September 30, 2024

“This week is packed with data. It is jobs week in the US, where a range of labour market data could be the difference between a 25bp and a 50bp rate cut in November. In the eurozone, inflation tomorrow will be critical, with data from France and Spain last Friday boosting the likelihood that the ECB cuts again in October.”

Sam Cornford – Head of Trading

USD

There are several themes pulling markets in different directions this week, and the net result is a cooler US dollar. The first comes from the Middle East, where Israel’s campaign in Lebanon is fuelling fears of a wider war in the region. That is providing a touch of safe haven demand to offset the risk boost from the pickup in state intervention in China. Last week’s slew of announcements for monetary and fiscal stimulus measures have triggered a remarkable rally in Asian risk assets, and the two G10 currencies most associated with China – AUD and NZD – have both hit 2024 highs. Meanwhile, a surprise win for new Japanese PM Ishiba has had the opposite effect on Japanese stocks, but JPY surged nearly 2% on Friday owing to his historical preference for tighter monetary conditions. Friday’s core PCE print landed slightly lower than expected at 0.1% m/m to broadly confirm that Powell had not made a mistake with the 50bp cut earlier in the month, although the boost to bets on another one in November was short-lived.

It is jobs week, so prepare for some bigger USD moves. Remember that the Federal Reserve’s decisions are now laser-focused on cutting rates at a healthy enough pace to prevent an uncontrollable deterioration in the labour market. That means heightened sensitivity to what is already some of the biggest data of the month. Chair Powell speaks today, we get JOLTS job openings tomorrow, unemployment claims and the ISM services PMI arrive on Thursday, and Friday’s non-farm payrolls could ultimately be the decider for whether November is a 25bp or 50bp move.

GBP

The UK calendar is relatively quiet this week, and that may well be a perfect environment for sterling. The narrative of the Bank of England as the hawkish outlier in the G10 has remained relatively static for a while now, and instead it has quietly piggybacked on the Fed’s dovish turn and the miserable macro data out of the eurozone to keep climbing to new heights. Q2 GDP growth was revised down from 0.6% to 0.5% this morning and we also get some mortgage and lending data today. The BoE’s Greene speaks too this evening, although there is likely little else to be added to her call for ‘steady’ rate cuts from last week.

EUR

It is a tough macro environment for the euro right now, but so far it has been unexplainably resilient. Some point to quarter-end portfolio rebalancing, and the improving economic outlook in China has undoubtedly had an impact, but there is no clear answer. Friday’s soft inflation prints for France (1.5%) and Spain (1.7%) have added to the case for a third rate cut in October, which media reports suggest is being pressed for by Governing Council doves who are concerned the worsening activity outlook and cooling inflation. The German figure is due this afternoon and the consensus here is for another sub-2% print at 1.8%. The eurozone-wide figure then follows tomorrow morning, where the survey is now pointing to a 1.8% headline and a 2.7% core print.

Markets

Last week’s economic support announcements from China and a surprise new PM in China have generated some big moves in Asian markets. While China’s CSI 300 is up another 6.9% after rising 16% last week, Japan’s Nikkei slumped 4.8% just in the overnight session as investors grew concerned for PM Ishiba’s past distaste for lower interest rates. The benign risk environment helped the Euro Stoxx 600 to jump 2.6% last week, and in the US the S&P 500’s quiet week looks set to follow through into the opening this afternoon.

Main Economic Events (All Times CET)

3:30am: Chinese Manufacturing & Non-Manufacturing PMIs
10:30am: UK Mortgage Approvals & Consumer Lending
2:00pm: German CPI
3:00pm: ECB President Lagarde speaks
7:00pm: Fed Chair Powell speaks

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