Monex Europe: Markets forced to trade in turbulent waters

October 2, 2023

While we believed the lighter data calendar would weigh on market volatility this week following a bumper central bank calendar last week, that wasn’t to be the case as debt dynamics shone to the fore at a time when oil prices ratcheted higher.

Whether it was in the US due to a likely government shutdown, Italy due to larger fiscal deficits in 2024, China over harrowing Evergrande headlines, or Sweden following Brookfield’s purchase of part of its education unit, corporate and sovereign debt was in the driving seat for markets and boy did it cause some choppy price action.

Once adding into the mix a rally in oil benchmarks on signs that global supply deficits have increased in recent weeks at a time when central banks are striking 'higher for longer' messages to markets, the stagflationary and risk negative developments meant it was difficult to look outside of the dollar this week, even if the greenback’s rally tailed off somewhat at the end of the week.

Looking ahead to next week, increased levels of intraday volatility are likely to persist, especially at the market open on Monday as over the weekend the US government could be forced to shut down, leaving markets to trade with little information over the state of the US economy, while China’s official and private PMIs are also released for September.

Moving further into the week, there will naturally be questions about whether we get any data out of the US, especially Friday’s payrolls report, while we can also expect rate decisions out of Australia, New Zealand, and Poland.

For the Antipodean central banks, a hold in policy looks the most likely. While conditions in Poland suggest the same should also be true, we can’t discount another rate cut after September’s decision raised doubts over the central bank’s economic and political priorities.