Week of September 25

The "higher-for-longer" narrative prevailed early in the week with yields and oil prices hitting fresh highs despite the risks of a government shutdown and expanded strikes rising. Still, markets reversed past mid-week as investors looked to secure profits ahead of key inflation data on Friday. 

Top Events in Review

Fed's Neel Kashkari and JPM's Jamie Dimon received some spotlight last week after saying they expected the Fed to keep on hiking for longer, with the latter warning of 7% rates in an interview with the Times of India. Rising consents send investors looking for cover in US yields, sending the 10-year to 16-year high and the DXY to 106.75 before recoiling below 106. US's GDP growth was relatively mixed, with upward revisions in growth somewhat offset by a fall in price.

In Europe, the week started off with pain following Ifo and Gfk readings from Germany and Euro Area Manufacturing, sending the EUR/USD to a 9-month. Inflation data came in broadly lower than expected, fueling fears of an ECB hiking mistake. UK Services also disappointed, with private employment weighing on the pound's fallout to 1.21. According to Friday's revised GDP data, at least the UK survived falling into recession.

The risk of a BOJ intervention rose mid-week after officials shifted focus to the USD/JPY rate reaching 150, despite Kazuo Ueda's contradicting remarks earlier in the week.

The PBOC vowed to offer a helping hand to support the economic recovery in China as Evergrande missed yet another bond payment, had trading suspended, and one of its founders was detained by the police. The banks said they might cut the reserve requirement ratio (RRR)  and rate if deemed necessary as CHina's property market continues to suffer.

The oil markets soared to over 1-year highs of $93.80 a barrel following a boost from API and EIA's draws and a rise in SPR stockpiles, with a spike to $95 stopped by rumours of Saudi Arabia increasing supply to the US.

Biggest Market Movers

Hawkish rhetoric and rising yields sent gold plunging to a March low, down 3.50% through the week, with attempts at tapping the $1900 handle looking grim. The DXY rose on the same grounds, with ten weeks of raises increasing the potential of exhaustion to 106.70.

WTI soared nearly 6% after inventory drops instigated supply shortage fears but ended the week lower on rumours that crude production may increase.

Top Events in the Week Ahead

US Jobs Expected Below Average for 4th Month in Raw

The US economy added 187k jobs in August, falling below the 200k threshold for the third consecutive month. Expectations for September are 150k, with economists seeing jobs suppressed but unemployment stable. Wages will receive more attention as recent rhetoric of rising inflation will weigh on market sentiment when forecasts reveal a drop from 0.3% to 0.2% on the short end of the stick and an even more substantial one on the long 1-year end from 4.3% to 4.1%.

The US will also report on their ISM Manufacturing and Services numbers, with a drop during Manufacturing contraction weighing on risk and projections for improved Services acting oppositely.

Gold's price will remain under pressure under $1900 per ounce and will depend on how the dollar fares following the ISM data for the biggest of the week until the Nonfarm payrolls offer more clarity. Other levels to watch are $1915 and $1885, and $1845 and $1830.

RBA Expected to Hold Despite Rise in Inflation

The RBA is expected to keep current rates unchanged in its October policy meeting, with the new Governor, Michele Bullock, saying she is considering the latest inflation and retail developments. Some analysts believe that the RBA is comfortable with its stance as the rise in inflation may be considered at odds with the slower pace in consumer spending seen from retail sales, while others see risks tilting to the upside.  

After putting in an incredible 2-day session close to the end of last week, AUDUSD has next resistance above 0.65 at 0.6575. Conversely, support lies at 0.6413, and below there, albeit unlikely, the swing low of 0.6330 registered last Wednesday - a Nov low.

EU and UK PMIs to Confirm or Refute Poor Readings

After the surprise rise in German Manufacturing in September, investors will want to confirm the trend despite still facing contraction. The Euro Area data continued to wane, but input costs decreased while output prices dropped more. If the PMIs continue softening, only a rise in Retail Sales could support sentiment in the euro. Retail Sales are expected to slide into contraction, though, from 0.2% to -0.2%, with a read at or above zero seen as a positive outcome. EUR/USD needs to get through $1.0634 for further gains towards $1.07, with supports at $1.06 and $1.0535 in focus.

UK's numbers may be more critical despite the UK avoiding recession last Friday. Manufacturing is expected to rise from 43 to 44.2, and Services to ease from 49.5 to 47.2 on an expectation of 49.3. If the numbers confirm contributions to reduced employment and weakened business sentiment, the pound might accelerate past $1.23 and off to $1.24, especially if Services receive an upward revision. Otherwise, the risk of reversing back towards $1.20 may rise.

Other Events and Earnings

Monday has the UK's Housing Prices and Fed Powell's p[participation in a workers' roundtable. Tuesday sees the JOLTS report and API weekly crude stockpiles. For Wednesday, the focus will shift to US PMIs, the ADP and EIA reports, RBNZ's rate decision, Lagarde's Speech at a Frankfurt Conference and OPEC's JMMC meeting. Thursday welcomes the Jobless Claims ahead of the NFP and US Trade Balance. Friday will see the UK Halifax House Price Index, German Factory Orders and Canada's jobs report. 

Another week of light corporate calendar, which includes the names of Constellation Brands, Tesco PLC, Greggs, Levi Strauss and Tilray.