Though we have a few private sector data points this week, focus is likely to remain on Fed speak in the wake of Chair Powell’s messaging following last Wednesday’s FOMC meeting. We have a heavy Fed speaker calendar this week which will matter more than any macro data. Since the US government shutdown continues, we have only ISM manufacturing & ISM services data in this week. JOLTS is unlikely to come out due to shutdown. There is no auction supply of dated treasuries this week. On tariff front, we have the important hearing in US Supreme Court on 5th Nov on the legal validity of IEEPA. We believe there is a high probability of it being termed as illegal by the Supreme Court which will pull long end UST yields higher and DXY lower. In RoW events, we have the crucial BOE meet on 7th Nov where we see a 25 bps cut by 5-4 margin (against consensus & current market pricing of only 7 bps). The RBA meet on 4th Nov might see a status quo due to recent hot CPI nos. Canadian employment data is likely to be weaker on 7th Nov. In Eurozone, we now don't see ECB cutting by 25bps after going through last week's ECB meeting discussions. In Eurozone macro data, we have German industrial production & German factory orders this week.

This Wednesday’s FOMC meeting will be the main event as the federal government shutdown enters its fifth week. In addition to cutting the fed funds rate by another 25bps, we now expect the Committee to announce the conclusion of its balance sheet reduction program. Last week's CPI data surprised on the downside due to signficiant downward pull in the OERs. In recent years, CPI rents and OER have tended to mean-revert after large surprises. Along with the stability in inflation for larger cities, this leads us to expect a rebound in October. Overall, we think that the underlying inflation trend remained essentially unchanged in September and that tariffs continued to exert upward pressure on core goods prices. Looking ahead, we see upside risks to the inflation outlook in the near term. For the coming months, we expect core goods inflation will accelerate in Q4, as the tariff impact continues to materialize. Next year, we think rent disinflation along with goods inflation slowing down will lead CPI to cool down from Q1CY26. In US macro data, we have durable goods orders, Q3 GDP advance estimate as well as Sep's income and spending data. But all these might not get released due to US government shutdown continuing. We might get only consumer confidence, Case Shiller home price index & pending home sales. We continue to believe that the employment mandate of Fed will come into larger focus than the near-term uptick (from Oct) in core CPI & core PCE. We believe that CPI reading in the next 2-3 months might reflect true goods inflation impact but post that the CPI readings should cool down. Fed might mostly take this price increase as one off when seen in context of the severe weakness in employment & UR which we expect to start from Oct NFP which we believe will be a significant -ve no. Hence, we continue to believe in 4 cuts of 25 bps each in the next 4 Fed meetings till Mar’26 bringing the terminal rate to 3%. In UST auction supply this week, we have 69 BN USD supply in 2yrs on Monday, 70 BN USD supply in 5yrs on Monday again & 44 BN USD supply in 7yrs on Tuesday. In tariff developments, today's news suggest that top trade negotiators for the US and China have come to agree on terms for a range of contentious points, setting the table for leaders Donald Trump and Xi Jinping to finalize a deal and ease trade tensions. Our own assessment is that Xi has all the levers in the US China trade negotiations. REEs (Rare Earth Elements) & Soybean purchases are strong levers to get US to agree from increasing tariffs any further. Hence, we remain optimistic on CNH and see it drifting to 6.5 by mid CY26 as Chinese growth picks up along with capital flows. in RoW events, we expect a hold from BoC on 29th Oct, hold from ECB on 30th Oct and another hold from BOJ on 30th Oct.

Though most major economic data remain on hold as the federal government shutdown approaches its fourth week, as the BLS indicated previously, the one exception will be this Friday’s September CPI report. The latest inflation data point will take on even greater significance amidst the vacuum of Fed speak as officials are now in their communications blackout period ahead the October 29 FOMC meeting. We expect to see core CPI inflation likely remained elevated in September at 0.34% m-o-m, after a 0.346% advance in August. We expect core goods inflation accelerated to 0.43% m-o-m in September from 0.28% in August as the impact of tariffs continued to materialize. We expect the uptick in inflation to persist till next 1-2 month readings and then move downwards due to base effects as well as slowing down in consumer spending due to weaker employment conditions accelerated by continued US shutdown. We continue to believe that the employment mandate of Fed will come into larger focus than the near-term uptick in core CPI & core PCE. Hence, we continue to believe in 4 cuts of 25 bps each in the next 4 Fed meetings till Mar’26 bringing the terminal rate to 3%. But in extreme short term we see a risk of 10-15 bps pull up in short end UST yields i.e. the 2yr USTs towards 3.55-3.6 levels from the current 3.45 levels. But post this bump up we shall see a secular decline towards 3.25 levels as markets start to appreciate the weakness in employment nos. On Fed speak, there are no Fed speakers scheduled this week due to Fed being in communication blackout before it's 28-29th Oct meet. On tariff front, we believe the terminal average effective tariff rate in US is around 14%. In dated UST auctions this week, we have 13 BN USD of 20yr supply on Wednesday & 26 BN USD of 5 year TIPS supply on Thursday. In US macro data, beyond CPI, we only have S&P PMIs and existing home sales data. In Row macro data, we have critical UK's Sep CPI data on Wednesday which we expect to come at 4.1% on headline & service inflation rising to 4.9% from previous month's reading of 4.7%. This might be the near term peak for UK CPI profile for the next few months. We also have Canada CPI on Tuesday and PMI data for Eurozone on Friday which we expect to be weaker than consensus.

