US consumer spending robust in September

US personal spending outstripped personal income in September, rising 0.7% m/m from 0.4% in August, above consensus expectations for a 0.5% m/m gain. Aggregate spending was supported by a robust increase in services spending, which rose 0.8% m/m in September from 0.3% the month prior. Personal income in contrast rose by a more muted 0.3% m/m in September, slightly below expectations. This left the personal savings rate at its lowest level since December 2022, at 3.4%, dropping from 4% in August. Despite the robust end to consumer activity in the quarter, spending is widely expected to moderate in the final months of the year, on the back of tighter credit conditions and the resumption of student loan repayments.

Monthly headline PCE inflation remained unchanged in September, rising 0.4%. Core PCE inflation on the other hand accelerated to 0.3% m/m from 0.1% in August. On an annual basis this meant that the Fed’s preferred measure fell only marginally to 3.7% from 3.8% y/y in August.

The final reading of the University of Michigan consumer sentiment survey showed a marked rise in near-term consumer inflation expectations in October. The one-year ahead expectations measure rose to 4.2% from an initial reading of 3.8%, likely driven by gas price expectations. Long-run expectations held steady at 3% in the final print for October.

Markets will be anticipating interest rate decisions from both the Fed and the Bank of England this week. In both cases committees are expected to keep rates unchanged, while maintaining recent hawkish commentary suggesting rates will need to remain high for longer.

Today’s key economic data and events

• 13:00 GE GDP (Q3) forecast -0.2% q/q

• 17:00 GE CPI (Oct) forecast 4% y/y

Fixed Income

• Treasuries continued their rally into the end of trading on Friday, despite a m/m acceleration in core PCE inflation and strong September US consumer spending data. The 2yr UST yield fell 4bp to 5.002% while 10y yields declined 1bp to 4.83%.

• There were also widespread falls in sovereign yields across major European economies, with 10yr Gilt yields falling 5bps to 4.54% and 10yr German Bund yields declining 3bps to 2.83%.

FX

• Currency moves were mixed on Friday. EURUSD gained marginally, rising 0.02%, to 1.0565 and GBPUSD declined 0.06% to 1.2122. USDJPY declined 0.49% to 149.66.

• Commodity currencies were also mixed. AUDUSD gained 0.21% to 0.6335, while USDCAD gained 0.28% to 1.387 and NZDUSD lost 0.17% to 0.5811.    

Equities

• The US equities market closed lower on Friday for the second consecutive week, as uncertainty about the economic outlook overshadowed the strong quarterly GDP report and the positive earnings results. Both the S&P 500 and the Nasdaq Composite ended the week more than 2% lower. The S&P 500 closed lower for the sixth time in the last eight weeks. Slightly stronger inflation data published on Friday also likely contributed to moves lower on the day with the Dow Jones and S&P, falling 1.12% and 0.48%, respectively. The tech-heavy Nasdaq, in contrast rose 0.38% on the day, with better-then-expected results from Amazon.

• There were also declines across several major European equity indices on Friday. Dragged lower on the back of disappointing earnings results, the Eurostoxx 50 and FTSE 100 indices both fell almost 0.9%. The CAC 40 and DAX also both declined, falling 1.36% and 0.3%, respectively.

• In Asia, The Shanghai Composite ended the week 1.2% higher, the Hang Seng recorded a gain of 1.3% w/w while Japan’s Nikkei ended up with a 0.9% loss w/w.

• Locally, the DFMGI closed up 1% for the week. The ADGI closed almost 1% lower w/w while the Tadawul ASI lost 0.9% over the week to Sunday 29 October.

Commodities

• Despite gaining on the day, Brent and WTI remained lower week-on-week on Friday. Brent rose 2.9% to USD 90.48/b and WTI rose 2.8% to end at USD 85.54/b.