Markets
Today’s release of some national inflation figures points, if any, to slight upside risks for tomorrow’s euro area outcome. Consensus expects upward price pressures to intensify from 2% in August to 2.2% while the core measure should match last month’s 2.3%. Both being above the ECB’s 2% target validates the central bank’s steady-barring-shocks approach. As ECB’s VP de Guindos put it yesterday: “The ECB’s rates level at 2% is adequate under the current circumstances.” Going into the individual numbers, a French miss (1.1% y/y vs 1.3% expected, up from 0.8% in August) was offset by both Italy and Germany. Prices in the former country rose 1.8% vs a 1.7% consensus while German inflation quickened to 2.4% from 2.1%, to be compared to 2.2% analysts had penciled in. Germany’s statistical office referring to the national (non-harmonized) CPI showed that price gains in the services sector and a smaller drag coming from energy supported the inflation uptick. Goods inflation meanwhile intensified to 1.4%, an 18 month year high on par with December 2024. It barely made a dent in FX and FI markets. German rates fluctuated in a 2 bps trading range and currently trade flat on the day. The euro is similarly lacking inspiration. EUR/USD’s intraday swing amounts to half a big figure with the pair currently trading slightly higher than yesterday in the 1.174 area. JPY and AUD show some of the biggest moves, with the former benefiting from rising rate hike expectations and the latter on signs of a long(er) break in the easing cycle. US Treasuries outperform marginally with yields down around 2 bp across the curve. Stock markets are treading water.
The muted moves may be rooted in uncertainty going into a midnight (US time) deadline to prevent the US government from shutting down for the first time in seven years. House Speaker Johnson said he was skeptical on a last-minute deal, echoing Vice-President Vance yesterday. President Trump repeated his threat that a lot of employees would be sacked instead of being furloughed. If anything, it adds do the downside risks the labour market many at the Fed say is facing. Fed vice chair Jefferson was the latest to do so, though he added that it comes with upside risks to inflation. He sees disinflation to resume after this year and to return to 2% in the coming years. Jefferson supported this month’s 25 bps rate cut but refrained from making calls for the future. Fed Collins said she doesn’t expect the labour market to soften much further but sees some risk of a more meaningful unemployment increase. According to the Boston Fed president it may be appropriate to ease a bit further this year.
News & Views
The KOF Swiss economic institute’s economic barometer rebounded from a 23-month low (96.22) in August to 97.96 in September. The barometer remains below its medium-term average, continuing to paint a subdued picture for the Swiss economy. Separately, the Swiss National Bank announced that it sold CHF 5.1bn in the second quarter, its biggest interventions since Q4 2023 and the largest amount of selling since Q1 2022. Unwanted CHF-strength in the wake of US liberation day triggered the FX interventions. The data came a day after Switzerland and the US Treasury released a joint declaration in which they aligned views on FX matters. Both promised not to “target exchange rates for competitive purposes” but also recognised that such market interventions are a valid tool for addressing currency volatility or “disorderly” moves.
Polish inflation remained steady on a monthly basis for a second consecutive month in September. Preliminary details showed rising electricity, gas & other prices (+0.2% M/M) cancelling out lower prices for food & non-alcoholic drinks (-0.5% M/M) and for fuel (-0.4% M/M). In annual terms, price growth was also unchanged at 2.9% Y/Y. Compared with September of last year, fuel prices fell by 4.9% while prices for food & non-alcoholic drinks and for electricity, gas & other rose by respectively 4.2% and 2.4%. Detailed and final figures will be published on October 15 with the National Bank of Poland releasing its core inflation numbers the day after.
