Week ahead: Trade tensions, US government shutdown, Q3 Earnings, UK GDP, China CPI, UK & Aus Jobs

Weekly recap

U.S. stock indices fell across last week amid fears of re-escalating global trade tensions and rising concerns around the impact of an ongoing U.S. government shutdown. The Nasdaq and the S&P 500 spent most of the week on positive ground, boosted by the AI narrative and several new deal announcements, including a strategic partnership between AMD and OpenAI.

However, the mood turned sharply lower on Friday morning after President Trump posted on social media that he was considering a massive increase in tariffs on Chinese products in response to China’s proposed new controls on rare earths. Gold prices continue to trade around record highs. Over the weekend, Trump played down China trade concerns, helping to boost the mood on the open this week, with US futures, including the Nasdaq, rebounding firmly.

The ongoing U.S. government shutdown has resulted in a shortage of U.S. data. The minutes of the Federal Reserve’s mid-September policy meeting showed some diverging opinions among policymakers amid concerns over persistently high inflation and a weakening labour market.

Heading into the news week, any developments surrounding US-China trade and/or the US government shutdown could influence sentiment.

Q3 earnings season

Q3 earnings season starts this week. 68% of companies are expected to report by the end of the month. Expectations are for earnings growth to slow to 6% year on year, versus 11% in Q2. Stronger sales contributions from the Magnificent 7 could support higher-than-expected results. Broadly, EPS growth is expected to moderate owing to reduced FX benefits, higher tariffs, and one-time charges. This week, the banks kicked off earnings season, and banks are often considered a good gauge of the economy’s health. Given the lack of US data, earnings could be watched closely for further clues on how the economy is holding up. Stronger-than-forecast bank earnings could lift the S&P 500 higher.

UK unemployment (Tuesday)

The unemployment rate is expected to remain unchanged at 4.7%. Wage growth is expected to ease slightly from 4.8% to 4.7%. Recent data show that the labour market continues to weaken. However, the pace of that weakening has slowed and is not changing the narrative at the Bank of England, where policymakers remain cautious about cutting rates, particularly as inflation levels remain elevated. The recent BoE statement noted that there was less risk of the labour market weakening rapidly than previously thought. However, these data figures are unlikely to have much of a bearing on the November meeting with the BoE not expected to cut rates again until April next year. Weaker-than-forecast data could pull GBP/USD modestly lower.

Federal Reserve Chair Powell speech (Tuesday)

Federal Reserve Chair Jerome Powell will give a keynote speech at the NABE annual meeting in Philadelphia, where he is expected to touch on the economic outlook and monetary policy. His comments will be closely scrutinized, given the current US Government shutdown and the lack of data, which hinders clear guidance on whether the Federal Reserve will proceed with a rate cut this month. According to the CME Fedwatch tool, the market is pricing in a 95% probability of a 25 basis point cut at the meeting later in October. Should Powell sound cautious about the outlook, given the delay in data releases, the market could rein in rate cut expectations, boosting the USD and lifting USD crosses such as USD/JPY.

German ZEW economic sentiment (Tuesday)

German economic sentiment ticked slightly higher to 37.3 in September, up from the previous month, suggesting a stabilisation, although the assessment of the current economic situation remained negative at -76.4. This mixed data shows that financial experts are cautiously optimistic about the economic outlook, but continue to see the present situation as challenging. Investors will be watching to see whether this remains the case and the outlook continues to improve, albeit modestly, despite the German economy’s poor performance compared to other G7 nations. Upbeat numbers could help support the EUR/USD, which fell 1% last week amid USD strength and French political worries.

Chinese inflation (Wednesday)

Expectations are for the Chinese CPI to come in at -0.1% year on year in September, up from -0.4% in August. On a monthly basis, it’s expected to rise 0.2% up from 0% previously. Meanwhile, PPI is expected to be -2.3% up from -2.9%. Recent PMI price gauge data showed that cost pressures intensified in manufacturing in September, but firms cut selling prices due to intense competition. The data suggests that deflation continues to be a problem for the world’s second-largest economy and keeps pressure on Beijing to ramp up measures to support domestic demand and weaken its exports. Weaker-than-forecast inflation raises concerns over the outlook for the economy, pulling oil prices lower.

US CPI (Wednesday)

US CPI will likely be delayed due to the US government shutdown and therefore will not be released on the scheduled Wednesday, October 15. The Bureau of Labor Statistics has said that it will publish the data on October 24th, marking a rare occasion for a data release despite the ongoing government shutdown. Meanwhile, the uncertainty keeps Gold well supported.

Australian Unemployment (Thursday)

Expectations are for the unemployment rate to jump to 4.3% from 4.2% in September. The data follows figures from last week, which showed Australia’s job listings dropped by 3.3% in September, the largest monthly fall since February, marking a third straight decline and suggesting the job market is starting to lose steam. The RBA kept interest rates unchanged at 3.65% and noted that the labour market was slightly tight, but the recent slide in job ads suggests that the strength could be starting to crack and could be an early signal that businesses are bracing for slower growth. For now, the RBA’s cautious approach to rates looks well placed. Still, if labour demand keeps falling, policy makers may need to revise the monetary policy playbook over the coming quarters. Weaker-than-forecast jobs data could pull AUD/USD lower.

UK GDP (Thursday)

UK GDP growth is expected to rise 0.2% month on month in August, up from 0% in July. The data comes as attention is turning squarely to Chancellor Rachel Reeves’ budget on November 26, with figures such as GDP and productivity likely to impact the government’s plans and provide more clarity on how large the fiscal gap could be. A weaker-than-expected GDP reading could prompt investors to lift long-end gilt yields; I’m putting the pound lower. This dynamic has already been emerging. In September, a larger-than-expected budget deficit led to a spike in rates and a sharp drop in the pound. Recent PMI data have also suggested that the UK economy, particularly the dominant service sector, is seeing momentum fade. Weak growth could pull FTSE 100 lower.

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