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Markets wrapped up the week on a positive note, supported by mild inflation data. US equities showed mixed results, with the S&P 500 slipping 0.1% while the Dow rose 0.3%. In contrast, European markets performed better, with the Euro Stoxx 50 gaining 0.7% and the FTSE 100 advancing 0.4%. However, attention in the equity markets stayed on China, where the CSI300 index climbed another 4.5%, bringing its weekly gain to 15.7%, the best performance since 2008. Meanwhile, the yield on the US 10-year Treasury note dropped 4.6 bps to 3.75%.
US data released on Friday night reinforced the outlook that inflation is steadily moving closer to the Federal Reserve’s target, and the economy is continuing to grow at a moderate pace. The Fed’s preferred measure of inflation, the PCE deflator (Personal Consumption Expenditures), increased slightly by 0.1% from the previous month, bringing the yearly inflation rate to 2.2%, its lowest level in 3½ years. The core PCE, which excludes more volatile items like food and energy, also rose by 0.1% monthly, but its yearly rate increased to 2.7% due to technical factors known as base effects (Base effects refers to the impact that the level of inflation or economic data from a previous period has on the current year’s percentage changes. If last year’s data were unusually high or low, it can distort the y/y comparisons).
Real consumer spending grew modestly by 0.1% in August, which is consistent with projections that overall economic growth in the 3rd quarter will be strong, likely around 3% on an annualized basis, even if spending remains flat in September.
The final University of Michigan consumer sentiment index for September slightly exceeded the initial estimate, reaching a 5-month high of 70.1. This contrasts with the weaker consumer confidence report from the Conference Board released earlier in the week.
The DXY (dollar) index hit a new cycle low following the US PCE data, and the weakness in the USD pushed the AUD, NZD, EUR, and GBP to their highest levels of 2024 on Friday.
AUDUSD reached a new yearly high following China’s broad policy stimulus measures, peaking at 0.6918 before ending the week around 0.6910.
AUDJPY dropped over 1.5% towards 98, with the yen strengthening significantly after Shigeru Ishiba won the LDP leadership, positioning him as the next Prime Minister from 1 October. Ishiba backs the BoJ’s recent monetary tightening, surprising markets that expected frontrunner Sanae Takaichi, who opposed rate hikes, to win. The yen surged after the announcement, with USDJPY closing the week at 142.20, down from above 146 before the final vote result.
AUDEUR reached a 3-month high of 0.6200 before pulling back to 0.6181. Recent economic data from the eurozone indicated that CPI inflation in France and Spain was significantly lower than expected, at 1.5% and 1.7% year-on-year, respectively. This data precedes the German CPI release tonight and the euro area CPI tomorrow night. The weaker inflation figures have led the market to price in a higher likelihood of a 25bps cut from the ECB at its next meeting in October, adding to the momentum from last week’s disappointing PMI data.
In the upcoming day, the ANZ business outlook survey will attract some attention, followed by China’s PMI data. Overnight, German CPI data will be released, and Fed Chair Powell will be giving a speech.
Throughout the rest of the week, the market will be focused on the important US employment report due on Friday night. Leading up to that, the ISM manufacturing, and services surveys, along with the JOLTs report, will also be significant. On the domestic front, tomorrow’s QSBO will be the final key release before the RBNZ Monetary Policy Review next week.
Mid-market rates.
| Currency Pair | Mid-market rate |
| AUD/USD | 0.6919 |
| AUD/NZD | 1.0895 |
| AUD/JPY | 98.79 |
| AUD/CNH | 4.8267 |
| AUD/EUR | 0.6193 |
| AUD/GBP | 0.5169 |
| AUD/HKD | 5.3772 |
Chart of the day
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