Week Ahead: NFP to dictate near-term USD direction

This week sees the first Friday of a new month, which means the release of the top tier US monthly employment report. This marquee risk event takes on even greater importance as the Fed has pivoted to placing greater weight on the full employment side of its dual mandate. That is due to the series of softer core inflation prints. How the NFP data turns out will influence markets which are once more torn between a 25bps and a 50bps rate cut at the Fed’s next meeting in November. The ISM reports are not expected to move the dial earlier in the week, sticking at levels consistent with a GDP slowdown.

We note that this is one of two payrolls reports before that next decision. But the dollar is precariously poised, sitting on a major support zone. That houses the long-term low from last December and also the 200-week simple moving average. Stocks have also enjoyed a strong recent rally, on the back of more policy easing expected soon. That bullish momentum has pushed the benchmark S&P 500 and the Dow Jones to record highs over the last week.

Markets will also focus on the latest inflation data out of the eurozone. German and French figures will be watched on Monday ahead of the region’s release a day later. President Lagarde already signalled a big drop in the headline at her latest ECB press conference. As always, the core number will be key, with recent poor PMI data potentially seeing it fall lower, though services inflation has been stubborn for some time. EUR/USD printed a weekly doji candle just below cycle highs around 1.12, denoting some indecision.

In Brief: major data releases of the week

Monday, 30 September 2024

– Fed Chair Powell Speech: Powell delivers an updated economic outlook at 18.55 BST. There’s not been too much new data since the FOMC press conference. Core PCE was marginally softer while GDP was left unchanged at 3% q/q. Markets currently price in 75bps of easing for 2024, in contrast to the median dot plot of 50bps.

Tuesday, 1 October 2024

– Eurozone Inflation: Headline CPI is expected to rise 2% in September, down from the prior 2.2%. Core inflation is expected to print one-tenth lower at 2.7%. France and Spain data came in below forecast, so risks are to the downside.

– US ISM Manufacturing: Consensus sees the September survey at 47.6, an improvement from the prior 47.2 and the eight-month low at 46.8 in July. A reading below 50 indicates contraction in the sector, which accounts for just over 10% of the economy.

Thursday, 3 October 2024

– US ISM Services: Expectations are for the September reading to rise modestly to 51.6 from 51.5. Activity rebounded from a sub-50 four-year low print in July. Consumer confidence has fallen on concerns over the economic outlook and the November election.

Friday, 4 October 2024

– US Non-Farm Payrolls: The headline is expected to print at 140k, close to the prior 142k. The range is 70k to 180k. The jobless rate is forecast to remain steady at 4.2% and average hourly earnings at 0.3%. Business surveys continue to point to a weaker labour market.