Is A UK Rapprochement With the EU Possible?

Economic

Summary:

The new British prime minister, Sir Keir Starmer, led the Labour Party to an impressive victory in July, capitalizing on Britain’s economic problems and mounting backlash over its troubled exit from the European Union. In his campaign, Starmer vowed to “reset the relationship” with Europe, and he recently travelled to Brussels for talks with EU leaders, but nothing much concrete came out of these discussions.

Future historians may classify Brexit as one of the United Kingdom’s biggest mistakes in its postwar history. It has certainly had a great impact on Britain and to a lesser degree on the EU. European leaders are still in transition mode, waiting for the new European Commission to be installed, and appear to be in no mood for ambitious negotiations to reconcile with the UK. But with some effort and political will there are quite a few things that could be done, notably when it comes to mobility, security, and migration.

While Prime Minister Starmer promised to try to reset relations with the EU and turn the corner on Brexit, he has been eager not to upset Brexiters in his own party, making clear that a new referendum and rejoining the EU are not in the cards.

Starmer has spoken about improving cooperation on security and trade, as well as the need to facilitate travel for individual groups, such as touring musicians. Beginning next year, the EU will impose visa requirements on citizens from the UK, and the UK will put in place an electronic travel authorization system next spring. This will further complicate travelling across the English Channel.

The EU has been reluctant to reopen the Trade and Cooperation agreement that took five years of negotiations and two British prime ministers to reach. Brussels is also of the view that London has not yet done enough to implement the existing agreement. The European Commission has, however, offered to discuss free travel in both countries for persons 18 to 30 years old. This offer has been rejected by London.

The prime minister has also been travelling to Paris, Rome, and Berlin to repair relations. In Brussels he met with European Commission president Ursula von der Leyen and other EU leaders. Not much came out of these meetings, though; the press release from the meeting with the Commission president was vague, stating the unique relationship between the UK and the EU, the aim to work together on the situation in the Middle East, and their joint support for Ukraine. On the idea of “resetting” the relationship, not much was said, apart from a commitment to have regular joint summits at leaders´ level and to take the agenda forward in areas “where strengthened cooperation would be of mutual benefit.”

The proponents of leaving the EU in the 2016 referendum argued that the British economy would prosper and the UK would conclude a lot of trade agreements with the rest of the world. Neither has happened.

A report from the mayor of London earlier this year claims that London´s economy alone has shrunk by more than £30 billion and that the cost of Brexit to the British economy is £140 billion. Other estimates point to a 5 percent drop in growth because of Brexit. Trade has diminished, but the EU is still the most important market for the UK, and the UK is the EU's second biggest trading partner.

A clear majority of Brits consider the decision to leave the EU a mistake. A You Gov poll from August this year shows 51 percent saying that the negatives of Brexit have outweighed the benefits; only 17 percent think the opposite.

THE WAY FORWARD

Despite the obstacles, it is in everybody´s interest to deepen relations. Improving economic, political, and security cooperation would benefit both sides. The UK and the countries of the EU are neighbors and allies. In gloomy and uncertain times, you need all the friends you can get. The possibility of a second Trump administration in Washington is likely to put pressure on transatlantic relations and increases the need to work closely with other partners. So what can realistically be done?

The UK will not be joining the internal market, and it cannot freely cherry-pick specific sectors to join. The EU is negotiating future enlargement with nine countries and putting hard demands on them on aligning with EU law, so the UK cannot expect VIP treatment for its own interests.

For the time being it also seems that there is no clear, consistent agenda for what the British government wants. Brussels is skeptical about negotiating something that is not clearly defined. It would be wise for London to come up with a consolidated agenda of what it wants and what it would be ready to give that is broadly agreed in the British parliament and among key stakeholders.

The future relationship will therefore have to be based on a new model, and the EU must be a bit more flexible when it comes to alignment of standards and conformity assessments—for instance, in the agricultural sector. Progress would be possible if the UK agrees to follow the European Court of Justice in agriculture disputes. The checks on UK exports of agricultural products to Europe are cumbersome and expensive, and the UK farming sector has suffered hard. A solution for agriculture issues would be a clear victory with immediate benefits to show for the prime minister.

