US And Euro Area Q3 GDP Releases Today

Economic

Summary:

US and Euro area Q3 GDP releases today.

In focus today

In the US, ADP’s October private sector employment report and flash Q3 GDP will be released in the afternoon. ADP’s figures could provide some early hints of what to expect from Friday’s key non-farm payrolls release. We expect that GDP expanded 2.5% on annualized q/q basis (Q2: 3.0%) largely driven by still solid private consumption.

In the euro area, we receive the preliminary estimate of GDP growth in Q3 of 2024. The German economy likely stagnated or contracted slightly in the third quarter while strong growth in Southern Europe combined with the Olympic Games in France should leave overall euro area growth in positive territory. Hence, we forecast GDP growth of 0.2% q/q like in the first quarter, driven by service providers while the manufacturing sector likely was a drag on activity.

In the UK, Chancellor Rachel Reeves is set to announce the Labour government’s first budget in the afternoon. We will likely see a budget more expansionary than previously. The budget is set to be “all about investments”. So, expect increase in public investments, and particularly the NHS. The shortfall is likely to be covered by a large increase in taxes with estimates indicating up to GBP 40bn. The BoE will judge the measures at its upcoming meeting on 7 November and to what extent it might alter the inflation outlook.

In Japan, we expect no changes from the BoJ early Thursday. Governor Ueda will probably try to find a less dovish tone at the meeting to avoid adding to the recent yen slide. After all, inflation is on target and consumers’ purchasing power is heading in the right direction now.

Economic and market news

What happened overnight

In Australia, CPI was released for Q3 deviating only slightly from consensus with 2.8% y/y (cons: 2.9%, prior: 3.8%).

What happened yesterday

In the US, the JOLTs report for September showed a sharp decline in US job openings with 7.44M (cons: 8.00M, prior: 7.86M). The Fed uses the figure as a proxy for overall labour demand, and thus the decline suggests that labour markets remain on a cooling trend. The overall level of layoffs has been rising gradually, but in a historical context it remains low. The ratio of job openings to unemployed job seekers declined slightly to 1.09. This should allow the Fed to continue cutting rates at the coming meetings.

The Conference Board’s October consumer survey showed a notable uptick in optimism both with regards to current economic conditions as well as the future outlook. These somewhat mixed signals released at the same time led to a very muted market reaction.

In Sweden, Q3 GDP growth dropped 0.1% in both q/q (cons: 0.4) and y/y (cons: 0.7). The indicator however should be treated with caution, but the Riksbank’s own company survey paints a gloomy picture as well. The survey showed more negative sentiment compared to the latest one in May. Combining these two the overall picture seems a bit more negative than the Riksbank’s base scenario, which is that a growth recovery next year will keep inflation close to the 2% target.

In Japan, the head of the opposition Democratic Party for the People (DPP), which would be critical to form a government in Japan, stated on BoJ: “Once there is certainty that real wages will exceed 4% at next year’s spring wage negotiations, that’s when the BoJ can review monetary policy”. This reflects the risk of political resistance to tightening policies that BoJ will meet.

Equities: Global equities were marginally higher yesterday, but notably, most sectors were lower. The overall lift was facilitated by higher tech stocks in the US. In the US, the group of cyclicals was higher, while defensives were lower. In Europe, 21 out of 25 industry groups were lower, but cyclicals still outperformed, and banks were higher. This type of odd rotation is very much linked to reporting, but it is also worth noting that it does not result in higher indices overall despite the cyclical outperformance. For the record, with tech outperformance yesterday, Nasdaq achieved its first record closing since 10-July. In the US yesterday: Dow -0.4%, S&P 500 +0.2%, Nasdaq +0.8%, and Russell 2000 -0.3%. Asian markets are broadly lower this morning, with Japan running its own course, being higher despite only a marginal weakening of the yen this morning. European futures are lower this morning, while US futures are again mixed.

FI: Markets recorded a 3bp Bund-ASW spread tightening to hit a low of 11bp. The German swaps spreads against €STR are all negative now. Front end (ECB pricing) was 4bp higher in the 2025 segment and points to 103bp of cuts next year.

FX: A relatively calm start to the week without any major G10 FX moves. EUR/USD remains just above the 1.08 mark, while USD/JPY has stabilized above 153 – only four figures below the level where Japanese authorities last intervened in FX markets in early May this year. EUR/GBP faced renewed pressure during yesterday’s session, with the cross briefly dipping below the 0.83 mark. NOK saw a slight rebound yesterday, bringing EUR/NOK below 11.85, while EUR/SEK is still hovering just above 11.50.

