Key Highlights

• G7 finance ministers to consider a joint response to China’s rare earth controls.
• India stresses that its oil import policy will be driven by domestic consumer interests.
• Korean diplomatic sources note both Trump and Xi will visit Seoul later this month.

Chart of the Day

Scored holdings in U.S. consumer staples, cross-border vs. total

^{Source: BNY}

U.S. equity markets have largely navigated earnings without much incident, supporting the “U.S. exceptionalism” trade. Our data show cross-border positioning in the U.S. is now outpacing the domestic equivalent to its biggest extent YTD. This remains the case despite some fresh risks coming through. However, beneath the surface we note that concentration risk is also taking place in absolute and relative terms. It has been well-established that IT and communication services continue to underpin general market performance. Comparatively, it is the consumer sector that is under material stress. Current aggregate and cross-border holdings in consumer discretionary are only marginally above the rolling 12-month average. The current narrative is that the purchasing power of consumers in the U.S. is showing significant dispersion in favor of higher-income groups. However, the aggregate contribution of consumption as a share of GDP growth is falling, and this will likely translate into changes in the distribution of aggregate profits as well. The performance of consumer staples is by the far the worst. For cross-border investors, their holdings levels were only very briefly above the rolling 12-month average this year. Domestic clients clearly held up the aggregate figure, and at various points the gap between the two groups approached 10 percentage points, although this has narrowed over the past few months. While weakness in household demand will largely be reflected in the consumer discretionary sector, staples will struggle as well – another example of how structural changes in the economy are challenging the status of assets previously considered defensive.

What's Changed?

Existing trends – equities higher, USD lower, gold higher and bonds yields lower – continued, with AI investments extending, rate cut expectations holding and economic growth forecasts resilient. We are in the “exceptionalism” phase for U.S. investors, where growth and inflation and policy spark animal spirits for risk. However, flows are not overwhelming, and investors want more clarity before aggressively chasing the tape like they did on Tuesday. What is more, the credit part of the equation continues to see pushback, with historically tight spreads not attracting new money. Q3 bank earnings continue, and they have also been supportive of the growth story. Much of the political worries that started the week have been discounted, with the French budget expected to pass today and Lecornu set to survive his no-confidence votes. In Japan, the battle to become the next prime minister continues, but new coalition building is taking much of the sting out of fiscal worries, while the BoJ has sounded a hawkish note. The only remaining drag for investors is the U.S. government shutdown, along with the ensuing lack of economic releases and the worries that this political impasse still has more than a few days to run. Whether the economy can bounce back quickly from the loss of federal workers’ spending and the slowdown of government-linked contracts will matter to how Q4 expectations build out. Two other stories are worrying markets: the ongoing rare earth dispute between the U.S. and China expanding to the G7, and the U.S. push to get a Russia/Ukraine peace deal pressuring India on oil and EU defense spending outlooks. The Zelenskyy/Trump meeting tomorrow will be key in this regard. The day ahead in the U.S. looks likely to be supportive of the “just right” view of economics, with the Philadelphia Fed manufacturing survey expected to hold positive but slow, supporting moderating growth and stable prices. Fedspeakers seem likely to support their plan for October and December easing, while Q3 earnings look more likely to deliver surprises to the upside. All of this leaves markets steady in a good but not great place for extending rallies. 

What You Need to Know

India’s foreign ministry has clarified its position following President Trump’s claim that Prime Minister Narendra Modi had agreed to halt Russian oil purchases, stating that the country’s energy import policy is guided solely by national consumer interests and market stability. The Ministry of External Affairs emphasized that India remains a major importer of oil and gas and that its approach prioritizes safeguarding consumers amid global price volatility. MEA spokesperson Randhir Jaiswal highlighted India’s twin goals of ensuring stable prices and secure supplies through diversified sourcing. The ministry added that energy cooperation with the U.S. has expanded over the past decade, with ongoing discussions to further deepen bilateral engagement. SENSEX +0.785% to 83254.28, USDINR -0.226% to 87.8712, 10y INGB +1.4bp to 6.494%.

