We are in for a biggest week of the year that will have US Presidential Election, FOMC, BOE and RBA meetings as well as employment data from New Zealand and Canada.
USD
Advanced reading of Q3 GDP came in at 2.8% vs 3% annualized as expected. Details show a much better picture as personal consumption added 2.46pp, up from 1.9pp in Q2. Government spending was also higher than in previous quarter (0.85pp vs 0.52pp) with net international demand showing smaller decline (-0.56pp vs -0.90pp in Q2). One concerning factor is big drop in investment as it contributed with only 0.07pp compared to 1.47pp in the previous quarter.
October PCE declined further and printed 2.1% y/y while core PCE remained unchanged at 2.7% y/y. When taking unrounded monthly readings we get 0.175% for headline number and 0.254% for the core reading. Personal income increased by 0.3% m/m while personal spending rose by 0.5% m/m. The economy is still on disinflationary path and data shows healthy spending coming from the consumer. Employment Cost Index rose by 0.8% q/q in Q3 vs 0.9% q/q as expected and as was in Q2 indicating that wage pressures on prices are decreasing and increases chances of inflation being sustainably on path to 2%.
October employment report saw economy add only 12k jobs vs 115k as expected. Disruptions caused by hurricane and strikes took a much bigger toll than expected. Underlying measures still point to a strong labor market. The unemployment rate remained at 4.1% while participation rate ticked down to 62.6%. Underemployment and average wages also all remained unchanged at 7.7% 0.4% m/m and 4% y/y respectively.
ISM manufacturing for the month of October printed 46.5 vs 47.6 as expected and down from 47.2 in September. All of the major components showed either miniscule improvements or miniscule deterioration except for the prices paid component. Prices paid component jumped back into expansion and printed at the highest level since May. It will not have influence on next week’s decision but it will prompt Fed to monitor prices in manufacturing sector for a sign of returning inflation.
The yield on a 10y Treasury started the week at 4.25%, rose to 4.38% and finished the week at around 4.37%. The yield on 2y Treasury started the week at 4.12%, reached the high of 4.26%. Spread between 2y and 10y Treasuries started the week at 13bp and finished the week at 16bp as curve steepened further. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at November meeting at around 99%, while probability of a 50bp rate cut is around 1%. Markets are pricing around 83% of additional cut in December.
This week we will have Presidential Elections, ISM services and FOMC meeting. Polls are favouring Trump win with a decent chance of a “Red Sweep” (Republicans having majority in both the Senate and the House). Markets have fully priced in a 25bp rate cut is fully at the FOMC meeting.
Important news for USD:
Tuesday:
Presidential Election
ISM Services PMI
Thursday:
Fed Interest Rate Decision
EUR
Eurozone Q3 GDP came in at 0.4% q/q vs 0.2% q/q as expected. German Q3 GDP came in at 0.2% q/q vs -0.1% q/q as expected thus helping Germany to escape technical recession. French GDP came in at 0.4% q/q vs 0.3% q/q as expected on the strong rebound in household consumption. Olympic Games had positive influence on the reading with government spending also positively contributing. Spain GDP printed 0.8% q/q vs 0.6% q/q as expected.
Preliminary Eurozone CPI for the month of October increased to 2% y/y from 1.7% y/y in September while core remained at 2.7% y/y with expectations being for it to tick down to 2.6% y/y. Food and energy prices were the biggest contributors to increase in inflation. ECB has previously signaled that inflation will be higher into the year end. German CPI came in at 2% y/y vs 1.8% y/y as expected and up from 1.6% y/y in September on the back of 0.4% m/m increase. France CPI at 1.2% y/y vs 1.1% y/y as expected and as was in September. Spain CPI 1.8% y/y as expected. Combination of higher GDP and inflation should decimate chances of a 50bp rate cut in December.
GBP
Chancellor of Exchequer Reeves revealed new UK budget which will see increases in capital gains tax to 18% for lower rate and to 24% from 20% for higher rate. This tax is expected to raise £2.5bn. There will also be increases in tax on private equity carried interest and energy windfall tax. Overall, tax increases are expected to bring additional £40bn per year. However, the Budget also sees higher spending by around £36bn per year. Budget sees higher GDP for 2024 and 2025 and then lower in the following years. Inflation is seen higher for all years starting from 2024 and is expected to come down to 2% target only in 2029 (it will be below 2.6% until then). Later during the week Chancellor Reeves stated that government has more plans to bolster economic growth indicating that there will be no need for further borrowing. As a result of Budged, on Thursday yields on 10y gilts have jumped higher causing GBP to weaken across the board.
