Week of September 22

A very active week of economic data comes to a close, with highlights including the Fed rate cut, while the BOE and BOJ kept rates unchanged, with UK inflation and job figures in line with expectations.

The week ahead has a much quieter economic calendar, with the US PCE price index and durable goods likely the primary focus for the markets, as well as flash September PMIs.

Week in Review

The main event of the week was the Fed's much-anticipated rate decision, which cut rates by 25 basis points as expected. There was one dissenter, also as expected, being the newly appointed Stephen Miran, voting for 50 bps, as the legal battle over replacing Lisa Cook continues. The main surprise for the markets was with the dot-plot matrix, providing a short-term dovish signal against a longer-term hawkish backdrop. The FOMC members expect two more rate cuts this year (implying cuts in October and December), but only one more in 2026. The market had been hoping for as many as three cuts next year.

The BOE agreed to keep rates unchanged, as widely anticipated. The vote split of 7-2, with dissenters supporting a quarter-point cut, was also as expected, as money markets continue to price in no rate cuts later this year. Ahead of the meeting, UK unemployment remained unchanged at 4.7%, while core inflation dipped to 3.6% from 3.8%, both as expected.

The BOC eased by 25 bps, as was generally anticipated, resuming rate cuts after a three-month pause. But it left a somewhat hawkish impression after removing language related to further rate easing from its policy statement.

The BOJ kept its policy unchanged, in line with expectations. In an unusual move, two members voted to hike, giving a more hawkish impression. The BOJ also announced plans to start selling off its ETF holdings. While the meeting was ongoing, Japan's August CPI was reported at 2.7%, down from 3.1% but in line with expectations.

Biggest Market Movers

• The EURUSD rose to a 4-year high on Wednesday ahead of the FOMC decision but gave back the gains in the wake of a more hawkish rate outlook from the Fed.
• US indices trended higher, with the Nasdaq recording new highs on the back of the Fed rate cut and Nvidia's investment into Intel.
• NZDUSD was the worst-performing of the major currencies after NZ Q2 GDP came in well below expectations, losing 1.40%.

Top Events in the Week Ahead

The most significant event for the week is likely to be the inflation data from the US; however, since it follows closely after the Fed's rate decision, its impact may be muted. The focus could be on any potential surprises from the flash PMI figures as investors weigh global economic growth concerns.

Global PMIs: Germany Back to Expansion?

Tuesday has the release of flash PMI figures for several major global economies. Following the RBA's ambiguous position on the future of rates at the last meeting, Australia's PMI could be in focus. The Services PMI figure is expected to drop significantly to 51.0 from 55.8 in August but remain above 50 and in expansion. Aussie could reattempt breaking the 0.6700 handle, but the 50-week moving average won’t be an easy task.

German PMIs will also garner attention, as it is anticipated that its manufacturing PMI will finally resume expansion at 50.5, a significant increase from 49.8 in August. The French composite PMI is also anticipated to return to expansion to 50.4 from 49.8 previously. The UK manufacturing PMI is projected to improve substantially, although it will remain in contraction at 49.0 compared to 47.0 a month earlier. Europe’s PMIs could push EURUSD back above the 1.1900 barrier or send it towards 1.1600.

US Economy: Slowing and High Inflation

After the Fed's meeting last week, where the dot-plot index predicted fewer rate cuts than the market was hoping for, US economic growth is back in focus. A slowdown could prompt the Fed to ease more. August durable goods orders are expected to remain negative at -1.5%, though better than the -2.8% of July. At the same time, the final computation of Q2 GDP is expected to be released and confirmed at 3.3%. On Friday is the release of the Fed's preferred inflation measure, the PCE price index, which is expected to show an annual growth rate of 2.8%, up from 2.6% prior. Meanwhile, the core rate is projected to tick up to 3.0% from 2.9% in July. A positive surprise in GDP or PCE could weigh on gold after the yellow metal failed to hold onto gains, potentially opening the door to $3500 per ounce and perhaps lower. On the flip side, a push to new records would bring $3750 into focus.

Other Events and Earnings

Monday has the US Chicago Fed national activity index. UK CBI industrial trends orders come out on Tuesday. Wednesday includes Australia's monthly inflation and Germany's Ifo Business Climate. For Thursday, German GfK consumer confidence figures are expected. Friday sees the Canadian monthly GDP.

A slow earnings calendar sees a few notable names reporting, such as Micro, AutoZone, Costco, Accenture and Kingfisher.