Top 5 things to watch in markets in the week ahead

Investing.com -- With an eleventh-hour deal reached to avert a U.S. government shutdown investors will be focusing on U.S. jobs data and speeches by Federal Reserve head Jerome Powell and European Central Bank President Christine Lagarde in the week ahead. Central banks meeting in Australia and New Zealand will also be in focus and markets continue to digest the ‘higher for longer’ interest rates mantra. Here’s what you need to know to start your week.

1. Nonfarm payrolls

The U.S. is to release what will be a closely watched employment report for September on Friday with economists expecting the economy to have added 163,000 jobs last month, slowing slightly from 187,000 in August.

A stronger-than-expected reading could underline the Fed’s ‘higher for longer’ stance, weighing on markets.

Ahead of Friday’s report the JOLTS jobs report for August is due out on Tuesday, followed a day later by an update on private sector hiring from the ADP (NASDAQ:ADP) National Employment report, which is expected to point to moderating jobs growth.

Meanwhile, the Institute for Supply Management is to release its September manufacturing PMI on Monday which is expected to remain in contraction territory for an eleventh straight month. The ISM services PMI, due Wednesday, is expected to indicate slightly slower growth.

2. Powell comments

Jay Powell, along with Philadelphia Fed President Patrick Harker is to take part in a roundtable discussion with workers, small business owners, and community leaders on Monday.

Data on Friday indicated progress on inflation, with annual underlying inflation falling below 4% for the first time in over two years, but rising oil prices, which are driving the cost of gasoline at the pump, suggest the road to the Fed's 2% inflation target will be long.

In September, the Fed left rates on hold but indicated that it still expects one more rate hike this year and fewer cuts than previously indicated next year.

Cleveland Fed President Loretta Mester, Atlanta Fed President Raphael Bostic and San Francisco Fed President Mary Daly are also set to make appearances during the week.

3. Equity markets kick off Q4

The all-important final quarter of the year is kicking off after a weak third quarter for stocks.

For the quarter, the S&P 500 fell about 3.6%, the Dow lost 2.6% and the Nasdaq shed 4.1%. In September, the S&P 500 dropped 4.9%, the Dow fell 3.5%, and the Nasdaq declined 5.8%.

Surging bond yields are rattling stock markets, and some investors worry the ballooning valuations of megacap companies, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) may be another weak spot.

Shares of tech and growth companies, which often have significant expected profit growth in the years ahead, tend to be hit particularly hard when yields rise because their future projected earnings are discounted more severely.

Q4 though will bring another earnings season and while the AI boom still matters, there are still some questions about the ultimate boost to profits.

4. Lagarde speech

Christine Lagarde, the ECB president, is due to make a speech on Wednesday with investors on the lookout for indications on the future path of interest rates after data on Friday showing that Eurozone inflation fell to its lowest level in two years last month.

The data fueled expectations that the ECB has raised rates far enough to bring inflation back down to its 2% target.

Inflation in the bloc briefly hit double digits last autumn amid a combination of soaring energy costs, post-pandemic snags in supply chains and high government spending.

In response, the ECB hiked interest rates to a record-high of 4.0% from a trough of minus 0.5% in just over a year, after a decade spent trying to stimulate inflation via an ultra-easy monetary policy.

5. RBA, RBNZ meetings

The Reserve Bank of Australia will hold its first meeting with new governor Michele Bullock, the first woman to head the bank, at the helm on Tuesday.

Investors will be looking for any indications on whether the RBA is done with rate hikes or if more might be coming after some recent indications of persistent price pressures in the service sector. The consensus is for a pause.

Meanwhile, the Reserve Bank of New Zealand is to hold its latest policy meeting on Wednesday. Despite the RBNZ’s hawkish stance market watchers are not expecting a rate hike – instead they are focusing on any whether officials may flag a possible move in November.

--Reuters contributed to this report