One Direction

October 29, 2024

One Direction

  • USD, Treasury yields, and US equities trending up.
  • Japan’s finance minister stressed the need for foreign exchange rates to move stably. JPY pares back some of its post-election losses.
  • Sweden’s economy unexpectedly shrinks in Q3. Riksbank has room to dial-up easing.


USD is firm near recent highs. 10-year Treasury yields rose to near a three-month high around 4.30% driven by rising real yields that reflect a favorable U.S. economic outlook, and to a lesser extent a modest increase in the term premium (the compensation investors require for holding long-dated Treasuries). The S&P500 is trading just under record highs and futures point to a flat-to-higher open.

USD and Treasury yields face additional upside traction underpinned by strong U.S. economic activity. The final Atlanta Fed GDPNow estimate for Q3 is released today. The model currently estimates Q3 U.S. real GDP growth at 3.3% SAAR, which is above the pre-pandemic average annual growth rate of 2%.

The U.S. September JOLTS data and October Conference Board consumer confidence index are today’s main data highlights (both at 2:00pm London). We expect the JOLTS data to remain consistent with a labor market soft-landing. Job openings in September are expected at 8.000 mln vs. 8.040 mln in August. Importantly, the job opening rate should stay above the 4.5% threshold that typically signals a sharp increase in the unemployment rate. Elsewhere, the ratio of vacancies to unemployed was 1.1 in August, which is historically strong as that ratio has been above 1 only three times since 1960.

Meanwhile, consumer confidence is expected to improve to 99.5 vs. 98.7 in September and remain roughly within the same narrow range that’s held throughout the past two years. Of note, gasoline prices are the lowest since February which bodes well for consumer confidence. Positive real wage growth, encouraging labor demand, and strong household balance sheets suggest household spending will remain an important tailwind to GDP growth.

USD/JPY is down near 153.00 after testing a three-month high around 153.88 yesterday. Japan’s finance minister Kato recognized the significant weakness in the yen after the general election and warned it was “important that FX moves stably, reflecting fundamentals”. Kato also reiterated “we will closely monitor the foreign exchange market with a stronger sense of urgency, including watching for speculative trading.” Regardless, widening U.S.-Japan 10-year bond yield spreads support the uptrend in USD/JPY.

GBP/USD is consolidating under 1.3000. UK inflation pressures are easing rapidly. The UK BRC shop price index fell -0.8% y/y in October, the lowest since August 2021, validating the case for a Bank of England 25bps rate cut to 4.75% next week.

The UK September aggregate money growth is up next (9:30am London). In August, the annual growth rate of sterling net lending to private sector companies and households (M4Lex) slowed to 1.7% y/y vs. 2.1% in July, indicative of soft economic activity.

U.K.-German 10-year government bond yield spreads widened back to last week’s high at 197bps and the highest since August 2023. Market participants expect gilt issuance for 2024/2025 to increase by £15bn, taking total borrowing to £293bn vs. £239bn the previous fiscal year. Expectations the government will sell more bonds to fund an increase in investment spending is worsening the risk premium on gilts and can undermine GBP, especially on the crosses. Chancellor of the Exchequer Rachel Reeves will present the budget tomorrow.

SEK is trading on the defensive against EUR and USD. Sweden’s economy unexpectedly shrinks in Q3, supporting the case for more aggressive Riksbank policy rate cuts. The real GDP indicator fell -0.1% q/q (consensus: +0.3% q/q) vs. -0.8% q/q in Q2. The market is pricing in about 150bps of total easing over the next 12 months that would see the policy rate bottom at 1.75%, which is lower than the Riksbank’s 2.25% forecast.

AUD is underperforming all major currencies and AUD/USD slumped to near 0.6560, lowest level since early August. AUD/USD can undershoot support at 0.6500 because we think the market is underpricing the risk the RBA starts easing by year-end. Australia underlying economic activity is weak and points to lower inflation pressures. Australia’s Q3 CPI report (00:30am London) will either support our view or ensure the RBA continues to buck the global easing trend. RBA cash rate futures implies about 25% odds of a 25bps cut by December.

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2024. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com



captcha image ↻

Type in the word seen on the picture

I am a current investor in another jurisdiction

1 of 2

2 of 2