FUNDAMENTAL REVIEW FOR THE WEEK (30 September - 4 October 2024)

After a brief respite last week, the financial "arena" is once again in "hot times".

The week opens with a new wave of stimulus for the Chinese economy. On Sunday, the Central Bank of China announced a requirement for banks to cut interest rates on existing mortgages by at least 30 basis points in order to support domestic demand and stimulate business processes. However, at the same time as economic stimulus, the armed forces of the Celestial Empire are demonstrating increased military activity. Thus, on Saturday, the Chinese Armed Forces reported that they were conducting air and naval exercises in the disputed area of ​​the South China Sea, which is causing concern against the background of existing territorial disputes in the region.

The situation in the Middle East is also escalating. Israel has carried out a number of operations to eliminate Hezbollah leaders, as well as military-tactical campaigns in Yemen. The Israeli Armed Forces Headquarters said that it is preparing for war - this creates a direct threat of escalation of the conflict in the region. A war in the Middle East could push up global oil prices, and as a result, increase international inflation risks.

Markets will be focused on the U.S. nonfarm payrolls data on Friday, which could influence the Federal Reserve’s interest rate decision. While the September nonfarm payrolls data will not be final before the Fed’s November 7 meeting, it could give markets reason to expect a 0.50% rate cut. If the report shows a decline in jobs and a stable unemployment rate amid falling wages, this could accelerate the process of portfolio adjustment in favor of a faster rate cut.

The second most important event of the week will be Tuesday’s JOLTs job openings report, a key indicator for U.S. Treasury Secretary Janet Yellen, which also influences Fed policy. Powell previously noted that a further decline in job openings could lead to a sharp increase in the unemployment rate, so this report is of high importance.

Third place in the catalog of important news of the week goes to the ISM report (released on Thursday) on the US services sector. Important aspects will be prices (as a harbinger of inflation), employment (to understand the quality of non-farm data) and new orders (their decline may indicate a recession in the services sector). The US manufacturing sector has been in recession for more than a year, so the ISM report on manufacturing is not expected to be strong. However, if the services data turns out to be better than expected, the markets may react sharply to confirmation of a soft landing in the US economy.

In Europe, the focus is now shifting to the inflation data for September, which will be released on Tuesday. Slowing consumer price growth in the Eurozone may increase market expectations for a rate cut by the European regulator. A stimulus for the growth of European stock markets.