RBNZ meeting, FOMC meeting minutes, inflation from the US and employment data from Canada will highlight the week ahead of us.
USD
ISM manufacturing PMI printed 47.2 in September, same as in August, while expectations were for a 47.5 print. New orders and production components both improved, but are still below the 50 level. Employment and new export orders both dropped further into contraction. Prices paid component fell into contraction from expansion sending strong signals that inflationary pressures are subsiding fast.
ISM services for September surprised to the upside and printed 54.9 vs 51.7 as expected, a big jump from 51.5 in August. Business activity surged to 59.9 with new orders and new export orders both printing deep in expansion, close to a 60 reading. Some concerns can be seen in the prices paid component which rose again and in employment component which fell below the 50 level for the first time since June. Overall, this is a very strong report showing that services sector is healthy and is firmly leading US economy up.
September NFP blew out expectations with headline number printing 254k vs 140k as expected. We also got a positive two-month revision to previous reports. The unemployment rate ticked down to 4.1%, second consecutive month of falling unemployment rate, while participation rate remained stable at 62.7%. If we used third decimal for the unemployment rate it would print 4.0510%, a drop to almost 4%! U6 unemployment rate, it includes people who want to work, but have given up searching and those working part-time because they cannot find full-time employment, recorded a nice drop to 7.7% from 7.9% in August. Average wages rose by 0.4% m/m and 4% y/y, both beating expectations while hours worked ticked down to 34.2. Hospitality, healthcare, government, social care and construction all posted strong gains. Very strong report showing no issues with employment which will prevent Fed from going for another 50bp rate cut in November. USD as well as Treasury yields rallied on the news.
The yield on a 10y Treasury started the week at 3.79%, rose to almost 4% after NFP and finished the week at around 3.98%. The yield on 2y Treasury started the week at 3.62%, reached the high of 3.95%. Spread between 2y and 10y Treasuries started the week at 14bp and finished the week at 5bp as curve remained upward slopping. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at November meeting at around 93%, a huge increase after strong NFP report, while probability of a 50bp rate cut is around 7%. Markets are fully pricing in December rate cut.
This week we will get FOMC minutes from September meeting, we will have more details about their reasoning for a 50bp rate cut and we will get inflation data that is expected to continue declining towards the 2% target.
Important news for USD:
Wednesday:
FOMC Minutes
Thursday:
CPI
EUR
Final manufacturing PMI for the month of September was revised up to 45 from 44.8 as preliminary reported on the back of strong reading from Spain as well as positive revisions from Germany and France. Still, 45 is a downgrade from 45.8 print seen in August. German reading is abysmal 40.6 and continues printing lower. New orders and output components saw fastest declines in 2024. The report shows falling demand for manufacturing products coupled with supply chain problems caused by geopolitical tensions. Final services PMI was revised higher to 51.4 so it showed a smaller decline from 52.9 in August. Services were very strong in Spain but French reading, post-Olympic boom, plunged into contraction. Composite was dragged down into contraction with a 49.6 print, after 51 seen in the previous month.
Preliminary September CPI showed headline number at 1.8% y/y as expected, down from 2.2% y/y in August. This is the first time that inflation is below targeted 2% since June of 2021. Core ticked down to 2.7% y/y, as expected, from 2.8% y/y the previous month. Germany printed 1.6% y/y, down from 1.9% y/y in August and showed a bigger decline than 1.7% y/y as expected. Numbers are pointing to disinflationary trend and it is leading to higher expectations for another 25bp rate cut in October.
GBP
Final reading of Q2 GDP was revised to 0.5% q/q and 0.7% y/y from 0.6% q/q and 0.9% y/y as preliminary reported. Services were revised down to 0.6% from 0.8% in the first estimate with production dropping by 0.3% vs 0.1% in the first estimate. There was a positive revision to business investment (1.4% vs -0.1%) while net exports were revised down as exports declined by more than imports.
September manufacturing PMI saw final reading unchanged at 51.5, down from 52.5 in August. Output is still rising but at a slower pace while business confidence plunged. Input prices have increased at a fastest pace in over two years indicating that inflationary pressures are still lingering. Services were revised down to 52.4 from 52.8 and down from 53.7 in August as business activity eases. Composite was at 52.6, down from 53.8 the previous month. BoE Governor Bailey hinted at “a bit more aggressive” rate cutting cycle at the interview published in newspaper Guardian and GBP suffered but managed to recover as the week drew to an end.
AUD
Official PMI data for the month of September from China saw improvement in manufacturing to 49.8 from 49.1 previously but a decline in services as it printed 50 vs 50.3 in August. Caixin numbers were not encouraging as they saw drops across the board. Manufacturing fell into contraction and printed 49.3 while services and composite managed to hang in expansion with a 50.3 print. Stimulus package was unveiled last week and it is taking over in importance over the data.
NZD
Business confidence improved dramatically in Q3 as it printed -1% after abysmal -44% in the second quarter. Firms see much brighter economic conditions in the coming months. Companies also report greater ease in finding skilled labour. September business confidence rose to 60.9 from 50.6 in August with big improvements seen in residential construction and profit expectations. First GDT auction of October printed a 1.2% increase in prices for a second consecutive positive auction.
This week we will get RBNZ meeting. Consensus is for a cut, 25 most likely but increasing number of bank analysts see a full 50bp rate cut.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
CAD has benefited from increase in oil prices on the back of tensions in the Middle East. BoC is set to deliver another 25bp rate cut at their next meeting, but geopolitical tensions are keeping oil and CAD supported.
This week we will have an employment report.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
Summary of Opinions from the latest BoJ meeting showed no immediate plans for further rate cuts. BoJ will continue with easing measures but they are prepared to adjust their policy if economic conditions improve. Final manufacturing PMI in September came in at 49.7 with output declining for the second consecutive month. Final services PMI reading was revised down to 53.1 and is now showing decline from 53.7 in August. New orders and business activity increased at a slower pace. Composite was at 52 vs 52.9 the previous month.
CHF
Total sight deposits for the week ending September 27 came in at CHF472.2bn vs CHF465.3bn the previous week. Deposits are moving to the high of the range, to the levels not seen since start of June, as SNB seems to become more active in the markets to keep Swissy strength subdued. SNB incoming Governor Schlegel stated that the main reason for last week’s cut was declining inflationary pressures and added that they are not ruling further rate cuts. September saw further decline in inflation as headline number printed 0.8% y/y vs 1.1% y/y in August. This is a new three-year low as falling electricity prices pushed inflation down. Core printed 1% y/y, tick down from 1.1% y/y the previous month. After surprising drop in inflation the idea of more monetary easing looks increasingly likely.
