Weekly Market Outlook (23-27 September)

UPCOMING
EVENTS:

• Monday: Japan on Holiday, Australia/Eurozone/UK/US Flash
  PMIs.
• Tuesday: Japan Flash PMI, RBA Policy Decision, German IFO,
  US Consumer Confidence.
• Wednesday: Australia Monthly CPI.
• Thursday: SNB Policy Decision, US Durable Goods Orders,
  US Q2 Final GDP, US Jobless Claims.
• Friday: Tokyo CPI, Canada GDP, US PCE.

Monday

Monday will be the
Flash PMIs Day for many major economies with the Eurozone, UK and US PMIs being
the main highlights:

• Eurozone Manufacturing PMI: 45.6 expected vs. 45.8
  prior.
• Eurozone Services PMI: 52.1 expected vs. 52.9
  prior.
• UK Manufacturing PMI: 52.5 expected vs. 52.5
  prior.
• UK Services PMI: 53.5 expected vs. 53.7 prior.
• US Manufacturing PMI: 48.5 expected vs. 47.9
  prior.
• US Services PMI: 55.3 expected vs. 55.7 prior.

Tuesday

The RBA is
expected to keep the Cash Rate unchanged at 4.35%. There shouldn’t be
anything new as the central bank continues to maintain its hawkish stance amid
persistently high inflation. The market sees the first rate cut in February
2025 with a total of 101 bps of easing by the end of next year.

The US Consumer
Confidence is expected at 103.8 vs. 103.3 prior. The last report surprised to the upside. Dana M. Peterson, Chief
Economist at The Conference Board said: “Overall consumer confidence rose in
August but remained within the narrow range that has prevailed over the past
two years.”

“Consumers
continued to express mixed feelings in August. Compared to July, they were more
positive about business conditions, both current and future, but also more
concerned about the labour market.”

“Consumers’
assessments of the current labour situation, while still positive, continued to
weaken, and assessments of the labour market going forward were more
pessimistic. This likely reflects the recent increase in unemployment.
Consumers were also a bit less positive about future income.”

Wednesday

The Australian
Monthly CPI Y/Y is expected at 3.1% vs. 3.5% prior. RBA’s Governor Bullock
stated that one inflation report won’t change their mind as they will
wait for more data to increase their confidence that inflation is coming back
to target. Therefore, unless we get big deviations, this release is unlikely to
change anything.

Thursday

The SNB is
expected to cut rates by 25 bps and bring the policy rate to 1.00%. The market
is assigning a 45% probability of a larger 50 bps cut. The reason for this is
because inflation has been surprising to the downside with the last release showing a drop to 1.1%, which is much lower than the
SNB’s 1.5% projection for Q3.

Moreover, SNB’s
Jordan said in late August that the continued strength of the Swiss Franc has
been hurting the Swiss industry. Therefore, there’s a high chance that the
central bank either delivers a 50 bps cut (especially after the recent
Fed’s move) or jawbones the currency by threatening intervention.

The US Jobless
Claims continues to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims after
rising sustainably during the summer started to improve considerably in the
last weeks.

This week Initial
Claims are expected at 225K vs. 219K prior, while there’s no consensus for
Continuing Claims at the time of writing although the prior release showed a
drop to 1829K.

Friday

The Tokyo Core CPI
Y/Y is expected at 2.0% vs. 2.4% prior. The Tokyo CPI is seen as a leading
indicator for National CPI, so it’s generally more important for the market
than the National figure.

The BoJ at the
last policy decision kept everything unchanged as expected but Governor Ueda
made a surprising dovish turn by saying that “there is some time to make a
decision on monetary policy because upside price risks have decreased given the
recent FX moves”.

He also mentioned
that it’s important for them to check overseas economic trends including US
when making policy decisions. This suggests that the Fed’s 50 bps cut is
making them fear more Yen appreciation and decreases the need to act with more
tightening. USD/JPY shot higher after his comments…

The US PCE Y/Y is
expected at 2.3% vs. 2.5% prior, while the M/M figure is seen at 0.1% vs. 0.2%
prior. The Core PCE Y/Y is expected at 2.7% vs. 2.6% prior, while the M/M
reading is seen at 0.2% vs. 0.2% prior.

Forecasters can
reliably estimate the PCE once the CPI and PPI are out, so the market already
knows what to expect. Fed’s Waller last Friday mentioned that they
expect 0.14% on the Core M/M measure.

The main focus for
the Fed in the last months has been the labour market, so inflation data lost a
bit of its importance in terms of market reaction.

Interestingly
tough, Fed’s Waller mentioned that the inflation data during the
blackout period pushed him in favour of the larger cut. He added that
what’s got him more worried was that inflation was running softer than he
thought.

Finally, he said
that he was in favour of two more 25 bps cuts by the end of the year if the
economy evolved as he expected, but if the labour market data worsened, or
if the inflation data continued to come in softer than everybody expected, then
he would support going at a faster pace before adding that a fresh
pickup in inflation could also cause the Fed to pause its cutting.

This week’s release
shouldn’t be important overall given that it’s August data and it was already incorporated
into the Fed’s decision.