Halloween Week: Guide to five critical US events that may spook markets about a recession

It does not get busier than the week of October 28 to November 1 – and it could become horrifying for investors even if they ignore Halloween. 

The global economy is showing signs of weakness, and these five events will help confirm – or disprove – fears of a recession in the world's largest economy. 

Here are five critical events to watch:

1) Are consumers confident? 

US economic events kick off in earnest on Tuesday, when the Conference Board publishes its Consumer Confidence survey for October. The figure fell to 125.1 in September, a drop from the high levels, but still a healthy outcome. 

Will it continue falling? Or is it set for a rebound back above 130? The consumer is critical to US growth. However, retail sales missed expectations in September, and this indicator for October will help set expectations.

2) ADP's NFP will test investors' nerves

Wednesday is the busiest day of the week. ADP's Non-Farm Payrolls are expected to show stable private-sector hiring in October, close to 135,000 seen in September. The release is the first hint toward the all-important official jobs report. Job growth has been slowing down.

America's largest payroll provider's figures are not always well-correlated with the official private sector component of the official report. Moreover, government hiring toward the 2020 census may skew the figures on Friday. The higher levels of uncertainty and recent weakness may cause significant jitters.

3) How slow is the slowdown? 

Investors will have only 15 minutes to digest the data before a more significant data point hits the wires. The first release of Gross Domestic Product (GDP) for the third quarter is projected to show a slowdown – below 2% annualized recorded in the second quarter.

A drop below the "new normal" levels of 2-2.5% is mostly driven by a drop in manufacturing and investment, while the consumer pulls the economy forward. The first release tends to deviate significantly from economists' consensus and tends to have the greatest impact on markets. 

The disappointing Durable Goods Orders figures for September – which have shown falls in all measures – imply weak GDP figures.

4) Fed will probably cut, but uncertainty is high

Last but not least on "Super Wednesday", the Federal Reserve announces its decision. Bond markets reflect a high chance that the Fed cuts rates for the third time in a row. Despite the recent trade truce and a small pick up in inflation, demand from abroad is slowing, high uncertainty prevails around trade, and investment is shrinking. 

Contrary to previous decisions, the level of uncertainty is higher. Officials tend to telegraph the outcome of the meeting well in advance, and they have been vaguer this time. Several doves – who would usually advocate loudly for cuts – have seemed reluctant. These include James Bullard, President of the Saint Louis branch of the Federal Reserve, and Robert Kaplan, his colleague from Dallas.

The latest to speak before the bank's "quiet period" was Richard Clarida, the Vice-Chair. He did not endorse a rate reduction, nor did he explicitly deny it. However, given the pricing in bond markets, Clarida's silence implies the Fed will cut rates again – despite potential dissent from at least two members.

If the bank leaves rates unchanged, the dollar could surge against most currencies, but USD/JPY may fall alongside stock markets. A cut may push USD/JPY higher.

Jerome Powell, Chair of the Federal Reserve, will explain the decision in a press conference. Powell's explanations have occasionally puzzled reporters and investors, triggering volatility. He may struggle to explain how three consecutive cuts still consist of a "mid-cycle adjustment" and not a full-blown loosening cycle – while unemployment is at 50-year lows. 

5) Post-Halloween Non-Farm Payrolls

Markets will likely be focused on digesting the Fed decision on Thursday, but will also eye the bank's preferred inflation gauge – Core Personal Consumption Expenditure (Core PCE). It has hit 1.8% in August, just under the 2% target. Personal Income, Personal Spending, and weekly jobless claims figures are also of interest. 

On Friday, the dust from Powell's press conference will have settled, and Non-Farm Payrolls for October will be in the limelight. September's NFP disappointed with an increase of only 136,000 jobs, causing worries of a slowdown in the labor market. Moreover, annual wage growth slipped to 2.9% – the lowest since October last year. A return to the 3% is now on the cards.

Headline jobs will have more impact than salaries. If job growth falls below 100,000, bonds may reflect high chances of another rate cut in December. If Average Hourly Earnings fail to recapture the 3%, it would also dampen sentiment. 

The last word of the week belongs to ISM's Purchasing Managers' Index for the manufacturing sector, which is usually released before the NFP. It slipped to 47.8 points in September, raising fears of a widespread recession, and a small increase is on the cards. Only a leap above 50 – indicating a return to expansion – would truly cheer markets.

Conclusion

The turn of the week between October and November is packed with top-tier US events that will shape investors' minds and rock all markets.