Week Ahead: Spotlight on geopolitics, US CPI and Q3 earnings

Markets remain on edge regarding developments in the Middle East and any Israeli retaliation. This is especially the case, one year on from the October 7 Hamas attack which sparked the latest conflict. Crude prices notched their biggest weekly rise in almost two years, with prices up more than 8% in a notably strong four-day rally. Much now depends on Israel’s response to Iran’s multiple missile attack, with an “energy war” the worst outcome for all concerned, especially the US, which is heading into an election. Any spike in oil prices will likely be seen as hurting growth more than the obvious short-term inflationary impact.

Friday’s blockbuster NFP report saw markets cross off any chance of another 50bps Fed rate cut in November. The data was hot on all fronts, blowing away topside forecasts. But economists were left scratching their heads as the figures don’t tally with virtually any other reports like the ISMs and the Fed’s own Beige Book. This week’s inflation numbers shouldn’t upset money markets too much, which are now much more in line (54bps) with the Fed’s median dot plot of two 25bps cuts this year. That compares with close to 70bps of price cuts priced in before the NFP release. After its strongest week in over two years, bullish dollar momentum still looks solid.

The US third quarter earnings season kicks off at the end of the week, with major banks and financial institutions reporting. Stocks were buoyed by the latest jobs data further confirming a Goldilocks economy. But more record highs and lofty valuations will be tested, with S&P 500 companies overall expected to have increased Q3 earnings by 5.3% from a year earlier.

In Brief: major data releases of the week

Wednesday, 9 October 2024

– RBNZ Meeting: Markets and consensus expect the bank to cut the OCR by 50bps to 4.75%. The bank cut rates in August, a year ahead of its own projections. Weak growth and mounting spare capacity in the economy mean still tight rates can be brought down closer to neutral. NZD suffered last week with its worst stretch since July 2023. Bears will be eyeing up 0.61 and the September low on a dovish decision and/or wider risk-off sentiment.

– FOMC Minutes: The Fed cut rates by 50bps, surprising many analysts who expected a smaller, quarter point move. The median dot plot revealed two more 25bps reductions in 2024. Powell has since said policymakers are in no rush to cut rates.

Thursday, 10 October 2024

– US CPI: Consensus forecasts headline CPI to print one-tenth lower than the prior at 0.1% m/m and the core at 0.2%. The breadth of inflation has continued to narrow, while shelter could pose some downside risks. But sticky core data would likely boost the buck.

Friday, 11 October 2024

– UK GDP: Expectations are for August growth of 0.2% m/m, after two straight months of zero growth. Retail sales will help activity, while production and construction are expected to bounce back from July’s turn lower. GBP got sold aggressively recently on BoE Governor Bailey’s dovish comment. Big support sits around 1.30 in cable.  

– Canada Jobs: The headline reading is likely to see solid job growth and the jobless rate is expected to tick up one-tenth to 6.7%. Policymakers are concerned about unemployment and downside risks in the labour market.