Key Highlights

• Swiss National Bank keeps rates unchanged at 0%, with no material change to its inflation outlook.
• South Korean PM says carrying out investment projects in the U.S. will be “virtually impossible” before the visa issue for South Korean workers is resolved.
• G7 nations consider price floors for rare earths to counter Chinese dominance as supply disruptions hamper industrial recovery.

Chart of the Day

MXN performance lackluster ahead of Banxico decision

^{Source: BNY}

Banxico is expected to continue its easing cycle later today and bring down rates by another 25bp to 7.50%. The nominal rate gap vs. the U.S. is relatively comfortable, but given the direction of travel for the remainder of the year, we are not surprised that current cross-border carry interest in the peso is extremely light. Selling remains the norm, but flow magnitudes have been extremely light over the past two weeks. There has also been no net movement whatsoever linked to the Fed/IMM date, and, barring a round of strong sales in mid-August, the market doesn’t appear keen on having a strong view. The currency is sufficiently high-yielding to hold onto, but the combination of trade, fiscal and monetary policy paths cannot put it on par with the likes of Brazil or many currencies in CEE either. Furthermore, the Mexican economy experiences far stronger pass-through from conditions in the U.S., in both directions, and the risks are currently asymmetric. If inflation in the U.S. surprises to the upside as Fed Chair Jerome Powell has been warning, then USDMXN can embark on a recovery; conversely, if the U.S. economy faces greater headwinds ahead, both external demand and remittance flows will damage the balance of payments. Consequently, the status quo seems appropriate and it would take a major policy surprise today to change proceedings.

What's Changed?

Markets are in a holding pattern as we look toward month-end, more economic data and more forward guidance from central bankers. The relative calm obscures the risks of trouble ahead, as the last two days of moderation in stocks and the dollar suggest a gear shift is needed to climb to new highs. Gearing in risk falls back to future interest rate expectations, and that leaves monetary policy worries at the center of the stalled risk rally this week. Three themes dominate today. The first of these is the risk of a U.S. government shutdown and what that would mean to markets. Power passes to the president when Congress can’t fund the government, and further federal worker layoffs could follow. The risk of not seeing economic data such as the October 3 jobs report will feed into how markets trade. Second, hopes of faster rate cuts from the FOMC remain in play; these are linked to economic data, and the host of U.S. releases from the goods trade deficit to weekly jobless claims will all matter. San Francisco Fed’s Mary Daly made her dots clear and pushed for more cautious easing, helping U.S. shares and slowing the USD bounce overnight. Conversely, the SNB held rates and raised the bar for negative ones, while the BoJ minutes clearly point to a 25bp rate hike in October. Third, the defensive rotation in equity sectors is showing up in commodities, which have been bid up, led by oil and copper, with the Indonesia Freeport mine accident hitting supply. The question of whether this will continue links back to geopolitics. The G7 is considering price floors for rare earths to counter Chinese dominance. The ongoing supply issues are hampering the uneven recovery in industrials in the U.S. and EU, with talk of a new carbon tax on China. Putting these points together, investors are ready to climb the wall of worry today, after downshifting following Monday’s record equity highs. Whether this can be sustained will depend on the bumpy economic data showing a smooth slowing rather than something worse for the U.S. economy. For bonds, the supply watch continues, with a $44bn 7y note auction and likely more IG issuance. The measure of success will be in the tape and the trend, watching favorite trades in tech, gold and curve steepening. USD may act as the engine oil, with the way in which it stalled out after the breakout yesterday key for a reversal in mood. 

What You Need to Know

The Swiss National Bank kept its policy rate at 0% and expects inflation to remain within its stability range over the forecast horizon, projecting average annual rates of 0.2% in 2025, 0.5% in 2026 and 0.7% in 2027. In its baseline scenario, the SNB anticipates subdued global growth in the coming quarters, with U.S. inflation likely to stay elevated and euro area inflation close to target. For Switzerland, GDP growth is expected at 1-1.5% in 2025, easing to just under 1% in 2026 as higher U.S. tariffs weigh on exports and investment. Unemployment is projected to continue rising, while risks remain skewed to the downside due to trade policy and global economic uncertainty. SNB President Martin Schlegel affirmed that the bar to go negative on rates “is higher” than for a normal rate cut. SMI -0.343% to 11937.79, EURCHF +0.133% to 0.93464, 10y Swiss GB -1.6bp to 0.208%.

