- Positive US private sector jobs data can fuel further USD gains, while softer figures can trigger a partial USD pullback.
- BOE, Norges Bank, and RBA all poised to stand pat.
- CPI on tap in Switzerland and Sweden. Jobs data in Canada and New Zealand. Wages the focus in Japan.
USD rallied last week against most major currencies supported by an upward adjustment to US rate expectations after Fed Chair Jay Powell cooled rate cut bets. Fed funds futures imply 68% probability (down from as much as 90%) of a 25bps cut at the next December 10 FOMC meeting.
Private Matters
We are sticking to our view that the Fed will deliver a follow-up 25bps cut to 3.50%-3.75% in December because restrictive Fed policy can worsen the already fragile employment backdrop and upside risk to inflation are not materializing. This week’s set of US private-sector data will offer clues about the employment and inflation backdrop. Positive labor data would fuel further USD gains above the August high, while softer figures can trigger a partial USD pullback.
October ISM manufacturing (Monday). The headline index is projected at 49.5 vs. 49.1 in September, consistent with a slower contraction in manufacturing activity. Watch the prices paid and employment sub-indexes for signs that inflation risks are receding and job losses moderating.
September JOLTS jobs report (Tuesday). The Fed is paying particular attention to the ratio of job vacancies to unemployed workers, the quits rate, and the layoff rate. In August, the JOLTS data pointed to easing labor demand but no sign of broad-based job cuts.
October ADP employment change (Wednesday) and the weekly print (Tuesday). Consensus expects ADP payrolls to rebound by 30k in October after declining -32k in September and -3k in August.
October ISM services (Wednesday). The headline index is projected at 50.8 vs. 50.0 in September, indicative of a marginal improvement in services activity. Watch the prices paid and employment sub-indexes for signs that inflation risks are receding and job losses moderating.
October Challenger jobs report (Thursday). In the year to September, job cuts totaled 946k, the highest cumulative total since 2020, while hiring plans totaled 205k, the lowest cumulative total since 2009. The data is indicative of softer labor market conditions.
November University of Michigan sentiment index (Friday). Headline is expected at 53.5 vs. 53.6 in October, well below the long run average at 84.4. Watch the measures of inflation expectations to confirm that price pressures remain contained.
October New York Fed survey of consumer expectations (Friday). Pay attention to see if there’s a further increase in the mean perceived probability of losing one’s job in the next twelve months. The latest data points to a higher unemployment rate.
Of note, the US Supreme Court will hear oral arguments in a pair of challenges to President Donald Trump’s power to impose tariffs (Wednesday). There’s no way to know when the court will issue its decision, but the Trump administration urged the justices to act quickly.
BOC Pause Faces First Test
Canada’s October labor force survey (Friday) will challenge the Bank of Canada’s (BOC) guidance that it might be done easing after cutting the policy rate 25bps to 2.25% last week. The economy is expected to lose -2.5k jobs in October after strong gains of 60.4k in September and the unemployment rate is projected to rise 0.1pts to 7.2% (highest since July 2021). The BOC’s Q3 business outlook survey indicates subdued hiring intentions over the next 12 months.
We doubt the BOC slashes the policy rate below the lower end of its estimated neutral range of 2.25% to 3.25%, which limits CAD downside. Canada’s government is expected to deliver a stimulative budget on Tuesday, and underlying inflation is running hot. The swaps market is pricing 36% odds of a 25bps cut over the next twelve months and rate hikes in the next two years.
BOE to Hold the Line
The Bank of England (BOE) is expected to keep the policy rate at 4.00% and reiterate its guidance for “a gradual and careful approach” to further rate cuts (Thursday). The swaps market implies 30% odds of a 25bps cut to 3.75% this week. Like at the last September meeting, we see a vote split of 7-2 in favor of steady rates, with the dissenters supporting a 25bps cut (Taylor and Dhingra).
UK stagflation risks have eased, making the BOE’s job less complicated. Inflation is still uncomfortably high but tracking below the BOE’s August projection, and leading indicators suggest UK Q3 real GDP growth (due November 13) will overshoot the BOE’s 0.3% q/q projection. Forecasts update will be published in the November Monetary Policy Report alongside the policy decision.
The expected fiscal drag from the upcoming UK budget (due November 26) will likely leave room for the BOE to deliver more easing than is currently priced-in (50bps in the next 12 months). The deficit totaled £99.8bn in the six months to September, £7.2 billion (8%) more than forecast in March by the Office for Budget Responsibility (OBR). To shore up the deteriorating fiscal position, the UK government is seen prioritizing tax hikes over spending cuts. Bottom line: GBP set to keep underperforming on the crosses.
The expected fiscal drag from the upcoming UK budget (due November 26) will likely leave room for the BOE to deliver more easing than is currently priced-in (50bps in the next 12 months). The deficit totaled £99.8bn in the six months to September, £7.2 billion (8%) more than forecast in March by the Office for Budget Responsibility (OBR). To shore up the deteriorating fiscal position, the UK government is seen prioritizing tax hikes over spending cuts. Bottom line: GBP set to keep underperforming on the crosses.
Sweden CPI to Leave Markets Unmoved
Sweden’s October CPI print (Thursday) to support the case that the Riksbank is done easing. The policy relevant CPIF is expected at 2.9% y/y (Riksbank forecast: 2.7%) vs. 3.1% in September while CPIF ex-energy is projected at 2.6% y/y (Riksbank forecast: 2.6%) vs. 2.7% in September.
