Counting on Additional Rate Cuts by Reuters

Market Overview: A Glimpse into European and Global Markets

As the week unfolds, markets are experiencing a cautiously optimistic start. China’s central bank has made headlines by lowering its 14-day repo rate by 10 basis points, following a previous decision that disappointed investors by leaving longer-term rates unchanged. While analysts suggest this adjustment simply aligns with earlier cuts to 7-day repo rates, stocks reacted positively, gaining about 0.6%.

Although Japan is observing a holiday, futures trading indicates a significant 740-point rise above the cash close. Wall Street and European futures have also shown an increase, ranging between 0.2% and 0.6%.

The U.S. dollar and euro both gained against the yen in light of dovish remarks from the head of the Bank of Japan last Friday. The S&P 500 has climbed 1% in September, typically regarded as a challenging month for the stock market, and has surged 19% year-to-date, reaching all-time highs.

More than 20 billion shares exchanged hands on U.S. exchanges on Friday, marking the busiest trading day since January 2021. Analysts from Bank of America have noted that the S&P tends to rise by an average of 21% in the 12 months following the start of the Federal Reserve’s interest rate cuts if a recession does not occur.

Investors remain optimistic following the Federal Reserve’s recent half-point rate cut, with futures markets implying a 50% chance of another significant rate adjustment in November. This week, at least nine Fed policymakers are scheduled to speak, including prepared statements from Chair Jerome Powell, two governors, and New York Fed President John Williams.

Attention will be focused on the Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) index, set to be released on Friday. Analysts project a 0.2% month-on-month increase, which would raise the annual rate to 2.7%, while the overall index is expected to slow to 2.3%.

The upcoming week will also feature key surveys on global manufacturing, U.S. consumer confidence, and durable goods orders. The Swiss National Bank is convening on Thursday, with markets anticipating a quarter-point cut to 1.0% and a 41% chance of a more substantial 50 basis point reduction. Meanwhile, Sweden’s central bank will meet on Wednesday and is also expected to reduce rates by 25 basis points, with a possibility of a more pronounced cut.

In contrast, the Reserve Bank of Australia (RBA) is likely to maintain its rate at 4.35% during its meeting on Tuesday due to persistent inflation concerns.

Additionally, investors are closely monitoring negotiations regarding the potential U.S. government shutdown, with just days remaining before the current $1.2 trillion funding expires on September 30. Republican House Speaker Mike Johnson proposed a three-month stopgap funding bill on Sunday, which now awaits a vote.

Key Developments to Watch:

• Flash September PMIs for Europe and the U.S., along with the Chicago Fed activity index
• Speeches from European Central Bank board member Piero Cipollone and ECB board member Frank Elderson
• Addresses by Fed Bank officials, including Atlanta Fed President Raphael Bostic, Chicago Fed President Austan Goolsbee, and Minneapolis Fed President Neel Kashkari

The coming days will be crucial as market participants react to these developments and data releases.