Final manufacturing PMI for the month of October fell into contraction for the first time since April with a 49.9 reading. Decline in new orders and output were main culprits and there was also a significant decline in input prices which will be very welcomed by the BoE as it indicates that inflationary pressures are subsiding. Additionally, there was also a drop in selling prices which indicates troublesome demand.
This week we will have a BoE meeting where a 25bp rate cut will be delivered. Markets are pricing out a December cut so investors will focus on hints from the statement.
Important news for GBP:
Thursday:
BoE Interest Rate Decision
AUD
Official manufacturing PMI from China for the month of October returned into expansion for the first time since April with a 50.1 reading. Production component increased into expansion but new export orders continued to decline indicating weak external demand. The question is will the stimulus be enough to increase domestic demand for new products. Services ticked up to 50.2 from 50 the previous month which pushed composite to 50.8 from 50.4 in September.
China officials are expected to announce a 10tln yuan stimulus next week. The stimulus should amount to $1.4tn which is around 8% of GDP and represents a very strong commitment to support the economy. The details of stimulus package are less satisfying as the entire stimulus will be spread over 3 years ending in 2026. Additionally, 60% of the amount will be given to local governments to help with their debt while remaining 40% will be used to help property purchases within next five years.
This week we will have RBA meeting. This meeting will mark one year of rates staying at 4.35% and they will not be changed in 2024.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
NZD
Business confidence for the month of October printed 65.7, up from 60.9 in September. This is the fourth consecutive month of rising business confidence and it marks a new 10-year high! Investment and employment intentions posted highest readings since 2021 while export intentions rose to highest since 2018. Big increase was seen in commercial construction with profit intentions and ease of credit also rising. Inflation expectations are continuing to decline but pricing intentions rose again for the fourth consecutive month casting some shadow on a rather stellar report.
This week we will have Q3 employment data.
Important news for NZD:
Tuesday:
Employment Change
Unemployment Rate
CAD
BoC Governor Macklem spoke about raising productivity as a key factor for raising living standards in Canada. Canada has been struggling with declining productivity for decades. Macklem added that there is no known neutral rate and that neutral rate will be discovered on the rate cutting path. Later during the week he stated that more rate cuts will come if the economy evolves as envisioned. Main role of the rates will be to stimulate demand. GDP for the month of August came in flat as expected with first estimates seeing a healthy 0.3% m/m growth increase in September.
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
Election results showed ruling coalition led by LDP losing majority getting 209 votes while 233 is needed for a majority to govern. LDP will have to accept new coalition partners in order to secure majority. Political instability has reflected hard on JPY, weakening it, as USDJPY, pushed by rise in yields also, climbed to almost 154.
BoJ has left short term interest rate target at 0.25% as was widely expected. Inflation and growth forecasts were virtually unchanged from July as inflation is seen running at around 2% through 2026. Members acknowledged that rates are at very low levels and stated their readiness to increase them if economy continues to move in line with projections. They have acknowledged high uncertainty surrounding economy and prices adding that moves in FX had increased impact on prices as firms have become more active in raising prices and wages. Risks to the economic outlook are balanced while risks to prices are skewed to the upside.
BoJ Governor Ueda reiterated that there is high uncertainty regarding economic outlook at the press conference adding that careful attention needs to be paid to financial and FX markets and their impact on the overall economy and prices. He clarified that inflation outlook for the next two years is not as certain as for 2024 and thus close attention has to be paid to JPY moves. Additionally, he cautioned that rate hikes may bring some new risks.
CHF
SNB total sight deposits for the week ending October 25 came in at CHF457.4bn vs CHF462.3bn the previous week. Total sight deposits are moving to the downside of the well-established range. SNB Chairman Schlagel stated in his speech that interest rates could be needed to maintain price stability and added that bank is ready to be active in the Forex market. October CPI saw further declines as headline number fell to 0.6% y/y from 0.8% y/y in September while core CPI printed 0.8% y/y, down from 1% y/y the previous month. Misses on expectations and deeper declines led to markets pricing in increasing chance of a 50bp rate cut at December meeting.
