Attention will be directed towards central banks following the Federal Reserve’s policy adjustment. Anticipation is also growing for data regarding the state of industry.
This week is expected to be significant with a variety of indicators being published, alongside decisions regarding interest rates from the Swiss National Bank (SNB) and the Reserve Bank of Australia (RBA).
Following a pivotal week for interest rates set by central banks, investors will once again turn their attention to global economic indicators.
The spotlight will be on the PMIs, which assess the health of manufacturing industries. Furthermore, the Swiss National Bank and the Reserve Bank of Australia are anticipated to provide their interest rate guidance.
In light of the Fed’s announced interest rate reductions, these decisions are expected to exert a significant influence on their respective currencies and stock markets.
In Europe
S&P Global is scheduled to release the September estimates for manufacturing and services PMIs for key eurozone countries, particularly France and Germany.
Both nations have experienced a contraction in manufacturing activity since July 2022, with a brief improvement in France noted in January 2023.
Germany’s manufacturing sector experienced a sharp decline in August, with the PMI dropping to 42.4, its lowest since March, attributed to a significant fall in new orders and purchases. France reflected a similar trend, with its PMI decreasing to 43.9 in August from 44 in July, marking its steepest contraction since January.
The eurozone manufacturing PMI is also projected to reveal further contraction in September, continuing a two-year downturn.
Conversely, the services PMIs across the euro area have exhibited resilience. The services sector in France grew notably in August, partly due to the Paris Olympics, although it slowed in Germany. Forecasts indicate that services in both France and Germany, as well as the eurozone as a whole, will maintain growth in September.
With ongoing challenges in the automotive manufacturing sector and political uncertainties, the index is expected to drop to 86.1, down from 86.6 in August, marking its lowest since February.
The UK, in contrast, has experienced an upward trajectory in its manufacturing and services sectors. Manufacturing has increased for the fourth consecutive month, while services have been on the rise since November 2023.
The Bank of England’s decision to keep interest rates steady last week has bolstered the pound, which recently reached a two-and-a-half-year high against the US dollar. Simultaneously, the Swiss National Bank (SNB) is expected to announce a third consecutive rate reduction this week.
On the United States side
In the United States, key economic data set to be released this week includes the September manufacturing and services PMIs, second-quarter GDP figures, and the August personal consumption expenditures (PCE) index.
U.S. manufacturing activity is anticipated to contract for the third month in a row, while the services PMI is expected to remain supportive.
Collectively, this data indicates a slowdown in economic growth. Regarding inflation, the July PCE index held steady at 2.5%, and the core PCE index remained unchanged at 2.6%, both still exceeding the Fed’s 2% target. However, inflation is expected to continue its decline, which would encourage the Fed to further ease its policy.
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In the Asia-Pacific region
The Reserve Bank of Australia (RBA) is expected to announce its interest rate decision on Tuesday, with the rate likely to remain steady at 4.35%.
While several other central banks have commenced easing monetary policy, the RBA is not expected to follow suit.
In July, Australian consumer prices rose by 3.5%, significantly above the RBA’s 2% target, maintaining pressure on the central bank to uphold a tighter policy stance.
Eyes on Central Banks: Following the Fed’s Policy Change
This week promises to be rich in the publication of indicators, but also in decisions linked to interest rates, emanating from the Swiss National Bank (SNB) and the Reserve Bank of Australia (RBA).
After a key week for central bank interest rates, investors will once again focus on global economic indicators, particularly the PMI data which measure the health of manufacturing industries.
Central Bank Focus: SNB and RBA
The Swiss National Bank and the Reserve Bank of Australia are expected to announce their interest rate guidance following the Fed’s recent announcement of interest rate cuts. These decisions are anticipated to influence their respective currencies and stock markets significantly.
Swiss National Bank (SNB) Expected Decisions
- Third consecutive interest rate cut anticipated.
- Expectations of continued economic struggles in Europe may drive the decision.
Reserve Bank of Australia (RBA) Expectations
- Interest rate expected to remain steady at 4.35%.
- Strong consumer price index figures preventing monetary easing.
Economic Indicators: A Global Perspective
The focus this week elucidates the pressing need for understanding manufacturing and service sector health through the release of key economic indicators across various regions.
In Europe
S&P Global is set to release September estimates of manufacturing and service PMIs for major eurozone economies, with a keen eye on France and Germany.
| Country | Manufacturing PMI (Aug) | Services PMI Growth |
|---|---|---|
| Germany | 42.4 | Declining |
| France | 43.9 | Growing |
| Eurozone | Estimated Further Contraction | Resilience Expected |
Both countries have experienced a contraction in manufacturing activity since July 2022, with Germany’s manufacturing sector slowing sharply in August. The German PMI fell to 42.4, its lowest since March, driven by a significant decline in new orders and purchases. France saw a similar trend, with its PMI dropping to 43.9 from 44, indicating its steepest contraction since January.
The eurozone manufacturing PMI is anticipated to further decline in September, extending a two-year contraction. In contrast, the services PMIs across the euro area exhibit resilience, partly buoyed by events like the Paris Olympics, with expectations of continued growth in services sectors in both France and Germany.
UK Economic Overview
The UK manufacturing and services sectors have maintained an upward trajectory. Manufacturing has grown for four consecutive months—supported by favorable monetary policies from the Bank of England which has kept interest rates stable. This has aided the British pound, recently reaching a two-and-a-half-year high against the US dollar.
On the United States Side
Important economic data released this week includes manufacturing and services PMIs for September, Q2 gross domestic product (GDP), and the personal consumption expenditures (PCE) index for August.
The United States is expected to see a contraction in manufacturing activity, which would mark the third consecutive month of decline, while the services PMI is expected to remain steady. This may indicate a slowdown in overall economic growth.
Inflation rates, as tracked by the PCE index, were steady at 2.5% in July, with the core PCE index also remaining at 2.6%. Both indices are above the Federal Reserve’s target of 2%, though inflation is projected to decline, suggesting the Fed may continue its policy easing in the upcoming months.
In the Asia-Pacific Region
The RBA is expected to announce its interest rate decision this week, maintaining the rate at 4.35%. Despite some central banks easing monetary policies, the RBA is maintaining a tighter stance due to Australian consumer prices rising by 3.5% in July, significantly above its target of 2%.
Market Implications: Currency and Stock Reactions
The central bank decisions and forthcoming economic indicators are likely to influence currency and stock market movements significantly:
- Expect volatility in AUD following RBA announcements.
- Forecasts suggest fluctuations in EUR following SNB policy changes.
- Investor confidence likely to be driven by US economic data trends.
Insights from Economic Analysts
Experts unanimously agree that following the Fed’s decisions, central banks like SNB and RBA will have critical roles in shaping market expectations. Their interest rate policies are expected to directly correlate with economic growth trends as they respond to changing global economic conditions.
Benefits of Monitoring Central Bank Policies
- Strategic Investment Decisions: Being aware of central bank policies enables investors to strategize better.
- Understanding Currency Fluctuations: Insight into monetary policy changes can help anticipate currency movements.
- Economic Insights: Understanding the implications of interest rate changes aids in forecasting market trends.