Both the U.S. and Chinese presidents are likely to make state visits to South Korea during the Asia-Pacific Economic Cooperation (APEC) summit later this month, according to diplomatic sources. Seoul is coordinating with Washington and Beijing to arrange the visits, which would take place in Gyeongju, the host city for APEC, rather than Seoul, and are expected to coincide with the summit schedule. Trump is anticipated to visit on October 29 for talks and a state banquet with President Lee Jae Myung, while Xi is expected on October 30 for similar engagements. The foreign ministry has said it is in close communication with APEC member leaders on potential bilateral meetings, with official details to follow. CSI 300 +0.263% to 4618.42, USDCNY -0.017% to 7.1258, 10y CGB -0.5bp to 1.839%.

Japan’s Liberal Democratic Party (LDP) leader Sanae Takaichi met with leaders of the Innovation (Ishin) Party for policy and coalition talks earlier today. Ishin Party co-leader Fumitake Fujita said he felt the LDP “is very serious” about a coalition. Meanwhile, senior members of the seven-member “Volunteer Reform Association” also met LDP Vice President Taro Aso in Tokyo this week, where Aso asked for their support in voting for Takaichi in the upcoming prime ministerial election. Participants reported that the request was limited to the leadership vote and did not include policy or coalition discussions. The group held internal talks on October 16, without reaching a decision. The LDP, which is still short of a lower house majority even with potential Ishin backing, is seeking broader support to secure Takaichi’s election. Nikkei +1.269% to 48277.74, USDJPY +0.146% to 151.27, 10y JGB +1.1bp to 1.665%.

France’s Prime Minister Sébastien Lecornu is expected to survive two no-confidence votes in the National Assembly after offering to suspend President Emmanuel Macron’s contentious pension reform to gain support from moderate socialists. The move, announced ahead of Thursday’s votes, persuaded the Socialist Party not to back motions from the far left and far right. The result remains tight, however, with 265 lawmakers committed to ousting Lecornu – 24 short of the threshold. Lecornu plans to formally propose suspending the reform through an amendment to the social security financing law in November. However, the concession risks undermining Macron’s flagship economic legacy amid strained public finances and deep parliamentary divisions. CAC40 -0.129% to 8066.56, EURUSD +0.035% to 1.1651, 10y OAT +1.7bp to 3.359%.

A new study from the Institute for Fiscal Studies (IFS) warns that the U.K. faces a significant fiscal shortfall, with borrowing in 2029-30 projected to be around £22bn higher than forecast in March, driven by weaker growth, higher interest costs and increased social security spending. Debt interest payments are expected to reach £111bn this year – £64bn more than projected three years ago – and are unlikely to come down again soon, squeezing room for other public spending. The IFS estimates the Chancellor will need at least £12-17bn in fiscal tightening to meet rules requiring a budget surplus and falling debt-to-GDP ratio. Without further tax rises or spending cuts, the government risks breaching its fiscal targets and eroding policy stability. FTSE 100 -0.232% to 9402.87, GBPUSD +0.165% to 1.3425, 10y gilt +0.2bp to 4.545%.

What We're Watching

Fedspeakers

The Fed’s Christopher Waller speaks at Council on Foreign Relations – 09:00 ET.

The Fed’s Michael Barr speaks on stablecoins – 09:00 ET.

The Fed’s Stephen Miran in moderated conversation – 09:00 ET.

The Fed’s Michelle Bowman Speaks at Stress Testing Research Conference – 10:00 ET.

The Fed’s Stephen Miran in moderated conversation – 16:15 ET.

The Fed’s Neel Kashkari speaks in townhall in South Dakota – 18:00 ET.

Philadelphia Fed Business Outlook forecast up 10 after up 23.2 – 08:30 ET.

NAHB Housing Market Index expected up 1 to 33 – 10:00 ET.

U.S. Treasury sells $110bn in 1-month and $95bn in 2-month bills.

What iFlow is Showing Us

Mood: iFlow Mood remains in risk-off territory, as equity purchase momentum remains tentative, while front-end paper in developed economies continue to see improved surge flow.

FX: iFlow Carry has moved sharply back into the neutral zone as higher-yielding names face hedging interest, led by HUF and IDR. EM currencies remain relatively well-held, led by CEE and commodity FX names.

