There is no evidence yet, that layoffs are climbing materially in the US. Unadjusted initial claims are still running below their 2017-2019 average (237k), years in which the labour market was also strong. Employment in the Eurozone hit a record in Q3. In the UK, the number of payrolled employees rose 33k in October to a new high too.
The 20-year auction in the US yesterday passed with flying colours. But tomorrow’s Autumn Statement will serve as an important barometer of bond market sentiment. The risk is that the Chancellor will be lulled into a false sense of security, with the rally in gilts. The PSNB ex in the first seven months of this fiscal year was £16.2bn below the OBR’s forecast profile, but still £21.9bn more than in the same period of last year. The 12-month moving total for borrowing was revised from £143.6bn to £145.3bn in September, and widened again to £149.7bn in October, the largest deficit since January 2022. An income tax cut now should be ill advised. But politically, it may be too tempting.
The bond rally this month has eased financial conditions considerably. The QRA had the desired effect of pushing down Treasury yields, in the short run. But ultimately, this will be stimulative for the economy. The inventory glut at retailers is easing, freight markets are rebalancing, and global trade volumes are picking up. October’s rise in Taiwanese new export orders underscores not just resilient demand from AI applications, but also new sources of growth as ASEAN expands.
