On Tuesday, the Eurozone’s headline inflation rate came in for the month of September at 1.8%, below the European Central Bank’s (ECB) target of 2%. Core inflation, which strips out volatile elements like food and fuel, also slowed to 2.7%, down from 2.8% in August. These figures mark the lowest since the first half of 2021, with the headline rate shaped in particular by falling energy prices, which dropped by an annual rate of 6%.
While the data raised investor expectations of a third rate cut from the ECB when they meet on the 17th of October, elevated services inflation remained dogged at 4%, down only modestly from a 4.1% growth in August, and suggests that a further rate reduction is far from a done deal.
While you may have seen allusions to more 25 basis point cuts in the media this week, on Monday evening Jerome Powell stayed firm that the future of the US’ monetary policy will follow the path that economic data dictates. After concerns that policymakers were behind the curve when they didn’t cut in July, the Fed arguably cut at the most appropriate point to secure their ‘soft landing’. Data preceding the latest reduction in rates showed a weakening in the labour market, although not substantially, with unemployment remaining relatively low. Consumer spending, meanwhile, showed modest resilience, and all the while inflation continued to cool closer to policymakers’ 2% target. Speaking at an economics conference in Nashville on Monday, Powell maintained that while policymakers are not on any preset course, their objective now is to protect the labour market while ensuring price pressures do not experience a meaningful uptick.
The latest jobs data in the US showed that employers posted 8 million vacancies in August, up from 7.7 million in July. This illustrates a general strength underlying the region’s labour market despite overall slowing job growth. The report precedes Friday’s jobs data which will provide policymakers with insight into the latest unemployment rate as well as jobs added by American employers.
Chinese stocks enjoyed their best day on Monday this week, with Domestic A Shares rallying to their highest ever turnover. Despite the fact that the policymakers have continued to provide rafts of stimulus measures to boost the economy over the past few years, it seems that the latest package (the biggest since COVID) has been the one to finally boost market sentiment and garner investor confidence. In addition to cutting banks’ reserve requirements and reducing the deposit needed for a home, China’s central bank also announced a swap programme that allows funds, insurers and brokers easier access to funding in order to buy stocks. While investors rushed to get in on the action before Chinese markets closed for the Golden Holiday this week, economists are heeding caution on any assumptions that this rally will definitively continue with the same magnitude that we have seen so far.
Over in Ireland, investors digested a decline in retail sales for the month of August, coming in at -1.5% as opposed to a 0.6% increase in July.
Still to come this week we have US non-farm payrolls and unemployment rate, Ireland’s unemployment rate and Eurozone’s PPI data.
Nicola Tune, Portfolio Specialist
