Headlines coming out of the Middle East may well drive the bulk of the price action, particularly in commodities and FX. Earnings season kicks off on Wall St at the end of the week, but before that we have some central bank action and important macro data to consider.

RBNZ interest rate decision

At its previous meeting in August, the Reserve Bank of New Zealand (RBNZ) slashed its benchmark rate for the first time since March 2020 and pointed to more cuts in the coming months — a sharp dovish lean that led to a sell-off in the kiwi dollar.

The decision to cut rates by 25 basis points to 5.25%, nearly a year ahead of the New Zealand central bank’s own forecast, caught some investors off guard and has led to speculation of a more aggressive easing cycle that could continue through the end of 2025.

Markets are currently split on whether the RBNZ will go with a 25bps or 50bps cut on Tuesday— the Bank of New Zealand (BNZ), one of the country’s big four lenders, recently said it’s leaning towards the latter. “We have long argued the Reserve Bank has been slow to cut rates in the face of an imploding economy, weakening labour market and a return of inflation to target,” commented Stephen Toplis, BNZ’s Head of Research.

FOMC meeting minutes

On Wednesday the Federal Open Markets Committee (FOMC) will release minutes from its latest meeting, offering extra insight into the Fed’s economic outlook and upcoming interest rate decisions. In a recent speech, Fed Chair Jerome Powell pushed back against expectations of another “jumbo” 50-basis-point rate cut in November. He said he expects two more cuts this year, totalling 50 basis points, “if the economy performs as expected,” though the Fed could cut faster — or slower — if needed.

US inflation report, initial jobless claims

On Thursday, market participants will likely be glued to the US CPI data for September. Inflation dropped to its lowest level since Feb. 2021 in August, reinforcing the Fed’s outsized 50-basis-point move.  A softer-than-expected reading could boost expectations of another “jumbo” cut — despite Powell’s recent comments — but that could be outweighed by the initial jobless claims figures due out on the same day.

UK GDP, German CPI

The UK’s GDP estimate for August is due Friday. Britain’s economy grew more slowly than expected (0.5% vs. 0.6% expected) in Q2, but there were positive signs from household signs and business investment that could encourage chancellor Rachel Reeves as she prepares the Autumn Budget, due out on Oct. 30. Elsewhere, Germany’s inflation figures for Sept. 2024 are expected to show a year-on-year increase of 1.6% — the lowest inflation rate since early 2021. Banks kick off earnings season on Wall Street.

Neil Wilson

Chief Market Analyst at Finalto

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