Areas outside the internal market should be easier to negotiate, for instance on Ukraine and security. Support and coordination on Ukraine have worked very well so far and could be furthered deepened in coordination for the future reconstruction of the country. A stronger defense and security pact could be developed with increased interoperability in this sector. Migration is an area where cooperation is already ongoing, especially with France. As the EU implements its own internal migration pact, there is scope for further collaboration.

On carbon pricing, the UK has a model very similar to the one the EU developed (CBAM, the carbon border adjustment mechanism). But the British one is a little bit more flexible vis-à-vis third countries. This is something the EU could learn from.

Mobility should in theory be easy to solve if both sides make an effort. If London is prepared to allow young people from Europe to work and study in Britain, facilitating the same rights for British youth in the EU, the European Commission should give in on the touring visas for musicians. Furthermore, the UK should rejoin the student exchange program known as Erasmus, adding recognition of qualifications in several professions. In a global quest for skills, such a step would be mutually beneficial.

The UK has just joined the Comprehensive and Progressive Agreement for Transpacific Partnership (CPTPP), a trade agreement covering 12 countries. It would be in the EU´s interest to join this agreement as well and work together with the UK to strengthen cooperation. Within the CPTPP, countries are actively working on trade liberalization and rules and standard setting, acknowledging that neither China nor the US is a member.

Clearly, deepening cooperation is of mutual benefit for the UK and the EU. But compromise and bold thinking will be needed from both sides. With upcoming EU enlargements to include Ukraine, Moldova, and the Balkans, the EU will have to try to find a unique model of cooperation with its former member state without jeopardizing the credibility of the accession process. There are areas that could clearly benefit from deeper cooperation and alignment. But so far, their reconciliation efforts have been more talk than action.

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Justin

Economic

The global landscape of business and investment is undergoing a transformative shift, driven by heightened awareness of climate change, social inequality and corporate governance. Over the past two decades, the ESG (environmental, social and governance) framework has not only emerged but thrived as a pivotal instrument, illuminating the remarkable capacity to assess and enhance the sustainability, ethical standards and long-term viability of companies worldwide.

However, as we face the complexities of today’s world, it is essential to not only adapt but also improve this framework to meet evolving challenges. Thus, it is time to expand the ESG framework to include resilience, ushering in the era of ESGR (environmental, social, governance and resilience).

Introducing resilience: The fourth dimension

Recent global events have highlighted the struggles of companies lacking resilience. The Covid-19 pandemic brought unprecedented challenges, from supply chain disruptions to sudden shifts in consumer behaviour. Geopolitical tensions, such as the conflict in Ukraine, have further destabilised markets, particularly impacting industries dependent on the region for raw materials. These crises underscore the need for resilience in the corporate world.

While the traditional ESG framework provides a solid foundation for evaluating corporate responsibility, it falls short in addressing the rapid changes and uncertainties of our modern world.

Environmental criteria assess a company’s role as a custodian of nature; social criteria examine its relationships with stakeholders; and governance criteria scrutinise its leadership and operational transparency. However, this framework lacks a dedicated focus on resilience — a vital component for navigating the volatile, uncertain, complex and ambiguous (VUCA) world we inhabit. Resilience, defined as the capacity to adapt, recover and thrive in the face of adversity, represents the missing link in the ESG framework.

By incorporating resilience as the fourth pillar, we acknowledge the imperative of not merely withstanding shocks but also evolving and emerging stronger. This addition is particularly pertinent in an era defined by unprecedented challenges such as climate change, pandemics and technological disruptions.

Key components of resilience

Resilience in the corporate world hinges on three fundamental components, each serving as pillars upon which enduring success is built.

Compliance with legal changes: The rapid changes in legal requirements across environmental, social and governance domains necessitate that companies develop adaptive strategies to remain compliant and resilient. For instance, China’s aggressive carbon reduction policies forced unprepared factories to shut down or relocate, whereas resilient companies promptly adopted renewable energy practices and reduced carbon emissions. The EU’s GDPR in 2018 required drastic data protection overhauls. While proactive companies successfully navigated the shift, many like Meta and Amazon are facing fines.

