Major equity markets swung from gains to losses but ended the week higher across the globe. A US CPI report that delivered cooler-than-expected outcomes paves the way for the 25bps rate cut the Fed have guided markets towards at next week's meeting to address labour market concerns. The Bank of Canada is also expected to cut by 25bps next week, but the ECB's meeting should deliver little excitement. In Australia, the long awaited Q3 CPI report is due, a key input with pricing slightly favouring a November RBA cut.
A temporary reprieve to the data void in the US due to the government shutdown saw the September CPI report released - data the government required for adjustments to social security payments. Headline and core CPI came in at 3%yr - cooler-than-expected outcomes relative to the 3.1% consensus for both measures - with headline up from a prior pace of 2.9%yr in August and the core rate slowing from 3.1%yr. The report broadly confirmed that tariff-related price effects remained limited; core goods CPI was 1.5%yr, well up from its lows but still significantly slower than the pace of core services inflation at 3.2%yr.
A cooler-than-expected inflation report extended the rally in the UK gilt market - sparked initially by softness in last week's labour market data - sending the 2- and 10-year segments on the curve to lows since August and December 2024 respectively. Although a BoE rate cut is widely seen to be out of the question until the government tables its Autumn Budget in late November, pricing has now pushed further towards the current easing cycle requiring an additional 3 rate cuts. This came as headline CPI was unchanged at 3.8%yr in September and the core rate eased from 3.6% to 3.5%yr - outcomes that defied expectations to rise to 4% on headline and 3.7% for the core rate. Food inflation falling 0.2% month-on-month was key to the downside surprise on headline inflation. Meanwhile, services inflation held at a 4.7%yr, a pace 0.1ppt below market expectations and a 0.3ppt undershoot on the BoE's forecasts.
In Europe, a rise in the composite gauge of economic activity (incorporating the services and manufacturing sectors) to a 17-month high in October (52.2) only supports expectations that the ECB will extend its pause on rate cuts at next week's meeting, maintaining that policy is 'in a good place'. With the economy continuing to show resilience amid trade and geopolitical uncertainty, and inflation sitting near the 2% target, the ECB will reaffirm that policy decisions remain data dependent. That means a December rate cut cannot be ruled out, though it would require the upcoming GDP growth and inflation data to take a turn for the worse.
Australia's deal with the US on rare earths was the main event of note in an otherwise quiet week domestically. The focus is very much on next week's Q3 CPI report where headline CPI is expected to pick up from 2.1% to 3%Y/Y and the trimmed mean is forecast to hold its 2.7%Y/Y pace. The RBA has flagged upside risks to the report for some time - its current forecasts are for headline to end 2025 at 3% headline and 2.6% trimmed mean - which if materialised could delay further rate cuts, despite market pricing for a November cut building following weakness in recent labour market reports.
