Weekly market recap

Your weekly global financial market newsletter

The European Central Bank will decide on its monetary policy settings on Thursday. So far, the financial markets seem to be much more confident about the extent of the interest rate cut than ECB officials themselves.
The ECB looks set to stick to its "data dependent" stance. And since preliminary inflation data from the end of August pointed to annual price growth of 2.2%, which is very close to the ECB's 2% target and the lowest since late August 2021, a rate cut is probably the logical step.
What is being speculated more is the next monetary policy settings, as the risk of a further decline in inflation and the poor economic outlook could lead to speculation if the pace of cuts is slow. Given that core inflation is far from target and the ECB itself expects inflation of 2.5% at the end of the year (disinflation from energy and goods has likely run much of its course), 0.25% will probably be enough.
So the only question is how the ECB will proceed in the coming months. And that is probably where investors' expectations are most focused, so as has been the recent habit, the post-decision press conference is likely to be much more interesting than the actual rate cut, about which almost everyone is clear.

Indices

US stocks have had one of their worst weeks in months. The declines began on Tuesday when purchasing managers’ indices pointed to a continued decline in the momentum of the US manufacturing sector. Reports from the labour market pointing to its slowdown then set up another selloff on Friday when the August jobs report showed 142K new jobs versus the 164K expected. Big tech titles, chipmakers, and energy firms took the biggest losses due to the drop in oil prices. As a result, the S&P 500 had its worst week since March 2023, the Nasdaq had its worst early-September decline since 2001 and the DJIA posted its steepest early-September decline since 2008.

European stocks also suffered from the negative sentiment in markets around the world and, as in the US, titles in the technology sector were among the worst losers. However, banks and consumer discretionary stocks also came under pressure from risk-off sentiment. The pan-European STOXX Europe 600 ended 3.52% lower, France’s CAC 40 Index fell 3.65%, Germany’s DAX declined 3.20%, and the UK’s FTSE 100 Index slid 2.33%.

US30

-2.93%

US100

-5.89%

US500

-4.25%

GER30

-3.20%

Commodities

The price of oil fell to its lowest level since December 2021 last week despite OPEC countries postponing a planned 180,000 barrel per day increase in oil production until December. Demand-side concerns are more likely to be behind the relatively sharp fall in the oil price, which has already lost more than 10% since the end of August. The biggest concerns are on the demand side from China, which has been a major disappointment, particularly in the last four months. Thus, the Chinese import data to be released next week could be the only surprise, which could mean a rise in the oil price, but until then, pessimism is winning out.

Gold

-0.64%

Silver

-3.21%

BRENT

-7.63%

NATGAS

+6.96%

Forex

The Japanese yen had another week of growth, strengthening against all majors during the week, with some even hitting monthly highs. The persistent inflationary pressures and wage growth continue to fuel speculation that the Bank of Japan will continue to raise interest rates, which would again be in opposition to other central banks, which in turn, due to the worsening economic situation, are considering lowering them.

Friday’s NFP report in the US did bring quite a lot of volatility on the USD pair, and although the dollar strengthened against most major currencies, there was no reversal of the trend on the JPY pair, which is considered a safe haven (and thrives when the economic situation worsens), and the Japanese currency ended the week with quite a significant strengthening. From a technical perspective, it will be interesting to see if the Japanese Yen manages to overcome the strong support levels around 142.5 and 141.7, the breaching of which could lead to further growth in the Yen and a fall in the USDJPY currency pair.

EUR/USD

+0.35%

USD/JPY

-2.69%

GBP/USD

+0.00%

USD/CAD

+0.58%

Macro

Macro data in the US were worse than expected in virtually all cases, a signal that the US central bank may have waited too long to ease monetary policy. Already on Tuesday, it was the numbers regarding the purchasing managers’ indices from both S&P Global and ISM that not only remained below the 50-point threshold indicating a contraction, but were even worse than expected.

However, the labour market news had a much bigger impact on the markets. First came the disappointment in the form of a drop in the number of job openings by 237,000 to 7.673 million in July 2024 from a downwardly revised 7.910 million in June, the lowest level since January 2021.

Then on Thursday, data from ADP showed that the number of private sector jobs increased by only 99,000 in August, which was significantly worse than expectations and also the lowest level since January 2021. Friday’s NFP data did show the creation of 142,000 new jobs, which was below expectations (164,000) and July’s gain was revised down to 89,000 (the lowest since December 2020). However, the drop in unemployment from 4.3% to 4.2% and the rise in average hourly earnings and expectations ultimately meant a rather positive reception and a renewed reduction in the likelihood that the Fed could cut rates by more than 0.25%.

Also in Europe, PMI data in the manufacturing sector disappointed, but in the services sector the numbers were positive and confirmed several months of expansion, both in Europe and the UK.

The GDP in the Eurozone expanded 0.6% year-on-year in the second quarter of 2024, in line with the preliminary estimate and the strongest expansion in over a year. On a QoQ basis, GDP expanded 0.2% in second quarter.

What to watch out for this week

In the US, the main focus will be on Wednesday's inflation data, which is expected to fall for the fifth consecutive month. Year-on-year inflation is expected to fall from 2.9% in July to 2.6% in August, the lowest since March 2021. Core inflation is expected to remain at 3.2%, with both headline and core inflation expected to remain at 0.2% month-on-month. Investors will also be watching manufacturing inflation, with both headline and core inflation expected to rise to 0.2%.
In Europe, the main focus will be Thursday's ECB meeting and the next expected 25 bps interest rate cut. In addition, final inflation in Germany and UK GDP and unemployment data will be awaited.

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