- US dollar ahead of the key triggers this week
- France sees a pick up in PMIs
- Profits in China tumble in September
US – should the Fed cut interest rates?
The FOMC meeting is by far the most important decision this week and while the market is sure the Fed will cut for the 3rd time in a row, the question is: what then? President Powell called the first cut a mid-cycle adjustment but this statement is on the verge of losing credibility. On one hand the unemployment rate is at the lowest point in 50 years and on the other the business surveys are pointing to the steepest slowdown of this decade. We’ve argued that the low unemployment rate is not an insurance against the recession and a global nature of the slowdown should exert a pressure on more easing but the Fed might be tempted to signal a pause after the October cut – a move that could drive USD higher. A balance of risks looks similar ahead of the NFP where the consensus is very low at just +106k.
October has been statistically strong for the NFP. Is this a chance for the USD? Source: Macrobond, XTB Research
Key economic event this week: FOMC decision (Wednesday, 6pm GMT), NFP report (Friday, 12:30pm GMT)
Europe – Uptick but not a breakthrough?
European PMI indices (these reports were first to signal a slowdown in Europe in 2018) provided a slight relief for the markets last Thursday when they printed slightly higher for France (especially the PMI services that went up from 51.1 to 52.9 points) on the back of stronger order. Some improvement in orders was also spotted for Germany but overall there was no improvement for the largest European economy (and the heart of manufacturing slowdown in Europe). Because we do not think that the ECB policy could do much to boost growth, Europe remains dependent on global economic conditions. These could improve if trade conflicts abated but that remains a big IF.
Looking at the evolution of bond yields, a recent EURUSD rally seems well justified. Source: Bloomberg, XTB Research
Key economic event this week: Flash CPI and GDP (Thursday, 10:00am GMT)
Asia – markets optimistic, economy in troubles
We need to see a pick up in economic situation in Asia to put global recession fears on hold. Meanwhile, the data does not suggest any brightening. The Japanese trade suffered in September with exports (-5.2% y/y) once again declining more than expected, the Japanese PMI sliding to 48.5 pts. and matching the 2019 low (from February) and the Chinese industrial profits sinking by 5.3% y/y in September – the most in 2019. Do notice that this happens to the economy that is reported to grow by 6% annually. Traders should watch out for the Chinese October PMIs this week – last month these indices inched up but this could have been driven by higher activity ahead of October holidays.
JAP225 has surged mostly on global trade talk hopes, now the Japanese market faces a resistance. Source: xStation5
Key economic event this week: PMI indices in China (Thursday, 1:00am GMT)
Daily summary - Government stays shut, Market declines, crypto recovers
Extended decline at the end of a week! 🚨
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