Uncertainty continued to hang over markets leading to another risk-off week. Equities were down sharply - strong results from Nvidia unable to quell concerns over stretched tech valuations - the USD rose and Treasuries were bid. A delayed US payrolls report was not convincing to prospects for a December Fed rate cut, though markets were buoyed by NY Fed President Williams saying there was scope for policy easing "in the near term".
The overdue September payrolls report - delayed 7 weeks by the government shutdown - failed to provide clarity on US labour market conditions, the key factor to the Fed's December decision. Together with the Fed's October meeting minutes that cast more light on the divisions within the FOMC over the appropriateness of further easing, market pricing slipped below 50% for a December rate cut that was seen as a formality just 4 weeks ago. Nonfarm payrolls rose by 119k in September, well above expectations (51k) and the strongest gain since April. However, the waters were muddied as downward revisions to prior gains continued (-33k for July and August) and the unemployment rate lifted from 4.3% to 4.4% - caveated by a pick-up in labour force participation to 4-month highs (62.4%). Average hourly earnings growth meanwhile held at 3.8%yr.
UK inflation slowed in October but was marginally higher than expected in headline terms at 3.6%yr (3.8% prior, 3.5% exp). Core inflation eased from 3.5% to 3.4%yr (as exp) and services prices beat to the downside at 4.5%yr (4.7% prior, 4.6% exp), both elements that markets latched onto in boosting pricing towards 90% for the BoE to cut rates in December. But that pricing was subsequently scaled back as the week progressed, leaving the outcome of the December meeting delicately poised ahead of next week's crucial budget. In the euro area, November's flash PMI was broadly unchanged at a 52.4 reading, consistent with moderate growth in economic activity. Despite trade and geopolitical headwinds, the euro area economy has outperformed expectations, reflected in the European Commission this week raising its forecast for GDP growth this year from 0.9% to 1.3%.
Australian wages growth remained well contained rising by 0.8% in the September quarter, leaving the annual pace steady at 3.4% (see here). The quarterly rise was boosted by the minimum wage increase (3.5%), while new enterprise bargaining agreements continued to drive the divergence between public (0.9%q/q, 3.8%Y/Y) and private sector wages growth (0.7%q/q, 3.2%Y/Y). The latter slowed to lows since mid-2022 correlating with reduce tightness in the labour market. All told, there is no near-term threat from wages to worry the RBA in light of the acceleration in inflation in Q3. The RBA's November meeting minutes reaffirmed an extended hold on rates is the likely path forward.
