Tom Westbrook provides an update on the European and global markets for the day ahead.
European inflation figures are due on Tuesday and the risk is on the downside, which will strengthen bets on an interest rate cut from the European Central Bank later in the month.
Already this week, German September inflation fell short of forecasts and, at 1.8% year-on-year, was the lowest since 2021.
Inflation is also falling in France, Italy and Spain and markets have started to price in an October rate cut after President Christine Lagarde said on Monday the trend would be taken into account in the next general policy meeting, which will take place on October 17.
Traders are pricing in another ECB rate cut in December and are selling dollars on the assumption that inflation is under control globally and that US rates have the furthest to go.
The euro failed to break through the $1.12 mark, but is holding above $1.11, while the yen and yuan were the main movers in currency markets. [LE YEN ET LE YUAN ONT ÉTÉ LES PRINCIPAUX ACTEURS DU MARCHÉ DES DEVISES.]
The yuan remained steady at 7 per dollar in offshore trading as Chinese markets were closed and public holidays in Hong Kong and South Korea lightened trading in the Asian session. The yen stabilized at 143.89 per dollar.
Earlier in New York, U.S. yields rebounded as Federal Reserve Chairman Jerome Powell said the policy committee was in no rush to cut rates, although that will dissipate quickly if data due Tuesday and the rest of the week turns out to be sluggish.
The ISM U.S. manufacturing index has been in contraction territory for months, even though the economy is doing well, but the focus will be on the employment index and job opening numbers. job of the month of August.
If there are signs of weakness, traders will increase their bets on a 50 basis point Fed cut in November. According to CME FedWatch, the probability of a 50 basis point cut is currently 36%, down from 53% before Powell’s remarks.
Israel’s widely anticipated ground invasion of Lebanon appears to be coming together, with the Israeli military saying troops have begun “limited” raids against Hezbollah targets in the border area.
Oil prices have increased very slightly.
Broader trade in Asia was lightened by the holidays, although with booming Chinese markets closed, investors have reduced some of the exuberance over the recovery of the world’s second-largest economy and miners of iron ore in Australia, for example, have fallen.
Industrial activity in Asia weakened in September due to weak Chinese demand and global economic uncertainty, pointing to a difficult outlook, according to private surveys.
Shigeru Ishiba is expected to be elected by Parliament as Japan’s next prime minister, while upbeat Australian retail sales data gave a slight boost to the Australian dollar.
Main developments likely to influence the markets on Tuesday:
– Inflation in the euro zone
– Job offers in the United States, ISM survey
