Week Ahead: Markets and volatility remain calm

It’s a much quieter week on the regular calendar, after the first Friday of this month didn’t mean the release of the monthly US payrolls report. There is the chance we get the delayed jobs data if the government shutdown ends, but that is a big unknown at the moment. For what it’s worth Polymarket see a near 60% chance of the shutdown finishing on October 15 or later. Otherwise, last week’s labour market data painted a mixed picture, with job growth slowing mainly due to weaker supply growth and not indicating an urgent need for more demand stimulus. The ‘low hiring, low firing’ narrative appears to more or less be continuing.

Volatility remains low across different asset classes with measures of US bond market volatility dropping to the lowest level since end 2021. This has meant broader FX volatility has hit multi-month lows. The delay in big US data releases simply cements this, as it further postpones forming a clear view on the friction between sticky inflation and a softening labour market, the two sides of the FOMC mandate. In this environment, investors have made up their minds that the Fed will very likely cut rates twice more this year and probably another 50bp in 2026.

The ongoing AI rally has pushed equity markets to fresh record highs. Big headline news last week saw that OpenAI being given a valuation of close to $500bn in its latest funding round – compared to $300bn earlier this year. Meanwhile, Jeff Bezos, Amazon’s founder, recently hailed the AI boom as a ‘good’ kind of bubble, delivering lasting benefits for society, even if share prices collapse as dramatically as his ecommerce company did 25 years ago.  In the meantime, any ‘wall of worry’ that we mentioned last week is being looked through as investors position themselves into year-end and returns of 5%+.

Initial headlines in the week will focus on Japan and the victory of Takaichi in the LDP leadership election, which means she is poised to become the country’s first-ever female PM. This defied pre-vote polling so JGBs and the yen will see some initial volatility, as she has been a monetary and fiscal dove, and favoured a rise in government funding.

In Brief: major data releases of the week

Wednesday, 08 October 2025

– RBNZ Meeting: The bank is expected to cut rates by at least 25bps, which would lower the OCR to 2.75%. But markets see around a 40% chance of a bigger, half-point move. The June GDP print of -0.9% was way below the MPC’s forecast of -0.3%. The bias is expected to remain dovish.

– FOMC Minutes: The Fed cut rates by 25bps to 4.00-4.25% at this meeting, as expected. The median dot plot signalled two more rate cuts this year though the committee was split fairly evenly with nine predicting only one more this year. Growth and inflation projections were raised for 2026 with focus on downside employment risks. 

Thursday, 09 October 2025

– ECB Minutes: ECB policy is currently seen in a ‘good place’, according to President Lagarde. The data dependent, meeting-by-meeting approach was reiterated, and the push higher in recent inflation data, due to energy base effects, shouldn’t upset this.

Friday, 10 October 2025

-Canada Jobs: The August unemployment rate hit a nine-year peak, barring the pandemic years, while the economy shed 65,500 jobs largely in part-time work. The BoC noted a softer labour market at its recent meeting, with markets pricing in around a 60% chance of another 25bps rate cut at its meeting in late October.

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