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The Bank of Canada will be closely watching September’s consumer price index report, August’s retail sales data as well as its own Q3 Business Outlook Survey in the coming week ahead of an interest rate decision on Oct. 29.

It is unlikely that policymakers cut rates in September expecting that just one 25 basis point reduction would be sufficient. We expect them to follow with another 25 basis point cut in Q4, most likely later this month.

The BoC did leave additional rate reductions contingent on economic data, and inflation not surprising significantly to the upside. We don’t think details of a firmer-than-expected jobs report in September alone is enough to derail another rate cut, and we expect inflation trends look broadly similar in September to August.

We expect headline CPI growth of 2.3% year-over-year in September, up from 1.8% in August as the pace of energy price declines slowed. That would leave inflation tracking close to our Q3 base case assumption of a 2% quarterly average. Food price growth likely eased last month, but underlying price pressures appear to have firmed.

We look for inflation excluding food and energy to rise to 2.6% from 2.4% in August, suggesting modest upward pressure in other categories. The BoC’s preferred core inflation measures continue to hover near 3% year-over-year, and about 2.5% on a three-month rolling average. Both are still running above the BoC’s 2% inflation target, but are similar to the month earlier.

Stabilizing business sentiment

The Business Outlook Survey on Monday will offer a more qualitative check on the pulse of the economy. We expect it to show further signs of stabilizing business sentiment after a period of heightened uncertainty earlier this year when U.S. trade tensions were most intense. Earlier data from the Canadian Federation of Independent Business suggests the recovery is already underway. Their Small Business Confidence Index rose again in September, and now sits slightly above the breakeven threshold.

Meanwhile, a preliminary estimate of retail sales for August from Statistics Canada pointed to a 1% rebound following a July dip. September’s flash estimate on Thursday will be closely watched for signs of continued resilience in consumer spending. RBC’s card spending data showed relatively firm momentum in September, though Q3 quarterly spending growth has slowed from Q2.

Week ahead data watch:

The U.S. government shutdown is disrupting the release of several economic indicators, particularly from public sector agencies, but the Bureau of Labor Statistics has confirmed the CPI report will be released on Oct. 24. September CPI data is expected to show both headline and core inflation rising 3.1% year-over-year, reflecting the onset of core goods price pressures as tariff pass-through effects finally begin to emerge.

Trade war has once again been a dominant theme in markets, after US president Trump threatened an additional 100% tariff on Chinese goods last week. We see it primarily as a negotiation tactic, but even if the threat takes effect on 1 November, the economy would be much better prepared than six months ago. Equity markets rebounded on expectations that trade disputes will be solved.

With no official US data in on account of the government shutdown, bond markets have taken their clues from Fed chair Powell's worries about the labour market and his take that tariffs, rather than broader inflationary pressures are driving elevated goods prices. His remarks pushed global bond yields lower and the move was further exacerbated by renewed concerns over regional bank credit quality in the US following the disclosure of problematic loans at Zions Bancorp and Western Alliance Bancorp. It adds to a growing list of investors' worries and the news also weighed heavy on equity markets and caused a big spike in the VIX index.

The private NFIB business sentiment did offer some interesting insights into how small US businesses see the outlook, while we wait for official data. Optimism declined on rising concern of tariff-related issues. At the same time, price plans edged higher, which has historically led changes in the official CPI by few months.

On our own continent, the French Prime Minister Lecornu survived two no-confidence votes after caving in to the Socialists' demand to suspend the pension reform, which led to OAT-Bund spread tightening. While positive in the short term, a complete reversal of the pension reform will place additional strain on France's already weak public finances. In fact, Moody's has France up for review next week.

Next week kicks off with the monthly batch of Chinese data, which will likely show that the domestic economy is still weak with housing and private consumption struggling. Elsewhere in Asia, negotiations to form a new Japanese government are ongoing and things are more unpredictable than seen in many years. There are different opinions on the right extent of fiscal as well as monetary stimulus. That said, the ruling Liberal Democrats sit on 42% of the parliamentary seats and it remains most likely they will continue to govern, although not without serious concessions to a potential coalition partner. A parliament vote for prime minister is scheduled for Tuesday.

In the euro area, PMI data stands out on the agenda. We expect the euro area economy to be close to stagnant in the second half of 2025, which aims with composite PMI close to unchanged just above the 50-thresshold.

In the US, focus will be on trade negotiations and of course the delayed September CPI print. We see core CPI at 0.3% mom for a third consecutive month with risks to the upside but also the bar for Fed skipping its planned rate cut on 29 October as very high. US PMI data might also catch more attention than usual. US data will probably continue to be scarce, with prediction markets assigning roughly an 80% probability that the shutdown will extend into November.

