Week Ahead Economic Preview: Week Of 3 October 2022

 | Oct 02, 2022 09:15

With global recession risks rising, upcoming PMI survey data for the world's major economies will come under close scrutiny in the week ahead, as will Friday's US nonfarm payroll report in providing important guidance on the Fed's policy stance. While a scheduled meeting at the RBA is the main event from a policy-setting perspective, markets will be closely monitoring potential interventions by the Bank of England amid volatility in the gilt and FX markets, as well as UK political developments.

The week commences with a flood of manufacturing PMIs. Markets will be evaluating the potential for an easing of global factory price pressures following a recent moderation of supply chain pressures and the weakening demand environment. However, the softening of demand, ongoing COVID-19 containment measures in mainland China, uncertainty regarding Russia and energy supply issues in Europe all remain major concerns for the economic outlook.

Later in the week come the service sector PMIs, where the impact of the cost-of-living crisis on consumer spending will be a key development to watch. However, the surveys will also help understand the impact of tightening financial conditions on financial services around the world (see box), as well as any pass-through of rising prices to wages.

The week rounds off with the US employment report, for which markets are expecting nonfarm payroll growth to slow from a 315k gain in August to 250k in September. That would be the worst performance since December 2020, though the slowing pace of job gain in part reflects a natural moderation in hiring amid the current tightness of the labour market. The unemployment rate is expected to hold at 3.7%. Average hourly earnings growth is anticipated to hold at 0.3%. Any stronger than anticipated labour market trends will naturally add further to the growing view of a more aggressive Fed tightening, and notably a higher restrictive peak in the funds rate which may need to be maintained for longer.

In a crowded week, also watch out for US factory orders data and industrial production numbers out of Germany, France and Spain, as well as Japan's Tankan survey.

h2 Financial services lead global downturn/h2

PMI survey data published in the coming week will provide timely insights into macroeconomic trends around the world at the end of the third quarter, covering both manufacturing and services. However, the survey data can also be used to analyse economic trends by industry sector. August's data showed that the industry exerting the biggest drag on global growth is now financial services, with real estate activity falling especially sharply, reflecting the recent tightening of financial conditions. However, there has also been a major deterioration in the performance of consumer-facing service sectors, and notably travel & tourism, where a post-vaccine rebound in demand has stalled globally amid the surge in energy costs and rising cost of living, which has diverted spending away from non-essentials. Autos have also continued to suffer amid supply shortages. September's data will be published by S&P Global.

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