Key Highlights

• Japan’s three main opposition party leaders discuss a unity candidate for prime minister.
• President Trump again warns Spain that the country faces tariffs over its refusal to boost defense spending.
• U.K. Chancellor Rachel Reeves acknowledges tax rises and spending cuts are both being considered for the budget.

Chart of the Day

iFlow scored monthly flows into cash

^{Source: BNY}

As earnings season kicks off, markets remain relatively nervous for a variety of reasons, and the bar for ongoing liquidation is low given the current extent of positioning. However, even assuming that we see equity selling, there is the question of which assets will benefit and whether the cross-border impact will be severe. At present, we can see that iFlow Mood has moved back into risk-off territory, based on the differential between surge flow in equities and front-end U.S./European government paper. The latest round is being driven by equity selling, and if cash flow accelerates based on rotation, then it would represent an amplification of risk-off sentiment. On a cross-border basis we can see that demand for cash and short-term instruments over the past month has been positive across the board, though true surge flow has only taken place in Australia and Singapore on a cross-border basis. Immediately we can surmise that there is a credit element in place, even though fiscal risk has been more of a European issue of late. Australia and Singapore are perhaps seen as relatively insulated from current trade-related stress, for different reasons, but both are rated AAA by all three agencies and with a stable outlook, which remains a rarity. Furthermore, and perhaps due to economic resilience, there is a positive policy aspect to these flows, given that their most recent central bank decisions indicate the prospect of an extended pause in easing. Given the relatively small size of their bond markets, it would not take much incremental diversification flow to generate a large flow score in their cash markets. Surprisingly, U.S. cash flow is currently flat, which indicates cross-border investors have not moved aggressively into cash equivalents yet, but there is no sign of mass liquidation either as the Fed outlook is largely in the price.

What's Changed?

Buy-the-dip continues to dominate global equities, as gold breaks through $4,200 to set new record highs and liquidity drives investors to put money to work after a good start to the Q3 earnings season. AI investments and easy monetary policy are combining to fuel buying, continuing on from the clearly dovish tone set by FOMC Chair Jerome Powell and bank earnings. Overnight, three stories set the stage for an ebullient U.S. open: 1) China core CPI was higher, suggesting deflation is turning; however headlines remain negative for PPI and CPI reports, while weaker new lending and FDI figures make it clear that government support will need to continue. 2) India’s RBI has continued to intervene in INR, pushing the currency to its biggest gain in four months, up 0.9%. The RBI has vowed to battle speculative attacks on INR. 3) There are signs of a European push for deregulation, as comments from ECB Vice-President Luis de Guindos spark hopes for a better banking union with fewer rules, leveling the EU playing field in finance. Today will hold real economic news for investors, with NY Empire Fed and Beige Book announcements, along with more Fedspeakers. While these data aren’t usually market-moving, they become more important in a government shutdown without any official data. Today is a tax day, and how liquidity plays out will also matter. Mid-month in October has traditionally been a turning point for equity bounce-backs. Seasonality aside, the focus on USD weakness and its correlation to equity gains is also important today, with the bounce-back in AUD and INR clearly suggesting a return to risk.

What You Need to Know

Japan’s opposition leaders from the Constitutional Democratic Party (CDP), Japan Innovation Party and Democratic Party for the People (DPP) met on Wednesday to discuss uniting behind a single candidate in the upcoming parliamentary vote to choose a successor to Prime Minister Shigeru Ishiba. The CDP is pushing for a unified nominee, while the DPP is demanding alignment on constitutional, nuclear and security policy before agreeing. If the three parties, which together hold 210 lower house seats, do join forces, they could outnumber the Liberal Democratic Party’s 196. LDP leader Sanae Takaichi, meanwhile, met with CDP and DPP leaders Yoshihiko Noda and Yuichiro Tamaki in a bid to block an opposition alliance, seeking policy cooperation and proposing a possible coalition with the DPP to secure majority support. After the talks, Tamaki said that discussions will continue at secretary level and that if a pact is agreed, party leaders will meet again on October 20. Nikkei +1.762% to 47672.67, USDJPY -0.323% to 151.35, 10y JGB 0bp to 1.654%.

U.K. Chancellor Rachel Reeves has confirmed that tax rises are being considered in the November budget as she seeks to close a £20-30bn gap in the public finances. Speaking to Sky News, she said she was “looking at tax and spending” but insisted “the numbers will always add up,” citing the 2022 market turmoil as a warning against fiscal irresponsibility. Reeves blamed Brexit for the U.K.’s “severe and long-lasting” economic challenges but said the government was working to repair the damage through new trade deals, particularly with the EU. She reiterated that Labour would not raise income tax, National Insurance or VAT, suggesting any additional revenue would come from other sources while protecting “working families.” FTSE 100 -0.129% to 9440.55, GBPUSD +0.248% to 1.3353, 10y gilt -4bp to 4.55%.