Ensuring economic stability: Businesses must maintain strong financial health by diversifying their income streams and being prepared for economic downturns to ensure resilience. Companies unprepared for economic crises often face severe consequences, such as layoffs or closures. During the 2008 global financial crisis, Lehman Brothers collapsed due to its overreliance on high-risk investments, leading to significant job losses and market instability. Similarly, the Covid-19 pandemic forced JCPenney into bankruptcy due to declining sales and debt. In contrast, resilient companies like Amazon, which diversified its business and enhanced its digital infrastructure, thrived.

Maintaining operational continuity: Companies need to establish resilient supply chains and business operations capable of withstanding disruptions from natural disasters, geopolitical tensions or other crises. For instance, during the Covid-19 pandemic, Procter & Gamble’s proactive supply chain management and diversified manufacturing locations enabled it to maintain product availability despite global disruptions. On the other hand, Peloton encountered challenges with its supply chain, resulting in delays in product deliveries and impacting customer satisfaction.

Building resilient foundations with RIC

Risk assessment, innovation and competency (RIC) form the bedrock of resilience, representing the essential elements upon which an organisation’s ability to adapt and thrive in dynamic environments rests.

A study by PwC found that organisations that embrace strategic risk management are five times more likely to deliver stakeholder confidence and two times more likely to expect faster revenue growth. This highlights the critical role of risk assessment in enhancing resilience to the modern world’s challenges. Effective risk assessment involves identifying, analysing and mitigating potential risks that could jeopardise business operations. This process includes not only ensuring daily operations comply with regulations but also anticipating and addressing potential risks that could cause business disruptions. Through comprehensive risk assessment processes, organisations can anticipate potential disruptions, minimise vulnerabilities and enhance their capacity to withstand adverse conditions.

Innovation serves as a catalyst for resilience by driving the development of new solutions and approaches to address evolving market dynamics. Fostering a culture of innovation encourages creativity, adaptability and forward-thinking, enabling companies to stay ahead of the curve and respond effectively to changing business landscapes. A McKinsey study found that companies with a high commitment to innovation are 2.4 times more likely to experience revenue growth. However, only 23% of companies prioritise innovation as one of their top two concerns. Innovation does not always mean creating new inventions. It can also involve adopting emerging technologies such as artificial intelligence, blockchain and renewable energy solutions.

Embracing a spectrum of competencies within the boardroom is imperative for guiding companies towards resilience and sustainable expansion. Yet, according to a recent study conducted by Deloitte, merely 36% of board members worldwide possess expertise in technology, underscoring a notable deficiency in diversified skill sets. This disparity underscores the importance of fostering a board environment rich in varied proficiencies. Such diversity not only fosters a holistic evaluation of opportunities and threats but also fosters well-informed strategic decision-making, ultimately fortifying the organisation’s capacity to adeptly navigate multifaceted challenges.

Creating a forward-thinking standard with ESGR

I urge global stakeholders to recognise the pivotal role of resilience in sustainability. By transitioning from ESG to ESGR, we can create a robust, forward-thinking standard that addresses the multifaceted challenges of our time, safeguarding businesses and investments while fostering a more sustainable and resilient global economy. Integrating resilience into the ESG framework is essential for survival and growth in an increasingly volatile world, and this evolution offers an opportunity to shape a future characterised by sustainability, resilience and prosperity.

Source: The edge markets

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ACY

Political

Economic

The U.S. dollar has been on a notable upward trend in the lead-up to the November 5th presidential election, registering its third consecutive week of gains. The Dollar Index, which measures the greenback’s strength against a basket of major currencies, has achieved its longest winning streak since the 1970s, climbing for fourteen consecutive trading days. This strong performance highlights the dollar’s resilience in the face of political and economic uncertainty. Over the past few weeks, the dollar has appreciated by 3.5%, showing particularly pronounced strength against currencies like the New Zealand Dollar (NZD) and the Japanese Yen (JPY), which have fallen 4.3% and 4.2% against the dollar, respectively.

