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As we prepare for the trading week ahead, it’s essential to have a thorough understanding of the pivotal economic events and company reports that can significantly impact financial markets. Here’s an in-depth preview of what to watch out for the week ahead.
Germany has been under the microscope over recent months, as the country’s manufacturing sector continues to shrink and inflation remains well above their European peers. For a country so used to carrying the eurozone, Germany is one of the countries that has been impacted the most. The September Ifo report brings an insight into the view of surveyed manufacturers, builders, wholesalers, services, and retailers, covering three elements: business climate, current conditions, and expectations. All three have been rapidly deteriorating over recent months, and any further downside could put pressure on the DAX and euro.
Japanese inflation data has been key for the yen, with continued subdued CPI causing it to be one of the weakest currencies this year. However, last month saw a surprise jump in this particular metric, with the core CPI figure released by the BoJ moving up to 3.3%. That brings particular attention to this release, with any further upside potentially benefitting the yen. However, market expectations point towards a likely easing of the figure, which could come to the detriment of JPY.
The US consumer has remained remarkably strong throughout this crisis, with people seemingly happy to simply pay more rather than reduce their consumption levels. That comes to the detriment of efforts to bring down inflation. As such, the outlook and expectations of consumers will be key in determining whether they continue to drive up prices. Last month saw the first decline in this metric after three weeks of gains. A continuation of that pattern could signal an easing of consumption.
The Australian inflation report comes at a time when AUD enjoys a period of strength, with Chinese fears easing and European central banks seemingly finished with their tightening phase. Forecasts of a notable uptick in the Aussie CPI figure signal a potential continuation of this recent AUD strength, with markets looking towards the RBA whose next meeting takes place under the leadership of new Governor Bullock.
The US saw a sharp collapse in durable goods orders last month, signalling the biggest contraction in this metric since the onset of covid in April 2020. Whether that is simply a short-term move that will soon balance out remains to be seen. That volatility highlights why people typically focus on the core durable goods reading, which strips out some of the chunkier elements that can heavily influence the direction of travel in the headline figure.
Inflation data out of these two eurozone nations gear markets up for Friday’s region-wide reading. Germany has been struggling to drive down inflation, with the current 6.1% annual figure a particular problem for the ECB which will undoubtedly want this influential nation to feel policy is appropriate for their current situation. Markets forecast a substantial decline in German CPI, which could drive euro weakness given the fact that it would mean less pressure on the ECB to hike again. Meanwhile, Spain has led the disinflation push, with CPI actually falling back down to 1.9% earlier this year. However, the rebound since looks likely to gather momentum according to predictions.
The US growth outlook comes into focus, with the final revision to their Q2 GDP reading due. Taking into account data from the latter part of that quarter, markets are looking for an upward revision to 2.3% after the initial 2.1% reading. Also keep an eye out for the latest unemployment claims and Powell testimony, with dollar volatility likely this Thursday.
Euro traders will be looking for a volatile end to the week, with the latest inflation data signalling whether the ECB was justified in their decision to bring an end to the tightening process. Markets are looking for a notable decline across both headline and core inflation, which could drive down the euro if it comes to fruition. Of course, a surprisingly strong reading would instead bolster the euro on the idea that this dovish shift may not be justified.
This inflation metric is favoured by the Federal Reserve, with the last reading of 4.2% falling between the headline (3.7%) and core (4.3%) numbers. Market expectations of a decline this month would bolster the idea that things are moving in the right direction, providing a potential risk on mood that comes to the detriment of the dollar. However, a failure to head lower could instead bring market jitters that help boost the greenback.
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