Stability of global financial markets and upcoming economic challenges

British Prime Minister Andy Burnham said that he realizes the need to reassure investors that he has faced “the reality” of the challenges facing public finances, in order to stabilize markets before proceeding with broader economic reforms.

During the past few weeks, government borrowing costs in advanced economies recorded high levels not seen in decades, in light of fears of continued inflationary pressures related to the Iran war and the rise in government borrowing.

But borrowing costs in Britain have also risen; Due to market concerns that the new government will have difficulty curbing spending, all eyes are on its budget scheduled to be announced on October 28.

However, Burnham explained that Labor MPs do not have the necessary will to “make significant cuts” to the social care budget.

“I think it is absolutely necessary to achieve stability and show a willingness to confront the reality of some of these difficult issues,” Burnham told the Guardian newspaper before the annual conference of his ruling Labor Party.

He added: “But in fact, through this stability, there can be room for greater change that may ultimately put the country in a stronger position in terms of public finances.”

He continued: “You must achieve stability, but you must do what you can within that framework. “You cannot implement a major change programme, which I believe the country needs, in a chaotic situation.”

This week, the eyes of global markets are turning to US jobs data for September, which will be a key factor in assessing the strength of the economy and its ability to withstand a new increase in interest rates, at a time when inflation fears are intertwined with rising energy costs, and the continuing wave of selling in global bond markets.

Labor market data comes at the forefront of indicators that investors are monitoring after the Federal Reserve raised interest rates in September, leaving the door open for another increase. In Europe, attention is focused on inflation data, while in Asia the focus is on activity indicators in China and the decision of the Reserve Bank of Australia.

United States

On Friday, markets await the release of non-farm payrolls data for September, in a new test of the strength of the labor market and the ability of the US economy to withstand a successive increase in interest rates.

The Federal Reserve raised interest rates by 25 basis points in September, after a sharp rise in oil prices, amid uncertainty related to developments in the Middle East, and also indicated the possibility of raising them again.

Recent surveys showed stronger-than-expected activity in the US private sector reinforced investors' bets on a new rate increase in October. LSEG data showed that financial markets finally priced the probability of raising interest on October 28 at 64 percent.

James Knightley, an economist at ING, said that the September jobs report and inflation data scheduled for October 14 will be major factors in determining the Fed’s next direction, according to what was reported by the Wall Street Journal.

Before the jobs report, the job vacancy data (JOLTS) for August will be released on Tuesday, followed by private sector jobs data from ADB on Wednesday, and then weekly unemployment claims on Thursday.

The personal consumption expenditures price index data for August, scheduled to be released on Wednesday, receives special attention as the index is the Fed’s preferred measure of inflation. On the same day, the final reading of the gross domestic product for the second quarter will be issued.

The week's agenda also includes the Consumer Confidence Index issued by the Conference Board for September on Tuesday, and factory orders for August on Friday.

Eurozone

All eyes in the Eurozone are on September's inflation estimate, with a particular focus on the extent to which higher energy prices are passed on to the rest of the price components, particularly core inflation.

Spain's data will be released on Tuesday, and France, Italy and Germany's data will be released on Wednesday, before the euro zone reading is released on Friday.

The European Central Bank raised interest rates at its meeting in September, while financial markets are pricing in up to four additional increases of 25 basis points over the next year, according to LSEG data.

Tuesday will also release data on business and consumer confidence in the region, while on Thursday it will be followed by purchasing managers’ indices for the manufacturing sector in Spain, Italy, France, Germany and the euro zone, in addition to unemployment data.

Christine Lagarde, President of the European Central Bank, is scheduled to appear on Monday before the Committee on Economic and Monetary Affairs in the European Parliament.

In the bond market, Belgium will hold an auction on Monday, followed by Italy on Tuesday, while Germany will offer bonds maturing in August 2036 on Wednesday, and auctions will be held in Spain and France on Thursday. The Netherlands also intends to issue new bonds that mature in January 2048 on Tuesday.

Britain

British markets are monitoring economic data for indications of the Bank of England's direction in November, especially if energy prices remain at high levels.

The revised reading of the gross domestic product for the second quarter will be issued on Wednesday, followed on Thursday by the final reading of the purchasing managers’ index for the manufacturing sector in September. Also Tuesday, the Bank of England will release data on mortgage lending and consumer credit for the month of August.

The Labor Party conferences are receiving the attention of the markets, in light of public financial pressures and the approaching October 28 budget, while monitoring the impact of any pre-budget tensions on government bond yields.

Britain also intends to issue government bonds maturing in 2036 on Tuesday.

Japan

Attention in Japan is turning to activity indicators and monetary policy expectations, with the release of the Tankan Business Confidence Survey on Thursday, along with a summary of the Bank of Japan’s views from its meeting in September, during which it raised the interest rate to 1.25 percent.

Industrial production and retail sales data for August will be released on Wednesday, while inflation data in the Tokyo region and the jobs report for the same month will be released on Friday.

Japanese government bond yields are particularly closely watched after they rose to their highest levels in several years, coinciding with the rise in bond yields in advanced economies.

The yen's movements also remain a subject of interest, in light of the return of talk about the possibility of Japanese authorities intervening in the exchange market after a new wave of currency weakness.