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Alex

Economic

Political

Oct 29 (Reuters) - The U.S. Supreme Court denied on Tuesday a bid by former independent presidential candidate Robert F. Kennedy Jr., who has endorsed Republican Donald Trump, to be removed from the ballot in Wisconsin and Michigan for the Nov. 5 election. Kennedy has said he wants voters who would have backed him to cast ballots for Trump.

The court declined Kennedy's emergency requests to order the Wisconsin Elections Commission and Michigan Secretary of State Jocelyn Benson to take him off the ballot in those states. Michigan and Wisconsin are among a handful of closely contested states expected to decide the outcome of the race between Trump and Democrat Kamala Harris.

Conservative Justice Neil Gorsuch dissented from the decision concerning the Michigan ballot only. No other justice publicly dissented.

Kennedy, an environmental lawyer and anti-vaccine activist known by his initials RFK Jr., has sought the Supreme Court's intervention in his attempts to stay on the ballot in some states while dropping off others. In September, the Supreme Court rejected his bid to be restored to the ballot in New York.

Kennedy suspended his campaign in August and endorsed the former president's candidacy. Kennedy has urged his supporters everywhere to back Trump and has withdrawn from the ballot in a number of Republican-leaning states.

In his legal fight, Kennedy has argued that state officials are violating the U.S. Constitution's First Amendment protection against government infringement of speech by forcing him to remain on the ballot after he sought to be removed.

In Wisconsin, the elections commission refused to keep Kennedy off the ballot, noting that state law does not allow for withdrawal once a nominee has qualified for the ballot, as he had. The Wisconsin Supreme Court agreed in September with a trial court's decision against Kennedy.

While Kennedy suggested that Wisconsin officials "cover his name with stickers" on the ballot, the commission told the Supreme Court, "The absurdity of this proposal is evident on its face."

In Michigan, Benson rejected Kennedy's requests to withdraw from the ballot, prompting him to sue in state court. The Michigan Supreme Court ruled against him in September.

Kennedy then sued in federal court, but the Cincinnati-based 6th U.S. Circuit Court of Appeals sided with Benson on Sept. 27. With the ballots printed, Kennedy "does not explain how to unring the bell at this juncture without great harm to voting rights and the public's interest in fair and efficient election administration," the 6th Circuit said in its decision.

Source: Reuters

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Justin

Political

Economic

WASHINGTON, Oct 29 (Reuters) - Kamala Harris' lead over Donald Trump dwindled in the final stretch of the U.S. presidential contest, with the Democrat ahead by a single percentage point over the Republican, 44% to 43%, according to a Reuters/Ipsos poll published on Tuesday.

The three-day poll, completed on Sunday, showed the race effectively tied ahead of the Nov. 5 election. The poll had a margin of error of about three percentage points in either direction.

While Harris has led Trump in every Reuters/Ipsos poll of registered voters since she entered the race in July, her lead has steadily shrunk since late September. A prior Reuters/Ipsos poll conducted Oct. 16-21 showed Harris, the current U.S. vice president, with a two-point lead over former President Trump.

The new poll, which surveyed 1,150 U.S. adults nationwide, including 975 registered voters, showed Trump with significant advantages over Harris on several of the issues voters consider most pressing.

Asked which of the two candidates had a better approach to the economy, unemployment and jobs, voters in the poll picked Trump 47% to 37%. Trump has had an edge on the economy throughout the campaign and 26% of voters in the latest poll cited jobs and the economy as the country's most pressing problem, compared to 24% who cited political extremism and 18% who pointed to immigration.

Trump's biggest edge in terms of policy could be on immigration issues, where he has put forward hardline proposals that include mass deportations of migrants in the country illegally. Some 48% of voters in the latest poll said Trump's approach to immigration was best, higher than the 33% who picked Harris.

The poll also showed Harris' advantage on the issue of political extremism to be dwindling. Some 40% of voters in the poll said she had a better approach to handling political extremism and threats to democracy, compared to 38% who picked Trump. Harris' two-point lead on the issue compared to her seven-point lead over Trump on extremism the Oct 16-21 poll.

Harris has emphasized Trump's role in the Jan 6, 2021 assault on the U.S. Capitol by his supporters, who aimed to overturn his 2020 election defeat, and on Tuesday is making what her campaign billed as her last major pre-election speech before the election at the site where Trump rallied his supporters before the riot.

