In focus today
In the US, ADP’s October private sector employment report and flash Q3 GDP will be released in the afternoon. ADP’s figures could provide some early hints of what to expect from Friday’s key non-farm payrolls release. We expect that GDP expanded 2.5% on annualized q/q basis (Q2: 3.0%) largely driven by still solid private consumption.
In the euro area, we receive the preliminary estimate of GDP growth in Q3 of 2024. The German economy likely stagnated or contracted slightly in the third quarter while strong growth in Southern Europe combined with the Olympic Games in France should leave overall euro area growth in positive territory. Hence, we forecast GDP growth of 0.2% q/q like in the first quarter, driven by service providers while the manufacturing sector likely was a drag on activity.
In the UK, Chancellor Rachel Reeves is set to announce the Labour government’s first budget in the afternoon. We will likely see a budget more expansionary than previously. The budget is set to be “all about investments”. So, expect increase in public investments, and particularly the NHS. The shortfall is likely to be covered by a large increase in taxes with estimates indicating up to GBP 40bn. The BoE will judge the measures at its upcoming meeting on 7 November and to what extent it might alter the inflation outlook.
In Japan, we expect no changes from the BoJ early Thursday. Governor Ueda will probably try to find a less dovish tone at the meeting to avoid adding to the recent yen slide. After all, inflation is on target and consumers’ purchasing power is heading in the right direction now.
Economic and market news
What happened overnight
In Australia, CPI was released for Q3 deviating only slightly from consensus with 2.8% y/y (cons: 2.9%, prior: 3.8%).
What happened yesterday
In the US, the JOLTs report for September showed a sharp decline in US job openings with 7.44M (cons: 8.00M, prior: 7.86M). The Fed uses the figure as a proxy for overall labour demand, and thus the decline suggests that labour markets remain on a cooling trend. The overall level of layoffs has been rising gradually, but in a historical context it remains low. The ratio of job openings to unemployed job seekers declined slightly to 1.09. This should allow the Fed to continue cutting rates at the coming meetings.
The Conference Board’s October consumer survey showed a notable uptick in optimism both with regards to current economic conditions as well as the future outlook. These somewhat mixed signals released at the same time led to a very muted market reaction.
In Sweden, Q3 GDP growth dropped 0.1% in both q/q (cons: 0.4) and y/y (cons: 0.7). The indicator however should be treated with caution, but the Riksbank’s own company survey paints a gloomy picture as well. The survey showed more negative sentiment compared to the latest one in May. Combining these two the overall picture seems a bit more negative than the Riksbank’s base scenario, which is that a growth recovery next year will keep inflation close to the 2% target.
In Japan, the head of the opposition Democratic Party for the People (DPP), which would be critical to form a government in Japan, stated on BoJ: “Once there is certainty that real wages will exceed 4% at next year’s spring wage negotiations, that’s when the BoJ can review monetary policy”. This reflects the risk of political resistance to tightening policies that BoJ will meet.
Equities: Global equities were marginally higher yesterday, but notably, most sectors were lower. The overall lift was facilitated by higher tech stocks in the US. In the US, the group of cyclicals was higher, while defensives were lower. In Europe, 21 out of 25 industry groups were lower, but cyclicals still outperformed, and banks were higher. This type of odd rotation is very much linked to reporting, but it is also worth noting that it does not result in higher indices overall despite the cyclical outperformance. For the record, with tech outperformance yesterday, Nasdaq achieved its first record closing since 10-July. In the US yesterday: Dow -0.4%, S&P 500 +0.2%, Nasdaq +0.8%, and Russell 2000 -0.3%. Asian markets are broadly lower this morning, with Japan running its own course, being higher despite only a marginal weakening of the yen this morning. European futures are lower this morning, while US futures are again mixed.
FI: Markets recorded a 3bp Bund-ASW spread tightening to hit a low of 11bp. The German swaps spreads against €STR are all negative now. Front end (ECB pricing) was 4bp higher in the 2025 segment and points to 103bp of cuts next year.
FX: A relatively calm start to the week without any major G10 FX moves. EUR/USD remains just above the 1.08 mark, while USD/JPY has stabilized above 153 – only four figures below the level where Japanese authorities last intervened in FX markets in early May this year. EUR/GBP faced renewed pressure during yesterday’s session, with the cross briefly dipping below the 0.83 mark. NOK saw a slight rebound yesterday, bringing EUR/NOK below 11.85, while EUR/SEK is still hovering just above 11.50.
