Euro steadies as markets await new French PM

EU mid-market update: Japan political shake-up clouds leadership outlook, as decades-long ruling coalition collapses; Euro steadies as markets await new French PM.

Notes/observations

- Japan’s ruling LDP faces uncertainty after ally Komeito quit the coalition, complicating new leader Sanae Takaichi’s path to becoming PM. The LDP may seek support from the Democratic Party for the People to secure a majority.

- Euro rises slightly as Macron prepares to name a new PM, easing fears of snap elections; Eurozone and UK bond yields fall ahead of the announcement. Oct 13th is constitutional deadline for submitting the draft Finance Bill to the National Assembly for debate. France's 2026 budget bill is expected in late 2025. 2026 OAT issuance estimated at €360B with a deficit target of 4.9% of GDP, among the highest in the eurozone.

- After weak German data in recent data, Pantheon notes Germany likely entered a mild recession in Q3 amid weak exports and falling industrial production.

- Q3 earnings season begins in earnest next week.

- Asia closed mixed with KOSPI outperforming +4.5%. EU indices -0.2% to +0.2%. US futures +0.1-0.2%. Gold +0.5%, DXY -0.1%; Commodity: Brent -0.6%, WTI -0.5%; Crypto: BTC -0.3%, ETH +0.1%.

Asia

- South Korea Sept Foreign Reserves: $422.0B v $416.3B prior.

- New Zealand Sept Manufacturing PMI: 49.9 v 49.9 prior (2nd month of contraction).

- Japan Sept PPI (domestic CGPI) M/M: 0.3% v 0.1%e; Y/Y: 2.7% v 2.5%e.

- Japan Sept Bank Lending Y/Y: 3.8% v 3.5% prior.

- RBA Gov Bullock reiterated view that services inflation did remain 'a little sticky'; domestic economy was in 'a pretty good spot'.

- Japan Incoming PM Takaichi stated that she did not see immediate need to revise BOJ-Japan govt joint accord; Not in position to comment on rate hike. No intention of triggering excessively weak yen.

- Japan incoming-PM Takaichi's close economic adviser Honda stated that he hoped BOJ did not raise rates now, but, of course, it's entirely up to the BOJ; USD/JPY unlikely to surge above 155 as inflation expectations remained low.

Europe

- UK NIESR [think tank] noted that Chancellor Reeves should break income tax promise in budget. Would argue that the Chancellor would have to raise one of the main taxes: corporation tax, income tax, employee NICs or VAT,“.

- ECB's Nagel (Germany) reiterated view of not concerned by strength in Euro; high bar to change monetary policy stance.

- Bank de France (BdF) maintained Q3 GDP growth forecast at 0.3%.

Americas

- Fed's Daly (non-voter) reiterated inflation had come in much less than had feared; maintained view that the Fed was projecting more cuts as part of 'risk management'
Fed's Barr (voter) noted that labor market were more vulnerable to negative shocks; Was skeptical about fully looking through tariff inflation; Price stability goal faced 'significant risks'.

- US Senators said to be informally discussing healthcare funding ideas, including extending enhanced Affordable Care Act subsidies with new income caps.

- Bureau of Labor Statistics (BLS) said to be preparing to release Sept CPI data despite the government shutdown. Recalled staff to prepare a key inflation report necessary to calculate the size of next year’s Social Security checks.

- Former Fed Gov Lindsey said to withdraw candidacy for Fed Chair position.

Trade

- US Treas Sec Bessent promised 'soon' going to see a rebalancing where India buys less oil from Russia while also believing that China would have to come back at the end of the season and buy soybeans.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.01% at 571.22, FTSE -0.14% at 9,495.80, DAX -0.04% at 24,640.55, CAC-40 +0.30% at 8,065.40, IBEX-35 +0.14% at 15,624.43, FTSE MIB -0.14% at 42,731.00, SMI +0.08% at 12,625.91, S&P 500 Futures +0.14%].

Market focal points/key themes: European indices opened mixed, but took on a positive bias as the session progressed; geopolitics in focus for markets amid progress in the Middle East and Macron to appoint new Prime Minister; among better performing sectors are industrials and consumer discretionary; lagging sectors include materials and energy; oil & gas subsector under pressure as Gaza peace plan takes hold; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Hays [HAS.UK] +4.0% (trading update).

- Financials: Tryg [TRYG.UK] -0.5% (earnings).

