Week of SEPTEMBER 2nd

The week ended with inflation data from Europe and the United States offering insight into upcoming monetary policy decisions, with Flash Eurozone for June and the US PCE released.

Looking ahead to next week, the NFP on Friday is expected to shake the markets, but other key releases earlier in the week, such as the US trade balance, BOC and final PMIs may also impact certain assets.

The Week in Review

Global markets traded cautiously higher in the first half of the week. US Q2 GDP was revised upwards due to stronger personal consumption and price inflation, contradicting the narrative that an economic slowdown is influencing Federal Reserve policy expectations. Economic indicators such as durable goods orders, initial jobless claims, and consumer confidence also beat forecasts. The yield curve moved closer to inversion and the DXY reclaimed 101 after retesting the 200-week MA.

During the week, some FOMC members, including Raphael Bostic, provided a more restrictive monetary policy view, stating that interest rate cuts may soon be needed pending upcoming employment and inflation data.

Softer-than-expected German CPI preceded similar Eurozone figures, with the largest Eurozone economy reporting August CPI growth of 1.9% versus the 2.1% forecast. French inflation was higher than anticipated but concentrated in hospitality, reflecting demand for the Paris Olympics. The latest CPI figures showed a headline rate of 2.2%, matching forecasts and representing a slowdown from the previous month's figure of 2.6%. The reduction was largely attributable to the base effects of higher energy prices pushing inflation up a year ago. Underlying core inflation, which excludes volatile items such as food and energy, held steady at the forecast rate of 2.8%.​ Also in Europe, German GfK consumer confidence weakened to -22 from -18.6 against expectations of a recovery to -17.9. EURUSD formed a local top at 1.12 for now until the 200-week MA around 1.1080 provides the next signals.

The markets were anticipating Nvidia's quarterly earnings results, which would provide insight into how the artificial intelligence sector performs and broader investor risk tolerance. However, sentiment declined after the company revealed potential delays in chip production.

Australian inflation came in at 3.5% rather than the 3.6% expected, down from 3.8% prior, supporting an interest rate cut by the RBA. The country's capital expenditure unexpectedly turned negative, suffering the largest decline in three years. New Zealand ANZ's August business confidence surged to a decade high on potential stimulus from a pending RBNZ reduction. Kiwi marked a 5-week winning streak. Japanese Tokyo consumer prices exceeded forecasts, while unemployment peaked at 2.7% versus the 2.5% projection.

In geopolitics, UK Prime Minister Keir Starmer met German Chancellor Olaf Scholz, aiming to restart an EU cooperation agreement. The week began with Middle East concerns as Israel and Hezbollah in Lebanon exchanged bombs and rockets over the weekend.​

Biggest Market Movers

• The euro fell over 1% vs. the dollar following soft inflation prints across the region, losing 1.11 as sentiment around a September ECB rate cut improved.
• Kiwi rose over 1% against the Japanese yen and 0.5% versus the Aussie in a single day on Thursday following positive economic data.
• Oil prices experienced volatility, initially climbing earlier in the week before reversing despite reduced output from Libya as concerns over weaker growth in the US appeared to outweigh supply issues.
• The Stoxx600 reached a new peak on Friday after softer inflation, indicating that the ECB could maintain its current accommodative monetary policy stance.​

Top Events in the Week Ahead

The week will begin with a quiet start due to the US holiday on Monday. The focus will be on the latest US jobs numbers for August, released on Friday.

NFP on The Spotlight

The figures follow comments from Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium, suggesting the labour market had balanced. Analyst interpretation implied further significant easing in jobs numbers could increase the Fed's preference for easing to achieve full employment. However, a stronger-than-forecast payroll figure could reverse changes in interest rate expectations following July's results. Payrolls are anticipated lower at 100,000, with unemployment steady at 4.2%. A miss could set the stage for fresh records in the Dow Jones, leaving behind support at 41000.

Prior to this, US trade balance data for August will be reported. It is expected to narrow slightly as import growth slows against exports due to a weaker dollar and lower oil prices. Attention will also focus on mortgage applications following the Fed's announcement of rate cuts to see if lower rates filter to home buying.

BOC To Keep Easing

It is widely expected the BOC will cut rates again to 4.25% on Wednesday with a dovish statement. This would be the third consecutive cut, and further easing is forecast. Economists and futures markets price in two additional BOC reductions this year. Following four weeks in the red, USDCAD might bottom out if 1.35 captures enough demand, potentially heading towards 1.36.

PMIs and Global Outlook

Global PMI releases may set risk sentiment as investors remain nervous about the economic slowdown. Chinese manufacturing is anticipated to remain in contraction. German and French data are expected to confirm the sudden slowdown in Eurozone manufacturing reported previously. UK expansion is anticipated to continue, widening divergence with the ECB's outlook.​

Other Events and Earnings

Japan will report capital expenditure figures for the month on Monday. On Tuesday, Switzerland will release inflation and GDP numbers. Australia will publish its GDP data for the quarter on Wednesday. German factory orders for the month are scheduled for Thursday. The UK's Halifax house price index and the final GDP reading for the second quarter in the Eurozone are expected on Friday.

Few company earnings announcements are planned for the coming week, with only a few notable businesses such as Copart, Hewlett Packard, Dollar Tree, Broadcom and DS Smith updating investors on their latest financial results.