Week of OCTOBER 7TH

Last week saw markets respond to more hawkish than expected speeches from the Federal Reserve and remained steady in anticipation of the NFP.

The coming week is busier with US CPI, Fed minutes and UK GDP figures, as well as the start of the Q3 earnings season.​

Week in Review

Last week, monetary policy and international politics were key focus areas for investors. In policy, the Fed Chair's speech indicated that interest rate cuts may not continue as aggressively as in September, contrasting with market expectations of at least one more 50 basis point cut before the end of the year. Despite the remarks aligned with prior statements, perceptions of future easing were dialed back after the comments.

Japan's ruling party elected a new leader to replace Prime Minister Fumio Kishida. Singeru Ishiba was selected to take over the role, with his formal appointment and promise of upcoming general elections "soon".

Markets were concerned about the potential impact of a dockworkers' strike in the US, but an agreement was reached before the end of the week.

The OPEC+ meeting on Thursday did not change production quotas, as expected, but it confirmed that the committee is working on a new schedule for compensation cuts.

On the geopolitical front, tensions rose again in the Middle East. Israel launched a ground operation into Lebanon aimed at destroying Hezbollah missile sites. Meanwhile, Iran carried out further missile attacks on Israel, though without causing injuries. Israel, in turn, threatened further retaliation, possibly targeting Iran's oil infrastructure or nuclear facilities, a move discussed with US President Joe Biden.

Biggest Market Movers

• Crude oil rose over 8% towards $75 per barrel on tensions in the Middle East
• The US index left behind support at 100.00 after adding 1.50% on safe-haven flows
• Cable plunged 1.60% to 1.31 on dovish comments from BOE Gov Bailey after PMIs showed continued price pressures.
• Euro trended lower through the week after flash CPI fell to 1.8% as expected, below the ECB's target of 2.0%.

Top Events in the Week Ahead

At the start of the week, attention will likely return to Asia as China emerges from its week-long holiday and traders will be able to assess the longer-term impact of economic stimulus measures.

In policy, the sole expected interest rate decision is from the RBNZ, which is forecast to begin cutting rates in response to a slowing domestic economy. After reversing towards 0.62, support at 0.61 comes back in focus while NZDUSD trades below 0.63.

The key event will be the release of US inflation figures on Thursday.

Focus on CPI, Minutes

Headline inflation is forecast to tick back to 2.3% from 2.5% in the US, while core inflation is forecast to continue its gradual decline to 3.1% from 3.2% prior. After three weeks of consecutive gains, gold could slide further from record highs towards below the $2600 handle if inflation comes in higher than expected. On the flip side, it could rise to $2750 per ounce due to price pressures in inflation or demand amid rising tensions.

Central banks will publish the minutes of their latest policy meetings held in September. Given the uncertainty around further easing later this month, the ECB minutes on Thursday could attract significant interest as investors wonder about divisions between more restrictive and accommodative positions. EURUSD is poised to test 1.10, with further drops toward 1.095 depending on how investors interpret minutes. Wednesday's FOMC meeting minutes will also be closely watched for more details on how much weight is given to the labour market versus slowing inflation. The RBA will also release meeting minutes, in which the policy was kept unchanged. Aussie has turned shy of the 200-week MA of 0.6960, leaving the door open to 0.68.

UK Economy in the Crosshairs

Before Friday's market opens, the UK will report a batch of key economic indicators, with monthly GDP figures as the main focus. The British economy is expected to maintain signs of growth despite recent leading indicators showing a loss of optimism in the business sector. Investors will likely look to see if the prospect of higher taxes and interest rates is starting to weigh on growth. The pound could come under pressure and test the 1.30 support unless bulls reclaim the 1.33 handle.

Other Events and Earnings

Data for German factory orders and UK house prices according to the Halifax Index will be released on Monday. On Tuesday, figures on business confidence in Australia and international trade in Canada will be released. Germany's foreign trade balance is due on Wednesday. Japanese foreign investment is forecast for Thursday. Canada's labour market report is scheduled for Friday.

Few company announcements are expected this week ahead of the unofficial start of the final quarterly earnings season on Friday. Some earnings include Pepsico, Infosys, Delta Airlines, Domino's, JPMorgan, Wells Fargo, Bank of New York and Fastenal.​