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Take Five: Roll on Q4!

Published Oct 02, 2023 02:20AM ET Updated Oct 02, 2023 02:25AM ET
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© Reuters. FILE PHOTO: Signage for a job fair is seen on 5th Avenue after the release of the jobs report in Manhattan, New York City, U.S., September 3, 2021. REUTERS/Andrew Kelly/file photo
 
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LONDON (Reuters) - The shutdown of the U.S. government has been averted, while embattled developer China Evergrande (HK:3333) is on the brink, and markets are still adjusting to central banks' higher for longer rates mantra.

If that wasn't enough to kick off the final quarter of 2023, there's central bank meetings from Australia to Poland and closely-watched U.S. jobs data.

Here's your week ahead in markets from Ira Iosebashvili in New York, Kevin Buckland in Tokyo, and Harry Robertson, Karin Strohecker and Marc Jones in London.

1/ STANDOFF IN D.C.

The U.S. Congress passed a stopgap funding bill late on Saturday, averting a government shutdown that threatened to further damage the U.S. credit rating, exacerbate market volatility and delay key economic releases.

Still, concerns that political polarization in Washington is weakening fiscal policymaking could linger.

Focus now turns to the closely-watched September non-farm payrolls report on Friday. Economists polled by Reuters expect the U.S. economy created 150,000 jobs in September versus 187,000 in August.

Stronger-than-expected data would likely bolster the 'higher for longer' rates stance that is hurting bonds and stocks.

2/ NEW CHIEF IN TOWN

The Reserve Bank of Australia's new governor Michele Bullock, the first woman to head the bank, chairs her first meeting on Tuesday.

    Investors will be looking for signals from Bullock, known as a straight talker, on whether the RBA is done with hikes or if more might be coming after some signs of inflation smoldering in the services sector. The consensus is for a pause.

    China is another risk for Australia's economy, of course: a property sector teetering on the edge of collapse flashes red lights for Australian raw material exports.

    The window into what Beijing is doing to prop up the sector – if anything - will basically be shut next week given the Golden Week holiday.

    Meanwhile, New Zealand's Reserve Bank meets on Wednesday. Despite a hawkish bias, a hike is viewed as a long shot. The focus is on any signals for a possible November move.

3/ WHEN SEPTEMBER ENDS

Markets kick off the all-important final quarter of the year after a game-changer of a last few months driven largely by a 30% surge in oil prices.

Higher rates mean U.S. Treasuries and German Bunds - often the main ballast of portfolios - have cost investors between 5.5% and 6.5% in Q3. Even gold has lost its shine, meaning that the dollar has really been the only safety play in town.

Equity bulls have also been biffed. World stocks are still up a respectable 8% for the year but have given back almost 5% in September with even the global tech giants reversing.

Q4 though will bring another earnings season and while the AI boom still matters, analysts will be ultra-focused on the what the traditional economy players say about the cost pain or lack of it that their customers are now feeling.

4/ THE HIGH FIVE?

Just how high government bond yields climb is on the watch list after yet another market sell-off. The 10-year U.S. Treasury yield has risen to 4.6%, its highest level since the October 2007, as investors absorb the Federal Reserve message that rates will stay high until inflation is quashed.

That has also steepened yield curves sharply, as long-dated bond yields are rising much faster than shorter-dated ones. The yield surge has hammered stocks and helped push the dollar to its highest in almost a year. ING reckons a 5% handle on Treasury yields and 3% for 10-year German Bunds are "looking more probable by the day". At around 2.9%, German yields are near their highest levels since 2011.

5/ OF POLICY & POLLS

In early September, Poland's central bank governor Adam Glapinski stunned markets. He delivered a much larger than expected 75-basis point rate cut to 6% for emerging Europe's biggest economy, where inflation is still in double digits.

The move sent the zloty sharply lower and came at a tense time for Poland, which heads to the polls on Oct. 15.

With the cost of living a key election battleground, the drastic cut brings relief to those struggling with mortgage repayments.

But it also adds to pressure on the fiscal side combined with a deluge of election promises featuring generous spending commitments across the political spectrum, fanning concerns over the outlook for inflation.

On Wednesday, policy makers meet to decide the next step in interest rates.

Take Five: Roll on Q4!
 

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