### United States
As the first of two potentially tumultuous weeks wraps up, the spotlight is on US jobs data, with expectations skewed towards a downside due to recent hurricanes and temporary factors. Market reactions are further complicated by the approaching weekend, looming geopolitical tensions between Iran and Israel, the upcoming US elections, and key G10 central bank meetings scheduled for next week. The US dollar is generally strong but is stabilizing against G10 currencies, while most emerging market currencies are weaker; however, the Mexican peso has seen a slight increase. Although Asia Pacific equities have taken a hit, the Hang Seng and mainland stocks there are exceptions. After a 1.2% decline yesterday, Europe’s Stoxx 600 has gained over 0.5%. US index futures are poised to open higher following yesterday’s losses. In response to the UK budget announcement, UK Gilt yields continue to rise, with European 10-year yields mostly up by 2-3 basis points, while Gilt yields climbed by four. The 10-year US Treasury yield, mostly steady at 4.30%, has edged up a basis point. Meanwhile, gold has stabilized after a 1.6% fall yesterday, the largest in three months, likely spurred by a margin call linked to the equity decline. Oil prices are recovering; December WTI has grown nearly 2.8% today, regaining ground above $71 amid reports of potential Iranian retaliation for Israel’s actions.
### Eurozone
The European economic calendar is light today, providing an opportunity to reassess two critical developments. Firstly, there’s the outlook for the ECB. At last week’s end, the market was estimating around a 40% chance of a half-point cut in December. However, stronger-than-expected Q3 GDP figures, coupled with Germany avoiding a second consecutive quarterly decline, have halved these odds. At the start of this week, nearly 125 bp of easing by mid-next year was priced in by the swaps market, but now it’s reduced to 111 bp. The US two-year premium over Germany has decreased by about eight basis points this week, supporting the euro ahead of the US jobs report. Secondly, the UK budget has had a noticeable impact on markets, especially visible in the jump in Gilt yields. These yields have been rising across Europe and the US since late September. The 10-year Gilt yield increased by roughly 25 bp in early October, and this week it’s risen by an additional 25 bp, approaching 4.50% for the first time since last November. The UK two-year premium over the US has surged from six basis points at last week’s end to over 25 bp this week, although sterling remains under pressure. Looking to next week, Sweden’s Riksbank is expected to cut 50 bp, while Norway’s Norges Bank is likely to maintain its current rate. Despite the Norwegian krone’s 7.5% depreciation this year, it ranks second only to the yen among G10 currencies. Meanwhile, the euro had reached $1.0890 yesterday, marking an 11-session high but stayed below $1.09 as 1.6 billion euros in options expired there yesterday, with another billion expiring today. The euro has largely remained within a $1.0840-90 range over the past two days.
### United Kingdom
The UK’s budget announcement has significantly influenced its markets, with a noteworthy increase in Gilt yields. Rising yields started across Europe and the US in late September. In early October, the 10-year Gilt yield rose by approximately 25 bp, only to reverse back up. This week, it has climbed an additional 25 bp, nearing 4.50%, a first since last November. With the UK two-year premium over the US jumping from six basis points last week to over 25 bp now, there’s a high level of confidence in a quarter-point cut by the BOE next week. Even so, sterling is battling a slump. Given expectations for next week, Sweden’s Riksbank is likely to implement a 50 bp cut, while Norway’s Norges Bank remains steady. Still, despite a 7.5% decrease this year, second only to the yen among the G10 currencies, the krone has not benefited from its central bank’s hawkish stance. Sterling had touched $1.3040 on Wednesday before the budget but noted a low of about $1.2845 yesterday. The higher borrowing demands revealed in the budget rattled the market for Gilts, but this rise in interest rates hasn’t sufficiently buoyed sterling. Today, it is moving within a narrow $1.2885-$1.2920 range.
### China
China sees some improvement as its Caixin manufacturing PMI edged up, moving above 50 to reach 50.3 from September’s 49.3. Like the official PMI, this increase fuels expectations of a forthcoming fiscal package expected to be confirmed by the National People’s Congress next week. The US dollar had reached its lowest point for the week yesterday as Europe began trading slightly below JPY152.00, climbing back above JPY153.00 during early North American activity before retracting towards JPY152.00. However, with sharp declines in the equity market driving demand for US Treasuries, the dollar found support today near JPY151.80 during the local session and has since recovered to the JPY152.80 area.
### Japan
Japan’s manufacturing sector showed some movement with its final manufacturing PMI for October coming in at 49.2, slightly up from the initial estimate of 49.0. It remains the lowest since the first quarter’s end. The Bank of Japan’s focus on inflation is underscored by Governor Ueda’s remarks linking it with exchange rates. The swaps market now prices around 8.5 basis points of tightening, equating to just over a 50% likelihood of a 15 basis point move, having priced under six basis points last week.
### Canada
Canada’s economic picture for October is taking shape with the release of its manufacturing PMI. For September, it stayed marginally above 50 for the first time since April 2023. The swaps market is pricing in slightly over a 50% opportunity of another half-point cut this December, following the Bank of Canada’s 125 bp rate reduction in four moves this year. The US dollar nearly matched its early August high against the Canadian dollar, at slightly over CAD1.3945 yesterday. Unfavorable impulses from the stark fall in equities have had an effect, and a climb above this zone could target CAD1.40. Options worth around $635 million will expire there on Monday. In the past two days, US dollar pullbacks below CAD1.39 have been consistently purchased.
### Australia
Australia’s final manufacturing PMI rose to 47.3, up from an initial estimate of 46.6 and September’s 46.7, despite the soft demand from consumers. Disappointment from September’s retail sales led to reporting that broader household spending fell 0.1% after an upward revision to 0.2% for August. As the Reserve Bank of Australia meets next week, expectations for a rate cut are negligible, with full discounting of a cut postponed until Q2 2025. The Australian dollar traded within its Wednesday range yesterday, extending the consolidation phase from Tuesday and navigating between $0.6555 and $0.6585 ahead of the US jobs report. Last week, it settled at slightly above $0.6600; this week, it hit a low near $0.6535.
### Mexico
Mexico is preparing reports on unemployment, worker remittances, and IMEF surveys. The peso does not always respond strongly to these reports, as US jobs data and broader dollar movements hold more sway. Next week, Brazil’s central bank is expected to continue tightening with a 50 bp rate hike, setting the Selic at 11.25%, following an initial quarter-point increase in September. The Brazilian real offered limited consolation, falling around 5.6% against the dollar in October, ranking as the region’s second-worst performance after the Chilean peso’s 6.6% loss. After performing poorly on Wednesday and being sold to a new two-year low, the Mexican peso rebounded yesterday despite the risk-averse climate. The greenback dipped below MXN20.00 after reaching nearly MXN20.2280 on Thursday. Although it didn’t close below MXN20.00 yesterday, ongoing selling pressure has pushed it to a four-day low close to MXN19.95.
