Week ahead: US inflation, FOMC minutes eyed after blowout payrolls

All eyes will be on the release of the US Federal Reserve’s latest minutes next week, along with the consumer price index for September.

The FOMC minutes - due on Wednesday - will be of particular note after Friday’s non-payrolls report smashed past estimates, dashing any expectations of a potential 50 basis points rate cut by the Fed next month.

Data released earlier on Friday by the Labor Department showed that total non-farm payrolls rose by 254,000 from August, versus expectations for a 140,000 increase. The figure for August, meanwhile, was revised up to a 159,000 gain from 142,000.

The unemployment rate fell to 4.1% in September from 4.2% the month before. Economists were expecting it to be unchanged.

The data also showed that wage growth ticked up to 4% year-on-year from 3.9% in August. On a monthly basis, wages were up 0.4%, in line with August.

Paul Ashworth, chief North America economist at Capital Economics, said: "Looking at the labour market strength evident in September’s Employment Report, the real debate at the Fed should be about whether to loosen monetary policy at all. Any hopes of a 50bp cut are long gone.

"We continue to expect the Fed to take a more measured approach - cutting rates by 25bp at each meeting until the policy rate is down to between 3.00% and 3.25%."

Attention will also turn to the US consumer price index for September, which is scheduled for release on Thursday.

Danske Bank said it’s the most interesting data release due out next week.

"The release is unlikely to change the market perception that inflation is mostly a solved problem and not a hindrance for rate cuts and that the labour market is the more important factor to watch, but how sticky service inflation is could well affect the Fed's thinking about the pace of rate cuts," it said.

On the UK corporate front, Imperial Brands will release a pre-close trading update on Tuesday, while recruiter Hays will issue a first-quarter trading update on Friday.

Derren Nathan, head of equity research at Hargreaves Lansdown, said strong pricing in Imperial Brands’ first half more than offset the continued structural decline in tobacco volumes.

"With inflation easing, price rises may get harder to push though," he said. "In next week’s trading update, the market will find out if the Lambert and Butler manufacturer has managed to keep organic growth moving in the right direction.

"There’s also growing pressure for Next Generation Products (NGPs), including products like heated tobacco and vapes, to make a bigger contribution. Revenue in this segment grew by 16.8% in the first half, but it’s a tiny part of the picture. Management will be hoping that recent product launches and marketing initiatives will see that level accelerate.

"Imperial’s cash generation supports generous payouts to shareholders, who will be keen for a progress update on this year’s targeted returns of £2.4bn, as well as longer-term commitments to dividends and buybacks."

As far as Hays is concerned, UBS said it forecasts a first-quarter like-for-like decline of 15.6% y/y, after a 16% fall in the fourth quarter of 2024, "as hiring activity levels continue to deteriorate in an uncertain macro/geopolitical environment".

UBS noted that management has yet to provide guidance for the year ahead.

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