Market Outlook for the Week of 30th September – 4th October

On Monday, the U.K. will release its final GDP q/q data, while Switzerland will publish the KOF economic barometer. In the U.S., Fed Chair Jerome Powell will participate in a discussion titled “A View from the Federal Reserve Board” at the National Association for Business Economics Annual Meeting in Nashville. Although audience questions are expected, this event is unlikely to create significant market volatility. In Canada, Monday will be a bank holiday in observance of the National Day for Truth and Reconciliation.

On Tuesday, Japan will release its unemployment rate, along with the BoJ summary of opinions and the Tankan manufacturing index. Australia will report its retail sales m/m, and for the eurozone, the CPI data will be published. In the U.S., key releases include the ISM manufacturing PMI, JOLTS job openings and ISM manufacturing prices.

Wednesday brings the OPEC-JMMC meetings, and in the U.S., the ADP non-farm employment change will be released.

On Thursday, Switzerland will publish its inflation data, while the U.S. will release its unemployment claims figures and the ISM services PMI.

Friday’s highlight in the U.S. will be the release of key labor market data, including average hourly earnings m/m, non-farm employment change and the unemployment rate.

Throughout the week, several FOMC members are expected to deliver remarks.

The consensus for the eurozone headline CPI y/y is 1.9% and for the core CPI it’s 2.8%. However, the services inflation, which is expected at 4.1%, continues to pose a challenge for the ECB.

This week’s CPI data will be important for the Bank’s monetary policy decision next month. The ECB delivered a 25 bps rate cut in September, and it is likely to cut rates again in October. Analysts suggest that, due to weaker-than-expected PMI data, the Bank might opt for a larger cut in the future, but first wants to ensure there are no lingering inflationary pressures. If this week’s inflation data comes in line with or slightly below expectations, it is expected that the ECB will proceed with another 25 bps rate cut next month.

In the U.S., the consensus for the ISM manufacturing PMI is 47.6, up from the previous 47.2, though it remains in contractionary territory.

The outlook is not very promising, as both manufacturing and services indices are now on a downtrend, with the manufacturing PMI having been in contraction for 21 months. This suggests that economic activity is moderating as Q3 comes to a close.

In Switzerland, the consensus for the CPI m/m is -0.1% vs 0.0% prior. At last week’s meeting, the SNB delivered a 25 bps rate cut to 1.00% citing decreasing inflationary pressure as a key factor behind the recent strengthening of the CHF.

The Bank also lowered its inflation forecast, indicating that it expects inflation to remain within its price stability range over the entire forecast horizon. Additionally, they mentioned that future rate cuts are possible over the next quarters to ensure medium-term price stability.

The consensus for the U.S. ISM Services PMI is 51.6 up from the previous 51.5. There has also been a slight improvement in the headline index for August, but it’s unclear how long this will last, as the sector is under pressure due to high interest rates that negatively impact sales.

While the Fed has begun cutting rates, analysts from Wells Fargo believe companies will hold back from making significant capital investments or hiring until they see the results of the November presidential election.

In the U.S., the consensus for average hourly earnings m/m is an increase of 0.3% vs the previous 0.4%. Non-farm employment is expected to rise to 144K from 142K, while the unemployment rate is likely to remain unchanged at 4.2%.

The Fed is closely monitoring the unemployment rate and even though it recently delivered its first 50 bps rate cut, some time is needed for the effects to materialize. Analysts from ING suggest that if the unemployment rate rises to 4.3% and payroll growth comes in below 75K, the odds of another 50 bps rate cut will increase.

It is evident that the job market is cooling, and the Fed is concerned about a potential further deterioration, which is why they may respond aggressively if needed. Wells Fargo analysts expect the pace of hiring to continue to slow down in the months ahead.

Wish you a profitable trading week.

This article was written by Gina Constantin at www.forexlive.com.