Rev Up the Engine for Q4 – Reuters

Financial markets are entering the fourth quarter with eager anticipation of a decline in global interest rates, which have been elevated for the past few years. The key question is whether the economy will experience a sharp downturn or a more gradual deceleration.

As we look ahead to the upcoming week, here’s a summary of notable trends in various markets from financial analysts across New York, Singapore, Amsterdam, London, and beyond.

1. Quarter of Chaos
   The third quarter concludes on Tuesday after a period marked by volatility. August witnessed significant disturbances, highlighted by the typically stable Japanese yen’s fluctuations and the disarray among major tech stocks, coinciding with central banks expressing renewed concerns about their economies. While stock markets have largely stabilized since then, the yen is set to achieve its best quarterly performance since the 2008 financial crisis. Global borrowing costs and oil prices have both dipped by nearly 15%, and China is poised to implement a stimulus package.

Looking forward, the final months of the year will be influenced by the upcoming U.S. election in November, featuring candidates Donald Trump and Kamala Harris.

1. A Delicate Balance
   The Federal Reserve initiated its rate-cutting strategy with a reduction of 50 basis points on September 18. However, employment remains a critical area of focus for investors assessing how aggressively the central bank may adjust monetary policy in the near future. Market participants are particularly interested in the upcoming employment data scheduled for next Friday, which will be pivotal in evaluating Fed Chairman Jerome Powell’s optimistic outlook for inflation and growth. Weakness in the labor market could signal a looming economic downturn, while strong job growth may raise concerns about the Fed’s potential reluctance to implement significant rate cuts to avoid triggering inflation.

Economists anticipate that the U.S. economy added a median of 145,000 jobs in September, compared to 142,000 in August.

1. Turning the Page
   Factory activity data from China is expected on Monday, covering both official and private sector surveys, following the announcement of a comprehensive stimulus package aimed at reviving the struggling economy. While it may be premature to gauge the immediate impact of these measures—including substantial rate cuts and support for the stock market—investor sentiment has turned optimistic in response to the recent developments. Although the purchasing managers’ index data from China will lead the economic calendar in Asia, a meeting between the Thai government and its central bank is also on the radar as they address domestic inflation targets and the strength of the baht.

2. Glum Britain
   As the Bank of England works toward neutral interest rates, it is lagging behind the actions of the Federal Reserve and the European Central Bank. Market sentiment indicates that traders expect the BoE to reduce rates at a slower pace than other major central banks. Upcoming data regarding second-quarter GDP in the UK is unlikely to sway policymakers, who remain cautious about persistent inflation in certain sectors. The new Labour government has highlighted the country’s financial challenges, a situation they intend to tackle in the upcoming budget. Consumer sentiment has plummeted to its lowest in six months, but data on mortgage lending and consumer credit may bring some much-needed relief.

3. Deflating
   Eurozone inflation figures set to be released on Tuesday will draw significant attention as the ECB considers another rate cut in October. Consumer prices in both France and Spain rose by 1.5% and 1.7%, respectively, in September, which was below expectations. Many economists believe that the overall eurozone inflation might slip below the ECB’s 2% target for the first time since June 2021, primarily due to lower energy prices, although an uptick is anticipated in the latter part of the year.

Investors now assign more than a 50% probability to a 25 basis-point rate cut in October—a prediction that seemed unlikely just the week prior—following unexpected contractions in eurozone business activity in September, raising concerns that the ECB may be lagging in its response. Dovish policymakers are gearing up to advocate for this cut, while hawkish members are likely to push back. There are expectations that inflation will decrease more rapidly than the ECB’s current forecast.