The height of tensions and financial markets
During the Chinese holiday week, employment data from the US, central banks’ meetings in New Zealand and Australia, and Purchasing manager index numbers from most developed economies, can increase the volatility level of the week. At the same time with ongoing tensions in the energy sector, especially in Europe, we will have the OPEC+ meeting as well. European energy ministers approved 140 billion euros to limit the impact of the gas crisis, as explosions in NordStreem1, destroyed all hopes to have Russian gas at any time soon. Let’s review the most important data and even of the week with me Ahura and IFC Markets.
1- US ISM Manufacturing & none- Manufacturing Index – Monday & Wednesday
As the probability of a severe recession increases, some economic data gets more important, especially ISM numbers. Monday we will have manufacturing data and Wednesday service sector will be in focus. Manufacturing PMIs used to get weaker in past months, but numbers in the service sector still have no sign of weakening. Just to remember, Prior to the 2001 and 2008-2009 recessions, the ISM services index used to increase, but then suddenly fell below the key 50-level and confirmed the recession. Both Manufacturing and non-manufacturing numbers are supposed to be above 50 and increase the pressure on FED for more hawkish policies, which would be negative for stock markets.
2- Reserve Bank of Australia – Tuesday
We expect cautious decisions and a maximum of 25 basis point rate hike by RBA on Tuesday. In September RBA raised the rates by 50 basis points and with this 25-basis point expected action, the central bank in Australia will raise the Cash Rate to 2.60%, which could indicate that they believe monetary policy is close to neutral, and any further moves could be seen as moving toward restrictive territory and bring the economy into crisis. These expected less hawkish decisions, can put more pressure on the Australian dollar against its crosses.
3- Reserve Bank of New Zealand – Wednesday
After a 50-basis point rate hike in the august meeting, now we expect that central bank to hike rates by 50 bps to 3.50%. Unlike Australia, despite high inflation, economic data, especially labor market data are still fine and increasing, so RBNZ will have room to increase rates. Updated forecasts show the RBNZ expects the policy rate to peak at 4.1% in Q2-2023 before declining in 2024. These data are supposed to help the Kiwi against its crosses.
4- OPEC-JMMC meeting – Wednesday
The 45th Meeting of the Joint Ministerial Monitoring Committee (JMMC) and the 33rd OPEC and non-OPEC Ministerial Meeting will be held in person at the OPEC Secretariat in Vienna on Wednesday, October 5, which will be the first in-person ministerial meetings since March 2020. Analysts are expecting a one million output cut plan, which can increase the oil prices.
5- US Employment Report – Friday
The labor market in the US continues to be the strongest part of the US economy, by reducing unemployment insurance applications below 200K, while Nonfarm payrolls rose by 315K last month. For context, nonfarm payrolls increased by an average of 167K per month in the 2010s. However, a 250k September nonfarm payroll increase estimate, after gains of 315k in August, 526k in July, and 293k in June, should also show some signs of weakening in this sector. It will be difficult to predict the market reaction, however, better than expected numbers will be a negative sign for stock markets and vice versa!
