Dollar Consolidates Ahead of ADP and GDP

October 30, 2024

Win Thin

October ADP private sector jobs estimate will be the highlight; we also get our first official read of Q3 GDP; September JOLTS data are worth discussing; October Conference Board consumer confidence rose sharply; BOC Governor Macklem remains dovish
Eurozone CPI data for October started rolling out; eurozone reported firm Q3 GDP data; U.K. Chancellor Reeves presents the autumn budget
The two-day BOJ meeting started today and should end with a widely expected hold; Australia disinflation continues

The dollar continues to consolidate ahead of ADP and GDP. DXY is trading lower near 104.180 after making a new high for this move Monday near 104.573. It remains on track to test the July 30 high near 104.799. USD/JPY is trading lower near 152.90 as the two-day BOJ meeting began (see below). The euro is trading higher near $1.0835 after stronger than expected Q3 GDP data (see below) while sterling is trading lower near $1.2970 ahead of the autumn budget (see below). The strong U.S. fundamental story continues to favor higher UST yields and a higher dollar. Today’s ADP and GDP data should show that the labor market remains firm and supportive of continued robust consumption that is fueling above-trend growth.

AMERICAS

October ADP private sector jobs estimate will be the highlight. It is expected at 111k vs. 143k in September and comes ahead of the October jobs report Friday. Bloomberg consensus for NFP is 110k vs. 254k in September, while its whisper number stands at 127k. Either would be well below the average monthly gain of 203k over the prior twelve months. However, the jobs report will be hard to interpret as it will be affected by the two recent hurricanes as well as the strike at Boeing. Fed Governor Waller said he expects these factors to reduce employment growth by more than 100,000 in October, and there may also be an effect on the unemployment rate, which is expected to remain steady at 4.1%.

We also get our first official read of Q3 GDP. Growth is expected at 2.9% SAAR vs. 3.0% in Q2, while personal consumption is expected at 3.3% SAAR vs. 2.8% in Q2. Of note, the Atlanta Fed’s GDPNow model’s final estimate for Q3 growth came in at 2.8% SAAR yesterday. Its initial forecast for Q4 will come tomorrow. Elsewhere, the New York Fed’s Nowcast model is tracking Q3 growth at 2.9% SAAR and Q4 growth at 2.5% SAAR. Its Q4 forecast will be updated Friday, while its initial forecast for Q1 2025 will come at the end of November.

September JOLTS data are worth discussing. Openings came in at 7.443 mln vs. 8.000 mln expected and a revised 7.861 mln (was 8.040 mln) in August. This was the lowest since January 2021. Of note, the openings rate fell 0.3 ppt to 4.5%, matching the December 2020 low. Fed research shows that the unemployment rate tends to rise faster when the job opening rate falls under 4.5%. Other details were mixed. The layoff rate ticked up 0.2 ppt to 1.2%, matching the March 2023 high. The quit rate fell 0.1 ppt to 1.9%, matching the June 2020 low and indicative of worsening workers confidence in finding a new job. However, the hiring rate rose 0.1 ppt to 3.5%.

October Conference Board consumer confidence rose sharply. Headline improved to a nine-month high of 108.7 vs. 98.7 in September. Expectations index rose 6.3 points to 89.1, the highest level since December 2021 and indicative of a resilient household spending activity. Elsewhere, present situation rose to 138.0 vs. a revised 123.8 (was 124.3) in September and is the highest since May. Of note, gasoline prices are the lowest since early February and should continue to push consumer confidence higher. Positive real wage growth, encouraging labor demand, and strong household balance sheets suggest household spending will remain an important tailwind to GDP growth.

The Conference Board suggests some improvement in the labor market. Its labor index (jobs plentiful minus jobs hard to get) rose to 18.3 in October, the highest since June and suggesting U.S. consumers are more optimistic about future labor market conditions.

