Markets
UK Chancellor Reeves addressed the Labour Party conference in Liverpool against the backdrop of crashing polling rates and the looming November 26 Autumn Budget event. Yougov projected last Friday that Labour would only gain 144 seats in the 650-seat parliament compared with their 411 election victory. Reeves warned that harsh global headwinds will force her to make more controversial decisions later this year. The world has changed, citing global instability, trade barriers and borrowing costs. The Chancellor (and PM Starner) confirmed that Labour’s manifesto commitments with regard to tax hikes still stand. That means no increases in key taxes that working people pay (VAT, national insurance and income tax rates). She refused to rule out other forms of tax increases such as adjustments to tax thresholds, indirect taxes and business taxes to help plug a £30bn budget shortfall to balance her core fiscal rules. The chancellor also revealed that she would make the Office for Budget Responsibility (OBR) only publish one forecast a year rather than two as two full forecasts make it harder to have the one fiscal event per year she promised. Today’s speech didn’t move the needle in UK markets. Gilts follow a global bull flattening trend with UK yields unchanged at the front end of the curve and up to 4 bps lower at the very long end (30-yr). EUR/GBP treads water around 0.8735, holding close to the YtD high at 0.8769.
Bank of Japan board member Noguchi said that various economic indicators for Japan show steady progress in achieving the 2% inflation target. This suggests that the need to adjust the policy rate is increasing more than ever. His words carry quite some weight as the dovish board member dissented against the BoJ’s first two rate hikes this cycle in March and July of last year. The market implied probability of a rate hike at the end of next month (to +0.75%) increases further to 66%. In September, two BoJ members (9-member board) already backed a rate hike proposal. Minutes of that meeting (tomorrow), speeches by deputy governor Uchida (Thursday) and governor Ueda (Friday) and the quarterly Tankan survey (Wednesday) could be pivotal this week in further cementing rate hike bets. The Japanese yen profits today with USD/JPY moving away from the psychologic 150-mark and EUR/JPY calling off a test of the all-time high at 175.43.
News & Views
Belgian inflation decreased by 0.3% M/M in September, but the Y/Y-measure rose from 1.91% from 2.12% due to a sharper monthly decline last year (-0.5% M/M). Core inflation (ex-energy products and unprocessed food) also rose from 2.3% in august to 2.61%. Inflation for services basically held a similar yearly pace (3.47% Y/Y from 3.48%) as was the case for rents prices (3.97% from 3.96%). Inflation for food products (including alcoholic beverages) accelerated from 2.42% Y/Y last month to 3.32% . Food prices also added 0.46 ppts to the overall yearly inflation figure. In a monthly perspective, the main price increases in September concerned clothing (+ 3.1% M/M) as well as travels abroad and city trips (2.4%). However, holiday villages (-12.5%), plane tickets (-14.8%), hotel rooms (-8.3%) , motor fuels (-1.3%), personal care (-1.8%), natural gas (-1.1%) and electricity (-0.7%) had a decreasing effect on the index. The first inflation estimate according to the European harmonized index of consumer prices (HICP flash estimate) amounts to 2.7% in September 2025 (was 2.6% in August).
RBNZ chief economist Conway commented on an update to recommendations from the 2022 policy review. This progress report is released alongside an interim assessment of the recent tightening cycle. Conway states that “the MPC has gained valuable insights into how economic activity, price setting by businesses, and inflation expectations evolve during periods of high inflation and economic volatility”. The RBNZ now has a deeper understanding of supply shocks and structural drivers of inflation. They expanded the use of high-frequency data for more timely and granular monitoring. The RBNZ also developed new tools to estimate neutral interest rates and run scenario analysis. These improvements ensure the MPC is well equipped to navigate future shocks. In evaluating the policy response to 2021-24 above target inflation, a review states that the MPC’s strategy helped reduce inflation from its peak in 2022 and returned it to within the 1 to 3% band by September 2024. This strategy kept inflation expectations near target, but, in hindsight, an earlier or more aggressive tightening might have delivered better outcomes. Regarding communication, improvements can still be made on the interpretation of the forward OCR track.
