It’s a relatively quieter week in markets ahead, which is unsurprising after the blockbuster slew of central bank meetings just gone. The Fed was the big market mover as it reacted hawkishly to the ongoing economic resilience in the US economy by signalling one ore hike and two fewer cuts in 2024 and 2025. Higher growth and lower unemployment projections pushed US Treasury yields to new highs while the dollar is basking in US exceptionalism and is surging to a tenth consecutive week of gains. Streaks like this, of either advances or losses, are exceptionally rare in major currencies.   

We get to hear from numerous FOMC officials this week who will inform on the most likely scenarios for next year and what needs to happen to warrant another rate hike. We note that some of the more influential members are likely less hawkish than the median dot. Chair Powell also mentioned several times that the Fed will proceed “carefully” given how far the Fed has come. He also highlighted some of the potential headwinds on the horizon like the auto strike and a government shutdown which will be worth monitoring in the coming days.

Markets are also still unconvinced with the Fed’s wider stance with futures assigning around a 40% chance of another 25bps hike this year. Of course, much depends on the data so the focus ahead will be on next Friday’s US core PCE inflation as price pressures from food and energy ease while underlying inflation still remains uncomfortably high for policymakers. Personal income and spending data is also an important measure as the consumer story is a crucial input for the soft landing scenario.

Elsewhere, the main highlight is the September flash eurozone inflation figures. They should give markets more reason to believe the last ECB hike is in. How long rates need to stay at elevated levels is now the key question, as opposed to how high they go.

Major data releases of the week:

25 September 2023, Monday

-IFO Business Survey: This widely watched German data fell more than expected for a fourth month in a row in August. Europe’s economic engine has been struggling to recover after slipping into recession earlier this year. High interest rates, stubbornly high prices and a lack impulses from foreign trade will continue to weigh. The euro has suffered ten weeks of declines but a long-term retracement level of the 2021/2022 drop at 1.0610 has held as support. 

27 September 2023, Wednesday

-Australia CPI: Consensus forecasts see the August monthly print at 5.2%. The prior month moderated to 4.9% from 5.4% in June and the recent top of 8.4% in December. The increase in auto fuel will be the main reason for the move higher. The aussie continues to try and build a base around 0.64. Prices have been oscillating around the 21-day SMA at 0.6439 recently. We note a bearish pin bar candle printed last Wednesday but buyers remain resolute.

29 September 2023, Friday

–Caixin PMIs: China publishes the September manufacturing and services Caixin PMI surveys. The data is fairly unpredictable, but downside risks are seen ahead of the hoped-for bump given by the recent Government support policies. Those recent stimulus measures should support this data ahead, but it is probably too soon to see any impact. Chinese markets will be on holiday from September 29 to October 6.

–Eurozone Inflation: Expectations are for the headline to fall to a two-year low at 4.6%, down from 5.2% in August. The peak was 10.6% last October. The core is forecast to slow to 4.9% from 5.3%. This is primarily due to base effects. Higher oil prices will have a limiting effect on energy inflation. EURUSD losses continue to coalesce around the low 1.06 support zone. This could support the idea that a lot of bad news is priced into the euro at this point.

–US Core PCE, Personal Spending: The Fed’s preferred inflation gauge is likely to match the uptick in CPI and increase to 0.5% from 0.2%. Wage growth is expected to sustain income gains as job gains slow. Consensus sees personal income at 0.5% and personal spending at 0.4%.