October 30, 2024

“Today’s UK budget announcement is a key event for sterling – we all remember the 2022 mini-budget collapse. The markets have little time for a breather today, as we have growth and inflation data overload in the US and Europe.”

Tim Hallinan – Trading Director

USD

The dollar pared its rally yesterday after the JOLTS survey gave some softer signals around the labour market. While consumer confidence surged from 99.5 to 108.7, markets ultimately traded on the big drop in job openings from 8M to 7.4M and a downward revision to the August figures. Less demand for labour means slower hiring, less job security, and weaker wage bargaining power for workers. That is something we see in the quits rate, which has fallen from 3.0% to 1.9% over the past two years as people have become less confident in finding better work elsewhere. Notably, the JOLTS report (and several other leading indicators) appears to be painting a weaker picture than the payroll figures. Today, however, Q3 growth is expected at an extremely healthy 2.9% annualised, driven by a rise in personal consumption from 2.8% to 3.3% that should help to further quash Fed panic around the US economy’s trajectory. At the same time, the consensus for the quarter-on-quarter core PCE print is for a fall from 2.8% to 2.1%, which would suggest that disinflation is well on track.

GBP

Sterling is rising into today’s budget announcement this morning. The headline changes have been leaked already, with Reeves set to redefine the fiscal rules to allow for higher investment borrowing, while also raising taxes to bring in tens of billions to match day-to-day spending with revenues. Sterling and gilt investors appear to be relatively comfortable with the plans and therefore have not embedded a material risk premium into the market, but a surprisingly large amount of borrowing or economically damaging tax rises could see the pound drop.

EUR

Eurozone growth and inflation data comes thick and fast this morning. France and Spain have already released some better-than-expected Q3 growth figures that have lifted the euro, having expanded by 0.4% and 0.8% respectively. The German economy is set again to be the biggest drag on the eurozone growth this morning, with the consensus looking for a second consecutive -0.1% contraction pulls the bloc-wide figure down to a paltry 0.2%. On inflation, EU-harmonised Spanish CPI landed as expected at 1.8%, and the German regions will release their figures throughout the morning. The 40% probability on a 50bp rate cut in December remains relatively unchanged so far, although the scope for a euro rally may be limited given that Q3 only captures the beginning of the PMI slump that has spooked ECB policymakers lately.

Markets

US stocks caught a tailwind yesterday with the Nasdaq reaching a closing high, and Google parent Alphabet shares surged in aftermarket trading as it beat Q3 revenue estimates thanks to a boom in its AI-related cloud business. European stocks fared worse, and some de-risking ahead of the UK budget announcement today helped the FTSE 100 to drop 0.8% in the session.

Main Economic Events (All Times CET)

9:00am: Spanish CPI
10:00am: German Q3 GDP
11:00am: Eurozone Q3 GDP
1:30pm: UK Budget Announcement
1:30pm: US Q3 GDP
2:00pm: German CPI

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