U.S. Markets:

• U.S. stock markets experienced declines on Friday, with the Nasdaq Composite index falling by 1.56%, the S&P 500 by 1.22%, and the Dow Jones Industrial Average by 0.83%.
• The S. Dollar Index closed the week at 105.3, indicating a 0.2% increase.
• Brent crude oil prices saw a notable 3.6% increase during the week, closing at $93.9 per barrel.
• The yield on the 10-year U.S. Treasury note ended the week at 4.33%, showing a 7 basis point increase and marking the third-highest yield of the year. Meanwhile, the 2-year U.S. Treasury yield, which is more sensitive to monetary policy developments, rose by 4 basis points to 5.03%.

European Markets:

• European stocks experienced gains in late trade, with the Stoxx Europe 600 index rising by 0.3%.
• The FTSE 100 index in the UK increased by 0.7%, the CAC 40 index in France rose by 0.9%, and Germany’s DAX Performance index saw a 0.5% rise.

Asian Markets:

• Asian markets showed signs of strength, particularly in China, which had been a source of concern due to fears of an economic slowdown.
• The Hang Seng Index in Hong Kong advanced by 0.8%. The Shanghai Composite Index, however, edged slightly lower by 0.3%.
• Japan’s Nikkei 225 index had significant gains, jumping by 1.1%.

• U.S. Industrial Production and Capacity Utilization

In August, U.S. industrial production showed a 0.4% increase, surpassing expectations of a 0.1% rise, following a 0.7% growth in July. The manufacturing sector’s monthly growth rate slowed from 0.4% to 0.1%, while mining sector production increased by 1.4%, and public utilities production (electricity, natural gas, etc.) rose by 0.9%.

Capacity utilization unexpectedly rose from 79.5% to 79.7% in August, marking the highest level in the last four months.

• New York Fed Empire State Manufacturing Index

The New York Fed Empire State manufacturing index in the U.S. increased from -19 to 1.9 in September, surpassing expectations and indicating a return to growth in the manufacturing sector. Expectations had suggested a slight improvement in contraction. This suggests a potential turnaround in manufacturing, contrary to expectations of a mild contraction.

• University of Michigan Consumer Sentiment Index

In September, the preliminary University of Michigan consumer sentiment index dropped from 69.5 to 67.7, exceeding expectations of 69. A closer look reveals that the current conditions sub-index declined from 75.7 to 69.8, while the expectations sub-index increased slightly from 65.5 to 66.3. Moreover, consumers’ one-year inflation expectations decreased from 3.5% to 3.1%, reaching the lowest level since March 2021. Long-term annual inflation expectations also decreased from 3% to 2.7%, marking the lowest level in the past year.

Upcoming Economic Indicators

This week in the U.S., market focus will be on Wednesday’s Fed interest rate decision and Chairman Powell’s speech. The Fed will also release new macroeconomic projections.

In July, the Fed raised interest rates by 25 basis points to a range of 5.25% to 5.50%, a decision made unanimously. The accompanying statement suggested potential further rate hikes to combat inflation. Chairman Powell stated that while inflation had moderated, they had a long way to go to reach the 2% target, and inflation was still above that target. He indicated the possibility of another rate hike and additional tightening if necessary. Powell expressed the Fed’s commitment to reducing inflation, but future rate increases would depend on data, and decisions would be made meeting by meeting. Powell mentioned that they could raise rates in September based on incoming data.

• S&P Global Manufacturing and Services PMIs

On Friday, September’s S&P Global manufacturing and services sector PMI data will provide insights into the latest economic activity. In August, manufacturing PMI dropped from 49 to 47.9, indicating an acceleration in the manufacturing sector’s contraction. The service PMI also declined from 52.3 to 50.5, pointing to a slowdown in the service sector’s growth. However, it has remained in the growth zone for seven months but at the weakest level since February.

• Housing Market Data and Expectations

Data from the U.S. housing market will be monitored, with August housing starts and building permits data scheduled for release.

Housing starts experienced an 11.7% sharp decline in June, followed by a 3.9% increase in July. Building permits, on the other hand, saw a 3.7% drop in June and a marginal 0.1% increase in July.

The existing home sales data for August will be released on Thursday. In July, existing home sales unexpectedly dropped by 2.2% on a monthly basis, continuing their downward trend.