Full report in PDF. 

Markets

In a market devoid of hard economic data, yesterday’s credit-driven risk off from the US also fully hit European markets. European equities (Eurostoxx 50) opened >1.5% lower, an even bigger loss than the close in major US indices yesterday. Bunds extended their recent rally with the German 10-y yield at 2.53% testing the lowest level since end June. Money markets also further raised the chance of an additional ECB interest cut next year to about 75%. However, sentiment gradually turned less negative, especially as US traders joined. A series of US (regional) banks reported earnings with no unexpectedly high credit provisions. Also before the open of US markets, investors took comfort from some headlines from a Fox Business interview with president Trump, as he indicated that the current high tariffs on China were not sustainable. Recent threats might again be considered as some kind of ‘tactical’ (TACO?). Even so, both topics can still cause some ‘glass half full, glass half empty’ market swings going forward. After an initial decline this morning, both US and European yields have currently recouped initial declines. US yields are rebounding between 2 bps(5-y) and 1 bp (30-y). Key technical levels across the whole US yield curve that were broken yesterday (including 3.43/3.5% area for the 2-y, 4% for the 10-y) are still at risk. Money markets for now have left the idea of a potential 50 bps step at some of the two remaining Fed meetings this year and again are pricing two 25 bps steps at the end October and December meetings. German yields are currently marginally higher (30-y + 1 bp) after a decline at the open. Even so, in a broader perspective, both US and EMU bonds easily consolidate recent strong gains. The EuroStoxx 50 ‘limits’ the daily loss at the moment to 0.7%. US indices open little changed (Dow) to 0.5% lower (Nasdaq). The Vix volatility index jumped to the highest level since end-April, but eased as the US trading session proceeds. The dollar tracked the intensity of the’ US risk-off’ intraday, with DXY testing to low 98 area this morning before returning to 98.45. EUR/USD failed to maintain gains north of 1.17 (currently again 1.1675). USD/JPY after touching the 149.4 area, rebounds back to 150+ levels.

Aside from potential market moving headlines on trade and on credit, the eco calendar is backloaded next week. US data releases mostly are still suspended due to the government shutdown, but on Friday the BLS will publish (delayed) US September CPI data which still serve as input for the October 29 FOMC meeting. In this respect, the blackout period for FOMC members to comment on monetary policy starts tomorrow. Also on Friday next week, the US and EMU PMI’s will provide some insight on the economic momentum on both sides of the Atlantic. In the UK, September CPI data on Wednesday are key input for the November 6 BoE policy meeting. EMU bond investors look forward to credit rating reviews next Friday for the likes Belgium, France and Slovakia as well.

News & Views

The Hungarian National Bank (MNB) is widely expected to keep its base rate unchanged at 6.5% at next week’s policy meeting, accompanied by ongoing hawkish language. The MNB is facing stubborn inflation with CPI not expected to fall within the 2-4% tolerance band before the end of the year and strong services inflation creating second-round risks. The central bank is also wary of the government’s expansionary fiscal policy with new initiatives such as a 14th pension payment floated ahead of next year’s parliamentary elections. The Hungarian forint meanwhile has strengthened in recent weeks, bringing some comfort for the central bank through its disinflationary impact. The HUF rally, however, is now stalling around EUR/HUF 390 and signaling rate cuts of any kind risks triggering a reversal. KBC Economics sees little scope for monetary easing prior to early next year and even that depends on inflation having fallen to around 3% y/y and EUR/HUF more or less stable around the current levels.

Chinese finance ministry officials said that fiscal revenue has been picking up in September from August despite signs the economy could be losing momentum. September 2.6% increase compares to the 2% in the month before. For the first three quarters of the year, fiscal revenue grew 0.5% y/y, the officials said, adding that they’ll continue frontloading the bonds from 2026’s new local government debt quota in an attempt to further jumpstart the economy. On a related note, China’s Communist Party next week is holding its fourth Plenum in which they’ll map out the country’s next five-year vision (2026-2030). High-tech manufacturing is seen as being high on the priority list, together with a further shift towards private consumption. Chinese Q3 GDP growth numbers are also on tap next week with consensus expecting YtD GDP growth having slowed from 5.3% in Q2 to 5.1% last quarter..

WTI Oil price fell further on Friday, remaining on track for the third consecutive weekly loss and the second straight weekly close below $60 mark.

Oil remains under pressure from darkened demand outlook, with the latest forecast from International Energy Agency about growing supply surplus, news about potential meeting between US and Russian Presidents, and growing US-China trade tensions, contributing to current picture.

Oil price fell to the lowest in five months and eyes key supports at $55.40/12 (2025 lows posted in Apr/May) which also formed a double bottom, ahead of subsequent strong rally.

