Vote on Tuesday, Jobs on Friday

There was a pause from the Fed last week, but it’s pretty clear to us that the pause is not the end. The decision was to hold at 3.75% - 4.00% (10-2 votes), and the future price still has an 82% chance of a December hike. The economic situation is also adding up to the December hike, such as a Q3 GDP that grew 3.4% and core PCE which rose 0.3% in September. This week we got two pieces of data that can alter the December pricing in different ways. First, the US midterm elections on Tuesday, which will set the political background for fiscal policy, trade, and energy in 2027. Another one is the jobs report on Friday, which is the last payrolls print before the Fed’s December meeting.

Where we’re coming from

The recent big Tech earnings were quite the event. Microsoft showed Azure growing around 48% plus having a free cash flow positive, so the stock held up. While Alphabet, or Google, reported Google Cloud revenue more than doubling but, the cash flow is on the negative side at around $9.1 billion. This sent the stock down 12.6% (its worst day as a public company). Amazon also grew AWS 39% but missed the earnings target with a deeply negative free cash flow. The situation is the same as META a week ago, which tells us that the market is rewarding AI spending that pays for itself and punishing spending that doesn’t.

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Theme 1: What changes after Tuesday?

The market will trade according to what the result implies for policy after the midterm election.

This midterm will decide control of both houses of Congress, which will shape the outlook for government spending and borrowing, tariff policy, energy policy, and even potential regulation for the technology sector. On the other side, the bond market. The bond market has a key question, which is the fiscal path, so anything that points to higher deficits will add to Treasury supply, which has already been one of the reasons that long-term yields have been sitting near 5%.

There’s also a geopolitical side. The administration has pursued international negotiations with Iran through Qatar and Vice President Vance, but there are also reports that there might be renewed strikes following the election. Any escalation that occurs after Tuesday will probably hit an energy market that is already tight, which will lead to the Fed’s December decision.

What would change the entire situation: Either a result that markets read as pointing to a larger deficit or a confirmed post-election military action against Iran would push long-end yields and oil higher in the same week.

Theme 2: Is the labour market weak enough to stop December hike?

This is the question that will decide the December hike, and this week's data will show the full set of answers. The recent payrolls in September pulled the three-month average down to about 50,700, unemployment rose to 4.2%, and hourly earnings rose just 0.1%. The forecast for October sits around 55,000 - 65,000 with the steady unemployment rate the same as in September. This week also has build-up data coming before the Non-farm, which are also matters such as JOLTS job openings on Tuesday, ADP on Wednesday, and Challenger layoff announcements + jobless claims on Thursday. The claims remain low, with the four-week average under 200,000, which is also why the Fed treated September as noise data.

There’re two more things to keep an eye on. First is the ISM Manufacturing report on Monday. For the record, September’s headline was a solid 54.5, but the prices-paid index was 77.9, which is a sign that energy costs are still leaking through factory gates. Another one is the squeeze on household, real wages have slipped below zero for the first time in 3 years as the price increasing faster than pay. This keeps consumer demand under pressure even if the headline shows strong growth.

What would change the story: A second consecutive payrolls report under 50,000, with an unemployment rate rising above 4.2% and weak revisions. This would make the situation very hard for the Fed to hike interest rates into a cooling labour market, which could lead to sharply lower odds in December.

Theme 3: Who still gets paid for AI?

Last week earning session show a clear line between AI companies that convert spending into cash and those companies who still asking for more fund for future returns. This week will be a test of that line again, but from a different angle. Apple reports on Monday, which is also its first quarter under its new CEO (John Ternus). Apple has avoided the heavy AI capital spending of its peers, which makes it a safe haven among mega-cap tech, it rather focuses on iPhone demand, memory costs, and Apple Intelligence adoption. Also another company that will report on Monday, Palantir. It’s the purest test of whether investors will still pay a premium valuation for AI software growth. Coming on Tuesday will be the turn for AMD + Qualcomm, followed by Arm on Wednesday. These companies will give us the chip-supply view after Intel’s poor results and a brutal October for semiconductors. Chipmakers are the main beneficiaries of the spending from hyperscalers, which is running around $800 billion this year. The question is whether their guidance shows any sign of slowing down from customers or not.

What will make this story change: AMD or Qualcomm guiding cautiously on data-centre demand. This will be the first sign that the market’s pressure on hyperscaler cash flow is feeding back into chip orders. This will change the AI debate from spending discipline to a demand slowdown.

The one thing to watch

The one to keep an eye on is the unemployment rate on Friday, not the payrolls headline. Two dissenters already wanted to have a hike in October, so if there’s one more strong month, a December hike would be close to formality. But an increase up to 4.3% or above would show that the labour market is weakening alongside negative real wages. That is the one result that could give Kevin Warsh a credible reason to hold.

Key economic events this week

Weekly economic calendar

2 – 6 Nov

Date	Time (UTC)	Country	Event
Mon 02	14:45	US	Manufacturing PMI (Oct)
Tue 03	03:30	AU	RBA Interest Rate Decision (Nov)
Tue 03	15:00	US	JOLTS Job Openings (Sep)
Thu 05	12:00	GB	BoE Interest Rate Decision (Nov)
Fri 06	13:30	US	Nonfarm Payrolls (Oct)

Dates and times correct at time of publication. See the full economic calendar