Unadorned Notes: October 31 – November 3, 2024
U.S. Election and Fed Decision Loom; U.S. Job Growth Hits 3-Year Low; U.S. Manufacturing Hits 15-Month Low; U.S. PCE Inflation Slows; Hedge Funds Target Asymmetric Election Trades
Economics, Finance, and Business
U.S. Election and Fed Decision Loom: The upcoming week features key events as Americans vote for their next president, and the Federal Reserve assesses the path of interest rates. The election pits Republican Donald Trump against Democrat Kamala Harris, with their distinct economic policies impacting market sentiment. Analysts suggest a Trump win may favor deregulation and domestic companies, while Harris’s focus on clean energy could benefit renewables. The Fed is anticipated to cut rates modestly, with investors closely monitoring Chair Jerome Powell’s guidance on future policy in light of robust economic data. The combination of the election outcome and Fed actions is expected to bring heightened market volatility.1
U.S. Job Growth Hits 3-Year Low: The U.S. economy added only 12,000 jobs in October 2024, marking the lowest monthly gain since December 2020, according to the Bureau of Labor Statistics. The weak performance was heavily influenced by temporary factors, including labor strikes and hurricanes, which disrupted data collection and job counts in affected regions. Despite these distortions, the unemployment rate held steady at 4.1%, indicating some stability in the broader labor market. Wage growth rose by 0.4% month-over-month, with annual gains holding at 4%, suggesting wage growth is decelerating but still positive. Economists expect future revisions to the October 2024 data and suggest that the Federal Reserve may continue a cautious approach to rate adjustments.2
U.S. Manufacturing Hits 15-Month Low: U.S. manufacturing activity declined in October 2024, with the ISM’s PMI falling to 46.5, its lowest level since July 2023. A reading below 50 indicates contraction, marking the seventh consecutive month of decline amid ongoing challenges like the Boeing strike, which has disrupted production across the sector. Despite weaker output, the new orders sub-index showed a slight improvement, rising to 47.1. Input costs surged, with the prices-paid index increasing to 54.8 from 48.3 in September 2024, reflecting higher expenses for manufacturers. Employment in the manufacturing sector improved modestly but remained at subdued levels.3
U.S. PCE Inflation Slows: The U.S. Commerce Department reported that the Personal Consumption Expenditures (PCE) price index rose 0.2% in September 2024, bringing the annual increase to 2.1%, the lowest since February 2021. Core PCE, which excludes food and energy, increased 0.3% for the month and 2.7% year-over-year, suggesting some persistent inflationary pressures. The data supports expectations for a 25-basis-point rate cut by the Federal Reserve at its upcoming meeting, though concerns about potential inflation re-acceleration could prompt caution. Consumer spending remains strong, particularly in non-discretionary categories such as healthcare and housing, despite moderate income growth. Some analysts warn that while headline inflation is cooling, core inflation’s stickiness could lead the Fed to pause future rate cuts.4
Asian Central Banks to Lag Fed Cuts: Most Asian central banks are expected to cut interest rates more slowly than the U.S. Federal Reserve over the next year, according to Reuters polls. With stable inflation and solid economic growth, Asian policymakers have less urgency to reduce rates despite a strong dollar. The Fed’s aggressive rate cuts provide Asian central banks with flexibility, though weak currencies have previously deterred faster cuts. Only Bank Indonesia is projected to cut rates by 50 basis points this year, while the Philippine central bank may lower rates by 100 basis points in 2024. China’s central bank remains an outlier, implementing more substantial easing measures to support its economy.5
Hedge Funds Target Asymmetric Election Trades: Hedge funds are exploring “asymmetric trades” that would benefit from a Donald Trump victory but minimize losses if Kamala Harris wins. Popular trades include long positions in bitcoin, expected to surge under Trump’s pro-crypto stance, and shorting the yuan, anticipating potential tariffs on China. Some funds have adjusted to neutral positions to offset potential losses through paired trades. While betting markets show momentum for Trump, some analysts caution that these trades may be overdone given the tight race. With the election outcome uncertain, some funds are taking profits or pausing on high-risk positions.6