Trump has hit back with an argument that Harris' views are extreme and would amount to a socialist takeover of U.S. institutions.

Harris' marginal lead over Trump might not be enough to win the election even if it holds through Nov 5.

National surveys, including Reuters/Ipsos polls, give important signals on the views of the electorate, but the state-by-state results of the Electoral College determine the winner, with seven battleground states likely to be decisive.

Trump defeated Democrat Hillary Clinton in the 2016 election, triumphing in the Electoral College even though she won the national popular vote by two points.

Polls have shown Harris and Trump are neck and neck in those battleground states as well.

Given the close match, the candidates' efforts to ensure that their supporters actually cast ballots will likely be key in determining the winner.

Just two-thirds of U.S. adults voted in the 2020 election, which was the highest turnout in over a century, according to estimates by the U.S. Census Bureau and the Pew Research Center.

Some 89% of registered Democrats and 93% of registered Republicans in the poll said they were completely certain they would vote. That points to potentially more enthusiasm over voting now compared to four years ago, when a Reuters/Ipsos poll in late October of 2020 showed 74% of Democrats and 79% of Republicans said they were certaino cast ballots.

Among the respondents in the latest poll who appeared most likely to vote, Harris also had a one-point lead over Trump, 47% to 46%.

Source: Reuters

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ING

Forex

Economic

USD: A blip in the strong US jobs story

The latest US macro news has dampened the dollar rally. Consumer confidence rose more than expected from 99.5 to 108.7 yesterday, the strongest monthly gain since March 2021. Interestingly, for the first time since July 2023, the survey shows some improved optimism about future job availability.

The indications from the JOLTS job openings instead pointed to some cool-off in the jobs market. There was a revision in the August figure down to 7.8m, and the September print was 7.4m – well below the consensus of 8.0m. The JOLTS report also includes the quits rate, which has decreased sharply to 1.9% from the 3% early-2022 peak, when a high number of workers were leaving their jobs for higher-paid roles elsewhere.

The falling quits rate can indicate that there is indeed a greater scarcity of jobs – and above all less salary competition to attract talent – but also that workers are more worried about the outlook and value job security. This is a net-negative indicator for the jobs market, but payrolls data needs to follow through with a soft read on Friday to convince markets to price back in Fed easing. The Fed funds futures curve is embedding 45bp of cuts over November and December.

Today, the US will release the advanced third-quarter GDP report, which includes the quarterly core PCE figures. These are expected at 2.1% QoQ, a decline from 2.8% in the second quarter. The annualised GDP print is expected again at 3.0%, meaning there was strong economic momentum into the Fed’s 50bp September cut, a notion that should keep FOMC members cautious on future easing plans. The ADP payrolls for October are also released today and are expected to have declined from 143k to 111k. Those have limited predictive power for actual payrolls, but can still move the market.

We suspect a strong growth print can prevent the macro story from turning dollar-negative before payrolls on Friday, and allow Trump hedges and rising implied volatility to feed into a stronger dollar.

EUR: Data overflow

Growth and inflation data across the eurozone begin to flow in today. This morning, French third-quarter GDP figures came in one-tenth above consensus at 0.4% QoQ, and we’ll see Spanish, German and Italian growth numbers before the advanced eurozone print is released at 11.00 CET. Consensus is expecting a second consecutive 0.1% QoQ contraction in Germany, and unchanged 0.2% QoQ eurozone-wide growth.

The greater emphasis by the ECB on growth’s downside risks means these GDP numbers can have a higher market impact than usual. Incidentally, the Governing Council’s sanguine stance on inflation and their explicit tolerance for some bumps in the numbers across the next few months mean that CPI figures can have a somewhat reduced impact on the euro. October numbers for Spain and Germany are published today, and the eurozone flash estimate tomorrow. Core Spanish inflation is seen inching lower to 2.3%, while German headline numbers are widely expected to rebound from September’s 1.6%.

EUR/USD briefly explored levels below 1.080 yesterday but then got a lift from soft US job openings. Barring a material surprise on growth/inflation today and tomorrow, markets will likely remain reluctant to price out ECB easing given the latest dovish communication, and a still wide USD:EUR short-term swap rate gap will stay consistent with EUR/USD around 1.07.

