US CPI and PMIs to guide markets through shutdown

In focus today

• The delayed US September CPI is set to be released at 14:30 CET. We forecast headline CPI at 3.1% y/y from 2.9% and core CPI inflation at 3.1% y/y from 3.1%. We see risks skewed towards a higher reading but think the bar for the Fed skipping its planned rate cut on 29 October is very high. After the CPI, October flash PMIs will be released for the US. Private-sector data could gather more attention than usual considering the government shutdown. 
• In the euro area, the important October flash PMI report is released. Following stronger-than-expected growth in the first half of the year we expect the euro area economy to be close to stagnant in the second half of 2025 with 0.1% q/q GDP growth in both quarters, driven by 'front-loading' of exports at the start of the year.
• The Swedish PPI figures are unlikely to have any instant market impact. However, some subindices may offer useful insights into future inflation pressures and therefore can be of value for inflation forecasts.

Economic and market news

What happened overnight

In the trade war, US President Trump abruptly ended trade negotiations with Canada over an anti-tariff ad campaign launched by the province of Ontario. In a post on Truth Social, Trump declared, "All trade negotiations with Canada are hereby terminated".

The White House confirmed that US President Trump will meet Chinese President Xi Jinping on Thursday next week. Whether it would come to pass has previously been drawn into question following the recent escalation of trade tensions.

In Japan, CPI inflation (excl. fresh food) increased to 2.9% in September from 2.7% in August. It marks the 42nd consecutive month with Bank of Japan's (BoJ) favourite inflation measure above the 2% target. Even so, we expect the BoJ will keep its policy rate on hold at 0.5% at its meeting next week. Core inflation declined to 1.3% from 1.6%, reflecting that inflation is still not a demand driven phenomenon in Japan. According to PMIs, the economy decelerated in October, with composite PMI declining to 50.9 from 51.3, driven mostly by service expansion becoming less dominant. We expect the BoJ will find room for the next rate hike in December.

What happened yesterday

In the euro area, October consumer confidence surprisingly improved to -14.2 (cons:

-15.0) from -14.9 however, the measure remained at a very low level, broadly like the past five months. The weak confidence is dampening consumption growth despite solid fundamentals such as rising employment, lower rates and rising real incomes.

In Denmark, consumer confidence declined to its lowest level since early 2023 to -19.5 from -18.7 in September. Inflation concerns remain high, driven predominantly by elevated food prices, although the perception of price developments showed a slight improvement.

In Norway, wage growth slowed to 4.3% y/y in September, down from 4.5% y/y in August. Slower wage growth is a necessary condition for Norges Bank to cut rates next year, so this is a move in the right direction even if the level still is too high. At the same time, the preliminary employment figure rose 0.1 % m/m in September, hence employment growth seems to be slowing, but only marginally weaker than Norges Bank's assumption from the September MPR and should be neutral to the monetary policy outlook. The trend-adjusted LFS unemployment rate was unchanged at 4.7% in September.

In China, a new outline of the Five-Year Plan for 2026-2030 was revealed and came with a few surprises but underlined the goal of becoming a tech superpower with a high degree of self-reliance. Boosting private consumption was again highlighted as a priority. However, on this point the language was a bit disappointing given the weak achievements on this goal in recent years. We may get more details in March when the full plan is revealed.

Equities: Equities rallied broadly yesterday in what looked like a textbook-style risk-on session. Investors turned notably more optimistic, not only on macro fundamentals, but rather on political and geopolitical developments, and to be fair, helped by some spectacular earnings releases. The result was a clear pro-cyclical rotation: cyclicals outperformed defensives, implied volatility declined, and small caps beat large caps. Add to this, the long end of the curve finally traded higher. Meanwhile, oil surged more than 5%, lifting the energy sector, though several non-energy sectors in the US still outperformed, a telling signal of how little the current oil price level worries markets. Even with such a sharp daily move, the broader equity complex remained firm. On the political side, the US and China announced a new round of trade talks, and more importantly, Trump and Xi are set to meet in Korea next week. In the US yesterday, Dow +0.3%, S&P 500 +0.6%, Nasdaq +0.9%, Russell 2000 +1.3%. Asian markets are higher this morning, led once again by tech. The KOSPI index, for example, is now up more than 70% year-to-date (!). Futures in both Europe and the US are pointing slightly higher as well.

FI and FX: Risk sentiment improved after the White House confirmed that President Trump will meet with Chinese President Xi Jinping next Thursday. US Treasury yields rose around 5bp across the curve, with the 10-year yield back near 4.00%. In the euro area, yields also moved higher, albeit more modestly, with Bund yields up roughly 2bp across the curve. EUR/USD continues to trade around 1.16, with the USD firmer across the G10. The news that Sweden intends to sell 100-150 JAS 39 Gripen E to Ukraine had a minor instantaneous and short-lived negative effect on EUR/SEK. The Norwegian krone has seen significant fluctuations in recent weeks, but nothing has occurred to alter our long-term view.