Week Ahead for FX, Bonds : U.S. Jobs Data, Eurozone Inflation in Focus

Below are the most important global events likely to affect FX and bond markets in the coming week starting Sept. 30.

U.S. jobs data will take center stage as investors look ahead to how much and how fast the Federal Reserve will reduce interest rates from here after its jumbo rate cut earlier this month.

In Europe, eurozone inflation data will be firmly in the spotlight as speculation grows that the European Central Bank could cut interest rates again in October.

In Asia, focus will be on purchasing managers’ surveys and inflation data, with a close eye on any potential further stimulus announcements out of China.

U.S.

After the Federal Reserve went big recently with a first rate cut of 50 basis points in September, upcoming data on the jobs market, particularly Friday’s non-farm payrolls figures for September, will attract heightened interest as investors look to gauge how far and how fast rates will fall from here.

Currently, U.S. money markets price in almost 75 basis points of rate cuts at the Fed’s two remaining meetings of 2024 in November and December. This implies that one of those would be another half-point reduction, although many analysts continue to predict that the Fed will opt for the more common quarter-point cuts.

“The Fed might feel compelled to act more aggressively when it comes to easing policy if the employment side of its mandate were in jeopardy,” Investec economist Ellie Henderson said in a note.

August’s jobs data “did not suggest an implosion” but downward revisions to previous data still strengthened the impression that the labor market is cooling, she said.

Ahead of Friday, investors will look at further clues on the health of the jobs market, with JOLTS job opening data for August on Tuesday, ADP private payrolls figures on Wednesday and weekly jobless claims on Thursday.

Other data which are sure to attract scrutiny are the ISM September activity surveys for manufacturing on Tuesday and services on Thursday, which will provide an up-to-date snapshot of how the U.S. economy is faring. They are expected to show slight expansion in the services sector and continued contraction in manufacturing.

“The outlook for the manufacturing sector globally remains one of weakness. However, regional surveys such as the Empire State Manufacturing Survey, indicated signs of recovery, with new orders and shipments rising,” analysts at UniCredit Research said in a note.

Durable goods orders data for August are due on Thursday.

The U.S. Treasury will auction Treasury bills. No note or bond auctions are scheduled.

EUROZONE

All eyes will be on provisional eurozone inflation data for September, due on Tuesday, as analysts and investors increasingly speculate about the prospect of the European Central Bank opting for back-to-back interest-rate cuts with a rate reduction at its October meeting.

This follows provisional inflation data for France and Spain which were much lower than expected.

“September’s inflation data from France and Spain all but confirm that the headline rate in the eurozone as a whole…will show a sharp decline to below the 2% target,” Capital Economics senior economist Franziska Palmas said in a note, adding that this makes a rate cut in October likelier than before.

Ahead of that, provisional inflation figures for Germany and Italy on Monday will be watched for clues on the overall eurozone outcome. Eurozone producer prices data for August on Thursday will give an indication of pipeline inflationary pressures.

Final purchasing managers’ surveys for France, Germany and the eurozone will be released for manufacturing on Tuesday and services on Thursday, while French industrial production figures for August are due Friday.

“European industrial data remain weak, but France’s industrial production will likely rebound by 0.5% month-on-month in August versus a 0.5% fall in July. The Bank of France survey pointed to an uptick in activity, particularly in food, chemicals/pharmaceutical products and wood/paper,” economists at HSBC said in a note.

Germany will auction 4 billion euros ($4.47 billion) in October 2029 federal notes, or Bobl, on Tuesday and 4.5 billion euros in August 2034 Bunds on Wednesday. On Thursday, Spain will tap three conventional bonds and an inflation-linked bond. Also on Thursday, France will auction 10 billion euros to 12 billion euros in long-dated bonds, including a green bond.

U.K.

The final estimate of U.K. second-quarter gross domestic product is released on Monday, giving further details and alongside current account data.

The release could garner more attention than usual as it will incorporate Blue Book 2024 revisions for GDP growth in 2021 and 2022 and apply new 2022 industry weights to quarterly growth in 2023 and 2024, HSBC economists said in a note.

“We expect the final estimate to remain unchanged from its flash estimate of 0.6% quarter-on-quarter,” they said.

