Weekly Market Outlook (09-13 September)

Upcoming Events:

• Monday: China consumer price index.
• Tuesday: UK Labor Market Report, US NFIB Business Optimism Index.
• WednesdayUK GDP, US CPI.
• Thursday:Japan PPI, ECB Monetary Policy Decision, US PPI, US Unemployment Claims.
• Friday:New Zealand Manufacturing PMI, University of Michigan Consumer Confidence Index in the United States.

Monday

China’s CPI is expected to come in at 0.7% YoY versus 0.5% previously, while the monthly measure is expected at 0.5% versus 0.5% previously. Real interest rates in China remain very high, given the strong need for very low and even negative interest rates in such economic conditions. Chinese officials continue to promise more support, but have generally been very slow to do so.

Tuesday

The UK labour market report is expected to show 114,000 jobs added in the three months to July, compared with 97,000 in June, and the unemployment rate is expected to fall to 4.1% from 4.2% previously. Average earnings including bonuses are expected to rise to 4.1% from 4.5% previously, while average earnings excluding bonuses are expected to rise to 5.1% from 5.4% previously. The market is pricing in an 83% chance of no change at the next BoE meeting, and a total of 43 basis points of easing by the end of the year.

The NFIB Small Business Optimism Index in the US is expected to come in at 93.6 vs. 93.7 previously. It’s been a fairly empty week on the data front and the market is very growth-focused, so this release could be a market mover. As a reminder, the NFIB recently broke out of a range it’s been stuck in since 2022 and jumped to a new cycle high of 93.6.

Wednesday

The US CPI is expected to come in at 2.6% YoY vs. 2.9% previously, while the monthly measure is expected at 0.2% vs. 0.2% previously. The core CPI is expected at 3.2% YoY vs. 3.2% previously, while the monthly figure is expected at 0.2% vs. 0.2% previously.

The Fed is now focused on the labor market, and has even stated that upside surprises in inflation will not change its overall outlook. Thus, inflation reports are less important at this point, although I would say that a weak report would likely push expectations for a 50bp rate cut back by about 50%, as it would give the Fed a stronger case for a 50bp rate cut.

Thursday

The European Central Bank is expected to cut interest rates by 25 basis points to 3.50%. The cut has been strongly publicized since July. The market expects the central bank to cut rates by 25 basis points at each subsequent meeting until June 2025. While President Lagarde may not explicitly commit to two consecutive rate cuts in October, she is likely to keep such an option on the table “data-dependent.”

US unemployment claims remain one of the most important data to follow each week, as they are a more accurate indicator of the state of the labor market.

Initial claims remain within the 200K to 260K range that has been established since 2022, while continuing claims have been on a steady rise (although they have improved recently), indicating that layoffs are not accelerating and remain at low levels while hiring is more subdued.

Initial claims this week are expected to come in at 230,000 versus 227,000 previously, while continuing claims are expected to come in at 1,850,000 versus 1,838,000 previously.

Friday

The University of Michigan Consumer Confidence Index is expected to come in at 68.0 versus 67.9 previously. This indicator becomes more important at turning points in the business cycle, so it will be something the market will be watching given the current focus on growth.