Bring on the rate cuts

A look at the day ahead in European and global markets

By Rae Wee, Correspondent

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Note: Today’s issue of Morning Bid Europe was delayed because of a technical issue.

Global investors can’t wait to be done and dusted with August and usher in the new month with a bang, one that’s all but certain to kick off a long-awaited Federal Reserve easing cycle.

Asia shares rose on Friday and are poised for a solid end to the month, while the dollar was headed for its worst monthly performance since last November, after Fed policymakers over the past week or so essentially gave the green light for a rate cut on Sept. 18.

U.S. stock futures also extended Wall Street’s positive run, while European futures were mixed.

Aluminium cans of Coca-Cola move along a conveyor belt on the production line at the Coca-Cola Europacific Partners bottling plant in Les Pennes-Mirabeau, near Marseille, France, May 7, 2024. REUTERS/Benoit Tessier

The sell-off of Aug. 5, when fears suddenly emerged of an imminent U.S. recession, has faded into a distant memory. Those fears have since fizzled, and order has returned to the markets.

The last trading day of the month marks a busy day for Europe, where investors will pore over UK house prices, a data dump from Germany running the gamut from retail sales to unemployment to import prices, and French producer and consumer prices.

That’s followed by figures on euro zone inflation, which are expected to show consumer prices slowing to an annual 2.2% in August, from July’s 2.6%.

But after preliminary German inflation data on Thursday showed a greater-than-expected decline for this month, the reading for the wider bloc could render a downside surprise.

European Central Bank (ECB) policymakers have been circumspect about their next move at the upcoming September meeting, with some wary about lowering interest rates too quickly. But traders have already fully priced in a rate cut.

Should Friday’s euro zone inflation number come in below expectations, and with the Fed looking set to start lowering rates soon, the ECB would have little room to push back against market expectations for easing.

Over in the U.S., the release later today of the core personal consumption expenditures (PCE) price index – the Fed’s preferred measure of inflation – headlines a week that’s otherwise been lacking in market-moving data.

However, the bigger focus will likely be on next week’s nonfarm payrolls report, given the Fed’s focus on the health and state of the U.S. labour market.

Upcoming employment numbers are set to shape how far and fast the Fed would have to cut rates to prevent what Fed chief Powell warned could be an “unwelcome further weakening in labour market conditions”, and will determine whether the market is justified in pricing for 100 basis points of easing this year.

In Asia, data on Friday showed core inflation in Tokyo accelerated for a fourth straight month in August, likely giving the Bank of Japan (BOJ) another reason to hike rates in the coming months.

Graphics are produced by Reuters.

Graphics are produced by Reuters.

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