- Industrials: Maersk [MAERSKB.DK] +2.0% (Yemen's Houthi rebels signal halt to military operations if Gaza ceasefire lasts; China to collect special port fees from US vessels, effective from Oct 14th), Stellantis [STLA.NL] +2.5% (Q3 shipments), Mercedes-Benz [MBG.DE] +3.0% (pre-close call).

Speakers

- ECB's Villeroy (France) noted that the French economy was holding up but morale was not good because of the political situation. France must keep its 2029 budget deficit target of 3% (**Note: seen at 4.8% in 2026).

- ECB's Escriva (Spain) noted that negative risks to growth had not materialized. Inflation remains contained.

- ECB's Kazaks (Latvia) stated that about neutral on ECB rates; 2% was appropriate. Have delivered on inflation target but Euro strength, China price effect was recognized unknown.

- Japan Komeito Party said to be planning to leave the LDP coalition.

- Komeito Party leader Saito stated that could not agree over issues involving money and politics.

- Will not support LDP candidate as new Prime Minister.

- Japan LDP Leader Takaichi (likely incoming PM) stated that Komeito Party did ask for agreement on revised funding law. She wanted to hold talks again with Komeito next week.

- Thailand Central Bank (BOT) new Gov Vitai stated that rate decisions to be data-dependent. BOT to maintain independence. Monetary policy decisions was about appropriate timing.

- China Commerce Ministry (MOFCOM) reiterated view that US abused its export control measures and hurt global supply chain stability. Vowed necessary measures to protect interests.

- Malaysia govt unveiled its 2026 budget which forecasted 2026 GDP growth between 4.0-4.5%; inflation between 1.3-2.0% range.

Currencies/fixed income

- USD/JPY moved lower in the session after Komeito Party announced it would leave the LDP coalition. Pair moved from 153 to test 152.50 before consolidating. Japan Fin Min Kato did note during the Asian session that was seeing one-sided and rapid moves in the FX market; declined comment on FX trends. Dealers not seeing any threat of MOF FX intervention at this time.

EUR/USD held up above the key support of 1.15 area despite the ongoing French political crisis. Jean-Louis Borloo is circulating as a serious option for new French PM. Socialist Party have demanded that Macron appoint a leftist premier who is open to significant reversals of the president's economic agenda, including a suspension of his pension reform and tax increases for the rich (Socialist leader Olivier Faure mentioned as a possibility).

- GBP/USD hovering just above the 1.33 level.

- Bond vigilantes are restless with continued discontent with how public finances were being managed. Dealers noted of a bit of a stalemate in
the bond markets with long yields stabilizing as investors wait for budget news in the U.K. and France and being placated in the U.S. by the prospect of lower Federal Reserve rates and ongoing growth.

- 10-year German Bund yield at 2.68%, France 10-year Oat at 3.50% and 10-year Gilt yield at 4.72% 10-year Treasury yield: 4.11%.

Economic data

- (NL) Netherlands Aug Manufacturing Production M/M: +1.8% v -1.2% prior; Y/Y: 0.0% v -0.8% prior; Netherlands Aug Industrial Sales Y/Y: -3.2% v -2.3% prior.

- (NL) Netherlands Aug Trade Balance: €7.7B v €8.9B prior; Exports Y/Y: 0.4% v 2.0% prior; Imports Y/Y: 4.2% v 2.6% prior.

- (FI) Finland Aug Industrial Production M/M: +2.6% v -1.8% prior; Y/Y: % v -4.2% prior.

- (FI) Finland Aug Current Account Balance: €0.3B v €1.7B prior.

- (SE) Sweden Aug GDP Indicator M/M: 1.1% v 0.0%e; Y/Y: 2.4% v 1.9% prior.

- (SE) Sweden Aug Private Sector Production M/M: 0.9% v -1.6% prior; Y/Y: 3.7% v 3.7% prior.

- (SE) Sweden Aug Industrial Orders M/M: +7.2% v -1.7% prior; Y/Y: +7.3% v -0.4% prior.

- (SE) Sweden Aug Industrial Industry Production Value Y/Y: 10.6% v 3.9% prior; Service Production Value Y/Y: 3.0% v 4.3% prior.

- (SE) Sweden Aug Household Consumption M/M: 0.4% v 0.4% prior; Y/Y: 2.5% v 2.7% prior.

- (NO) Norway Sept CPI M/M: +0.4% v -0.6% prior; Y/Y: 3.6% v 3.5%e.

- (NO) Norway Sept CPI Underlying M/M: +0.2% v -0.7% prior; Y/Y: 3.0% v 3.1%e.

