An event-packed week ahead
Sterling recovered some of its post-UK budget losses against the dollar and euro in Friday’s trading, closing largely unchanged on the week against the former and about half a penny lower against the latter, and opens this morning at around $1.2975 and £0.8395 respectively. The euro retreated a little against the dollar on Friday but is firmer at the start of play today trading just shy of $1.09, near the top of last week’s range of $1.0770 to $1.0905. It is an event-packed week ahead, with the US presidential election on Tuesday and the Fed and Bank of England (BoE) announcing interest rate decisions on Thursday. The US election seems too close to call – and the outcome may be contested – but the initial market reaction to a Trump win might see the dollar gain some ground while a Harris victory might see it retreat and give up some of its recent gains. In relation to the two central bank meetings, the market (by and large) expects both the Fed and BoE to lower interest rates by 25bps.
UK government bond yields steadied on Friday, having headed north following Wednesday’s budget, albeit 2- and 10-year yields still finished some 25bps and 20bps higher on the week respectively. Equivalent German yields ended slightly lower to marginally higher on Friday, though both rose by around 12bps from the previous Friday’s close, while US 2-and 10-year yields rose by 10bps and 15bps on the week, the latter following a 10bps increase on Friday alone (after they had fallen initially in response to October’s softer than expected US jobs report). Meanwhile, in equity markets, European and US markets closed out Friday in positive territory though both ended lower on the week overall.
The US economy added just 12k jobs last month according to Friday’s labour market report, less than the +100k consensus forecast, with employment growth dampened more than expected by the impact of two hurricanes in October and the ongoing Boeing strike. The August-September outturn was revised down by around 112k though, and while the pace of job gains remains solid (it averaged around 150k a month in Q3, much the same as in Q2), it has nonetheless slowed since late last year/early this year. Separately, the ISM manufacturing index slipped to 46.5 in October, remaining below the key 50 level and pointing to an ongoing contraction in output in this sector of the US economy.
The economic data calendar is relatively light for the week ahead. The ISM services index (Tuesday), weekly jobless claims (Thursday) and consumer confidence (Friday) are due in the US, while producer prices (Wednesday) and retail sales (Thursday) are scheduled in the Euro area.