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Caretaking French PM Lecornu reported back to president Macron that there are still possibilities for a compromise in parliament. He warned though that it would still be a difficult path ahead and immediately added some conditions. The next PM can’t have any presidential ambitions in 2027 elections and a suspension of Macron’s signature pension reform from 2023 (raising minimum retirement age to 64 from 62) must at least be worth reconsidering. Lecornu suggested that 210 or more lawmakers want a “platform of stability” to guide next year’s budget through 577-seat parliament. These numbers are MP’s of the ruling minority government, implying that they still need to lure in opposition lawmakers. The largest opposition blocks, the extreme-right (RN) and extreme-left (LFI), stand with their preference to push for new legislative elections, hoping to build on current polling momentum. Together, they account for 198 MP’s. Mutual distrust between socialists and republicans for the moment rules out any centrist (majority) formations. President Macron will on Friday in a final attempt likely announce a technocrat PM whose only task is to try pass a budget by year-end with a technocrat government to avoid snap elections. Chances that any government will rapidly face no confidence motions and eventually derail remain high. The extremely narrow path ahead helps explain the euro’s lackluster reaction to “positive” news that there’s still a chance. EUR/USD closed at 1.1628 from a start at 1.1657. The French CAC 40 equity index (+1%) slightly outperformed other European indices (0.6%-1%). The 10-yr OAT/swap spread narrowed by 2 bps.

During US dealings, the US Treasury sold $39bn of 10-yr Notes as part of its mid-month refinancing operation. The auction stopped above the pre-sale WI yield with the bid cover also down from the previous auction (2.48 from 2.65). It sets the stage for a difficult $22bn 30-yr bond sale tonight as well. Minutes of the September FOMC meeting confirmed division between Fed members. A few would have supported an unchanged decision before eventually backing the consensus 25 bps rate cut. A majority also emphasized upside risks to the inflation outlook but the overall view was that it most likely appropriate to ease policy more this year. Money markets almost completely discount back-to-back 25 bps rate cuts in October (95%) and December (80%). The auction caused slight intraday underperformance at the long end of the US yield curve while FOMC minutes were rapidly classified. Today’s eco calendar contains ECB Minutes an avalanche of Fed speakers. They (including Fed chair Powell) feature at the Fed’s community bank conference and are unlikely to touch on monetary policy. Israel and Hamas agreeing to the first phase of the US peace plan gets a lot of media coverage and helps supporting risk sentiment this morning.

News & Views

The National Bank of Poland (NBP) yesterday unexpectedly reduced its policy rate by 25 bps to 4.50%. The NBP statement was not that much different from the previous meeting, but the central bank took notice that annual CPI inflation remained unchanged at 2.9% Y/Y in September. It expects that core inflation net of food and energy prices (reported at 0.2% M/M and 3.2% Y/Y for August) remained close to the level of August, amidst still elevated services price growth. The communiqué also assesses that, despite a slight decline, annual wage growth in Q2 2025 remained elevated, but that data from the enterprise sector indicate a gradual slowdown. The central bank concluded that an improved inflation outlook for the coming period justified adjusting the level of the NBP interest rates. It wasn’t explicitly mentioned in the statement, but the improvement in the short-term inflation outlook might be related to the government prolonging the energy price caps during Q4. The market reaction was muted. The Polish 2-y swap yield eased 4 bps. The zloty hardly reacted (EUR/PLN 4.25) suggesting that markets mainly see the rate cut as a timing issue rather than profoundly changing expectations on the NBP rate expected rate path.

China announced measures to have tighter control on the exports of rare earth and on related technologies. With the measures they want to keep control on products and technologies that have already left the country. In this respect, foreign companies will need the approval from the Chinese Ministry of Commerce to export products that even contain small fractions of the minerals. Chinese authorities also want to ban technologies that are related to extraction and recycling of rare earths unless permitted by the ministry. Some rare earth items that will be used in developing Chips will be revied on a case-by-case basis. The action is said to have the intention to protect national security and also is said to target the misuse of rare earth materials in military and other sensitive sectors.

Daily Pivots: (S1) 203.84; (P) 204.58; (R1) 205.42; More...

GBP/JPY's rally from 197.47 is in progress and intraday bias stays on the upside for 61.8% projection of 184.35 to 199.96 from 197.47 at 207.11. On the downside, below 203.870minor support will turn intraday bias neutral and bring consolidations first. But outlook will remain bullish as long as 201.24 resistance turned support holds, in case of retreat.

