The absence of macroeconomic news in the US caused by the Federal government shutdown is creating strange correlations in financial markets. Last week, traders flocked to traditional safe havens, like gold and the Swiss franc, but equities held on to record highs.Meanwhile, bonds and the Euro traded sideways, generally staying well within recent ranges. To make matters even harder to interpret, there were some rumblings of concern about credit quality in the US following a handful of high-profile blowups, though credit spreads remain at very low levels in absolute terms.Emerging market currencies generally rallied, though the moves were contained and difficult to interpret.
The drought in US data, brought about by the federal shutdown, will ease a bit this week, as the CPI inflation report for September is published on Friday, in order to allow adjustments to social security pensions. Economists expect yet another monthly print in the 3-4%, far above the Federal Reserve target and an apparent contradiction with the central bank's increasingly dovish stance. Inflation numbers for September will also be published in the UK on Wednesday. Friday promises to be a volatile day: in addition to the US inflation report, the PMI leading indicators of business activity for October will be released worldwide.
AUD
Fears over an escalation in the US-China trade war made for a difficult trading week for the antipodean currencies, both of which act as effective proxies for China. The Aussie dollar lost over 1% of its value last Monday after Trump warned of additional 100% tariffs, although a softening in White House rhetoric during the week at least arrested some of the downside. Market participants appear to be confident that recent bluster is exactly that, and merely a negotiating ploy rather than anything else. While we agree, lingering jitters could keep risk assets, including the Aussie dollar, on the back foot until next month’s talks.
The turn for the worse in last week’s September employment data added fuel to the sell-off. While the 15k net increase in jobs was largely in line with estimates, investors were caught wrong-footed by the jump in the unemployment rate, which rose to a near four-year high 4.5% (from 4.3%). The November RBA meeting appears likely to be a close call, but markets now see another cut as more likely than not. Without question, the Q3 inflation data (29/10) will now be key
NZD
Mildly positive domestic developments allowed the kiwi to close the week near its starting point, despite ongoing US-China trade tensions. The BusinessNZ PSI survey indicated a slower contraction in the service sector compared to August, while tourist arrivals in the same month rose significantly year-on-year, approaching pre-Covid levels. Above all, credit card spending surged quite noticeably in the third quarter, likely driven by the RBNZ recent easing, although other leading indicators are still pointing to very weak growth.
This week, alongside the meeting between Bessent and Chinese Vice Premier He Lifeng, focus will be on the third-quarter CPI inflation data, expected to rise to 3% from 2.7%. Despite this anticipated increase, the RBNZ expects subdued domestic demand and rising unemployment to temper price growth in the near term. As a result, markets anticipate further monetary easing at the November meeting and potentially into next year.
USD
The lack of economic data, caused by the US government shutdown, is forcing the market to perhaps overinterpret other developments, such as recent hiccups in US private credit. So far, we see no systemic implications in these accidents. The macro backdrop (monetary easing in spite of high inflation) should be favorable to credit, but we are paying close attention. We expect this Friday's delayed inflation data to show no further progress towards the Fed's target, with headline and core inflation both printing in the 3-4% annualized range.Nonoe of this is likely to stop the Fed from easing at each of its next two meetings, specially given the uncertainty caused by the ansemce fo fresh labor data.
CNY
The yuan gained a touch on the broadly weaker dollar last week but trade war concerns seem to have broken momentum in Chinese stocks. With a rapid pace of gains earlier in the year reportedly causing some concern in Beijing this is not much of an issue, however. If someone is changing posturing on trade, it is not China. Per Sunday’s announcement talks are set to continue this week.
Solid trade data released last week was followed by a bittersweet inflation print. Consumer prices fell 0.3% in September, being in deflation in 6 of the last 8 months. However, core prices accelerated to 1%, its highest rate of growth in 19 months which provides some hope of stabilisation in price pressures. Moving forward attention will be on trade talks and Q3 GDP data. Aside from that, the Central Committee of China’s Comunist Party wil hold its fourth plenum Monday through Thursday. Top leaders are expected to discuss a plan for the economy in 2026-2030 with investors keeping an eye on the language of the communications after it concludes, particularly around consumption.