Spain has come under renewed pressure from President Trump ahead of today’s NATO defense ministers’ meeting, as he threatened to impose “punishment” tariffs over Madrid’s low defense spending. Trump criticized Spain’s 1.3% of GDP defense allocation – the lowest among NATO members – as “unbelievably disrespectful” and warned that it could face trade penalties. At a June NATO summit, allies agreed to a new 5% defense spending target, but Prime Minister Pedro Sánchez sought an exemption, arguing Spain’s geographic position reduced its security risks. Sánchez reiterated his pledge to raise defense spending to 2% of GDP by end-2025, saying Spain is fully committed to NATO while prioritizing its welfare state. He described relations with Washington as “cordial” despite policy differences. IBEX 35 +0.737% to 15698, EURUSD +0.276% to 1.1639, 10y Bono -1.5bp to 3.122%.

President Trump said the $20bn U.S. aid package for Argentina would depend on President Javier Milei’s success in this month’s midterm elections. Speaking at the White House, Trump declared that “if he wins, we’re staying with him, and if he doesn’t win, we’re gone.” The aid, including a dollar swap line to stabilize the peso, followed a sharp market selloff after Milei’s party suffered local election losses. Trump gave Milei his “Complete and Total Endorsement,” saying U.S. help would cease under Peronist leadership. Treasury Secretary Scott Bessent echoed that support, warning that a return to “failed Peronist policies” would force a U.S. rethink. Opposition figures accused Trump of interference, while Milei’s ministers said U.S. backing depended on continuing free-market reforms. IBG -2.141% to 78104080, USDARS +0.529% to 1356.3848, 10Y AGB +60.5bp to 12.276%.

What We're Watching

U.S. weekly MBA mortgage applications expected up 2% after -4.7% w/w with rates lower; however, the refinancing wave is nearly finished without a further 25bp rate cut.

U.S. October Empire Fed New York manufacturing index forecast at -1.8 from -8.7, with the key focus on orders, jobs and prices. This marks the start of the regional Fed surveys.

U.S. Treasury sells $69bn in 17-week bills.

Fedspeakers:

Fed’s Stephen Miran speaks at the Invest in America Forum at 9:30 ET.

Fed’s Stephen speaks at the Nomura Research Forum at 12:30 ET.

Fed’s Christopher Waller speaks on artificial intelligence at 13:00 ET.

Fed’s Jeffrey Schmid holds a townhall event at 14:30 ET.

Fed releases the Beige Book at 14:00 ET.

What iFlow is Showing Us

Mood: As equity and cash flows diverge, iFlow Mood is moving further into risk-off territory.

FX: Improved flow in low-yielders or funders in Europe such as DKK, CZK, CHF and EUR has been helping to drive down iFlow Carry, while hedging on high-yielders such as HUF and IDR has continued.

FI: Sustained performance was seen in Latin American bonds, with Peru, Argentina and Mexico among the top performers. Hungarian bonds have also struggled, another indication of total asset exposure decreasing in the country.

Equities: South African equities continued to lead flows despite ZAR hedging starting to come through. European equities continued to underperform, as valuations look challenging without growth support.

Quotes of the Day

“Feller was an ebullient man, who would rather be wrong than undecided.” – Paul Halmos

"To accomplish great things, we must not only act, but also dream; not only plan, but also believe…” – Anatole France

Economic Details

France’s September CPI fell 1.0% m/m after rising 0.4% in August, while inflation came in at 1.2% y/y, up from 0.9% in August. The decrease was mainly driven by seasonal drops in services prices (-1.9%), notably in transport (-13.5%) and accommodation, while food prices fell 0.2% and manufactured goods rose 0.4%. Energy prices were flat m/m and down 4.4% y/y, easing from -6.2% previously. Core inflation stood at 1.3% y/y, and the harmonized HICP rose 1.1% y/y. Service inflation accelerated to 2.4% y/y, while manufactured goods prices fell 0.4%. Food inflation edged up to 1.7% y/y, driven by meat and beverage prices but offset by declines in sugar and confectionery. CAC40 +2.564% to 8122.69, EURUSD +0.276% to 1.1639, 10y OAT -1.9bp to 3.376%.

