Top 5 Things to Watch in the Markets Next Week By Investing.com

Investing.com — A key inflation measure, along with appearances from several Federal Reserve officials, will be closely watched by investors following last week’s super-sized rate cut. The PMI data will provide some fresh insights into the strength of the global economy, and gold prices look set to continue a record rally. Here’s your look at what’s happening in the markets for the week ahead.

1. Inflation reading

The Fed’s favorite inflation gauge – due on Friday – will show whether price pressures have continued to moderate even as the central bank has finally begun to pull back from the tight monetary policy that has been in place to cool the economy.

Economists expect the personal consumption expenditure price index () for August to have risen 2.5% year-on-year.

The Fed’s latest economic forecast calls for the annual rate of the price index to decline to 2.3% by the end of the year and 2.1% by the end of 2025.

Next week’s economic calendar also includes a final reading for the second quarter, plus reports on , and as well as weekly data on .

2. Fedspeak

Comments from Fed officials in the coming days will likely shed light on last week’s huge rate cut and as such will be closely watched.

Atlanta Fed President Raphael is the first to speak on Monday, followed by Chicago Fed President Austan.

Fed Governor Michelle is due to speak on Tuesday and again on Thursday and, becoming just the first governor to oppose a Fed decision since 2005, her comments will likely outline the reasoning behind the decision, as she warned against cutting rates too quickly.

Fed President Jerome will speak at the 10th Annual US Treasury Market Conference on Thursday. New York Fed President John Williams and Supervisory Vice President Michael Barr will also speak at the same event. Investors will be on the lookout for any clues about how the Fed sees progress in reducing its balance sheet.

3. Market volatility

The benchmark hit its first close in two months last week after the Fed unveiled a sharp 50 basis point rate cut, kicking off the first US monetary easing cycle of 2020.

The index is up 0.8 percent so far in September, historically the weakest month for stocks, and has gained 19 percent year to date.

But the market’s rally could be tested if economic data fails to support expectations that the economy is navigating a “soft landing,” during which inflation moderates without denting growth.

Stocks do much better after interest rate cuts begin in such a scenario, as opposed to when the Fed cuts during recessions.

The market could also become more sensitive to the close election between Republican Donald Trump and Democrat Kamala Harris. Recent polls show a virtually even race.

“Unless the data deteriorates considerably, we think the US election will start to come more to the fore,” UBS equity derivatives strategists said in a note late last week.

4. PMI data

Flash PMI data released from Monday will provide the latest snapshot of the state of the global economy.

The Eurozone Composite Purchasing Managers’ Index (PMI) is in expansionary territory for six months and the UK’s for 10 months, bolstering a resilient pound.

Markets seem happy, for now, that the Fed’s half-point rate cut will help avert a US recession, and by extension, a global one. But some areas of concern remain.

In the eurozone’s largest economy, Germany, business activity moved deeper into contraction territory in August and sentiment remains weak. Meanwhile, China’s economy is still struggling, putting the world’s number two economy at risk of missing its annual growth target of around 5%.

5. Gold records

Bullion in the gold market is stalling as bullion prices surge to new records, with a $3,000 an ounce milestone in focus, boosted by monetary easing by major central banks and a tight US presidential election race.

hit an all-time high of $2,572.81 an ounce on Friday and is on track for its best annual performance of 2020, up more than 24% on safe-haven demand from geopolitical and economic uncertainty and robust bank buying central.

Low rates tend to support gold, which bears no interest.

Analysts at Citi said in a note last week that gold prices could reach $3,000 an ounce by mid-2025 and $2,600 by the end of 2024 as U.S. interest rate cuts, of strong demand from exchange-traded funds and physical OTC demand.

–Reuters contributed reporting