Morning Macro 16th October
UK Chancellor Rachel Reeves is setting the stage for a high-stakes autumn budget, signalling that taxes on the wealthy are firmly on the table. The move comes as the Institute for Fiscal Studies warns she may need to find as much as £40 billion to avoid what it calls a “fiscal Groundhog Day” next year – a grim cycle of fiscal shortfalls and patchwork fixes.
Meanwhile, UK GDP inched up 0.1% in August 2025, matching expectations and recovering slightly from July’s decline. The modest rebound was driven by a 0.4% rise in production output, led by manufacturing and energy supply, while services were flat for a second month. Construction slipped 0.3%, signalling still-fragile momentum despite resilient industrial activity.
Over in the US, the White House budget chief says more than 10,000 federal workers could be laid off during the government shutdown!
In Asia, China’s tightening grip on rare-earth exports continues to reverberate. The ECB’s Madis Muller cautioned that the move could stoke renewed price pressures across the euro area if supply shocks ripple through global markets.
Japan’s Finance Minister Katsunobu Kato has echoed that concern, urging coordinated G7 action to mitigate fallout. Across the Pacific, Scott Bessent hinted that Washington could extend its suspension of Chinese import duties if Beijing rethinks those export curbs – a clear sign of the policy chess now in play.
Central bank rhetoric remains in focus. In Tokyo, BoJ board member Naoki Tamura reaffirmed his hawkish stance, saying policy rates should rise toward 1%, arguing the current 0.5% setting is still well below neutral. Meanwhile, Fed official Stephen Miran admitted he’s yet to win over colleagues on the need for faster and deeper US rate cuts, despite signs of labour market softening. Now the interest rate differential between US and Japan is at its lowest in over 3 years and it still has room to go down, while its correlation with USDJPY continues its divergence. (Chart 1, Bloomberg)
USD weakness lingers post-Powell, with the 10-year yield steady near 4.00%. JGBs twist-flattened across benchmarks, the 2/30 curve holding at 222bps.
Gold continues its relentless climb, hitting a fresh high above $4,240/oz before easing slightly. ANZ now sees the metal reaching $4,400 by end-2025 and $4,600 by mid-2026 as rate cuts stack up. Silver too remains buoyant around $53/oz, up 14% this month amid razor-thin liquidity in London. Palladium hasn’t been left out in the recent parabolic rally across precious metals, but is the rally stalling? The MACD is rolling over, indicating bullish momentum is falling. (Figure 2, Bloomberg)
Data today: Italy inflation, Philly Fed surveys, Fed speak
