The Week Ahead – Open For Business

So with my signature, the federal government will now resume normal operations and my administration and our partners in Congress will continue our work. Well, hello again and welcome to the week ahead on Nomura Podcasts. I'm your host, Andrew Tysast, from Nomura's Global Markets Research Team, based in Sydney, where it is spring and sunny, and today's Friday, the 14th of November. Well, the news of the week is confirmation of the end of the US government shutdown with President Trump signing legislation to reopen government, as you heard there. That means, of course, the US economic data taps will start to turn on, though with a somewhat irregular flow. We'll discuss both these things shortly with David Seif from our research team in New York, and we'll get a few thoughts from him on the outlook for the Fed too. Across Europe and Japan, there's no shortage of data to look at next week, so Andres Chepennyak and Yashiro Nozaki from our research teams in London and Tokyo will be along to share a few thoughts. And then we'll discuss the Central Bank meeting in Indonesia next week, the outlook for the Bank of Korea, and key data across Asia with Jong-Woo Park. Short and sweet this week, so let's dive in. So, let's get straight to the US, which is the source of all the action, I think, right now, and I'm delighted to be joined here by David Seif, Nomura's chief economist for developed markets and based in New York. Hey, David, great to have you back on the podcast. Yeah, great to be here. Thank you for having me, as always. Terrific. Now, with the shutdown ending, we should get some harder data coming out in the US next week. Yes, well, you know, so as of the time of recording this podcast, we don't have the release schedule yet from the BLS or from any other agencies, but we strongly expect that next week we'll, at a minimum, get the September Labor Report. This was due on October 3rd. As a reminder, we're expecting a positive 65K print on NFP and a steady unemployment rate of 4.3%. Now, of course, these data will have been collected more than two months ago. So we're really getting a snapshot of the pretty distant past data that by the time it comes out, will really be not super relevant to what we have, what we have going on today, but at least it gives us an idea of what the starting point is going forward. Got it. And looking further ahead, I guess the normal data release timetable could be a bit messed up for a while now. Is there anything important to note on that front? Yeah, so there's a lot of uncertainty here and it'll probably take the BLS a decent amount of time to have a full schedule up to date. Thinking to the last time we had a full shutdown like this 2013, that was, of course, only a 16-day shutdown, whereas this was a 43-day shutdown. But it took the government statistical agencies an additional 51 days beyond the 16 to catch up, so more than three times the amount. So we really are facing data delays that seem likely to stretch well into January at a minimum. Now, I do think that the BLS and other agencies can probably prioritize some of the tier one data, but as we look to the December Fed meeting, which is on December 10, December 10 was actually the day that CPI for November was supposed to come out. That seems like a pretty unlikely thing at this point. And then December 5 was only supposed to get the employment report for November. That's going to be tight as well, because given that it's already the middle of November, they're very behind schedule. It does really remain to be seen whether the Fed will have all that much additional data even close to four weeks from now, when it is time for that final meeting of the year. Got it. And look, just to be really clear, just in terms of thinking about these data delays in the Fed, I've actually been wondering if no news is kind of good news in the sense that if the data had been going to come out on the softer side, we wouldn't know about it. And the Fed won't know that either, I guess. That doesn't seem to have stopped comments from officials, which on balance seem to be coming out on the hawkish side and pushing back against a rate cut in December. Do you think they're deliberately trying to tone down expectations for a December move? Yes, I think there's a real "revenge of the hawks" going on. And that really has been the case since the September Fed meeting, which was seen as unexpectedly dovish. After the October Fed meeting, given Powell's very hawkish press conference, we changed our call and are no longer expecting a cut from the Fed in December. And looking at market pricing right now, it looks like it's just about a 50/50 shot, which is significantly lower than it was at any time up to now. We've seen a real pushback from the regional Fed presidents, five of which in any given time are voting members of the FOMC. We've also seen some figures who are governors who haven't normally talked too much about monetary policy come out hawkishly, chief among them, Governor Barr, who really has not had monetary policy be his main focus. It's mostly been about regulation and other things, a bit more peripheral to interest rates. And then, of course, from the core of the committee, most importantly, Chair Powell, we haven't heard from him since the October press conference, but it was a notably hawkish press conference that did much more than just a lip service to the sort of "we haven't decided yet" or "gated dependent" side of things. And I think a lot of that is that although we have not gotten much data because of the government shutdown, we have gotten some data from private data sources, or we can piece together jobless claims data, and we really, you know, it does not appear that things have fallen off a cliff in any sort of a way. So the whole rationale behind rate cuts in starting in September was insurance cuts, and now it doesn't look like we need this sort of insurance. It leads us to question, and more importantly seems to have led many on the Fed to question, whether an additional rate cut in December is truly necessary. Got it. Yeah, look, I think we just continue to live in pretty interesting times, both in terms of the macro and the Fed, it will be interesting to see how risk