Welcome back, U.S. economic data

The resumption of federal economic data releases will provide key signposts ahead of the December FOMC rate decision amid recent hawkish market repricing. The schedule of delayed data releases is still taking shape, but the September employment report — set for release on Thursday — is the first major data point to be rescheduled. In the absence of official numbers, Fed funds futures repriced aggressively. Markets now assign 50-50 odds to a 25 basis points December rate cut versus a full cut priced in just a month ago.

Thursday’s employment report matters, but it represents old news. Investors leaned heavily on ADP’s monthly release and weekly report during the shutdown, which showed a 29,000 private payroll decline in September, a 42,000 rebound in October,¹ and a decline of 2,500 per week in the four weeks ending November 1. The October employment report — originally due November 7 — has not yet been rescheduled. White House National Economic Council Director Kevin Hassett said the report will contain an update on nonfarm payrolls but not the unemployment rate. 

Guidance from Fed officials about the path for monetary policy centers around the perceived risks to the labor market versus price stability. These two Fed mandates are seen to conflict with inflation above the 2% target, while the labor market is showing signs of weakening. The September consumer price index (CPI) report was published during the shutdown (as the data was needed for Cost-of-Living Adjustments for Social Security), but the revised date for the October CPI has not yet been published. 

Other important economic reports to be rescheduled include the advance release of third-quarter GDP, and income, spending and PCE prices data for September and October. The Fed’s communication window closes on November 29, raising the stakes for every data point between now and then. 

Bottom line: Given the Fed’s aversion to hawkish market surprises, the FOMC will likely deliver a rate cut if upcoming data reports indicate further weakness. However, a message of caution with respect to further policy easing has grown louder in recent weeks. This modestly hawkish shift in rhetoric aligns with the market's reduced pricing of 50% chance for a December cut and the move higher in longer-end yields since the October meeting. We remain underweight duration to guard against additional moves higher in longer-term rates, and we remain negative on adding risk in rate-sensitive equities for now.

Citi's Global Economic Data Change Index turned positive in November and sits +2.7 standard deviations above its long-run mean, while our Global Economic Surprise Index sits at its highest level since April 2024. Data across G10² economies have strengthened for three consecutive months—a notable shift. Trade dynamics and geopolitics will continue to inject volatility, but the underlying recovery from the 2022-23 contraction appears intact.

Alternative indicators inside the U.S. remain resilient despite the government data blackout. We remain fully invested in equities due to the steady improvement in global growth, despite focusing on the K-shaped divergences across markets, economic contributors, and consumers. Dovish monetary settings relative to underlying economic data also reinforce this stance. However, central banks may increasingly struggle to balance easier policy with inflation that runs above target across most developed markets. As mentioned above, this creates ongoing risks for rate-sensitive segments, especially small caps and unprofitable tech.

Bottom line: Global growth momentum has strengthened over the past three months, supported by easier monetary policy relative to economic conditions. We see room for continued cyclical upside and measured risk-taking – focusing on high-quality, fundamentally strong equity exposures. 

We remain optimistic about the long-term outlook for Chinese equities as the country's structural investment themes continue to outweigh softer cyclical data. The focus on innovation to accelerate the digital and intelligent transformation of services is top of mind following communications from the Fourth Plenum. We see the focus on applying AI across the "real economy" as a potential productivity boost that may reshape industries, assist with scaling, and redefine profitability.  

Notably, Morgan Stanley Capital International (MSCI) China’s sector composition looks materially different from a decade ago. The index shifted from “old economy” sectors toward asset-light, technology-driven business models. For example, the technology sector’s weighting nearly doubled—from 13.1% in 2015 to 25.0% today. Bottom-up earnings trends are also improving in critical sectors; three-month rolling earnings-revision ratios continue to rise across Information Technology, Communication Services, and Financials.

Historically, volatile economic growth, limited fiscal support, and government intervention in profitable industries made the global investment community wary of Chinese equity exposure. Today, emerging market funds remain underweight China and present a potential source for follow-on investment if China’s strategic plans come to fruition. There is now growing acknowledgement that the largest components of the Chinese markets have both strong secular tailwinds (AI and other tech advancements) and government policy support. Despite this shift, most global portfolios have not meaningfully increased their China exposure. Still, interest continues to build, reflected in nearly $50bn USD of inflows to China-focused emerging market equity funds year-to-date.

Bottom line: The macro headwinds for Chinese equities will likely persist in the near-term. However, we believe positive structural forces—AI penetration, technology leadership, and targeted policy support—reinforce a strategic, longer-term allocation to the region.