Top 5 Market Trends to Watch in the Upcoming Week

Market Outlook for the Week Ahead

This week, the U.S. inflation data for September is highly anticipated following a stronger-than-expected jobs report on Friday, which has reassured investors worried about a potential economic slowdown. The Federal Reserve will release the minutes from its September meeting, marking the start of the earnings season, while oil prices are expected to remain volatile due to ongoing geopolitical tensions. Here’s a breakdown of what to watch in the markets this week.

1. U.S. CPI

Inflation data released on Thursday is expected to indicate a continued moderation in price pressures as the third quarter comes to a close. This data, following the robust jobs report, is likely to influence expectations regarding the timing and extent of potential Federal Reserve rate cuts in the upcoming months.

Producer price inflation data set to be released on Friday is also anticipated to reflect tamer inflation trends. These numbers could reassure the Fed about inflation moving toward its 2% target sustainably. Following a significant 50 basis point rate cut last month, the strong jobs report suggests the central bank may refrain from another substantial cut in November.

Analysts at UBS highlighted that the upcoming CPI report will be pivotal. If prices rise faster than anticipated alongside strong labor data, the likelihood of the Fed skipping its November meeting could increase. It’s notable that following the September FOMC meeting, many Fed participants indicated they believed total cuts of 50-75 basis points by year-end would be appropriate, suggesting limited additional cuts for the remainder of this year.

1. Fed Minutes

The Federal Reserve will release the minutes from its September meeting on Wednesday. Investors will be analyzing these minutes for insights into how Fed officials view future easing strategies. The consensus around the recent 50 basis point cut will also be a focal point of interest.

Additionally, several Fed officials, including Neel Kashkari, Raphael Bostic, Adriana Kugler, and Lorie Logan, will be speaking throughout the week. Initial jobless claims data is expected to be influenced by recent weather disruptions.

1. Earnings Season

The third-quarter earnings season in the U.S. is set to begin, presenting a key test for a stock market that is near record highs and trading at elevated valuations. Major financial institutions such as JPMorgan Chase, Wells Fargo, and BlackRock will report their earnings on Friday.

Bank results are crucial for gauging economic health, particularly in terms of demand for loans. Investors will be looking for indications that the recent rate cut by the Fed might be influencing economic activity, including increases in auto sales and purchases of other significant items.

Other companies reporting during the week include PepsiCo and Delta Air Lines. Bullish investors are hoping these results will support the stock market’s recent high valuations, with the S&P 500 having risen 20% so far this year, despite recent volatility driven by escalating geopolitical tensions in the Middle East.

1. Oil Prices

Oil prices experienced significant increases on Friday, marking the largest weekly gains in over a year, amid escalating tensions in the Middle East. However, gains were somewhat tempered after U.S. President Joe Biden urged Israel to avoid targeting Iranian oil facilities.

Israel has vowed to retaliate against Iran following missile attacks, raising concerns among oil analysts about the potential for broader conflict in the region. Last week, Brent crude prices rose more than 8%, while WTI saw a 9.1% increase, both marking the most substantial weekly gains in several months.

Iran, as a member of OPEC+, produces around 3.2 million barrels per day, which constitutes about 3% of global output. Other OPEC+ members may have the capability to increase production should Iranian supplies face disruption, potentially limiting further price increases.

1. RBNZ Meeting

The Reserve Bank of New Zealand will convene on Wednesday, with some analysts speculating that it may emulate the Fed and implement a 50 basis point rate cut. The RBNZ previously lowered the official cash rate for the first time in over four years during its August meeting, ahead of its expected timeline, and Governor Adrian Orr has indicated a desire to deliver two more cuts by year’s end.

Meanwhile, the Reserve Bank of Australia will release the minutes from its September meeting on Tuesday. Market participants will be keenly observing these minutes for clues about the RBA’s stance, with Deputy Governor Andrew Hauser scheduled to speak on the same day.

This week promises to be eventful with key economic data and developments that could shape market sentiment.