In this episode:
- UK: Fragility Beneath the Fiscal Tightrope
- Global Overview: Light Calendar, Heavy Implications
- US: Driving in the Dark
UK: Fragility Beneath the Fiscal Tightrope
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The unemployment rate is expected to hold at 4.7%, but any sign of weakness could amplify growth concerns.
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GDP for August is forecast to rise just 0.1% month-on-month, signalling a fragile recovery.
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With the November 26 budget approaching, fiscal tightening risks leaving monetary policy as the primary lever — implying further rate cuts from the Bank of England may be needed.
Global Overview: Light Calendar, Heavy Implications
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China’s trade, CPI, and PPI data post–Golden Week will offer critical clues on domestic demand recovery.
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In Europe, the German ZEW survey and September inflation revisions will shape expectations alongside fiscal expansion.
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Australia’s RBA minutes and a series of EM indicators — CPI (India, Poland, Brazil), retail sales (South Africa, Brazil), and employment (South Korea, India, Hungary) — will test market sensitivity to leverage and growth risks.
US: Driving in the Dark
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The “driving in the dark” analogy continues to define sentiment, as the shutdown delays major releases including CPI, PPI, and retail sales.
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NFIB, Empire Manufacturing, and the Fed Beige Book may take on outsized importance in a thinner data week.
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Q3 earnings season begins with the banks, offering micro-level insights amid macro data scarcity — a theme captured in Neil’s blog, “Schrödinger’s Data.”
Transcript (AI Generated)
Matt Jones
Welcome to "The Long & Short of the Week Ahead", a production of Eurizon SLJ Capital that takes a look at the macro-economic themes of the week ahead and has been recorded for professional investors.
My name is Matt, Head of Distribution for Eurizon SLJ Capital, and I'm joined by Neil Staines, Senior Portfolio Manager.
Welcome back, Neil. It's great to have you here with us again.
Neil Staines
Thank you very much Matt. It's great to be here.
Matt Jones
So, starting with the UK today, post-party conference season, we get the return of some important data. What are we watching out for in terms of the data and sentiment?
Neil Staines
Yeah, absolutely. With the focus on the partisan political narratives being pushed to one side for now, at least until the run-up into the local elections in May next year, market attention will likely return to the UK macroeconomic trajectory. The main focal points are the employment reports for August and September on Tuesday. The unemployment rate is expected to remain unchanged at 4.7%, but that will be watched very closely.
The monthly GDP report for August is expected to come in at just 0.1% month-on-month, or 0.3% when looked at on a three-month-on-three-month basis. Now, with the budget on November 26 fast approaching and the fiscal black hole dominating the Chancellor's attention, the underlying macroeconomic trajectory is of huge importance. Any further signs of fragility on the growth front will be very troubling for Number 11 Downing Street.
We retain our view that a necessary fiscal tightening, just as the economy is starting to falter, will leave the monetary lever dominant. The Bank of England will therefore, in our view, likely need to cut significantly more than is currently being priced by markets. Next week will thus be an important barometer of the economic trajectory in the UK and the likely reaction function from the Bank of England.
Matt Jones
And how about more globally? What are we looking for from the global data calendar next week?
Neil Staines
Thanks, Matt. It’s a relatively light global data calendar next week, but there are a few things that we’ll be watching out for. In China, as the population returns from the Golden Week holidays, the macro data as well as market sentiment will certainly be closely watched. Trade data for September, post that tariff evolution, will be closely monitored by markets, as will the CPI and PPI data on Wednesday, both with an eye toward recovery, especially in domestic demand, which is critical for a more sustained recovery.
In Europe, the German ZEW for October on Tuesday and final readings of the September inflation data will be closely watched, as will announcements on the speed and quality of German fiscal expansion projects going forward.
In Australia, we get the RBA minutes from the September policy meeting, where rates were left on hold, in stark contrast to their Kiwi neighbours, who cut 50 basis points. A narrative around future cuts will be closely watched there.
Further afield in EM, we get CPI releases from India, Poland, and Brazil, retail sales from South Africa and Brazil, and employment data from South Korea and India, as well as wages in Hungary. All will be very closely watched given the heightened leverage and sensitivity in global markets.
Matt Jones
And finally, the US. While the shutdown may or may not prevent data releases next week, how are we thinking about the US and what are we watching for?
Neil Staines
Great question, Matt. Amid the uncertainties of the federal shutdown, we start next week with a bank holiday, Columbus Day, a day perhaps for US senators to explore the prospects of an agreement to reopen Congress and therefore government. It is likely that the longer the shutdown remains, the greater the economic uncertainty.
The “driving in the dark” analogy that we raised last week continues to hold. Some headlines this week have suggested returning BLS workers to prepare the CPI is not likely for the official release, although some reports have suggested that may be the case on Wednesday, but certainly for the annual cost of living adjustment and maybe for the October 29 Fed.
Now, the PPI and retail sales on Thursday are also very unlikely as things stand, but we do get the NFIB Small Business Optimism Survey and Empire Manufacturing data, as well as the Fed Beige Book. The slightly reduced data calendar, therefore, may have to do this week, and it’s likely to gain greater scrutiny than usual.
In addition to the macro, we get a boost to the micro, if you look at it like that, with the start of Q3 earnings season, starting predominantly with the banks next week.
We cover a few further thoughts in this week’s blog, the title of which, Schrödinger’s Data, sums up our views at the moment. Some modest signs of faltering risk appetite into the close ahead of a long weekend in the US this week. Despite the likely lack of data, there is still plenty to watch for next week in markets.
Matt Jones
Fantastic. Thank you for joining us once again and outlining your thoughts on the week ahead. I look forward to catching up with you again next time.
Disclosure
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