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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Traders have long-expected the Bank of England to leave interest rates unchanged at its meeting on Thursday. While that view still holds, bets on a surprise rate reduction have increased in the past few weeks.
The probability traders are putting on a 0.25 percentage point rate cut at the November meeting rose from 5 per cent in late September to about 30 per cent on Friday, according to Bloomberg.
At the central bank’s last meeting in September, policymakers signalled rising concern about inflation after data over the summer showed that price pressures in the UK economy were firmer than expected.
Since then, the data has been more encouraging. September inflation, at 3.8 per cent, was comfortably below the BoE’s 4 per cent forecast.
Private-sector “regular” wage growth, the BoE’s preferred measure of pay increases that excludes bonuses, was running at its lowest rate since 2021 in the three months to August.
But, despite the data, some members of the Monetary Policy Committee have indicated that they need more confidence that disinflation is under way.
And with the Budget to be unveiled three weeks after the monetary policy meeting, some rate-setters will want to wait for clarity on the government’s fiscal plans before voting to cut rates again, said Paul Dales, chief UK economist at Capital Economics. Elettra Ardissino
Will the Fed still be fogbound?
If the US government doesn’t resume operations next week, markets will once again be flying blind without widely followed jobs data from the Bureau of Labor Statistics.
There are serious questions about how the labour market in the US is faring. Jay Powell said the Federal Reserve was “driving in the fog” as the government shutdown stretches to a month.
The Fed chair said other data suggested that both lay-offs and hiring were low, though perceptions among households and companies on hiring continue to decline. But without clear data on labour market weakness, hawkish members of the Fed will be reluctant to cut interest rates.
Second-tier data “is a fragile basis for settling a contentious policy debate”, said Stephen Douglass, chief economist at NISA Investment Advisors.
In the absence of labour market data, economists and market participants will look closely at corporate earnings. McDonald’s, Uber and Berkshire Hathaway are among the companies set to report results.
Analysts will be eyeing McDonald’s earnings for clues about how the lower-income US consumer is faring in the wake of weaker results from Kraft Heinz in the past week. The chief executive of the ketchup maker flagged consumer sentiment going into the holiday season as “one of the worst” seen in decades. Jill R Shah
Is China’s manufacturing juggernaut slowing down?
Commentators have emphasised China’s leverage over the US in trade talks after last week’s meeting between Donald Trump and Xi Jinping in South Korea. But there are signs that China’s economy is slowing due to weak domestic demand and a sharp contraction in property-related activity.
So investors will watch for the results of a privately-administered survey of the nation’s manufacturers on Monday morning in Beijing.
Monday’s release is of the RatingDog China Manufacturing PMI, the purchasing managers’ index previously known as the Caixin PMI before local rating agency RatingDog bought the naming rights from S&P Global.
S&P compiles the index from responses to questionnaires sent to 650 manufacturers. It tends to better represent China’s small business private sector than the country’s official PMI. Economists polled by Bloomberg expect the index to fall to 50.7 points in October, down from 51.2 in September.
The official PMI for manufacturing and services released on Friday fell short of expectations, with activity in the manufacturing sector declining for a seventh straight month to a reading of 49 in October, below forecasts of 49.6. A reading below 50 indicates a contraction in activity from the previous month.
“The weaker print likely in part reflects trade uncertainties earlier in the month and distortions from the Golden Week holiday,” analysts at Barclays wrote.
Earlier in October, the US threatened fresh tariffs on China that were then retracted. The two countries agreed a one-year trade truce after Trump and Xi met last week.
“We won’t get the RatingDog composite PMI until next week, but it has recently been much stronger than the official measure, so the average of the two may not look as weak,” Zichun Huang, China economist at Capital Economics, wrote last week. “Even so, the message is likely to be that growth momentum remains subdued, and we don’t expect that to change in the coming quarters.” William Sandlund
