Several key economic indicators and corporate earnings will determine market sentiment this week. In the euro area, several major countries are expected to release monthly data on inflation and quarterly GDP, which will provide information on the trajectory of the region’s economies and influence the European Central Bank’s (ECB) future interest rates. It serves as a guide for the route.
Globally, attention will continue to be focused on the United States, where non-farm payrolls reports are the most important data for financial markets. The world’s largest economy is also about to release its third quarter GDP. Investors will pay particular attention to the performance of major technology companies such as Alphabet (NASDAQ:), Meta (NASDAQ:) Platforms, Apple (NASDAQ:), and Amazon (NASDAQ:).
Meanwhile, the Bank of Japan’s decisions on interest rates, China’s manufacturing and services PMI, and Australia’s CPI will shed light on the evolution of these regional markets.
European economic data to consider
This week will be a busy week on the European economic front as Eurostat releases important data for major countries. Germany, Spain, France and Italy will release preliminary consumer price index (CPI) figures for October and preliminary gross domestic product (GDP) figures for the third quarter.
These economies experienced a sharp decline in inflation last month, primarily due to a significant year-on-year decline in energy prices. However, the Eurozone composite CPI is the most influential data for the region.
The headline inflation rate fell to 1.7% year-on-year, below the target of 2% and the lowest level since April 2021. The European Central Bank (ECB) expects inflation to rise again in October due to base effects. According to consensus forecasts, annual CPI could rise to 1.9% in October, while core inflation could fall slightly to 2.6% year-on-year.
German economy continues to be sluggish, Spanish economy maintains growth trajectory
Looking at the gross domestic product (GDP) figures for these four countries, Germany remains the weakest, with its economy contracting by 0.1% in the second quarter. Germany’s manufacturing industry has been shrinking for two years, severely disrupting the economy as a whole.
Conversely, France, Italy and Spain experienced economic growth in the first two quarters, with Spain standing out as the fastest growing economy in this group. According to consensus forecasts, the three countries are expected to maintain similar growth trends in the third quarter, while Germany’s economy is expected to continue contracting by 0.1%.
In the UK, the government’s annual budget will be in focus as the executive faces the challenge of rising budget deficits, slowing economic growth and reining in inflation. The focus will be on taxes, public spending and social measures.
US labor market data changes expectations
October’s nonfarm employment report will be the most important data for global markets, providing new clues about the fate of the U.S. labor market.
US employment data for September was surprisingly positive, with 254,000 new jobs and the unemployment rate falling to 4.1% from 4.2% the previous month.
Expectations have changed due to the strong labor market, and the market now expects the Federal Reserve to continue cutting interest rates by 0.25% in November, slower than the previously expected 0.5%. Consensus forecasts predict that the U.S. will add only 110,000 new jobs, the lowest level since February 2021, and that the unemployment rate will remain at 4.1% in October.
A weaker labor market could increase the likelihood that the U.S. Federal Reserve will accelerate its easing cycle, potentially sending stocks higher. Additionally, US GDP growth in the third quarter is critical to market sentiment. Market participants believe the US economy is on a soft landing, with GDP growth expected to be 3% in the second quarter.
Another strong quarter would likely strengthen expectations that the Federal Reserve will slow its easing cycle, sending the dollar and stock markets higher. The world’s largest economy is expected to maintain 3% growth in the third quarter, matching the pace of the second quarter.
Regarding the results, technology giants such as Alphabet, Meta Platforms, Apple, and Amazon are expected to release their results quarterly, providing valuable information on the evolution of the artificial intelligence field.
What economic developments will we see in the Asia-Pacific region?
In the Asia-Pacific region, the Bank of Japan’s interest rate decisions will be closely watched. The Bank of Japan raised official interest rates in March and July with the aim of supporting the yen and lowering import prices. Given Japan’s decline in inflation in recent months, the bank is expected to keep interest rates on hold this week, especially ahead of Japan’s general election and the US presidential election.
The market expects the Bank of Japan to raise interest rates again in December or next January. China’s business activities in manufacturing and services will also be important to global markets. China’s manufacturing PMI fell for the fifth consecutive month through September due to weak demand and weak raw material prices.
However, September’s decline was the mildest of the series, indicating the possibility of a recovery ahead. Manufacturing PMI is expected to return to expansion, while non-manufacturing PMI is likely to continue rising this month.
Australia will release its third quarter inflation data, a key indicator in determining interest rate policy by the Reserve Bank of Australia (RBA). The RBA is the only central bank yet to start cutting interest rates in the global monetary easing cycle, as inflation continues to be high. Therefore, upcoming inflation data will be very important for future policy decisions.
Monthly CPI in September was 2.7%, significantly lower than August’s 3.5%. Consensus forecasts suggest annual inflation will fall to 2.3% in the third quarter, which would likely prompt the RBA to begin its easing cycle sooner than expected.
