In this episode:
- Japan: Leadership Transition and the Bank of Japan
- Global: Fiscal Expansion Meets Fragile Growth
- United States: Shutdown, Fed, and Fragile Sentiment
Japan: Leadership Transition and the Bank of Japan
- The Tankan survey confirmed positive momentum, but tariffs risk denting profits in export-heavy sectors.
- Governor Ueda highlighted the impact of tariffs on profits, wages, and price-setting ahead of the October 30th rate decision.
- With the LDP election, either Koizumi (market-favored) or Takaichi will shape coalition decisions; near-term focus is on wages, the Eco Watcher Survey, and PPI.
Global: Fiscal Expansion Meets Fragile Growth
- Germany’s Q4 fiscal expansion will be closely watched for both speed and quality of spending, against a weak growth backdrop.
- European data, including Sentix investor confidence, retail sales, factory orders, and trade balance, will help benchmark sentiment and momentum.
- Inflation releases across Australia, New Zealand, and several EM economies (Czech Republic, Colombia, Chile, Hungary, Mexico, Russia) will set the tone for policy expectations.
United States: Shutdown, Fed, and Fragile Sentiment
- The shutdown has delayed payrolls data; ADP’s private-sector report disappointed with -32k jobs versus expectations of +51k.
- ISM manufacturing signaled moderating price pressures, contraction in new orders, and persistent weakness in employment.
- Markets will focus on FOMC minutes, Fed speakers, and Senate negotiations; prolonged shutdown risks weighing heavily on sentiment despite a cut already being priced in for October.
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 this weekend brings the result of the LDP leadership elections in Japan, and thus a new Prime Minister. What are the likely implications, and what are we looking out for in Japan next week?
Neil Staines
Thanks very much, Matt. This week's release of the quarterly Tankan survey highlighted a continued positive economic trajectory in Japan, but, importantly, a notable potential negative impact from tariffs for industries with high export shares on profit levels. Indeed, Bank of Japan Governor Ueda’s speech into the close of this week highlighted a focus on this specific point: the impact of tariffs on profits, wages, and price-setting behaviour, as well as global issues and food prices in the Bank of Japan's impending rate decision.
On October 30th, which is currently priced at 14 basis points, bringing its own uncertainty. Now, of the two candidates for Prime Minister, Shinjiro Koizumi is the current bookies’ favourite and is expected to be slightly more yen positive going forward.
The eventual winner, Koizumi or Takaichi, seen as more of a policy activist, will have significant decisions to make about coalition partners or even a general election going forward. But next week the focus will be on wage data, the Eco Watcher Survey, and the PPI, in terms of the economy's current progress towards the Bank of Japan's price targets, and thus further monetary normalisation in Japan.
That means rate hikes. With Japanese stocks rallying hard into this week's close, led by tech gains, next week will be a big focus in Japan for politics, but also for JGBs, the Nikkei, and the yen.
Matt Jones
And how about the global economy? What macro data and events are we watching out for next week?
Neil Staines
Yeah, absolutely. It's a relatively quiet week for global economic data next week, but there are a few things we'll be watching very closely. The start of October and the start of Q4 signal the start of the German fiscal expansion. Against what is currently a very disappointing growth and sentiment backdrop in Germany, and across Europe more broadly, we'll certainly be keeping a close eye on the speed and quality of spending projects announced in Germany. This will be an ongoing focus for us through Q4 and beyond.
Across Europe, we'll also be watching Sentix investor confidence, European retail sales, German factory orders, and the German trade balance, all of which are likely to benchmark growth at the current juncture.
Further afield, we also get inflation measures for Australia for September after the RBA left rates unchanged at 3.6% this week, highlighting the uncertainty of growth and inflation paths on the current cash rate trajectory. That will therefore be watched very closely.
Across the Tasman in New Zealand, the RBNZ are expected to cut rates 25 basis points, with a large number of analysts actually calling for a 50 basis point cut. Current market pricing there is around 33 basis points after much weaker-than-expected Q2 GDP in New Zealand.
In emerging markets, the focus will be on inflation next week with CPI releases from the Czech Republic (who also have elections this weekend), Colombia, Chile, Hungary, Mexico, and Russia.
And the first look at Singapore's Q3 GDP data.
Matt Jones
And finally, what about the US? How are we thinking about the macro backdrop against the current shutdown, and are we actually going to get any data points to look out for?
Neil Staines
Absolutely. That's a good point. This week, the government shutdown has taken away all of the fun of payroll Friday.
But we did get the private sector employment survey, ADP, and its reading was very disappointing, coming in at minus 32,000 against an expectation of plus 51,000 in September, and with a downward revision to August to 3,000 from an initial 54,000. In that regard, the lack of payrolls may be considered something of a reprieve.
ISM manufacturing for September highlighted some moderation in price pressures, a dip into contraction for new orders, and continued contraction in employment. Services ISM into this week's close will be watched closely and potentially more consequentially, given its contribution to GDP.
Next week, the data calendar is naturally light, and the main focus will be on the FOMC minutes and a number of Fed speakers. And, of course, the negotiations in the Senate to get the government back open. While the gap is very close in terms of the number of votes, it is seemingly miles apart in terms of ideology.
From my perspective, the longer the shutdown continues, the more negative the likely market reaction, not just to federal job losses, but more broadly to sentiment. CPI on the 15th is the next key data point, and it will be very important for the October FOMC.
Although, with that cut fully priced, it remains highly likely to go ahead even if we don't get the CPI print on the way there. Overall, the shutdown adds another layer of uncertainty to US and global markets, and the Fed won’t want to be driving in the dark for too long.
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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