Market Outlook for the Week of 02 – 06 October

Last week inflation data for the eurozone came in weaker than expected, giving a glimpse of hope that it will continue to drop in the near future. However, overall inflation remains elevated and the rising energy prices might exert additional pressure in the coming months. That said, the ECB is likely to keep rates on hold at the next meeting.

This week will start light with a bank holiday in Australia and Canada. On Monday in the U.S. the focus will be on the ISM Manufacturing PMI and ISM Manufacturing Prices.

Tuesday will bring the cash rate and the RBA Rate Statement in Australia, the CPI m/m data in Switzerland and JOLTS Job Openings in the U.S.

New Zealand will follow with the official cash rate announcement and the RBNZ Rate Statement on Wednesday. That same day, we’ll also have OPEC-JMMC meetings and the ADP Non-Farm Employment Change, Final Services PMI and ISM Services PMI prints in the U.S.

Thursday we’ll get the Unemployment Claims numbers in the U.S. followed by the Average Hourly Earnings m/m, Non-Farm Employment Change and the Unemployment rate on Friday. Canada will also publish its Employment Change and Unemployment Rate on Friday.

Some Fed members are expected to deliver their remarks over the week including Fed Chair Powell who will participate in a roundtable discussion with workers, small business owners and community leaders in York, Pennsylvania. Questions from the audience are expected and though these types of events don’t typically create market volatility, it’s worth keeping an eye on it.

The consensus for the U.S. ISM Manufacturing PMI is to rise slightly from 47.6 to 47.8, while the ISM Manufacturing Prices index is also expected to see a rise from 48.4 to 48.9. The manufacturing sector continues to be under pressure especially due to the rising interest rates. The ISM manufacturing index has been in contractionary territory for the last 10 months and this is not likely to change in the near future given that interest rates will remain elevated for some time.

Things are a bit more optimistic in the services sector as the index managed to remain in expansionary territory until now, but if the inflation remains high it could put pressure on the sector in the coming months as prices paid by industries increases and the consumer momentum weakens. The consensus for ISM Services PMI for September is to drop from 54.5 to 53.5.

In Australia the RBA is likely to maintain its current monetary policy unchanged at this week’s meeting. The Bank has kept rates on hold in recent months even if inflation is well above the desired target and it keeps a data dependent approach for the time being. The CPI data for August increased slightly to 5.2%, but economic data has not been strong enough to warrant a rate adjustment from the current 4.10% just yet according to Wells Fargo.

The RBNZ is also expected to keep the cash rate unchanged at 5.50%. The Bank signaled at previous meetings that a pause in the current tightening cycle is needed and that the rate is high enough to put pressure on inflation and constrain spending. Rate cuts are not expected anytime soon, as manufacturing and services sector PMIs softened and remain under the 50 level suggesting economic growth might see moderation.

In Canada the employment change data is expected to drop from 39.9K to 28.0K and the unemployment rate to rise from 5.5% to 5.6%. August experienced solid job growth and wage increases of 5.2% y/y, so the BoC might hike the rate again if the positive labor market trend continues.

For the U.S., the average hourly earnings m/m is expected to rise by 0.2% (previously 0.3%); the Non-Farm Employment Change to drop from 187K to 168K and the unemployment rate to decrease from 3.8% to 3.7%. The labor market has loosened in recent months and is expected to weaken further, but inflation is unlikely to reach the Fed’s target of 2% anytime soon, meaning the Bank will have to keep rates elevated for longer than anticipated.

This article was written by Gina Constantin.