EUROZONE DATA: Q3 Negotiated Wages Surprise To The Downside
ECB negotiated wages pulled back to 1.87% in Q3, well below the 2.45% consensus (which had a wide range of estimates ranging from 1.7-3.6%) and 4.01% prior. We had flagged downside risks to consensus in recent days. The reading may have lent some fresh support to EUR STIRs, but broader cross-asset trends look to be dominating price action this morning.
- The outturn is below the 2.1% implied by the ECB’s forward looking wage tracker with unsmoothed one-off payments. It’s possible that recent data on German/French negotiated wages will have had an impact on the downside surprise to consensus and the ECB’s tracker. The ECB's series points to a rebound back to 3% in Q4.
- Our preferred measure of wage pressures remains the ECB’s wage tracker excluding one-off payments and of course, compensation per employee in the national accounts. These point to a gradual cooling of wage pressures towards ~2.5% by the middle of next year.
- Yesterday, the preliminary estimate of Q3 Eurozone labour costs eased to 3.5% Y/Y (vs 3.6% prior, SWDA data). However, we caution that this series can be heavily revised after the full national accounts are released.
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STIR: SONIA / Euribor Z6 Spread Could Narrow Further On Weak UK PMIs
Previously noted downside risks to the SONIA / Euribor Dec '26 spread are being realised this morning, following the soft UK September labour market data. The spread is currently down 9.5 ticks on the session at 146bps, narrowing the gap to the August 1 cycle closing lows of 145bps.
- A weak set of UK October flash PMIs on Friday could promote further narrowing in the spread. With ~60bps of cumulative BOE cuts priced across the next 12 months, there is still scope for additional dovish repricing.
- Meanwhile, a weaker-than-expected round of Eurozone flash PMIs is likely to exert greater influence on the distribution of implied ECB cuts (i.e. pulling cuts forward to December and March), rather than overall terminal rate expectations.
- Narrowing in the Z6 spread has supported a 0.3% bounce in EURGBP FX today. Spot is currently hovering just above 0.8700. The next area of interest on the topside is 0.8725, the October 10 and 17 high.
UK FISCAL: Reeves looking to tax limited liability partners: Implications
- Stories out just after the close yesterday suggested that Chancellor Rachel Reeves was looking to impose a charge on limited liability partners in the Budget as she sees these as ways to easily avoid tax.
- Limited liability partnerships are used in particular by legal firms, GPs and accountancies. Because they are taxed as partnerships (similar to the self employed) they do not need to pay employers National Insurance Contributions (NICs) on the partners' earnings. As a reminder employers NICs were increased to 15% in April.
- The proposed plans could raise up to GBP2bln and would likely be popular with Labour's core voter base (taxing the wealthy).
- However, there could be adverse side effects. If this leads to GPs closing down or more senior GPs cutting back hours or retiring then access to front-line healthcare could be more restriced. This could lead to more pressure on A&E departments and one of UK's issue's is trying to reduce the proportion of those inactive in the labour market due to long-term sickness. This may be exacerbated if it makes it harder for people to get doctors appointments.
SNB: Schlegel Speaking On Economic Situation, SNB Monetary Policy
Little monetary policy signal in Schlegel's speech on the "Economic situation and monetary policy of the SNB" ahead of tomorrow's minutes.
- Paragraph potentially of note regarding tariff impact: "The announced but currently suspended US tariffs on certain pharmaceutical products could increase the downside risks somewhat."
- Full slides here (in German).
