Key Events: Will the Moderate NFP Pattern Continue?

Key Events

G10

In the US, there is…

1. NFP – Friday. A repeat of last month’s pattern of moderate NFP with lower unemployment and faster wage growth could signal lower immigration flows and associated tightening of the labour market.
2. PMIs – Tuesday (manufacturing) and Thursday (services). PMIs are more important from a trading than from an economic perspective as they have decoupled from GDP growth. For market impact see our Event Monitor.

In the Eurozone and UK, the main events will be:

1. Preliminary Germany and Italy September CPI – (Monday). Should add to the picture ahead of the EZ aggregate release (Tuesday). French and Spanish numbers came in softer than expected, suggesting there may be room for more ECB dovishness ahead if this is confirmed in the aggregate numbers.
2. Final September manufacturing (Tuesday) and services PMIs – (Thursday). Will be watching for whether it confirms the preliminary readings’ sharp slowdown. There, we saw deepening decline in manufacturing and marginal expansion in services, with August’s French Olympics boost having faded. Employment modestly reduced for the second month in a row, although it is growing in services. Input price inflation was slowest since late 2020 and output inflation was slowest since early 2021. Both sets saw deflation in goods and slowing inflation in services.

3. Eurozone unemployment – (Wednesday). Will be important to see whether there is any easing in the tightness of the labour market, which currently has the EZ hawks concerned.
4. BoE DMP survey – (Thursday). Will be important for details on business expectations for price setting as well as wage growth. We expect to continue to see normalisation in both, though this is not likely to move the dial much on monetary policy. The BoE seems to expect similar, with the hawks more concerned firm pricing power may be supported further down the line if consumption spend rebounds.

Elsewhere in G10:

1. A barrage of Swiss data will keep market participants busy, following last week’s SNB 25bp cut. We expect the KOF indicator (Monday) to remain stabilised, retail sales (Tuesday) to show some moderation, core CPI (Thursday) to reveal narrow inflation pressures, and unemployment (Friday) to continue to grind higher. On PMIs, there is a risk we see another month of improvement.
2. Japan manufacturing PMI – Tuesday. Global PMIs are turning south, and Japan’s are no different. For the BoJ, most interest will be in the prices and employment components.
3. Japan Tankan Survey – Wednesday. The Tankan survey provides a range of useful metrics covering inflation expectations, capex intensions and more. BoJ will keep a keen eye on these to ensure the country remains on track.

EM

1. China holiday – 1-7 October. While Monday is a working day, markets are closed from Tuesday through the following Monday.
2. Korea exports – Monday. Exports likely remained stable MoM but will decline to around 5% YoY due to base effects.
3. Poland inflation – Monday. An unhelpful base effect is set to push CPI towards 5%.
4. Korea CPI – Tuesday. This will be the first month of headline CPI falling below BoK’s 2% target. The BoK’s long-awaited easing cycle is set to begin on 11 October.
5. Indonesia CPI – Tuesday. YoY CPI will remain stable around 2% providing space for BI to reduce rates further on 16 October.

Central Banks in Action

1. Powell speaks – Monday. I don’t think he will say much on the chance of a 50bp cut at the November meeting.  Like the rest of us he is waiting for Friday’s NFPs!
2. NBP on hold – Wednesday. Rising inflation and buoyant wage growth cement yet another month of rates on hold.
3. BoE speakers include Pill (Tuesday and Friday) and Greene – (Monday). The BoE paused at their last meeting but slowed active gilt sales. This was despite the continued undershoot in inflation versus their expectations. Interesting to note was the shift in tone by hawks Greene and Mann in their latest speeches – both of whom highlighted the conundrum of UK consumer weakness (something we have focused on for a while), although both remain hawkish on risks of a structurally higher neutral rate.
4. ECB speakers include Schnabel (Tuesday), Lane and various others – (Wednesday). Schnabel’s last speech included slightly more dovish slides on bank lending and unit profits, albeit with continued hawkishness on services inflation and labour scarcity.

Markets to Watch

• USD/JPY. Following Ishiba’s victory in the LDP leadership elections this week, downside pressure should return once more. We think USD/JPY should head back down to 140.
• EUR/CHF. The pair is struggling to get going following a less dovish than expected SNB. We continue to expect 0.93 as a low and favour using dips as entry to medium-term CHF downside.
• EUR/GBP. Now through 0.84, markets are pushing for a more dovish ECB while the pound continues to rally.
• CORM5-M6. Canada’s interest rate market is beginning to bet the BoC will complete its hiking cycle by next June. We agree and think further steepening is in store.

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