Weak Labor Data Supports BoE Policy Easing

CURRENCY FUTURES

US DOLLAR: The USD index fell as markets await further progress on the US government shutdown after the Senate passed a funding measure, sending it to the House for a vote. The dollar has been drifting sideways to start the week and will likely have little direction until the government reopens, which presents a situation where past data could have a volatile effect on the dollar. Markets have been in a flux as to the state of the economy, with recent readings pointing to different signals on the labor market, while ISM Services PMI data continued to show elevated price pressures in the services sector. The release of past data, particularly the nonfarm payrolls report, does present some downside risks to the dollar if there is evidence of a sharp slowdown in labor market conditions. Meanwhile, the University of Michigan’s consumer sentiment index fell to its lowest level in nearly three and a half years as survey respondents pointed to the shutdown, inflation, and declining personal finances as reasons for the souring mood. Fed Funds futures are currently pricing a 63.9% chance of a December rate cut from the Fed.

EURO: The euro moved higher against the dollar to $1.1575 as expectations of a firm policy stance from the European Central Bank and hopes of an end to the US government shutdown helped lift the currency. The ECB is enjoying a period of low unemployment and inflation, making it unlikely that it will move interest rates anytime soon, leaving it exposed to policy signals out of the Fed. Germany’s ZEW economic sentiment indicator for November fell, reflecting concerns that a planned increase in infrastructure spending by the government will not be enough to boost the economy. The indicator, which this month tracked the expectations of 186 analysts and investors at banks, insurance companies, and other businesses, declined to 38.5 in November, below expectations of a rise to 42.0. ZEW President Achim Wambach said the souring mood shows concerns that Germany’s weakening industrial competitiveness and the country’s aging population will hamper spending efforts by the government to revitalize the economy. On the data front, final CPI figures for Germany and Italian industrial production for September are out tomorrow, followed by the second estimate of eurozone GDP for Q3, flash estimate employment data, and final October CPI figures for France and Spain on Friday.

BRITISH POUND: The pound fell against the dollar to $1.3153 after labor data showed that unemployment rose, while annual wage growth slowed, setting up conditions for the Bank of England to cut rates in December. Unemployment in the UK ticked up to 5.0% in the three months through September from a previous 4.8%, above expectations, while wages including bonuses rose 4.8%, below expectations of a 5.0% rise and below the previous reading of a 5.0% growth. Unemployment has reached its highest level since the quarter through February 2021, after starting 2025 with an unemployment rate of 4.4%, while economic activity is below potential. Subdued labor market conditions, slowing wage growth, and a pullback in household and business spending and investment present downside risks to inflation, something the BoE has taken note of, and could see inflation falling below the central bank’s 2% target. Markets have priced in a 74% chance of a December cut following the jobs data, up from 57% on Monday, while yields on 2-year gilts, which are more sensitive to expectations for BoE policy rates, dropped 7 bps to 3.73%. However, inflation still stands at 3.8%, well above the bank’s target rate of 2%, although inflation is expected to have peaked, and the aforementioned gives reason to believe that inflation will continue to fall. Looking ahead, third-quarter GDP figures on Thursday should give markets further clues to determine the BoE’s policy direction.

JAPANESE YEN: The yen slipped against the dollar, nearing nine-month lows, as Prime Minister Sanae Takaichi called for policymakers to go slow on rate hikes at the Bank of Japan. A draft of Takaichi’s stimulus package, which is expected to be finalized later in November, suggested the government will urge the central bank to prioritize robust economic growth alongside price stability. Japan’s fiscal stance has put some investors on the sidelines, as evidenced by a weak 30-year JGB auction on Tuesday, which caused yields on longer-dated bonds to rise following the auction. On the monetary policy front, eight of the thirteen opinions on monetary policy called for the need to raise interest rates soon or laid out specific conditions to raise interest rates in the near term per the bank’s October meeting summary. The central bank is likely to raise rates if there is “no negative news” regarding the global economy or markets, as well as if wages keep growing despite pressure from higher US tariffs. The summary showed no strong objection to a future rate hike from the participants and that financial conditions will remain accommodative even after the next rate hike. Domestic wage data will be closely watched for signs on how the bank will move; if wage growth is maintained or bolstered, it is likely to lead to a rate hike from the BoJ. Elsewhere on the data front, Japan reported a record current account surplus of 4.5 trillion yen in September as exports outpaced imports.

