Lighter inflation led to rate cuts by Reuters

A look at the day ahead in European and global markets from Tom Westbrook

European inflation figures are due on Tuesday and risk is easing, which will bolster bets that the European Central Bank will cut interest rates later in the month.

Already this week, Germany’s September inflation was below forecast and, at 1.8% year-on-year, was the lowest since 2021.

Inflation is also easing in France, Italy and Spain, and markets have moved to fully price in an October rate cut after President Christine Lagarde said on Monday the trend would be considered at the next meeting of politics, which takes place on October 17.

Traders have another ECB rate cut for December and have sold dollars on the assumption that inflation is under control globally and that US rates have the most to fall.

The euro failed to sustain a break of $1.12 but is holding above $1.11, while the yen and yuan were the main movers in currency markets. (FRX/)

The yuan was steady at 7 to the dollar in offshore trade, with Chinese markets closed and holidays in Hong Kong and South Korea further easing trade with Asia. The yen settled at 143.89 per dollar.

Earlier in New York, US yields bounced back as Federal Reserve Chairman Jerome Powell said the policy committee was in no rush to cut interest rates, although that will fall quickly if data due on Tuesday and the rest of the week they will doubt.

US manufacturing ISM has been parked in contraction territory for months even as the economy has soared, but the focus will be heavy on the employment index and August jobs numbers.

If there are signs of weakness, traders will step up bets on a 50 basis point Fed cut for November. The market is currently pricing in about a 36% chance of a 50bp cut, according to CME FedWatch, down from 53% before Powell’s remarks.

Israel’s widely expected ground invasion of Lebanon appeared to be underway as its military said troops had begun “limited” raids against Hezbollah targets in the border area.

Oil prices rose very slightly.

Broader trade in Asia was eased over the holidays, although with markets in China closed, investors tempered some of the exuberance over the recovery of the world’s second-largest economy and, for example, Australian iron ore miners they decreased.

Factory activity in Asia weakened in September as weak Chinese demand and global economic uncertainty pointed to a challenging outlook, private surveys showed.

Shigeru Ishiba was due to be voted in by parliament as Japan’s next prime minister, while upbeat Australian retail sales data gave the dollar a slight boost.

Key developments that could influence markets on Tuesday:

– inflation in the euro zone

– US jobs, ISM survey