Markets
- Somewhat lower energy prices and constructive vibes between the US and China color Asian stock markets and equity futures green this morning. US President Trump suggested that he would probably be open to meeting Iranian President Pezeshkian on the sidelines of this week’s UN General Assembly in New York. On Thursday, Trump will also meet with Chinese President Xi Jinping. While probably largely symbolic, it probably helps any potential deterioration in the relationship between the two countries. A trade truce extension, artificial intelligence, critical minerals and agriculture are high on the agenda. USD/JPY holds steady this morning around 157 with Japanese markets closed up until Wednesday. Last Friday, the Bank of Japan had to conduct rate checks to stop a new JPY sell-off after the much-hyped Bank of Japan meeting delivered the 25 bps rate hike but fell short of further (hawkish) commitments. The short term danger for more JPY-weakness probably isn’t gone as the dollar has more potential to build on last week’s (technically important) gains. The Fed provided backing at the front end of the US yield curve, while the shaky risk climate gives support via safe haven flows. The trade-weighted dollar closed above a first resistance area (99.86-100.08) last week, paving the way for a return towards the 2026 top at 101.80. EUR/USD lost 1.1566 support, with return action likely towards the downside of the sideways trend channel in place since June 2025 (1.14-area). On the euro-side of the equation, negative vibes around rising sovereign credit spreads are becoming a weakness again. The French 10-yr OAT-swap spread moved above 100 bps for the first time ever. An extension of fuel subsidies for high-mileage drivers is testament for the burden of the energy crisis on already weak public finances. Two smaller rating agencies over the weekend took action on the French credit rating. Scope ratings lower the French rating from AA- to A+ (in line with S&P and Fitch) while Morningstar DBRS moved to a negative outlook. A sustained deterioration in the fiscal outlook, characterized by rising general government debt, persistently high fiscal deficits and limited progress on structural reforms is to blame. Next year’s presidential elections are becoming more and more of a talking point as well with opinion polls suggesting the RN Le Pen will beat centre-candidates in a run-off vote. Today’s eco calendar is empty. Apart from the high-level Trump meeting(s), global PMI surveys (Wednesday) are the economic highlight.
News & Views
- German chancellor Merz’s CDU party suffered its worst result in a state election since WWII. The CDU won just 4.9% of the vote in the state of Mecklenburg-Vorpommern yesterday, preliminary results show. Failing to secure 5% means the CDU won’t have any seats in the regional parliament. Some party-insiders told the Financial Times last week that such a scenario could be a catalyst for a new party leader and even chancellor. The far-right AfD became the biggest party, winning more than 38% of the votes, compared to 17% in the previous election. The governing Social Democrats saw their share decline from 39.6% in 2021 to 35.5%. Elections in Berlin meanwhile toppled CDU from the first place with less than 19% of the vote, down from 28.2%. The far-left Die Linke rose to the first place with an estimated 25.7%. AfD came third by securing 16% of the vote.
- Moody’s cut Poland’s sovereign credit rating from A2 to A3 with a stable outlook. The rating agency cited persisting large deficits, which lead to a material increase in public debt while interest costs are rising. Moody’s expects deficits to remain elevated at around 7% of GDP in both 2026 and 2027 despite continued strong economic growth and debt to increase from 59.7% in 2025 to 68.9% in 2027. It said fiscal policy effectiveness has weakened, reflecting a procyclical fiscal stance and limited willingness or ability to rebuild buffers during favorable economic conditions. Moody’s added that a growing share of debt accumulation outside the scope of the national debt rule has further diminished the country’s fiscal framework effectiveness.