Especially due to the tightened financial conditions following the Fed’s interest rate hikes and the impact of high housing prices, weak trends in housing market data are anticipated to persist. In this context, in August, it is expected that monthly housing starts will decline by 2.5%, and building permits will decrease by 1.3%. However, existing home sales are expected to partially recover with a 0.7% increase.

• Labor Market

On Thursday, attention will be on the weekly initial jobless claims data from the employment market. The latest weekly initial jobless claims increased slightly from 217,000 to 220,000, nearing the lowest levels in the past seven months. These figures have consistently remained below historical averages, indicating a tight labor market.

• Eurozone Trade Data for July

Eurozone trade data for July revealed a surplus of 6.5 billion euros. This surplus followed a

substantial surplus of 18.5 billion euros in June, attributed to the ongoing reduction in imports.

• Russian Central Bank Raises Policy Interest Rate

Contrary to expectations, the Russian Central Bank increased its policy interest rate by 100 basis points to 13%. The decision was prompted by domestic demand surpassing production capacity, leading to heightened import demand and the devaluation of the Russian ruble. The bank underscored the persistent high inflationary pressures on the nation’s economy. It further clarified its commitment to maintaining tight monetary policy for an extended duration and indicated that future interest rate hikes would be assessed in upcoming meetings.

Economic Indicators in Focus This Week in the European Region

• September HCOB Manufacturing and Services Sector Flash PMI Data

This Friday, the release of September HCOB Manufacturing and Services Sector Flash PMI data will provide critical insights into the current economic landscape. In August, manufacturing PMIs across Europe remained in contraction territory, with the tightening of financial conditions and reduced demand due to ECB interest rate hikes keeping these indices below the pivotal 50 threshold.

For September, a slight improvement is expected, with Germany’s PMI projected to rise from 39.1 to 39.5, France’s from 46 to 46.1, the Eurozone’s from 43.5 to 44, and the UK’s remaining at 43, indicating a mild deceleration in the contraction pace within the manufacturing sector.

• Services PMIs in August and Expectations for September

In contrast, services PMIs in August pointed to contraction within the service sector in most European regions. France continued to contract, while other regions, including Germany, the Eurozone, and the UK, transitioned from growth to contraction.

September is anticipated to witness a slight deterioration, with Germany’s services PMI declining from 47.3 to 47.1, the Eurozone’s from 47.9 to 47.5, the UK’s from 49.5 to 49, and France’s remaining at 46. This suggests a continued contraction in the pace of the service sector’s decline.

• Inflation Data and Its Influence on ECB and BoE Policies

Tuesday will see the release of final CPI data for August in the Eurozone, followed by the UK’s CPI data on Wednesday.

In August, Eurozone headline CPI showed a monthly increase of 0.6%, exceeding expectations of a 0.4% increase, following a 0.1% decrease in July. Year-on-year, it remained at 5.3%, slightly above expectations of a decrease to 5.1%. Core CPI also showed a monthly increase of 0.3%.

In the UK, headline CPI is expected to decrease by 0.5% monthly in August, following a 0.5% increase in July. In the UK, monthly headline CPI is expected to decrease by 0.5% in August after rising by 0.5% in July.

• Bank of England (BoE) Interest Rate Decision

On Thursday, the BoE’s interest rate decision will be closely watched. Last month, the BoE increased its policy interest rate by 25 basis points to 5.25%, maintaining one of the highest rates in the past 15 years. The bank’s statement emphasized the possibility of further tightening if price pressures persist.

• Central Bank Interest Rate Decisions in Norway, Sweden, and Switzerland

On Thursday, the market will closely monitor the interest rate decisions of the central banks of Norway, Sweden, and Switzerland.

• Norway’s Central Bank Decision

In its previous meeting last month, the Central Bank of Norway raised its policy interest rate to 4%, in line with expectations, marking the highest level since 2008. The bank emphasized that although consumer price inflation had eased somewhat, it still remained significantly above the target. It is widely expected that in this week’s meeting, the central bank will raise the policy interest rate by another 25 basis points to 4.25%.

• Sweden’s Central Bank Decision

Sweden’s Central Bank, in its June meeting, raised the policy interest rate to 3.75%, aligning with expectations and reaching its highest level since 2008. The bank also pointed out that inflation, while moderating, was still considerably high. Therefore, it signaled the likelihood of at least one more interest rate hike this year. In the upcoming meeting this week, the central bank is expected to raise the policy interest rate by 25 basis points to 4%.

