This week was dominated by political events. On Monday, France’s newly appointed Prime Minister Sébastien Lecornu resigned after just 26 days in the role, triggering yet another political crisis in the country. And on Wednesday evening, news emerged that Israel and Hamas would be ready to sign a ceasefire deal, pausing a devastating war that has lasted for two years and destabilised Middle East. Despite political news, markets were mostly calm this week with equities moving sideways and dollar stronger. France’s 10-year bond yields reversed the initial increase towards the end of the week as markets were getting increasingly optimistic regarding budget talks. A new PM is set to be named soon.
Hamas and Israel have both confirmed that they have accepted Trump’s peace plan. The first steps are a hostage-prisoner exchange, set to begin in coming days, and a gradual Israeli troops withdrawal from Gaza. We think the coming week will be crucial in showing whether the two sides will actually comply with what has been agreed upon, and more importantly, whether the parties can agree on the most complex follow-up steps, including Hamas disarmament and further Israeli troops withdrawal. Market reaction to a ceasefire in Middle East has been limited. Oil prices initially increased, but on Friday, Brent price fell below USD 65 per barrel. The conflict never had a direct impact on the oil market, but only an indirect one in the form of a geopolitical risk premium being priced in.
On central bank front, the Reserve Bank of New Zealand (RBNZ) cut the policy rate by 50bp on Wednesday. Both market pricing and analyst consensus were evenly divided between 25bp and 50bp cuts ahead of the meeting. FOMC September meeting minutes did not contain surprises for markets. The participants were clearly very divided in their perceptions of the inflation outlook. Minutes from the ECB September meeting were, in turn, to the dovish side. While the minutes highlighted that the bar for another rate cut remains high, they also noted that “a further rate cut in the coming months would better protect the inflation target both under the baseline and across a range of adverse scenarios”.
In the US, the government remains in a shutdown, also impacting BLS data releases. It is looking unlikely that the CPI data will be released next Wednesday as scheduled. In case it will, we expect US headline inflation at 0.4% m/m in SA terms in September, and core CPI at 0.3% m/m, both slightly above consensus expectations. We have adjusted our Fed call as we think that the data blackout will tilt the central bank towards delivering another rate cut already in October. Otherwise, we stick to our profile of gradual rate cuts, read more in Reading the Markets USD – We now see Fed cuts in Oct, Jan, Apr and Jul, 7 October.
Overall, next week looks like a quiet one in terms of data. Early on Monday, China will release September trade data, which we expect to show continued robust export growth as global manufacturing is cruising ahead. On Wednesday, China will follow up with the CPI and PPI data for September. Data on credit growth is also due, but the exact release date is unknown. In euro area, focus will be on the German ZEW index on Tuesday, and final inflation print on Friday. In Japan, we will look out for the parliamentary vote on a new PM on Wednesday. In the UK, the monthly labour report will be out on Tuesday.