assets perform, if we do indeed not get that rate cut from the Fed in December. Hey, David, thanks so much. Great to have you on, as always. It was great. Thanks, Andrew. Now, let's swing across to Europe and welcome Andre Stjepenjak from Nomura's global research team in London back to the podcast. Hey, Andre, always great to have you on. Thanks for this. Hey, Andrew. Always a pleasure to be on. Excellent. Lovely. Now, look, we've been saying there's been a data drought in the US, but not so in Europe. Next week, we've got some wage data, some PMIs, a few other bits and pieces. Any thoughts there? No, certainly. In terms of the wage data, it's the ECB's negotiated a wage growth series for the Euro area. It's for Q3 2025. We're expecting essentially a drop to 2% year-in-year from 4% in the Q2 vintage. That's really owing to Germany. So if you recall correctly, during the gas crisis, German data, you had a lot of one-off payments and now those are sort of dropping out. A lot of the recent volatility we've had in the Euro area wage data is owing to those one-off payments, essentially. In terms of the sort of figure itself, it's broadly in line with the ECB's expectations, so it shouldn't move the needle too much. The one thing I would caveat, though, is we sort of have to monitor the wage data going forward as we do see a risk that the wage data in Europe could settle at a level that is below, which is consistent with 2% inflation over the medium term, and we did publish a piece on this recently, so I do flag listeners to go look at that. In terms of the PMIs, another key data point for the Euro area, the key focus there really is that cumulatively we think October, November at least, and December when it finally comes through should support our view that Euro area GDP growth is ticking up slowly, and we do expect growth in the Euro area to get back to pre-pandemic trend rates by around the middle of next year. Okay, got it. Trend growth in Europe. Now look, let's jump across the channel because I think the UK is pretty interesting right now too. They had a softer labour report this week and I think an underwhelming GDP report too. CPI data is coming out next week there. How do you see things in the UK right now? Exactly as you say. The labour market report was certainly softer versus our expectations. We saw job destruction actually in both the LFS and the payrolls measure. We saw wage growth certainly noticeably weaker in terms of the month-on-month figure. The unemployment rate ticked up further and then obviously the GDP data was slightly softer versus expectations. I think from that perspective it underscores our view that the Bank of England can carry on the cutting cycle. Recall correctly at the most recent meeting they didn't cut rates. They kept things on hold. We think the service, the inflation data that's upcoming should add further cumulative evidence that the Bank of England can cut rates in December, and then we think there will be one further rate cut next year, likely in April, which will be an NPR meeting. OK, got it. Now, if I've got that right, the cash rate there currently is 4%, so those two cuts you've got would take them to 350%. Meanwhile, we've got the cash rate in Europe at 2%, a full one and a half percentage points below that. Is that unusual? How do we explain the difference in terminal rates there? No, exactly. In terms of the Bank of England, we see their neutral range as being three to three and a half, and we have it at ending at three and a half, largely owing to the fact that services and inflation has been stickier in the UK. In terms of the ECB, we have it at 2%, and the ECB's own estimates for neutral is 175 to 225. Just to sort of add some global context for listeners, the Federal Reserve, if you look at the latest SEP, the sort of long run dots essentially is 3%. So that's what we sort of estimate or sort of interpret the FOMC's view of neutral in the US as being. In terms of the UK, it really comes down to the fact that there was this view that post-pandemic, post-European energy crisis, you had this disconnect. Certain structural factors within the labor market that resulted in much stickier services and inflation, which means the Bank of England would have had to sort of keep rates higher for longer, and also that neutral probably had aged up higher in the UK, certainly versus the euro area. Now, however, with the labor market turning a bit more sharply versus prior expectations, it wasn't just this most recent report that was weak. Actually, the labor market reports the past two or three reports have been weaker versus expectations, plus now the fact that actually services and inflation is starting to roll over a bit. We are starting to have that debate and that question, is neutral in the UK higher than that of Europe, or actually could maybe you fast forward six months down the line, and we think there's a sort of re-correction there, and we are sort of back in the pre-pandemic paradigm. I think that's the sort of debate that we're monitoring closely over the coming months. Yeah, very interesting. Look, I think having delivered a number of rate cuts, a bunch of central banks are trying to move into fine-tuning mode and just try and really figure out where neutral is. Hey, Andre, thanks again. Speak to you soon. Thanks, Andrew. A pleasure as always. So, turning now to Asia, we're going to start with Japan and have a chat with Yuchiro Nozaki from Nomura's research team in Tokyo. Nozaki-san, thank you so much. Let's start with the growth side of the story. Q3 GDP data for Japan will be out next Monday. What do you think that report will show? We estimate quarter-on-quarter rail GDP growth for Q3 to be minus 3.3% annualized, quite large dollop. The Bloomberg median is about minus 2.4%, a bit stronger than our estimates, but negative growth is market consensus. We expect three main reasons for this drop. First, a natural pullback after-front loading export to the US. Second, a decline in housing starts following the revisions to the Building Standard Act in this April. And third, a decline in inventory investment that was built up in 2025. First half. Of these, we expect the second and third ring, which have no direct connection to economic