Bank of England data on consumer credit, mortgage lending and mortgage approvals for August are also due on Monday. Final U.K. September purchasing managers’ surveys will be released for manufacturing on Tuesday and services on Thursday.

The U.K. Debt Management Office will auction the October 2043 gilt on Tuesday and the July 2029 gilt on Wednesday.

SWITZERLAND

Swiss inflation data for September are released on Thursday. These will be watched closely after the Swiss National Bank again cut interest rates at its recent meeting and downgraded inflation forecasts due to the impact of a strong Swiss franc.

SCANDINAVIA

Denmark will conduct a bond auction on Wednesday, while Sweden will sell inflation-linked bonds on Thursday.

POLAND

The National Bank of Poland announces a rate decision on Wednesday and is again expected to hold benchmark interest rate at 5.75% as economic growth remains relatively strong and inflation risks rising further, analysts said.

Focus will center on any hints the central bank gives about when rates will start to fall, which isn’t expected until into next year.

HSBC now expects a rate cut in March 2025 following comments by central bank officials and after faster and deeper rate cuts by major central banks, economist Agata Urbanska-Giner said in a note.

“We see a risk of more-frontloaded easing, with a first cut bigger than 25 basis points if the government extends the electricity price freeze or if the zloty appreciates. Conversely, sticky wage growth and core inflation and firm consumption growth could lead to a slower pace of cuts,” she said.

AUSTRALIA & NEW ZEALAND

It will be a relatively quiet week for Australian bonds in the absence of big events linked to the Reserve Bank of Australia, but there is some key data on Tuesday that will shape debate in markets.

The August retail sales number will be the latest update on consumer demand, which is critical to the outlook for interest rates.

Consumer spending has been hammered this year due to high interest rates, driving down gross domestic product growth, and increasing pressure on the RBA to cut interest rates before the end of the year.

A big fall in retail sales would add to concerns that the economy contracted in the third quarter.

Still, economists are expecting income-tax cuts to support consumer demand, giving the economy some added momentum in the final months of the year.

For now, the RBA is ruling out interest-rate cuts in the near term, arguing that demand continues to outstrip supply in the economy.

JAPAN

Japan’s week starts off with retail sales and industrial production data for August. That is followed on Tuesday by job market data, plus the Bank of Japan’s Tankan survey and its summary of opinions.

The main event will be the Tankan survey, which gauges business sentiment in Japan. The diffusion index measuring sentiment among big manufacturers is expected to remain unchanged at +13, according to a poll of economists by data provider Quick. While the negative impact of production suspension by some automakers eased, the yen’s appreciation, a slowdown in China’s economy and natural disasters might have tempered optimism.

Industrial production likely fell in August, in part due to typhoon disruptions, HSBC economists said. “Near-term manufacturing sentiment as reflected in the manufacturing PMI looks to be stalling as an uncertain external environment and exchange rate volatility is likely weighing on the outlook,” they added.

On Thursday, attention turns to Bank of Japan’s policy board member Asahi Noguchi, who’s scheduled to give a speech to local leaders in the southern prefecture of Nagasaki. Noguchi, known as a dovish BOJ board member, opposed raising interest rates to 0.25% in July.

The Ministry of Finance is scheduled to auction 2.6 trillion yen ($17.95 billion) of two-year sovereign notes on Monday and 2.6 trillion yen of 10-year government bonds on Thursday.

Focus could also be on potential political developments such as the incoming prime ministers’ cabinet selection.

CHINA

It is a holiday-shortened week in China, where any official announcements and data will draw even more attention than usual after policymakers unleashed an unprecedented package of sweeping measures to boost the economy.

A speech by President Xi Jinping will be watched for more signals of what’s next in the policy pipeline.

Data-wise, the spotlight is on official and private PMI surveys for September, all due on Monday.

China’s official manufacturing PMI likely edged up in September but continued signaling a contraction in activity, according to a poll of economists by The Wall Street Journal. They expect the reading to come in at 49.3, compared with August’s 49.1, as a property slump continues to weigh.

The private Caixin PMI gauge might look brighter, after returning to growth in August. The Caixin PMI compiled by S&P Global has a heavier weighting for private-sector and export-oriented firms.

ASIA PMIs

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09-29-24 2014ET