Key facts
- Global borrowing costs are at their highest since the 2007-08 financial crisis.
- Major world stock indexes are up more than 12% for the year.
- US nonfarm payrolls are expected to rise by 100,000 jobs in September.
- The US unemployment rate is expected to be 4.2% in September.
- US Personal Consumption Expenditures price index data is due Wednesday.
- Micron Technology shares have fallen more than 6% this quarter.
As the third quarter of the year concludes, financial markets are bracing for a potentially pivotal fourth quarter, with key economic data releases and geopolitical uncertainties on the horizon. Global borrowing costs have reached their highest levels since the 2007-08 financial crisis, yet major stock indexes remain close to all-time highs, largely buoyed by enthusiasm surrounding artificial intelligence.
In the coming week, investors will closely watch the September US nonfarm payrolls report, due Friday, and the monthly Personal Consumption Expenditures price index, due Wednesday. These figures will provide crucial insights into the strength of the US economy and inform expectations about the Federal Reserve's future interest rate decisions. Economists polled expect September payrolls to show an increase of 100,000 jobs, with the unemployment rate at 4.2%. The PCE index will be key to assessing whether persistent inflation is moving towards the Fed's 2% target.
Euro zone inflation data and price figures from Tokyo are also scheduled for release on Friday, offering a barometer for inflationary pressures in major economies. Markets are already pricing in a more aggressive global tightening cycle than just weeks ago, with 10-year Treasury yields surpassing 5%, a level not seen since 2007. This environment presents a challenge for current market valuations, as hope for transient inflationary forces battles fears that higher capital costs may become the norm.
Earnings from semiconductor maker Micron Technology, due Wednesday, will be a key test for the AI trade, which has shown signs of fatigue. Micron, a supplier of memory chips crucial for AI infrastructure, has seen its shares rise significantly year-to-date but has fallen over 6% this quarter. Disappointing guidance could signal a loss of momentum in AI spending.
In Australia, the Reserve Bank of Australia is expected to raise interest rates by a quarter point on Tuesday, despite falling house prices and a rising jobless rate. This move would bring the cash rate to a 15-year high of 4.6%, as core inflation remains above the RBA's target range. The central bank faces a bind as oil prices push above $100, complicating efforts to manage inflation.