USD Rises as Trump’s Re-election Prospects Gain Momentum Ahead of U.S. Election_1

Trump’s Re-election Momentum Fuels Dollar Rally

A significant factor driving the dollar’s surge is the growing market perception that Donald Trump may secure a second term in office. This sentiment has been bolstered by recent betting market data from platforms like PolyMarket, where Trump’s re-election odds have climbed past 60%. This shift in market expectations stems from his improving performance in key battleground states and the narrowing gap in opinion polls between Trump and his opponent, Kamala Harris. Despite Harris still leading in national polls, the electoral college dynamics indicate a tightening race, creating uncertainty that is reflected in currency markets.

USD Rises as Trump’s Re-election Prospects Gain Momentum Ahead of U.S. Election_2

The USD’s rise reflects a "Trump risk premium" as investors begin to factor in the potential impact of a second Trump presidency. Historically, Trump’s policies on trade, deregulation, and economic nationalism have introduced volatility into global markets. Under his administration, policies such as tariffs on Chinese goods and a renegotiation of NAFTA (replaced by the USMCA) disrupted global supply chains and currency flows. This risk premium suggests that markets anticipate renewed volatility in global trade relations, should Trump win re-election. I’ve made a video discussing a bit more in-depth about trump winning and what could happen on the market if he actually wins, you can find this video here:

The USD/MXN pair, a barometer of U.S.-Mexico trade relations, has already climbed to the 20.00-level. The Mexican Peso’s sensitivity to U.S. political shifts reflects concerns about potential changes in trade policies or tariffs that could emerge under another Trump administration. The dollar’s strength in this context may be seen as a hedge against policy uncertainty, which could otherwise weaken emerging market currencies like the MXN.

USD Rises as Trump’s Re-election Prospects Gain Momentum Ahead of U.S. Election_3

Diverging Monetary Policies Support the Dollar’s Ascent

In addition to election-related factors, the U.S. dollar’s strength can also be attributed to a growing divergence in monetary policy between the Federal Reserve and other major central banks. While the Fed has signalled a potential slowdown in the pace of its interest rate cuts, delivering a modest 25 basis points (bps) reduction at its next meeting (07/11/2024), other central banks have pursued more aggressive easing measures.

USD Rises as Trump’s Re-election Prospects Gain Momentum Ahead of U.S. Election_4

For instance, the Reserve Bank of New Zealand (RBNZ) recently implemented a significant 50bps cut and is expected to make further cuts as inflation in New Zealand has slowed faster than anticipated. Similarly, the Bank of Canada (BoC) is widely expected to follow with additional rate cuts, reflecting concerns about weakened economic growth. In contrast, resilient inflation and stronger-than-expected economic data in the U.S. have limited the Fed’s ability to continue aggressive rate cuts, which has further boosted the dollar. You can find out more about RBNZ on this blog I’ve posted: https://acy.com.au/en/market-news/market-analysis/analysis-of-the-new-zealand-dollars-after-a-50bp-from-rbnz-l-s-132614/

Should Trump win the election, market participants anticipate that the Fed might even pause its rate-cutting cycle altogether. Trump’s administration has consistently pressured the Fed for lower rates, but a Trump victory might strengthen the market’s belief in the U.S. economy's relative strength, supporting the dollar.

Global Inflation Dynamics and Impact on Central Banks

Inflation trends across major economies have also contributed to the divergence in monetary policy. In economies like New Zealand, the UK, and Canada, inflation has decelerated more rapidly than expected. This has given their respective central banks the flexibility to lower interest rates without stoking fears of overheating their economies. However, the U.S. has experienced more persistent inflation, which limits the Fed’s capacity for rate cuts. If inflation remains relatively strong, the Fed might hold off on further easing, providing additional support to the dollar.

As the November election approaches, the dollar’s trajectory will be closely tied to political developments and shifts in market sentiment regarding the election outcome. Traders and investors will be watching polling data, particularly in swing states, to assess the likelihood of a Trump victory. Additionally, any further signs of economic strength in the U.S. could reinforce the dollar’s upward momentum. However, should Trump’s opponent Kamala Harris regain her lead in the polls, the market may adjust its expectations, potentially reducing the Trump risk premium and dampening the dollar’s rally.

Central bank actions will also play a crucial role in the dollar’s future. Any unexpected rate cuts by the Fed or more aggressive easing from other central banks could alter the dollar’s current path. Inflation dynamics, trade tensions, and geopolitical risks will continue to be key drivers in the months ahead.

