Week of SEPTEMBER 23RD

Last week, the Federal Reserve approved a substantial interest rate cut, whereas the BOE and BOJ kept rates unchanged.

This week features fewer major events with attention to inflation figures. Preliminary data due from the EU and the US PCE will be in focus, with the RBA forecast to leave monetary policy unaltered in the central banking space.​

Week in Review

Central banks were the main focus this week, as over half a dozen made interest rate decisions. Trading was muted in the first few days before the Fed's decision, and several Asian countries were also closed for holidays.

The Fed cut rates by 50 basis points as widely expected. Chair Jerome Powell tried to reassure markets that the large move was not due to being behind the curve but markets still ended lower that day. The dot plot showing members' rate expectations indicated two more cuts this year and four next year, a steeper reduction than before. Positive data emerged as the US Empire State manufacturing index rebounded to its highest since early 2022, led by surging new orders.

The BOE kept rates unchanged as anticipated, with an 8-1 vote supporting the hold. Governor Andrew Bailey reiterated that rates would fall gradually as service inflation remained high. The BOJ also kept rates unchanged as expected, with a short statement removing references to future hikes but emphasising uncertainty.

The week began negatively for the Eurozone after Germany's ZEW survey fell sharply to its lowest since the pandemic. ECB speakers suggested an October rate cut was unlikely.

Geopolitical tensions grew as Israel apparently attacked Hezbollah members, leading to threats of retaliation, with the defence minister saying the focus had shifted north. The EU Commission President unexpectedly made major changes to the Commission's structure. Reports stated the US presidential candidate was unharmed after a second assassination attempt over the weekend.​

Biggest Market Movers

• Gold began the week at a new record high and closed over 1% higher due to expectations that the US Fed would adopt a looser policy stance.
• USDJPY trended 2.20% higher following weaker-than-anticipated US economic data and the Fed's cut on a less hawkish BOJ.
• Crude generally over 3% due to increasing geopolitical tensions and forecasts of higher demand stimulated by accommodative policy decisions.
• The S&P 500 reached a new peak in the aftermath of the FOMC's decision., closing the week near 3% higher.

Top Events in the Week Ahead

Last week saw significant monetary policy events, but this week is relatively quiet.

EU and US Inflation in Focus

The focus will be on Friday's release of French flash CPI figures and the US PCE price index. Following the Fed's 50 basis point interest rate cut and projections of further reductions this year, the impact of August's inflation data may be dampened. The Fed's preferred measure, Core PCE, is expected to remain at 2.6%. Meanwhile, French CPI is forecast to return to the 2.0% target from 1.8% previously, giving markets food for thought ahead of inflation data for the whole Eurozone later. Nevertheless, markets continue to price in a little chance of an interest rate at the next ECB meeting.​ EURUSD could continue higher if it clears the 1.12 handle unless rhetoric around the ECB's October cut changes, weighing on the pair and opening the door to 1.1070 - the 200-week moving average.

RBA to Hold Rates Unchanged

The RBA will meet on Tuesday. Most analysts expect interest rates to remain unchanged, given the ongoing high inflation. However, the recent large Fed interest rate cut may put downward pressure on Australian rates and allow the Bank to remove language about potential future rate hikes. Markets predict rates will stay the same for the rest of 2024, with the first cut likely in February 2025. Technically, 0.69 remains a key resistance, with support at 0.67.

Flash PMIs and Growth Concerns

There is renewed focus on the global economic growth outlook. PMI data for manufacturing industries have been moving markets, especially as production in Europe is expected to underperform and weigh on overall growth in the region. Flash German PMIs for September are due on Monday and are expected to show a further contraction in manufacturing. Figures from the UK will also be released. They are anticipated to display some softening in manufacturing but remain in expansion.​

Other Events & Earnings

On Monday, New Zealand will release trade data while the US will publish the Chicago Fed national activity index. Tuesday will see the release of Germany's Ifo business climate index and the US CB consumer confidence figure. Australia's CPI is scheduled for Wednesday. Thursday data includes Germany's GfK consumer confidence survey and the final reading of US Q2 GDP. Friday will see Tokyo's CPI and Canada's GDP figures published.

In terms of corporate announcements, only a few companies are updating investors this week such as AutoZone, Micron, Cintas, Costco and Accenture.​