Sweden’s September CPI inflation was 0.9% y/y, easing from 1.1% in August, while the m/m change was flat at 0.0%. The CPIF inflation rate fell slightly to 3.1% from 3.2%, and CPIF excluding energy (CPIF-XE) dipped to 2.7% from 2.9%. Food prices were down 0.8% m/m for a second consecutive month, led by lower prices for fish and vegetables, while electricity rose 22.5% y/y and fuel fell 3.5% y/y. Rents and restaurant prices increased, but lower mortgage interest expenses subtracted 1.8 percentage points from CPI inflation. The report noted continued falls in housing interest costs and modest increases in clothing and accommodation prices, resulting in a monthly CPI that was unchanged overall. OMX +0.885% to 2745.272, EURSEK -0.3% to 11.0318, 10y Swedish GB -1.4bp to 2.59%.

Sweden’s unemployment rate stood at 6.9% in September 2025, down for a second consecutive month but slightly above 6.8% a year earlier. The number of unemployed people totaled 363,658, up by about 4,000 vs. September 2024. Youth unemployment fell to 8.1% from 8.4%, with 43,554 people aged 18-24 registered as jobless. Long-term unemployment reached 153,845, while 198,510 were openly unemployed and 165,148 participated in activity support programs. During the month, 34,668 people found work and 5,057 received redundancy notices. The Swedish Public Employment Service said that while unemployment remains high, the consecutive monthly falls suggest tentative signs of labor market strengthening.

Norway’s external trade data for Q3 and September 2025 showed mixed movements. In Q3, export volumes excluding ships and oil platforms rose 2.4% q/q, while imports shrank by 4.3%. Export prices fell 3.3%, and import prices slipped 0.4%. By category, food exports surged 19.5% in volume terms, while manufactured goods fell 4.3%. In September, exports totaled NOK 131.8bn (-8.0% m/m, +0.6% y/y), with crude oil down 8.0% m/m and natural gas -23.1% m/m. Mainland exports rose 1.1% m/m (+5.8% y/y) to NOK 63.6bn, driven by fish and seafood (+25.1% m/m). Imports increased 14.0% m/m to NOK 94.9bn. The overall trade surplus narrowed 38.5% m/m to NOK 36.9bn, while the mainland trade deficit widened 53.6% m/m to NOK -31.3bn. OSE +0.442% to 1639.35, EURNOK -0.38% to 11.7467, 10y NGB -1bp to 4%.

Norway’s National Budget 2026 projects GDP growth for mainland Norway of 2.1% following 2.0% in 2025, with employment rising by 0.7% and the unemployment rate stable at 2.1%. Inflation is expected to ease, with CPI and CPI-ATE at 2.2% and 2.5%, respectively. The 2026 fiscal plan targets fund spending of NOK 579bn, equivalent to 13.1% of trend mainland GDP and 2.8% of the Government Pension Fund Global’s value, up from 12.6% of GDP this year. Spending includes NOK 85bn in continued support to Ukraine (1.9% of GDP). The structural non-oil fiscal deficit is projected at NOK 579.4bn, with underlying expenditure growth of 1%. The government expects the 2026 budget to have a neutral effect on economic activity.

Poland’s September consumer prices rose 2.9% y/y, matching the flash estimate and remaining within the NBP’s inflation target range of 2.5% ± 1 percentage point. Services prices increased 5.8% y/y, while goods rose 1.9%. On a m/m basis, prices were broadly flat, with goods up 0.1% and services down 0.2%. The main upward contributions came from housing, water, electricity, gas and other fuels (+3.1% y/y), alcoholic beverages and tobacco (+6.8%) and restaurants and hotels (+5.4%), while transport (-3.8%) and clothing and footwear (-0.8%) provided downward pressure. Month-on-month, clothing and footwear prices rose 2.7%, while transport and recreation costs fell 1.3% and 1.1%, respectively. WIG +1.436% to 108184.8, EURPLN -0.125% to 4.2572, 10y PGB -0.9bp to 5.396%.

Poland’s July services production rose 7.5% y/y and 0.3% m/m, following a 7.1% rise a year earlier, according to preliminary data. After seasonal adjustment, output increased 6.5% y/y and 0.1% m/m, standing 28.2% above the 2021 average. Among key sectors, information and communication grew by 12.5% y/y and transportation and storage by 6.9%, while real estate activities fell 9.0%. The highest divisional gains were in public and license program broadcasting (+54.9%) and information service activities (+27.7%), while declines were recorded in telecommunications (-3.2%) and real estate (-9.0%). Compared with June, transport output rose 7.6%, while information and communication fell 4.8%.

