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European and global markets are eagerly awaiting the release of European Inflation figures on Tuesday, with expectations leaning towards a downside surprise. This could strengthen the case for a potential interest rate cut by the European Central bank later in the month. Germany recently reported lower-than-expected September Inflation numbers, the lowest since 2021 at 1.8% year-on-year. Inflation pressures are also easing in France, Italy, and Spain, prompting markets to fully price in a rate cut in October following comments from ECB President Christine Lagarde. The euro has been hovering above $1.11, while the yen and yuan have been the key movers in currency markets.

In the US, Federal Reserve Chair Jerome Powell’s remarks about not rushing to cut rates caused US yields to bounce, but this sentiment could shift quickly depending on upcoming data releases. The focus will be on the US manufacturing ISM data and the August job openings figures, as signs of weakness could lead to increased bets on a 50-basis-point Fed cut in November. Market pricing currently indicates a 36% chance of a 50 bp cut, down from 53% before Powell’s comments.

Elsewhere, Israel’s military announced “limited” raids against Hezbollah targets in Lebanon, hinting at a potential ground invasion. Oil prices saw a slight increase, while Asian markets were subdued due to holidays and China’s markets being closed. Factory activity in Asia weakened in September, reflecting soft Chinese demand and global economic uncertainty. In Japan, Shigeru Ishiba was expected to be voted in as the next prime minister, while positive retail sales data in Australia supported the dollar.

Key events to watch on Tuesday include Eurozone Inflation data and US job openings and ISM survey results.

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