Euro area consumer confidence in focus amid higher energy costs

In focus today

In the euro area, the flash consumer confidence indicator for September is released. Confidence rebounded over the summer, but the recent rise in energy costs is likely to weigh on sentiment again.

In the US, the Fed's Williams and Jefferson will both be on the wires at the New York Fed's Treasury Market Conference. Williams has previously leaned dovish, but he ended up voting in favour of a hike at last week's meeting, so his remarks will be interesting.

In Hungary, the central bank (MNB) is expected to keep its policy rate unchanged at 5.50% when it announces its decision this afternoon.

Focus today also turns to New York, where the US, Denmark and Greenland will sign their new security agreement at 16.30 CEST on the sidelines of the UN General Assembly, a deal Denmark says will put Arctic security under NATO's watch. The text has not been made public, but according to Reuters, the US plans to open two new military bases in Greenland under the deal, while Denmark says it will put Arctic security under NATO's watch.

Economic and market news

What happened overnight

In commodities, Brent crude is trading around USD 101/bbl this morning, after briefly dipping below USD 100/bbl yesterday, as hopes of US-Iran diplomacy at this week's UN General Assembly and a partial recovery in Saudi exports have eased supply concerns. European TTF natural gas price also fell below EUR 75/MWh yesterday, down more than 7%. Saudi oil flows through the Strait of Hormuz have risen to 2.9m barrels per day in recent days, up from 700,000 in August, although risks around Red Sea routes and Houthi activity remain. Meanwhile, the WSJ reported that the Trump administration has proposed investing USD 5bn in a fund to rebuild energy infrastructure in the Middle East and reduce reliance on the strait.

What happened yesterday

In the euro area, governments are again considering fiscal measures to address higher energy costs. Germany agreed on Friday on a EUR 2.5bn relief package (0.06% of GDP), including a temporary fuel tax cut, while Italy plans to abolish its vehicle ownership tax at a cost of about EUR 2bn (0.1% of GDP), with funding still unclear. France has extended a targeted aid for fishers and farmers but ruled out broad-based fuel tax cuts. Like the measures introduced at the start of the war in Iran, they are small relative to GDP and unlikely to affect the ECB's stance at present. However, the risk of further fiscal easing is increasing, which would have hawkish implications for the ECB if the measures are not temporary, targeted and tailored.

In Sweden, Origo's survey showed inflation expectations edging higher. In the monthly survey for money market participants, 1-year and 5-year expectations both rose to 2.1% in September from 2.0% in August, while the 2-year horizon was unchanged at 2.1%. In the broader quarterly survey, 1-year CPIF expectations jumped to 2.0% in Q3 from 1.7% in Q2, while longer horizons were broadly stable. On wages, the gap between employee (3.3%) and employer organisations (3.1%) narrowed at the 2-year horizon. Overall, the survey is nothing dramatic from the Riksbank's perspective ahead of Thursday's rate decision, although wage expectations remain higher than before the pandemic and more consistent with the 2% inflation target.

Equities: Yesterday delivered a strong, broad-based risk-on session, with the decline in oil price acting as the catalyst for another move higher in equities. We have written extensively about this transmission mechanism recently, and the correlations and intraday moves across equities and asset classes yesterday are likely to remain defining features for much of the rest of the year. As oil price retreats, fears of an energy crisis heading into winter fade, inflation expectations ease, central banks are priced more dovishly and confidence improves. This cascade is currently unusually sensitive to energy, oil and developments around the Strait of Hormuz. With the underlying growth and earnings backdrop exceptionally strong, the energy situation remains the principal constraint on further market upside.

Unsurprisingly, cyclicals outperformed decisively, led by technology. The Nasdaq reached another record high, while MSCI World moved to within 1% of its record. Technology has clearly outperformed year to date, but 2026 earnings estimates for the sector have also been revised almost 45% higher. By comparison, health care estimates have been cut by around 5%. Technology has therefore become cheaper this year, while health care has become more expensive, despite technology outperforming health care by almost 30%. The relative earnings impulse between the two sectors remains exceptionally powerful.

This morning, Asia is catching up following the strong US session, European markets are also pointing higher, while the US picture is more mixed as oil edges higher again.

FI and FX: Treasuries rallied on Monday in a bull-steepening move, reversing Friday's post-FOMC selloff, as a fourth consecutive day of declining oil prices eased inflation concerns and risk sentiment improved ahead of the Trump-Xi summit. The 10Y closed at 4.95% (-5bp from Friday), the 30Y at 5.29% (-4bp), and the 2Y at 4.75% (-3bp). European bonds outperformed Treasuries on Monday, rallying significantly as oil's decline drove aggressive paring of ECB hike expectations. The Bund 10Y fell 5bp to 3.46% - its biggest single-day drop in four months — while the Bund 2Y fell 5bp to 3.21% and the Bund 30Y fell 4bp to 3.80%. EUR/USD has stabilized between 1.1450 and 1.1500 after the post-FOMC decline, and despite the drop in oil prices seen yesterday. The SEK moved little in slow markets, but if anything, it is worth noticing that despite benign risk sentiment with equities in green and oil prices lower on the day, EUR/SEK is barely changed and remains close to 11.30. EUR/NOK remains anchored just above 10.80.