While the US government is still in shutdown, we are not getting much official data. This puts more focus on private releases and this week we got mixed data for the US labour market. The ADP employment number for October surprised to the upside with a gain of 42k following a drop of 29k in September. However, the Challenger data on announced job cuts showed a sharp rise in layoffs to the highest level since the pandemic. A concerning signal for future employment data.
The US government shutdown, the longest in history, might be nearing its end. Some Republicans are reportedly warming up to the idea of extending the ACA/Obamacare health insurance subsidies that Democrats are demanding. The most likely path seems to be that Congress first passes a short-term ‘CR’ funding bill until the end of the year, and the finalizes the full-year funding with the ACA extensions included.
US Supreme Court started hearings on the legality of Trump’s tariffs on Wednesday, which revealed scepticism among even some of the conservative judges. With a 6-3 split between conservative vs. liberal judges in the court only two conservatives need to vote against the lawfulness of the tariffs. If the court rules against Trump the administration is likely to invoke Section 122 of Trade Act of 1974, which explicitly allows president to set up 15% universal tariffs for 150 days almost immediately. This would buy time for crafting a longer-term plan. We will likely get a ruling during the next month.
In the euro zone service PMI for October was revised higher to a strong reading of 53.0, the highest level in more than a year. It follows data last week showing rising German business expectations and higher euro consumer confidence. With fiscal easing on the horizon, it underpins our view of decent growth outlook and the ECB staying on hold.
China PMIs for October disappointed with a decline in both the official as well as private versions. However, it was driven by a sharp decline in export orders, which was likely related to Trump’s threat of 100% tariffs in October, and we look for a rebound in November after the trade deal instead led to a 10% tariff reduction on China.
Bond yields were on a rollercoaster this week initially rising on decent ADP employment but falling again when the rise in job cuts was released Thursday. Stocks were on the backfoot as bubble concerns crept into markets and the high job cuts spurred concerns over the economy. The USD ended the week broadly flat mirroring the shifts in US bond yields.
Next week is still rather light on market movers due to the US government shutdown. In the euro zone we get the Euro Sentix survey and German ZEW, which sometimes give a good lead on PMIs. US NFIB Small Business Optimism also has some labour market components that has extra focus right now. China releases the monthly batch of data for retail sales, industrial production, home sales and house prices.
