Week of September 29

Last week's light economic calendar allowed geopolitics to take more prominence, with the announcement of new tariffs on top of flash PMIs and the US PCE price index.

The week ahead sees an increase in economic activity, with the RBA holding a rate decision meeting and Eurozone flash inflation figures being released before US NFP Payrolls.

Week in Review

US data was the primary focus for the markets as traders sought reassurance that the Fed would implement an expected rate cut next month. In general, US economic data surprised markets positively, with the final Q2 GDP reading unexpectedly revised higher to 3.8% annual growth from the already raised 3.3% second estimate. August durable goods were also well above expectations at +2.9% compared to the -0.3% forecast.

Fed Chair Jerome Powell spoke on Tuesday, highlighting the Fed's dilemma in balancing the risk of higher inflation and a weaker jobs market. He also warned about high valuations in the stock market. A series of other FOMC speakers through the week left doubts about the Fed's dovish inclination, with the markets paring back odds for a rate cut in December.

Eurozone flash September PMIs disappointed, with Germany's manufacturing sector falling further back into contraction at 48.5 from 49.8, instead of advancing into expansion as had been expected. The Eurozone manufacturing PMI also fell back into contraction, at 49.5, instead of staying at 50.7 as had been anticipated. A similar story in the UK, where the manufacturing PMI slipped to 46.2 from 47.0, compared to the expected 47.1.

The RBNZ appointed Anna Breman, former Deputy Governor of the Riksbank, as its new Governor, effective at the end of the year. She replaces Adrian Orr, who resigned before the end of his term amid disputes over funding with the government.

In geopolitics, US President Donald Trump spoke at the United Nations General Assembly and said that Ukraine could take back territory that Russia has occupied. The statement marked a hawkish shift in Trump's policy and his relationship with Russian President Vladimir Putin. The White House announced new sweeping tariffs on heavy-duty trucks, pharmaceuticals, and household furnishings on Friday. The tariffs, which range from 25% on trucks to 100% on pharmaceuticals, are set to take effect on October 1.

Biggest Market Movers

• The dollar index rose to a three-week high amid better US data, including a drop in weekly jobless claims and the final Q2 GDP revision.
• Oil had the largest weekly gain in three months after Russia cut fuel exports.
• NZDUSD was the worst performer due to contracting Q2 data and a stronger dollar.
• Gold prices hit another record high earlier in the week after Powell expressed concern over the state of the US economy.

Top Events in the Week Ahead

The main focus for the markets next week will likely be US employment data, following Powell's statement that the Fed is concerned about both inflation and the labour market. Geopolitics could resurface as the US prepares for a potential government shutdown and Trump escalates his actions towards Russia. Meanwhile, China will be closed the whole week for Golden Week.

Still Weak US Jobs Figures

On Friday, the US will release its September payrolls, with a consensus forecast for a rebound in hiring to 70,000, up from 22,000 in August. However, this is well below the ~180,000 that is considered "normal" for a healthy labour market. The unemployment rate, however, is anticipated to stay unchanged at 4.3%, as well as average hourly earnings at 3.7%. Markets are looking for continued signs of slack in the US jobs market to keep the Fed on track to cut rates at the end of October. Confirmation would support the prices of gold and could push the metal past $3800 per ounce if $3710 holds firm. Losing it could open the door to $3,640.

Eurozone Inflation on Target, but Slipping

The Eurozone is scheduled to release its flash September CPI figures on Wednesday. However, the release of data for France and Germany the day before could provide the market with sufficient warning about the potential for the data to exceed expectations. The ECB is widely expected to remain on the sidelines for the rest of the year, as inflation is predicted to stay around the 2.0% target. However, the consensus among economists is that September's CPI will rise to 2.2%, up from 2.0% in August. The core rate, however, is projected to stay unchanged at 2.3%. A hot CPI could accelerate the recent declines towards 1.1575 if 1.1600 breaks down, while positive flows could offer a bounce to 1.1730 and potentially near 1.1800.

RBA to Hold Amid Uncertainty

Economists widely expect the RBA to keep rates unchanged at the end of its policy meeting on Tuesday. At the last meeting, Governor Bullock said she was uncertain about the rate path ahead. However, earlier this week, she said that inflation was in a good place during a presentation to Parliament, noting that there were risks on both sides. Markets will likely be looking for clues to see if the RBA provides a more confident outlook about the future of rates. Doing so may help Aussie surge past 0.6575 and revisit 0.6600. However, while trading under 0.6550, the risk of adding to recent weakness and pushing prices down to 0.6500 is real.

PMIs to Stay in Contraction

China's September manufacturing PMIs are expected to remain just below 50 and still in contraction. A similar situation is expected for Europe, with last week's disappointing flash PMIs showing that German, French, and Eurozone manufacturing have yet to return to expansion.

Other Events and Earnings

Monday has UK mortgage approval data. The BOJ's summary of opinions comes out on Tuesday. For Wednesday, Japan's Tankan manufacturers index is on tap. Thursday has Australia's trade balance. Friday includes Japan's unemployment rate.

The corporate earnings calendar remains light, with notable names such as Carnival Corporation, Nike, Tesco, and Paychex updating investors.