In the bigger picture, price actions from 208.09 (2024 high) are seen as a corrective pattern which might have completed at 184.35. Firm break of 208.09 high will resume the up trend from 123.94 (2020 low). Next target is 61.8% projection of 148.93 to 208.09 from 184.35 at 220.90. This will now remain the favored case long as 197.47 support holds.

Daily Pivots: (S1) 177.03; (P) 177.44; (R1) 177.99; More...

EUR/JPY's up trend is in progress and intraday bias stays on the upside. Further rise should be seen to 61.8% projection of 161.06 to 173.87 from 172.24 at 180.15 next. On the downside, below 177.15 minor support will turn intraday bias neutral and bring consolidations. But retreat should be contained above 175.03 resistance turned support to bring another rally.

In the bigger picture, up trend from 114.42 (2020 low) is resuming with break of 175.41 (2024 high). Next target is 61.8% projection of 124.37 to 175.41 from 154.77 at 186.31. Outlook will continue to stay bullish as long as 55 W EMA (now at 166.82) holds, even in case of deep pullback.

Daily Pivots: (S1) 0.8660; (P) 0.8672; (R1) 0.8689; More…

Intraday bias in EUR/GBP is turned neutral with current recovery. On the downside, below 0.8654 will resume the fall from 0.8750 to 0.8631 support. Decisive break there will indicate near term reversal and turn outlook bearish for 38.2% retracement of 0.8221 to 0.8750 at 0.8548. However, break of 0.8703 will suggest that pull back from 0.8750 has completed and bring retest of this resistance instead.

In the bigger picture, rise from 0.8221 medium term bottom is seen as a corrective move. While further rally cannot be ruled out, upside should be limited by 61.8% retracement of 0.9267 to 0.8221 at 0.8867. Considering bearish divergence condition in D MACD, firm break of 0.8631 support will be the first sign that this corrective bounce has completed. Sustained trading below 55 W EMA (now at 0.8539) will confirm, and bring retest of 0.8221 low.

Daily Pivots: (S1) 1.7612; (P) 1.7667; (R1) 1.7703; More...

Intraday bias in EUR/AUD remains neutral at this point. On the downside, sustained break of 61.8% retracement of 1.7245 to 1.8155 at 1.7593 will bring deeper fall to 1.7245 resistance, as part of the corrective pattern from 1.8554 high. On the upside, above 1.7734 will bring stronger rebound back to 1.7929 resistance.

In the bigger picture, price actions from 1.8554 medium term top are seen as a corrective pattern. Deeper fall could be seen as the pattern extends, but downside should be contained by 38.2% retracement of 1.4281 (2022 low) to 1.8554 at 1.6922 to bring rebound. Uptrend from 1.4281 is expected to resume at a later stage.

Daily Pivots: (S1) 0.9306; (P) 0.9317; (R1) 0.9337; More...

Intraday bias in EUR/CHF is turned neutral with current recovery and some consolidations could be see. Risk will stay on the downside as long as 0.9371 resistance holds, in case of recovery. Below 0.9295 will resume the fall from 0.9425 to 0.9265 support. Firm break there will bring deeper decline to 0.9218 low.

In the bigger picture, the down trend from 0.9204 (2018 high) might still be in progress considering that EUR/CHF is staying well inside the long term falling channel. However, with bullish convergence condition in W MACD, downside potential should be limited in case of another fall. Instead, firm break of 0.9660 resistance will be an important sign of medium term bullish trend reversal.

With little surprise, major US indices went on to print fresh all-time highs yesterday, again fueled by technology and AI. In fresh news, Elon Musk’s xAI secured $20 billion in funding — including from Nvidia, SoftBank bought ABB’s robotics division, intensifying its bet on what it calls “Physical AI,” which it believes will be the next big thing within artificial intelligence. Investors loved it — to say the least — with SoftBank soaring 10% in Tokyo, helping the Nikkei remain bid near record highs.

Also, earlier this week, Dell doubled its growth estimates for sales and profit for the coming two years, saying they were “wrong about how big [they] thought the AI market was two years ago” and that “it’s nothing but bigger.” That sentiment was echoed by JPMorgan CEO Jamie Dimon, who acknowledged that demand for AI has turned out to be far stronger than many anticipated. He revealed that JPMorgan is now spending about USD 2 billion per year on AI initiatives — and, strikingly, those investments are already being offset by equivalent cost savings.

