Macro Week Ahead: Investors await Fed interest rate decision, UK and China PMIs

Week of 30th October-3rd November

Last week, we saw Alphabet, Meta and Microsoft earnings, as US Q3 earnings reached their climax. This week, we look ahead to US Federal Reserve and Bank of England interest rate decision and US non-farm payrolls, amongst others.

Here are the macroeconomic highlights you shouldn’t miss this week:

US Fed likely to keep rates steady, does not rule out further hikes

The US Federal Reserve will announce its October interest rate decision on Wednesday. The central bank is likely to keep its rates steady at 5.50%* this month. This could be due to the long period of monetary policy tightening impacting economic growth.

However, Fed Chair Jerome Powell has already highlighted that this may be necessary in order to bring inflation back to the 2% target. Hence further rate hikes, depending on other market data, is not completely off the table yet.

US October non-farm payrolls could revert to earlier trend

US non-farm payroll data for October is due to be out on Friday and is expected to come in at 188,000.* If so, this would be a huge step down from September’s 336,000, which was above expectations in itself.

This could mean that the market is simply recalibrating itself. It could also mean that the Fed’s tightening program is finally catching up with the labour market.

Bank of England could follow the Fed’s example

The Bank of England (BoE)’s interest rate decision for October will be out on Thursday. The central bank is expected to take a cue from the Fed and also keep rates steady at 5.25%* this month.

This is likely to be due to inflation finally easing somewhat, as the energy price cap comes into effect. This could go a long way in helping ease diesel and petrol prices. Food prices have also dipped lately.

Could EU inflation hit the brakes?

EU year-on-year inflation for October is due to be released on Tuesday and is estimated to clock in at 3.2%*. If so, this would be quite a step down from September’s 4.3%, which itself was a 2-year low.

This could mean that the European Central Bank (ECB) is finally getting a handle on inflation, as seen by recently dropping energy prices in September. However, food prices are still higher than comfortable and may hamper hopes that the ECB could be done with raising rates.

UK Services PMI may hit nine-month low

UK S&P Global/CIPS Services PMI for October is expected to be out on Friday and could be seen inching down to 49.2*, down from 49.3 in September. If so, this would be a nine-month low, as consumer confidence and demand continues to take a hit in the UK. Businesses are also struggling to deal with inflation and higher borrowing costs, while still maintaining their operating margins.

China Manufacturing PMI likely to show signs of strength

China’s NBS manufacturing PMI for October is scheduled to be released on Tuesday. It is estimated to be 50.4*, a step up from September’s 50.2. This could be due to recent new stimulus measures by the government, as well as increasing new orders and buying levels. However, input prices are also soaring, which could put a dampener on this figure.

Australian retail sales for October may lag somewhat

Australian month-on-month retail sales for October will be out on Friday and could come in at -0.2%*. This would be a step back from September’s 0.2%, which was the third consecutive month of growth, fuelled by higher department store sales and a warmer spring. However, October could see a bit of a slowdown, as cost of living pressures and soaring borrowing costs catch up with consumers.

*Analysts polled by Reuters/Refinitiv