The week of 22nd-26th September is set to involve significant economic data releases from across the globe. Markets will closely watch inflation figures from Australia and Japan, alongside the U.S. Personal Consumption Expenditures (PCE). Monday begins quietly with remarks from FOMC members, while Tuesday sees the release of manufacturing and services PMIs from various regions including Australia and the eurozone.
Midweek Focus
Wednesday shifts focus to Australia’s inflation data and Japan’s core CPI, with Thursday’s attention on the Swiss National Bank’s monetary policy announcement and a robust U.S. calendar. Friday rounds off with Japan’s Tokyo core CPI, Canada’s GDP figures, and multiple U.S. economic indicators such as the core PCE price index and University of Michigan consumer sentiment surveys. Throughout the week, speeches by FOMC members will discuss economic risks and anticipated rate cuts.
Australian CPI is forecasted at 2.9% y/y, with prior inflation at 2.8%, driven largely by electricity and housing costs. In Switzerland, inflation data closely aligns with expectations, maintaining stable monetary policy. U.S. housing market remains subdued with projected declines in home sales. Durable goods orders show sector-specific strength, particularly in transportation and tech, while Japan closely monitors inflation and effects of U.S. tariffs. Core PCE deflator, expected at 0.2% m/m, remains central to the Fed’s inflation outlook and future rate cuts.
With the Federal Reserve signaling two more rate cuts this year, this week’s U.S. Core PCE inflation data on Friday is the main event. A reading of 0.2% or lower would reinforce the Fed’s dovish stance, likely boosting equity markets and weakening the dollar. We see derivatives markets pricing in an 85% chance of a cut at the October meeting, so any upside surprise in inflation could cause significant volatility.
Traders should watch the flash PMI data from the eurozone on Tuesday for signs of economic weakness. The strong August reading of 50.8 was a welcome sign, but we remember the index dipping below the 50-point contraction line for much of 2024. If this week’s data shows a return to sluggishness, we could see renewed bets on European Central Bank easing, creating opportunities in EUR/USD put options.
Key Event for Australian Dollar
In Australia, the consensus forecast for a rise in annual inflation to 2.9% presents a key event for the Australian dollar. We note the Reserve Bank of Australia has held its cash rate steady for over a year now, making it highly sensitive to inflation surprises. A hotter-than-expected print on Wednesday could drive the AUD higher, making call options an interesting play for those anticipating upside risks from housing and energy costs.
The U.S. housing and durable goods data will provide further context for the health of the economy. Current expectations for weakness in these reports align with the narrative of a cooling economy that justifies Fed rate cuts. Any unexpected strength, particularly in durable goods orders, could briefly challenge this view and introduce short-term turbulence.
In Japan, the Tokyo core CPI will be monitored, but we expect a more muted market reaction. Governor Ueda has emphasized a cautious approach, and with core inflation still below the 2% target on an annual basis, a single data point is unlikely to shift policy. We view this as a longer-term trend to watch rather than an immediate catalyst for trading.
Overall, the week is set up for potential declines in market volatility if inflation data confirms the disinflationary trend. However, the data releases themselves will be sharp pivot points where a surprise could unwind prevailing expectations. This makes options strategies that profit from a directional move, rather than just a rise in volatility, particularly useful around the U.S. PCE release on Friday.
