Will the US jobs report show signs of economic recovery?

Investors’ attention next week is likely to be on US payroll data on Friday for reassurance over the strength of the economy, following the Federal Reserve’s bumper interest rate cut.

Economists polled by Reuters expect the US to have added 145,000 jobs in September, a slight increase on the 142,000 created in August, and up from the 89,000 in July. The unemployment rate, calculated from a separate survey, is forecast to hold steady at 4.2 per cent.

US stocks are marginally higher since the Fed cut rates by half a percentage point, its first cut in four years, to a range of 4.75-5 per cent earlier this month. Fed chair Jay Powell has said the central bank intended to support a strong US labour market.

September’s payrolls report may take on extra importance, say Barclays analysts, because it will be the first in three months not to have been affected by weather events such July’s Hurricane Beryl.

However, forecasts for the Friday report vary widely. Analysts at Citigroup estimate just 70,000 new roles were created, pointing to a rise in survey responses that jobs are increasingly hard to find. 

“Survey data showing that individuals are now finding jobs less plentiful and harder to get corroborates that the labour market is softening as it typically does going into a downturn,” said Andrew Hollenhorst, US economist at the bank. “We continue to expect more aggressive easing as the Fed confronts a rapidly softening labour market.” Jennifer Hughes

Will eurozone inflation fall below 2 per cent?

The Eurozone is due to publish inflation data on Tuesday, as investors weigh how fast the European Central Bank is likely to keep cutting interest rates.

Economists polled by Reuters forecast that eurozone harmonised indices of consumer prices — the ECB’s preferred measure of inflation — will fall to growth of 2 per cent in September, in line with the central bank’s target and down from 2.2 per cent in August.

The central bank has been cutting rates since the summer in response to falling Eurozone inflation and signs that the bloc’s economy risks grinding to a halt.

But there are early signs the inflation numbers could potentially come in lower than estimates. Data on Friday showed that inflation in France dropped to 1.5 per cent from 2.2 per cent in August — a figure below expectations of 1.9 per cent from economists. 

In Spain, headline inflation fell to 1.7 per cent, down from 2.3 per cent the previous month. The moves prompted traders in swap markets to price an 81 per cent chance the ECB would lower rates at its next meeting. Earlier this month, investors had priced the chance at only 25 per cent. 

“Inflation in France crashed in September, and if these data are representative of what happened in the eurozone as a whole — which is not certain — ECB doves will be in a very strong position to push through a third rate cut next month,” said Claus Vistesen, economist at Pantheon Macroeconomics.

Falling industrial output in Germany and Italy has also raised concerns that the Eurozone economy is slowing after a brief period of growth earlier this year.

“We have long made the point that if eurozone core goods inflation failed to rebound in September, in line with our and the ECB’s new forecasts, an October cut would become the baseline. This now seems to be case,” said Vistesen. Mary McDougall

Will Japanese business confidence rebound?

Shigeru Ishiba’s first day as Japan’s new prime minister on October 1 may not be a terribly comfortable one.

The same day that he is due to be confirmed in the role by parliament, the Bank of Japan will release its quarterly Tankan Survey of Japanese business conditions. Most economists suspect it will, inconveniently for the new leader, show declining confidence. 

While expected to remain firmly in positive territory, the headline confidence index for non-manufacturers, said Citi, may slide by one point to +32, while small companies were likely to cite rising labour costs as a drag on confidence. 

Declining business confidence would set the tone for what is likely to be a difficult end of the year, with Japanese households continuing to take the pain of rising prices.

Ishiba was voted in as president of the ruling Liberal Democratic Party — and thus successor as prime minister to Fumio Kishida — under less than ideal circumstances, with the sudden stock market crash in early August providing a reminder of how fragile investor sentiment can be.

Weak domestic demand in China along with a yen that has strengthened back to where it was in January, said economists at Citi, will have weighed on sentiment at large manufacturers, whose survey results are taken as the key bellwether.

Of particular note, given the significant volatility of the yen over the summer and the fact that currency moves are now more explicitly being factored into the BoJ’s monetary policy debate, is how companies have responded.

Corporate assumptions about the dollar-yen exchange rate, and its impact on their profit forecasts, will be of particular interest. Leo Lewis