• Switzerland’s Central Bank Decision

In its last meeting in June, the Swiss National Bank increased the policy interest rate by 25 basis points to 1.75% as part of its efforts to combat inflation, meeting market expectations and reaching the highest level since April 2002. Furthermore, the bank indicated that the possibility of additional interest rate hikes in the medium term could not be ruled out to ensure price stability. Market expectations for this week’s meeting are that the central bank will raise the policy interest rate by 25 basis points to 2%.

In Asia, the focus this week will be on the decisions and policies of central banks, primarily in China and Japan.

• China’s Central Bank Decision

On Wednesday, the People’s Bank of China (PBoC) will announce its interest rate decision. In the previous month’s meeting, PBoC reduced the one-year loan prime rate (1-year LPR), a benchmark for short-term loans aimed at supporting economic activity, from 3.55% to 3.45%. However, it kept the five-year loan prime rate (5-year LPR), a benchmark for long-term loans like mortgage rates, steady at 4.20%, despite expectations of a decrease.

Last week, the central bank also maintained the Medium-term Lending Facility (MLF) interest rate, a reference rate for one-year funding provided to banks, at 2.50%. The central bank reduced banks’ required reserve ratios by 25 basis points and injected substantial liquidity into the financial system.

These actions indicated China’s intent to support economic recovery by focusing on more direct liquidity support, while also assessing the effects of previous rate cuts. In this context, it is expected that the central bank will likely keep the 1-year and 5-year LPR rates unchanged in the upcoming meeting.

• Japan’s Central Bank Decision

On Friday, the Bank of Japan (BOJ) will announce its interest rate decision. In its July meeting, BOJ kept its policy interest rate at -0.10% but introduced flexibility in yield curve control. BOJ stated that it would continue allowing 10-year government bond yields to fluctuate around zero percent and introduced greater flexibility by referring to the upper and lower bounds of the previously regarded rigid range as reference points.

For this week’s meeting, it is widely expected that BOJ will maintain the policy interest rate at -0.10% while closely monitoring inflation and economic conditions.

U.S. Economic Events:

• U.S. stock markets experienced declines, with the Nasdaq dropping by 1.56%, the S&P 500 by 1.22%, and the Dow Jones Industrial Average by 0.83%.
• The U.S. Dollar Index increased by 0.2% to close at 105.3.
• Brent crude oil prices rose by 3.6%, closing at $93.9 per barrel.
• The 10-year U.S. Treasury yield increased by 7 basis points to 4.33%.
• The 2-year U.S. Treasury yield, which is sensitive to monetary policy changes, rose by 4 basis points to 5.03%.
• U.S. industrial production increased by 0.4% in August, surpassing expectations, and capacity utilization reached its highest level in four months.
• The New York Fed Empire State manufacturing index turned positive, indicating growth in the manufacturing sector.
• The University of Michigan consumer sentiment index declined in September, with lower inflation expectations.
• The upcoming focus is on the Fed’s interest rate decision and Chairman Powell’s speech, where new macroeconomic projections will be released. The Fed previously raised rates by 25 basis points in July, with hints of potential further hikes to combat inflation.
• S&P Global manufacturing and services PMI data for September will provide insights into economic activity, with August data showing contractions.
• Housing market data, including housing starts, building permits, and existing home sales, will be monitored for trends.
• Weekly initial jobless claims data indicates a tight labor market.
• Speeches by Federal Reserve members throughout the week will be monitored for potential new signals regarding monetary policy.

European Economic Events:

• Eurozone trade data for July showed a surplus of 6.5 billion euros, following an 18.5 billion euro surplus in June due to decreased imports.
• The Russian Central Bank unexpectedly raised its policy interest rate by 100 basis points to 13% due to domestic demand surpassing production capacity and inflation pressures.
• In September, the HCOB Manufacturing and Services Sector Flash PMI data for Europe will be released, providing insights into economic activity.
• Services PMIs in Europe showed contraction in August, with expectations of a slight deterioration in September.
• Inflation data for the Eurozone and the UK will influence ECB and BoE policies.
• The Bank of England (BoE) is expected to maintain its interest rate, following a recent increase.
• Central banks in Norway, Sweden, and Switzerland are expected to raise their policy interest rates to combat inflation.

Asian Economic Events:

• The People’s Bank of China (PBoC) is expected to maintain the 1-year and 5-year loan prime rates (LPR) while focusing on liquidity support.
• The Bank of Japan (BOJ) is likely to keep its policy interest rate at -0.10% while closely monitoring inflation.