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JanusHenderson

Economic

Bond

The growth of actively managed exchange traded funds (ETFs) across the world is well documented. Janus Henderson recently expanded its own footprint, acquiring an ETF business in Europe.

But what does this mean for investors? What do you need to know when considering investing in active ETFs versus more traditional mutual fund vehicles?

In this guide, we look at some of these considerations and provide practical insights on how active ETFs can be used in an investor’s portfolio.

Common misconceptions

First and foremost, it’s important to clarify one of the biggest misconceptions on ETFs – that they are passive strategies i.e. managed to an index. It is true that historically, most ETFs in the market place have been passive strategies but that is no longer the case.

ETFs are as they suggest – exchanged traded funds. That is, funds that can be bought and sold through a stock exchange much like a stock or a bond. Those funds can be active or passive. The key difference is simply how investors buy or sell the strategy. As figure 1 shows ETFs bring together the benefits of both.

Maximising Your Outcomes: Adding Active ETFs To Your Portfolio_1

Portfolio construction considerations

The answer to whether an active ETF or mutual fund is preferable when building a portfolio largely depends on the nature of the portfolio and how it will be managed. There is no right or wrong answer but there are important considerations when looking at the alternatives.

When an active ETF could be preferred

Highly active portfolio management: While we strongly advocate for time in the market rather than timing the market, active ETFs can be an excellent way to gain exposure to active strategies while also allowing for intraday transactions. This can become particularly important when material market events are likely to have an ongoing impact (positive or negative) on returns.

Small accounts: For smaller accounts or for satellite holdings, active ETFs could fill the void where the minimum account sizes of mutual funds are prohibitive. Where a mutual fund will typically have higher minimums and trading sizes, an ETF can be bought or sold for as small an amount as one “share” – which could be as low as £1.

Rebalancing: Intraday trading and small minimum trade sizes mean that investors are able to rebalance portfolios more accurately and more frequently – providing the benefits of the rebalance outweigh the trading costs. An active ETF allows investors to redeem (or add to) the holding at any time throughout the day at intraday pricing.

Blending: The greater level of transparency afforded by active ETFs permits more exact portfolio blending with other holdings. In contrast, mutual funds typically disclose only their top 10 holdings on a monthly basis, while active ETFs can disclose their full holdings daily.

Efficiency: The mechanics behind active ETFs are simple, standardised and highly efficient. This helps to keep trading costs down and means they are also operationally convenient for investors.

Contrary or “short” positions: It is possible to short some ETFs thus taking the other side of the trade.

Leverage: Some prime brokers / banks will allow margin lending to be run against ETF positions should investors wish to do so.

Pricing: Active ETFs are unable pay sales commission to advisers (in Europe) and hence do not have these commissions built into the ongoing charges figure. This allows a non-advised client to access strategies free of such charges.

When a mutual fund could be preferred

Of course, there remains many reasons why mutual funds remain a preferred approach for many investors.

Long-term time horizon: A major benefit of active ETFs is accessibility and ease of transaction. For many components of a portfolio, investors should be taking a long-term time horizon with their investment. As such, the ability to trade intraday shouldn’t be a necessary feature. Even during times of significant market volatility, rarely does trying to time the market result in better financial outcomes.

Valuation certainty: An active ETF has two valuations: 1. Net Asset Value (NAV) and 2. share price. Generally, these two should track each other closely and ETF issuers have techniques to ensure that occurs. However, there can be some deviation between the two. A mutual fund just has the NAV and, therefore, the price offered per share aligns to the value of the fund’s assets. Further, if an adviser is buying (or selling) on behalf of underlying clients then all clients will buy (or sell) at one price – this is impossible to achieve for ETF purchases.

Range of options: Currently, the majority of active strategies are offered via mutual funds. Therefore, it may not be feasible at this moment in time to build an entire active portfolio out of ETFs.

Availability: Many platforms have yet to fully engage with active ETFs. As a result, investors may find that the mutual fund approach remains the most effective approach, at least in the near term.

