Key Highlights

• President Trump and Indian Prime Minister Narendra Modi talk in a bid to reduce tensions.
• China tells tech companies to stop buying Nvidia’s AI chips.
• Bank Indonesia makes surprise 25bp rate cut to 4.75%, defining policy as “all-out pro-growth while maintaining stability.”

Chart of the Day

Difficult to extend dollar selling as maximum easing reflected in flows

^{Source: BNY}

The Fed is fully expected to cut rates by 25bp today, meaning the markets’ focus will be on the dot plots and intentions for the remainder of the year. Data outcomes have shifted of late, and there are other aspects in play that could also feature in deliberations and the final decision. Judging by flows over the past two months, however, we question how much incremental “dovishness” can be factored into the Fed. We previously highlighted such a risk heading into last week’s ECB decision, when the ECB’s intention of keeping rates on hold had been well-flagged and Fed pricing was moving in the opposite direction. It is perhaps no coincidence that “maximum divergence” ahead of the ECB decision was already reflected in dollar flows, and the greenback has been net bought since then. The bottom line is that the only possible direction for USD rate differentials vs. the majors is in a more positive direction for the Fed, and there is significant ground to make up given the selling which took place through August. Meanwhile, we can see that cross-border investor selling strength has been more assertive than that of the aggregate, though there is generally no divergence in directional bias. The balance of risks remains one of cross-border investors taking off dollar hedges, while U.S. investors are also able to add to overseas protection and lock in more attractive valuations.

What's Changed?

Recalibration of risks is in play, as the markets await the decisions from the Bank of Canada, Federal Reserve and Banco Central do Brasil. Expectations of easing are intact in North America, leaving the overnight session stuck in rethinking what happens next. Overnight, Bank Indonesia sent out a clear message that it was prioritizing growth over FX value when it delivered a surprise rate cut. There will be new drivers on the roads to riches for investors ahead, but the balancing act between growth and inflation puts the bond markets at odds with the stock markets, leaving FX prices as the shock absorber. The economic data show a widening divide between the gains for big tech and productivity hopes ahead against the mercantile present. Japanese trade data showed a fourth month of weaker exports, but JPY continues to appreciate and the country’s 20y JGB sale proved easy, just like the U.S. sale yesterday. U.K. CPI was in line with expectations but still above the BoE’s target, making tomorrow’s decision there likely key for GBP. South African CPI slowed further into the target zone, adding to SARB rate easing expectations and leaving ZAR weaker. The ECB sees wage growth holding below 2%, and EUR has held onto its gains from yesterday. The theme of today for U.S. markets isn’t just about the dollar, but rather how investors thread their way between the growth narrative and temporary inflation risks from policy. Just how worried the Fed is about jobs over sticky prices will be essential to the next cut. Investors expect dissent and a less unified view, with the pace and extent of cuts very much in doubt. The bond markets have been reflecting something bigger than an insurance cut from the FOMC, and the way in which Chair Jerome Powell handles this point will drive other markets – like gold and stocks – where moderation in positioning has been the order of business. Gold is off its highs, stocks are barely bid, and bonds are seeing a bull flattening of the yield curve. The risk that the summer trend will extend for another leg lower in USD and higher in equities rests on how dramatically the Fed dot plot, Powell’s press conference and the Fed statement shift terminal rate expectations. 

What You Need to Know

President Trump and Indian Prime Minister Narendra Modi held a call on September 16 aimed at easing tensions over tariffs and India’s purchases of Russian oil. The conversation coincided with the resumption of bilateral trade negotiations, which both sides described as positive. Trump praised Modi’s leadership and thanked him for supporting his efforts toward a peaceful resolution of the Ukraine conflict, while Modi reaffirmed a commitment to strengthening the India-U.S. partnership. The dispute stems from Trump’s decision last month to raise tariffs on Indian exports to 50%, citing trade barriers and continued Russian energy imports. Despite U.S. pressure, India has defended its oil purchases as economically necessary, leaving resolution of the energy dispute uncertain. SENSEX +0.388% to 82700.72, USDINR -0.306% to 87.79, 10y INGB -1.2bp to 6.48%.

