Market news

The resilient US economy has contrasted sharply with other areas of the globe recently which face a grimmer outlook. That has meant the higher for rates mantra from the Fed has dictated markets in recent weeks with soaring yields and greenback. Quarter-end adjustments appear to have reversed some of these moves over the last few sessions, but the current medium-term environment could favour another leg higher in the buck next week.

Of course, that relies on the economic data to remain solid and unaffected by the 525bp of rate hikes we’ve seen in the last year or so. It will be the first Friday of the month which means we get the monthly US employment data. Another sub-consensus initial jobless claims print last week suggests a market not cooling down as yet. But the headline NFP figures have been moderating recently with the three-month average around 150k, well down from the 400k+ we had been seeing in 2022.

The chance of December Fed rate hike currently sits at around 35% so there’s plenty of room for that to move if we get an outsized report. Important survey data in the form of the ISM manufacturing and services figures will be released earlier in the week to also dictate if the dollar corrects some more or can kick on.

Two Antipodean central bank meetings will give us their verdicts on how their economies are shaping up after aggressive policy tightening. The RBA’s first meeting under new Governor Bullock will see rates left unchanged with patience the key word from policymakers as they allow for the lagged effects of tightening to be felt by the economy. The RBNZ will similarly stand pat on rates, but the New Zealand economy has been outperforming recently with a resurging housing market, few factors pointing to easing price pressures and higher oil prices.

The aussie and kiwi looked to be breaking down last Wednesday but are back in their ranges seen over the last few weeks above 0.64 and 0.59 respectively. The slowdown in global growth and the subdued risk mood could keep a lid on any prolonged rallies. However, any further stabilisation in the China data would help the antipodean currencies rebound.

Major data releases of the week:

02 October 2023, Monday

-US ISM Manufacturing: Consensus sees the September print ticking modestly higher to 47.8 from 47.6. Manufacturers remain under intense pressure after the 10^th straight month of contraction in August. But the pace of decline is slowing hinting of stabilisation at lower levels. 

03 October 2023, Tuesday

–RBA Meeting: Expectations are for the RBA to keep the cash rate unchanged at 4.10%. A fourth consecutive pause comes on the back of mixed CPI, subdued consumer spending and a possible turning point in the job market.

04 October 2023, Wednesday

–RBNZ Meeting: Analysts forecast the OCR staying at 5.50%. But a tightening bias seen in the previous August statement is likely to be retained to keep options open for another rate hike in November. Markets see a 50% chance of 25bp rise at that meeting.

–US ISM Services: Expectations are for a fall to 53.5 in September from 54.5. That was the highest reading since February.  The summer bounce driven by the consumer is likely to fade. A reading above 50 indicates growth in two-thirds of the economy.

06 October 2023, Friday

–US Non-Farm Payrolls: Analysts forecast a headline print of 170k, down from August’s 187k Jobs gains are moderating with better balance between supply and demand. The jobless rate is expected at 3.7% and average hourly earnings at 0.3%.

–Canada Jobs: The economy added nearly three times the number of jobs expected in August (39.9k) and wage growth accelerated. Forecasts are for a small gain which will still suggest underlying strength despite high interest rates.