FI: Cross-border corporate bond flows in the U.S. have clearly deteriorated over the past week, leading selling in fixed income. However, asset-backed securities are finding favor, complementing good MBS demand over the past month.

Quotes of the Day

“If you are not willing to risk the unusual, you will have to settle for the ordinary.” – Jim Rohn

“If there is anything that links the human to the divine, it is the courage to stand by a principle when everybody else rejects it.” – Abraham Lincoln

Economic Details

The euro area posted a €1.0bn trade surplus in goods in August 2025, down from €3.0bn a year earlier, as exports fell 4.7% y/y to €205.9bn and imports shrank 3.8% to €204.9bn. The monthly surplus narrowed sharply from €12.7bn in July due to a smaller machinery and vehicles surplus (€7.8bn vs. €18.0bn). YTD, the euro area has recorded a €107.1bn surplus, below €123.3bn at the same point in 2024. For the EU as a whole, the August 2025 trade balance showed a €5.8bn deficit (vs. a deficit of €2.4bn a year earlier), with exports down 6.7% y/y to €183.6bn and imports 4.9% lower at €189.4bn. From January to August 2025, the EU recorded an €85.6bn surplus, down from €106.6bn a year earlier. Euro Stoxx 50 -0.16% to 5596.07, EURUSD +0.035% to 1.1651, BBG AGG Euro Government High Grade EUR -2.8bp to 2.902%.

Italy’s September CPI (NIC, excluding tobacco) fell 0.2% m/m and rose 1.6% y/y, unchanged from August and confirming preliminary estimates. Headline stability reflected slower increases in transport services (+2.4% vs. +3.5%) and unprocessed food (+4.8% vs. +5.6%), offset by stronger rises in regulated energy (+13.9% vs. +12.9%) and a smaller decline in unregulated energy (-5.2% vs. -6.3%). Core inflation eased to 2.0% from 2.1%, while goods prices were steady at +0.6% y/y and services inflation edged down to +2.6%. Prices of frequently purchased items rose 2.6% y/y. The harmonized HICP went up by 1.3% m/m and 1.8% y/y. Acquired inflation for 2025 stood at +1.7% overall and +2.0% for the core component. FTSEMIB -0.179% to 41832.02, EURUSD +0.035% to 1.1651, 10y BTP +0.2bp to 3.382%.

Italy’s August trade data showed exports down 2.7% m/m and imports falling 3.7%. The decline in exports reflected a 7.7% drop in non-EU sales, partly offset by a 2.1% rise in exports to the EU. On a quarterly basis (June-August), exports grew 1.2% while imports edged down 0.3%. Year-on-year, exports fell 1.1% in value and 2.8% in volume, with extra-EU shipments down 7.0% and EU sales up 5.4%. Imports declined 3.0% y/y in value terms and 4.1% by volume. Export gains were led by pharmaceuticals (+15.1%), metals (+14.0%) and refined petroleum (+11.4%), while machinery (-5.6%) and leather goods (-9.5%) fell. The trade surplus widened to €2.05bn from €1.33bn a year earlier, and import prices fell 0.6% m/m and 3.0% y/y.

Italy’s September CPI (NIC, excluding tobacco) fell 0.2% m/m and rose 1.6% y/y, unchanged from August and confirming preliminary estimates. Headline stability reflected slower increases in transport services (+2.4% vs. +3.5%) and unprocessed food (+4.8% vs. +5.6%), offset by stronger rises in regulated energy (+13.9% vs. +12.9%) and a smaller decline in unregulated energy (-5.2% vs. -6.3%). Core inflation eased to 2.0% from 2.1%, while goods prices were steady at +0.6% y/y and services inflation edged down to +2.6%. Prices of frequently purchased items rose 2.6% y/y. The harmonized HICP went up by 1.3% m/m and 1.8% y/y. Acquired inflation for 2025 stood at +1.7% overall and +2.0% for the core component. FTSEMIB -0.179% to 41832.02, EURUSD +0.035% to 1.1651, 10y BTP +0.2bp to 3.382%.

