Week ahead in the markets: ECB rate decision takes centre stage
The European Central Bank (ECB) is expected to announce a 0.25% rate cut this week, marking the third reduction this year. Key economic data from China, the UK, and the US will also be in focus, including China’s GDP and UK inflation.
This week, global markets are focused on the European Central Bank’s upcoming interest rate decision, as investors assess how quickly central banks will ease monetary policy.
This shift will influence the strength of currencies, inflation trends, and overall economic outlooks. Other key economic data points include China’s GDP, UK inflation, and US retail sales.
Europe: ECB expected to cut rates
The ECB is widely anticipated to reduce its key policy rates by 0.25% this week, marking its third rate cut of the year, following similar moves in June and September. Although the ECB maintained a hawkish stance during its September meeting, recent economic data have supported further easing.
According to Eurostat’s flash estimate, eurozone inflation cooled to 1.8% in September, dipping below 2% for the first time since June 2021. Core inflation also eased to a two-year low of 2.7%.
The combination of a weakening economy and lower inflation has increased the likelihood of a more rapid rate-cutting cycle, with the ECB potentially reducing the deposit rate to 3% by year-end.
However, some analysts caution that rising energy prices, exacerbated by the escalating conflict in the Middle East, could present upside risks to inflation, prompting the ECB to retain a cautious approach.
Other notable data include the Eurozone’s final Consumer Price Index (CPI) for September, which is expected to align with the flash estimates.
Additionally, Germany’s ZEW economic sentiment, which dropped sharply to 9.3 in September, is projected to recover slightly to 16.9 in October, though it will remain weak.
The European earnings season kicks off this week, with ASML, the continent’s largest tech firm, set to release its third-quarter results on 16 October. ASML’s performance has lagged broader markets recently.
In the UK, all eyes will be on the release of the September inflation report, due on Wednesday. Annual inflation held steady at 2.2% over the past two months, and the Bank of England (BoE) kept interest rates unchanged at 5% in September following its first rate cut in four years in August.
Strong economic data and persistent inflation may encourage the BoE to maintain a hawkish stance, providing support for the British pound.
Additionally, September retail sales data will be closely watched as a gauge of consumer spending and inflationary pressures.
United States: Light data week with focus on retail sales and Netflix earnings
In the US, economic data releases will be relatively sparse. The key focus will be September retail sales figures. In August, retail sales rose by 0.1% month-on-month, slowing from the previous month’s 1.1% increase, yet outperforming expectations for a 0.2% decline.
This resilience in consumer spending, despite high interest rates and persistent inflation, reflects a strong labour market and is likely to prompt a slower pace of rate cuts by the Federal Reserve, which could further bolster the US dollar and stock markets.
On the earnings front, the US reporting season continues this week, with Netflix as the first major tech firm to release its third-quarter results.
ADVERTISEMENTAnalysts expect Netflix to report earnings per share of $5.11 (€4.67) on revenue of $9.77bn (€8.94bn), providing insight into the broader health of the tech sector.
Asia-Pacific: China’s GDP and economic data in focus
In the Asia-Pacific region, China’s third-quarter GDP figures, set for release on Friday, will be closely scrutinised for their impact on global markets. Chinese data is particularly viewed as a bellwether for the demand outlook on growth-sensitive commodities, such as copper and crude oil.
The world’s second-largest economy is forecast to have grown by 4.7% in the third quarter, falling short of the 5% target and down from the 5.3% growth recorded in the first quarter.
Despite government stimulus efforts, the World Bank has warned that China’s economic growth could slow further to 4.3% by 2025.
ADVERTISEMENTAnalysts expect third-quarter growth to slow to 4.6%, reinforcing the need for additional stimulus measures.
In addition to GDP, China will release other key economic data, including industrial production, retail sales, and fixed asset investment figures for September.
These indicators will be closely monitored for signs of further economic weakness.
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