Week of September 8

Last week was bookended by major events affecting the market, such as Eurozone inflation and US NFP, with markets paying attention to geopolitical events.

The focus for the week ahead will likely be on the ECB's rate decision, US CPI, and China's trade balance. In geopolitics, markets will keep an eye on the no-confidence vote in France.

Week in Review

The market focus of the week was on US labour data after the Fed signalled that it will be a pivotal element in deciding whether to cut rates on September 17. The data through the week suggested loosening in the job market, but not to the point that it generated fear of a recession. The ADP employment change came in at 56K, compared to 68K expected, though the prior reading was revised higher by 2K to 106K. The JOLTS report showed that open employment offers in July fell to 7.18M from 7.38M a month earlier, the lowest level since early 2021.

Euroarea inflation rose to 2.1% from 2.0%, in line with expectations. With the inflation rate on target and modest economic growth, markets have moved to price out further rate cuts by the ECB for the rest of the year. Eurozone retail sales for July fell to -0.5% from +0.6% in June, compared to the -0.2% forecast.

Australia's Q2 GDP expanded at a 0.6% rate, faster than the 0.5% forecast and doubling Q1's 0.3% growth rate. RBA Governor Bullock pointed to slower consumer spending and said she didn't know what would happen with rates at this stage.

In geopolitics, Chinese President Xi Jinping hosted Russian President Putin for a ceremony marking the end of WWII, in a show of strengthened relations. UK Prime Minister Keir Starmer announced a "mini cabinet reshuffle", appointing more economic advisors ahead of a contentious Autumn Budget. US President Donald Trump agreed to amend the trade agreement with Japan to lower tariffs on automotive imports to 15%. Trump also held a call with European leaders, urging them to stop buying oil and to pressure China to stop supporting Russian war efforts.

Biggest Market Movers

• Gold climbed to records amid soft labour data that would pave the way for a Fed rate cut, its best performance in three months.
• Crude prices trended lower due to concerns about a supply glut and in anticipation of the OPEC+ meeting, leading to their first weekly loss after three weeks of gains.
• The S&P 500 notched a new record high on Thursday ahead of expected softer jobs data.
• The USDJPY declined after Japanese wages increased faster than expected in July, along with higher JGB yields.

Top Events in the Week Ahead

European markets will closely monitor the anticipated no-confidence vote in the French PM, scheduled for Monday. The likely failure of the vote could trigger snap elections in Europe's second-largest economy. Then attention will move to the US inflation figures coming out later in the week, the last major data the Fed will have to consider at its September 16-17 policy meeting.

ECB to Hold Rates Unchanged

There is a unanimous expectation that the ECB will keep rates unchanged at the Thursday meeting, with inflation practically in line with the target. However, traders will be looking for signs of dovish dissent amid soft economic performance that could alter the perception that the ECB will stay on hold for the rest of the year. EURUSD has the next resistance past 1.1700 at 1.1740, while supports lie at 1.16500 and 1.1600.

US CPI to Pave Way for Fed Cuts

Markets are looking forward to Thursday's release of US inflation figures for August, with the consensus expectation for the headline rate to tick down to 2.7% from 2.8%. Lower energy costs are projected to help lower the reading. The core rate is predicted to stay unchanged at 3.1% amid continued rising costs in shelter. Traders will be carefully looking for signs of the influence of tariffs, as that could be a significant point for the Fed's policy decisions. Poor inflation could push gold towards new territories above $3600 per ounce, opening the door to $3750. On the other hand, $3500 remains a support if US CPI accelerates.

China's Exports Expected to Accelerate

Monday's release of Chinese trade data will be carefully scrutinised to see what impact the trade war is having. The total August trade surplus is expected to increase to $98.2 billion, up from $91.0 billion in the previous month, with exports rising 7.2% and imports increasing 4.1%. That would represent an acceleration of exports from the 6.6% seen in July. The Aussie could get a boost from positive China import data and finally resume its upward leg towards the 0.6600 handle.

Other Events and Earnings

Monday has the German trade balance. Tuesday sees Australia's Westpac consumer confidence and NAB business confidence. US PPI is scheduled for Wednesday. Thursday includes the OPEC monthly report. For Friday, the UK's monthly GDP is expected. Among a light corporate earnings calendar, anticipated updates from companies this week include Oracle, Manchester United, Adobe, and Kroger.