Sweden inflation is gradually converging towards the Riksbank’s 2% target and underscores the bank’s forecast that the policy rate will remain at 1.75% until Q3/Q4 2026. The swaps market implies odds of a rate hike in the next 12 months which is positive for SEK.
Norges Bank on Ice
The Norges Bank is widely expected to keep the policy rate on hold at 4.00% (Thursday). At the last September 18 meeting, the Norges Bank delivered a hawkish 25bps cut stressing that “a restrictive monetary policy is still needed” because inflation is expected to remain elevated for a little longer and there is a little less spare capacity in the economy.
Persistently above target inflation backs the Norges Bank’s prudent easing of monetary policy stance and is NOK supportive. The Norges Bank has penciled in one 25bps cut in the next 12 months while the swaps market implies nearly 50bps of easing. There are no new economic projections associated with this policy-setting meeting. The next set of forecasts is due in December.
Swiss CPI on the Radar
Switzerland October CPI (Monday) to suggest the bar for a negative Swiss National Bank (SNB) policy rate is high. Headline CPI is expected at 0.3% y/y vs. 0.2% in September and core CPI is projected at 0.7% y/y for a third straight month. The SNB sees headline CPI averaging 0.4% y/y in Q4.
The swaps market continues to imply nearly 50% odds of a 25bps rate cut to a low of -0.25% in the next 12 months given that SNB policymakers have warned that the bank is prepared to cut further if required. However, any settlement of the trade dispute with the US would significantly lower the risk of the SNB resorting to a negative policy rate and bodes well for CHF.
Japan Wages is Policy Relevant
Bank of Japan (BOJ) Governor Kazuo Ueda stressed last week that he wants to see more wage data before adjusting policy. As such, Japan September cash earnings print takes the spotlight (Wednesday). Nominal cash earnings are expected at 2.4% y/y vs. 1.9% in August. The less volatile scheduled pay growth for full-time workers is forecast at 2.5% y/y vs. 2.4% in August. Overall, Japan wage growth is not a source of significant inflation pressures given annual total factor productivity growth of about 0.7%.
The BOJ kept the policy rate at 0.50% last week and suggested it’s in no hurry to resume normalizing rates. The swaps market continues to see even odds of a December rate hike, with a full 25bps rate increase priced in over Q1. Bottom line: the BOJ’s laid-back policy stance remains a drag on JPY.
RBA to Hit Pause
The RBA is widely expected to keep the policy rate for a second straight meeting at 3.60% (Monday). Australia’s Q3 CPI was red-hot, and a material miss according to RBA Governor Michele Bullock, while the labor market is still a little bit tight. The RBA will publish new economic projections in the Statement on Monetary Policy.
Over the next 12 months, cash rate futures price in just one 25bps cut and the policy rate to bottom at 3.35%. Bottom line: AUD outlook is positive as the RBA is on track to ease more cautiously than the Fed and global economic activity is resilient.
NZ Jobs May Cool Rate Cut Bets
New Zealand’s Q3 labor market data (Tuesday) risk dampening probability of additional RBNZ rate cuts. New Zealand employment is expected at 0.1% q/q vs. -0.1% in Q2, whereas the RBNZ has penciled in no growth. The unemployment rate is expected to rise 0.1pts to 5.3% (highest since Q4 2016) matching the RBNZ forecast. Private wages are anticipated at 0.5% q/q versus 0.6% in Q2, marginally higher than the RBNZ 0.4% projection.
The next RBNZ policy decision/Monetary Policy Statement is on November 26 and markets price-in over 90% odds of a 25bps cut to 2.25%. Regardless, resilient global economic activity offsets the drag to NZD from expectations of looser RBNZ policy.
EM Central Bank Watch
Brazil’s central bank is widely expected to keep rates at 15.00% for a third consecutive meeting (Wednesday). Brazil headline inflation remains sticky above 5%, exceeding the bank’s 1.5%-4.5% target band and 2025 projection of 4.8%. Brazil’s high real positive interest rates of nearly 10% act as a magnet for foreign capital in favor of a firmer BRL.
Mexico’s central bank (Banxico) is widely expected to trim the policy rate 25bps to 7.25% (Thursday). At the last September 25 meeting, Banxico voted 4-1 to cut the policy rate 25bps to 7.50%. The dissenter, Jonathan Heath, favored keeping rates on hold for a third consecutive meeting. The bigger picture remains positive for MXN. Mexico has positive real interest rates, a current account that is roughly in balance and solid net FDI flows.
Czech National Bank (CNB) is widely expected to keep the policy rate at 3.50% (Thursday). At the last meeting September 24, the central bank voted unanimously to keep rates at 3.50% cautioning that “inflation will be slightly above 2% for the rest of this year.” The CNB is likely done easing which underpins CZK. Indeed, rate hikes are priced in across the swaps curve.
National Bank of Poland (NBP) is expected to cut the policy rate 25bps to 4.25% (Wednesday). Poland headline CPI surprised to the downside in October (actual: 2.8% y/y, consensus: 3.0%, prior: 2.9%). The swaps market is pricing in 50bps of total easing over the next 12 months that would see the policy rate bottom near 4.00%.
Bank Negara Malaysia (BNM) is widely expected to keep the policy rate at 2.75% for a second consecutive meeting (Thursday). At the last September 4 meeting, BNM noted “At the current OPR level, the MPC considers the monetary policy stance to be appropriate and supportive of the economy amid price stability.” The swaps market implies steady rates across the curve.
