In the US, we received more of the delayed data following the end of the government shutdown last week. September retail sales disappointed with retail sales growing only 0.2% m/m below expectations of a 0.4% m/m rise and the control group saw spending decline by 0.1% m/m against an expected rise of 0.3% m/m. Hence, consumers lost some momentum at the end of an otherwise solid third quarter. The conference board consumer confidence indicator recorded a significant decline in November to 88.7 which is the second lowest reading in four years. Expectations for the next six months declined to the lowest level since April as consumers are increasingly concerned about higher prices and a cooling labour market. Overall, the data prints from the US added fuel to the worries surrounding the US economy and markets are now pricing about an 80% chance of an interest rate cut at the FOMC December meeting up from 60% last week.
In the euro area, we received the first inflation prints for November from France, Spain, Germany, and Italy ahead of the aggregate euro area print we get next week. Inflation came in slightly lower than expected with especially services inflation slowing in November. Consensus was looking for a rise in the euro area aggregate print from 2.1% y/y to 2.2% y/y but is likely to stay at 2.1% y/y in line with our initial forecast. Despite the slightly weaker inflation data we do think this changes the outlook for the ECB which still has a strong bias for holding the policy rate steady, which we expect they will do throughout 2026. The ECB September staff projections saw headline inflation at 2.0% in Q4, so inflation is still on track to come in higher than ECB had expected.
In the UK, the Autumn Budget was announced, raising tax rates to post war highs, with the Chancellor asking “ordinary people to pay a little bit more”. The GBP strengthened on the release as the government targeted a tighter fiscal policy than markets had been expecting. This provides a bigger buffer against future excess debt issuance although the budget delivered less near-term fiscal tightening than expected. Particularly the absence of VAT hikes paves the way for more near-term easing from the Bank of England in our view, and markets now price above 90% chance of a cut from Bank of England in December.
In Germany, the Ifo Business Climate index for November declined against expectations to 88.1 (cons: 88.5) from 88.4. At the same time, the Q3 GDP growth rate was confirmed at 0.0% q/q and revealed that private consumption fell 0.3% q/q, which is the first quarterly decline recorded since 2023. Hence, the German economy is still stagnating and has yet to recover although expectations for a recovery remain intact. We will likely have to await the effects of fiscal easing to kick in before the economy records a rebound in activity.
Next week focus turns to the US ISM report and ADP employment for November as well as the September PCE inflation. In the euro area, we receive the aggregate inflation print, final PMIs, and the ECB’s preferred measure of wage growth for the third quarter. Especially the wage growth will be interesting for the ECB as it is what keeps inflation from falling below target currently. In China focus turns to the PMI report for November which is expected to rebound following a sharp drop in October due to lower exports, likely driven by the threat of 100% US tariffs which never materialised.