- (NO) Norway Q3 House Price Index Q/Q: +1.3% v -0.4% prior.

- (DK) Denmark Sept CPI M/M: -0.1% v -0.7% prior; Y/Y: 2.3% v 2.0% prior.

- (DK) Denmark Sept CPI EU Harmonized M/M: -0.2% v -0.7% prior; Y/Y: 2.2% v 1.9% prior.

- (RO) Romania Q2 Final GDP (3rd reading) Q/Q: 1.2% v 1.2% prelim; Y/Y: 0.3% v 0.3% prelim.

- (CH) Swiss Sept SECO Consumer Confidence: -36.5 v -37.0e.

- (AT) Austria Aug Industrial Production M/M: -2.3% v +1.8% prior; Y/Y: 0.8% v 3.2% prior.

- (CZ) Czech Sept Final CPI M/M:-0.6 % v -0.6% prelim; Y/Y: 2.3% v 2.3% prelim.

- (CZ) Czech Aug Import Price Index Y/Y: -3.3% v -3.0% prior; Export Price Index Y/Y: -2.9% v -2.4% prior.

- (TR) Turkey Aug Retail Sales Y/Y: 12.2% v 13.3% prior.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 109.7K v 98.9K tons prior (Sept 26th).

- (TH) Thailand May Foreign Reserves w/e Oct 3rd: $273.8B v $271.9B prior.

- (IT) Italy Aug Industrial Production M/M: -2.4% v -0.4%e; Y/Y: -2.7% v +0.6%e; Industrial Production NSA (unadj) Y/Y: -5.7% v +0.9% prior.

- (RU) Russia Narrow Money Supply w/e Oct 3rd (RUB): 18.945T v 18.88T prior.

- (GR) Greece Aug Industrial Production Y/Y: % v -0.5% prior.

Fixed income issuance

- (IN) India sold total INR280B vs. INR280B indicated in 2040 and 2065 bonds.

Looking ahead

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

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2033, 2043 and 2050 Bonds.

- 06:00 (PT) Portugal Aug Trade Balance: No est v -€3.3B prior.

- 06:00 (PT) Portugal Sept Final CPI M/M: No est v 0.9% prelim; Y/Y: No est v 2.4% prelim.

- 06:00 (PT) Portugal Sept Final CPI EU Harmonized M/M: No est v 1.0% prelim; Y/Y: No est v 1.9% prelim.

- 06:00 (UK) DMO to sell £6.5B in 1-month, 3-month and 6-month bills (£1.0B, 2.5£B and £3.0B respectively).

- 07:30 (CL) Chile Central Bank Economist Survey.

- 07:30 (IN) India Forex Reserve w/e Oct 3rd: No est v $700.2B prior.

- 08:00 (PL) Poland Central Bank (NBP) Sept Minutes (2 decisions ago).

- 08:00 (IS) Iceland Sept Unemployment Rate: No est v 3.4% prior.

- 08:00 (MX) Mexico Aug Industrial Production M/M: +0.4%e v -1.2% prior; Y/Y: -2.0%e v -2.7% prior; Manufacturing Production Y/Y: -0.8%e v -1.9% prior.

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

- 08:30 (CA) Canada Sept Net Change in Employment: +5.0Ke v -65.5K prior; Unemployment Rate: 7.2%e v 7.1% prior; Full Time Employment Change: No est v -6.0K prior; Part Time Employment Change: No est v -59.7K prior; Participation Rate: No est v 65.1% prior; Hourly Wage Rate Permanent Employees Y/Y: 3.6%e v 3.6% prior.

- 09:00 (IN) India announces upcoming bill issuance (held on Wed).

- 09:45 (US) Fed’s Goolsbee.

- 10:00 (US) Oct Preliminary University of Michigan Confidence: 54.0e v 55.1 prior.

- 12:00 (RU) Russia Sept CPI M/M: 0.3%e v -0.4% prior; Y/Y: 8.0%e v 8.1% prior.

- 12:00 (RU) Russia Sept; CPI Core M/M: No est v 0.1% prior; Y/Y: No est v 8.0% prior.

- 12:00 (EU) Potential sovereign ratings after European close (S&P on Italy, UK; Moody’s on Belgium; Fitch on Switzerland).

- 13:00 (US) Weekly Baker Hughes Rig Count data.

- 13:00 (US) Fed’s Musalem.

- 14:00 (US) Sept Federal Budget Balance: +$50.0Be v -$344.8B prior.