The week ahead in the markets: a look at euro zone inflation and US employment data

Global markets are likely to end September on a positive note as central banks begin to ease monetary policy. Investors will continue to monitor key data from major economies this week, including the euro zone Consumer Price Index (CPI), US non-farm payrolls data and business activity in China’s manufacturing and services sectors.

Europe

The most important area of ​​interest for the region is the preliminary consumer price index (CPI) for September. In August, inflation fell to 2.2% year-on-year, the slowest increase since July 2021.

However, core inflation remains stable at 2.8%. The consensus suggests headline CPI will cool further to 1.9%, while core CPI will decline to 2.7%.

The European Central Bank (ECB) cut interest rates for the second time this year in September, but reiterated that it had “not committed in advance to a specific interest rate path.” Thus, a further cooling of inflation would significantly strengthen expectations for additional interest rate cuts before the end of the year.

Markets will also pay attention to ECB President Christine Lagarde’s speech in the European Parliament on Monday. President Lagarde is expected to discuss monetary policy and the economic outlook for the region, offering insight into the future trajectory of the bank’s interest rates.

Additionally, on Tuesday, S&P Global will release the final Manufacturing Purchasing Managers’ Index (PMI) data for France and Germany.

Preliminary data showed that business activity in the private sector in both countries deteriorated sharply, increasing the likelihood of deeper cuts in ECB interest rates.

Another critical measure is Germany’s flash CPI for September, the data set of which will be published on Monday. In August, consumer prices fell 0.1% month-on-month and rose 1.9% year-on-year, which was cooler than expected.

The annual inflation rate was the lowest since March 2021. While these data are seen as a positive signal that may convince the ECB to continue its monetary easing cycle, they also suggest weakening purchasing power in the face of the deteriorating economic situation.

Consensus forecasts predict that CPI in Germany will increase by 0.1% in September compared to the previous month.

In the UK, final gross domestic product (GDP) data for the second quarter will be confirmed, as well as final manufacturing and services PMI data for September.

Flash readings showed GDP growing by 0.6% quarter-on-quarter, with continued growth in economic activity in both the manufacturing and services sectors.

The stable economic outlook is expected to continue to strengthen the pound.

USA

The main topic of financial markets will be the report on employment in the non-agricultural sector for September. The latest data shows that the US labor market is cooling faster than expected, prompting the Fed to begin its monetary easing cycle with a 0.5% interest rate cut.

In July, non-agricultural employment increased by 142,000 and unemployment fell to 4.2%. However, the rise in part-time employment points to a higher overall unemployment rate, with large downward revisions in recent months.

The Fed expects unemployment to reach 4.4% by the end of the year. Forecasts for August indicate the creation of 144,000. new jobs and maintaining unemployment at the level of 4.2%.

Also keep an eye on the ISM Manufacturing PMI. U.S. factory activity has declined for 21 straight months, and August was one of the weakest months of 2024.

If data remains soft, it could prompt the Fed to continue cutting interest rates. The September PMI is expected to remain in declining territory.

Asia and the Pacific

In the Asia-Pacific region, China’s National Bureau of Statistics (NBS) will release the manufacturing and non-manufacturing PMIs for September on Monday.

On the same day, S&P Global will also release its Caixin Manufacturing and Services PMIs, which represent equivalent data for the private sector.

NBS data showed that economic activity in the manufacturing sector declined for the fourth consecutive month in August, and consensus forecasts suggest it will continue to decline in September.

However, Caixin data showed that the private sector is growing throughout the year.

Last week, China announced a significant stimulus package that boosted global stock markets, particularly in Asia and Europe.

However, upcoming data will not yet reflect the impact of these measures.