In focus today
In the euro area, focus turns to the September flash inflation print for Spain which will give the first indication of where the euro area data on Friday lands. We expect a modest rise in headline due to higher energy costs and a small increase in core inflation. We also receive the European Commission’s business survey for September. Focus will be on the firms’ selling price expectations, which we expect to rise again in September following declines in the past months.
In the US, August Job Openings and Labour Turnover Survey (JOLTS) will be released. Job openings are closely watched by the Fed as a labour demand indicator. In July, job openings per unemployed person reached the highest level since January 2025. We will also get Conference Board consumer confidence.
In China, PMIs for September will be released overnight, both the private one by the RatingDog and the official one from the NBS. We expect both manufacturing PMIs to be broadly unchanged signalling continued decent performance in manufacturing underpinned by strong exports and high-tech investments.
Economic and market news
What happened overnight
In Australia, the Reserve Bank of Australia (RBA) hiked its cash rate by 25bp to 4.60%. The move was almost fully priced in by the markets, which expect a total of 1-2 more hikes over the coming year. Going forward, we think risks are skewed towards the RBA ultimately delivering less than that, as the policy rate is already at a relatively high level.
In commodities, Brent crude futures are trading at USD 107/bbl on Tuesday morning, up nearly 2%. The rise comes despite news of crude exports from the Middle East increasing significantly in September. See our full comment on oil exports from the Middle East below.
What happened yesterday
In Japan, the country’s top currency diplomat Atsushi Mimura told Reuters that markets should take at face value the “very clear” message Tokyo and Washington delivered last week on the yen. Last Friday US President Donald Trump raised concerns about yen weakness at a summit with Japanese Prime Minister and Finance Minister. Mimura declined to comment on whether Japan could intervene in currency markets again to prop up the yen. However, he stated that he remains neither satisfied nor reassured over the yen’s recent moves.
In Sweden, Social Democrat leader Magdalena Andersson said that she is currently unable to form a government. A centre-left block led by the Social Democrats secured a narrow majority in this month’s parliamentary election. A key part of this block, the Left party, stated over the weekend it would back a candidate for parliament speaker from the centre-right Moderate Party. Andersson assessed that the move undermines her attempt to build a government and hence is ceding her attempt for now. As a result, Ulf Kristersson, the leader of the Moderate Party, will most likely be the next in line to attempt forming a government.
In commodities, exports of crude oil from producers in the Middle East rebounded in September, according to data released by Kpler. Exports rose to 12.8 million barrels per day, the highest since the US-Israeli war with Iran started in February. In addition, Bloomberg reported that the Saudi East-West pipeline is now back in use supporting a flow of around 3.5 million barrels per day. While progress in the Middle East has added to the world oil supply, the US has almost halted selling of strategic reserves in September, which has sharply tightened supply conditions. There are also hints that China has started to be pressured on its reserves, possibly reflected in China’s rising crude imports as well.
In the euro area, ECB President Lagarde reiterated at a European Parliament hearing that ECB remains on the “middle path” for monetary policy. The current energy shock is too large to “look through”, but there are not yet signs that wages are responding to it or that inflation is becoming embedded. Therefore, a “forceful response” is not needed, and the appropriate course is a “measured response”. We assess that this means one or two additional hikes from here – not another 100bp, as implied by market pricing. It also means that ECB is not in a hurry to hike again, which makes the next hike already in October less likely. Markets reacted dovishly to the comments, sending the October meeting pricing down to 9bp from around 11bp.
Equities: Risk sentiment turned decisively lower yesterday, with global equities down by 0.7%, as dynamics centred around the higher oil price, leading to yet another day with higher bond yields on higher oil prices (+2.5%). S&P500 was 0.8% lower, and is thus virtually flat for September, while the Nasdaq was down 0.9% and Russell2000 down 0.7%. Defensives rose on the day, helped by both energy, staples and healthcare, in a clear defensive outperformance to cyclicals by more than 1pp. The risk-off tone spilled into Asia overnight. While US futures are slightly negative by about 0.2%, European futures are positive this morning.
FI and FX: Energy prices remain elevated with Brent trading around USD107/barrel despite the news of Saudi Arabia’s east-west pipeline resuming exports yesterday (at a capacity of 3.5mb/d vs. a typical capacity of 5mb/d). This, in turn, continues to push global bond yields higher. US Treasury yields climbed about 8bp higher across the curve. European yields mirrored the move to a lesser extent, after ECB’s Lagarde reiterated that the ECB remains on the “middle path” for monetary policy and that the appropriate course is a “measured response”. Our assessment is that this correlates to one or two additional hikes and not another 100bp, as implied by market pricing for YE2027. 12M EUR/USD FX forward reached its highest level since early July yesterday, and EUR/USD spot moved another small leg lower close to 1.1360. This morning, the Reserve Bank of Australia (RBA) hiked rates by 25bp as widely expected. While the Board left the door open for further rate hikes, the decision did not drive a significant reaction in AUD/USD.
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