So again, I won’t defend that the market is not in a bubble — but I don’t see where the reports that AI is not worth investing in are coming from. Anyway, the AI rally continues full speed in the US, with Nvidia up 2% yesterday, Tesla — which wants to internalize xAI — gaining 1.3%, Dell jumping 9%, and the Nasdaq 100 pushing to a fresh record high above 25,000.

All that came as the FOMC minutes hinted at further rate cuts down the road — but with many officials still worried about inflation risks. That means any flare-up in inflation data could quickly reverse the Federal Reserve’s (Fed) easing path. The good news is: no major data are being released right now as the US government remains shut. The 2-year yield, which best captures Fed expectations, remains steady just below 3.60%, while the 10-year yield is holding sideways after a $39 billion debt sale that fell just short of expectations.

In FX, the US Dollar is softer this morning after having bounced to a 2-month high on weaker appetite for the euro and yen. The kiwi rebounded after hitting its lowest level since April following a surprise 50 bp cut from the Reserve Bank of New Zealand (RBNZ), which left the door open for further easing, arguing that the economy’s weakness had become too pronounced to wait, while inflation is showing signs of easing. Poland also unexpectedly cut rates, citing easing inflation pressures, while the Bank of England (BoE) warned that stretched valuations for AI companies and growing concerns about the Fed’s independence increased the risk of a “sharp market correction” that could spill over into global markets. Funny enough, the UK has such limited exposure to AI — and such pressing fiscal issues — that the warning went largely unheard by investors. Sterling remains very much unloved heading into the Autumn Budget. Even though French political shenanigans have capped the upside in the EURGBP since late September, the outlook remains more supportive for continental Europe than for the UK, where sluggish growth, persistent fiscal pressures and a hesitant Bank of England continue to weigh on sentiment.

One place where there’s no hesitation is gold. The bullion finally soared past the $4,000 per ounce mark yesterday on the back of diminished appetite for traditional currencies including the euro, dollar, sterling and yen — alongside strong central bank buying and renewed uncertainty around the US government shutdown. A question that constantly comes up is whether gold has more room to run. Unlike equities, we don’t have valuation ratios to judge whether gold has become “too expensive.” The yellow metal also enjoys solid retail demand, particularly during China’s Golden Week and India’s wedding season. But the physical leg is not the major explanation. Gold rallies because investors believe it has value. How much value? As much as people think it has. If one Bitcoin is trading above $120,000, gold surely has endless upside potential, as well. So yes, even with record-high prices, the medium-term outlook for bullion remains positive. Many investors already eye a move toward $5,000 and above.

For the rest of the week, and in the absence of US economic data, investors will focus on the first batch of US earnings, with results from Delta, Pepsi, Levi’s and BlackRock due to be released. The spotlight will be on how firms are navigating a still-resilient economy, sticky costs and shifting rate expectations all of which could set the tone heading into the heavier part of the reporting season next week. Earnings expectations have improved over recent weeks, with S&P 500 companies expected to post 6.3% revenue growth and nearly 8% profit growth in Q3. Across sectors, technology stocks will continue to do the heavy lifting with a 21% profit surge expected, thanks to AI-related demand. Utilities and financials are seen rising 17.5% and 11% respectively, while energy and consumer staples are projected to see 3% declines in profits due to trade tensions and falling energy prices. Let’s see what the companies have to say!

In focus today

Today is generally light on the macro data front; however, in the US, the Fed will host a community banking conference in Washington this afternoon, and Chair Powell is scheduled to give pre-recorded opening remarks.

Economic and market news

What happened overnight

In the Israel-Palestine conflict, Israel and Hamas have agreed on the first steps of a Gaza peace plan, including a hostage-prisoner exchange and the gradual withdrawal of IDF troops from Gaza. According to FT, the first hostages are due to be released on Monday marking a pivotal moment in the ongoing conflict. This development is seen as a huge diplomatic win for Donald Trump. However, significant challenges remain regarding the next phases of the plan, especially those related to Hamas disarmament, further Israeli troops withdrawal and the role of international stability forces in the area. The next few days, and next week, will be critical as we will see whether the two sides comply with the first agreed steps and whether they can agree on the next phases.

Overnight, China introduced extensive new export controls on rare earths and associated technologies, citing "national security". The regulations require foreign companies to obtain Chinese government approval before exporting products containing even small amounts of Chinese rare earths or those manufactured using China's rare-earth technology. Similar to the US foreign direct product rule, these measures aim to prevent the use of rare-earth materials in military and sensitive sectors.

