Two key central bank decisions in Europe and the United States are behind us. Both banks decided to support economies by easing monetary policy. Investors should now pay attention to macroeconomic data to see if banks' strategy is delivering the intended results.
It is estimated that the effects of monetary easing will translate into the economy after a few quarters, so be patient. Nevertheless, the macroeconomic data released this week can be very interesting. We started the week with the publication of PMI data, where the reading for Germany once again aroused the greatest interest, and as a result the euro began to depreciate along with the German Dax.
According to preliminary IHS Markit data for September, the activity index in German industry fell from 43.5 points to 41.4 points, it was also significantly lower than market expectations at 44 points. The recent reading pointed to the steepest contraction in factory activity since the global financial crisis a decade ago. Output has declined at the fastest pace since July 2012. Foreign demand has also declined. Such a poor PMI reading is also associated with uncertainty and concerns about the prospects for the German automotive sector. Moreover, the PMI for services also fell to 52.5 points, i.e. to the lowest level since December last year. It was enough for the EUR/USD exchange rate to fall below 1.1000 at the beginning of the week and Dax to fall more than 1 percent.
On Wednesday, it is worth paying attention to the decision of the New Zealand Reserve Bank. According to market consensus, the main RBNZ interest rate is expected to remain unchanged at 1 percent. According to the interest rate market, the probability of interest rate cuts is around 23 percent. However, it is possible that the RBNZ may send the dovish message to the market, which could lower the NZD/USD exchange rate. It seems that the depreciation of the New Zealand dollar is on hand for the RBNZ, as it increases the competitiveness of exports and inflation in the country. The currency options market does not expect above average changes in the NZD/USD exchange rate related to the RBNZ decision.
On Thursday, September 26, the final US GDP from the second quarter will be published, and on Friday, September 27, at 14:30, we will get the data about inflation in the United States. It is worth noting the readings of PCE inflation and core PCE inflation, which the Fed takes into account in its decisions and in its projections. According to the consensus, core inflation in August rose to 1.8 percent in annual terms.
In the context of recent strong GBP/USD increases, investors' attention may focus on what Prime Minister Boris Johnson is able to agree on a new deal with the European Union. The positive comments of the President of the European Commission favored the positive scenario. Will it be enough? For now, the changes seem to be hardly available. Therefore, despite the lack of key central decisions, the last week of September promises to be very interesting.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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