RBNZ meeting, employment data from Canada and FOMC minutes will be the most watched for economic news events in the first full week of Q4. Government shutdown enters the second week and any talks about ending it could have impact on the markets.
USD
Congress has failed to pass the funding bill and now US government moves to a shutdown. Previous shutdown, that lasted 35 days between December 2018 and January 2019, reduced GDP by $3bn as reported by the Congressional Budget Office. Treasury Secretary Bessent acknowledged that there will be hit to GDP as he accused democrats of wanting to pump more inflationary spending. Almost 750 000 federal employees have been furloughed, that is put on unpaid leave. Essential personnel such as military members, air traffic controllers are still working but not receiving pay until the government reopens. Speculation is that for every week that government shutdown persists it will take off 0.2% from real GDP.
ADP gained in importance due to its recent improvement in correlation with NFP and with NFP and initial claims not being published this week due to government shutdown ADP became main data point on jobs. September print showed 32k job losses vs 50k job adds as expected. Additionally, August print was revised down to show 3k job losses from 54k job adds as reported. The picture of jobs market is very grim.
ISM Manufacturing PMI for the month of September came in at 49.1, an improvement from 48.7 in August. Production index returned to expansion but new orders dropped into contraction. Employment increased but is still deep in contraction while prices paid declined by more than expected and although they remain at high level at least they are moving in the right direction.
September ISM Services dropped to 50 from 52 in August while a 51.7 print was expected. Business activity declined and it is on border of expansion while new orders index plunged hard and is barely hanging in expansion. Prices paid component stayed basically unchanged and at still very high level while employment index improved but it is still deep in contraction. This is a rather disappointing report showing us that US economy finished Q3 on a weak note and expectations for Q4 are not strong.
The yield on a 10y Treasury started the week at 4.15%, rose to 4.18% and finished the week at around 4.13%. The yield on 2y Treasury started the week at 3.64%, rose to 3.65% and finished the week at around 3.58%. Spread between 2y and 10y Treasuries started the week at 53bp and finished the week at 55bp. FedWatchTool sees the probability of a 25bp rate cut at October meeting around 96%, while probability of a no cut is around 4%. Gold has reached new all time high as it almost reached the $3900 level while silver touched the $48 level for a new 14-year high.
This week we will have minutes from the latest FOMC meeting. We know that Miran was the only dissenter, he wanted a 50bp rate cut, but this minutes will provide us with more information regarding thinking within Fed.
Important news for USD:
Wednesday:
FOMC Minutes
EUR
Preliminary September CPI figures showed increase in headline number to 2.2% y/y as expected from 2% y/y in August. Base effects in energy prices were the main culprit for rising inflation. There were inflation increases in France and Germany 1.2% y/y vs 0.9% y/y in August and 2.4% y/y vs 2.2% y/y the previous month respectively. On the other hand, Italy showed a 1.6% y/y, unchanged from August, vs 1.7% y/y expected print. Core reading stayed at 2.3% y/y as was expected. ECB chief economist Philip Lane commented that he did not see any major risks to inflation in either direction. ECB president Lagarde echoed his sentiment while ECB vice president De Guindos expressed his satisfaction with current level of rates.
Final manufacturing PMI for the month of September was revised higher to 49.8 from 49.5, thus showing smaller decline as big upward revision was to the German reading (49.5 vs 48.5 as preliminary reported). French reading was also revised higher while Spanish reading dropped harder than expected but managed to stay in expansion while Italian reading dropped into contraction. Drops in new orders index were concerning but drops in both input and output costs, indicating slowing down of inflation pressures, will be welcomed by the ECB. Contrary to the manufacturing reading final services PMI was revised down to 51.3 from 51.4 due to downward revisions to German and French readings while Italian and Spanish readings smashed expectations. Business activity grew more strongly compared to the previous month while both input and output prices declined. Composite PMI was unchanged at 51.2.
GBP
BoE Mann stated that it is imperative to balance inflation and activity and added that higher for longer inflation risk is playing out. She, as the most hawkish member of BoE, sees rates on hold as appropriate for the current economic environment. BoE deputy governor Breeden warned that economy faces risks from both sides and that path ahead is not set in stone.
Final Q3 GDP was unchanged at 0.3% q/q but y/y figure was revised up to 1.4% from 1.2% as preliminary reported. Final September manufacturing PMI was unchanged at 46.2 as employment index drop indicates more job losses caused by the increases in labor costs. Additionally, the sector is experiencing a drop in the new export orders. Final services PMI showed even bigger decline as it printed 50.8 vs 51.9 as preliminary reported while August print was 54.2. Employment declines at a faster pace while new orders and output show weaker increases. Input cost pressures continue to be strong. Declining consumer confidence hit services sector hard and composite was dragged down to 50.1 vs 51 as preliminary reported and down from 53.5 the previous month.
