EMU Data Most Likely Won’t Challenge a Prolonged ECB Status-Quo

Markets

Consensus-matching August PCE deflators (headline 0.3% M/M and 2.7% Y/Y from 2.6%, core 0.2% and 2.9%) halted a technical rebound both in US yields and of the dollar last Friday. Personal income (0.4% M/M) and spending (0.6%) remained solid. Even so, with markets looking forward to this week’s labour data, the PCE provided little reason to further price out Fed rate cuts this year and early next year. US yields changed one bp or less across the curve. US yields in the meantime have created some ‘breathing space’ vis-à-vis the technical levels that were tested around the time of the September 17 Fed meeting (2-y 3.64% vs 3.50% area, 10-y 4.15% vs 4% support area). German yields in technical trading slightly outperformed with yields easing up to 2.7 bps at the belly of the curve. Risk sentiment remained constructive, with little overall impact from the new sector tariffs the US announced on Thursday. The S&P 50 gained 0.59%. The Eurostoxx 50 even added 1%. The (yield-driven) USD rebound on Wednesday and Thursday ran into resistance. DXY failed to test 98.83 resistance and even made a small step back to close the week in the established ST trading range (close 98.15). USD/JPY approached the 150 barrier (close 149.49). EUR/USD finished the week near the 1.17 big figure (vs a week low of 1.1646 on Thursday).

Asian risk sentiment stays constructive this morning. Aside from key eco data, markets also keep a close eye at a meeting between president Trump and Congressional leaders as they seek to reach an agreement on a short-term spending bill (by October 01) to avoid a government shutdown. Regarding the data, first national EMU CPI data will be published today (Spain, Belgium) and tomorrow (France, Germany, Italy …) to be summarized into Wednesday’s EMU release (expected 0.1% M/M and 2.2% Y/Y for headline, 2.3% for core). The EMU data most likely won’t challenge a prolonged ECB status-quo. In the US, the focus evidently stays on labour market data (JOLTS , tomorrow), ADP on Wednesday, jobless claims on Thursday and the payrolls on Friday (if they are not delayed by a US government shutdown). The picture from the labour data will be complemented by the ISM’s (Wednesday manufacturing, Friday services) and by the conference board consumer confidence release. Data probably will have to be materially stronger than expected for markets to leave the idea of a follow-up Fed rate cut end next month. A halt in the US yields’ rebound and maybe some noise on a US government shutdown might also abort the most recent USD rebound. EUR/USD could return higher in the 1.1574/1.1919 range. In Japan, we keep an eye at the Tankan survey, as the BOJ MPC internally debates the timing of the next rate hike, potentially coming as soon as the October 30 meeting. The yen last week tested key support near USD/JPY 150, with EUR/JPY (currently 174.5) only a whisker away from the 175.43 2024 multi-year top. In the UK, the Labour Party Congress in Liverpool will highlight the difficult fiscal balancing act of Chancellor Reeves, with key EUR/GBP resistance at 0.8769 still within reach.

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People familiar with the plans said that OPEC+ is likely to raise oil output again in November. The oil cartel is considering adding the same amount as they plan to do in October, i.e. 137k barrels a day. It’s technically restoring a layer of previous output curbs (of 1.66 million b/d) that was originally planned to remain in place through the end of this year. It has prompted warnings of a supply glut from the oil industry. So far, though, oil prices withstood the extra supply relatively well with OPEC+ delegates saying that the actual restored output is less than the amounts announced due to production constraints in some countries. Brent this morning holds steady around a two-month high just shy of $70. OPEC+ meets this Sunday.

Moldova’s pro-European ruling Party of Action and Solidarity secured 50% of the votes in yesterday’s ballot, putting president Maia Sandu on track for a second term in office. With the projected 54 seats in the 101-seat parliament, PAS doesn’t rely on support from other parties to form a government. The pro-Russian Patriotic Electoral Bloc won a little over 24% of the votes. Moldova, squeezed between Romania and Ukraine, has a population of just 2.4 mln but with an outsized geopolitical importance. The former Soviet state was granted EU candidate status, along with Ukraine, four months after the Russian invasion in 2022. Its goal is to join the EU by the end of the decade.