Week ahead: NFP, US Gov Shutdown, ISM Manufacturing PMI, EZ CPI, RBA rate decision 

Weekly Recap

U.S. stocks ended the week modestly lower, and the US dollar remained relatively strong as investors digested a less dovish-than-expected speech from Federal Reserve Chair Jerome Powell, stronger growth and jobless claims, and in-line inflation figures.  

US Q2 GDP was upwardly revised to a robust 3.8% annualized, well above trend, at the fastest pace of growth in two years. US jobless claims fell to 218k, and core PCE, the Fed’s preferred gauge for inflation, rose to 2.9% as expected. Delving deeper into the data, consumption, which drives 70% of the US economy, came in above expectations, showing consumers remain solid despite rising prices. 

Powell’s comments and the data raised questions about the Fed’s ability to cut interest rates aggressively over the coming quarters, weighing on demand for stocks and stock indices such as the S&P 500 while strengthening the USD.  Gold rose a further 2% hitting a record high, as worries over a US shutdown weighed on sentiment. 

RBA rate decision (Tuesday) 

The RBA will announce its decision on monetary policy on Tuesday. The decision follows the RBA’s rate decision in August, where policymakers cut interest rates by 25 basis points amid a cooling of inflation. The updated economic projections suggested that underlying inflation is set to continue easing, and interest rates will remain on a gradual path of easing. Since the meeting, unemployment has declined to 4.2% and stayed at this level in August. More importantly, the monthly CPI jumped to 2.8% in July, up from 1.9% in June, and rose even further to 3% in August. As a result, the market is pushing back rate cut expectations and is not fully priced for another cut until February 2026. For this meeting, the market is pricing in just a 7% chance of a cut, with a 93% probability of no action. Should the RBA sound cautious about further cuts, AUD/USD could rise. 

Japan Summary of Opinions (Tuesday) 

The BoJ will release the summary of opinions on Tuesday. These refer to the latest central bank meeting, where the BoJ left rates on hold at 0.5%, but there was a more hawkish division within the meeting, suggesting that a rate hike could be nearing. That said, the yen may struggle to gain traction with the Liberal Democratic Party leadership elections on October 4. If a more dovish candidate prevails, this could delay the next BoJ rate hike. USD/JPY is falling away from a multi-monyh high. 

UK GDP  (Tuesday) & Labor Party conference 

UK Q2 GDP is expected to confirm 0.3% growth QoQ. The data comes as the outlook for the UK continues to deteriorate, with July GDP falling to 0% MoM and recent PMIs showing signs of momentum fading. Momentum and confidence are slowing ahead of the Chancellor’s budget on November 26. With this in mind, attention will also be focused on the Labour Party conference, which began over the weekend and continues this week. The market will be looking to Rachel Reeves for any soothing words ahead of the budget, as worries have started to emerge in the bond market, which is fretting over the Chancellor’s ability to get public finances in order. Should Reeves fail to calm the market, bond yields could climb, and the GBP/USD could come under pressure. 

Eurozone CPI (Wednesday) 

The eurozone preliminary inflation report for September will be released on Wednesday. Expectations are for CPI to rise modestly to 2.3% up from 2% in August. However, inflation remains relatively close to the ECB’s target of 2%, and with questions over whether the central bank will cut rates again this cycle, the data may not elicit a significant reaction. ECB President Christine Lagarde noted that the central bank is in a good position, with inflation where it should be. The market currently sees a 35% probability of another 25-basis-point rate reduction by June next year. In other words, most believe the ECB has completed its rate-cutting cycle. That said, the ECB is closely monitoring the euro’s value against the US dollar, which could mean inflation undershooting in the coming quarters. A weaker-than-forecast CPI could pull EUR/USD lower. 

U.S. government shutdown (Wednesday) 

By Tuesday, the market will know whether the US government will shut down unless Congress reaches a funding agreement required to finance the federal government. However, what makes it different this time is that the White House is instructing agencies to prepare for government layoffs rather than the usual furlough, which typically occurs and then sees workers return to their jobs once the US Congress approves a new financial plan. Instead, a mass firing could eliminate employees’ positions and could have an impact on job data, the US economy, and potentially monetary policy. Nerves surrounding the shutdown have lifted Gold to record highs and could support the precious metal higher. 

US ISM manufacturing (Wednesday) 

Expectations are for US ISM manufacturing to improve slightly to 49.2 in September, up from 48.7, although this remains below the 50 level, which separates expansion from contraction. Using the S&P manufacturing PMI’s comparison, this fell to a two-month low of 52 in September, down from 53 in August. Although this indicates that manufacturing output rose for a fourth consecutive month, the pace of expansion slowed significantly. New orders weakened partly owing to export losses from tariffs. Tariffs continue to drive prices higher, with manufacturing input prices around the highest level since the pandemic. Fewer firms are able to pass on costs to customers, squeezing their margins and pointing to a potential moderation of inflation. Weaker data could support Fed rate cut bets and boost stock indices such as the Dow Jones. 

Non-farm payroll (Friday) 

The last couple of months have seen non-farm payrolls coming in well below market expectations, and there have also been strong downward revisions to previous months. This suggests that the overall trend in employment indicates a significant slowdown, and investors will be keen to see whether this trend continues in September, particularly given the importance it was given in the Federal Reserve’s most recent rate cut. Stronger-than-expected US payroll reports could help alleviate concerns over the US jobs market, which, when combined with inflation at 3%, could prompt the market to rapidly reassess the likelihood of two more Fed rate cuts this year, potentially pulling stocks lower. The more complicated outcome would be a weaker-than-expected nonfarm payroll report, which could highlight the deterioration of the labour market at a time when inflation remains high. The picture here is more complicated for the Federal Reserve as sticky inflation and a weak jobs market require conflicting monetary policy measures. This outcome could support aggressive Fed rate cut hopes, lifting stock indices such as the Nasdaq. 

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