China’s Cyberspace Administration (CAC) has ordered major tech companies, including ByteDance and Alibaba, to stop buying Nvidia’s AI chips and cancel existing orders. This marks an escalation in efforts to strengthen production for domestic semiconductors. The directive covers the RTX Pro 6000D, launched in July as Nvidia’s final product allowed for large-scale sale in China, and goes beyond earlier restrictions on the H20 chip. Several firms had planned to purchase tens of thousands of units but halted testing after the order. Regulators recently summoned domestic chipmakers, including Huawei and Cambricon, to assess competitiveness, concluding that Chinese AI processors now match or exceed Nvidia’s export-compliant products. Authorities expect domestic supply to meet demand, reducing reliance on U.S. technology. NASDAQ Mini 0.05% to 24534.5, DXY +0.198% to 96.824, 10y UST -0.4bp to 4.024%.

Indonesia’s central bank cut its policy rate by 25bp to 4.75% in September, in a third consecutive reduction that takes YTD easing to a total of 125bp. Bank Indonesia described the move as “pro-growth and stability,” citing weak household consumption while maintaining inflation forecasts within the 1.5-3.5% range for 2025-26. The tone was dovish, with the bank noting USDIDR stability but softening its language compared with August. Authorities stressed efforts to boost credit and liquidity, including lowering bank lending rates, reducing SRBI holdings and buying government bonds. Lending growth was 7.56% y/y. Yields on 5y and 10y INDOGB fell to 5.52% and 6.31%, respectively, while equities and bonds are considered to be supported by easing and potential foreign inflows. JCI +0.375% to 7987.523, USDIDR -0.061% to 16430, 10y IDGB -3.9bp to 6.298%.

U.K. August CPI held steady at 3.8% y/y (consensus: 3.8% y/y), unchanged from July, and rose 0.3% m/m, matching the August 2024 pace. CPIH rose 4.1% y/y, easing from 4.2% in July, while m/m growth stood at 0.3% versus 0.4% a year earlier. Air fares made the largest downward contribution to the annual rates, partly offset by upward effects from restaurants, hotels and motor fuels. Core CPIH rose 4.0% y/y, slowing from 4.2%, with goods inflation edging up to 2.8% from 2.7%, while services eased to 4.9% from 5.2%. Core CPI moderated to 3.6% y/y from 3.8%, with goods inflation rising to 2.8% and services softening to 4.7% from 5.0%. RPI eased slightly to 4.6%y/y from 4.8%y/y in July. FTSE 100 +0.155% to 9209.92, GBPUSD -0.088% to 1.3635, 10y gilt -0.7bp to 4.632%.

The Canadian government will release its federal budget on November 4, later than the October date initially signaled. Finance Minister François-Philippe Champagne said the budget will represent a “generational investment,” while also committing to rigorous spending cuts. The Liberal government has directed departments to find “ambitious savings” and is targeting operational spending reductions of 7.5% by 2026-27, 10% by 2027-28 and 15% by 2028-29. Despite these measures, Carney confirmed the deficit will exceed last year’s $61.9bn, citing tariffs, NATO spending commitments and income tax cuts as key drivers. The minority government will require support from at least one opposition party to pass the budget, a mandatory confidence vote. TSX 60 Future -0.046% to 1733.1, USDCAD +0.161% to 1.3761, 10y CGB -1.7bp to 3.15%.

What We're Watching

Bank of Canada decision: 25bp cut to 2.5% expected.

U.S. August housing starts are seen slowing -4.4% to 1.365 million from 1.428 million, while building permits are expected to rise to 1.37 million from 1.362 million.

FOMC decision: 25bp rate cut to 4.25% expected, with summary of economic projections expected to point to four more cuts and stable growth.

U.S. Treasury sells $65bn in 17-week bills.