Bank of Canada Governor Macklem remains dovish. He reiterated yesterday the bank’s guidance that “we anticipate cutting our policy rate further.” Indeed, the BOC has plenty of room to cut rates. At 3.75%, the BOC policy rate remains above the bank’s nominal neutral interest rate estimate of 2.25-3.25%. The market is pricing in 100 bp of easing over the next 12 months that would see the policy rate bottom near 2.75%.

EUROPE/MIDDLE EAST/AFRICA

Eurozone CPI data for October started rolling out. Spain’s EU Harmonised inflation came in a tick higher than expected at 1.8% y/y vs. 1.7% in September. Spain is one of the only eurozone countries to report core inflation and it came in two ticks higher than expected at 2.5% y/y vs. 2.4% in September. Germany will be reported later today and is expected at 2.1% y/y vs. 1.8% in September. German state data already reported point to upside risks to the national reading. France and Italy report tomorrow. France’s EU Harmonised inflation is expected to pick up a tick to 1.5% y/y, while Italy’s is expected to pick up two ticks to 0.9% y/y. Eurozone also reports tomorrow. Headline is expected at 1.9% y/y vs. 1.7% in September, while core is expected at 2.6% y/y vs. 2.7% in September. The ongoing disinflation process should allow the bank to continue cutting rates gradually. However, the market is pricing in nearly 30% odds of a jumbo 50 bp cut in December. Schnabel, Villeroy, and Nagel speak today.

Eurozone reported firm Q3 GDP data. Headline GDP grew 0.4% q/q vs. 0.2% expected and actual in Q2, while the y/y rate came in a tick higher than expected at 0.9% vs. 0.6% in Q2. Looking at the country breakdown, Germany grew 0.2% q/q vs. -0.1% expected and a revised -0.3% (was -0.1%) in Q2, France grew 0.4% q/q vs. 0.3% expected and 0.2% in Q2, Italy was flat q/q vs. 0.2% expected and actual in Q2, and Spain grew 0.8% q/q vs. 0.6% expected and 0.8% in Q2.

U.K. Chancellor Reeves presents the autumn budget. The government is expected to sell more gilts to fund an increase in investment spending. Median forecast is for 2024/2025 gilt issuance to increase by GBP15 bln, taking total borrowing to GBP293 bln vs. GBP239 bln the previous fiscal year. This would likely worsen the risk premium on gilts and undermine GBP. In addition, the fiscal stance (as measured by the change in the cyclically adjusted primary deficit) will likely be tighter as Reeves plans major tax increases. Tighter fiscal policy can leave the Bank of England more room to ease policy and weigh on GBP. Indeed, the combination of restrictive fiscal policy and looser monetary policy tends to be drag on a currency. BOE MPC member Breeden speaks today.

ASIA

The two-day Bank of Japan meeting started today and should end with a widely expected hold. Recent comments from Ueda suggest there will be no change in policy at this meeting and so the focus will be on the BOJ’s policy guidance. We expect the BOJ to signal again that it’s in no rush to remove policy accommodation, which would further weigh on JPY. Japan economic growth is unimpressive, underlying inflation is in a firm downtrend, and BOJ officials continue to caution about unstable financial markets. Updated macro forecasts will be published in the Outlook Report, and we see downside risks.

Australia disinflation continues. September headline came in two ticks lower than expected at 2.1% y/y vs. 2.7%, while Q3 headline came in a tick lower than expected at 2.8% y/y vs. 3.8% in Q2. The Q3 trimmed mean came in as expected at 3.5% y/y vs. a revised 4.0% (was 3.9%) in Q2, while weighted median came in two ticks higher than expected at 3.8% y/y vs. a revised 4.2% (was 4.1%) in Q2. The sharp slowdown in headline CPI inflation reflects the government’s cost-of-living subsidy measures. Of note, the RBA focuses on the quarterly CPI data because the readings are less volatile and capture more items than the monthly CPI indicator. The market is pricing in less than 20% odds of a 25 bp cut by December, down from 25% at the start of the week.

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