Selecting an active ETF – key considerations

For an investor considering an active ETF, there are several questions that should be asked:

How closely does the active ETF strategy reflect the manager’s existing strategy i.e. is this a genuine strategy or an adapted version?What are the trading costs to buy and sell the holding?Does the ETF trade at a material discount (or premium) to the NAV?How is liquidity guaranteed?Can a suitable collection of active ETFs be accessed with the platform/provider used?

We believe that active ETFs have a very promising future as evidenced by their increasing popularity among investors. But as with any investment, it’s crucial to carefully examine the construction, management, and listing details of the ETF.

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Owen Li

Economic

The German government’s recent decision to reintroduce border controls with its neighbors Poland, the Czech Republic, Austria and Switzerland marks a significant departure from the Schengen principles. This populist measure comes after substantial electoral losses for Germany’s governing coalition and aims to restrict access for both asylum seekers and illegal, undocumented immigrants.

This action is particularly concerning as it undermines the integrity of the Schengen Agreement, which facilitates free movement among European Union countries, as well as Iceland, Liechtenstein, Norway and Switzerland. The Schengen system is designed to eliminate internal border checks, create economic efficiency and greatly reinforce the perception of unity and cooperation among European nations.

The migration crisis has been haunting Europe for years. Brussels and some individual member states introduced misguided rules, practices and immigration quotas under the guise of “solidarity” among the whole EU. This created tensions, not only with Central European countries that refused to go along with the new measures, and as a result have been inappropriately labeled as mean-spirited and unhelpful.

Reaching for migration solutions

Earlier this spring, the EU announced a pact aimed at managing the migration issue in a controlled manner. However, this pact appears to be more of a technocratic response than a genuine political solution, failing to address the ongoing migratory pressures. For instance, in just the first half of this year, approximately 19,000 people from Western Africa, primarily Mauritania, landed by boat on Spain’s Canary Islands.

This decision reflects a measure of desperation rather than a comprehensive strategy.

When Italy’s government agreed with Albania to establish processing centers for migrants undergoing lengthy asylum procedures, it sparked disapproval across Europe. In early October, Poland canceled the use of the EU asylum procedures in response to Belarus weaponizing migration to destabilize Europe by simply refusing people entrance. Minsk, supported by Moscow, has orchestrated a system to entice migrants from distant countries and push them across Poland’s eastern border.

Last week, EU leaders convened to address the ongoing migration crisis. The concept of “outplacing” migrants, proposed by Italy (and previously in Europe by the United Kingdom), has at long last gained acceptance and is being hailed by some as an innovative solution. However, the idea reflects desperation rather than a comprehensive strategy. The first challenge emerged already, as a court in Rome stopped the outplacement.

The problem is not solved, but instead kicked like a can further down the road. European governments consistently struggle to reach meaningful consensus, yet enhancing the protection of the EU’s external borders has become increasingly necessary. Additionally, the implications for welfare systems across member states cannot be overlooked.

Migrants should learn that reaching Europe will not necessarily mean receiving welfare benefits. Milton Friedman, a Nobel laureate in economics, famously stated, “You cannot simultaneously have free immigration and a welfare state.” Furthermore, immigrants who commit crimes need to be deported immediately without lengthy appeal processes.

The dead end

Economic development in countries of origin is crucial to solving the migration crisis. However, aside from significant waste in development aid, Europe’s engagement in Africa has achieved little by way of supporting local businesses, attracting investment and facilitating trade. European protectionism, often disguised as “consumer protection,” makes it difficult for African enterprises to access the EU market.

The introduction of the EU’s supply chain legislation has been particularly onerous. While its measures may offer European progressives a sense of moral satisfaction, albeit somewhat hypocritically, the law imposes standards and controls so stringent that it becomes practically impossible for European businesses to trade with, operate in, or invest in African and other developing countries. But this is what these countries need.

As there appears to be no real solution at the Union level, member states may start to chart their own paths. The mishandling of the migration issue could initiate an unfortunate dynamic that jeopardizes EU cohesion, posing a genuine threat to the very essence of European integration.

Source: GIS

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S&P Global Inc.

