Ahead of the game: 09 October 2023

US equity markets lost ground for a fifth week, under pressure from the relentless rise in US yields For stability to return to interest rates and equity markets, some moderation in US economic data is needed, starting with September's pivotal non-farm payrolls report

In Australia, the first week of October has started with a similar negative sentiment viewed during September A circuit breaker of sorts is needed to ensure the ASX 200 remains above year-to-date lows at 6895 and to set up a run higher into year-end.

• The RBA maintained rates at 4.10% for a fourth straight month
• The RBNZ held rates at 5.5% for a third consecutive month
• US ISM manufacturing PMI rose to 49 in September from 47.6 in August
• US JOLTS job openings increased to 9.61m from 8.8m
• ISM services PMI eased to 53.6 in September from 54.5 in August
• ADP employment report showed 89k workers hired in September, below the 153k forecast
• Fed Member Mary Daly suggested that the FOMC can refrain from further hikes if the labor market and inflation cool, emphasising that "holding rates steady is an active policy action."
• Gold fell 1.42% to $1822 due to higher US yields and a stronger US dollar
• Crude oil dropped over 8% as the market re-evaluated the impact of higher interest rates on oil demand
• Wall Street's fear gauge, VIX) index, rose by 5.5% to 18.50.

• AU: Westpac Consumer Survey (Tuesday, October 10 at 10:30 am AEDT)
• AU: NAB Business Confidence Surveys (Tuesday, October 10 at 11:30 am AEDT)

• CH: New Yuan Loans (Wednesday, October 11 at 10 am AEDT)
• CH: CPI and PPI (Friday, October 13 at 12:30 pm AEDT)
• CH: Balance of Trade (Friday, October 13 at 2:00 pm AEDT)

• US: PPI (Wednesday, October 11th at 11:30 pm AEDT)
• US: FOMC Minutes (Thursday, October 12th at 5 am AEDT)
• US: CPI (Thursday, October 12th at 11:30 pm AEDT)
• US: Michigan Consumer Sentiment (Saturday, October 14 at 1 am AEDT)

• GE: Industrial Production (Monday, October 9 at 5:00 pm AEDT)
• UK: GDP (Thursday, October 12 at 5 pm AEDT)

• US

FOMC minutes

Date: Thursday, October 12 at 5 am AEDT

As widely expected, the Fed maintained its target rate for the Fed Funds at 5.25%-5.50% at its September meeting.

However, the Fed caught the market off guard as the 2024 median dot moved up 50bp to 5.1% from 4.6% in June, indicating just two cuts next year are expected vs. four previously. Furthermore, the dots showed that 12 of 19 Fed officials favor another rate hike this year.

The minutes will likely echo the tone of the Fed's hawkish hold and reiterate that it is unable to rule out another rate hike this year and that rates are set to stay higher for longer.

Fed funds chart

• UK

GDP

Thursday, October 12 at 5 pm AEDT

The UK economy contracted by 0.5% MoM in July 2023, the biggest decline so far this year, exceeding consensus expectations for a -0.2% fall. The sharper than expected fall was driven in part by wet weather and industrial action.

This month, the market is looking for GDP to contract by 0.1% MoM, as higher interest rates and cost of living expenses weigh on consumer demand.

UK GDP chart

• US

CPI

Thursday, October 12 at 11:30 pm AEDT

Despite the Federal Reserve Bank (Fed) penciling in a final rate hike before year-end, the broad market consensus is that the Fed may not follow through with it. With that, the upcoming US inflation data will be closely watched to provide the much-needed validation on whether we may have already seen the peak in US rates.

Current expectations are for headline CPI to register a 3.6% year-on-year growth in September, down from the previous 3.7%. Similarly, the core aspect is expected to moderate to 4.1% from the previous 4.3%. Month-on-month, both headline and core aspects are expected to turn in a 0.3% growth.

Further cooling in US inflation may give the Federal Reserve (Fed) room to keep rates on hold at subsequent meetings, especially with some tightening effect from the surge in US bond yields lately and easing pricing pressures from falling oil prices. Nevertheless, with core inflation still more than two-fold above the Fed’s 2% target, the central bank may continue to hold onto their hawkish tone to retain its credibility.

CPI chart

• CN

CPI data

Friday, October 13 at 12:30 pm AEDT

After slipping into deflation for the first time in two years, China’s consumer prices have managed to revert to growth in August, with expectations for prices to stabilise further in September. Current consensus for its September CPI is for a 0.2% year-on-year growth, up slightly from previous 0.1%.

Aside, the contraction in producer prices is expected to ease further for the third straight month, with a 2.5% contraction year-on-year versus the previous 3.0% decline. While market participants may be comforted with any signs of stabilisation in the economy, the still-subdued inflation readings may continue to reflect overall weak demand and potentially for more to be done by authorities.

CPI and PPI figures chart

Economics calendar

All times shown in AEDT (UTC+10) unless otherwise stated