US CPI will be released despite government furlough

In focus today

In the euro area, focus turns to the German ZEW index which is one of the first sentiment indicators for October. The indicator has declined in recent months due to both weaker economic assessments and expectations in contrast to the rising PMIs. We expect a small improvement in the index in October.

In the UK, the monthly labour market report is released. Employment has declined throughout the year, but the pace has been very modest. Wage growth has been edging lower but remains elevated. An accelerating job loss is probably needed to put a November cut from the Bank of England back on the table.

Overnight, China will release CPI and PPI for September. CPI moved into negative in August at -0.4% headline inflation. It was driven by lower food prices, though, and core inflation stood at 0.9%. In September we look for a small increase in headline CPI to -0.2% y/y while core inflation is expected to be flat. PPI will likely stay negative but move up from -2.9% y/y to around -2.5% y/y.

During the week, we will look for news on negotiations of a new coalition government in Japan. The parliamentary vote on the country's next PM was postponed after the small Buddhist party, Komeito, turned its thumps down on a continuation of the current LDP-Komeito coalition. The vote will likely take place on Monday.

Economic and market news

What happened yesterday

In the US, the Bureau of Labor Statistics (BLS) published a statement saying that the September CPI will be released on 24 October. The statement also iterated that no other releases will be rescheduled or produced until the resumption of regular government services. This implies that the CPI figures will be released during the FOMC blackout ahead of the October MP meeting.

In global trade, US Treasury Secretary Scott Bessent confirmed that President Trump remains on track to meet Chinese President Xi Jinping in South Korea later this month to discuss de-escalating trade tensions. Bessent noted that lines of communication have reopened, and the 100% tariffs announced on Friday could still be avoided if progress is made before 1 November. This, together with other comments received over the weekend and during Monday, largely helped keep markets calm during Monday's trade.

However, in a new escalation of the conflict, China stated that it has begun collecting additional port fees on US-linked vessels, while the US will impose similar fees starting today, 14 October. China's fees target US-linked ships but exempt Chinese-built vessels, while the US also specifically aims to counter China's dominance in global shipping and shipbuilding. Analysts estimate that China-owned container carrier COSCO could bear nearly half of the USD 3.2bn in expected industry costs by 2026.

In the Gaza War, Hamas freed the last Israeli hostages while Israel released nearly 2,000 Palestinian detainees under a US-brokered ceasefire. President Trump declared the war over in a speech to the Knesset, calling it a "long nightmare" for both sides. At a summit in Egypt, over 20 world leaders discussed the Gaza Strip's reconstruction and governance, but challenges remain, including aid delivery, governance, and recovering the remains of deceased hostages.

In geopolitics, Ukrainian President Zelenskiy is set to meet US President Trump on Friday in Washington to discuss air defence systems, the potential supply of long-range Tomahawk missiles, and a landmark drone technology-sharing deal. The talks come as Russia escalates strikes on Ukraine's energy infrastructure, forcing Kyiv to consider importing electricity. Discussions will also cover Ukraine's energy needs and shifting Russian tactics.

Equities: US equities rebounded on Monday following Friday's selloff. The S&P 500 rose 1.6% and the Nasdaq gained 2.2%, although the move was not enough to fully offset Friday's losses. European and Nordic markets saw more modest gains - the Stoxx 600 added 0.4% - but had also held up better into Friday's close. Overall, it was a classic rebound session, with sectors that underperformed on Friday leading the recovery, particularly US big tech. Futures in both the US and Europe are little changed this morning, so recouping the losses from Friday looks to take some time.

FI and FX: The US bond market was closed due to Columbus Day, but the equity market rallied as the trade tensions between US and China eased together with a de-escalation in the Middle East and a continued rally in AI stocks. European yields declined modestly and the spread between Germany and France stabilized, while the BTPS-Bund spread tightened.