U.S. Markets:

• On Friday, despite the non-farm employment data for September coming in significantly above expectations, average hourly earnings and the unemployment rate provided support, causing Wall Street indices to end the day with gains. On a daily basis the Nasdaq index increased by 1.60%, the S&P 500 index by 1.18%, and the Dow Jones index by 0.87%.
• The S. Dollar Index closed the previous week with a 0.1% decline at 106 levels.
• Brent crude oil prices closed at 84.6 USD, down 8.3% due to rising US Treasury bond yields and slowing global growth, negatively affecting oil demand.
• The 10-year US Treasury yield completed the week with a 23 basis point increase to 4.80%, while the more interest rate-sensitive 2-year US Treasury yield ended the week at 5.08%, up 4 basis points.

European Markets:

• European stocks finished higher on Friday, despite an earlier dip, as market participants reacted to stronger-than-expected U.S. jobs data. The pan-European Stoxx Europe 600 index closed up by 0.8%.

Asian Markets:

• The Hang Seng Index in Hong Kong emerged as a notable performer, advancing by 1.6%.
• Mainland Chinese markets are closed for the holiday period. Investors are optimistic that the eight-day holiday, concluding this Friday, will stimulate consumer spending and bolster confidence in China’s struggling economy.
• Japan’s Nikkei 225 index lost 0.3% on Friday.

Key Labor Market Data for September

In the US, the employment market data for September, including non-farm employment, the unemployment rate, and average hourly earnings, was closely watched.

• Surge in Non-Farm Employment

Non-farm employment in the US for September increased from 227,000 to 336,000, reaching the highest level in the past eight months, with the previous month’s data being revised upward by 40,000.

Expectations were for a slight slowdown in employment growth to 170,000. The increase in non-farm employment in September, while showing acceleration, also exceeded the 12-month average of 267,000 jobs. Additionally, the September employment increase significantly exceeded the average monthly employment increase of 100,000 needed to accommodate the increase in the working-age population in the US.

• Private Sector Dominance in Job Growth

A closer look reveals that most of the employment increase was in the private sector (263,000 jobs increase), with limited growth in the public sector (73,000 jobs increase). Within the private sector, the majority of the employment increase was in the service sector (particularly in accommodation and entertainment services with a 96,000-job increase, and education and health services with a 70,000-job increase). There was also limited growth in the manufacturing sector (17,000-job increase), construction sector (11,000-job increase), and mining sector (1,000-job increase).

While total employment increase reached the highest level in the past eight months, some concerns included the lack of widespread employment growth within subsectors of the service sector, limited employment growth in manufacturing and construction sectors, and nearly flat employment growth in the mining sector.

• Persistent Unemployment Rate

The unemployment rate remained at 3.8% in September, similar to the previous month, thus continuing its highest level since February 2022, while expectations were for a slight decrease to 3.7%. In September, the number of unemployed remained flat compared to the previous month at 6.36 million, while the number of employed increased by 86,000 to 161.6 million.

The labor force participation rate remained flat at 62.8% compared to the previous month, maintaining its highest level since February 2020.

• Wage Growth and Inflation

As for inflation, average hourly earnings, representing the rate of increase in wages, remained at 0.2% on a monthly basis in September, similar to the previous month, falling below expectations (0.3%) and continuing to hover at their lowest levels since February 2022. The year-on-year growth rate also fell from 4.3% to 4.2%, reaching its lowest level since June 2021. These data indicate a partial slowdown in inflationary pressures stemming from wages.

• Federal Reserve Meeting Minutes

In the US, the focal point for markets this week will be the release of the Federal Reserve’s meeting minutes from September 19-20.

• Previous Fed Decision and Member Sentiments

During the last meeting, the Federal Reserve kept the federal funds rate within the range of 5.25% to 5.50%, a decision that was unanimously approved. However, many Fed members signaled a potential interest rate hike for the year, with 12 out of 19 members supporting an increase, while 7 members advocated for maintaining the rate.

• Updated Projections and Rate Path

Based on the newly published interest rate path and macroeconomic projections, the median estimate for the federal funds rate remained at 5.6% by year-end, implying an anticipated 25 basis point rate hike before the end of the year. The projections also showed upward revisions for interest rates in 2024 and 2025, indicating the Fed’s inclination to keep rates at higher levels for an extended period.

Federal Reserve Chairman Powell reiterated the commitment to bringing inflation down to the 2% target, emphasizing a patient approach to rate hikes while monitoring progress. In this context, the minutes of the Fed’s meeting, which will be published this week, will be closely monitored for possible new signals regarding the future of monetary policy.