GBP: Reeves may trade carefully in first budget

The highlight of today’s session is the new Labour government’s first budget released at 1330CET. Does sterling rally on pro-growth fiscal loosening and a rise in real yields? Or is sterling flat on a carefully crafted series of tax hikes and spending increases which balance day-to-day spending? Or does Labour over-reach with some spending plans – reflected in higher-than-expected Gilt supply – which re-inserts some fiscal risk premium into the pound?

Discussing it with team members we think that a flat sterling outcome is a little more likely in that Chancellor Rachel Reeves will tread carefully. The negative risk will probably be judged against the key metric of the UK’s Gilt supply remit for FY24/25 and FY25/26. Current numbers are around £276/277bn. The consensus seems to be that a modest increase to this supply – in the region of £10-20bn per year – would be digestible for the Gilt market. Any number above £300bn is therefore probably a Gilt and sterling negative.

EUR/GBP is currently pressing 0.8300, largely because of a dovish re-appraisal of upcoming ECB policy. As above, we do not see a strong reason for EUR/GBP to bounce today. And below, 0.8300, the next immediate target is 0.8250/80.

CEE: Hungary returns to technical recession

Today we will see the first hard data in the CEE region this week. Third quarter GDP numbers for Hungary will be released this morning with our expectations of a further deterioration from 1.5% to 0.1% YoY, below market expectations, which would imply returning the economy to technical recession. Later today we will also see numbers from the Czech Republic. Our economists expect some improvement from 0.6% to 1.6% YoY, slightly above market expectations. However, the flash print doesn't provide much detail and we've seen a lot of revisions recently, clouding the picture of the economy.

The Polish government yesterday unveiled an increase in the state budget deficit for this year by PLN56bn from PLN184bn to PLN240bn, equivalent to roughly 2.3x the monthly gross supply of POLGBs, more than the media previously mentioned. The news came after the close of trading and we will see the reaction later today. At the same time, yesterday's bond auction indicated low market demand before the budget revision announcement.

In Hungary, the rates market showed signs of stabilisation after four weeks of selling off. The market has priced out all rate cuts and there is only one 25bp rate cut left in the second half of next year priced in, otherwise the whole FRA and IRS curve is flat. This is more a result of the previous move than changes in the external environment. So although we may see some signs of a reversal of the move and curve lower, core rates and EUR/HUF above 405 say otherwise, and confirm our view that we will not see any changes here at least until the US election.

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Cohen

Economic

Political

Real estate agent Crystal Bonin had helped her clients put in several offers on high-end homes around Baton Rouge, La., when all of a sudden, they stopped their search.

The reason? They were worried about the election, and what it might mean for the future of the husband’s IT business.

To hear other industry veterans tell it, stories like Bonin’s are common every presidential election season but are growing more acute in a polarized political environment that has Vice President Kamala Harris and former president Donald Trump neck and neck in the final week of campaigning. Bonin said outreach texts and calls her office staffers make are being met with requests to follow up after the election.

“People are like, ‘I need to see who wins to know how it’s going to affect me,’ especially my business owners,” said Bonin, who owns her own firm in Zachary, La. “The normal emotion that they have during a home selling or purchase process is already high. Now, there’s fear and anxiety there.”

Thousands of miles away in Lake Oswego, Ore., real estate agent Nik Kulikov of Cascade Hasson Sotheby’s International Realty said buyers are growing more cautious as they try to figure out what a victory for either candidate might mean for interest rates going forward. And he said some first-time homebuyers are waiting to see if Harris’s promise of down-payment assistance comes to fruition if she wins.

“We are definitely seeing some hesitancy,” Kulikov said.

While anecdotes like theirs are abundant, political uncertainty may not have much of an impact on the housing market on a national level. Alex Thomas, a senior research analyst at John Burns Research and Consulting, sees similar stories in the surveys of agents, homebuilders, and consumers that his company conducts.

But when he and another analyst examined 35 years of data about home sales in the five months leading up to elections, they found that the annual seasonal decline in home sales usually wasn’t any worse during election years than in non-election years.

“We just have not seen this borne out in the data at all,” Thomas said.

2024: The same, but different

Melissa Cohn, a 42-year veteran of the mortgage market, said elections have always given some buyers pause, but she’s noticed a shift in the past four presidential contests, where expectations about winners began to affect interest rates.

“It seemed that elections were important, but they weren’t this 800-pound gorilla in the room,” said Cohn, the regional vice president of William Raveis Mortgage. “I have a group of clients who are sort of business as usual, but a lot of people are just sitting around and wanting to understand what’s going to happen.”

