On Wednesday, UK headline CPI for October came in at 3.6%, easing slightly from the 3.8% peak saw through July, August, and September. This marks the first deceleration in price growth in five months. According to economists at the ONS, the slowdown was largely driven by moderating energy prices and a dip in hotel costs, although food prices continued to exert upward pressure. Core inflation – which excludes volatile components like food and fuel – also edged down to 3.4% from 3.5% in September. Despite the fall, inflation remains well above the Bank of England’s 2% target. Earlier this month, the monetary policy committee opted to hold the rate at 4%. Whilst the data strengthens the case for a potential rate cut when the Bank of England meets in December, it is by no means a foregone conclusion. The figures also offer a political boost to Chancellor Rachel Reeves, who has made tackling inflation a key priority this year (further details of which are expected to manifest in the upcoming Autumn Budget).
On Monday, data showed that Japan’s economy contracted by nearly 2% in the three months to September, driven largely by a decline in exports – an aftereffect of the some of the tariffs both proposed and executed by the U.S. this year. The figures are also believed to reflect a drop in housing investment linked to regulatory changes, although this has been positioned as a temporary factor. While in theory the data could potentially form part of a wider patten that pushes the Bank of Japan to reduce interest rates, the data is not expected to alter policymakers’ current plans. Instead, the Bank is likely to focus heavily on trends in inflation, which remains subdued in part due to weak wage growth (wages fell for the ninth consecutive month in September).
The release of the data coincided with rising tensions between officials in Japan and China, culminating in the Chinese government advising its citizens against travelling to Japan. The latest bout of animosity stems from comments by Prime Minister Takaichi, who said at the beginning of the month that any attempt by China to seize Taiwan would pose an existential threat to Japan – and that if the U.S. became involved, Japan could be compelled to intervene as well. The comment from Takaichi, which prompted a cryptic tweet from one Chinese diplomat that a dirty neck that is stuck out must be cut off, coincided with a brief sell off in Asian markets and a weakening in the yen.
Still to come this week we have Fed meeting minutes. We also have earnings reports from big tech names like Nvidia on Wednesday after the bell (markets are anticipating strong results). Finally, we have the return of U.S. non-farm payrolls and unemployment data, and Eurozone PMI.
Nicola Tune, Portfolio Specialist