Aside from the meeting minutes, market watchers will closely follow the release of Producer Price Index (PPI) data for September and Consumer Price Index (CPI) data for September later in the week. These indicators will provide insights into inflation trends and their impact on the Fed’s monetary policy.

• Recent Inflation Trends

In August, headline CPI rose from 0.2% to 0.6% on a monthly basis, reaching 3.7% on an annual basis, the highest level in three months. Core CPI, which excludes food and energy prices, also showed an increase of 0.3% on a monthly basis, exceeding expectations.

In August, the monthly growth rate of the headline Producer Price Index (PPI) exceeded expectations by rising from 0.4% to 0.7%, marking the strongest level since June 2022. On an annual basis, it surged from 0.8% to 1.6%, reaching its highest point in the past four months, while expectations had been at 1.3%. Conversely, the core PPI, which excludes food and energy products, slowed down in August on a monthly basis, aligning with expectations by decreasing from 0.4% to 0.2%. On an annual basis, it retreated from 2.4% to 2.2%, maintaining its lowest level since January 2021.

• Expectations for Upcoming Inflation Data

For September, analysts anticipate a slowdown in the monthly CPI growth to 0.3% and a slight decrease in the annual rate to 3.6%. Core CPI is expected to maintain a monthly growth rate of 0.2% and a yearly rate of 2.3%.

The headline Producer Price Index (PPI) is expected to slow down in September, with the monthly growth rate decreasing from 0.7% to 0.3%. On an annual basis, it is expected to remain at 1.6%, similar to the previous month.

As for the core PPI, it is anticipated that in September, the monthly growth rate will be at 0.2%, mirroring the previous month, and the annual rate will slightly increase from 2.2% to 2.3%.

• Additional Economic Data

On Thursday, weekly initial jobless claims data will be released. Last week, initial jobless claims increased slightly but remained near their lowest levels in seven months, indicating a tight labor market.

• Consumer Sentiment Index

On Friday, the preliminary University of Michigan Consumer Sentiment Index for October will be closely monitored. The Michigan University Consumer Sentiment Index for September had declined from 69.5 to 68.1. When we delve into the details, the sub-index for current conditions in September fell from 75.7 to 71.4, while the expectations sub-index saw a slight increase from 65.5 to 66. Additionally, consumers’ year-ahead inflation expectations dipped slightly from 3.5% to 3.2%, marking their lowest level since March 2021. Long-term annual inflation expectations also eased from 3% to 2.8%, maintaining their lowest levels in the past year.

• ECB President’s Confidence in Inflation Target

ECB President Lagarde expressed confidence in reaching the 2% inflation target, stating that the Bank’s interest rates would contribute decisively to bringing inflation to target levels as long as they are maintained for a sufficiently long period.

• Factory Orders in Germany Show Partial Recovery

In Germany, factory orders rebounded in August by 3.9% after recording a sharp decline of 11.7% in July due to the impact of a significant drop in new orders related to aviation and other transportation equipment linked to the aerospace industry. Expectations were for a 1.5% increase.

In Europe, the focus will be on the publication of the minutes of the ECB’s meeting on September 13-14 on Thursday. Despite expectations that the ECB would keep interest rates unchanged at its last meeting, it raised rates by 25 basis points.

The decision text emphasized that while inflation is expected to continue to decline, it is also expected to remain high for a considerable period, and borrowing costs will be kept sufficiently restrictive as long as necessary.

According to the new macroeconomic projections published by the ECB, the Bank raised its headline inflation expectations for the next two years but lowered its growth expectations. ECB President Lagarde, speaking after the interest rate decision, reiterated their commitment to bringing inflation down to the 2% target, suggesting that the current interest rates would assist in achieving that goal.

The ECB’s meeting minutes to be published this week will be closely monitored for possible new signals regarding the Bank’s future monetary policy. Additionally, speeches by ECB members throughout the week, including ECB President Lagarde’s speech on Friday, will be closely watched for potential new signals on the central bank’s monetary policy.

On the other hand, in terms of production in Europe, industrial production for August in Germany was released on Monday. In August 2023, Germany’s industrial production experienced a monthly decline of 0.2%, deviating from market expectations of a 0.1% decrease. This drop followed a downwardly revised 0.6% decline in the previous month, marking the fifth such decrease this year. This downturn was largely influenced by weaknesses in energy production (-6.6%), construction (-2.4%), and machinery and equipment manufacturing (-2.3%). However, a notable reversal occurred in the automotive industry, which saw significant growth of 7.6%. This was a stark contrast to the 9.4% plunge witnessed in July.

