Reduction in US tariffs on EU autos not enough to remove troubles

EU mid-market update: Reduction in US tariffs on EU autos not enough to remove troubles; Focus on upcoming US GDP.

Notes/observations

- SNB kept policy rate at 0% after six cuts previously; SNB President suggested negative rates are possible again if inflation outside range in medium-term; Analysts agree further cuts likely as inflation expectations considered as overestimated.

- US implemented a July agreement with the EU, reducing tariffs on EU autos and parts from 25% to 15%, retroactive to Aug 1st. This caps combined duties (including prior reciprocal tariffs) and exempts items like aircraft, pharmaceuticals, and certain resources. German auto industry challenges remain despite reduced US tariffs on EU cars; Additional steel and aluminum tariffs remain.

- UK gilt yields rise after weak demand at 30-year and 5-year auctions ahead of Nov 26th budget.

- JPMorgan sees gold hitting $4,050-$4,150/oz by mid-2026 amid expected Fed rate cuts.

- China added US firms Aerkomm, Saronic and Oceaneering to UEL, said to focus on national security and high-tech growth 2026-2030; Analysts see 4.5-5.0% annual growth needed to meet 2035 target.

- Notable EU Corp News: H&M Q3 margins rise 180bps vs 50bps expected, Sept sales resilient, Q4 margin guidance cautious due to tariffs.

- Asia closed mixed with Nikkei225 outperforming +0.3%. EU indices -0.3% to -0.6%. US futures mixed. Gold +0.5%, DXY -0.1%; Commodity: Brent -0.9%, WTI -1.0%; Crypto: BTC -0.8%, ETH -3.7%.

Asia:

- Japan Aug PPI Services Y/Y: 2.9% v 2.8%e.

- US President Trump said to be planning to visit Japan in late October.

- Fitch lowered Thailand outlook from stable to negative; affirms BBB+ sovereign rating.

Europe

- BOE’s Greene noted that an appropriate response to uncertainty and risks currently facing should involve a cautious approach to rate cuts going forward.

Americas

- Fed's Goolsbee (voter for 2025): Warn against series of rate cuts; Labor data show only mild cooling.
Fed’s Daly (non-voter) projections for additional rate cuts were not promises; Would need to assess tradeoffs at each decision point.

- Treasury Sec Bessent: Surprised that Fed Chair Powell hasn't signaled destination for rates to be cut by at least 100-150bps by end-2025. Discussing $20B swap line with Argentina.

- White House budget office said to instruct federal agencies to prepare "reduction-in-force" plans (potentially mass firings) during the possible govt shutdown from Oct 1st.

Trade

- South Korea Industry Min Kim stated that was still committed to concluding US-Korea trade deal.

- South Korea PM Kim stated that would not sign trade deal if there was no commercial rationale; Warned US investment was at risk if there's no visa solution.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.4% at 552, FTSE -0.3% at 9223, DAX -0.5% at 23556, CAC-40 -0.7% at 7776, IBEX-35 -0.3% at 15173, FTSE MIB -0.2% at 4137, SMI -0.6% at 11906, S&P 500 Futures 0.0%].

Market Focal Points/Key Themes: European indices opened lower across the board and remained under pressure through the early part of the session; various Fed speakers yesterday talking down prospects of easing left markets in risk-off mode; sectors managing gains include consumer discretionary and materials; among sectors leading the way lower are health care and financials; medical devices subsector weighed down after White House announces tariff probe into medical equipment imports; activist holder in SSP wants the company to go private; Petershill to delist; focus on US durable goods orders figures later in the day; earnings expected in the upcoming US session include CarMax, Accenture, and Jabil.

Equities

- Consumer discretionary: H&M [HMB.SE] +8.5-9.0% (Q3 results).

- Energy: TotalEnergies [TTE.FR] -0.5% (analyst downgrade).

- Financials: Petershill Partners [PHLL.UK] +30% (to delist from LSE, shareholders to receive $4.15/share, H1 results).

