In focus today
- In the euro area, the September flash inflation print will be released. We expect the headline HICP inflation to rise to 3.6% y/y (prior: 3.2% y/y) and the core to rise slightly to 2.5% y/y (prior: 2.4% y/y). Headline HICP inflation prints from France, Italy and Germany on Wednesday were above expectations driven by higher energy prices while spillovers to core inflation were still only minor. The euro area release is likely to follow suit.
- In the US, September jobs report will be released. We expect nonfarm payrolls at +100k, unemployment at 4.0% (prior: 4.1%) and average hourly earnings at 0.3% m/m. We think that the labour market is heating up despite a softer-than-expected JOLTS report on Tuesday. Other employment indicators, such as ADP’s weekly pulse and the PMI employment index, have been strong pointing to solid September job growth. Unemployment claims being at their lowest level since 2023, low labour market participation rate, and high job growth all support a further drop in unemployment.
Economic and market news
What happened overnight
In Japan, September Tokyo core CPI rose to 2.7% (cons: 2.4%). The figure was above the BOJ’s 2% target for the first time since January.
In commodities, Brent crude futures traded above USD 102/bbl on Friday morning after the WSJ reported that the Pentagon will be sending a third aircraft-carrier strike group and additional soldiers to the Middle East. Also, according to the WSJ, President Trump has discussed with his aides striking Iran after the November midterms.
What happened yesterday
In geopolitics, US president Trump is pushing Germany and France to draw down emergency diesel reserves with the threat of a US diesel export ban, according to Reuters. In recent weeks Trump has repeatedly called for European countries to release diesel inventories to help to ease global fuel prices ahead of the November midterms.
In the euro area, French government presented its 2027 budget bill that aims to curb the booming deficit back to 5% of GDP. Markets felt sceptical about the prospects of belt-tightening in French public finances as the French 10Y briefly hit 4.96% widening the spread to German 10Y to a new post euro crisis high. The uncertainty in the French bond market spilled over to other markets. The 2Y EUR swap saw its largest decline since April as the market pricing for an October rate hike decreased to just 20%. EUR/USD continued to slide below 1.13.
Also in the euro area, August unemployment rate was unchanged at 6.4% (cons: 6.4%). This was the seventh consecutive month at 6.4%, so the aggregate labour market remains very stable. Beneath the surface German unemployment remains on a marginally upward trend while French unemployment has started to fall again after the upward trend recorded last year.
In the US, continued jobless claims fell to 1.701 million (cons: 1.725 million), and new claims came in at 197,000 (cons: 200,000). Continuing unemployment claims are at the lowest level since early 2023, suggesting that the US labour market is tight. In addition, the ISM survey for September fell against expectations to 54.5 (cons: 55.0). Despite the slight decrease, the print is still solidly in expansionary territory. Notably, the ISM price index increased much more than expected to 77.9 (cons: 72.3).
Also in the US, Fed’s Jefferson (a permanent voter), sent a similar message from Fed’s Williams from Tuesday that the Fed could take more time before deciding on the next move for interest rates. Markets reacted by sending down the probability of a rate hike in October below 30% from around 35% before the statement.
Equities: Global equities were flat on the day, after a late-session rally following balanced-to-slightly-dovish tones from the Fed. S&P500 rose 0.2%, Nasdaq was slightly positive and Russell2000 gained 0.4%. Europe did not benefit from the late-session rally, leaving the index 1.3% lower. Anthropic was reported to go public in mid-November. Overnight, Asian equities are mixed ahead of the US labour market report today, with US futures slightly in green at +0.3% and European virtually unchanged.
FI and FX: Markets shifted into a heavy risk-off mode over yesterday’s session, with US Treasury and Bund yields declining significantly and OATs, BTPs and Greek government yields climbing markedly. USD and EUR swap rates moved in parallel, declining 9-12bp in the front end and shifting 5-6bp lower in the back end of the curves. The French sovereign auction passed yielding only a minor pick-up, but the 2027 budget presentation did little to calm the market. EUR FX sold off against everything else in G10 yesterday, with EUR/USD touching 1.1220 before recovering slightly overnight. Needless to say, our 12M target of 1.12 should not be seen as any kind of a floor in case the fiscal concerns continue to drive further risk-off sentiment. News reports of Trump considering escalating the war efforts against Iran after midterms lifted oil prices, which supported CAD and NOK despite the sour risk sentiment.
 and average hourly earnings at 0.3% m/m. We think that the labour market is heating up despite a softer-than-expected JOLTS report on Tuesday. Other employment indicators, such as ADP's weekly pulse and the PMI employment index, have been strong pointing to solid September job growth. Unemployment claims being at their lowest level since 2023, low labour market participation rate, and high job growth all support a further drop in unemployment.){kind=link}