What iFlow is Showing Us

Mood: Normalization of sentiment continued, with further narrowing of iFlow Mood toward a flat position, led by a fast-paced reduction in demand for bonds versus steady buying of equities.

FX: Mixed and light flows across the iFlow universe, except for notable TRY and MYR outflows against HUF, NOK, CZK and HKD inflows. EUR and USD were lightly sold, against GBP and JPY inflows.

FI: Strong demand for Eurozone government bonds and U.K. gilts followed by Colombian and Chinese government bonds. Indonesian and Polish government bonds were sold, and there was a rise in the momentum of cross-border U.S. Treasury selling.

Equities: Asset allocation out of developed markets into emerging market equities. Swiss equities were significantly sold, followed by selling in U.S., Sweden, Denmark and Türkiye. Elsewhere, Brazil, South Africa and South Korea equities drew the most buying interest. 

Quotes of the Day

“The driver on the highway is safe not when he reads the signs, but when he obeys them.” – Aiden Wilson Tozer

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” – Ayn Rand

Economic Details

Euro area annual inflation was stable at 2.0% in August 2025, unchanged from July and down from 2.2% a year earlier. EU inflation also held steady at 2.4%, the same rate as in August 2024. The lowest national rates were in Cyprus (flat), France (0.8%) and Italy (1.6%), while the highest were in Romania (8.5%), Estonia (6.2%) and Croatia (4.6%). Compared with July, inflation decreased in nine member states, remained stable in four and increased in fourteen. Services contributed the most to euro area inflation in August (+1.44 percentage points), followed by food, alcohol and tobacco (+0.62 percentage points) and non-energy industrial goods (+0.18 percentage points), while energy had a negative impact (-0.19 percentage points). Euro Stoxx 50 +0.368% to 5392.06, EURUSD -0.211% to 1.1842, BBG AGG Euro Government High Grade EUR 0bp to 2.891%.

Euro area wage data from the ECB wage tracker, updated to end-August 2025, indicate negotiated wage growth easing and stabilizing into the first half of 2026. The tracker, which covers collective bargaining agreements, shows smoothed wage growth of 4.6% in 2024 and 3.2% in 2025, with the unsmoothed series at 4.8% and 2.9%, respectively. Excluding one-off payments, it indicates growth of 4.1% in 2024 and 3.8% in 2025. For the first half of 2026, the headline tracker signals growth of 1.7%, with the unsmoothed and ex-one-off measures at 2.4% and 2.5%, respectively, all down vs. the second half of 2025. Employee coverage for the first half of 2026 is currently down to 29.7% from 46.3% for the fourth quarter of 2025, but more agreements are expected to push this figure up as the year progresses.

Average U.K. private rents rose 5.7% y/y to £1,348 in August 2025, easing from 5.9% in July. England recorded a 5.8% increase to £1,403, with Wales up 7.8% to £811 and Scotland up 3.5% to £1,002, while Northern Ireland saw a 7.2% rise to £860 in June. Within England, rent inflation was highest in the North East at 9.2% and lowest in Yorkshire and The Humber at 3.4%. Average U.K. house prices rose 2.8% y/y to £270,000 in July 2025, slowing from 3.6% growth in June. Prices increased by 2.7% to £292,000 in England, by 2.0% to £209,000 in Wales and by 3.3% to £192,000 in Scotland. FTSE 100 +0.155% to 9209.92, GBPUSD -0.088% to 1.3635, 10y gilt -0.7bp to 4.632%.