U.K. GDP grew 0.3% in the three months to August, slightly up on the 0.2% gain in the previous period. Services output rose 0.4% over the same period, unchanged from earlier growth, while production output fell 0.3%, a smaller decline than the 1.4% drop recorded previously. Construction output increased by 0.3%, moderating from 0.5% growth in the prior period. Month on month, GDP rose 0.1% in August after a 0.1% fall in July and a 0.4% gain in June. In August alone, production grew 0.4%, services were flat and construction output declined 0.3%. FTSE 100 -0.232% to 9402.87, GBPUSD +0.165% to 1.3425, 10y gilt +0.2bp to 4.545%.

U.K. August goods imports were flat, as a 0.8% rise from the EU offset a 0.8% fall from non-EU countries, while goods exports shrank by £1.1bn (3.3%) on lower shipments to both EU and non-EU destinations. Exports to the U.S., including precious metals, dropped £0.7bn. The total goods and services trade deficit widened by £1.7bn to £5.2bn in the three months to August, as exports fell faster than imports. The goods deficit widened by £3.0bn to £58.4bn, while the services surplus increased by £1.3bn to £53.2bn. Adjusted for inflation, goods imports were up 1.3% and exports down 2.7%. Services trade remained steady, with exports 0.5% higher, reflecting modest growth consistent with a strong August services PMI.

Sweden’s October money market survey showed inflation expectations largely stable, with CPIF inflation seen at 1.6% in one year, 1.9% in two years and 2.2% in five years, according to the Riksbank’s survey of market participants. CPI expectations were similar at 1.2%, 1.9% and 2.1%, respectively. GDP growth was expected at 2.2% for one year ahead, 2.3% for two years and 2.0% for five years. The policy rate was forecast at 1.7% in three months’ time and 1.6% in 12 months, rising to 2.1% in five years. The five-year government bond yield was expected at 2.7% five years from now. The krona was projected at 10.93 per euro and 9.38 per U.S. dollar in three months’ time. OMX -0.052% to 2736.708, EURSEK 0% to 11.0362, 10y Swedish GB -0.1bp to 2.584%.

Norway’s Q3 manufacturing confidence indicator declined to -0.3 from 0.4 in Q2, signaling a slight deterioration in sentiment. The total volume of production eased to 51.0 from 52.2, and average employment fell to 53.4 from 54.0. New orders from the domestic market edged down to 48.4 from 48.5, while export orders slipped to 46.9 from 47.8. Expectations for Q4 were moderately stronger, with production rising to 53.2 from 52.8 and new domestic and export orders improving to 54.2 and 53.3, respectively. However, employment expectations softened to 50.8 from 51.8, suggesting that hiring intentions remain subdued despite firmer output prospects. OSE -0.343% to 1637.54, EURNOK -0.141% to 11.7434, 10y NGB +0.2bp to 4.002%.

The Swiss State Secretariat for Economic Affairs’ Expert Group on Business Cycles forecast economic growth of 1.3% in 2025 and 0.9% in 2026, as higher U.S. tariffs and global trade uncertainty weighed on activity. Since August, Swiss exports to the U.S. have faced tariffs of 39%, up from 10%, placing exporters at a competitive disadvantage and dampening industrial output. Export weakness is expected to persist through late 2025, offset only partly by stronger-than-expected early-year growth. In 2026, exports and investment are set to slow further, while unemployment is projected to rise from 2.9% to 3.2%. Inflation expectations remain subdued at 0.2% in 2025 and 0.5% in 2026. The report warns that downside risks dominate, driven by trade tensions, financial vulnerabilities and geopolitical instability. SMI +1.067% to 12663.26, EURCHF +0.077% to 0.92863, 10y Swiss GB +0.6bp to 0.154%.

Czech producer prices showed mixed movements in September. Agricultural producer prices fell 1.9% m/m but rose 7.1% y/y, led by higher prices for eggs, cattle and milk, while fresh vegetables and potatoes declined sharply. Industrial producer prices decreased 0.4% m/m and 1.0% y/y, reflecting lower costs in energy, chemicals and motor vehicles, partly offset by higher food and beverage prices. Construction work prices rose 0.7% m/m and 3.0% y/y, while service producer prices in the business sector increased 1.4% m/m and 4.5% y/y, driven by strong gains in advertising, broadcasting and employment services. Across the EU, industrial producer prices fell 0.4% m/m and 0.4% y/y, with Czechia recording a 0.8% annual decline. Prague SE -0.264% to 2376.33, EURCZK +0.07% to 24.3, 10y CZGB +0.3bp to 4.366%.

