Macroeconomics: The Day Ahead for 30 October

Another blockbuster day for data, central bank meetings (BoJ and ECB) and corporate earnings, though the Trump Xi meeting inevitably takes top billing, with month end also in view. A raft of Q3 advance GDP readings from the Eurozone/EU and Saudi Arabia, German Unemployment and Spanish and German CPI top the data run, which also has the Eurozone EC Confidence surveys, as tonight brings the usual end of month rush of Japan’s Tokyo CPI, Industrial Production, Retail Sales and Unemployment. Highlights among the deluge of corporates are likely to include: BYD, CNOOC, Cosco Shipping, ICBC, Junk Solar, Metallurgical Corp of China (aka MCC), Petrochina, Postal Savings Bank of China, Renesas Electronics, Takeda Pharmaceuticals and Tokyo Electric Power in Asia. Europe has a strong financial flavour with Anheuser-Busch InBev, Repsol, Shell and Technip Energies accompanying BBVA, Credit Agricole, ING, Societe Generale and Standard Chartered, while the US looks to Altria, Cloudflare, Coinbase Global, Eli Lilly, Estee Lauder, Kimberley-Clark, L3Harris Technologies, Mastercard, Southern Company and Zillow. 

** China/USA – Trump/XI Meeting **

There is a distinct sense of anti-climax after the Trump/Xi meeting extended the ‘trade truce’ for one year, though all tariffs, levies and export control measures that have been previously announced on both sides remain in place, allowing for further negotiations. As previously noted, the welcome suspension of these measures does not however, address any of the far more fundamental structural issues/differences. At least the threat of further escalation has been sidelined for the time being. But the US government remains in shutdown with no signs of any near term resolution, and China’s domestic economy still facing substantial headwinds from deflation, weak domestic demand and excess capacity, as well as the unresolved property sector woes, there remain considerable headwinds to growth for both economies, even if US consumers will start to feel the benefits of the ‘BBB’ tax cuts in H1 2026.

** Japan – BoJ policy meeting **

As expected, the BoJ held rates at 0.5%, but kicked the next rate hike into the long grass, with governor Ueda making it clear that while the BoJ has a tightening bias, the timing of the next rate hike is contingent on ‘initial wage (talks) momentum’. While trade union Rengo has already pitched for an increase of at least 5.0%, and the employer’s federation Keidanren today urged its member companies to keep raising wages at next year’s Shunto spring wage negotiations, this still implies the BoJ will be on hold until late in Q1 2026. By that stage, there should be greater clarity on whether the new coalition government is able to implement some of its priority legislation, and the form that it will take, both in terms of measures to ease cost of living pressures and the extent of any increased borrowing. Be that as it may, the updated BoJ forecasts still envisage headline and core CPI around its 2.0% target, with a marginal increase to the current fiscal year GDP forecast to 0.7%. In other words, the BoJ remains well ‘behind the curve’ given the call rate is still only at 0.5%.

** Eurozone – ECB meeting, Q3 GDP, October CPI **

The ECB has been very determined to signal that its key policy rates are on hold for the foreseeable future, and that is likely to be the message from Lagarde at the post meeting press conference, noting downside risks to growth, and risks on both sides of the inflation outlook, though at the current juncture rates are at an ‘appropriate’ level to keep CPI around target. Today’s run of data will likely reinforce the ECB’s ‘steady as she goes’ policy stance, with both Spanish and German CPI coming higher than expected, though the upside miss was primarily a function of energy and volatile airfares, rather than implying an end to the gentle disinflationary trend that has been in place for some time. Q3 GDP data have been mixed, with the much stronger than expected 0.5% q/q in France mostly down to a surge in very volatile aerospace exports (Net exports added 0.9 ppt to GDP), though the strength of Gross Fixed Capital Formation at 0.4% q/q in the face of the protracted political crisis was a surprise, but does follow three quarters of flat growth that followed Q3 2024’s -0.9%. Dutch GDP was also better than expected at 0.4% q/q following an upwardly revised 0.3% in Q2, but German GDP flatlined as expected, though there was a small upward revision to Q2 to -0.2% q/q. But this still points to a flat picture for 2025 as a whole, with any benefits from the Merz coalition government’s sharply increased spending plans unlikely to be felt until 2026, and notably yesterday’s DIW survey of businesses noted many businesses are not seeing any actual benefits from these plans thus far.

** U.S.A. – FOMC meeting **

The surprise was that there was an emphatic message from Powell that a December rate cut was ‘far from’ assured, which, given the latest CPI data and other indicators that implied that Fed concerns about weak labour demand and weak growth have been overstated, was not that surprising. It at least suggests that despite enormous political pressure, the FOMC remains true to its policy objectives. But it is again backtracking on the economic and policy outlook, as it was forced to do previously after misjudging inflation pressures post-pandemic and 2024’s transitory dip in employment. To be fair, it is very difficult for it to make a call on labour demand, given that the combination of the AI investment boom, deteriorating labour force demographics, labour skills gaps and curbs on immigration make any longer-term judgement on underlying trends very challenging. But the fact that risk appetite, as represented by credit spreads and equity valuations, remain high, growth remaining resilient in the face of major uncertainties and disruptions, and inflation clearly not on a path back to 2.0% should have advised that ditching the FOMC caution on rates through much of this year was not justified. The question is when rate cuts might resume, if a pause is instituted in December, and indeed how the divisions on the FOMC make for confusing messaging on the overall rate outlook.