Election Anxiety is Stalling the Housing Market, Agents and Mortgage Lenders Say_1

Thomas’s research found only two election cycles — 2000 and 2008 — that saw greater-than-expected drops in home sales, which can likely be explained by recessions.

“The years where you do see the greatest decline in home sales during that time period, it’s much more a story of what’s going on with the economy,” Thomas said.

This year, the economy has been strong, but homebuyers have had a tough time. Existing home sales in September were the lowest since 2010 as buyers confront higher mortgage rates and home prices near all-time highs.

While mortgage rates fell steadily throughout much of the spring and summer, they’ve been on the rise again in recent weeks following a string of hot economic data and — you guessed it — election uncertainty. Real estate transactions typically peak in the summer months before slowing down in the fall and winter.

Mortgage loan officer Andy Odeh, who runs The Mortgage Bros with his brother, says that by the time clients land at his desk, most are ready to buy regardless of their feelings around the election. He says he tries to stress the importance of an affordable monthly payment to help his clients tune out political noise.

“They understand that the market is going to change, and whoever wins this election is not going to drastically change their circumstances in terms of being able to buy,” said Odeh, who is based in Chicago.

Bonin said she typically stays busy in November and December, when many executives for major employers like Exxon and a nearby nuclear power plant move to town while their children are on holiday breaks. And she expects many of her skittish clients will come back after the election, whether or not their preferred candidates win.

“I think they’ll go back to normal life when they realize the world’s not going to end and they still want the things they want,” Bonin said.

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Pepperstone

Economic

WHERE WE STAND

The monthly JOLTS job openings data gave financial markets a jolt yesterday (sorry!), with openings in September falling to their lowest level since February 2021, at just 7.443mln.

However, there is more to this than meets the eye. The JOLTS figure represents job openings as they stood on the last working day of the month. In September, the 30th was just four days after Hurricane Helene made landfall, and was wreaking havoc across southern states. Those southern states, in fact, saw openings fall a whopping 325k MoM, accounting for almost all of the downside surprise, and the decline from the prior 7.861mln print.

This also helps to explain why the September JOLTS and NFP figures tell such a different story of the labour market. A glance at JOLTS suggests a weakening employment situation, whereas a glance at the +254k NFP figure from last month suggests that all was rosy.

In fact – both are correct!

It’s simply a matter of timing; the NFP print reflects the employment situation in the week containing the 12th of the month, while the JOLTS number reflects the situation around three weeks later. That does, though, provide further evidence of downside risk to the October NFP print, due Friday lunchtime.

For markets, though, all this proved rather difficult to digest, and wasn’t helped by the soft JOLTS data arriving at the same time as a chunky beat on consumer confidence, with the Conference Board’s index rising to its highest level since January, at 108.7.

In any case, once the dust settled, the data seemed to stop the Treasury sell-off in its tracks, with strong 7-year supply (stopping thru 2bp) helping things along. It would appear that, with the benchmark 10-year yield having risen north of 4.30% for the first time since July, and the 2-year poking its head above 4.15%, yields have reached a level that is too alluring for buyers to resist. I’d expect this, as well as some demand to hedge positions before election day, to give bond bulls the upper-hand in the short-term.

Speaking of election hedging, 1-month USD/MXN implieds have now risen north of their pre-2020 election level, to 23.25%, though remain considerably below the peak seen prior to the 2016 election at 28.70%. As I’ve been harping on about for a while, buying USD/MXN vol is the true ‘Trump trade’ in my view, with considerable further upside possible if the market were to become increasingly convinced of a Trump return to the White House.

Spot FX, meanwhile, was choppy yesterday. The dollar briefly traded to fresh 2-month highs, above 104.60, before gains were pared in the aftermath of the JOLTS data. Still, with the ‘US exceptionalism’ theme still strong, and with the DXY continuing to trade comfortably north of the 200-day moving average, I see little reason to be betting against the buck at this juncture.

Other G10s were also relatively mixed, though the GBP did find some buyers, as cable forced its way north of the 1.30 figure, likely a result of selling flows in EUR/GBP, which took the cross below the 0.83 figure for the first time in 10 days, and close to fresh 2-year lows. It’s quite the damning reflection on the eurozone’s economic prospects when participants would rather be long of GBP than the common currency, particularly ahead of the significant tax hikes and spending cuts that the Chancellor is set to deliver later today.