AUD
RBA has decided to keep rate unchanged at 3.60%, as was widely expected by the market, stating that the “decline in underlying inflation has slowed” and warning that according to recent data inflation in Q3 might be higher than expected. They see labor market as relatively tight and stable while the private demand is recovering. Considering all of this they decided that pause is the proper course of action and added that “The Board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions.”
RBA Governor Bullock stated that Board sees risks as broadly balanced and that economy is in a good spot. She acknowledged that inflation remains within their target but warned that, according to the recent data, there could be more upward inflation pressures than anticipated. She reiterated their data-dependent stance. Hawkish tone by the RBA will help strengthen AUD further.
September official PMI data from China showed manufacturing moving closer towards expansion and printing 49.8 after a 49.4 print in August. Improvement was led by increases in production, new orders and new export orders indexes. Non-manufacturing PMI, consisting of services and construction, came in at exactly 50, thus declining from 50.3 the previous month. Composite PMI has ticked up to 50.6 from 50.5 in August thanks to stronger manufacturing. Private PMI survey, former Caixin, showed manufacturing improving even more and printing 51.2 vs 50.5 in August. Services printed 52.9 which led composite to 52.5 for a highest reading in 2025.
NZD
RBNZ has published a review showing that their tight monetary policy, after the COVID outbreak, helped curb down inflation and bring it within bank’s 1-3% targeted range. They admitted that faster and larger rate hikes could have bring inflation down faster.
This week we will have RBNZ meeting where another 25bp rate cut is fully priced in.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
Minutes from the latest BoC meeting saw members agreeing that data point to an underlying inflation at 2.5%. Members also agreed that labor market is softening and that uncertainties around USMCA renegotiations are moving into focus while consumption growth is robust. At the moment markets are pricing more than 50% chance of another rate cut this month.
This week we will have employment data and forecast is for a positive reading after previous two months showed job loses.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
LDP party election will be held on Saturday with Sanae Takaichi having the best chances to become the new party leader. She is followed by current Minister of Agriculture Shinjiro Koizumi and Chief Cabinet Secretary Yoshimasa Hayashi. Takaichi was a close ally of former PM Shinzo Abe and believes in loose and stimulative monetary policy. The new party leader will most likely become the new Prime Minister after former PM Ishiba resigned. BoJ Summary of Opinions from the September meeting showed growing divide between members as hawks wanted to push for rate hikes while doves wanted to stay put citing risks around trade tariffs. August retail sales showed a drop of 1.1% both on m/m and y/y.
BoJ Tankan survey for September saw large manufacturing index improve to 14 from 13 while large non-manufacturing index remained unchanged at 34. Manufacturing saw improvement in the medium-sized enterprises as well while non-manufacturing showed declines in medium-sized as well as small enterprises. Manufacturing sector is leading the optimism in the third quarter, as indicated by the upward revision to September manufacturing PMI (48.5 vs 48.4 as preliminary reported) while non-manufacturing is stumbling. Final services PMI was revised up to 53.3 from 53.1 as preliminary reported with composite now at 51.3.
JPY has had a strong start of the week as chances of October rate hike increased but weakening demand for 10y JGBs, as indicated by the falling bid-to-cover ratio at the latest auction (3.34 vs 3.92 previously), combined with rather dovish comments from BoJ deputy governor Uchida, stated that underlying inflation is expected to stagnate before continuing to gradually rise, put a lid on JPY strength. Governor Ueda stated that although the risk of them falling behind the curve on inflation exists, it is not such a big risk. That was another dovish comment putting October rate hike into question and capping JPY strength.
CHF
SNB total sight deposits for the week ending September 26 came in at CHF474.7bn vs CHF472.3bn the previous week. Another increase as deposits move towards the upper range may signal that SNB takes more active role in the FX markets. SNB Chairman Schlegel stated that inflation is expected to pick up in the coming quarters from the current very low levels. SNB has lowered the threshold factor for the remuneration of sight deposits of account holders subject to minimum reserve requirements from 18 to 16.5, effective as of November 1. This should have negative effect on Swissy and help fight its strength. September inflation data showed both headline and core unchanged at 0.2% y/y and 0.7% y/y respectively with former expected to print 0.3% y/y while latter came in line with expectations.