Social Sentiment Enhances Investment Strategy: Social sentiment analysis offers insights into market momentum, helping investors detect trends and gauge retail investor impact, especially with volatile assets like meme stocks. Monitoring sentiment allows for real-time responses to events, enabling swift strategy adjustments based on public reaction. Integrating sentiment data with quantitative models improves predictive accuracy, as it reflects investor psychology alongside historical metrics. This analysis also aids in risk management by flagging negative sentiment spikes, which may signal potential downturns. Long-term sentiment trends align with market cycles, providing investors with a broader view of shifts in market psychology, per
.7Amazon Boosts AI Investment Spending: Amazon CEO Andy Jassy reassured investors about the long-term benefits of the company’s increased spending on generative AI, drawing parallels to the growth of Amazon Web Services (AWS). Amazon’s capital expenditures rose 81% year-over-year, reaching $22.6 billion, with plans to spend $75 billion in 2024 and even more in 2025, largely to support AI infrastructure. Jassy described generative AI as a “once-in-a-lifetime” opportunity and highlighted that AWS’s AI-related business has reached a multi-billion-dollar revenue run rate, growing at triple-digit rates annually. The company has launched new AI tools across AWS, its marketplace, and advertising, with plans for an AI-enhanced Alexa assistant. Amazon’s AI-focused strategy aligns with other tech giants, as Microsoft, Meta, and Alphabet have also raised their capital expenditure projections for similar initiatives.8
U.S. Politics and Geopolitics
Trump Revives Claims of Election Fraud: Donald Trump is repeating claims of election fraud similar to his 2020 assertions, alleging that Democrats are trying to steal the 2024 election. These accusations include claims of noncitizen voting, early voting manipulation, and issues with overseas ballots, despite numerous safeguards in place to prevent fraud. Election officials and experts emphasize that voter fraud is rare, and many false claims have been swiftly debunked by authorities. Trump and his allies have also encouraged preemptive challenges to results in key states, particularly Pennsylvania, where legal battles and misinformation are already rampant. Officials are preparing for potential disruptions post-election and have taken steps to counter any attempts to challenge legitimate results, such as updating the Electoral Count Act.9
Divided Government Often Curbs Spending: Historically, a Democratic president paired with a Republican-controlled Congress has resulted in the most fiscally restrained outcomes, as seen under Bill Clinton and Barack Obama. Republican Congresses have tended to oppose expansive government spending when a Democrat is president, leading to budget compromises that curb deficits. In contrast, unified government under either party typically results in higher spending, with examples including George W. Bush’s Medicare expansion and Donald Trump’s tax cuts under Republican majorities, as well as Joe Biden’s American Rescue Plan with a Democratic Congress. Executive orders and the impending expiration of the 2017 Tax Cuts and Jobs Act add complexity, allowing presidents to impact fiscal policy independently of Congress. Overall, current political dynamics make deficit reduction unlikely, though divided government may limit fiscal excesses, per the Manhattan Institute’s Brian Riedl.10
China Expands Military Power in South China Sea: China has built a $50 billion military complex on Hainan Island and across the South China Sea, aiming to secure strategic control over key shipping routes and project power in the region. The Greater Yulin Naval Base on Hainan, housing ballistic-missile submarines and advanced naval facilities, rivals major U.S. installations in value and capability. China’s buildup includes air bases, missile installations, and artificial islands in the Paracel and Spratly Islands, designed to challenge U.S. and allied access to contested waters. The region’s importance is underscored by its role in global trade, with $7.4 trillion passing through the South China Sea annually. U.S. military officials acknowledge China’s growing regional power and emphasize the need for increased defense investments to counterbalance Beijing’s influence.11
North Korea Tests Enhanced ICBM: North Korea test-fired an intercontinental ballistic missile (ICBM) on Thursday, showcasing advancements in its long-range nuclear capabilities. Experts suggest the missile’s extended flight duration and altitude indicate improved engine thrust, possibly with Russian assistance. The test is seen as a message to the U.S. and its allies amid North Korea’s deepening military ties with Russia, including alleged troop support for Russia’s Ukraine invasion. South Korea and Japan condemned the launch as a destabilizing action, with U.N. Secretary-General Antonio Guterres urging de-escalation. The U.S., South Korea, and Japan reiterated calls for North Korea to cease its provocative actions and return to diplomatic dialogue.12