Türkiye’s September house sales rose 6.9% y/y to 150,657 units, with Istanbul, Ankara and Izmir leading activity. Mortgage sales surged 34.4% to 21,266, accounting for 14.1% of total transactions, while first-time sales increased 5.0% to 47,117 and second-hand sales rose 7.8% to 103,540. In the January-September period, total sales climbed 19.2% y/y to 1.13 million, supported by a 76.0% jump in mortgaged transactions. Sales to foreigners fell 7.7% y/y to 1,867 in September and 12.6% in the first nine months, with Russian, Iranian and Iraqi nationals remaining the top buyers. BI 100 -0.339% to 10429.01, USDTRY +0.028% to 41.8535, 10y TGB +8bp to 32%.

Australia’s September unemployment rate rose to 4.5% from a revised 4.3% in August, marking the highest level since November 2021. The number of unemployed people increased by 34,000 to 684,000, while employment grew by 15,000. The participation rate edged up 0.1 percentage points to 67.0%, below the record 67.2% seen earlier this year, and the employment-to-population ratio remained steady at 64.0%. Full-time employment rose by 9,000, driven by 23,000 more full-time males and 15,000 fewer full-time females, while part-time employment increased by 6,000 as female part-time employment rose 19,000. Total hours worked climbed 0.5% m/m. ASX -0.223% to 5085.73, AUDUSD -0.108% to 0.6506, 10y ACGB -6.4bp to 4.152%.

Japan’s August machinery orders rose 7.3% m/m, marking a rebound from the prior month. However, private sector machinery orders excluding volatile items such as ships and electric power equipment fell 0.9% m/m, indicating underlying softness in capital investment. Manufacturing orders decreased 2.4% m/m, while non-manufacturing orders declined 1.1% m/m. Orders from government agencies surged 31.4% m/m, and overseas demand jumped 28.4% m/m, offsetting weakness in private domestic demand. The total value of machinery orders reached ¥3.18tn, up from ¥2.97tn in July, with strong gains in sectors including iron and steel, petroleum and coal products, and automobiles, while fabricated metal products and business-oriented machinery recorded declines. Nikkei +1.269% to 48277.74, USDJPY +0.146% to 151.27, 10y JGB +1.1bp to 1.665%.

Japan’s August tertiary industry activity index fell 0.4% m/m to 104.3, marking its first decline in two months, reported the Ministry of Economy, Trade and Industry. Broad-based personal services rose 0.6% while business-related services dipped 0.1%. Out of ten major sectors, five – including wholesale and transport – saw falls, while finance, insurance, healthcare and welfare improved. Wholesale fell 3.4% as manufacturing demand weakened, and transport dropped 1.9% amid a reduction in logistics. Finance and insurance rose 2.9% on higher securities trading, and medical and welfare services gained 0.4%. Leisure-related services climbed 0.5%, supported by restaurants and professional sports. The underlying assessment was maintained as “showing signs of recovery with some stagnation.”

South Korea’s Q2 financial circulation recorded a domestic net lending surplus of ₩41.5tn, up from ₩18.5tn in Q1, according to provisional Bank of Korea data. Households and non-profit institutions posted net lending of ₩51.3tn, narrowing from ₩92.9tn the previous quarter, as deposits and fund investments fell while borrowing rose. Non-financial corporations’ net borrowing decreased to ₩3.5tn, with higher equity issuance offset by weaker trade credit. The general government’s net borrowing dropped sharply to ₩2.7tn on reduced bond issuance. The external sector’s net borrowing expanded to ₩41.5tn as residents increased overseas asset holdings. Total domestic financial assets reached ₩12.929qn against liabilities of ₩7.952qn, yielding net financial assets of ₩4.977qn. KOSPI +2.491% to 3748.37, USD₩-0.32% to 1417.95, 10y KTB -0.2bp to 2.859%.