AUSTRALIAN DOLLAR: The Australian dollar fell as investors booked profits following a strong rise to start the week after Reserve Bank of Australia Deputy Governor Andrew Hauser issued hawkish comments that financial conditions are closer to neutral, which markets took as a signal that the bank has little urgency to move on interest rates. Additionally, hopes that the US government shutdown could end soon lifted the risk-linked currency. The NAB business survey showed that consumer sentiment rose in November as firms reported better sales and profits, while gauges of costs and prices eased back further and looked to be well-behaved. The increase in sentiment and responses from respondents reflects expectations that financial conditions in Australia remain set for the RBA to keep rates on hold. Third-quarter inflation data surprised to the upside, causing many to speculate that the RBA’s easing cycle could be over. The central bank noted that inflation is likely to continue to move upwards well into next year.

STOCK INDEX FUTURES

The indexes are mixed, the S&P and Nasdaq lower while the Dow edged higher after markets turned upbeat on Monday. Technology names tied to AI led the rally Monday, with Nvidia (5.8%), Palantir (8.8%), AMD (4.5%), and Micron (6.5%) among the biggest gainers as investors shifted back into high-growth positions. The Senate on Monday evening passed a funding measure to end the government shutdown, advancing it to the House for a vote. A reopening would lead to the release of economic data delayed by the shutdown, giving markets better insight into the path of interest rates. However, fresh data could take a while to arrive, even if the shutdown ends soon.

President Trump said he is looking at reducing tariffs on both India and Switzerland. Trump told reporters that India has substantially reduced their purchases of Russian oil, saying he would likely be bringing down tariffs on the country as a result at some point. Trump also said the White House is working with Switzerland to lower their tariffs. Currently, Switzerland faces a 39% tariff, with exceptions on gold, while India is faced with a harsher 50% tariff.

Among corporate earnings, CoreWeave trimmed its full-year revenue forecast on Monday, causing shares to fall over 8% in premarket trading after the AI infrastructure provider flagged a delay by a data center partner. Sony is due to report earnings today alongside an Advanced Micro Devices analyst event. AMD looks to expand in an AI chip market that is dominated by Nvidia. Results from Disney and Cisco are due later in the week.

INTEREST RATE MARKET FUTURES

Futures are higher across the curve as bond markets are closed and are likely to see a drop in activity. Treasurys fell on Monday, sending yields higher, as a risk-on rally was sparked on news of progress toward ending the government shutdown. Corporate bond issuance also weighed on prices. Deals from Verizon and Caterpillar led to Wall Street dealers hedging ahead of the issuance in a wave of selling that dominated prices. Additionally, investors likely sold Treasurys to make room for the corporate bonds. A strong three-year note auction did spur some buying, however. Bidding was aggressive with a 3.85 bid-to-cover ratio vs. the 2.58 six-auction average with above-average non-dealer demand. Dealers were left with a 9.7% take of the auction, below the 13.8% average.

As the shutdown looks likely to end this week, the ending will allow for the release of US government data, including September’s nonfarm payroll report, which could shape expectations of how the Fed will move in December. Recent private data has been mixed; ISM Services PMI survey and ADP private payrolls figures for October were better than expected, while the PMI data continued to show persistent inflationary pressures. Data from Challenger, Gray, and Christmas, however, showed companies cut more than 150,000 jobs in October, the most for the month since 2003.

On the supply front, the Treasury will auction $42 billion in 10-year notes on Wednesday and $25 billion in 30-year bonds on Thursday, marking a test of demand for long-dated bonds.

The spread between the two- and 10-year yields closed on Monday at 52.30 bps, down from 52.90 bps in the morning, while the 2-year yield, which reflects interest rate expectations, rose to 3.595%.

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