# United States
In the past week, several key developments have influenced the investment landscape. A fundamental event was the release of a stronger-than-expected US employment report for September, further affirming remarks made by Fed Chair Powell. Following its recent 50 basis point (bp) rate cut, the Fed appears to be in no immediate rush to make drastic changes, with two smaller rate cuts of 25 bp in Q4 remaining the prevailing forecast. This situation illustrates the market’s adjustment to align with the Fed’s stance rather than the reverse. Furthermore, the market environment witnessed the Dollar Index snapping a four-week decline by delivering its most significant weekly gain in two years, escalating by approximately 2.2%. It reached nearly 102.70 before the weekend and now exhibits a base that could target the 104.00 area, although some consolidation might manifest at week’s start.
As for upcoming data, the US September Consumer Price Index (CPI) report, expected on October 10, is deemed the most critical economic indicator in the immediate future. A modest 0.1% increase in September would reduce the year-over-year inflation rate from 2.5% to 2.3%. While the core CPI remains somewhat sticky, it will unlikely obstruct the Fed’s plans for potential further easing. Meanwhile, the September Producer Price Index (PPI), due a day later, typically incites less market movement.
# Eurozone
Last week’s data further fueled conjecture surrounding a potential ECB rate cut later this month, following the previous cut in September. The eurozone’s principal economic update for the forthcoming days is the August retail sales report, which seldom sways market activities. Retail sales across the eurozone have shown stagnation through the first seven months of the year, mirroring the trend of the same period last year. Despite Germany’s somewhat discouraging factory orders and industrial output forecasts, as warned by the Bundesbank, other countries like France, Spain, and Italy reported slight upticks in August’s industrial production.
German and French trade data indicate that the eurozone has mostly adapted to the disruptions caused by Russia’s invasion of Ukraine. The region, which experienced a current account surplus of 2.4% of GDP in 2019 and fell to a deficit of -0.3% in 2022, is now on track to exhibit around a 2.5% surplus this year. Driven by stronger-than-expected US employment figures, the euro fell through $1.10, breaching the neckline of a possible double top pattern projecting to $1.08. However, initial targets suggest a range of $1.0900-$1.0910, with potential resistance at the $1.10 level.
# United Kingdom
Governor Bailey of the Bank of England recently alluded to the potential for accelerated interest rate cuts, impacting the sterling’s value last week. Despite the drop, the UK remains the high yield leader among G7 countries. Furthermore, the UK anticipates the release of the monthly August GDP figures, which are expected to challenge the central bank’s patience. Britain’s economy demonstrated stagnation during June and July, with GDP only increasing once since Q1. Additionally, industrial production showed minimal movement in Q2 before declining in July.
Net exports continued to detract from growth. These figures, however, do not carry the same weight as the upcoming employment and CPI reports. Looking forward, the market has priced in a high probability of a rate cut in November, yet the potential for another reduction in December remains uncertain.
# China
Following a week-long national holiday, Chinese markets are set to reopen on October 7. The government has introduced a comprehensive package of measures, announced shortly before the holiday, which has effectively dispelled the “un-investible” narrative. The weakening yuan has previously encouraged Chinese firms to retain foreign currency earnings, but Beijing’s efforts have spurred repatriation, resulting in the dollar’s sale. While foreign analysts are somewhat skeptical about the sufficiency of these new initiatives, the potential structural shifts within Beijing’s policies should not be undervalued.
The US dollar, meanwhile, is embarking on a six-session rally against the offshore yuan as markets reopen. The greenback nearly hit CNH7.10 following US employment data, which pushed interest rates higher and brought the yen lower. The next significant levels appear to be the CNH7.14-CNH7.15 range.
# Japan
Japan recently welcomed a new prime minister, Ishida, who is confronted with a nation that, despite some forward momentum, requires careful economic stewardship. The fiscal budget deficit is projected to decrease, and monetary policy will likely become gradually less accommodative. Japan is set to disclose reports on labor earnings and household spending, which have shown steady yet limited growth.
Propensities for high savings and low consumption characterize Japanese households. Japan simultaneously experiences a trade deficit and current account surplus, both of which typically deteriorate in August. The stronger US employment report elevated the greenback to JPY149, its highest level since mid-August, with projections targeting JPY150-JPY151.
# Canada
The Bank of Canada is poised for a potential 50 bp rate cut in its upcoming meeting at the end of October, barring unexpected CPI figures. Despite Canada’s trade deficit decrease, the labor market exhibits a slowdown, with full-time job growth running at about a third of the pace seen in the previous year. Political tensions in Canada materialize as Prime Minister Trudeau faces increasing pressure, potentially leading to a confidence vote later this month.
The Canadian dollar traded robustly last week, asserting itself as the best-performing currency among the G10. The US dollar reached nearly CAD1.36 ahead of the weekend, pushing against the 200-day moving average, with forecasts highlighting resistance at CAD1.3620 and CAD1.3650 levels.
# Australia
Australia’s monetary stance diverges from Canada’s as the Reserve Bank of Australia (RBA) remains averse to rate cuts, aligning its position away from market speculation. Future minutes from the recent RBA meeting may elucidate underlying policies that reinforce this stance. Contrarily, the Reserve Bank of New Zealand is anticipated to execute a half-point cut during its meeting on October 9, with the markets already pricing in substantial cuts this year.
The Australian dollar, after reaching a late September plateau, returned to straddle around $0.6800. If the bearish momentum continues, a move toward $0.6750 or potentially $0.6700 remains plausible.
# Mexico
Mexico’s restrictive monetary policy has achieved a reduction in inflation, leading to Banxico’s anticipation of two quarter-point rate cuts during Q4. A cumulative peso increase of approximately 2.8% was observed last week. As Sheinbaum was inaugurated on October 1, the greenback ascended to MXN19.83, only to recede to approximately MXN19.11 by the weekend, closely approaching last month’s low point of MXN19.09. The dollar has not settled below MXN19.00 since August 20.
