Key Events: Will Weather Events Cloud NFP?

Key Events

G10

In the US, there is…

1. NFP – Friday. I agree with the consensus though the number will be difficult to interpret because of the impact of hurricanes.
2. PCE, personal spending and income – Thursday. We expect core PCE MoM at 24bp. I will be focusing on the low savings rate as it has been a key driver of the current expansion.
3. GDP – Wednesday. Consensus expects 3% and I agree. This will confirm the US economy is running above trend of about 2%, i.e., the output gap is widening, which is consistent with core PCE bottoming out in Q3.
4. Manufacturing PMI – Friday. This is more a trading than economic event: PMIs have decoupled from GDP. Please see our event monitor for market impact.
5. JOLTS – Tuesday. I agree with the consensus and expect the hiring rate to remain well above the separation (quits and layoffs) rate.

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

1. EZ GDP – Wednesday. Will show if the economy has been as bad as recent ECB tone suggests. We will remove the outsized effect of Irish GDP volatility before taking a strong view. Since COVID, surveys have consistently undershot hard data – this could happen again, so we are wary ECB pricing has gone too far.
2. UK Autumn Budget – Wednesday. Key to UK rates outlook. We expect fiscal caution, retaining decent headroom, and looking to make credible commitments to reducing debt ahead. The market is discounting gilts on the risk of more issuance. We still like long UK rates.
3. EZ unemployment – Thursday. Follows Wednesday’s German unemployment. Will reveal if labour market tightness is persisting despite worsening surveys.
4. EZ prelim. inflation and CPI – Thursday. The last miss was driven by larger-than-typical fuel and telephone services discounting. This may reverse. We expect headline YoY of +1.9%, core +2.6% and services +3.9%. Hawkish ECB risk exists if 2023 price patterns persist.

Elsewhere in G10:

1. Japan election – Monday. The election result is due Monday 8am Tokyo time. Anything other than 233 seats for the LDP coalition could lead to a rally in USD/JPY.
2. Australia Q3 CPI – Wednesday. Consensus expect trimmed mean to drop to +3.9% YoY. With disinflationary momentum picking up in the first two monthly indicators, we see risk of a dovish surprise.
3. Swiss KOF and UBS Survey – Wednesday. The two surveys have diverged – one shows downside risks to growth, the other suggests stable and strong growth. We are also watching for continued exporter displeasure.
4. Swiss CPI – Friday. Schlegel pointed to possible downside inflation risks, though Martin did not. An +0.8% YoY headline CPI outturn would further validate market pricing. We are watching for details to remain skewed to rent only.
5. Canada Monthly GDP – Thursday. Last month’s preliminary estimate suggested the economy stalled in August. For September, we expect slim growth of 0.1% MoM.

EM

1. Polish inflation – Thursday. Inflation to remain close to 5% with further gains to come in Q1.
2. China PMI – Thursday. High frequency indicators suggest the decline in housing market slowed and car sales picked up, thanks to stimulus measures. Market expectations of PMI reflect guarded optimism.
3. Korea Exports – Friday. Headline YoY growth is flattered by additional workday this October. Work-day adjusted YoY growth will be close to 0% – the advanced 20day YoY figure was -3%.

Central Banks in Action

1. Fed in pre-meeting blackout. I am still expecting a 25 bp cut in November
2. BoJ to stay on hold – Thursday. Following this weekend’s election, the BoJ will keep rates unchanged while highlighting the need to further scrutinise the impact on market volatility. The BoJ will also update its quarterly forecasts. We anticipate little change.

Markets to Watch

• USD/JPY. As the pair rallies back above 150, an adverse election which sees further upside could prompt MoF intervention.
• AUD/NZD is likely to trade lower over the coming months with Q3 Australia CPI (30 October) the first important test for our trade.
• Corra M5. Following the 50bp cut by the BoC on Wednesday, most of the action in STIR occurred up to H5. Beyond this, we saw profit taking with the BoC’s terminal rate unimpacted. A weak GDP outturn next week could change this. We remain long.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)