strength, to have daily GDP growth by 2% point. At the same time, we expect domestic demand in the form of private consumption and CAPEX to have been solid. The underlying economy is not as weak as suggested by the size of this anticipated decline in GDP. Okay, got it. So that's interesting. Quite a negative quarter, but I guess encouraging that the consumer and investment side of the story is positive. And it's really, yeah, a few one-offs dragging it down. Hey, flipping from growth to inflation. What's the data coming out for Japan? There's national CPI data out next Friday too. What are you looking for there? Kuako CPI inflation excluding fresh food and energy is expected to accelerate slightly to 3.1% EO near from September 3.0%. The Tokyo CPI for the same month has already been released. And even after excluding Tokyo specific policy effects showed somewhat stronger than expected results. There are two main points to watch in the October national CPI. The first is service prices. October is the first month of the fiscal second half when price revisions tends to be concentrated. So we will be watching whether wage to price path through is continuing. The second is food prices. Food inflation has already peaked out, but in Tokyo's October CPI, rice price rose sharply and the distillation was limited. We want to confirm whether a similar pattern can be seen on a nationwide basis. Okay, understood. So look, so much going on there, growth, inflation. I guess a weekend is pretty interesting too. What do you think this all means for the Bank of Japan? Is our base case still for a 25 basis point rate hike next January? Yes, we maintain our view for a rate hike in January. On Monday, the BoJ released a summary of opinions for October meeting. And this suggests that in addition to the two board members who bought it for a rate increases at October meeting, several other members had considered raising rates, but there was nothing indicating firm decisions on whether to act in December or January. Meanwhile, recently, there have also been several statements from governments that sounded as if they were asking the BoJ to take economic growth consideration into account and discouraging rate hikes. The market's expectation or pricing in of December rate increase, which had at once risen to around 60%, has fallen to roughly 40%. And the government's move appears to be somewhat reflected in the market sentiment. At the same time, the government has slightly toughened its bubble innovation against the end weakness. And if the yen depreciates further, the likelihood that the BoJ will move to raise rates would increase. Okay, interesting. So the yen is on the radar there. Hey, Nazafi-san, thank you so much. Always great to get you on the podcast. Thanks. Now, elsewhere in Asia, there are a couple of other things I think we should cover. So we're going to swing across to Jongwoo Park in Korea. JW, we have a central bank meeting to look out for next week in Indonesia. What are the team expecting there from BI Bank Indo next week? To our ASEAN team, you've been thinking that they expect BI to keep its policy rate unchanged at current level for the second month in a row, because BI recently increasingly concerned about external risk, so they like to maintain the current policy rate. And at the same time, they think that BI will likely assess a post is a warranted in order to support the effect stability. But our ASEAN team, they still expect the BI to deliver 25 basis point cut if external conditions turn more supportive. Good one. Hey, I also wanted to ask you about Bank of Korea. I know this is one you watched closely. They seem to have undertaken a hawkish pivot lately, and that's captured some attention. Your view is they will not be lowering interest rates any further? Yeah, that's correct. So we expect the BOK to remain on extended hold. So basically, we believe that the BOK has ended its cutting cycle. So there are some reasons for that. First of all, recently, the chip export growth is quite strong. So we expect growth outlook to improve. And at the same time, housing prices, particularly in core area in Seoul, still remain elevated. So that's worsening financial stability concern. So with these two things in mind, we expect the BOK to maintain the current policy rate through end of next year. Got it. And finally, Jungwoo, anything else you'd like to quickly highlight on the data front across Asia next week? Yes, so next week we are busy with economic data from ASEAN countries. So basically, we expect over the revision to Singapore's Q3 GDP growth rising to 4% from its fresh estimate of 2.9%. But we expect weaker growth data for Thailand with exports likely falling by 4% in October. So basically, this is a sharp slowdown from 19% in September. And on Malaysia, we expect slow inflation in October, led by easing supply side pressures. And finally, the focus is more on Korea's early export data, which we expect continue to remain solid during the first 20 days of November, led by strong chip exports and likely pick up in auto exports. Okay, Jungwoo, that's great. Thanks so much. Thank you. Okay, so there you have it. Our views on major market themes and what to look out for next week. This podcast has been written by Andrew Teisest and the global markets research team and expertly edited and produced as always by John Dalton. Thank you for listening in. If you did enjoy this podcast or would like to hear more, please like and subscribe to Nomura's podcast on Apple, Spotify and SoundCloud or wherever you get your podcasts. And if you have a moment, please leave us a review. And as we always say, it would make our day if you could press a few buttons and share this podcast with a colleague or a friend. For more, log into NomuraConnect.com to keep up to date and to keep on listening. Thanks. Goodbye for now and see you next week. In a complex and unpredictable world where a sunset in one market means a sunrise in another, one investment bank always looks beyond the horizon to help our clients release the potential of tomorrow today. Nomura Connecting Markets East and West. Disclaimer. This content has been prepared by Nomura solely for information purposes. 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