Sweden’s August unemployment rate was 8.4% not seasonally adjusted, equal to 486,000 people; the seasonally adjusted, smoothed rate was 8.7% or 500,000 people. Long-term unemployment reached 204,000, up 42,000 from a year earlier, while youth unemployment was high at 19.8% (not seasonally adjusted) and 23.9% on a seasonally adjusted basis. Employment totaled 5,320,000, giving an employment rate of 69.7%, with 2,517,000 women and 2,803,000 men employed; seasonally adjusted employment was 5,266,000 or 69.0%. Employees numbered 4,805,000, of whom 4,117,000 were permanent and 688,000 temporary, with temporary employment increasing. Average weekly hours worked, not seasonally adjusted, were 130.6 million, while the seasonally adjusted figure was 154.1 million hours. Unused labor supply was 26.8 million hours/week, equivalent to 670,000 full-time jobs. OMX +0.261% to 2621.018, EURSEK +0.026% to 10.9557, 10y Swedish GB -0.8bp to 2.603%.

Sweden’s September survey of inflation expectations showed CPI rising 1.7% in one year, 1.9% in two years and 2.0% in five years, unchanged to slightly higher versus June. CPIF expectations stood at 2.1% across all horizons. GDP growth was projected at 1.8% in one year, 2.2% in two years and 2.1% in five years. Wage increases were forecast at 3.2% in one year, easing to 3.0% in two years and 2.8% in five years. The policy rate was forecast to reach 1.8% in three months, 1.8% in 12 months, 1.9% in 24 months and 2.1% in five years. Money market participants expected the 5y government bond rate to stand at 2.0% in three months and 2.5% five years from now, with EURSEK at 10.98 and USDSEK at 9.30 in three months’ time.

Poland’s September consumer tendency survey showed improved sentiment, with the current consumer confidence indicator rising 3.8 points to -8.3, 5.6 points higher than a year earlier. Gains were driven by stronger assessments of household finances (+6.3 points), the national economic situation (+5.9 points), the future economy (+4.0 points) and major purchases (+3.1 points), while expectations for future household finances edged down (-0.2 points). The leading consumer confidence indicator increased 2.0 points to -4.3, 5.4 points above September 2024, supported by more optimistic views on the future economy (+4.0 points), savings prospects (+3.1 points) and unemployment (+1.0 point). Meanwhile, 23.2% of respondents saw the Ukraine conflict as a major threat to Poland’s economy and 28.2% as a threat to national sovereignty. WIG -0.227% to 105709.9, EURPLN +0.08% to 4.2532, 10y PGB -0.5bp to 5.48%.

South Africa’s August consumer inflation eased to 3.3% y/y from 3.5% in July, as softer food and fuel costs moderated the headline rate. CPI fell 0.1% m/m, with declines in food and non-alcoholic beverages (-0.1%), furnishings (-0.1%), transport (-0.2%) and information and communication (-0.2%). Food and NAB inflation slowed to 5.2% from 5.7%, with rises for cereal products down to 1.5% from 2.1% and staples such as hot cereals (-7.8%) and white rice (-7.2%) cheaper. Beef product inflation remained elevated, with mince up 27.2% y/y, though monthly increases were the lowest since April. Dairy and egg prices fell 1.1%, the weakest since 2011. Fuel inflation stood at -5.7% y/y, with petrol down 1.3% m/m and diesel up 2.5%. JSE TOP40 -0.385% to 97124.44, USDZAR +0.321% to 17.3946, 10y SAGB -3.1bp to 9.212%.

Japan August exports were ¥8.425tn, falling for a fourth month at -0.1% y/y from -2.6% y/y in July. August imports came in at ¥8.668tn, or -5.2% y/y from -7.5% y/y, leaving a wider trade deficit of ¥-242.5bn from ¥-117.5bn. Looking into the breakdown, exports to the U.S. fell further (-13.8% y/y), while exports to the EU and Asia rose by 5.5% y/y and 1.7%, respectively. Exports to China improved to -0.5% y/y, from a low of -11% y/y in May 2025. Semiconductor exports grew at their fastest pace at 5.7% y/y, while exports of transport equipment fell -5.9% y/y in August. Nikkei -0.249% to 44790.38, USDJPY +0.117% to 146.65, 10y JGB -0.2bp to 1.599%.