What happened yesterday

In the US, the minutes from FOMC's September meeting, published last night, did not contain any major surprises for markets. The participants were clearly very divided in their perceptions of the inflation outlook. The minutes noted that 'a few participants emphasized that progress of inflation [towards 2%] had stalled, even excluding the effects of tariffs' and that 'few participants could have supported keeping Fed Funds rate unchanged at the September meeting'. On the other hand, 'some participants remarked that they perceived less upside risk to their outlooks for inflation than earlier in the year'. The next key inflation release, the September Consumer Price Index (CPI), is scheduled for next week's Wednesday, but it might get delayed by the ongoing government shutdown.

In Sweden, the flash estimate for September showed headline inflation at 0.9% y/y (prior: 1.1%%), CPIF excluding energy at 2.7% y/y (prior: 2.9%), and CPIF at 3.1% y/y (prior: 3.2%). This was in line with expectations of a y/y decline in inflation following the summer increase. Details will be released on Wednesday next week, with some summer-season-related components likely driving the decline. The Swedish flash print also indicates downside risks for Norwegian inflation, as similar seasonal factors may weigh on Friday's figures.

In Poland, the National Bank of Poland (NBP) cut the Base Rate by 25bp to 4.50%, citing an improved inflation outlook. Future policy decisions will depend on incoming data regarding inflation and economic activity. The zloty weakened slightly on the news, with USD/PLN trading above 3.66. Attention now shifts to NBP Governor Glapiński's press conference, scheduled for today, for further insights.

In France, outgoing caretaker PM Sebastien Lecornu expressed cautious optimism after two days of talks, stating progress had been made on budget discussions. While no deal was reached, Lecornu believes a path exists to avoid snap elections, and President Macron is expected to name a new prime minister within 48 hours. Opposition leaders, however, remain defiant, calling for elections or Macron's resignation.

Equities: Equities bounced back yesterday, fully reversing Tuesday's losses and setting a string of new all-time highs, driven mainly by cyclicals.

Volatility edged slightly lower, and perhaps most interestingly, European banks were among the best performers, while banks ranked as the worst-performing sector in the S&P 500.

One might be tempted to link the European bank strength to optimism around France and Macron's ongoing struggle to form a government, but that's not the case. The rally was led by Southern European banks, reflecting the relatively solid macro backdrop across Southern Europe these days.

In the US yesterday, Dow 0.0%, S&P 500 +0.6%, Nasdaq +1.1% and Russell 2000 +1.0%

Overnight, Asian equities are trading higher, while futures in both Europe and the U.S. are broadly unchanged.

Even news of tentative progress toward a potential peace framework in the Middle East has had virtually no impact on markets. This is consistent with the pattern we've seen throughout this conflict, where geopolitical developments in the region have carried very limited financial-market significance.

FI and FX: Israel and Hamas confirmed the hostage-release deal announced by President Trump last night. So far, market reactions in FX and fixed income have been muted. Possibly, one could tie the USD's overnight weakening to the positive developments in the Middle East rather than the FOMC minutes. The latter revealed a diverse range of views but could be interpreted as slightly hawkish overall. US interest rates showed minimal response to the minutes' release. European focus remains on France, where the outgoing PM Lecornu noted that some progress has been made on the budget discussions. President Macron is to be announcing a new PM soon.

Daily Pivots: (S1) 1.1598; (P) 1.1631; (R1) 1.1662; More...

EUR/USD's fall from 1.1917 is in progress and intraday bias stays on the downside. Deeper decline should be seen to 1.1390 support, or even further to 38.2% retracement of 1.0176 to 1.1917 at 1.1252. On the upside, above 1.1682 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.1778 resistance holds, in case of recovery.

In the bigger picture, rise from 1.0176 (2025 low) is seen as the third leg of the pattern from 0.9534 (2022 low). 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916 was already met. For now, further rally will remain in favor as long as 1.1390 support holds, and firm break of 1.2000 psychological level will carry larger bullish implications. However, firm break of 1.1390 will suggest that rise from 1.0176 has already completed and bring deeper fall to 55 W EMA (now at 1.1265) and below.

Daily Pivots: (S1) 151.96; (P) 152.48; (R1) 153.22; More...

USD/JPY's rally from 145.47 is in progress and intraday bias stays on the upside for 100% projection of 142.66 to 150.90 from 145.47 at 153.71. Firm break there will pave the way to 161.8% projection at 158.80. On the downside, below 151.71 minor support will turn bias neutral and bring consolidations first, before staging another rise.

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.