• Eurozone Industrial Production

Industrial production index (IPI) in the Eurozone will be released on Friday. The IPI experienced a 1.1% month-over-month decline in July, following three consecutive months of growth. On an annual basis, the rate of decline in July slowed from 1.1% to 2.2%, but the downward trend persisted over the past five months.

Taking a closer look, the monthly data for July revealed a 2.7% decrease in the production of capital goods, signaling potential weakness in investment spending. Meanwhile, the production of durable consumer goods dropped by 2.2%, while non-durable consumer goods saw a modest 0.4% decline. Intermediate goods production dipped by 0.2%, while energy production managed a 1.6% increase, partially offsetting the overall decrease in industrial production.

It is expected that industrial production in the Eurozone in August will be relatively flat on a monthly basis.

• Sentix Investor Confidence in the Eurozone

Sentix investor confidence data for the Eurozone for October was published today. The data showed mixed trends in October, with a slight deterioration of 0.4 points compared to the previous month, bringing it to a negative 21.9 points.

The current situation index hit a low point, registering at negative 27, the lowest figure since November 2022. In contrast, the expectations index saw a positive shift, surging by 4.2 points to reach negative 16.8, marking its highest level since April 2023.

• German Final CPI Data for September

On Wednesday, the final consumer price index (CPI) data for September will be released in Germany. In September, the headline CPI, which increased by 0.3% on a monthly basis, was in line with preliminary data, while the annual rate decreased from 6.1% to 4.5%, reaching its lowest level since February 2022. Additionally, the annual rate of core CPI in Germany decreased from 5.5% to 4.6% in September, hitting its lowest level in the past year.

• UK GDP Growth Data for August

On Thursday, monthly GDP growth data for August will be released in the UK. In July, GDP contracted by 0.5% on a monthly basis, following a 0.5% contraction in June. The decline in July was attributed to weakened consumer spending and the adverse impact of strikes on the service sector, resulting in the sharpest contraction in the country’s economy this year. Looking into the details, in July, the service sector and construction sector both declined by 0.5%, while manufacturing output decreased by 0.8%.

It is expected that the UK economy will partially rebound with a 0.2% monthly growth rate in August, indicating some recovery.

• Chinese Inflation Data

In China, the monthly Consumer Price Index (CPI) increased by 0.3% in August, aligning with expectations and marking two consecutive months of growth. However, on an annual basis, there was a limited 0.1% increase in August following a 0.3% decrease in July, indicating that consumer price inflation in China remained significantly below the government’s 3% target for the year.

The Producer Price Index (PPI) showed a 0.2% increase in August, breaking a four-month streak of monthly declines. On an annual basis, PPI‘s rate of decrease slowed from 4.4% to 3%, continuing its downward trend for the eleventh consecutive month.

For September, it is anticipated that the annual Consumer Price Index (CPI) will experience a slight increase from 0.1% to 0.2%, while the annual rate of decline for PPI is expected to slow down from 3% to 2.4%.

• Chinese Trade Figures

In August, China’s annual rate of decline in exports eased from 14.5% to 8.8%, marking the fourth consecutive month of decline. Similarly, the rate of decline in imports slowed from 12.4% to 7.3%, extending the decline for the sixth month. These figures indicated an ongoing deceleration in global economic activity and the Chinese economy.

For September, it is expected that the annual rate of decline in exports in China will further slow down from 8.8% to 7.5%, and the rate of decline in imports will continue to ease from 7.3% to 6%. These trade data points are crucial indicators of the state of global economic activity and the Chinese economic landscape.

U.S. Economic Events:

• Non-farm employment in the US for September exceeded expectations, increasing by 336,000 jobs, marking the highest level in the past eight months.
• This acceleration in employment growth exceeded the 12-month average and the monthly employment increase needed to accommodate the working-age population’s growth.
• The majority of the employment increase was in the private sector, with significant growth in the service sector.
• Average hourly earnings increased by 0.2% on a monthly basis in September, remaining at low levels.
• The release of the Federal Reserve’s meeting minutes from September 19-20 will be a key focus.
• Producer Price Index (PPI) and Consumer Price Index (CPI) data for September will be released, offering insights into inflation trends and their impact on monetary policy.

European Economic Events:

• ECB President Lagarde expressed confidence in reaching the 2% inflation target through interest rate policies.
• Germany’s factory orders rebounded by 3.9% in August, following a sharp decline in July.
• The ECB meeting minutes from September 13-14 will be published.
• Sentix investor confidence data for the Eurozone showed mixed trends in October, with a slight deterioration in overall sentiment.
• Final consumer price index (CPI) data for September will be released in Germany, reflecting recent inflation trends.

Asian Economic Events:

China’s trade data, Consumer Price Index (CPI) and Producer Price Index (PPI) data for September will be closely watched.