David Bassanese
3 minutes reading time
There are no charts today due to travel commitments.
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Global week in review
Global equities edged lower last week, likely reflecting some consolidation following the previous week’s US Federal Reserve meeting.
There was not a lot moving markets last week, with a degree of post-Fed profit-taking likely occurring given the market’s recent solid gains. Fed Chair Jerome Powell delivered a balanced speech, largely explaining the rationale for the recent rate cut and highlighting the policy challenges posed by near-term upside risks to inflation alongside downside risks to economic growth, given ongoing tariffs. In her own speech, Fed Vice Chair Michelle Bowman was more dovish, suggesting the Fed should pay more attention to downside growth risks.
All up, current market pricing suggests there’s still a near-certain (90%) chance of a follow-up Fed rate cut at the next meeting in October.
Despite slowing employment growth, other US economic activity indicators are still holding up reasonably well. Annualised Q2 US GDP growth was revised up from 3.3% to 3.8%, underpinned by solid consumer spending. Durable goods orders keep rising, helped by defence spending. Weekly jobless claims dropped back further to remain at low levels.
On Friday, the core consumption deflator confirmed still only limited tariff effects so far, with core prices up 0.2%, in line with market expectations.
Global week ahead: US payrolls
Friday’s September US payrolls report will be the key highlight this week. Markets anticipate a relatively muted 50k gain in employment, although with labour force growth also slowing, this is expected to be enough to keep the unemployment rate steady at 4.3%.
Job openings data and ISM surveys on manufacturing and services will also provide other pulse checks on the health of the US economy.
Australian week in review
The highlight last week was the slightly higher-than-expected August CPI report, with trimmed mean annual inflation only slowing to 2.6% from 2.7%.
As happened a couple of months ago, markets again likely over-reacted to gyrations in the monthly CPI report – reducing the chances of a November rate cut to a 50-50 proposition.
I still think there’s a good chance of a cut, with my base case being that the Q3 CPI report in late October will show annual trimmed mean inflation (based on quarterly data) easing to at least 2.6% from 2.7% in Q2. To my mind, that should be enough to justify another cut, and there’s even a good chance of a cut if the result is 2.7%. Anything higher would likely rule out a cut.
In other data last week, quarterly job vacancies eased by 2.7% in August, to remain at above-average levels. That’s consistent with a gradual easing in what is still a broadly firm labour market.
Australian week ahead: September RBA meeting
The main highlight this week will be tomorrow’s RBA meeting outcome, with the Bank widely expected to leave rates on hold. In her press conference, RBA Governor Michele Bullock will no doubt be quizzed on what signal – if any – she took from last week’s August CPI report.
Monthly house price data on Wednesday is also likely to show the market continues to heat up. Thursday’s Household Spending Indicator – a new and apparently improved version of the old retail sales report – is expected to show an ongoing gradual recovery in consumer spending.
Have a great week!