- Industrials: Babcock [BAB.UK] -2.0% (trading update).

Speakers

- Swiss National Bank Policy Statement reiterated stance that was prepared to intervene in FX market as needed. Economic outlook had deteriorated due to significantly higher US tariffs. Inflation is likely to be 'slightly' higher in short term, and unemployment probably to continue rising.

- SNB updated its Staff Projections which maintained 2025 GDP growth forecast between 1.0-1.5% range and adjusted the 2026 GDP growth from between 1.0-1.5% range to 1.0%. Projections maintained 2025 CPI at 0.2% and maintained 2026 CPI at 0.5%.

- SNB President Schlegel post rate decision press conference noted that policy was aiding economy amid the US tariff pain. Uncertainty about inflation and economic development remained elevated and would monitor and adjust monetary policy as needed. Bar to go into negative rates is high.

- ECB's Kazimir (acting Slovakia member) noted that inflation target was met and would only act if needed.

- ECB Economic Bulletin noted it was determined to ensure that inflation stabilized at its 2% target in the medium term. It would follow a data-dependent and meeting-by-meeting approach.

- China Commerce Ministry (MOFCOM) commented that US should take steps to remove 'unreasonable' tariffs.

Currencies/fixed income

- USD remained steady following last Tues comments from Fed Chair Powell as he described policy as mildly restrictive and said that the Fed was in a good place to respond. Session will see a barrage of US data later today (Q2 final GDP, Durable goods; Advance trade, weekly claims).

- USD/JPY stayed above the 148 area. Domestic politics remained an overhang on the prospects for looser fiscal policy once a new LDP leader was voted.

- EUR/USD staying below the 1.18 level and probing 1.1730 by mid-session.

- USD/CHF at 0.7960 as SNB kept its policy steady for its 1st pause under the current easing cycle. Statement reiterated stance that was prepared to intervene in FX market as needed.

- 10-year German Bund yield at 2.74% and 10-year Gilt yield at 4.68% 10-year Treasury yield: 4.14%.

Economic data

- (EU) Euro Zone Aug EU27 New Car Registrations: 5.3 v 7.4% prior.

- (DE) Germany Oct GfK Consumer Confidence: -22.3 v -23.3e.

- (SE) Sweden Aug PPI M/M: 0.5% v 1.1% prior; Y/Y: -0.7% v -0.6% prior.

- (SE) Sweden Aug Household Lending Y/Y: 2.7% v 2.6% prior.

- (NO) Norway Aug Trend Unemployment Rate: 4.7% v 4.7% prior.

- (HU) Hungary Q2 Current Account Balance: €1.4B v €0.8Be.

- (HU) Hungary Aug Unemployment Rate: 4.4% v 4.3%e.

- (FR) France Sept Consumer Confidence: 87 v 87e.

- (ES) Spain July Home Sales Y/Y: 13.7% v 17.9% prior.

- (ES) Spain July Total Mortgage Lending Y/Y: 31.5% v 45.7% prior; House Mortgage Approvals Y/Y: 25.0% v 31.7% prior.

- (CH) Swiss National Bank (SNB) left the Policy Rate unchanged at 0.00% (as expected) for its 1st pause in 7 decisions under the current easing cycle.

- (EU) Euro Zone Aug M3 Money Supply Y/Y:2.9 % v 3.3%e.

- (ZA) South Africa Q3 BER Consumer Confidence: -13 v -10 prior.

- (HK) Hong Kong Aug Trade Balance (HKD): -25.4B v -38.6Be; Exports Y/Y: 14.5% v 12.2%e; Imports Y/Y: 11.5% v 13.6%e.

- (IS) Iceland Sept CPI M/M: +0.1% v -0.2% prior; Y/Y: 4.1% v 3.8% prior.

Fixed income issuance

- (UK) DMO sold £1.25B in 4.50% 2034 Gilts via tender; Avg Yield: 4.584%; bid-t-cover: 2.90x; tails: 0.3bps.

