Week of SEPTEMBER 30TH

This past week, news from the US dominated headlines as key events included the PCE price index, remarks from Federal Reserve Chair Jerome Powell and positive GDP and Jobless data.

In the coming week, PMIs early on will probably attract renewed focus as well as Eurozone inflation later in the week ahead of the important US nonfarm payrolls (NFP) report set for Friday.​

Week in Review

The week began positively as major Chinese regulatory bodies announced several stimulus measures, including reducing the banks' reserve requirement ratio (RRR) by 0.5 percentage points "soon", followed by additional cuts of 0.25-0.5 points later in the year. The Politburo endorsed the move later in the week, causing Asian stock markets to soar with substantial gains for Chinese property developers. European indices also spiked to record highs on positive sentiment from China, with Germany's DAX finally taking the 19000 handle out.

The US Richmond Fed manufacturing index fell to its lowest level since mid-pandemic and well below forecast, sparking concerns about the world's largest economy early in the week. However, US durable goods orders were unchanged despite the expected decline of 2.7% and initial jobless claims reached their lowest since late May, boosting sentiment along with confirmed Q2 GDP growth and upwardly revised Q1. As Fed Chair Powell's speech ultimately disappointed with no comments on monetary policy and took no questions, S&P 500 and Dow Jones indices marked new records.

In Europe, Germany's Ifo business climate indicator fell below expectations after flash PMIs continued sliding into contraction territory, confirming the country had entered a recession with no anticipated quick rebound.

On other central bank updates, BOC Governor Tiff Macklem stated further interest rate cuts were reasonable to expect, and the RBA maintained its interest rates. USDCAD fell to a 9-month low of 1.3422 before recoiling some losses following comments, whereas the Aussie spiked to a 19-month high of 0.69 against the dollar.

In geopolitics, negotiators announced a tentative breakthrough on a ceasefire between Israel and Lebanon, although Hezbollah was not party to the discussions.​

Biggest Market Movers

• Oil prices fell over 5% following reports that Saudi Arabia would end its voluntary production cuts and abandon its unofficial goal of reaching $100 per barrel for oil.
• Stock markets across Asia rose following China's economic stimulus measures, with Japan's Nikkei index posting its strongest gains over two months to 40000 before erasing them all.
• The currencies of commodity-exporting nations strengthened in response to China's stimulus announcement, with the Aussie and Kiwi reaching their highest points against the US dollar so far in 2022.
• Persistent declines in yields on US government bonds supported gold's ascent to a new all-time peak of $2690 per ounce.​

Top Events in the Week Ahead

Early data from the US last week suggested some weaknesses in the strong economy narrative, so markets will likely focus on the two major data releases at the start and end of this week: PMI figures from around the world and payroll data from the US.

US Labour Data Critical After Jobless Claims

The jobs market has come under renewed scrutiny as the Federal Reserve begins its easing measures and investors seek indications about the expected softness or severity of the economic landing, especially after the upbeat jobless claims report last week. Currently, markets seek ongoing below-average job creation to justify lower interest rates. The consensus is that the US will report 130,000 new jobs in September, down from 142,000 in August, with the unemployment rate expected to tick up slightly to 4.3% from the previous 4.2%.​ A disappointing report could lead EURUSD towards 1.13, while an upbeat print may let the pair slide towards 1.11, provided the inflation figures earlier in the week don't.

Growth in Focus with PMIs

Flash PMI surveys from major countries over a week ago caused concerns. They indicated that the economy in Europe, especially, was slowing faster than anticipated. As such, China's economic survey results will be closely watched. The PMI in China is expected to return to growth, even though most of the information for the survey was collected before China's central bank announced new economic measures. Germany's manufacturing PMI is now forecast to fall further into decline, while the UK is expected to remain in growth but lose momentum as businesses face higher political uncertainty. This may impact cable to the downside after it reached an over 30-month high above 1.3430, bringing in focus 1.33. Investors also expect the US manufacturing PMI to stay in contraction but still improve slightly from the previous month.​

Expected Slowing of Inflation in Europe

Inflation in Germany is predicted to decrease slightly to an annual rate of 2.1% from the previous level of 2.2%. This matches forecasts for inflation across the whole Eurozone as economic expansion slows. However, underlying inflation is anticipated to remain at around 2.7%, comparable with 2.8% previously. This steady core inflation could exacerbate tensions within the ECB regarding ongoing price rises against a backdrop of weaker growth indicators.​

Other Events and Earnings

Data on German retail sales figures and UK consumer lending will be released on Monday. Tuesday will provide figures on consumer sentiment in Japan. The large manufacturers index for Japan's Tankan survey is scheduled for Wednesday. Australia's trade balance and Swiss inflation are expected on Thursday. And Friday will see Canada's trade balance data.

The corporate earnings calendar this week is relatively light, with cruise operator Carnival, sportswear maker Nike, payroll and HR company Paychex, food company ConAgra and beverage company Constellation Brands reporting their latest results.​