In the equity space, it was a day of gains on Wall Street, with the S&P rallying around 0.3%, while the tech sector outperformed, as the Nasdaq 100 gained over 1% on the day. After hours, Alphabet delivered solid earnings, particularly in the cloud revenue line, though AMD’s report was somewhat soft, particularly in terms of Q4 guidance, seeing the stock punished with a 5% after hours decline – while other chipmakers such as NVDA and AVGO also faced headwinds in sympathy.

Lastly, given that the day ended in a ‘Y’, it should come as no surprise that gold traded to a fresh record high, with the yellow metal continuing to shine, adding just over 1% on the session. In fact, with gold now around 35% higher YTD, this marks the best such performance since at least 1998. There seems no stopping this golden-coloured momentum juggernaut for now.

LOOK AHEAD

A busy day looms and, for UK readers, it’s likely to be a relatively grim one, in all honesty.

Chancellor Reeves delivers ‘The Budget’ this lunchtime, with a £40bln combination of tax hikes and spending cuts likely to fill a supposed £22bln “black hole” in the public finances, and to build greater fiscal headroom. Said tax hikes will likely leave salaried income untouched, with changes to capital gains tax, inheritance tax, fuel duty, and employer national insurance contributions among the rumoured measures.

Meanwhile, Reeves is also set to change the debt measurement used to judge progress against the ‘Fiscal Rules’ to the catchily-named Public Sector Net Financial Liabilities (PSNFL) metric. This, should, free up around £50bln in headroom for capital investment, though market participants will be seeking strong guardrails to prevent ballooning borrowing as a result of this change. A full Budget preview is here.

Elsewhere, the US data docket is busy, highlighted by the first estimate of third quarter GDP, which is set to show the economy having expanded at an annualised QoQ pace of around 3%, the eighth quarter in the last nine to see growth in excess of 2%. The eurozone also releases Q3 GDP today, set to point to a rather more anaemic 0.2% QoQ growth rate – here’s the ‘US exceptionalism’ theme in action!

The earnings docket, finally, is again busy, with both Microsoft and Meta reporting after hours, as a bumper week of ‘magnificent seven’ earnings continues. Options price post-earnings moves of +/- 4.2% and +/- 7.5% in MSFT and META respectively.

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Warren Takunda

Economic

Japan’s government maintained its overall assessment that the economy’s “modest recovery” is set to continue after the ruling coalition lost a majority in the Lower House election Sunday, setting the stage for a tight race to elect the prime minister between the conservative Liberal Democratic Party and the main opposition Constitutional Democratic Party of Japan.

In the 465-seat House of Representatives, the LDP won 191 seats, down sharply from 256 seats it had held before the election. Komeito was also reduced by eight seats to 24. Together, the coalition has only 215 seats, short of a simple majority of 233. By contrast, the CDPJ increased by 50 to 148 seats while the Democratic Party for the People also saw its seats rise to 28 from seven. The focus is on whether the CDPJ can garner support among fragmented opposition parties.

Despite speculation in the financial markets that the new political uncertainty could delay the process of the Bank of Japan’s normalizing its policy, the central bank is expected to stay on course by gradually raising the target for the overnight interest rate toward at least 1% from 0.25% now.

Prime Minister Shigeru Ishiba, who took office on Oct. 1, told reporters this month that the government would “avoid discussing specifics” of what the BOJ should do to achieve 2% price stability with sustained wage hikes while saying, “I expect the basic tone of monetary policy to be maintained.” Many of the bank’s board members are also calling for a cautious approach to normalizing the bank’s policy after years of keeping interest rates near zero.

Yoshihiko Noda, leader of the Constitutional Democrats, was prime minster from September 2011 until December 2022 and also served as finance minister when the Democratic Party of Japan, the predecessor of his current party, was briefly in power from 2009 until late 2022. Thus, he is also aware of the importance of having an independent central bank.

In its monthly report for October released Tuesday by the Cabinet Office, the government said the economy is “recovering at a moderate pace, although there are some areas where it is pausing.”

The government continued to warn against downside risks from slower growth in other countries, “including the effects of continued high interest rate levels in the U.S. and Europe and the lingering stagnation of the real estate market in China.”

It also repeated the need to keep a close watch on inflation, the Middle East conflict and “fluctuations in the financial and capital markets” following fluctuations in the dollar/yen exchange rate.