Economic

Payrolls, PMIs and price updates to guide US and eurozone policy

The coming week is crowded with economic data that will add to a market already jugging the earnings season and speculation around the US Presidential Election. Specifically, we'll see some key data inputs to monetary policy settings in both the United States and eurozone, including inflation updates, non-farm payrolls and third quarter GDP estimates. Manufacturing PMI data will also help guide our understanding of the latest global production, trade and industrial price trends.

Recent PMI survey data, including October's flash numbers, have clearly highlighted how economic growth is being subdued by heightened geopolitical uncertainty. October saw business activity contract for a second successive month in the eurozone and also slip into decline in Japan. The United Kingdom meanwhile saw growth weaken sharply as uncertainty ahead of the imminent government spending review in the autumn Budget exacerbated broader geopolitical risk worries. One area showing notable resilience is the US services economy where, despite a further drop in manufacturing production in October, the sector continues to drive robust economic growth. However, even in the US, the PMI surveys showed the labor market softening further in October as companies cited a reluctance to hire amid the cloudy economic outlook.

Markets will therefore be eager to assess the non-farm payroll report on Friday for new clues as to the US labor market's health but will equally be focusing on Thursday's inflation data in the form of the PCE index, the core reading of which is the FOMC's favored inflation gauge.

In the eurozone, speculation is rife that the ECB could 'go large' with a 50 basis point cut in December amid signs of the economy struggling, but this would need the inflation data due out in the coming week to come in on the soft side, and for the third quarter advance GDP estimate to confirm the weak economic growth picture being portrayed by the PMI surveys.

An eye also needs to be kept on the worldwide manufacturing PMI which are updated during the week, and in particular the numbers for mainland China following recent government stimulus announcements.

What to watch in the coming week

Worldwide manufacturing PMI releases

Global manufacturing PMI figures will be released across 1st to 4th November. Insights into the goods producing sector will be sought following early indications from flash PMI data across major developed economies, with close attention to be paid to demand and output performance after September data revealed a further deterioration of business conditions for manufacturers.

Americas: US Q3 GDP, labour market report, ISM manufacturing PMI, core PCE, JOLTs job openings, personal income and spending data

Key data releases in the fresh week include an advance reading of Q3 US GDP, non-farm payrolls and manufacturing PMI figures. According to the consensus, a stronger third quarter GDP reading is expected with the US having been a recent outperformer among developed economies according to PMI data. Meanwhile, job additions are expected to slow to reflect the cooling job market trend, but also capturing the effect from natural disasters in the US. This comes after the latest S&P Global Flash US PMI revealed that employment fell for a third straight month in October. Final manufacturing PMI readings will also be updated alongside the ISM Manufacturing reading on Friday. Additionally, the Fed's preferred inflation gauge, the core PCE reading will be released for September.

EMEA: Eurozone GDP, inflation, Germany GfK Consumer Confidence, UK mortgage lending, nationwide housing prices

The eurozone issues flash third quarter GDP data on Wednesday with subdued conditions having been alluded to by the latest PMI data. The most up-to-date October HCOB Flash Eurozone PMI further showed that the eurozone has remained stalled at the start of the fourth quarter, thereby outlining the risk for a GDP contraction into the end of the year. Meanwhile, flash PMI data revealed that eurozone prices rose at the slowest pace since early 2021 and continue to point to below-target inflation rates in the months to come. Preliminary eurozone October CPI figures will be watched to confirm the trend on Thursday.

APAC: BOJ meeting, China PMI, Australia CPI, Japan unemployment, industrial production, consumer confidence, Taiwan, Hong Kong SAR GDP

In APAC, the Bank of Japan (BOJ) convenes for their October meeting but with another rate hike only expected early next year. Falling business activity and rising selling price inflation in Japan adds to the dilemma, however.

Key data releases in the region meanwhile include China PMI, via both the Caixin and National Bureau of Statistics (NBS) readings, and also CPI data out of Australia.

To stay updated on all economic events of today, please check out our Economic calendar

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Brookings Institution

Economic

The World Bank’s International Development Association (IDA) replenishment cycle is a process that occurs every three years. During every replenishment cycle, IDA—the Bank’s fund for low-income countries—works with groups around the world to co-create this policy package, which provides the basis for translating its financing into development results. This matters for the 75 poorest countries of the world where IDA resources make a difference in people’s lives by, for example, providing millions of children with life-saving vaccines, helping communities adapt to the ravages of a fast-changing climate, and building the policy and institutions of governments to sustain the improvements.

