In focus today
In the euro area, focus turns to the September inflation report. We expect euro area inflation to increase to 2.2% y/y from 2.0% y/y. While inflation in some countries, like France and Spain, came in lower than expected, other countries such as Germany and Italy exceeded expectations. These opposing surprises have balanced each other out, leaving the overall inflation rate on track to align with prior consensus expectations. We also receive the final euro area manufacturing PMI. The flash manufacturing PMI declined to 49.5 from 50.7 following the great improvement in 2025. We expect the final data to confirm the flash release.
From the US, ADP’s September private sector employment report will provide markets with the first sense of what to expect from Friday’s key nonfarm payrolls release. ISM manufacturing index is also due for release for September.
Economic and market news
What happened overnight
In the US, the government shut down at 06:00 CET as deep partisan divisions have prevented Congress and the White House from reaching a funding agreement. The direct macroeconomic impact is expected to be limited, but markets are likely to focus on two key implications: potential delays in the publication of US economic data, particularly the September NFP employment report, and the potential layoffs of public sector workers as highlighted by the White House. While these factors may not significantly alter the macroeconomic outlook, they could, all else being equal, modestly increase the likelihood of the Fed considering a rate cut in October.
In Japan, The Q3 Tankan business survey came in close to expectations with the main index for large manufacturers improving a bit to index 14. It has been quite stable for two years. The non-manufacturing index was unchanged at 34, which is close to the highest post-1991 levels. The outlook indices are a bit less rosy but still solid and with businesses’ 5Y inflation expectations edging a bit higher to 2.4%, the updated Tankan survey should not stand in the way of a rate hike at the BoJ’s policy meeting at the end of the month. About 10bp are priced in for now.
What happened yesterday
In the euro area, September inflation data from key countries suggest headline inflation is likely to track at 2.2% y/y, aligning with consensus as country-level surprises balance out. Headline inflation came in lower than expected in France at 1.1% y/y, while it exceeded expectations in Italy and Germany at 1.8% y/y and 2.4% y/y, respectively. Services inflation remained a consistent driver across the region, with uneven monthly trends in energy and food prices. Core inflation momentum was stable, indicating limited underlying pressures. The data reinforce the expectation that the ECB will maintain a cautious stance, monitoring further developments before reassessing its outlook.
In the US, August JOLTs job openings data landed close to expectations (7.23M, July 7.18M). Hiring slowed down, but so did involuntary layoffs, suggesting that overall labour market conditions remain broadly stable. Similarly, the ratio of job openings to the number of unemployed jobseekers remains little changed from July at 0.98 (from 0.996).
In Sweden, retail sales increased by 0.9% m/m and 4.4% y/y, driven by a 1.9% increase in durable goods, while consumables (excluding Systembolaget) remained flat. The data reflects the positive trend in retail sales and supports our forecast of gradually growing consumption.
Equities: Global equities were largely unimpressed by the decent JOLTS report yesterday, while also factoring in the weaker-than-expected Conference Board data and the looming deadline for a US government shutdown, which ultimately transpired. The US equity indices staged a late rally in the final half hour of the trading session for the quarter. The S&P500 ended 0.4% higher yesterday, while the Nasdaq rose 0.3%. Compared to the start of the quarter, both the S&P and Nasdaq have returned 8%. The comparable return was 3% for the Stoxx 600.
FI and FX: EUR/USD continues to trade around the 1.1750 mark, while SEK and NOK have been off to a week start to the week. US yields continued to drift lower during yesterday’s session, particularly in the front-end with the 2-year US Treasury yield 5-6bp lower. While yesterday’s JOLTS data was relatively solid, markets focused more on the softer-than-expected Conference Board consumer confidence print. Focus now turns to the first shutdown of the US government in seven years after Republicans and Democrats failed to strike an agreement to fund the federal government into the new fiscal year. On data releases, we look out for ISM manufacturing and the ADP employment report. In the euro area, yields were little changed. Regional inflation data painted a mixed picture, with Germany surprising to the upside while Spain and France came in softer. With 82% of the euro area HICP basket now released, we track today’s euro area headline at 2.2% y/y, broadly in line with consensus, as opposing surprises largely offset each other.
