Starting the second half of October is a good opportunity to look at data from the US economy, for which the market is pricing the possibility of a third interest rate cut in the current cycle, which was supposed to be only a correction.
The US economy, and especially the American industry, began to feel the effects of the trade war. Deteriorating data on activity in this sector seems to indicate a decrease in investment or employment, which may translate into a deterioration of sentiment among employees, and thus also consumers. In addition, in the global economy we are also observing a deepening slowdown along with a decrease in the Chinese exports which fall the most in 7 months.
In such conditions, it may be reasonable to consider whether in two weeks the Fed may decide on the third interest rate cut, although according to recent macroeconomic projections we were not to see any further cuts. Nevertheless, the market expects with 75 percent probability that the Fed rate will fall from 1.75-2.00 to 1.50-1.75 percent. Just a month ago the chances of such a move were 33 percent.
Therefore, it seems that the most important data for the week starting on October 14 will be US data. An important reading should be retail sales. Falling gasoline prices and weaker sales results in chain stores suggest that growth may be limited. Industrial production is also likely to fall. Employment in this sector has decreased, and the ISM index showed a recession in the sector for the second month in a row. So among others the further behavior of the American currency, which fell in the first two weeks of October, may depend on the above publications.
If the US data disappoints, then the third week of October may bring a USD depreciation, and the Fed would have to give up what appeared in recent macroeconomic projections and cut interest rates again "just in case".
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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