Markets eye BoE decision as US jobs show resilience

US Stocks staged a moderate comeback on Wednesday, following a pullback from record highs in recent trading. The S&P 500 rose 0.4%, the Nasdaq 100 advanced 0.7%, and the Dow Jones Industrial Average rallied 0.5%. Overnight, Asian markets followed Wall Street’s lead, with major indices also posting gains.

US President Donald Trump’s tariffs were in the spotlight as the US Supreme Court heard arguments on his tariff powers and expressed ‘scepticism’ regarding the legalities of the administration’s broad levies imposed earlier this year. If a ruling against Trump’s tariffs is passed, it could mean sizeable refunds to businesses.

Meanwhile, Democrats won decisive victories in Virginia and New Jersey, and New York City elected Zohran Mamdani as mayor, with all campaigns focussing heavily on economic issues. This comes as the government shutdown enters its 37^th day, surpassing the 35-day record set by Trump in 2018.  

US employment is holding up for now

US economic numbers on Wednesday included the widely anticipated October ADP jobs report and the ISM Services PMI reading, both of which have taken on greater importance amid the US government shutdown.

The ADP private payrolls report showed US companies added 42,000 jobs, up from a revised fall of 29,000 in September, comfortably surpassing economists’ estimates of 30,000. According to the data, the majority of job creation came from large businesses (73,000), while smaller and medium firms actually lost jobs.

US Fed Governor Stephen Miran hit the wires shortly after, labelling the ADP beat as a ‘welcome surprise’, though he upheld his dovish position; you will recall that Miran has dissented in favour of bumpier 50-bp rate cuts.

So, while the ADP release demonstrates that the jobs market is not collapsing, the modest job growth, concentration in larger companies, and Miran’s dovish commentary suggest a December cut could still be on the table. This might explain the disappointing upside reaction in the USD following the release. Ultimately, in terms of money market expectations, 15 bps of easing is priced in (down from 25 bps following the Fed meeting last week).

A couple of hours later, the US ISM services PMI print landed, indicating expansion in the sector, rising to 52.4 from 50.0 in September. In terms of the sub-indices, the prices component hit a 3-year high of 70.0, reflecting continued tariff pass-through, and employment improved to 48.2 but remains contractionary.

BoE rate decision ahead

Focus shifts to the BoE’s rate announcement today at 12:00 pm GMT, with investors assigning a 65% chance that the central bank will hold the bank rate at 4.00%. A Reuters poll of 65 economists also found 54 calling for the bank to keep rates unchanged. 

Despite softening jobs data and weaker-than-expected inflation, we have to account for the fact that price pressures remain nearly double the BoE’s target. The UK’s September CPI inflation remained at 3.8%, with services inflation even more concerning at 4.7%. I am sure you will agree that inflation at these levels does not usually prompt policy easing. This, coupled with the uncertainty surrounding the Autumn Budget out on 26 November, which is widely expected to include tax hikes (generally GBP negative), supports leaving the rate unchanged.

If the BoE follows through with a hold when markets are pricing a 35% chance of a cut, the GBP may catch a bid. However, the immediate focus will then shift to the MPC vote split. Economists are expecting a 6-3 vote in favour of a hold. If this is closer, like a 5-4 vote, it could temper upside moves in GBP, as it will be viewed as more dovish. A 7-2 vote, or even an 8-1 vote, would be seen as hawkish and likely boost demand for GBP.

While unlikely, a surprise 25-bp cut isn't completely off the table. If that happens without being fully priced in, we'd see immediate downside for the pound, likely opening the door for scalping opportunities.

Along with the decision, BoE Governor Andrew Bailey’s comments on recent inflation data will be closely watched, as will the updated economic quarterly projections. The consensus view is that the central bank will largely align with the previous MPR estimates. However, any meaningful changes to growth or inflation forecasts could move markets.