Daybreak Weekend: US Jobs, BOE Meeting, RBA Decision

Host Nathan Hager asks Anna Wong, chief U.S. economist for Bloomberg Economics, whether listeners should have low expectations for Friday’s October nonfarm-payrolls report. Wong says recent job gains have fluctuated from negative numbers to several hundred thousand, so markets have become accustomed to large positive or negative surprises. Her team forecasts a 26,000 increase in payrolls. That sounds weak compared with two years ago, but slower population growth means Bloomberg estimates that roughly 50,000 new jobs are now needed to keep pace with population growth. A 26,000 gain is therefore not disastrous, though it is slightly below the level needed to keep unemployment steady. Wong links sluggish hiring to elevated input costs, including raw materials and health-care premiums. Companies are still reporting strong earnings, but they are responding to cost pressure by increasing “operational efficiency”—which Wong says is effectively a code word for not hiring. She warns that the current low-hiring, low-firing environment may not last. If inflation eases because supply pressures fade, stronger profits could lead firms to hire more. But if inflation falls because higher rates and wider credit spreads destroy demand, companies could instead begin firing. Bloomberg’s models suggest unemployment could rise by 0.1 percentage point this quarter and another 0.4 percentage point next year if the Fed does not accommodate worsening credit conditions. For the Fed’s December decision, Wong says a steady 4.2% unemployment rate would keep a hike in play. If unemployment rises to 4.3% or 4.4%, however, the market’s roughly 85% probability of a December hike would look excessive, and the decision would no longer be a “shoe-in.”

Hager and Bloomberg earnings reporter Chloe Melley review three companies reporting in the week ahead. Apple is the first major focus, amid broader jitters about the artificial-intelligence trade. Melley says investors will watch the continuing memory-chip supply crunch, which previously forced Apple to raise some prices and extend product wait times and hurt its second-quarter results. They will also look for updates on complaints about the iPhone Duo, Apple’s newly unveiled foldable phone; some users have reported cracks or a white patch on the display. Despite those reports, demand for the device appears strong. Apple has also introduced a touch-screen MacBook Pro, so investors will want evidence that new products can generate demand while the broader laptop market is in a downturn. Once Apple reports, all of the major technology companies except Nvidia will have reported for the quarter, allowing investors to assess the sector’s AI-related themes before Nvidia reports several weeks later. Palantir is expected to report record revenue, supported by U.S. government demand and corporate customers. The company must show that it can stand out in an increasingly crowded market, particularly as AI developers such as Anthropic sell their own software and non-U.S. governments favor domestic technology providers. Palantir is expanding commercial partnerships, including with PwC and Fujitsu, to support demand; it called commercial demand for its analytics tools “otherworldly” last quarter. Airbnb’s earnings are expected to reach a three-year high, with travel demand holding up despite higher fuel and air-ticket costs. The company nevertheless faces the risk that AI agents will handle travel planning and bookings, reducing Airbnb to a background inventory source—something it has described as an existential threat. Investors will also ask about unrest in France, Italy, and elsewhere in Europe.

Bloomberg’s Tiwa Adebayo reports that the UK government’s measures to shield households from higher winter energy costs are expected to reduce inflation by only 0.1% next year, before adding 0.1% to inflation in 2028, according to the fiscal watchdog. The budget therefore did not materially change market expectations: traders continued to price a quarter-point Bank of England hike on November 5 and at least three more hikes over the following year. JPMorgan Asset Management strategist Hugh Kimber says the budget emphasized fiscal responsibility and postponed difficult welfare decisions rather than delivering a major policy shift. Bloomberg economics reporter Phil Aldrick describes the package as a “do no harm” or “mañana” budget. Its measures included a bank tax expected to raise roughly £1.5 billion over 15 months, higher income tax on property and savings, £4.1 billion of cost-of-living support, a commitment to spend 3% of output on defense without funding attached, and proposed energy reforms that contained more vision than immediate reform. Aldrick says departmental spending for some unprotected areas is also due to be cut later in the decade, raising doubts about whether those reductions will be delivered. Further tax rises remain possible if energy costs surge, but the tax burden is already at a postwar high and the government has ruled out increases to income tax, VAT, and national insurance in its manifesto. Chief UK economist Dan Hanson says the budget will not change the Bank’s thinking because inflation could exceed 4% in the new year—twice its target—and the Bank has argued that inflation above 3.5% makes households more attentive to price increases. He expects a relatively hawkish stance. The labor market is weaker than in 2022 and the energy shock is smaller, which could limit second-round effects, but Hanson argues that hiking rates provides insurance against another inflation surprise. Aldrick adds that the government’s £14.5 billion fiscal headroom is historically low. A severe scenario similar to current conditions could erase it: borrowing costs could remove about £3.5 billion, while spending pressures could consume another £12 billion. The budget’s restraint was partly intended not to derail stronger-than-expected economic momentum, but Aldrick says the package itself is unlikely to do much for growth.

Doug Krizner speaks with Bloomberg economist James McIntyre ahead of the Reserve Bank of Australia’s meeting. McIntyre says Australia’s monthly inflation rate has risen to 4.3%, while quarterly inflation is 3.9%, making the inflation cycle stronger and more delayed than in many other economies. Energy remains important, but inflation is broadening into services and administered prices such as property rates and charges. McIntyre jokingly highlights rising streaming subscriptions, including Disney and Netflix, as costs that households may have to cut because the RBA cannot directly control them. Australia’s housing market is in a deepening downturn: prices are down almost 8% from peak to trough, and October data may show one of the fastest aggregate housing declines since 1980. Four rate hikes have already occurred this year, with a fifth widely expected in November. The housing weakness is beginning to affect consumer-facing businesses, but McIntyre says it is not enough to deter the RBA because businesses still believe demand is resilient enough to pass higher energy costs through to customers. The labor market is mixed. Data-center construction tied to the AI investment boom is increasing demand for electricians and air-conditioning and ventilation specialists, while employment across much of the rest of the economy is slowing and unemployment has risen. McIntyre says fiscal demand has also been too strong relative to the economy’s supply capacity, although public demand has flatlined over the latest six months. Treasurer Jim Chalmers is trying to restrain spending, while an aging population creates structural spending pressure. McIntyre expects the November hike because energy-price pressure, pass-through into prices, and the latest high inflation reading have all materialized. He says December may be a pause after five or possibly eight hikes this year, but the RBA will likely maintain a credible threat of further moves in December or February if inflation expectations do not weaken.

Krizner then reports that New Zealand’s central bank unexpectedly left its policy rate unchanged. The Reserve Bank of New Zealand said global uncertainty is weighing on domestic demand and that it wants to be cautious about how aggressively it fights inflation. Governor Anna Breman says the bank will do what is necessary to return inflation to the midpoint of its 1%–3% target range—2% over the medium term—without creating unnecessary volatility in economic output. Breman expects inflation to rise in coming months because of higher fuel prices, but she says the conditions for inflation to return toward target next year are favorable. Inflation expectations remain well anchored and wage growth is subdued. She also notes that the RBNZ had already raised its official cash rate twice at previous meetings and continues to expect additional increases at future meetings, meaning the pause does not represent a change in its broader strategy. The governor describes the global outlook as both resilient and fragile. AI investment is supporting growth in some of New Zealand’s trading partners, but the bank is watching how that investment develops and how global shocks affect New Zealand. The RBNZ is also assessing the effects of earlier tightening: house prices have moved sideways rather than risen, household wealth is heavily concentrated in housing, and weak domestic demand has made it difficult for firms to pass higher costs on to households. Those conditions, Breman says, are helping contain inflation even as fuel prices rise.