On Monday, the UK will release final GDP data for the fourth quarter, while Switzerland will publish the KOF economic gauge. In the United States, Federal Reserve Chairman Jerome Powell will participate in a discussion titled “A View from the Fed” at the National Association for Business Economics’ annual meeting in Nashville. Although audience questions are expected, this event is unlikely to create significant market volatility. In Canada, Monday will be an official holiday in celebration of National Truth and Reconciliation Day.
On Tuesday, Japan will release the unemployment rate, along with the Bank of Japan’s sentiment summary and the Tankan Manufacturing Index. Australia will announce monthly retail sales, and for the Eurozone, CPI data will be published. In the US, key releases include ISM Manufacturing PMI, JOLTS Jobs and ISM Manufacturing Prices.
Wednesday comes the OPEC-JMMC meeting, and in the US, the ADP Non-Farm Payrolls Change report will be released.
On Thursday, Switzerland will publish inflation data, while the US will release unemployment claims numbers and the ISM Services PMI.
The biggest event in the US on Friday will be the release of key labor market data, including monthly average hourly earnings, non-farm employment change and the unemployment rate.
Several members of the Federal Open Market Committee are expected to make statements throughout the week.
The consensus for the Eurozone headline CPI on an annual basis is 1.9% and for the core CPI it is 2.8%. However, services inflation, which is expected to reach 4.1%, remains a challenge for the ECB.
This week’s CPI data will be important for the bank’s monetary policy decision next month. The European Central Bank cut interest rates by 25 basis points in September, and is likely to cut rates again in October. Analysts note that due to weaker-than-expected PMI data, the bank may opt for a larger cut in the future, but first it wants to ensure there are no lingering inflationary pressures. If this week’s inflation data is in line with or slightly below expectations, the ECB is expected to proceed with another 25 basis points of interest rate cuts next month.
In the US, the consensus ISM Manufacturing PMI stands at 47.6, up from the previous 47.2, although still in contraction territory.
The outlook is not very promising, as the manufacturing and services indexes are now on a downward trend, with the manufacturing PMI contracting for 21 months. This indicates that economic activity is moderating as the third quarter approaches its end.
In Switzerland, the monthly CPI consensus was -0.1% versus 0.0% previously. At last week’s meeting, the Swiss Central Bank cut interest rates by 25 basis points to 1.00% citing lower inflationary pressure as a key factor behind the recent strength of the Swiss franc.
The bank also lowered its inflation forecasts, indicating that it expects inflation to remain within a price stability band over the entire forecast horizon. In addition, they stated that future interest rate cuts are possible over the coming quarters to ensure price stability in the medium term.
The consensus US Services Purchasing Managers’ Index (ISM) rose to 51.6 from the previous 51.5. There was also a slight improvement in the headline index for August, but it is unclear how long this will last, as the sector is under pressure due to rising interest rates negatively impacting sales.
As the Federal Reserve begins to lower interest rates, analysts from Wells Fargo believe companies will hold back from making large capital investments or hiring until they see the results of the presidential election in November.
In the United States, the consensus on average hourly earnings per month represents an increase of 0.3% versus the previous 0.4%. The non-farm payrolls rate is expected to rise to 144K from 142K, while the unemployment rate is likely to remain unchanged at 4.2%.
The Fed is monitoring the unemployment rate closely, and although it recently cut interest rates by 50 basis points, it will take some time for the effects to be felt. Analysts from ING point out that if the unemployment rate rises to 4.3% and salary growth comes in below 75K, the odds of a further 50 basis point rate cut will increase.
It is clear that the labor market is slowing, and the Fed is concerned about the possibility of further deterioration, which is why it may respond aggressively if necessary. Wells Fargo analysts expect the pace of hiring to continue to slow in the coming months.
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