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This week is lined up with critical economic events and company earnings, which are expected to drive market sentiment. Eurozone inflation data will be the focal point for the region. Some critical economic data and company earnings are set to drive market sentiment this week.
In the eurozone, several major economies will release monthly inflation and quarterly GDP data, providing insights into the region's economic trajectory and guiding the ECB's future rate path. Globally, focus will remain on the US, with the non-farm payroll report serving as the most important data for financial markets. The world's largest economy is also poised to release its third-quarter GDP.
Investors will be paying close attention to major tech earnings, with results expected from Alphabet, Meta Platforms, Apple, and Amazon this week. Elsewhere, the Bank of Japan's interest rate decision, China's manufacturing and services PMIs, and Australia's CPI will shed light on developments in these regional markets. It will be a busy week on the economic front in Europe, with Eurostat releasing critical data for major economies.
Germany, Spain, France, and Italy are all scheduled to release their preliminary CPIs for October and third-quarter GDP figures. These economies experienced a sharp decline in inflation last month, mainly due to a significant drop in energy prices year-on-year. However, the Eurozone's composite flash consumer price index (CPI) will be the most influential data for the region.
Headline inflation fell to 1.7% year-on-year, below the 2% target, marking the lowest level since April 2021. The European Central Bank (ECB) expects inflation to rise again in October due to base effects.
Consensus forecasts suggest the annual CPI may have increased to 1.9% in October, while core inflation may have slightly decreased to 2.6% year-on-year.
As for the Gross Domestic Product (GDP) figures from these four economies, Germany remains the weakest, with its economy shrinking by 0.1% in the second quarter. Germany's manufacturing sector has been contracting for the last two years, significantly dragging down the overall economy.
In contrast, France, Italy, and Spain all experienced economic growth in the first two quarters, with Spain standing out as the fastest-growing economy among this group. The three countries are expected to maintain similar growth trends in the third quarter, while Germany's economy is forecast to continue contracting by 0.1%, according to consensus expectations.
In the UK, the annual government budget will be in the spotlight as the government faces the challenges of rising deficits, slowing economic growth, and taming inflation. The focus will be on tax, government spending, and welfare measures. The non-farm payroll report for October will be the most important data for global markets, offering further clues about the trajectory of the US labour market.
The US employment data was surprisingly strong in September, with 254,000 new jobs added and the unemployment rate falling to 4.1% from 4.2% in the previous month.
The strong labour market has shifted expectations, with markets now anticipating the Fed to continue rate cuts at a slower pace of 0.25% in November, as opposed to the previously expected 0.5%.
According to consensus forecasts, the US may have added just 110,000 new jobs, marking the lowest figure since February 2021, while the unemployment rate is expected to remain at 4.1% in October. A softer labour market would likely increase the chances of the Fed accelerating its easing cycle, which could buoy stock markets.
Additionally, the US advanced GDP for the third quarter will be crucial for market sentiment. Market participants believe the US economy is on a soft landing, with GDP growth of 3% in the second quarter. Another resilient quarter would further strengthen expectations that the Fed will slow down its easing cycle, likely driving the US dollar and stock markets higher.
The world's largest economy is expected to maintain 3% growth in the third quarter, matching the pace of the second quarter. On the earnings front, tech giants including Alphabet, Meta Platforms, Apple, and Amazon are set to release their quarterly results, offering valuable insights into developments within the artificial intelligence industry. In the Asia-Pacific region, the Bank of Japan's (BOJ) interest rate decision will be closely monitored.
The BOJ hiked its policy rates in March and July, aiming to support the yen and lower import prices. With Japan’s inflation retreating in recent months, the bank is expected to keep interest rates steady this week, especially ahead of Japan's general election and the US Presidential election. Markets are now expecting the BOJ to hike rates again in December or January next year.
China's business activity in the manufacturing and services sectors will also be critical for global markets. China's manufacturing PMI has been in contraction for five consecutive months through September due to weak demand and low commodity prices. However, the September decline was the softest in the sequence, signalling a potential rebound down the line.
The manufacturing PMI is expected to return to expansion, while the non-manufacturing PMI is likely to continue growing this month. Australia will release its third-quarter inflation data, a critical measure for the Reserve Bank of Australia (RBA) as it decides on its interest rate policy. The RBA is the only central bank that has not yet commenced a rate cut in the global easing cycle due to persistently high inflation.
Hence, the upcoming inflation data is highly important for future policy decisions. The monthly CPI printed at 2.7% in September, a sharp decline from 3.
5% in August. According to consensus forecasts, annual inflation will cool down to 2.3% in the third quarter, likely encouraging the RBA to begin its easing cycle earlier than previously expected.
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