The Week Ahead: Key Market Drivers to Watch
The latest US jobs report and a speech by Fed Chair Jerome Powell may provide investors with some indications regarding the magnitude of the next Federal Reserve rate cut this week. In the interim, the final quarter of the year, which has been marked by significant market fluctuations, commences. Here is a preview of the upcoming week’s market activity.
Jobs report for the United States:
The labor market remains a focal point for investors as they assess the pace at which the central bank will need to reduce rates in the months ahead, despite the fact that the Fed initiated its rate-cutting cycle with a substantial 50 basis point reduction earlier this month.
The October nonfarm payrolls report is scheduled to be released by the Labor Department on Friday. Economists anticipate that the US economy has added 144,000 positions.
Investors are eager to determine whether the employment data will be consistent with their expectations for a soft-landing scenario, in which the Federal Reserve manages inflation without significantly damaging growth.
The possibility of a recession may be reignited by data that is weaker than anticipated, while the unexpected strength of job growth may raise concerns that the Federal Reserve will not reduce rates as significantly as anticipated in order to prevent an inflation resurgence.
Powell’s observations:
On Monday, Federal Reserve Chair Jerome Powell is scheduled to address the National Association for Business Economics regarding the economic outlook.
In a note dated Friday, Deutsche Bank analysts predicted that Powell’s remarks would largely mirror his post-meeting press conference remarks. In those remarks, Powell defended the significant rate cut by citing the confidence he had gained in inflation and the apparent shift in downside risks, particularly in the labor market.
Additionally, investors will have the opportunity to hear from a number of other Federal Reserve officials throughout the week, such as regional Fed presidents Bowman, Bostic, Barkin, and Williams.
Prior to the employment report scheduled for Friday The August JOLTS report will be released on Tuesday, and the ADP data on private sector employment on Wednesday will provide a comprehensive overview of the labor market.
Q4 commences:
Following a period of market volatility, the fourth quarter commences on Tuesday.
August was a month of volatility, as the unwinding of the yen carry trade occurred at nearly the same time as the Mag 7 tech bulls broke down and recession concerns flared following a weaker-than-anticipated US jobs report.
Since then, stocks have surged to new record highs. However, the yen is on the brink of its most impressive quarterly performance since the 2008 global financial collapse. Benchmark global borrowing costs and oil are both down nearly 15%, and China is expanding its stimulus program.
The US election between Donald Trump and Kamala Harris in November will dominate the final quarter, which suggests that additional volatility is probable.
Inflation in the Eurozone:
The European Central Bank officials will closely monitor the publication of flash September inflation data by the eurozone on Tuesday as they consider whether to reduce rates again in October.
Economists anticipate that the annual rate of inflation will fall below the ECB’s 2% objective for the first time since June 2021, with a reading of 1.9%. However, it is anticipated to increase again in the final months of the year.
As a result of the unexpected contraction in euro zone business activity in September, investors are now pricing in a slightly more than 50% likelihood of a 25 basis-point rate cut in October, a development that was previously considered implausible. This has stoked concerns that the ECB is behind the curve.
Oil prices:
The price of oil increased on Friday, but it declined for the week as investors assessed the potential for increased global supply in comparison to the recent stimulus from China, the world’s largest crude importer.
Brent experienced a weekly decline of approximately 3%, while crude futures experienced a 5% decline.
On Friday, the central bank of China announced new stimulus measures aimed at regaining economic growth to the approximate 5% target for this year.
However, concerns regarding oversupply were exacerbated by reports that the Organization of the Petroleum Exporting Countries and its allies, collectively referred to as OPEC+, intend to proceed with their plans to increase production by 180,000 bpd per month beginning in December.
The oil market continued to be supported by the increased tensions in the Middle East, which increased the risk of supply disruption.
In the coming days, energy traders will be closely monitoring labor market data, as interest rate reductions typically increase economic activity and energy demand.
