Markets to Watch This Week: Is the UK in a Recession?

We standardise WoW price changes across different markets to allow for cross-market comparisons. 

Last Week’s Highlights 

NFP blew past expectations. Nonfarm payrolls (NFP) were much higher than expected at 336k jobs versus expectations of around 170k, yet wage growth did not pick up. Wages grew by a measly 0.2% MoM, against 0.3% expected, while the past two months were revised up by 119k. Dominique believes this print strengthens the case for a November hike. However, we should not expect further reports showing payroll growth over 200k.  

Despite predictions that a strong jobs number would result in higher yields and lower stock prices, only one of these came true. US 10Y yields continued their ascent, rising to 4.8% (Chart 3). But stocks reversed their decline and finished the week strong, with Nasdaq leading (Chart 4). 

Japan survey disagreed on the health of its manufacturing sector. On Monday, the quarterly Tankan survey was released, where the large manufacturing index rose to nine from five previously. This marks the second consecutive increase, signalling the sector has begun to bottom and now re-accelerate into the end of the year. Curiously the S&P Japan PMI fell from 49.6 to 48.5 last month. It was the fourth straight month of declines in factory activity and the fastest since February, as output fell the most in three months. Sectoral differences explain much of the variation. However, judging from the signals from other regions, the Tankan index could be more reflective. 

Trend from BoE’s Decision Maker’s Panel (DMP) pointed to further dovishness. We continue to see pricing and inflation expectations trend lower, while wage growth expectations were stable MoM but continue to trend down overall. Employment expectations ticked back up, but the easiness of finding employees also improved (to the easiest since records began in October 2021). That points to continued loosening of the labour market. Overall, this may not dramatically change the BoE’s decision making but supports our view that the BoE will stay on hold.  

US oil stocks leant bearish, driven by weak gasoline demand. Total commercial crude and petroleum stocks built by 4.6mn barrels to 1,272mn. The weekly estimate of gasoline demand collapsed to 8mn b/d versus 8.6mn b/d last week. This was a striking reading and a key catalyst behind Wednesday’s price action as it puts gasoline demand lower than the five-year range (which includes 2020!). Brent crude fell sharply and below our target of $87.50 to around $84 (Chart 5). The move was exacerbated by how bullish speculative positioning has been in recent weeks. 

What to Watch 

Will we see a broad acceleration in CPI on Thursday? Dominique agrees with consensus which sees a 30bps increase in core inflation. She looks for a continuation of last month’s trend, which showed a broad acceleration across categories.

How dovish was the decline in EZ core inflation, really? Friday’s final Eurozone national inflation data will provide further details on wage-intensive services inflation – and more of a clue on just how dovish the last read was. Henry thinks the detail will be less dovish than the headline. 

Is the UK in a recession? UK monthly GDP is always a volatile release, driven by weather, strikes, bank holidays and the like. Consensus expects +0.2% in GDP MoM, but Henry believes the risks are skewed to the downside – particularly driven by the consumer.

Is China allowing credit growth to re-accelerate? China’s September credit data, due 9-15 October, will probably pick up for a second month. We do not forecast this number but will examine the details, as last month’s increase was largely on the back of government bond issuance while mortgage borrowing remained weak. 

The Week Ahead: Watch Dominique and Henry breakdown the monster NFP print, what’s the latest in the US workforce, and what investors can expect from the week ahead data prints as well as the latest in the US House speaker drama. 

Viresh Kanabar has worked in the UK financial services industry for over 8 years including in Consulting and Investment Risk. Most recently he launched The Macro Journal Substack where he puts out regular in-depth reports covering all areas of global macro.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-market research.

Photo Credit: depositphotos.com

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)