As the autumn trading season gains momentum, global markets are poised for a critical week that could set the tone for the remainder of 2024. Investors are keenly focused on a series of high-stakes central bank decisions and key economic data releases, which are expected to shape market sentiment in the coming months. The Federal Reserve's interest rate decision on Wednesday takes centre stage, with markets anticipating potential shifts in the bank’s monetary policy trajectory.
On Thursday, the Bank of England's interest rate decision will be closely watched for signs of a potential shift in policy stance. The Bank of Japan's monetary policy announcement on Friday will add to the week's significance. In China, the release of industrial output and retail sales data over the weekend has already set a cautious tone for Asian markets. With a busy week of economic data and central bank announcements ahead, investors should brace for a period of heightened volatility and potentially market-defining moments.
Equities
Global equity markets enter the week on somewhat shaky ground, following a strong week of trading previously. Futures are pointing to a lower start in European equity markets, and in the US, futures have barely moved overnight, reflecting a cautious hold ahead of the FOMC rate decision on Wednesday. On Saturday, Chinese data showed a slowdown in industrial output growth to a five-month low in August, combined with weakening retail sales and new home prices. This has reinforced the case for aggressive stimulus to help boost economic growth to hit the annual 5% growth target.
Commodities
Gold prices reached new all-time highs in overnight trading, following a week of strong performance for the precious metal, as investors considered the prospect of a 50-basis point cut this week. Oil prices closed lower on Friday but still managed to post a weekly gain for the first time in over a month, with prices finding support as falling Libyan exports offset weak Chinese demand.
Fixed Income
Treasury yields dropped on Friday as traders adjusted their expectations to a 50bps rate cut at this week's Federal Reserve meeting instead of a 25bps cut. Two-year treasury yields dropped to 3.58%, and the 10-year yield fell to 3.65%. According to bond futures markets, investors are currently pricing in 120bps of rate cuts by the end of the year and 250bps over the next 12 months.
In the UK, the markets are currently pricing in two rate cuts by the Bank of England this year, with 160bps of easing expected over the next 12 months. However, the BoE may be unable to cut rates at their meeting on Thursday due to persistently high services inflation.
Currencies
The US dollar moved lower on Friday and closed the week down slightly, with most of the downward pressure stemming from gains in precious metals and the Japanese yen, following market expectations of a 50bps rate cut from the Fed. Despite all eyes being on the Fed’s decision this week, with the Bank of Japan and Bank of England also announcing policy decisions, this could further strengthen the Japanese yen and British pound against the US dollar.
Outlook
The week ahead is crucial for global markets as investors await key central bank decisions. The Fed's interest rate decision on Wednesday will be pivotal in shaping monetary policy expectations for the remainder of the year. In Asia, the Bank of Japan's decision on Friday is also expected to affect the global currency dynamics, particularly the Japanese yen. As we approach this crucial week, markets remain cautious but poised for significant moves depending on central bank decisions and economic data releases.