The week kicks off with PMI prints across Europe, and later today we have the US ISM manufacturing print. We will hear from the Fed’s Daly and Cook. With limited data on Tuesday, Aramco and BP earnings, and US Election Day will draw market attention. Central bank chatter includes the ECB’s Lagarde and BoE’s Breeden. China RatingDog services, manufacturing and composite readings feature on Wednesday, with eurozone services PMI and PPI, and Germany factory orders due later. The ECB’s Kocher, Galhau and Nagel all speak at separate events. Eurozone retail sales, Germany industrial production, and the BoE’s rate decision fall on Thursday. The central bank is expected to hold at 4%. We will hear from the ECB’s Schnabel and Lane, and the Fed’s Musalem, Hammock Williams, Paulson and Barr. On Friday we have China trade data and the US University of Michigan sentiment prints. The October US employment report is also due, however this may be impacted by the government shutdown, which could be the longest in history if it remains shut through Wednesday. Fed rhetoric from the likes of Williams, Jefferson and Miran will therefore garner market attention.
Risk sentiment picked up into the end of last week amid robust mega-cap tech stocks, a less dovish Fed and easing US-China trade tensions. The yield on the 10-year rose 8bps to 4.08%, while the S&P Index rose 0.71%. The dollar, DXY Index, remained supported by the pull-back in Fed cut bets. Meanwhile, Brent crude fell 1.32% to $65.07pb.
The Fed cut interest rates by 25bps to a target range of 3.75%-4.00%, which was widely expected, but offered hawkish guidance that reduced market expectations for a further cut in December. The decision was supported by lower job gains, with the FOMC stating that economic activity was expanding at a moderate pace. Beyond the rate decision, the Fed announced it would conclude the reduction of its aggregate securities holdings (balance sheet rundown) on December 1st and would reinvest all principal payments from mortgage-backed securities into Treasury bills. This morning the China RatingDog manufacturing PMI was broadly in-line with expectations, remaining in expansion in October, though marginally lower from September’s level. This follows the weaker official manufacturing PMI, which read 49.0, while the non-manufacturing PMI was marginally better in October at 50.1. The gradual rollout of incremental fiscal measures in October has started to ease funding constraints on investment. Market expectations have improved in response, with the construction sector’s business activity expectations index rebounding 56.0, suggesting a potential pick-up in construction sentiment ahead.
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