Global Market Outlook

(Reuters) – China's GDP figures, U.S. retail sales, and an upcoming rate decision by the European Central Bank will dominate the market news this week. Earnings reports are also underway in both the U.S. and Europe, while UK markets are on edge ahead of the new government's first budget.

1. ON TARGET?

China's third-quarter growth figures, set to be released on October 18, will be the highlight of the week filled with data releases from the second-largest economy in the world. This comes as Beijing announced plans for more stimulus measures and an increase in debt to uplift its struggling economy, leaving investors uncertain about the size of these initiatives. Policymakers remain confident in hitting a yearly growth target around 5%, despite disappointing numbers in Q2 and expectations that Q3 may not improve significantly. Nevertheless, Friday's announcements contributed to some market optimism as mainland stocks began to rise again amid fluctuating trades.

In addition to GDP, China will also report on trade, housing prices, and retail sales, which will inform policymakers on the challenges ahead as the year closes.

2. CUTTING TRACK

Anticipation builds for the European Central Bank (ECB) to announce a quarter-point rate cut on Thursday. This decision is unexpected and previously deemed unlikely by traders, but contracting business activity in the eurozone has raised concerns about the pace of rate cuts as the economy falters. With inflation falling below the ECB's 2% target, the focus has shifted to growth risks.

Economists suggest that the Thursday cut could be the start of consecutive reductions, although officials may be hesitant to move too quickly. By December, a clearer shift may emerge, particularly with new economic forecasts in view.

3. SHOPPERS AND BANKERS

On Thursday, markets will also receive fresh insights into U.S. consumer health through retail sales data. Recent robust labor market statistics have reshaped assumptions regarding Federal Reserve rate cuts in the upcoming months, potentially bolstering Treasury yields and the U.S. dollar. A strong retail sales figure could reinforce perceptions of resilience in the economy.

As earnings season continues, reports from major banks like Goldman Sachs and Bank of America on Tuesday will provide additional context regarding consumer behavior.

4. DEFIANT EARNINGS

Earnings reports from significant European corporations, including LVMH and ASML, will be released this week, marking the onset of earnings season in the region. Despite a sluggish eurozone economy, corporate profits are anticipated to rise for the second consecutive quarter for the first time since Q1 2023, according to recent data.

Although earnings expectations have seen reductions, analysts are hopeful that European companies can meet the elevated performance bar, especially as the STOXX 600 index approaches an all-time high.

5. LOOMING BUDGET

UK financial institutions are growing apprehensive ahead of the new Labour government's first budget on October 30. Data on inflation set to be released on Wednesday may exacerbate these concerns.

Ten-year gilt yields have surged to their highest levels since early July, partly fueled by fears that finance minister Rachel Reeves may ease borrowing rules for public funding. Economic uncertainty persists as inflation data indicated steady consumer price growth overall, but an uptick in service sector inflation.

Expectations are that the Bank of England may enact a second rate cut in November, though mixed signals from officials regarding future moves lead to ongoing uncertainty.