Due to the US government shutdown, the release of September CPI data was moved back to 24 October from the original date of 15 October. We expect to see core CPI inflation remaining elevated in September at 0.34% m-o-m, after a 0.346% advance in August. We expect core goods inflation accelerated to 0.43% m-o-m in September from 0.28% in August as the impact of tariffs continued to materialize. Super-core components appear to have picked up slightly to 0.37% m-o-m in September, driven by a rebound in medical care service prices. Based on our CPI and PPI forecast, we expect core PCE inflation accelerated to 0.30% m-o-m in September from a 0.23% advance in August. We expect the uptick in core inflation to persist till Oct readings and then move downwards due to base effects as well as slowing down in consumer spending due to weaker employment conditions accelerated by continued US shutdown. Summary: A hot CPI reading for Sep along with a possible hot reading for Oct might be treated as one off bump in good prices by Fed when seen in context of a likely -ve NFP no for Oct payroll. Between the price stability mandate & the employment mandate, the deviation of employment mandate will be higher. Hence, we continue to expect a front-loaded rate cut cycle of 25 bps each in the next 4 Fed meetings. Currently the market is pricing in 51 bps of cut till Dec’25 and another 37 bps till March’26. We expect this to move towards full 50 after the release of Oct NFP data in early Nov. But in extreme short term, we expect short end rates to move up by 10-15 bps. So, the 2yr UST which closed at 3.46 on Friday should test 3.55-3.6 before eventually moving lower towards 3.25 when market starts appreciating the weakness in the employment data.

Due to US government shutdown, we don’t expect CPI, PPI, initial jobless claims and US retail sales data this week to be released. The main focus in Fed speak this week will be Chair Powell’s speech on the economic outlook and monetary policy at the NABE meeting on Tuesday. We expect him to again focus on the risk management strategy of managing more downside risks to employment than to prices. In US macro data, we have secondary data such as NFIB small business survey, Empire state survey, Philly Fed survey etc. With US government shut down continuing, Trump administration has already started firing employees during the shutdown itself. In addition, Office of Personnel Management (OPM) Director Kupor said last week that roughly 150k federal workers had accepted deferred resignation offers and, of those 150k, 100k would leave the government at the end of September. This suggests that October NFP (scheduled to print in early November) is likely to be weighed down by 100k due to DOGE-led deferred resignations. Private indicators of employment has been anyways soft as seen in ADP, Intuit etc. Combining all above facts, we see unemployment rate rising to 4.5% in Oct NFP itself. Hence though core CPI might be rising too but the rise in UR might be more than the Fed’s comfort. Hence, we see front loaded cuts of 25 bps each in the next four Fed meetings. Adding to above policy mix is the recent 100% tariff announced by Trump on China. This too might add to risk sell off as seen on Friday adding to financial stability woes. On tariff front, next week will be news flow driven. As long as China does not reciprocate by announcing another set of tariffs, there is a small chance that Xi Trump meeting happens in end Oct at the ASEAN summit in South Korea. In RoW events, France continues it's merry go round of PMs with no end in sight to the budget approval process. We believe even a snap election cant solve the issue as per recent opinion polls. In European macro data, we have German Zew data as well as Euro area industrial production. In UK macro data, we have the important labor market data as well as the GDP data for August. In Chinese export data due on Monday, we see a strong export data due to shifting of Chinese export data to non US destinations showing trans-shipping as well as China's push to cultivate trade with other partners.

With the federal government still shutdown at the time of this writing, this week’s data docket will likely remain relatively sparse. All federal government statistical releases are on hold until the shutdown ends. Hence, market participants will pay close attention to the signals coming from Washington this week. With government data on hold for the moment, private-sector data releases and Fed communications will take precedent. We see a high likelihood of the shutdown continuing for at least another week. Reportedly, the Office of Management and Budget (OMB) is coordinating with government agencies to prepare layoff plans. Also roughly 150k federal workers had accepted deferred resignation offers and, of those 150k, 100k would leave the government at the end of September. This suggests that October NFP (scheduled to print in early November) is likely to be weighed down by 100k due to DOGE-led deferred resignations and we expect the additional negative impact of 50k to be reflected in subsequent months. Regarding this week’s economic calendar, Wednesday’s minutes from the September 19 FOMC meeting will be a key focus for investors. In UST auction supply, we have 3yr, 20yr & 30yr auction supply of $58 BN, $39 BN & $22 BN on Tuesday, Wednesday & Thursday respectively. There are several Fed officials speaking this week once again, with no additional information in the past couple of weeks that could have meaningfully moved officials’ outlooks, we doubt they will yield any new insights, at least not until we see the latest employment and inflation data that are currently delayed due to the government shutdown. For the next few months, employment data will be keenly watched for any weakness. We believe the Oct NFP can be a -ve no to the tune of -25k/-50k. This is because of the one-time impact of the part of the government workforce which has earlier taken voluntary retirement and are now finally getting out of the workforce by Sep end. In addition, we don’t see companies holding on to their hoarded labor if sales worsen by end CY25 due to pass on of tariffs to consumer prices. Hence, we see the delicate balance between low hiring and low firing breaking towards more firings by end CY25. So, we continue to look forward to a front-loaded rate cuts cycle of 4 cuts of 25 bps each in the next 4 meetings. In RoW data, we have Germany's factory orders and industrial production data due this week. Chinese aggregate financing data might have slowed in Sep while Japanese labor cash earnings also eased in August. RBNZ in it's monetary policy meeting on Wednesday is likely to cut rates by 25 bps to 2.75% but risk is skewed towards a bolder 50 bps cut in light of the recent weak Q2 GDP data.