Investors’ focus will be on US non-farm employment data and US and euro area inflation figures. The data is expected to shape expectations regarding the path that interest rates will follow in the US and the euro area.
1. LAST QUARTER OF THE YEAR STARTS
After a difficult third quarter for the markets, the last quarter of the year starts next week on Thursday. The fourth quarter may witness important developments in terms of the course of the markets.
Global borrowing costs have risen to the highest level since the 2008 global financial crisis, driven by the Iran war, concerns about public finances and the pressure on bond markets due to rapidly increasing borrowing to finance artificial intelligence investments.
But global stock indices paint a very different picture. Supported by AI optimism, major stock markets are less than 2 percent below historical highs and have risen more than 12 percent since the beginning of the year.
The number of developments that processors will follow in the fourth quarter is quite high. While peace in the Middle East or Ukraine is seen as a distant possibility for now, interest rates are expected to continue to rise. The elections in Brazil will be followed in the first weekend of the fourth quarter.
But the most important political agenda item of this quarter will be the US midterm elections on November 3. Public opinion polls indicate that President Donald Trump’s Republican Party may lose its majority in the House of Representatives, and its majority in the Senate is also at risk. Election results could determine the course of US politics for the rest of the year.
2. DATA AGENDA
US employment and inflation data to be announced next week will give clues about the course of the economy and when the US Federal Reserve (Fed) may increase interest rates again.
The first thing on the data agenda of the markets is the September non-agricultural employment data, which will be announced next Friday. The employment data, which came well above expectations in the previous month, strengthened the expectations for the Fed’s first interest rate increase in three years.
According to a Reuters survey of economists, non-farm employment is expected to increase by 100,000 in September and the unemployment rate is expected to be 4.2 percent.
The personal consumption expenditures (PCE) price index, which will be announced next Wednesday, will signal whether high inflation is declining towards the Fed’s 2 percent annual target.
Pricing in futures indicates that there is an approximately 50 percent chance that the Fed will raise interest rates by 25 basis points again in October. In a survey announced this week, the index showing the prices paid by companies for the inputs they use in production rose to the highest level in nearly four years.
3. FEAR OF INFLATION
In addition to the euro zone inflation data to be announced next Friday, investors will also focus on Tokyo price data, which is considered an indicator for Japan.
The main question on the agenda of the markets is the rise in energy prices in major economies; The question will be whether it lasts long enough to create a ripple effect that could push up wages, costs of living and interest rates.
Interest rates markets have begun to price in a faster cycle of global monetary tightening than they did a few weeks ago. This situation pushed the US 10-year Treasury bond yields above 5%. The fact that yields are close to the highest levels seen since 2007 means that an unfamiliar environment has emerged for some bond and stock investors.
Despite the hope that inflation pressures will be temporary, there is concern that long-term capital costs will become permanent at 5% or above.
4. IMPORTANT DAY FOR MICRON
MU.O third quarter balance sheet of semiconductor manufacturer Micron Technology, which has a market valuation of $ 1.2 trillion, will be announced after the stock market closes next Wednesday. The balance sheet in question may affect stocks related to the artificial intelligence sector, which has lost momentum in recent months.
Micron, a major supplier of memory chips used with Nvidia’s artificial intelligence processors, has benefited greatly from investments in artificial intelligence data centers, and its shares have increased by more than 280 percent since the beginning of the year.
In this period when investors question the sustainability of increased spending on artificial intelligence and whether demand growth can maintain its current pace, Micron shares fell more than 6% during the quarter, while the Philadelphia semiconductor Index .SOX fell 14%.
Micron’s announcement of a future profit expectation above market estimates could to some extent calm concerns that artificial intelligence infrastructure spending is weakening or memory supply constraints are decreasing.
The fact that the expectations announced by the company fall behind market estimates can be interpreted as an indicator that the increase in artificial intelligence spending is losing momentum.
5. PEAK INTEREST RATE EXPECTATIONS IN AUSTRALIA
While housing prices in Australia continue to fall, the unemployment rate in the country has unexpectedly climbed to its peak in the last five years.
These developments do not create a favorable basis for the Reserve Bank of Australia (RBA) to raise interest rates.
Still, markets and economists expect the RBA to announce a rate hike next Tuesday. If a quarter-point interest rate increase is announced, interest rates in the country may rise to 4.6 percent, the highest in the last 15 years.
Like most major central banks, the RBA faces a difficult dilemma as oil prices climb back above $100.
Although the country has increased interest rates three times this year, core inflation remains above the RBA’s 2-3 percent target range.
