Economic Events Schedule (UTC Time)

Monday

• 14:00 - Germany Factory Orders (Aug)

• Eurozone Retail Sales (Aug)

Tuesday

• 07:30 - Japan Labor Cash Earnings (Aug)

• 08:30 - Australia RBA Meeting Minutes

• 14:00 - Germany Industrial Production (Aug)

Wednesday

• 07:30 - Australia Consumer Confidence (Oct)

• 14:00 - Germany Trade Balance (Aug)

Thursday

• 02:00 - US FOMC Minutes

• 20:30 - US Consumer Price Index (Sep)

Friday

• 14:00 - Germany Harmonized Index of Consumer Prices (Sep)

• 14:00 - UK Gross Domestic Product (Aug)

• 14:00 - UK Industrial Production (Aug)

• 20:30 - US Producer Price Index (Sep)

• 22:00 - US Consumer Sentiment Index (Oct) PREL

• 22:00 - US Consumer Inflation Expectation (Oct) PREL

Unexpected Job Gains Put Fed on Course for Smaller Rate Cut

On Friday, U.S. payroll growth data exceeded all forecasts, the unemployment rate dropped, and wage growth accelerated, easing concerns about the U.S. labor market and lowering the likelihood of another large rate cut at the Federal Reserve’s November meeting.

The report from the U.S. Bureau of Labor Statistics showed nonfarm payrolls increased by 254,000 in September. This figure significantly surpassed the median expectation of 144,000 and exceeded the forecasts of all economists surveyed. The report also indicated that payroll gains for July and August were revised upward by a total of 72,000.

Additionally, the U.S. unemployment rate fell to 4.1%, and average hourly earnings rose by 4% year-over-year, marking the strongest increase since May.

Throughout last week, U.S. labor market data highlighted that layoffs had not increased significantly, and the rise in payroll numbers underscored the economy's ability to continue generating new jobs. Following data that emphasized the resilience of the U.S. economy and eased concerns about a weakening labor market, the U.S. dollar surged, and Treasury yields reversed their decline since August.

Prior to the payroll report, debates about whether the Fed would cut rates by 50 basis points or 25 basis points in its November meeting shifted dramatically. According to futures market data, pricing for a 50-basis-point cut disappeared, with a 25-basis-point cut now being the main scenario, priced at 93.1%.

Many major investment banks, including JPMorgan Chase & Co. and Bank of America Corp., have downgraded their expectations for a half-point cut in November to a quarter-point cut. Economists noted that the strong economic data following September’s jumbo rate cut did not justify another half-point reduction.

On the other hand, a minor 6.9% of market participants are betting that the Fed might hold rates steady, citing concerns that further policy easing could fuel inflation.

Recent inflation reports indicate that price pressures in the U.S. continue to ease toward the target rate, though the stickiness of service prices persists, while household consumption remains strong. The earnings data released on Friday revealed that wage growth is outpacing inflation. Consequently, as long as the labor market and wage increases remain robust, this could continue to support consumer spending and potentially hinder the progress of disinflation.

While the Fed is likely to welcome the September payroll growth data, it would be premature to base any decision solely on one data point. Therefore, a series of data releases leading up to the November 7 meeting will continue to be monitored closely.

The first of these will be the September Consumer Price Index (CPI) report, which is scheduled for release this Thursday. According to median market expectations, headline CPI is projected to rise by 2.3% year-on-year in September, down from the previous 2.5%. This would mark the sixth consecutive slowdown and the most moderate increase since early 2021.

Meanwhile, core inflation is expected to hold steady at 3.2%. Although the stickiness in core prices has drawn attention in recent months, it does not seem likely to undermine the Fed's confidence that inflation is progressing toward the target, nor to interrupt the anticipated rate cut cycle at this point.

Gold Pressured by U.S. Payroll Data, Middle East Tensions Limit Decline

Gold prices are under downward pressure following the release of unexpectedly strong U.S. payroll growth figures on Friday, amid ongoing tensions in the Middle East.

U.S. Treasury yields surged as expectations for a smaller rate cut by the Fed became the base scenario, raising the opportunity cost of holding gold and triggering selling pressure. The 2-year yield rose to 3.97%, while the 10-year benchmark yield climbed to 3.98%, the highest levels since August.

On the other hand, concerns persist that the tension between Israel and Iran in the Middle East could escalate into a regional war, limiting the downward movement in gold prices. As markets await Israel's promised response to last week’s missile attack from Iran, the downward momentum in gold prices is likely to remain limited.

Geopolitical Fears Continue to Dominate the Oil Market

Oil prices recorded their largest surge since 2023 last week, driven by fears that Israel might retaliate by targeting Iran’s oil facilities. The calls in USOIL futures spiked to its highest level since March 2022, when Russia invaded Ukraine, due to concerns that millions of barrels of oil could be removed from the market. Futures traders rushed to December call options, betting that oil could rise above $100 per barrel.

However, the upward momentum in oil prices slowed slightly on Friday after U.S. President Joe Biden reportedly tried to prevent Israel from launching a potential attack on Iran’s oil facilities. While markets continue to watch developments from the Middle East, it seems that they are avoiding aggressive pricing for now.

If, as markets fear, an attack on Iran’s oil infrastructure occurs, it could trigger a sharp rise in oil prices. However, economists predict that Israel is unlikely to choose this course of action. Given global demand concerns, particularly the uncertainty surrounding China’s economic recovery, and the current supply-demand imbalance, it is worth noting that oil prices may reverse their upward momentum as tensions in the Middle East ease.

China’s Stimulus Measures Boost Global Sentiment, but Economic Concerns Persist

The Chinese government announced a major stimulus package last week, including interest rate cuts, mortgage loan incentives, and liquidity support for the stock market. These consecutive stimulus measures, including this package, are expected to boost record-low consumer confidence, pull the economy out of a deflationary spiral, and ensure the achievement of the economic growth target.

The continuation of China's stimulus efforts is positively impacting global sentiment and strongly attracting investors to Chinese stocks. In September, China’s CSI 300 index surged by approximately 27% from its lowest levels. However, concerns remain about whether the rally can be sustained.

While economists welcome these stimulus measures, predicting they will contribute to the growth target, they also caution that their effects may be short-lived and may not be enough to resolve the real estate crisis. This is because China is grappling with internal demand issues while also facing external trade threats.

On Friday, the European Union voted on tariffs of up to 45% on electric vehicles coming from China. According to sources familiar with the results, ten member states voted in favor of the new tariffs, while five countries, including Germany, voted against, and 12 countries abstained. The EU’s new provisional tariffs are expected to come into effect in November, but negotiations between the EU and China will continue to seek an alternative to these tariffs.

The EU justifies raising tariffs by claiming that China provides unfair subsidies to its industry, while Beijing denies this and threatens to increase tariffs on EU products. Meanwhile, the possibility of the U.S. raising tariffs on China also remains in play. These issues pose a threat to broader trade disputes and serve as a headwind to expectations for China’s economy.

In the meantime, the Chinese government continues to show its determination to tackle economic challenges. According to a statement from the government on Sunday, China’s top economic planner will hold a press conference on Tuesday to discuss a series of policies aimed at boosting economic growth. Economists predict that, as part of Beijing’s stimulus package, public spending will be expanded.