U.S. and Chinese officials will hold staff-level technical talks at the U.S. Treasury on Thursday, focusing on trade details previously discussed in earlier rounds, a source said. The meeting will not address last week’s agreement to place TikTok’s U.S. operations under U.S.-controlled ownership, nor the upcoming high-level negotiations between Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng before the tariff-reducing truce expires on November 10. While previous talks in Madrid, Stockholm, London and Geneva have established frameworks, little progress has been made on major disputes, including China’s calls for U.S. tariff cuts, U.S. complaints over falling Chinese purchases of farm goods, and concerns about China’s state-driven excess manufacturing capacity flooding global markets. CSI 300 +0.6% to 4593.49, USDCNY -0.1% to 7.1248, 10y CGB -0.9bp to 1.896%.

South Korean Prime Minister Kim Min-seok has warned that carrying out investment projects in the U.S. will be “virtually impossible” until visa issues for South Korean workers are resolved. This follows the detention of hundreds of workers at a Georgia battery plant. The dispute threatens Seoul’s plans to invest an additional $350bn in the U.S., pledged in exchange for Washington’s reduction of tariffs on South Korea from 25% to 15%. Kim stressed that while projects have not been formally halted, worker entry and reentry remain highly constrained. He also reiterated President Lee Jae Myung’s concerns that the investment pledge could harm the economy without a U.S. currency swap deal and noted the possibility of a Trump-Kim meeting at the upcoming APEC summit in Gyeongju. KOSPI -0.03% to 3471.11, USDKRW -0.182% to 1401.75, 10y KTB +3.7bp to 2.847%.

Thailand’s Finance Minister Ekniti Nitithanprapas said the government will consider new economic stimulus measures in October, after Fitch revised the country’s outlook to “negative” from “stable” citing political uncertainties and risks to public finances. He stressed the importance of fiscal discipline while aiming for a long-term GDP growth rate of 3%. Prime Minister Anutin Charnvirakul pledged to restore confidence in the economy and emphasized policies to secure both rapid recovery and sustainable growth. SET +0.76% to 1288.13, USDTHB +0.488% to 32.158, 10y TGN +2bp to 1.347%.

What We're Watching

Banxico is expected to cut its overnight rate by 25bp to 7.50%. In August, the board also emphasized that policy would remain focused on consolidating disinflation and anchoring expectations, with the inflation risk balance still tilted to the upside.

U.S. August advance goods trade balance: deficit is forecast to shrink to $-95.4bn vs. $-102.8bn in July.

U.S. August preliminary wholesale and retail inventories are expected to come in at 0.1% m/m and 0.2% m/m, respectively, vs. 0.1% m/m and 0.2% m/m in July.

U.S. Q2 final GDP is expected at 3.3% y/y (unrevised), while core PCE prices are expected at 2.5% y/y (also unrevised).

U.S. August durable goods orders are forecast at -0.3% m/m and the ex-transportation measure at 0% m/m, from -2.8% m/m and 1.0% m/m, respectively.

U.S. weekly jobless claims are expected at 233k vs. 231k the week prior.

U.S. August existing homes sales are forecast to ease -1.5% m/m to 3.95 million from 4.01 million in July.

Central bank speakers: The Fed’s Austan Goolsbee will speak in a moderated discussion at Crain’s Power Breakfast about the Fed and the economy. The Fed’s John Williams will give welcoming remarks at the Fourth International Roles of the U.S. Dollar Conference. The Fed’s Jeff Schmid will speak about monetary policy and the economic and banking outlook at the Mid-Sized Bank Coalition of America in Dallas. The Fed’s Michelle Bowman is participating in a moderated discussion at Georgetown University. The Fed’s Michael Barr will speak about bank stress testing and potential reforms at the Peterson Institute for International Economics. The Fed’s Lorie Logan will speak at a panel organized by the Richmond Fed.

U.S. Treasury sells $85bn in 8-week bills, $100bn in 4-week bills and $44bn in 7y notes.

What iFlow is Showing Us

Mood: iFlow Mood shifted higher into positive territory, with core sovereign bond demand flattening while buying of equities was steady but moderate.

FX: Broad outflow pressure in the G10, against mixed flows in LatAm and EMEA and better buying in the APAC region. SEK and PHP were most sold, while CLP, INR, KRW, MYR and TWD posted significant inflows, followed by COP and CZK.

FI: Strong buying flows in Eurozone, Colombian and Hungarian government bonds and U.K. gilts. South Korean and New Zealand government bonds were moderately sold.

Equities: DM AMER was the only region with outflows, against buying elsewhere, above all in EM EMEA, followed by DM APAC. Mexican, Norwegian, Canadian and Czech equities were most sold. Within DM AMER, the communication services sector was most sold, followed by the energy, consumer discretionary and health care sectors. 

