US stock markets are bracing for their first losing week in seven, boosted by capital acquisitions ahead of key technology earnings reports next week, and with rising US national debt pushing yields higher.
The most notable events this week were:
- The S&P Composite Manufacturing Purchasing Managers' Index (PMI) for October rose to 54.3 from 54 in the previous reading, driven by expansion in the services sector, while the manufacturing sector continued its downward trend for the third straight month.
- Initial claims for unemployment benefits fell to 227,000 from 242,000 the previous week.
- In Europe, the Hamburg Commercial Bank (HCOB) composite PMI rose from 49.6 to 49.7 in October, but was lower than the expected 50.1.
- In the UK, the S&P Global Composite PMI fell in October to 51.7 from 52.6.
Highlights from next week
- Australia's monthly consumer price index
Wednesday 30 October at 00:30 GMT
In the second quarter of 2024, global inflation rose by 1%, resulting in an annual rate of 3.8% year-on-year. This was the first annual increase in the CPI since the fourth quarter (Q4) of 2022. The average inflation cut by the RBA rose 0.8% from the previous quarter, bringing the annual average to 3.9% although lower From that of 4% in the previous period, it remains above the Reserve Bank of Australia (RBA) target of 2-3%, representing the lowest reading since the first quarter of 2022.
The latest monthly CPI for August (released at the end of September) showed a sharp decline in inflation. The index recorded an increase of 2.7% year-on-year, compared to 3.5% in July. The significant decline in global inflation was widely expected, driven by government rebates that lowered electricity and fuel prices. However, the decline in core inflation measures was unexpected and welcome, hitting their lowest level in two and a half years.
For the third quarter of 2024, preliminary forecasts indicate that global inflation will rise by 0.4% on a quarterly basis, and at an annual rate of 2.8%. The average is expected to rise by 0.7% on a quarterly basis, reducing average annual inflation to 3.4%. The Australian interest rates market is currently pricing in an 8 basis point probability of a 25 basis point rate hike from the Reserve Bank of Australia in December.
- GDP and inflation in the third quarter of 2024 in the euro area
Wednesday 30 October and Thursday 31 October, both at 10:00 GMT
For the second quarter of 2024, euro area GDP grew by 0.2% in the quarter, down from 0.3% in the previous quarter. This resulted in annual GDP growth of 0.6% year-on-year, in line with expectations. In detail, France and Spain recorded stronger growth than expected, while Germany's GDP contracted unexpectedly. Concerns have been raised that the economic slowdown in Germany, the traditional economic heart of Europe, was caused by a disruption in its business model, which relied on cheap energy from Russia and strong trade with China.
Since then, forecast indicators, including business surveys, have pointed to a more widespread slowdown. The decline in these indicators was accompanied by a decline in inflation, which prompted the European Central Bank to make a third 25 basis point cut in interest rates last week. In its accompanying statement, the ECB noted that “the disinflation process is well underway” and that “inflation prospects are also affected by recent negative surprises in indicators of economic activity.” The interest rate market expected a new 25 basis point cut by the European Central Bank at its meeting on December 12, with a 23% probability of a larger 50 basis point cut.
- Bank of Japan (BoJ) interest rate decision
Wednesday 30 October at 23:00 GMT
After increasing its short-term policy target to 0.25% in July, the Bank of Japan has since adopted a cautious approach. He is expected to leave short-term interest rates unchanged this week as he continues to slowly reduce his bond purchases. Bank of Japan Governor Kazuo Ueda recently commented that “time is still needed” to achieve the 2% inflation target in a sustainable manner, suggesting that no immediate policy changes are expected. The upcoming US elections are also increasing uncertainty, making it unlikely that the Bank of Japan will provide strong forward guidance.
The new economic forecasts will be closely watched for clues about potential increases in interest rates. While there was some growth in wages, especially among small and medium-sized businesses, concerns about weak consumer demand due to rising costs may encourage the Bank of Japan to delay a rate hike.
- US third quarter GDP
Wednesday 30 October at 12:30 GMT
In the second quarter of 2024, the US economy grew at an annual rate of 3.0%, a slight increase from the previous estimate of 2.8%. This growth was driven by consumer spending, private investment, and non-residential fixed investment. However, there were slight declines in residential investment and public spending. Looking ahead, third-quarter 2024 GDP is expected to grow by 3.0% on a quarterly basis, reflecting the continued resilience of the US economy. This raises hopes for A Soft landing It suggests that the Federal Reserve (Fed) may adopt a gradual approach to easing monetary policy.
- Change in nonfarm employment in the United States
Friday 1 November at 12:30 GMT
In September, the United States added 254,000 jobs, far exceeding expectations of 147,000 jobs. While previous data from July and August showed weaker gains, revisions boosted those numbers, reinforcing the idea that the US labor market remains strong. As for October, the outlook is more moderate, with expectations of 140,000 new jobs, indicating some slowdown compared to the previous month. However, the weakness in the labor market may be due, in part, to temporary disruptions caused by Hurricanes Helen and Milton, along with strikes at US ports. The unemployment rate is expected to remain stable at 4.1%, while average hourly earnings are expected to decline slightly to 0.3% on a monthly basis from 0.4%.
The Fed will likely take the upcoming jobs report into account when considering a rate cut in November. As the Fed aims to balance strong hiring with control of inflation, continued labor market flexibility suggests smaller 25 basis point cuts are likely in the near future.
- Third quarter 2024 results in the United States
Third-quarter earnings season continues next week with reports from companies including:
– Alphabet (October 29)
– Target (October 30)
– Microsoft (October 30)
– Apple (October 31)
– Amazon (October 31).
By XTB analysts
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