Wayne Cole’s outlook for European and global markets in the day ahead
It was a lower day for Asia as it was shaken by Wall Street’s non-farm payrolls data , with the Nikkei (.N225) falling 1.7% after falling nearly 6% last week.
At least S&P 500 futures pared early losses to rise 0.3%, while European stock futures edged slightly higher ahead of a nearly certain rate cut by the European Central Bank on Thursday. U.S. Treasury yields are off their lows, while the dollar regained some ground on the safe-haven yen.
The lack of Chinese inflation data also did not help boost sentiment , with the producer price index falling 1.8%, while forecasts were for a 1.4% decline. In August, the CPI rose 0.6% year-on-year, almost all of it food, with commodity prices rising just 0.2%.
All this adds to ongoing global deflation, but there are some signs of a long-awaited recovery in domestic demand, with Chinese blue chips losing 1.3%.
The US Consumer Price Index (CPI) report for August will be released on Wednesday, with the overall figure expected to slow to 2.6%, the lowest level since March 2021 and a far cry from the peak of 9.1%. The forecast range is also 2.4% to 2.6%, indicating downside risks.
A weak result would encourage the Federal Reserve to cut interest rates by 50 basis points next week, current futures prices indicate a 31% chance of a rate cut. A 25 basis point move is priced at 100%, Christmas suggests a 112 basis point move.
A Fed spokesman didn’t sound too keen on a big rate cut on Friday, with Fed Governor Christopher Waller saying he would only advocate an “earlier” easing if “follow-up” data shows weakness in the labor market. There is little key employment data available between now and Sept. 18.
The US unemployment rate announced on Friday was 4.2% in August, with employment growth of 142,000, although a drop of 86,000 in the previous two months led the market to think August would also decline, but it hardly turned into a recession. The three-month average also slowed to 116,000, well below the 200,000 needed to meet labor force growth and prevent rising unemployment.
Another difficulty the Fed faces is that their November 7 meeting takes place two days after the US presidential election, when it may not be clear which party has won. In such a politically tense environment, deciding to raise rates by 50 basis points may be a difficult decision.
It underscored the stakes of Tuesday night’s debate between Harris and Trump .
Key developments that could impact markets on Monday:
– Eurozone Sentix Index in September
– Fireside chat in New York with ECB board member Elizabeth McCall
