Week ahead in the markets: Tensions in the Middle East remain in focus

This week, risk-off sentiment is likely to continue driving global market movements, as geopolitical tensions in the Middle East escalate further. The developments in this region will take centre stage.

Additionally, the US is scheduled to release its September inflation data, which the Federal Reserve (Fed) closely monitors to adjust its monetary policy.

Both the ECB and the Fed will release their September meeting minutes, providing deeper insight into the stances of these central banks.

Europe

Economic data for the eurozone is expected to be light this week, meaning that external factors will likely influence market movements more significantly.

The ECB’s September meeting minutes will be the most important market event, as they may provide indications of how quickly the central bank will continue reducing interest rates.

Following two 0.25% rate cuts in June and September, analysts expect the ECB to cut rates again in October, with inflation cooling more than anticipated in September.

Other economic indicators this week include the Eurozone’s retail sales, Germany’s industrial production, and France’s trade balance for August, though these are expected to have a limited impact on European stocks and the euro.

In the UK, the monthly Gross Domestic Product (GDP) data for August will be a key focus.

The British economy stalled for the second month in a row in July, suggesting that the momentum seen in the first half of the year may be fading. A slowdown in growth could push the Bank of England to accelerate its easing cycle.

The US

The US monthly Consumer Price Index (CPI) for September is expected to be a critical data point for global markets this week. It will be the first inflation release since the Fed’s large 0.5% rate cut in September.

Inflation in the US eased to 2.5% in August, and consensus forecasts suggest that price growth will slow further to 2.3% in September, moving closer to the Fed’s 2% target.

A higher-than-expected reading would dampen expectations of further rapid rate cuts and could weigh on stock markets, while a lower reading would likely boost sentiment.

Additionally, the US Producer Price Index (PPI), which tracks changes in the selling prices of goods and services, with a focus on wholesale prices, will be released.

In August, the PPI rose by 1.7% year-on-year, confirming the cooling inflation trend. It is expected that the PPI will increase by only 0.1% in September, down from 0.2% in the previous month.

The Fed’s September meeting minutes, which detail the discussions and decisions from the FOMC meeting, will also be released this week.

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These records will provide valuable insight into the Fed’s future policy direction, which will shape financial market trends.

Although the Fed is expected to cut interest rates at its meetings in November and December, Fed Chair Jerome Powell has emphasised that the Fed is not on a pre-set course, and future decisions will depend on incoming data.

Asia Pacific

In the Asia-Pacific region, the Reserve Bank of New Zealand is expected to make a substantial 0.5% rate cut this week, driven by a deteriorating economic outlook.

In August, the bank unexpectedly cut the official cash rate by 0.25%, marking a shift from its previously hawkish stance.

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The New Zealand economy contracted by 0.2% in the second quarter, following 0.1% growth in the first quarter.

The central bank anticipates that the country will enter another technical recession this year, having already done so in the final quarter of last year.

China is set to release its new yuan loans and M2 money supply data for September.

Following stimulus measures from the People’s Bank of China, these data will be critical for assessing lending activity and liquidity.

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Continued growth in new loans and an increase in the money supply are expected to support the ongoing rally in the Chinese market.