October 29, 2024

“The big data releases kick off today with JOLTS and a consumer confidence report in the US. Markets will soon have to prepare for a big day tomorrow, which includes inflation and growth figures in the eurozone and US, as well as a key budget announcement in the UK.”

Sam Cornford – Head of Trading

USD

The plethora of event risk coming up meant that the dollar was relatively rangebound yesterday. USD/JPY saw the most activity, with the yen slipping by 0.6% after the ruling coalition lost its majority in Sunday’s election and injected some political uncertainty into the outlook for further Bank of Japan rate hikes.  In the US today, we first get the JOLTS job openings report, where the market is looking for vacancies to hold on to the surprise uptick from August at 8.0M. The drop in job openings has been one of the clearest signals of a cooling labour market, having fallen from a peak of over 12M back in 2022. That has lifted a key metric of market tightness and potential wage growth – the number of unemployed per job opening – from 0.5 to 0.9, which is a figure consistent with the pre-pandemic period. The CB consumer confidence report will also give some labour market signals. The difference between those surveyed who see jobs as ‘plentiful’ versus ‘hard to get’ has proven to be a solid predictor of the unemployment rate over long periods, and the widening gap looks to be forecasting a significant rise over the coming months.

GBP

Sterling investors look to be relatively calm about tomorrow’s budget. UK government bond yields have lifted, but only in response to: a) the prospect of higher gilt supply to fund Reeves’ capital spending plans and b) rising expectations for the Bank of England’s long-term ‘terminal’ interest rate. But measures of government creditworthiness, such as sovereign credit default swaps, have actually improved over recent months, and GBP/EUR is still hovering around the 1.20 mark. All that said, there is plenty of room for surprise if it is seen as a budget that is likely to restrain growth, or if borrowing plans are higher than expected. For today, some mortgage approvals and consumer credit data are on the agenda.

EUR

The euro has a quiet day ahead before it faces a torrent of data tomorrow morning. The ECB’s Wunsch provided some unusual hawkish pushback yesterday, arguing that there is immediate urgency to start cutting more quickly in December and that policymakers could tolerate a brief undershoot of the 2% target. Guindos struck a similar tone, pointing to the residual upside risks to services inflation. Bets on a 50bp cut have been trimmed to a touch below 40%, but it wasn’t enough to compress the dollar’s substantial two-year yield advantage, which grew to a six-month high of 205bps yesterday. While the US data will take the bulk of the market’s attention today, the focus will be on Europe tomorrow morning when we get CPI prints from Germany and Spain and a Q3 GDP growth print for the eurozone bloc.

Markets

Even with election uncertainty hanging over markets, risk assets broadly continued to gain yesterday. The equity markets will take their cues from the US data and some big earnings today, including from Alphabet, AMD, Visa, and McDonald’s. Meanwhile, brent crude fell to $71 as traders priced out the risk premium associated with Israel striking Iranian oil facilities.

Main Economic Events (All Times CET)

8:00am: German GfK Consumer Confidence
10:30am: UK Mortgage Approvals
3:00pm: US JOLTS Job Openings & CB Consumer Confidence

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