Energy price developments have resulted in a tick down in headline inflation, while core inflation remains at 2.4%. Overall, the inflation environment seems to remain very stable around the ECB's target for the moment
Improving eurozone hard data and a stable ECB mean the EUR swap curve should steepen from here. The complexity of estimating Dutch pension reform flows doesn't help the case for a steeper 10s30s. In the US, Treasuries are trading heavily in post-FOMC, and look like they can attempt to continue to do so
Czech headline inflation eased in September due to subdued food prices. Yet annual price growth in services and rising rents continue to pose a risk of entrenching inflation expectations given the economic upswing. That said, worrying news from the main eurozone trading partners threatens to dampen the growth outlook
Federal Reserve (Fed) doves and risk-taking investors didn't necessarily welcome Jerome Powell's cautious tone in his speech yesterday, as the Fed Chair avoided committing to a rate cut at next month's meeting. He repeated that the risks to the labour market are tilted to the downside, while inflation risks remain to the upside – a mixed picture that requires careful policy adjustment.
Have you been wondering what emoji best describes this week's Fed meeting? James Smith is doing his best to win over Gen-Z again this week, as he looks back at a curious US interest rate decision and weighs up Europe's fiscal woes. All that and more in our guide to the week ahead
The eurozone's trade balance edged up slightly in July, driven mainly by a drop in imports, while exports also declined modestly. Excluding the energy crisis period, this marks one of the smallest trade surpluses in the past decade
Chair Powell does not have to pretend to maintain a degree of hawkishness as the recent data in fact supports such a stance. The next FOMC is still a month away; plently of time to pivot. Good eurozone PMIs support the idea of a cyclical upswing, which would put more upward pressure on the belly of the curve as it raises the probability of an ECB hike in 2026
We continue to refine the tariff assumptions underlying our global economic and FX outlook, and we believe most tariffs will remain in place from Q2-2025 through the remainder of our forecast horizon. As far as the assumptions, we assume a 20% tariff on China and a 10% tariff on the European Union.
PMI data released today will be closely scrutinised to gauge how the eurozone economy has navigated uncertainty triggered by Trump’s tariffs threats. Besides some sentiment effect, it is too early to assess the impact on the economy of Germany’s bold policy response to recent geopolitical events, with a commitment to heavily invest domestically.
In the space of a few weeks, the situation in Europe has changed radically, notably as a result of JD Vance's Munich speech and the rapprochement between the United States and Russia over peace in Ukraine, as well as questionings about European security raised by Trump’s announcements. For European countries, these events have been an ‘electroshock’, and they quickly announced a plan to increase defence spending by up to €800bn.
• As we had expected, the EURGBP spike in January—which was sparked by UK-idiosyncratic risks—has reversed, and we expect the pair to edge lower over the year toward 0.82.
