Next week, all eyes will be on the November 1st FOMC meeting minutes, but they do not seem to be particularly market-moving. In the euro area, PMI statistics are unlikely to recover, while in the UK there will be limited scope for tax cuts as the autumn budget is announced.In Sweden, a weak SEK could tip the balance in favor of the national bank’s interest rate hike.
US: We expect home sales to decline to new cycle lows
Next week will be a holiday-shortened week in the US, which should bring some calm to the market after recent big swings. Slowing inflation and weak labor data have led to a growing view that the US Federal Reserve has finished raising interest rates, and is now in a position to aggressively cut rates next year. Momentum is increasing against the backdrop of this view. A rate cut of nearly 100 basis points is currently priced in, with May seen as the likely starting point. We continue to see the risk of a more severe slowdown in economic activity, in which case the Fed could cut rates more aggressively than markets are currently pricing in.
Next week’s data will be closely watched for housing, durable goods orders, and unemployment claims. Home builder sentiment has plummeted after mortgage interest rates rose to 8%, and the number of mortgage applications has slumped further. As a result, we expect existing home sales to fall to new cycle lows. Meanwhile, durable goods orders will decline significantly due to fluctuations from Boeing’s order book, so we focus on the core metrics (excluding defense and aircraft orders), and that number will continue to rise. Unemployment claims will likely be the biggest factor moving the market. While the number of first-time claims remains fairly low, indicating that companies are reluctant to lay off employees, the number of ongoing claims is increasing, suggesting a growing reluctance to hire. This effectively shows that the labor market is cooling, but not collapsing. Another significant rise in jobless claims could lead the market to more aggressively anticipate interest rate cuts next year.
Minutes from the November 1st FOMC meeting are also scheduled to be reviewed, but given the weak post-meeting indicators, market movements are likely to be slower than usual. We’ve already heard from some Fed officials, and while they welcome the direction of the numbers, they want to see more of the same numbers to make sure inflation is heading toward 2%. I am commenting.
Eurozone: No significant recovery in PMI expected in November
Eurozone confidence data will be a hot topic next week. Despite slowing inflation and decent nominal wage growth, consumers have recently become pessimistic again. A consumption-led recovery he expects in 2024, but current data does not suggest this will occur until the beginning of the year. Looking further into the second half of 2024, real wage growth should strengthen somewhat further. PMI was also quite weak. The economy is currently suffering from sluggish consumption, slowing investment, and sluggish external demand, so we cannot expect a significant economic recovery in November. Our base case for the time being is for GDP growth to be slightly negative in the fourth quarter.
UK: British Prime Minister issues autumn statement, scope for tax cuts limited
British Prime Minister Jeremy Hunt is likely to be blessed with a rare piece of good news as he prepares for his autumn statement on November 22nd. As well as borrowing £20bn less this year than previously expected, new forecasts from the Office for Budget Responsibility (OBR) mean he still has a little more room to adjust while still meeting his key targets. is likely to indicate. A fiscal goal of reducing debt as a share of GDP within five years. Rising interest rates will increase debt interest rates, but this will be more than offset by increased revenue as inflation rises. Our rough estimates suggest that the Chancellor will have around £15bn of ‘headroom’ on his fiscal targets, up from £6.5bn in March. Still, this is no big deal by historical standards and means there is little room for the prime minister to get involved. Don’t expect any big changes this week.
Sweden: SEK weakness next week could tip the scales in favor of Riksbank rate hike
Next week’s Riksbank decision looks 50-50. The central bank told us in September that it was considering further rate hikes this month, but in many ways the chances of further tightening have diminished. The job market, often cited by policymakers as an apparently resilient sector, does appear to be cooling. Vacancy rates are now falling rapidly, unemployment appears to have bottomed out, and surveys show that labor shortages are more of a constraint for businesses than they were just a few months ago. Despite a clear decline in pricing preferences in these industries, service inflation remains too high. The latest core CPIF readings were broadly in line with Riksbank expectations. And finally, despite tentative stabilization earlier this year, the housing market remains fragile.
But once again, the Riksbank is clearly concerned about currency depreciation. The Krona was mentioned 50 times in the most recent minutes, and next week’s decision will depend in no small part on SEK’s current and subsequent trading situation. On a trade-weighted basis, the currency is actually slightly stronger than expected in the September forecast, but this is a bit artificial given the Riksbank’s currency selling.
Over the next week, our currency team expects a pullback in risk-sensitive currencies such as SEK, and a rebound in the US dollar in the coming days. If that happens, there is a good chance that the balance will tip in favor of rate hikes, and we planned to do so for that reason alone. It is also taken into account that no new meetings are scheduled until February. But there may well be pause, especially as the Riksbank has become an increasingly hawkish outlier in the developed market central banking space.
Key events in developed markets next week
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