Key events to watch in the week ahead: 2 – 6 October 2023

This week’s overview

This week has been broadly risk-off, with sentiments still reeling in from the high-for-longer rate outlook from the Federal Reserve (Fed). The VIX has touched its four-month high, while the S&P 500 has retraced more than 7% from its July high – a reaction to the relentless rise in US Treasury yields and a stronger US dollar.

The upcoming week will bring about interest rate decisions from various central banks such as the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ). Key focus will also revolve around the US non-farm payroll, given that the Federal Reserve (Fed) is still very much data-dependent in determining whether to follow through with its last rate hike before year-end.

Here are four things to note next week.

2 October 2023 (Monday, 10pm SGT): US ISM Manufacturing PMI / 4 October 2023 (Wednesday, 10pm SGT): US ISM Services PMI

The US Institute for Supply Management (ISM) Manufacturing Purchasing Manager’s Index (PMI) has been in contractionary territory for the ten straight months, with broad expectations for the trend to remain in September as well. Current consensus is looking for a reading of 47.8, slightly higher than the previous 47.6.

Within the manufacturing sub-indices, New Orders have decreased slightly faster to 46.8 in August from previous 47.3 while Prices Paid has increased to 48.4 from 42.6, indicating rising costs.

Much of the heavy-lifting in US economic conditions may still depend on the resilience in the services sector, with consensus for the upcoming services PMI to turn in at 54, a tad softer than the previous 54.5 but still in expansion for its ninth straight month. A fall in services PMI into contraction tends to precede past recessions (as opposed to manufacturing PMI), therefore a more resilient read may help support soft landing hopes.

3 October 2023 (Tuesday, 11.30am SGT): RBA interest rate decision

Market participants are largely expecting the RBA to keep its cash rate on hold for the fourth straight meeting next week, but are unconvinced that the peak rate has been seen just yet. Additional rate hike is still being priced for early next year to potentially put the cash rate at 4.35% from current 4.1%.

Recent uptick in Australia’s August inflation (5.2% year-on-year vs previous 4.9%) does not offer much room for the RBA to soften its stance at the upcoming meeting, with the central bank likely to keep the option open for “further tightening of monetary policy” – a stance that could be largely unchanged from previous statements.

4 October 2023 (Wednesday, 9am SGT): RBNZ interest rate decision

The RBNZ has kept its official cash rate on hold at 5.5% over the past two meetings, with broad expectations priced for rates to remain unchanged at the upcoming meeting. While the central bank has acknowledged that the “current level of interest rates is constraining spending and hence inflation pressure, as anticipated”, its previous forecasts have taken a hawkish lean by leaving the door open for an additional rate hike, while pricing out rate cuts in 2024.

Recent upside surprise in 2Q gross domestic product (1.8% year-on-year vs 1.2% expected) and higher-than-expected 2Q consumer prices may provide some confidence for the central bank to retain its hawkish tone next week, with any validation for rates to be kept high for longer potentially translating to a firmer NZD.

6 October 2023 (Friday, 8.30pm SGT): US September non-farm payrolls

The recent Federal Open Market Committee (FOMC) meeting offered a hawkish takeaway, with policymakers looking for one more hike by the end of the year while guiding for only two rate cuts in 2024 versus the initial four guided in June.

Given that Fed funds futures pricing still reflects some reservations as to whether the Fed will follow through with its final rate hike before year-end, the upcoming US jobs report will be closely watched for validation, with any resilience presented in the US labour market likely to support hawkish bets.

Current consensus is for further moderation in US job gains to 150,000 in September from previous 187,000, while unemployment rate is expected to stay resilient at 3.7% from previous 3.8%. Aside, US wage growth is expected to moderate to tick higher to 0.3% month-on-month from previous 0.2%.