Quotes of the Day

“Life can only be understood backwards; but it must be lived forwards.” – Soren Kierkegaard

“Nobody is born with a steering wheel or a gear shift in his hand. It’s something you choose to do or you don’t.” – Mario Andretti

Economic Details

The latest ECB Bulletin showed euro area broad money (M3) growth slowing to 2.9% y/y in August from 3.3% in July, while M1 growth held steady at 5.0%. Short-term deposits contracted by 1.4% y/y and marketable instruments growth fell to 2.6%. Household deposits grew 3.4% y/y and non-financial corporate deposits rose 2.8%. Total claims on euro area residents increased 1.9% y/y, down from 2.1%, with government claims up just 0.1%. Adjusted loans to the private sector grew 2.8% y/y, unchanged from July, with household loans rising 2.5% and loans to non-financial corporations accelerating to 3.0% from 2.8%. Net external assets contributed 1.6 percentage points to M3 growth, while claims on the private sector added 2.5 percentage points. Euro Stoxx 50 -0.198% to 5453.76, EURUSD -0.017% to 1.1736, BBG AGG Euro Government High Grade EUR +1.1bp to 2.927%.

Germany’s consumer climate index improved slightly to -22.3 points in October from -23.5 in September, though it remained in negative territory. The rise was driven mainly by income expectations, which jumped to 15.1 points from 4.1 in August, their highest since late 2022. However, willingness to buy fell further to -11.6 points, its weakest level since June 2024, and economic expectations dropped for a third consecutive month to -1.4 points from 2.7. Willingness to save increased to 16.1 points from 15.8. The survey, conducted from September 4-8, highlighted that geopolitical tensions, job concerns and inflation fears continue to weigh on household sentiment despite the improvement in the income outlook. DAX -0.277% to 23601.24, EURUSD -0.017% to 1.1736, 10y Bund -1.1bp to 2.737%.

Germany’s economy is forecast to grow just 0.2% in 2025 before strengthening to 1.7% in 2026 and 1.8% in 2027, driven largely by expansive fiscal policy, including infrastructure and climate investment, higher defense spending and tax incentives. Consumer price inflation is projected at 2.1% in 2025, easing to 2.0% in 2026 before edging up to 2.2% in 2027. The output gap is expected to close by late 2026, with capacity pressures emerging in 2027. Risks remain elevated, with U.S. tariff policy, global trade uncertainty and unresolved EU-U.S. trade details weighing on the outlook. Structural challenges, including high production costs, weak competitiveness and demographic headwinds, are expected to persist despite fiscal stimulus.

Sweden’s Producer Price Index (PPI) fell 0.7% y/y in August after a 0.6% decline in July, though prices rose 0.5% m/m. Domestic market prices increased 1.1% m/m and 3.8% y/y, while export market prices dropped 0.2% m/m and 5.0% y/y and import market prices fell 0.3% m/m and 5.1% y/y. Energy-related products rose 10.9% y/y, driving the sharpest annual increase for electricity trade services since December 2022, at 82.7%. Excluding energy, PPI decreased 2.2% y/y. Consumer goods prices rose 0.6% y/y, while capital goods fell 2.2% y/y. The Price Index for Domestic Supply declined 1.2% y/y, with consumer goods up 1.6% y/y but energy-related products down 0.6% y/y. OMX -0.381% to 2635.276, EURSEK -0.046% to 11.029, 10y Swedish GB 0bp to 2.735%.

Sweden’s household deposits with monetary financial institutions (MFIs) rose to SEK 2.869tn in August from SEK 2.856tn in July. Lending to households grew by 2.7% y/y, with housing loans stable at 2.4% and consumer loans accelerating to 4.8% from 4.6%. Loans to households totaled SEK 5.085tn, of which SEK 4.203tn was in the form of housing loans, with 72% on floating rates. Lending to non-financial corporations grew 2.8% y/y to SEK 3.017tn. Overall MFI lending reached SEK 8.103tn. M3 money supply grew 4.7% y/y to SEK 5.021tn. The average new housing loan rate was 2.84%, while corporate loan rates averaged 3.75%. Household deposit rates fell to 0.61%, down sharply from 1.94% a year earlier.

Hungary’s unemployment rate was 4.4% in August, unchanged from a year earlier, with 215,000 people out of work. The number of employed people aged 15-74 averaged 4.676 million, down 36,000 from a year earlier, comprising 2.479 million men and 2.200 million women. In the June-August period, 4.503 million worked in the domestic primary labor market, 50,000 fewer than a year earlier, while 72,000 were in public work and 105,000 were employed abroad. The employment rate for 15-64-year-olds was stable at 75.4%. The number of unemployed people averaged 217,000, split between 115,000 men and 102,000 women, both with a 4.4% rate. The average job search duration was 11.1 months, with 29.6% unemployed for a year or more. Budapest SI +0.234% to 98606.41, EURHUF -0.08% to 391.02, 10y HGB +2bp to 6.79%.

