Start the engine for Q4 by Reuters

(Reuters) – Financial markets will enter the fourth quarter buoyed by anticipation of a decline in global interest rates from high levels of the past few years, and the only question is whether the economy declines just as quickly or slows slightly.

Here’s what’s big in the markets next week from Ira Iosebashvili in New York, Rae Wee in Singapore, Yoruk Bahceli in Amsterdam and Marc Jones and Amanda Cooper in London.

1/SPHERE OF HASSOS

The third quarter draws to a close on Tuesday after a tumultuous few months.

August saw widespread turmoil as the normally docile Japanese yen went wild almost exactly at the same time as the Mag 7 tech bulls collapsed and top central banks began to worry again about their economies .

Stocks have largely weathered their swings since then, but the yen is on course for its best quarterly performance since the 2008 global financial crisis, benchmark global borrowing costs and oil are both down nearly 15 percent, and China open the boost beams.

So fast forward to the final leg of the year, which will be dominated by the November US election between Donald Trump and Kamala Harris. But that should be quiet, right?

2/A DELICATE BALANCE

The Federal Reserve began its rate-cutting cycle with a 50-basis-point cut on September 18, but employment remains a focal point for investors assessing how quickly the central bank will need to cut policy monetary in the coming months.

Market participants are keen to see whether next Friday’s data will support Fed Chairman Jerome Powell’s sunny outlook for cooling inflation and resilient growth, a key factor behind markets’ rally to new highs after the central bank’s meeting.

The soft labor market could reignite fears that an economic recession could be imminent, while unexpectedly strong job growth could fuel fears that the Fed will not cut rates as deeply as expected as it tries to avoid a burst of inflation.

Economists polled by Reuters expect the US economy to have added an average of 145,000 jobs in September, up from 142,000 in August.

3/REFRESHING THE PAGE China’s factory activity data is due on Monday in both official and private sector surveys, just a week after the country unveiled its most aggressive post-pandemic stimulus package to -supports its struggling economy. Of course, it will be too early to see the effects of the measures – from deep interest rate cuts to supporting stocks – on the economy. But given the wave of optimism that has swept global markets following Beijing’s announcement, perhaps investors can look past Monday’s likely bleak numbers for once. While the release of China’s PMI data headlines the Asian economic calendar, a meeting between the country’s government and central bank will also be of note in Thailand.

The two will discuss the domestic inflation target and the baht’s recent strength after months of grappling with rate cuts.

4/JOKE BRITAIN

In the race to neutral interest rates, the Bank of England is lagging behind the likes of the Federal Reserve and the European Central Bank.

Markets show traders believe the BoE will almost certainly cut rates much more slowly than most other major central banks. Upcoming UK second-quarter GDP data is unlikely to sway policymakers in London, who are still concerned about areas of lingering inflation in the economy. The new Labor government has sounded the alarm about the dire state of Britain’s finances – something the October Budget will try to address – and as a result consumers are at their worst for six months. Next week’s mortgage and consumer credit figures could provide some much-needed cheer.

5/DEFLATION

Eurozone inflation figures due on Tuesday will be closely watched as the ECB decides whether to cut rates again in October.

In both France and Spain, consumer prices rose less than expected in September, by 1.5% and 1.7% respectively.

Economists see overall eurozone printing falling below the ECB’s 2% target for the first time since June 2021 due to lower energy prices, although it is expected to rise again in the final months of the year.

Investors now see a more than 50% chance of a 25 basis point rate cut in October, which they thought was unlikely as recently as last week, as eurozone business activity unexpectedly contracted in September , fueling fears that the ECB is behind the curve.

Dovish policymakers are now preparing to fight for that cut. Falcons are likely to resist.

Traders see inflation falling much faster than the ECB expects.