Weekly focus: Cutting cycle continues

This week, we published our macroeconomic projections for the global economy and the Nordics. In the euro area, we expect growth to slowly increase during 2025, but the near-term outlook is weak. We expect some cooling in the US, but steady economic growth to continue despite fiscal and trade policy uncertainties. China continues to struggle with the heavy housing crisis, but stronger steps are taken to turn this around. New tariff clouds hang on the horizon, though and we have revised down our growth outlook.

In fixed income markets, France once again attracted attention after the parliament ousted PM Barnier. The political turmoil drove the OAT-Bund spread to new highs but later the move reversed. President Macron refused to step aside, and his first task will be to name a new PM. In a week where global yields largely traded sideways there was little French market contagion or South Korean for that matter, following the six hours of martial law, that did however plummet the Won.

In Europe, retail sales were a bit stronger than expected in October, which supports the outlook for more consumer driven growth going forward. The breakdown of the Q3 national accounts also revealed surprisingly strong domestic demand with solid investments and household consumption. Annual growth in compensation per employee was 4.4%, close to ECB projections, which supports the view of underlying inflation converging towards the 2% target.

In the US, weaker than expected ISM data blurred the picture of the service economy, which has largely looked strong recently. The jobs report was no big market mover but on the margin to the weak side. Close to 300,000 new jobs (including revisions) is strong but at odds with a much weaker employment picture in the household survey. Besides, it came along with a higher unemployment rate and a shrinking labour force, not exactly a sign of strength. It adds tailwinds to our call for back-to-back rate cuts at the upcoming FOMC meetings. This mix of solid euro area data and US data on the weak side contributed to some retraction in the recent month’s move lower in EUR/USD.

Next week, the ECB is set to cut rates for the fourth time this year. Weak data (besides this week) and inflation at target have opened for discussions on whether a 50bp cut is appropriate. We think it will certainly be discussed, but ECB will ultimately go for 25bp, and guide that they are open to bigger cuts later, subject to incoming data. We expect a similar cut from the SNB bringing the Swiss policy rate to just 0.75%.

In the US, the November CPI release will draw most attention. We expect core inflation has slowed down slightly, which would support our call for another rate cut from the Fed in December. In China, we will keep an eye on the Central Economic Work Conference, where the top leadership discusses and lays out economic priorities for the next year. Elsewhere in Asia, we will look out for the Tankan business survey; key input for the next Bank of Japan meeting, where we expect another rate hike.

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