Biden finally steps down, and Camilla Harris receives the hospital pass. What hope do the Republicans have, and what does this uncertainty mean for the markets trading at record highs? US economic data shows good progress, with this week’s Durable Goods orders and advanced GDP numbers hopefully helping to consolidate the positive economic outlook. However, QoQ PCE-advanced data due out Thursday is expected to show a worrying sign of price pressure to the topside, but the MoM date is forecast to be more sedated. After wading through last week's economic data from China, the only comment we can make is that more is needed to get the economy back on track. It is hoped that the Communist Party of China’s Third Plenum supports, a little more aggressively, the vision for solid economic gain. While the three-day meeting consolidated Xi’s position for a fourth term, his view to reject a Western-style democracy and promote a socialist market economy system was unwavering. In Australia, we have the Judo Banks Manufacturing, Services and Composite Flash PMIs, which are all forecast to show negative PMI and may tip the RBA into a neutral stance on the interest rates front and put to bed the need to raise rates one last time.

But first, the recent announcement that President Biden has stepped down and Vice President Kamala Harris has assumed the presidency introduces significant uncertainty to the US political landscape. This political shift, occurring as the markets are trading at record highs, poses several questions regarding the future direction of US policy and its potential impact on financial markets. The Republican Party's response to this political change will be crucial. If they can present a unified front and coherent policy alternatives, they may capitalize on any perceived instability or policy shifts under Harris's leadership. However, political fragmentation or extreme rhetoric could increase market volatility. Historically, markets tend to react negatively to political uncertainty as investors seek stability and predictability. The transition in leadership could lead to short-term negative fluctuations as investors reassess the potential policy implications and economic outlook under President Harris. One positive area Harris could focus on is the economy.

Last week's Retail Sales, Industrial and Manufacturing production numbers showed promising signs that the economy is weathering well with tight monetary policy and that keeping rates high to help get the inflation back to the target rate is an environment that could continue, thus pushing expectations of a reduction down the road. This week, durable goods orders and advanced GDP numbers will reinforce a positive economic outlook. Strong durable goods orders indicate robust industrial activity and business investment, while healthy GDP growth reflects overall economic expansion. A focus on this by the Republicans could help market sentiment. 

Moving towards other data, there are ongoing concerns about inflation. The quarter-on-quarter (QoQ) Personal Consumption Expenditures (PCE) advanced data, due out on Thursday, is anticipated to show increasing price pressures. This could signal persistent inflationary trends, complicating the Federal Reserve's efforts to balance economic growth with price stability. Monthly Inflation Data: In contrast, the month-on-month (MoM) PCE data is expected to be more subdued, suggesting that inflationary pressures may be stabilising on a shorter-term basis. This mixed inflation outlook will be critical for future monetary policy decisions. We suggest the Federal Reserve will maintain the current rhetoric. 

Recent economic data from China highlights the continual challenges that are facing its economy. The need for more aggressive policy support to stimulate growth is evident. The Third Plenum of the Communist Party reaffirmed Xi Jinping's position for a fourth term, with the Part agreeing a continue its emphasis on a socialist market economy rather than adopting Western-style democratic reforms. The Plenum's support for Xi's vision will likely focus on state-led economic strategies and potential stimulus measures to stabilise the economy. However, the effectiveness of these measures in reversing the economic slowdown remains to be seen. We have been looking for green shoots of recovery but they seem to wither away. 

Locally, investors will look towards upcoming data from Judo Bank's Manufacturing, Services, and Composite Flash PMIs, which are forecast to show negative readings. Such results indicate a contraction in economic activity across key sectors, reflecting the Australian economy's broader challenges. The negative PMI data may influence the Reserve Bank of Australia's (RBA) stance on interest rates to be more of a neutral one or even a decision to hold off on further rate hikes. The local market looks soft, a trend that we see continuing until there is certainty over China's recovery. 

What can we expect this week? In the United States, key highlights will include the advanced Q2 GDP growth rate, PCE inflation, and personal spending and income. Additionally, other notable releases will feature the S&P Global Manufacturing and Services PMI, durable goods orders, and existing home sales. Earnings season will hit a crescendo with over thirty companies boasting market caps exceeding $100 billion set to unveil their financial reports. Globally, Manufacturing and Services PMI data will be published for Australia, Japan, India, France, Germany, the Euro Area, and the United Kingdom. The People’s Bank of China are set to announce their interest rate decision.

On the position front, we reentered a short position in the S+P (new entry price …) and decided not to roll off the position. Our stop is in at … on this position. We were stopped out in ASX with a loss; however, we reentered at … with a stop above ….  We are still … USD/JPY at …, having added at … Some BOJ interventions have helped the P/L in this position. On a positive note, we have maintained the AUD/USD (US…) after adding … and AUS/CHF (…), which now shows a profit. The … position in wheat rolled off with a small gain. Likewise, we exited Gold (…) and Silver (…) with good profits just before the slide.

Trade Focus:

S+P 500

Fundamentals:

The S+P 500 has finally succumbed to some profit-taking. Although the economic outlook looks promising, with good numbers and positive company news, we see some uncertainty…

Technical Analysis:

The S+P is currently trading at critical support. Momentum indicators have turned and are looking weak. If we get a daily break of …, then we can expect a quick trip to … 

Support              …

Resistance         …

Momentum        …