US

USD retraced some of its recent gains after testing resistance at the 200-day moving average. No policy-relevant data will be released today but a full slate of Fed speakers could generate some market volatility (Williams, Barr, Hammack, Waller, Paulson, and Musalem).

The Challenger October job cut report points to soft US labor market conditions. US-based employers announced 153,074 job cuts in October, up 175% y/y and 183% m/m. According to Challenger, “this is the highest total for October in over 20 years, and the highest total for a single month in the fourth quarter since 2008. Like in 2003, a disruptive technology is changing the landscape.”

For reference, in the year to October, job cuts totaled nearly 1.1 million, the highest cumulative total since 2020, while hiring plans totaled 488k, the lowest cumulative total since 2011.

The ADP October employment change overshot expectations, but labor demand remains weak. ADP private-sector payrolls rebounded by 42k (consensus: 30k) after declining -29k (revised up from -32k) in September and -3k in August. Still, just 10k jobs were added on average in August, September, and October.

In parallel, US services sector growth picked-up speed in October and underpins the growing chorus of Fed officials supporting skipping a cut ahead. The ISM services index surged to an 8-month high at 52.4 (consensus: 50.8) vs. 50.0 in September. The details showed New Orders index up strongly at 56.2 (consensus: 51.0) vs. 50.4 in September, the Prices Paid index unexpectedly rising to a three-year high at 70.0 (consensus: 68.0) vs. 69.4 in September and the Employment index improving to a five-month high at 48.2 (consensus: 47.6) vs. 47.2 in September.

We are sticking to our view that the Fed will deliver a follow-up 25bps cut to 3.50%-3.75% in December (67% priced-in) because restrictive Fed policy can worsen the already fragile employment backdrop and upside risk to inflation are not materializing. Bottom line: USD is bound to come under renewed downside pressure.

JAPAN

USD/JPY is consolidating above 153.50, just shy of its recent high near 154.50. Japan’s September cash earnings data was mixed and does not move the dial on Bank of Japan (BOJ) rate expectations. Nominal wages matched consensus at 1.9% y/y vs. 1.3% in August. The less volatile scheduled pay growth for full-time workers unexpectedly eased to a six-month low at 2.2% y/y (consensus: 2.5%) 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%. However, risk to wages growth is skewed to the upside. One of Japan’s largest labor union groups (UA Zensen) plans to push for a 6% bump in overall wages for regular employees next year after agreeing on a 4.75% gain in 2025.

BOJ Governor Kazuo Ueda said last week that he’s closely monitoring the “initial momentum” of annual wage negotiations before adjusting policy. The swaps market continues to see even odds of a December rate hike, with a full 25bps rate increase priced in over Q1.

NORWAY

NOK outperforms. As was widely expected, the Norges Bank kept the policy rate on hold at 4.00% and maintained its cautious easing guidance. The Norges Bank reiterated that “the policy rate will be reduced further in the course of the coming year,” while stressing that “a restrictive monetary policy is still needed” because inflation is still too high.

The Norges Bank has penciled in one 25bps cut in the next 12 months while the swaps market implies 40bps of easing. In our view, persistently above target inflation backs the Norges Bank’s prudent easing of monetary policy stance and is NOK supportive.

SWEDEN

SEK is firmer against most major currencies. Sweden’s October inflation ran hot and validates the Riksbank’s guidance that it’s done easing. The policy relevant CPIF was 3.1% y/y (consensus: 2.9%, Riksbank forecast: 2.7%) vs. 3.1% in September while CPIF ex-energy was at 2.8% y/y (consensus and Riksbank forecast: 2.6%) vs. 2.7% in September. Sweden’s swaps curve, which implies rate hikes in the next 12 months, has room to adjust higher in favor of SEK.

UK

GBP/USD is holding above key support at 1.3000. 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 (12:00pm London, 7:00am New York). The swaps market implies 30% odds of a 25bps cut to 3.75% today. Consensus see a 6-3 MPC vote split (vs. 7-2 at the last September meeting) in favor of steady rates, with the dissenters supporting a 25bps cut.

We expect the BOE to wait until after the UK budget (due November 26) to resume cutting rates. UK inflation is still nearly double the BOE’s 2% target and leading indicators suggest UK Q3 real GDP growth (due November 13) will overshoot the BOE’s 0.3% q/q projection. Forecast update will be published in the November Monetary Policy Report alongside today’s policy decision.

The expected fiscal drag from the upcoming budget will likely leave room for the BOE to deliver more easing than is currently priced-in (50bps in the next 12 months). To plug a fiscal hole as big as £35 billion, the UK government is seen prioritizing tax hikes over spending cuts. Bottom line: GBP set to keep underperforming on the crosses.

MALAYSIA

As was widely expected, Bank Negara Malaysia (BNM) kept the policy rate at 2.75% for a second consecutive meeting. BNM signaled it plans to keep rates on hold for some time as it reiterated that “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.

CZECH REPUBLIC

Czech National Bank (CNB) is widely expected to keep the policy rate at 3.50% (1:30pm London, 8:30am New York). 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 and the swaps curve is pricing rate hikes in the next two years.

MEXICO

Mexico’s central bank (Banxico) is widely expected to trim the policy rate 25bps to 7.25% (7:00pm London, 2:00pm New York). 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.