Daily studies are in full bearish setup, but oversold conditions,14-d momentum indicator turning north from the depth of negative territory and anticipated profit taking at the end of the week, suggest that we may see some consolidation or limited correction.

Broken $60 level reverted to initial resistance (reinforced by falling 10DMA), followed by broken Fibo 76.4% ($60.71) and $61.50 zone (former range floor and higher base, reinforced by 20DMA), where stronger upticks should be capped to keep larger bears in play.

Res: 58.37; 59.74; 60.00; 60.71.
Sup: 56.58; 55.40; 55.12; 53.87.

Daily Pivots: (S1) 0.7907; (P) 0.7946; (R1) 0.7968; More…

Intraday bias remains mildly on the downside for retesting 0.7828 low. Decisive break there will resume larger down trend. For now, risk will stay on the downside as long as 0.7984 minor resistance holds, in case of recovery.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8332 support turned resistance holds (2023 low).

Daily Pivots: (S1) 149.97; (P) 150.68; (R1) 151.16; More...

Intraday bias in USD/JPY stays mildly on the downside at this point. Fall from 153.26 short term top would target 55 D EMA (now at 148.58) instead. Sustained break there will raise the chance of bearish reversal and target 145.47 structural support next. On the upside, above 151.38 minor resistance will turn intraday bias neutral again first.

In the bigger picture, current development suggests that corrective pattern from 161.94 (2024 high) has completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94 high. On the downside, break of 145.47 support will dampen this bullish view and extend the corrective pattern with another falling leg.

Daily Pivots: (S1) 1.3399; (P) 1.3427; (R1) 1.3462; More...

GBP/USD's recovery lost momentum well above of 1.3526 resistance and intraday bias remains neutral. Fall from 1.3725 could still extend lower through 13247. But even in that case, strong support is expected from 1.3140 cluster (38.2% retracement of 1.2099 to 1.3787 at 1.3142) to complete the corrective pattern from 1.3787. On the upside, break of 1.3526 will bring stronger rally back to 1.3725/87 resistance zone.

In the bigger picture, rise from 1.0351 (2022 low) is still seen as a corrective move. Further rally could be seen to 61.8% projection of 1.0351 to 1.3433 (2024 high) from 1.2099 (2025 low) at 1.4004. But strong resistance could emerge from 1.4248 (2021 high) to limit upside. Sustained break of 55 W EMA (now at 1.3173) will argue that a medium term top has already formed and bring deeper fall back to 1.2099.

Daily Pivots: (S1) 1.1655; (P) 1.1675; (R1) 1.1706; More…

EUR//USD retreated well ahead of 1.1778 resistance and intraday bias stays neutral. Further decline is still expected with 1.1778 resistance intact. On the downside, break of 1.1540 will resume the fall from 1.1917 to 1.1390 , or further to 38.2% retracement of 1.0176 to 1.1917 at 1.1252. However, firm break of 1.1778 will suggest that pullback from 1.1917 has completed, and bring retest of this high.

In the bigger picture, considering bearish divergence condition in D MACD, a medium term top is likely in place at 1.1917, just ahead of 1.2 key psychological level. As long as 55 W EMA (now at 1.1274) holds, the up trend from 0.9534 (2022 low) is still extended to continue. Decisive break of 1.2000 will carry larger bullish implications. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep outlook bearish.

As markets enter into U.S. session, sentiment showed signs of stabilization, as investors cautiously stepped back into equities after a sharp selloff in regional banks yesterday. Concerns over credit quality and loan losses had triggered a steep decline in financial stocks, but bargain-hunting helped bank shares rebound, lifting broader index futures in premarket trading. The recovery suggests investors see the recent slump as overdone for the immediate term.

Still, sentiment remains cautious and directionless, with traders reluctant to take bold positions amid a backdrop of multiple macro headwinds — including the U.S. government shutdown, trade friction with China, and geopolitical uncertainty. The market’s current tone suggests consolidation rather than conviction, as participants wait for clearer signals on both policy and economic momentum before re-engaging.

In the currency markets, performance remains consistent with a cautious, risk-off tone. The Swiss Franc continues to lead the week as the strongest major currency, followed by Sterling and Yen, while Loonie lags behind. Dollar and Kiwi are also under pressure, with Aussie and Euro trading mid-range.

In Europe, at the time of writing, FTSE is down -0.96%. DAX is down -1.42%. CAC is up 0.02%. UK 10-year yield is up 0.044 at 4.546. Germany 10-year yield is up 0.013 at 2.588. Earlier in Asia, Nikkei fell -1.44%. Hong Kong HSI fell -2.48%. China Shanghai SSE fell -1.95%. Singapore Strait Times fell -0.63%. Japan 10-year JGB yield fell -0.026 to 1.631.