As the largest source of concessional finance for developing countries, a lot of thinking goes into developing the ambition and priorities of IDA. Each replenishment sees advancements in shaping not only IDA’s role but also in helping influence the global architecture of concessional financing.

IDA18 represented a significant milestone when IDA went to the capital market to raise money, leverage its balance sheet, and supplement the traditional provision of grant resources by donor partners. This has helped each dollar of donor contribution deliver 3.5 times more development finance than would have been possible through other channels. In other words, if a donor contribution vaccinates one child, IDA can vaccinate 3.5 children with the same level of donor contribution.

The IDA21 policy package has benefitted from inputs from country leaders, policymakers in both recipient and partner countries, and civil society groups.

Four key aspects make the IDA21 policy package a watershed moment: its ambition and stretch, a reshaped policy architecture, the strength and evolution of the commitments, and a focus on selectivity and simplification. Each of these alone would have been a meaningful step forward for one replenishment cycle, but together, they position IDA for greater strength and impact.

First, the stretch. IDA21 will play a key role in supporting the World Bank Group’s (WBG) recently announced corporate targets. Consider electricity access: Africa’s economic transformation will only carry along all its people if it achieves universal electricity access. Reaching 300 million people with electricity access by 2030 is a bold target, several times greater than what has been achieved in recent years across the continent. IDA21 will be instrumental in advancing Mission 300, alongside the broader efforts of the WBG, clients, and partners. And IDA will report on progress toward that ambition through its Scorecard indicators on millions of people reached with improved electricity access.

Second, IDA21 introduces a reshaped policy architecture. Why does this matter? The policy architecture sets the priorities for each replenishment, guides IDA’s country-driven approach, and holds IDA accountable for its commitments. The IDA21 policy architecture emphasizes addressing the binding constraints to achieving development outcomes (for example, utility reforms to deliver greater electricity access), instead of tracking processes and inputs. It is also more closely anchored in the ongoing WBG evolution process. As the first replenishment since the WBG’s evolution, IDA21 stands to benefit from and significantly contribute to delivering on the Better Bank.

Third, the IDA21 Policy Commitments (PCs) demonstrate both greater strength and the evolution of priorities over time. Past IDA replenishments have only included policy commitments in four or five identified special themes/cross-cutting issues. IDA21 has PCs in all nine thematic areas with a line of sight to all 22 WBG Scorecard indicators—demonstrating a much wider spread. The strength of the policy package does not come from simply matching the number of policy commitments across cycles but in their growing depth and maturity. Here are three examples to illustrate that evolution.

In IDA16 and IDA17, gender equality commitments centered on ensuring WBG country strategies and IDA operations were gender-informed. IDA21 is committed to fully implementing an ambitious “WBG Gender Strategy” in all IDA countries, addressing priority challenges like gender-based violence, sexual and reproductive health, and women’s economic participation.

On climate, IDA18 focused on screening IDA operations for climate and developing climate-smart agriculture in 10 countries. Just six years later, IDA21 commits to addressing adaptation and resilience in 50 countries and implementing climate-smart agriculture policies to improve food security in 45 countries.

The chronic challenge of weak statistical capacity in IDA countries first appeared a few replenishments ago, with a commitment to analyze the status of country statistical systems in WBG country strategies. Now, IDA21 commits to work in every country where household surveys are older than five years, improving the quality, timeliness, and use of data for policymaking.

Fourth, IDA21 will start to reverse the growing number of country-level actions in its commitments. This selectivity and simplification will enable client governments to focus on implementing operations and policies and delivering results.

The reporting of IDA21 implementation progress across these areas will ensure accountability. The Scorecard will report progress annually on a select set of outcome-oriented indicators, and the IDA21 mid-term review and retrospective reports will bring together progress on all the outcomes and commitments for IDA21. However, a strong pledging session in December remains crucial. First out of the starting blocks is the promising announcement by Denmark on their record contribution to IDA21.

IDA replenishment will be a journey that leaves a tangible impact on people’s lives.

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