Hungary’s September inflation report forecasts inflation at 4.6% in 2025, easing to 3.8% in 2026 and reaching the 3.0% target in 2027. Core inflation is projected at 4.4% in 2025, falling to 2.9% by 2027. GDP growth is expected to come in at 0.6% in 2025 before strengthening to 2.8% in 2026 and 3.2% in 2027, supported by rising household consumption, stronger exports and new investment capacity. Household lending is set to expand significantly under the Home Start program, while corporate lending growth remains subdued at around 2% annually. The current account surplus is projected at 1.3% of GDP in 2025, rising to 1.6% in 2027, while the fiscal deficit is expected to fall from 4.1-4.5% of GDP in 2025 to 3.2-3.7% in 2027.

Hungary’s Q2 2025 net lending, the combined balance of current and capital accounts, totaled €1.826bn (seasonally adjusted), equal to 3.4% of quarterly GDP. The current account balance was €1.448bn, while the capital account balance stood at €353mn. Net foreign debt excluding FDI debt instruments totaled €30.847bn (14.8% of GDP), rising €247mn from the previous quarter. International reserves reached €47.014bn, an increase of €1.425bn. Exports were €29.491bn and imports €29.740bn, leaving a €93mn surplus in goods. Services posted strong surpluses, with travel at €1.01bn and non-travel services at €1.761bn.

Japan’s August Services Producer Price Index (SPPI) rose 2.7% y/y following July’s 2.6% gain, while the index excluding international transportation increased 2.8% y/y, from 2.8%. On a m/m basis, both measures rose 0.2%. Among major components, information and communications services rose by 2.7% y/y, real estate services by 2.3% y/y, transportation and postal activities by 3.3% y/y and other services by 3.0% y/y. Hotels recorded the strongest increase at 7.6% y/y, while television and radio advertising rose 9.8% y/y. By contrast, ocean freight transportation fell by 1.1% y/y, international air freight by 9.5% y/y, and internet advertising by 2.1% y/y. The overall SPPI index stood at 111.2 against a 2020 base of 100. Nikkei +0.273% to 45754.93, USDJPY -0.081% to 148.78, 10y JGB +0.4bp to 1.65%.

Japan’s nationwide department store sales rose 2.6% y/y in August, in the first increase in seven months, supported by favorable weather during holidays and strong demand for summer goods. Sales in the ten major cities advanced 2.9% y/y, while sales in regional areas outside those cities increased by 1.4% y/y, the first gain in 11 months. By category, clothing rose 2.0% y/y with women’s apparel up 3.0% y/y and children’s apparel up 4.3% y/y, while men’s apparel declined 2.0% y/y. Household goods rose 0.9% y/y, with furniture down 14.5% y/y but consumer electronics up 11.4% y/y. Food sales grew 2.7% y/y, led by confectionery, which was up 5.1% y/y. Inbound duty-free sales fell 4.7% y/y, marking a sixth consecutive decline.

Australia August job vacancies dropped -2.7% q/q, from +2.8% q/q. Private sector job vacancies drove this quarter’s change, falling by 3.4%. Public sector vacancies went up by 2.2%, in the fourth increase in a row. There were 5,000 fewer job vacancies, a drop of 1.5% y/y, over the year to August 2025. This is a much smaller decrease than at the same time last year, when there was a drop of 67,300 vacancies, or 16.9%. The number of unemployed people per job vacancy rose from 1.9 to 2.0 between May 2025 and August 2025. This is the highest level since February 2021. ASX -0.062% to 5002.46, AUDUSD +0.198% to 0.6596, 10y ACGB +5.9bp to 4.347%.

Hong Kong’s total exports rose 14.5% y/y in August to $436.6bn, while imports increased 11.5% y/y to $462.0bn, leaving a trade deficit of $25.4bn, equivalent to 5.5% of imports. For January-August, both exports and imports grew 13.0% y/y, with a cumulative deficit of $243.3bn or 6.8% of imports. On a seasonally adjusted three-month basis, exports fell by 2.9% and imports by 2.0%. By market, August exports surged to Malaysia (+73.6%), Vietnam (+54.3%), Taiwan (+33.7%) and the U.S. (+17.3%). Imports rose from Vietnam (+80.8%), Malaysia (+14.6%) and the mainland (+12.4%) but fell from South Korea (-11.5%). Exports of electrical machinery rose by 15.7% y/y and those of telecommunications equipment by 23.9% y/y. Hang Seng -0.128% to 26484.68, USDHKD -0.017% to 7.7774, 10y HKGB -1.2bp to 1.417%.