- (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 6-month bills; Avg Yield: 2.044% v 2.012% prior; Bid-to-cover: 1.45x v 1.66x prior.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa Aug PPI M/M: -0.1%e v +0.7% prior; Y/Y: 1.8%e v 1.5% prior.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 06:00 (UK) Sept CBI Retailing Reported Sales: -31e v -32 prior; Total Distribution Sales: No est v -28 prior.

- 06:00 (VN) Vietnam Finance Ministry announcement on upcoming bond issuance (held on Wed).

- 06:00 (CZ) Czech Republic to sell CZK5.0B in 3-month Bills.

- 06:00 (RO) Romania to sell combined RON800M in 2028 and 2035 bonds.

- 06:30 (UK) DMO to sell £750M in 4.75% 2038 Gilts via tender.

- 07:00 (BR) Brazil Central Bank (BCB) Monetary Policy Report.

- 07:00 (BR) Brazil Sept FGV Construction Costs M/M: No est v 0.7% prior.

- 08:00 (BR) Brazil mid-Sept IBGE Inflation IPCA-15 M/M: 0.5%e v -0.1% prior; Y/Y: 5.4%e v 5.0% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:20 (US) Fed's Goolsbee.

- 08:30 (US) Q2 Final GDP Annualized (3rd reading) Q/Q: 3.3%e v 3.3% prelim; Personal Consumption: 1.6%e v 1.6% prelim.

- 08:30 (US) Q2 Final GDP Price Index: 2.0%e v 2.0% prelim; Core PCE Price Index Q/Q: 2.5%e v 2.5% prelim.

- 08:30 (US) Aug Preliminary Durable Goods Orders: -0.3%e v -2.8% prior; Durables (ex-transportation): 0.0%e v 1.0% prior; Capital Goods Orders (non-defense/ex-aircraft): -0.1%e v 1.1% prior; Capital Goods Shipments (non-defense/ex-aircraft): 0.1%e v 0.7% prior.

- 08:30 (US) Initial Jobless Claims: 233Ke v 231K prior; Continuing Claims: 1.94Me v 1.920M prior.

- 08:30 (US) Aug Advance Goods Trade Balance: -$95.5Be v -$102.8B prior (revised from -$103.6B); Exports M/M: No est v 0.0% prior (revised from -0.1%); Imports M/M: No est v 7.0% prior (revised from 7.1%).

- 08:30 (US) Aug Preliminary Wholesale Inventories M/M: 0.1%e v 0.1% prior; Retail Inventories M/M: 0.2%e v 0.2% prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (US) Fed's Williams gives welcoming remarks at US Dollar Conference.

- 09:00 (US) Fed's Schmid.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 19th: No est v $705.1B prior.

- 10:00 (US) Aug Existing Home Sales: 3.96Me v 4.01M prior.

- 10:00 (US) Fed’s Bowman.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (US) Sept Kansas City Fed Manufacturing Activity: 2e v 1 prior.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CA) Canada to sell 30-year Bonds.

- 13:00 (US) Treasury to sell 7-Year Notes.

- 13:00 (US) Fed'sd Barr on Bank Stress Testing.

- 13:40 (US) Fed’s Logan.

- 15:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to cut Overnight Rate by 25bps to 7.50%.

- 15:00 (AR) Argentina July Wages M/M: No est v 3.0% prior.

- 15:30 (US) Fed's Daly.

- 17:00 (KR) South Korea Sept Manufacturing Business Survey: No est v 93.3 prior; Non-Manufacturing Business Survey: No est v 89.4 prior.

- 18:00 (NZ) New Zealand Sept ANZ Consumer Confidence: No est v 92 prior.

- 19:30 (JP) Japan Sept Tokyo CPI Y/Y: 2.8%e v 2.6% prior; CPI (ex-fresh food) Y/Y: 2.8%e v 2.5% prior; CPI (ex-fresh food/energy) Y/Y: 2.9%e v 3.0% prior.

- 23:30 (JP) Japan to sell 3-Month Bills.