Xi presses Trump to oppose Taiwan independence

In focus today

• Today is rather light in terms of data releases.
• In Sweden, PPI and household lending for August are released. PPI adds an interesting piece to the inflation puzzle, but neither release is expected to be a major market mover, with focus likely to remain on digesting yesterday's hawkish Riksbank decision.
• In the US, preliminary durable goods orders for August are due. Core capital goods orders are a key gauge of investment activity and could show whether the recent strength in manufacturing surveys is reflected in hard data. Fed's Williams and Hammack, both voters this year, also speak again. After Williams yesterday said it is reasonable to see another hike by year-end, it will be interesting to see whether he reiterates that message.

Economic and market news

What happened overnight

In geopolitics, few concrete results have so far come out of the Xi-Trump meetings in Washington, although more details could follow as Xi leaves the US today, since readouts often come after the visits end. The main news overnight was that according to Chinese state media Xinhua, Xi has pressed Trump to change the official language on Taiwan from US 'does not support' independence to US 'opposes' independence. While this had been speculated ahead of previous meetings, it is the first time Xi has officially raised it, and it remains unclear how Trump responded. Otherwise, the only concrete news has been a two-month extension of the trade truce from 10 November to 10 January.

What happened yesterday

In Sweden, the Riksbank kept the policy rate unchanged at 1.75%, as widely expected, but revised up its rate path, which now includes a hike before year-end. The Q4 2027 average of 2.42% opens the door to three hikes, more than we anticipated, and we now expect hikes in November, February and March, taking the policy rate to 2.50%. The Riksbank acknowledged the weaker SEK as a risk to inflation but did not signal any significant alarm, and EUR/SEK initially fell before returning to its starting point.

In Norway, Norges Bank raised the policy rate by 25bp to 4.50%. It was a slightly dovish hike, as the committee stated that it is prepared to raise the policy rate further if needed, and the rate path suggests a roughly 30% probability of another hike in 2026. We now expect the peak in rates to have been reached, with Norges Bank remaining on hold at 4.50% for the next 12 months before launching a gradual cutting cycle from 2028. The NOK reaction was surprisingly muted, with the krone remaining broadly unhanged against both the USD and EUR.

In Switzerland, the SNB kept its policy rate unchanged at 0%, as widely expected. The SNB lifted its inflation forecast for 2026 and H1 2027, but the forecast was close to unchanged further out, supporting our view that the SNB will not hike rates over the coming year. This should provide some pushback against current market pricing of around 60bp worth of hikes over that period. On FX, the SNB maintained that it is willing to intervene in FX markets if needed but removed "increased willingness" from the statement. EUR/CHF moved higher on the decision.

In Germany, the Ifo report came in stronger than expected in September following solid PMIs earlier this week. The assessment of the current situation rose to 89.5 (cons: 89.0, prior: 88.5) and expectations rose to 90.4 (cons: 89.3, prior: 89.0), despite the recent rise in energy costs. This suggests that the recovery in the German economy continues, with the assessment now at the highest level since 2023 and expectations back to levels seen before the conflict in Iran.

In the US, continued jobless claims came in at 1.719m in the week to 12 September (cons: 1.745m, prior: 1.717m), with the small rise only reflecting a downward revision to the previous week. The print adds to signs of a hot labour market, with Fed's Hammack saying the labour market remains close to maximum employment and Williams that downside risks to maximum employment have receded, leaving room to focus on still-elevated inflation. Williams and Paulson both signalled further tightening, with Williams saying another hike by year-end is reasonable, marking a hawkish shift from one of the more dovish FOMC members.  

Equities: Global risk sentiment was largely neutral yesterday with equities marginal lower at 0.2%. S&P500 and Nasdaq was flat on the day, with Russell 2000 down 0.1%. What is noteworthy is that only 35% of the names in the S&P500 was up, led by communication services. With energy and health care in positive, the defensive sector outperformed cyclicals, but only by 0.2pp. That said, despite the last three days have recorded almost 1pp better defensive performance, it is still cyclicals that is better on the week by about 0.8pp outperformance. Asian markets are mixed overnight, while US and European futures are virtually flat.

FI and FX: Treasuries continued the selloff on Thursday in a bear-steepening move, with the long end leading the rout to multi-decade highs. The 30Y closed at 5.48% (+7bp) - its highest level since 2004 - while the 10Y rose 7bp to 5.19%, its highest since 2007. The 2Y, by contrast, ended the day broadly unchanged at 4.91%. European bonds also sold off on Thursday, tracking the US move, with the Bund 10Y closing at 3.60% (+4bp) - its highest level since 2009 - and the Bund 30Y at 3.87% (+2bp). The Bund 2Y was broadly unchanged at 3.33%. EUR/USD stabilized below 1.14 during yesterday's volatile session. SNB kept its policy rate unchanged at 0% as widely expected. The Riksbank kept the policy rate unchanged at 1.75% in a unanimous decision but signalled that a rate hike is likely at the next meeting in November. Norges Bank delivered the most hawkish outcome we outlined ahead of the meeting: a 25bp rate hike combined with a moderate tightening bias. In isolation, this should have been a strongly NOK-positive surprise. However, the immediate FX reaction has been surprisingly muted.