Wayne Cole’s outlook for European and global markets in the day ahead.
As the conflict in the Middle East continues, Beijing has launched further stimulus measures.There’s so much news it’s hard to know where to start. The Nikkei fell 4.6% in early trading amid concerns about the risk of rising interest rates under new Prime Minister Shigeru Ishiba .
He has long criticized the Bank of Japan’s ultra-easy policies, so investors trust that he won’t stand in the way of policy normalization. But taking power may actually change attitudes, and over the weekend he seemed more conciliatory , saying loose policies are needed given the state of the economy.
The market is still showing that the Bank of Japan is unlikely to adopt a tighter policy in October, but it may raise interest rates by 6 basis points in December, so the probability of a 25 basis point increase in interest rates is about 24%. Then again, the market only expects interest rates, currently at 0.25%, to reach 0.5% by the end of next year, so this is not a radical move.
Ishiba’s comments helped the dollar steady at 142.64 yen, after falling 1.8% to 142.07 yen on Friday. The euro strengthened slightly to $1.1170 on the back of last week’s favorable U.S. core PCE price index.
According to US data, the market sees a 52% chance that the Federal Reserve will significantly cut interest rates again on November 7, although the presidential election is clearly an uncertain factor.
A Donald Trump win would be seen as a risk of rising inflation and a strong dollar, as he has made massive tariffs a priority. PredictIt shows Kamala Harris leading 57 cents to 48 cents, but that’s not a solid lead.
This week, a number of Fed officials led by Chairman Powell will have the opportunity to express their views, while Friday’s August non-farm payrolls report will determine the extent of the next rate cut.
While the Nikkei fell, Chinese stocks (.CSI300) continued to rise, up 5% after China’s central bank announced it would cut mortgage rates .
Over the weekend, first-tier cities such as Guangzhou lifted all home purchase restrictions, while Shanghai and Shenzhen also announced plans to ease purchase restrictions, further boosting the real estate sector.
The boost in stimulus helped the Caixin/S&P Global Manufacturing PMI recover from a drop to 49.3 in September and the Services PMI to 50.3 .
Key developments that will influence markets on Monday:
– German CPI and retail sales, French CPI. EU consumer and business confidence
– Introductory remarks by European Central Bank President Christine Lagarde at the ECON hearing. Bank of England policymaker Meghan Green joins the panel discussion
-Federal Reserve Chairman Powell delivers a speech on the economic outlook. Federal Reserve Board Governor Michelle Bowman speaks
– Chicago Purchasing Managers Index, Dallas Federal Reserve Activity Index
