In this episode:
- The UK: Bank of England’s Dilemma and Fiscal Tightening Ahead
- Global Outlook: China, Europe, and the Broader Data Pulse
- United States: Waiting for Data Amid Growing Market Sensitivity
The UK: Bank of England’s Dilemma and Fiscal Tightening Ahead
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The Bank of England held rates at 4% in a five-four vote, with an increasingly dovish tone emerging within the MPC.
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Governor Bailey’s comments suggest rising prospects of rate cuts amid a weaker growth outlook.
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Fiscal tightening expected from the November 26 budget could materially affect growth and policy; a February rate cut looks likely.
Global Outlook: China, Europe, and the Broader Data Pulse
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China’s upcoming October data — from credit demand to retail sales — will provide a comprehensive test of the recovery narrative.
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A sharp drop in exports may reflect Golden Week timing but still intensifies focus on China’s momentum.
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Global highlights include Australia’s labour data, Europe’s confidence and GDP releases, and inflation prints from Hungary, Brazil, and Poland.
United States: Waiting for Data Amid Growing Market Sensitivity
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Prediction markets see the U.S. nearing reopening, but mixed economic signals argue for caution.
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Services ISM data remain resilient, though labour indicators point to softness and rising volatility.
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Without official data, uncertainty persists; payrolls and macro clarity may not arrive until December.
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, the Bank of England left rates unchanged this week by a narrow margin. So how are we thinking about the UK macro and the Bank of England going forward?
Neil Staines
Yeah, thanks, Matt. That's a great question.
The Bank of England left rates unchanged at 4% yesterday in a five-four vote, with Ramsden and Greene joining the dissents of Dhingra and Taylor.
In its new format, the Monetary Policy Report now gives more detailed views of the individuals on the committee, and it was certainly notable and interesting in highlighting a range of different viewpoints. Governor Bailey, while voting for a hold at this meeting, outlined a more dovish viewpoint than the likely central expectation, pointing to rising prospects of rate cuts going forward. Indeed, we are in the Dhingra-Taylor camp, disagreeing with the central projection and seeing a weaker growth outlook. Now, as we have noted on numerous occasions, we anticipate that the significant fiscal tightening we expect from the budget on the 26th of November will have material connotations for growth projections and thus for the policy path.
A rate cut in December is very possible. Indeed, markets are pricing it at around 70% currently. The difficulty being that the gradual narrative reiterated by Bailey this week is more consistent with policy changes at MPR months, where the forecasts are updated.
The next MPR, the first to incorporate the budget impact, is on February the fifth. A tough call for the Bank of England in December, therefore, but we see 50 basis points in February as an interesting prospect. The employment report and Q3 GDP prints next week will be closely watched for progress supportive of these rate cuts.
Matt Jones
And how about more broadly? What are we watching for in the global economy next week?
Neil Staines
Yeah, absolutely. The week kicks off with aggregate financing data from China and a fresh look at credit demand. And on the flip side, at the end of the week, we get the full China data suite for October: house prices, industrial production, fixed asset investment, retail sales, and unemployment—a key look under the bonnet of the Chinese economy.
This week’s trade data suggested a worrying dip in exports in October year-on-year, which has huge implications for China and for global demand. At least in part, however, this may be explained by the timing of the Golden Week holiday this year, but either way, it likely intensifies the focus on the China data going forward.
In Australia, after the overnight cash rate was left unchanged by the RBA this week and the suggestion that policy may have already reached its trough, Governor Bullock stated that she no longer has a bias.
The employment report for October will be keenly watched for any further policy cues. In Europe, we get Sentix confidence, German ZEW, industrial production, and Q3 GDP estimates, and a raft of ECB speakers. However, policy is likely to remain in their self-described “good place” for a while to come.
Hence, the data loses some of its focus in Europe this week. More broadly, however, we get inflation data from Hungary, Brazil, and Poland, and Q3 GDP data from Poland and Malaysia—so plenty to look out for in the global economy next week.
Matt Jones
And finally, as usual, how about the US? Are we any closer to reopening, and are we expecting federal data anytime soon?
Neil Staines
Absolutely. That’s a great question. Well, if you look at prediction markets, it seems the central expectations are that we are now quite close to a reopening. Rhetoric and progress, however, argue against it for now, at least.
This week, we have had some private sector data. Manufacturing and services ISMs—services in particular—showed a more resilient outlook in October. Notably, within that services ISM, the new orders component jumped considerably. However, Challenger job cuts and other payroll alternatives have continued to highlight downside risks to the labour markets.
We discussed the US, the Fed, and US markets in more depth in this week’s blog. And indeed, regular readers will know that we have been of the view that the longer the shutdown goes on, the more nervous markets may become. The past couple of sessions this week have shown some signs of sensitivity, if not yet risk-off, in equity markets, and we continue to watch them closely.
On what should have been payroll day today, markets are still waiting for that elusive data. Consensus is that the September payroll can be released pretty quickly after a reopening. October and November data are likely to come together in December.
Now, without data, it’s difficult to argue there’s been a material change in the US macro, but volatility, quite rightly in our view, is starting to tick up.
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.
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