Blockbuster hiring and American spending sprees set to complicate the Fed's December move

Markets

U.S. stock indices mostly churned through the day but took a late hit as a sharp selloff in high-flying chipmakers dragged stocks lower. Equities erased earlier gains after a 3.4% drop in the semiconductor index, with Nvidia and weaker-than-expected results from Advanced Micro Devices (AMD) leading the rout. Sky-high valuations met a stubbornly high 10-year yield pressing up to 4.30%, and investors are increasingly demanding stellar, not just solid, earnings, especially as traders recalibrate bets on policy easing following strong Q3 GDP data.

This marks two-quarters of well-above-trend growth for the U.S. economy, driven by buoyant consumer spending, significant government defence outlays, and a resilient non-residential investment scene. Treasury two-year yields, more attuned to Fed policy, climbed seven basis points to 4.16%. Still, the U.S. dollar paradoxically lost steam as G10 currencies hinted at a liquidity squeeze and softer Trump-centric momentum through the greenback.

With real consumer spending accelerating and the government’s fiscal engine revving, the Fed faces pressure to keep rate cuts at a gradual pace if it hopes to avoid sparking growth or inflation scares down the road. In addition to today’s better-than-expected ADP jobs report, this potent mix could bump consumer spending and GDP forecasts for Q4. If the fiscal spigot, as expected, opens wide in 2025, the Fed may find itself needing to balance growth and policy expectations cautiously.

Asian equities are inheriting a wobbly baton today as earnings from U.S. tech giants failed to deliver the expected boost. Wednesday’s session was a clear nod to pre-election de-risking. Still, with U.S. yields rebounding strongly as the day progressed, the anxiety around next week’s election will likely carry over into Thursday’s trading in Asia.

G-10 forex markets

The big question for FX traders now is: Is the Trump trade fully baked, or is there still room to run? With less than a week until the election, betting markets still see Trump as the likely victor, even as election models face a nail-biting reality where tight polls are making second-guessing the name of the game. Meanwhile, the U.S. 10-year yield is proving incredibly resilient, refusing to back down, which keeps the dollar bulls in the game.

But one wildcard looms large for U.S. dollar bulls: Friday’s payrolls report. With hurricanes and strikes in the mix, there’s a real shot at a lower-than-expected print. Estimates have been getting trimmed practically by the day, and if we see a negative surprise, the dollar could surrender some of its recent gains.

The past day has been about jockeying for positions as traders brace for a potentially softer Friday jobs report.

However, Tokyo will be squarely in focus with Bank of Japan Governor Kazuo Ueda's press conference following the anticipated hold on interest rates.

Investors will be watching Ueda’s take on Japan’s macro outlook and how the country’s recent political deadlock might factor into the BOJ’s approach. The yen remains on the weaker side, hovering around 153 per dollar, while the Nikkei 225 sits above the 39,000 mark, up an impressive 3.5% for October—potentially ringing its best month since February.

But unquestionably, the FX market hasn’t fully absorbed the potential for a Trump-triggered shake-up, which could cause massive currency volatility. If we look at the 25-delta risk reversal for EUR/USD, which tracks the premium investors pay to guard against the downside in the euro, we’re miles away from the elevated levels seen during past downside scares.Those modest options hedges floating around? They’re more like dipping a toe in than suiting up for full-on defence. 

Oil markets

Oil prices bounced back on Wednesday, climbing over 2% after a surprise dip in U.S. crude and gasoline inventories and fresh chatter that OPEC+ might delay its planned production increase. The gasoline draw is the star of the show here, giving oil a solid floor, while OPEC’s classic “trial balloons” add a dash of intrigue. Traders know OPEC’s playbook: market conditions rule the day for production tweaks.

Perhaps OPEC wants to kick the can down the road another month to see if China’s stimulus truly courses through domestic energy markets. It’s a cautious wait-and-see approach—hoping China’s economic boost translates into real demand before making any hasty production decisions.

But here’s the real kicker—if Trump secures the Oval Office, expect a "Drill, Baby, Drill" policy shift, likely spurring other OPEC+members, especially those with looser fiscal constraints than Saudi Arabia, into a "Pump, Baby, Pump" mindset. This election could keep oil markets on edge, with a Trump win possibly reshaping global oil supply dynamics.