Markets
A slow start to the new trading week. Multiple Chinese data (including production, retail sales, investment and a higher than expected jobless rate) all came in weaker than expected this morning. The Chinese economy struggles as the US and China still are trying to make progress in talks on tariffs and economic policy in Madrid currently. This kind of underperformance as usual raised market talk on potential additional (fiscal) stimulus. Question remains whether it will be enough to overcome multiple uncertainties that consumers and corporates are facing. Poor data at least had little impact on the yuan. After a new upleg in August, the yuan this morning is holding recent gains (USD/CNY 7.122). Regarding developed markets, eco data were few in EMU and the US. Even so, an unexpectedly sharp decline in the US empire manufacturing survey (-8.7 , from 11.9) solidified the case for the Fed to restart scaling back policy restriction on Wednesday. Aside from poor activity sub-indices (orders and shipments sharply down), also the pay component eased further. US yields currently decline between 2.2 bps (30-y) and 3.5 bps (5-y). Key technical levels in the 2-y (3.43/3.5% area) and the 10-y (4% area) are nearby but not really challenged yet. EMU (short-term) yields have found a new equilibrium after chair Lagarde last week indicated that the disinflation process is over and that risks to growth are balanced rather than skewed to the downside. ECB board member Isabel Schnabel in a presentation today also guided that interest rates are in a good place as inflation stabilizes around 2%. She even sees the economy expanding above potential while the pass-through of a stronger exchange rate is likely to be limited. In this respect, she even warned that upside inflation risks again dominate, referring to tariffs, services inflation, food inflation and fiscal policy as potential drivers. Earlier today, ECB’s Kazimir indicated that there is no need for the ECB to act to tiny deviations from the 2% target and that it would be a mistake to neglect upside inflation risks. The bar for an additional ECB rate cut has been put quite high. No additional damage from the Fitch rating downgrade of France to the ‘single-A’ category. The 10-y French-German spread even narrows marginally (78 bps).
On FX markets the dollar underperforms as markets anticipate on protracted further Fed normalization. This hoped for easing of (global) financial conditions supports smaller, cyclically sensitive currencies. The euro slightly outperforms the dollar (EUR/USD 1.1765) and trades in line with the yen (USD/JPY 147.3; EUR/JPY 173.25) and sterling (EUR/GBP 0.8646) as investors also look forward to the BoE (Thursday) and BoJ (Friday) policy decision (both expected unchanged). On Central European markets, the forint still outperforms other regional FX with EUR/HUF testing the 390 barrier for the first time since July last year.
News & Views
Eurostat released EMU trade data for the month of July. First estimate showed a €12.4bn surplus in trade in goods with the rest of the world (non-seasonally adjusted), up from €7bn a month ago, but down from €18.5bn in July of last year (mainly attributed to chemicals and related products). EMU exports of goods to the rest of the world in July 2025 were €251.5 bn (+0.4% Y/Y). Imports from the rest of the world stood at €239.1 bn (+3.1% Y/Y). The EU trade surplus with the US declined from €18bn in July of last year to €13bn in July 2025 (€10.7bn seasonally-adjusted). Exports fell by 4.4% Y/Y to €44.2bn with imports growing by 10.7% to €31.2bn. Among major trading partners, the EU had the biggest trade surplus with the UK (€16.7bn from €15.9bn in July 2024) and the largest deficit with China (-€30.7bn from -€27.6bn in July 2024). On a seasonally-adjusted base, the EMU trade surplus rose from €3.7bn to €5.3bn with exports decreasing by 0.1% M/M and imports by 0.8% M/M.
According to statics Poland, inflation rose by 0.1% M/M and 2.9% Y/Y (up from flash estimate at 2.8% Y/Y). Goods prices fell by 0.3% M/M to be up 1.7% Y/Y (from 1.9%) while services prices increased 0.7% M/M to 6% Y/Y (from 6.2%). The highest monthly contribution came from communication prices (+1.4% M/M), alcoholic beverages and tobacco (0.4% M/M) and restaurants and hotels (0.3% M/M). Lower prices related, among others, to clothing and footwear (-1.5% M/M), transport (-0.4% M/M) and food (-0.1% M/M). Today’s data should keep the National Bank Poland sidelined at its next, October, policy meeting, but keep the door slightly open for another rate cut in November when a new Monetary Policy Report is available and when there will be more clarity on extending (or not) the current electricity price freeze..
 all came in weaker than expected this morning. The Chinese economy struggles as the US and China still are trying to make progress in talks on tariffs and economic policy in Madrid currently. This kind of underperformance as usual raised market talk on potential additional (fiscal) stimulus. Question remains whether it will be enough to overcome multiple uncertainties that consumers and corporates are facing.){kind=link}