Japan’s August manufacturing capacity utilization index fell 0.5% m/m to 95.5, marking a 1.8% y/y decline. Output weakened in sectors such as general machinery (-2.1%), transport equipment (-1.1%) and chemicals (-0.1%), while gains were seen in electronic parts and devices (+0.2%), metals (+0.1%) and food processing (+0.1%). The manufacturing operating ratio dropped 2.3% m/m to 98.7 but was up 0.3% y/y. In mining and quarrying, the production index fell 1.5% m/m to 100.6 and decreased by 1.6% y/y. Shipments rose 0.2% m/m, inventories were flat, and the inventory ratio climbed 1.8% m/m. Overall, capacity utilization and operating conditions weakened versus the previous month. Nikkei +1.762% to 47672.67, USDJPY -0.323% to 151.35, 10y JGB 0bp to 1.654%.

Australia’s September Westpac-Melbourne Institute Leading Index rose to +0.04% from -0.16% in August, signaling around-trend growth momentum into early 2026. The six-month annualized growth rate has moderated by 0.44 percentage points since March, when it stood at +0.48%, with momentum subdued compared with the start of the year. The main drags came from falling dwelling approvals (-0.24 percentage points) and weaker AUD-denominated commodity prices (-0.21 percentage points), partly offset by a 12.8% rise in the S&P/ASX 200 adding 0.32 percentage points. Westpac expects GDP growth of about 2% in 2025, rising to trend in 2026. With inflation within target and monetary policy still restrictive, the next Reserve Bank move is expected to be a rate cut, contingent on upcoming CPI data. ASX -0.07% to 5106.66, AUDUSD +0.54% to 0.6521, 10y ACGB -1.9bp to 4.216%.

China’s September CPI rose 0.1% m/m and fell 0.3% y/y, with core CPI up 1.0% y/y, marking the fifth straight month of acceleration and the strongest increase in 19 months. Food prices rose 0.7% m/m but fell 4.4% y/y, led by falls for pork, vegetables, eggs and fruit, while energy prices dropped 2.7% y/y. Prices for industrial consumer goods excluding energy rose 1.8% y/y, supported by jewelry, household goods and communication tools. PPI was flat m/m for a second month and down 2.3% y/y, narrowing 0.6 percentage points from August, driven by firmer coal and metals prices and improved domestic demand, while lower oil prices curbed gains in petroleum and chemical sectors. CSI 300 +1.481% to 4606.29, USDCNY -0.176% to 7.1247, 10y CGB +0.6bp to 1.844%.

South Korea’s August monetary aggregates increased across all measures. Narrow money (M1, seasonally adjusted, period average) rose 1.5% m/m, while broad money (M2) increased 1.3% m/m. Liquidity of financial institutions (Lf) expanded by 1.1% m/m, and total liquidity (L, period-end) grew 0.6% m/m. On a y/y basis, M1 was up by 7.3%, M2 by 8.1%, Lf by 7.9% and L by 6.8%. Seasonally adjusted data showed continued monthly rises in all categories, with M2 reaching ₩4.400qn and L at ₩7.458qn in August. KOSPI +2.68% to 3657.28, USDKRW -0.483% to 1421.6, 10y KTB -4.6bp to 2.861%.

Indonesia’s external debt reached $431.9bn in August 2025, rising 2.0% y/y, slower than July’s 4.2%. Government external debt grew 6.7% y/y to $213.9bn, easing from 9.0% in July amid weaker foreign capital inflows to government securities. Government borrowing mainly supported health and social activities (23.4%), education (17.2%), public administration (15.7%), construction (12.3%), transportation (9.0%) and financial services (8.0%), with 99.9% at long-term maturities. Private external debt fell 1.1% y/y to $194.2bn, deepening its contraction from 0.2% in July. The debt-to-GDP ratio was 30.0%, little changed from 29.9% in July, with long-term debt comprising 85.9% of the total. JCI -0.702% to 8009.902, USDIDR -0.061% to 16565, 10y IDGB -3.7bp to 6.037%.

Philippines’ cash remittances from overseas workers rose 3.2% y/y to $2.98bn in August 2025 from $2.89bn a year earlier, driven by higher inflows from both land-based workers ($2.35bn, +3.0%) and sea-based workers ($626mn, +3.8%). Cumulative cash remittances for January-August 2025 reached $22.91bn, up 3.1% from the same period in 2024. The U.S. remained the largest source of inflows, followed by Singapore and Saudi Arabia. Personal remittances, which include informal transfers and in-kind contributions, increased 3.2% y/y to $3.31bn in August and 3.1% y/y to $25.51bn for the first eight months of 2025. PSEi +0.294% to 6094.1, USDPHP -0.318% to 58.055, 10y PHGB -2.2bp to 5.779%.