Australia’s Westpac-Melbourne Institute Leading Index growth rate fell to -0.16% in August from +0.11% in July, in its first below-trend reading since September 2024. The six-month annualized measure has slowed from a February peak of 0.86%, with nearly all eight components weakening. The main drags came from consumer unemployment expectations (-0.34 percentage points), commodity prices (-0.25 percentage points), consumer expectations (-0.22 percentage points) and dwelling approvals (-0.19 percentage points), alongside smaller negative contributions from the yield spread, U.S. industrial production and total hours worked. The only positive influence was a 10% rise in the ASX 200 (+0.16 percentage points). Westpac forecasts GDP growth of 1.9% in 2025, below trend, before returning to trend in 2026. ASX +0.181% to 4982.32, AUDUSD -0.27% to 0.6667, 10y ACGB +0.2bp to 4.221%.

New Zealand Q3 Westpac consumer confidence index eased to 90.9 points from 91.2. Confidence remained subdued despite the RBNZ’s recent OCR cut and indications that some further reduction will follow later this year. The lingering softness in consumer confidence despite falling interest costs highlights that factors such as softness in the jobs market, increases in living costs and soft house prices remain big concerns for many households. Those concerns are also weighing on spending appetites. NZX 50 -0.049% to 13228.38, NZDUSD -0.318% to 0.5968, 10y NZGB -0.7bp to 4.267%.

New Zealand’s seasonally adjusted current account deficit narrowed by $702mn to $3.4bn in the June 2025 quarter. This is the smallest deficit since $3.1bn in the June 2021 quarter. The smaller current account deficit was due to a $1.0bn narrowing of the primary income deficit. This was mainly attributable to New Zealand investors earning more from their investments abroad. The services balance widened by $124mn in the June 2025 quarter, while the goods balance was similar to the March 2025 quarter deficit. New Zealand’s annual current account deficit was $16.0bn (3.7% of GDP) in the year ended 30 June 2025. This compares with a $18.3bn deficit in the year ended 31 March 2025 (4.2% of GDP).

Singapore’s non-oil domestic exports (NODX) shrank by 11.3% y/y in August after falling 4.7% in July. Electronics exports were down 6.5% from a high base, and non-electronics exports fell 13.0%, led by specialized machinery (-29.1%), food preparations (-51.4%) and petrochemicals (-23.2%). By destination, NODX declined sharply to the U.S. (-28.8%), China (-21.5%) and Indonesia (-39.6%), though shipments to the EU (+28.9%), South Korea (+24.8%) and Taiwan (+9.1%) rose. Non-oil re-exports (NORX) grew 12.3% y/y, following July’s 22.0% expansion, with electronics up 21.8% and non-electronics rising 1.4%. Total trade increased 3.0% y/y, easing from 8.2% in July, as exports grew 2.0% and imports rose 4.1%. Non-oil trade gained 6.4%, while oil trade fell 12.9%. STI -0.346% to 4322.74, USDSGD +0.11% to 1.2775, 10y SGB -1.9bp to 1.767%.

In his annual policy address, Hong Kong Chief Executive John Lee highlighted several priorities for financial markets. The first was to continuously strengthen the stock market by exploring shortening the stock settlement cycle to T+1, supporting China Concept Stock companies to return and choose Hong Kong as their preferred destination, etc. The second priority was to establish a central clearing system for gold in Hong Kong and encourage more institutions to expand the gold storage facilities in Hong Kong. Lee also called for Hong Kong to introduce a new Renminbi (RMB) Business Facility to support the use of RMB in the real economy. Other plans include formulating legislative proposals regarding the licensing regimes for digital asset dealing and custodian service providers, deepening co-operation with carbon markets in the Guangdong-Hong Kong-Macao Greater Bay Area to test out cross-boundary trade settlement, and lowering the transaction price threshold for residential property investment under the New Capital Investment Entrant Scheme from $50mn to $30mn. Hang Seng +1.825% to 26920.89, USDHKD -0.034% to 7.7781, 10y HKGB -1.2bp to 1.417%.