increased interest rates twice this year.
5. CHALLENGING INTEREST RATE DECISION AFTER THE ELECTIONS IN BRAZIL
The Brazilian Central Bank, on the other hand, faces a more difficult decision process after the turbulent election process that upset market expectations. Although Flavio Bolsonaro’s victory in the first round initially provided a boost to the markets, Luiz Inacio Lula da Silva’s return to power in the second round reversed these gains; real and stocks fell sharply.
While political uncertainty complicates the relaxation cycle in which the policy rate is reduced to 13.75 percent, all eyes are on the interest rate decision that the central bank will announce next Wednesday and the messages it will give in the decision text.
Markets will also closely follow Lula’s choice of finance minister to get clues about future fiscal policies.
Indonesia’s third quarter GDP data, which will be announced next Thursday, will also be watched closely. With the rupiah hovering near historic lows, investors will be looking for signs of whether Southeast Asia’s largest economy remains under pressure due to concerns raised by President Prabowo Subianto’s policies and his ambitious 8 percent growth target.
