European Central Bank (ECB) policymakers have been dropping hints aplenty that they intend to cut rates again when they meet once more on Thursday. Markets have almost fully priced the ECB to cut rates for a third time this year amid unexpectedly soft inflation and a weak economic outlook. Meanwhile, market participants will keep a close eye on any fresh stimulus out of China, and earnings season kicks off properly on Wall Street.

China 

Chinese inflation data for September presents the first major economic release to set the tone for the week. Consumer inflation accelerated in August to the fastest clip in a half a year, but this was mainly down to higher food costs from weather disruptions as producer price deflation got worse. The consumer price index rose 0.6% from a year earlier in August, versus a 0.5% rise in July. Markets will also be digesting a finance ministry press conference on Saturday which was slated to detail plans on fiscal stimulus.

UK 

UK data is out this week with employment and wages in focus. The Bank of England has mooted a more aggressive cutting cycle but a lot will depend on wages, which along with services inflation have been notably sticky. But wage growth did slow in the three months to July, sliding to 5.1% from 5.4% in the three months to May. The latest inflation report for September is also due. Inflation in the UK held steady at 2.2% in August, close to the Bank of England’s 2% target. However, services inflation rose to 5.6% from 5.2%, indicating the persistence of underlying drivers of price pressures. Core inflation rose to 3.6% from 3.3% in July also.

ECB

The European Central Bank is all but certain to cut rates again — for the third time this year. Policymakers have been making it quite clear — French central bank chief Francois Villeroy de Galhau said a cut is likely and would not be the last.  Bundesbank Chief Joachim Nagel, one of the most hawkish members of the Governing Council, said he’s willing to talk about an interest-rate cut. ECB President Christine Lagarde has made it pretty plain that a cut is the most likely outcome amid weakening economic growth and a sharp fall in inflationary pressures. Lagarde told the European Parliament that “the latest developments strengthen our confidence that inflation will return to target in a timely manner,” adding: ”We will take that into account in our next monetary policy meeting in October.”The market will be most concerned about the guidance for future cuts and whether the ECB gives a signal that it feels it needs to catch up a bit.

Neil Wilson

Chief Market Analyst at Finalto

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