BoE's Pill: Risk of self-sustaining inflation calls for more cautious pace in cuts

BoE Chief Economist Huw Pill said today that the UK’s inflation remains far stickier than expected, reinforcing the case for a slower pace of monetary easing.

In a speech, Pill noted the “lack of progress” in reducing inflation as “disappointing”. He cautioned that the persistence of above-target inflation, combined with heightened sensitivity among firms and households to price developments, risks creating "self-sustaining inflation dynamics". The prominence of food prices, which directly affect household perceptions of inflation, could further embed inflation expectations if not carefully managed.

This, he argued, calls for a "more cautious pace in withdrawing monetary policy restriction so as to ensure continuation in disinflation towards the 2% target." While Pill reiterated that future rate cuts remain likely over the next year if the outlook evolves as expected, he stressed the importance "to guard against the risk of cutting rates either too far or too fast."

Eurozone CPI finalized at 2.2%, driven by services and food prices

Eurozone inflation edged higher in September, with headline CPI finalized at 2.2% yoy, up from 2.0% in August. The core measure, which excludes energy, food, alcohol & tobacco, also firmed to 2.4% yoy from 2.3%.

The main driver of the increase came from services, which contributed +1.49 percentage points to the annual rate, followed by food, alcohol, and tobacco (+0.58 pp), and non-energy industrial goods (+0.20 pp). Energy continued to be a drag, subtracting -0.03 pp.

Across the broader European Union, annual inflation was finalized at 2.6% yoy, up from 2.4% in August, with wide divergence among member states. Cyprus (0.0%), France (1.1%), and Italy and Greece (1.8%) recorded the lowest rates, while Romania (8.6%), Estonia (5.3%), and Croatia and Slovakia (4.6%) posted the highest. Inflation fell in 8 countries, was stable in 4, and rose in 15.

Ueda signals watchful patience as BoJ weighs October policy options

BoJ Governor Kazuo Ueda reiterated overnight that the central bank will consider rate hikes "if our confidence in hitting the outlook increases”. He added that he intends to continue gathering informations before making any decisions at the October 29–30 policy meeting.

Ueda observed that G20 members regard the world economy as broadly stable but facing persistent risks, from trade disputes to geopolitical frictions. "Many institutions and observers still factor them into their outlooks, or at least treat them as downside risks when assessing the global and U.S. economies,” he said.

BoJ’s Uchida: Further hikes if outlook holds

BoJ Deputy Governor Shinichi Uchida said in a speech on today that the central bank remains prepared to raise interest rates further if its current projections for growth and inflation are realized. He emphasized that the BoJ will “judge without any pre-conception” while monitoring both domestic and global conditions.

Uchida highlighted rising uncertainty surrounding overseas economies, particularly due to shifting trade policies that could influence Japan’s external demand and price trends. “It’s necessary to closely monitor how these developments may affect financial and foreign exchange markets, as well as Japan’s economy and prices,” he said.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1655; (P) 1.1675; (R1) 1.1706; More…

EUR//USD retreated well ahead of 1.1778 resistance and intraday bias stays neutral. Further decline is still expected with 1.1778 resistance intact. On the downside, break of 1.1540 will resume the fall from 1.1917 to 1.1390 , or further to 38.2% retracement of 1.0176 to 1.1917 at 1.1252. However, firm break of 1.1778 will suggest that pullback from 1.1917 has completed, and bring retest of this high.

In the bigger picture, considering bearish divergence condition in D MACD, a medium term top is likely in place at 1.1917, just ahead of 1.2 key psychological level. As long as 55 W EMA (now at 1.1274) holds, the up trend from 0.9534 (2022 low) is still extended to continue. Decisive break of 1.2000 will carry larger bullish implications. However, sustained trading below 55 W EMA will argue that rise from 0.9534 has completed as a three wave corrective bounce, and keep outlook bearish.

BoE Chief Economist Huw Pill said today that the UK’s inflation remains far stickier than expected, reinforcing the case for a slower pace of monetary easing.

In a speech, Pill noted the “lack of progress” in reducing inflation as “disappointing”. He cautioned that the persistence of above-target inflation, combined with heightened sensitivity among firms and households to price developments, risks creating "self-sustaining inflation dynamics". The prominence of food prices, which directly affect household perceptions of inflation, could further embed inflation expectations if not carefully managed.

This, he argued, calls for a "more cautious pace in withdrawing monetary policy restriction so as to ensure continuation in disinflation towards the 2% target." While Pill reiterated that future rate cuts remain likely over the next year if the outlook evolves as expected, he stressed the importance "to guard against the risk of cutting rates either too far or too fast."

Full speech of BoE's Pill here.