“The government and the Bank of Japan will continue to work closely together to conduct flexible policy management in response to economic and price developments,” the government said, repeating its recent statements. It expects the BOJ “to achieve the price stability target of 2% in a sustainable and stable manner, while confirming the virtuous cycle between wages and prices, by conducting appropriate monetary policy in light of economic activity, prices and financial conditions.”

The government dropped the line about its resolve to “completely overcome deflation and help guide the economy move on to a new growth-oriented stage.” This indicates that it is no longer concerned about the risk of Japan slipping back into constant price drops.

The Bank of Japan’s nine-member board is widely expected to decide in a unanimous vote to maintain the target for the overnight interest rate at 0.25% at their two-day ending on Thursday amid gyrations in financial markets including the recent jump in the dollar toward Y153 from a low of around Y142 hit in late September.

Economists and market participants expect the bank to raise its policy rate by 25 basis points at the Dec. 18-19 meeting. The board stood pat in September after voting 7 to 2 to hike the rate to 0.25% from a range of 0% to 0.1% in July, citing gradually rising inflation expectations among households and businesses.

Governor Kazuo Ueda told reporters in Washington on Oct. 24 after a regular meeting of the Group of 20 finance ministers and central bank governors that the BOJ still has time to consider when to raise interest rates as part of its policy normalization process following a decade of large-scale monetary easing aimed at reflating the economy. In March, the bank conducted its first rate hike in 17 years and ended the seven-year-old yield curve control framework in a 7 to 2 vote.

As for overseas economies, the government maintained its overall assessment, saying, “The world economy is picking up, although it is pausing in some regions.”

The government said the Chinese economy is “pausing” even though there is an increase in supply thanks to the effects of policy measures. It regards the U.S. economy as “expanding” while noting both the Eurozone and the UK economy are “picking up.”

Key points from the monthly report:

The government downgraded its view on industrial production for the first time in eight months, saying factory output is “flat.” Previously, it said production was “showing signs of a pickup.”

Industrial production plunged 3.3% on the month in August after an upwardly revised 3.1% in July and slumping 4.2% in June. Auto factory output was hampered by a powerful typhoon, which more than offset the uplifting effects of solid global demand for semiconductors, revised data released earlier this month by the Ministry of Economy, Trade and Industry showed.

METI’s survey of producers indicated that output is expected to rise just 0.3% in September before rising a further 2.0% in October.

In the September report due on Thursday, production is forecast to rebound a modest 0.8% on the month in line with a pickup in real exports. Toyota Motor resumed output of some models suspended earlier amid a false safety record scandal. Global demand for semiconductors also remains solid.

The government maintained its assessment of private consumption, which accounts for about 55% of the gross domestic product, saying it is “picking up while weakness remains in some areas.”

Real household spending fell 1.9% on year in August, after edging up 0.1% in July and falling 1.4% in June, as consumers remain generally frugal amid rising costs for necessities and a powerful typhoon and rain storms forced some stores to close.

The decline was mainly caused by volatile factors of vehicle purchases and spending on home repairs and maintenance, which pulled down overall spending by a combined 2.49 percentage points. A pullback in domestic and overseas package tours also made a negative 0.51-point contribution. Those factors were partly offset by continued solid expenditures on eating out (drinking, Japanese food) and slightly more generous post-pandemic spending on weddings and funerals.

The BOJ’s supply-side consumption activity index was nearly flat (-0.0%) on the month in August on a seasonally adjusted basis after falling 0.1% in July and rising 0.6% in June. The index rose just 0.1% in the July-August period compared to the April-June quarter, when it rose 0.8% on quarter. Figures exclude inbound tourism consumption but include outbound tourism spending.

The government also maintained its assessment of exports, saying they are “largely flat.”

Japanese export values fell 1.7% for their first year-on-year drop in September, led by a pullback in automobiles as well as declines in mineral fuels and construction/mining equipment, offsetting continued solid demand for semiconductor-producing equipment. It followed a revised 5.5% gain in August.

Shipments to China, a key export market for Japanese goods, posted their first year-on-year drop in 10 months, down 7.3%, hit by lower demand for autos and auto parts and mineral fuels. Japanese exports to the European Union fell 9.0% for the sixth straight fall, hit by lingering sluggish demand for automobiles, iron and steel and construction machinery. Even exports to the United States fell 2.4% on autos and construction machinery, after marking their first drop in 35 months (down 0.7%) in August.

Source: Macenews

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Source: Macenews

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