On Monday, the Bank of Japan is conducting direct purchases of government bonds maturing within one to three years, and from 10 to 25 years, in addition to inflation-linked bonds. The Ministry of Finance is also offering 40-year bonds on Tuesday, and two-year bonds on Wednesday.

China

China is witnessing a shortened week due to a public holiday, but it includes the release of purchasing managers' indexes and industrial company earnings.

Activity indicators are expected to show a slight improvement in the manufacturing and services sectors, while investors are monitoring the impact of the artificial intelligence boom on exports, in contrast to the pressures imposed by rising input costs due to the war in the Middle East.

Economists at ING expect the official purchasing managers index to record 50.1 points for the manufacturing sector and 49.2 points for the non-manufacturing sectors on Wednesday.

On the same day, the Rating Dog Purchasing Managers' Index (PMI) was released, which tends to show a stronger performance due to its sample's greater focus on exporting companies.

On Monday, industrial companies' earnings data for August were also released, amid expectations of a slowdown in profits, despite their improvement compared to previous years.

Canada

On Tuesday, Canadian markets awaited GDP data for July, after data showed a decline in retail sales of 1.1 percent on a monthly basis during the same month.

Markets are watching the possibility of the Bank of Canada raising interest rates in the coming months, especially if energy prices remain high. Financial markets are pricing in more than 4 interest increases over the next year, according to LSEG data.

Australia

The Reserve Bank of Australia will conclude its monetary policy meeting on Monday and Tuesday, amid expectations that it will raise interest rates for the fourth time since the beginning of the year, in light of continuing inflation pressures.

Investors are awaiting the press conference of the bank's governor, Michelle Bullock, in addition to the distribution of the votes of the nine members of the board of directors, while inflation data for August will be released on Wednesday.

If the bank approves another increase before the end of the year, the cash interest rate will reach its highest level since 2008.

South Korea

On Thursday and Friday, markets await South Korea's trade and inflation data, with semiconductor-led exports remaining strong.

Jin-wook Kim, an economist at Citigroup, expects the trade surplus in September to reach $42.7 billion, compared to $34.79 billion in August, exceeding the previous record of $35.91 billion recorded in June.

It is also estimated that exports increased by 68.4 percent on an annual basis during September, compared to a 21 percent increase in imports.

Regarding inflation, Citigroup expects a reading of 3 percent in September, compared to 3.1 percent in August, to remain higher than the central bank’s target of 2 percent.

Indonesia

Indonesia on Thursday releases trade data for August and inflation for September, with inflation expected to rise to 3.3 percent from 3.2 percent in August, mainly driven by higher food prices.

In trade, Indonesian exports may slow during the second half of the year; As a result of weak global demand and a decline in the prices of coal, crude palm oil, and nickel, in conjunction with restrictions on domestic supply. Imports of capital goods and raw materials may outpace weak export growth.

The administration of US President Donald Trump intends to sharply reduce fuel efficiency standards for new cars and trucks until 2031, in a move that reflects more stringent rules approved by the administration of former President Joe Biden, and opens the way for automakers to introduce more large, less fuel-efficient vehicles.

Trump said on Saturday that he approved the new standards, which the US Department of Transportation is scheduled to officially unveil on Monday. The US President presented the move as a way to reduce new car prices and support automakers and American workers.

The Biden administration had raised fuel efficiency requirements with the aim of reducing oil consumption and encouraging automobile companies to increase the production and sale of electric and hybrid cars. Under those rules, passenger cars and light trucks would have to reach about 50 miles per gallon by 2031.

In contrast, the Trump administration proposed reducing the average efficiency of the car fleet to 34.5 miles per gallon by 2031, compared to 50.4 miles per gallon according to the Biden administration’s rules.

The US Department of Transportation estimates that relaxing standards will reduce the average cost of a new car by about $930, but in return, it will lead to an increase in fuel consumption by about 100 billion gallons until 2050, and an increase in fuel spending by about $185 billion, in addition to an increase in carbon dioxide emissions by about 5 percent.

The move comes at a time when American drivers are facing a sharp rise in fuel prices since the outbreak of the US-Israeli war on Iran at the end of February, adding an economic dimension to the debate about the efficiency of vehicles and their operating costs.

The Biden administration had raised fuel efficiency requirements for cars by 8 percent annually for the 2024 and 2025 models, by 10 percent for 2026, then by 2 percent annually from 2027 to 2031.

In December, the Trump administration proposed retroactively amending the model efficiency standard to lower levels, before raising it by rates ranging between 0.25 and 0.5 percent annually until 2031.

The new rules would give car companies more room to sell less efficient vehicles, including pickup trucks and sport utility vehicles, which typically earn higher profit margins than smaller cars, but consume more fuel.

The relaxed rules also reduce regulatory incentives for automakers to expand into electric vehicles, although some companies have confirmed their continued investment in this sector.

US Secretary of Transportation, Sean Duffy, said that the expected announcement on Monday represents a “major victory” for workers in the American auto industry, while the administration has not yet finally revealed all the details of the new standards.

Under Biden's rules, tightening fuel efficiency standards was part of a broader policy aimed at reducing fossil fuel use and greenhouse gas emissions, supporting the auto sector's transition toward clean energy and strengthening the United States' position in low-emission energy and vehicle technologies.