Eyes on PMIs for clues after Fed keeps markets guessing

China's manufacturing index will be closely watched for signs of deterioration

Business confidence data from China and the euro zone will offer some pointers this week to where the global economy is going after the US Federal Reserve kept markets guessing about when it will begin raising rates.

With a Chinese slowdown blamed for spooking the Fed last week into postponing a rate hike, China's flash manufacturing purchasing managers' index on Wednesday will be closely watched for signs of deterioration in the world's second-biggest economy.

Economists polled by Reuters are banking on a slight improvement and any disappointment risks reigniting concerns that the Chinese economy is slowing faster than thought.

"We would caution against pinning hopes on more than a slight stabilisation at weak levels, given continued weak industrial conditions and especially as the effect of recent factory closures will not have completely washed out," said economists at brokerage Exane BNP Paribas.

In the United States, economic data is likely to take a back seat next week.

"Of more significance will be Fed speeches, which may be used to nudge rate hike expectations following the markets' seemingly dovish interpretation of the press release and conference message," ING economist James Knightley said in a research note.

"We still feel there is a strong case for expecting an October hike," he added.

Yellen, Xi

Most Wall Street banks polled by Reuters shortly after the decision was made public expect that the Fed will not act that soon, and will instead begin hiking rates only at its meeting in December.

No longer muzzled by the pre-meeting blackout, Fed officials will be out in droves to air their views, with the highlight a speech by Fed Chair Janet Yellen in Massachusetts on Thursday.

But intense attention will fall on Chinese President Xi Jinping's meeting on Friday with US President Barack Obama, with no shortage of economic issues to chew over.

Looking to the euro zone, economists see flash PMI data due on Wednesday coming in slightly stable to soft in September.

However, expectations for Germany's PMI and IFO business confidence are on the downside, despite a weaker euro benefiting its exports as Chinese demand eases.

Money supply data from the European Central Bank will indicate whether the flow of credit to households and businesses continued its ever so gradual recovery in August.

Credit growth is seen as one of the main gauges of whether the ECB's unprecedented programme to buy 60 billion euros ($68 billion) of bonds and other assets a month is succeeding in reviving the economy and beating back the threat of deflation.

Though Europe's refugee crisis has largely eclipsed Greece's debt troubles in recent weeks, markets will have to quickly figure out what to make of weekend election results.

With protracted coalition negotiations a likely immediate outcome, whoever emerges on top will have to push ahead with economic reforms to ensure that Greece remains in the euro zone.