Key Highlights

• The U.S. will impose a 100% tariff on “branded, patented pharmaceutical products” entering the country from October 1, excluding companies building plants locally.
• President Trump signs order approving ByteDance’s divestment of TikTok, citing compliance with 2024 legislation and President Xi’s approval.
• Steel and zinc futures lower, reversing from 6-month highs on EU tariff plans for Chinese steel and related products.

Chart of the Day

Month-end rebalancing points to risks for CAD, JPY and ZAR

^{Source: BNY}

Overall, the result for equity-based rebalancing points to pressure on ZAR, JPY, CAD and BRL (marginally). These are the top four performers in equities, while ZAR and JPY have also found good interest in FX. As we anticipated, INR flows have been offset by weaker equity performance, whereas higher levels of MXN hedging have also played a role in limiting potential rebalancing needs. This indicates that high nominal yields need not be a barrier to additional hedging flow, even in equities. JPY hedging risks also align with our view that investors may need to reduce exposures ahead of the upcoming LDP leadership election, which may have material consequences for what we see as a relatively overheld (or underhedged) market position in JPY. Meanwhile, ZAR continues to defy severe rebalancing pressures and is being comprehensively bought; it ranks in the top three for all asset classes. Given that we have been calling for a ZAR correction for several months now due to rebalancing, without avail, it is best to reserve judgment despite the signal remaining strong. CAD also faces strong selling pressure due to asset performance at a time when FX flows were flat. Similarly, FI-based rebalancing pressure is very strong. CAD will also face selling pressure based on asset returns. Like equities, we have not identified any currencies with strong inflow pressure though SEK is borderline – the currency was strongly sold in September and, surprisingly, the bond market did not perform despite the Riksbank’s cut. The case for adding to a low-yielder in the current environment is weak, but SEK does stand out and the Riksbank continues to deem the currency undervalued.

What's Changed?

The new round of U.S. tariffs has hit Asian shares, but EMEA has shrugged them off, even though the region has more to lose from such levies. Some argue this was all expected and markets remain sanguine about growth potential in Europe over Asia. Better Spanish Q2 GDP, which was revised up to 3.1%, supports this narrative. Others point to the hope that EU and other national deals will exempt them from new sector tariffs. Clarity on Trump’s post on Truth Social will be key heading into the weekend. The three days of equity selling in the U.S. are expected to pivot on the U.S. personal spending and core PCE data. The surprise Q2 GDP revision to 3.8% came mostly from greater domestic demand, which makes today’s August release more critical for Q3 forecasts. The “good news is bad” thinking shows up in the reduced rate cuts that are priced in between now and December, now at 39bp; two weeks ago 50bp+ was priced in, before comments from Fedspeakers and better U.S. economic data. The rest of the world looks more vulnerable to tariff slowdowns than previously hoped, and that is the other side of today’s data and reactions, with Tokyo CPI lower and EU inflation expectations higher. The looming worry beyond the data today is what happens next week, with the risk of a U.S. government shutdown and what that means for future economic data releases. The mood of the moment is encapsulated by the investors’ ability to break down risks into specific regions and sectors. There is less fear of global contagion and fewer big-tented expectations of just the U.S. show ahead. After a long week of conversations about the end of Q3 and where to put risk going forward, one investor quipped “it’s not my circus and not my monkeys,” on the subject of any risk outside of their book. The resilience of markets ahead may hinge on home bias and regional coordination, as investors look for alternatives to chasing the key trades of Q3, namely long AI investments, short USD and steeper yield curves. 

What You Need to Know

The US will impose a 100% tariff on all branded or patented pharmaceutical products from October 1 unless drugmakers have begun building manufacturing plants domestically. President Trump said projects already under construction will be exempt. The measure, announced after a Section 232 national security investigation, targets imports that nearly tripled to $213bn in 2024. Pharmaceutical companies have warned the tariffs could raise costs, deter investment and disrupt supply chains, potentially worsening drug shortages. Trump previously floated raising tariffs on pharmaceuticals to 250%. The move follows new investigations into imports of robotics, machinery and medical devices, broadening potential tariff coverage. S&P Mini +0.026% to 6661.5, DXY -0.178% to 98.378, 10y UST -0.2bp to 4.168%.

EU ambassadors will discuss a plan to provide Ukraine with €140bn in loans backed by frozen Russian central bank assets held at Euroclear. Under the proposal, the EU would enter into a 0% interest “tailored debt contract” with Euroclear, ensuring the clearing house can cover any future Russian claims, while member states would guarantee the operation. Kyiv would only repay the loans if sanctions on Russia are lifted or Moscow agrees to fund reconstruction, meaning the support would not add to Ukraine’s debt or constitute asset seizure. The EU aims to finalize the arrangement by year-end and begin disbursing funds in 2026. Euro Stoxx 50 +0.408% to 5467.08, EURUSD +0.146% to 1.1683, BBG AGG Euro Government High Grade EUR +1.1bp to 2.927%.

China will require export licenses for pure electric passenger vehicles from January 1, 2026. The move, announced by China’s Ministry of Commerce and three other government agencies, seeks to prevent “unhealthy” competition in EV exports. The measure applies to passenger vehicles equipped only with electric drive motors and vehicle identification numbers (customs code 8703801090). Enterprise qualification requirements, management methods, application procedures and license issuance will follow the provisions of the 2012 notice on regulating automobile and motorcycle exports. Customs inspections of exported pure electric vehicles will be carried out in line with the current mandatory catalog for import and export commodity inspection. CSI 300 -0.946% to 4550.05, USDCNY +0.005% to 7.1342, 10y CGB -0.6bp to 1.887%.

Taiwan’s Minimum Wage Review Committee has decided to raise the monthly minimum wage by 3.18% from $28,590 to $29,500 and the hourly rate from $190 to $196, effective January 1, 2026. If approved by the Executive Yuan, this will mark the tenth consecutive annual hike, with the monthly wage up 47.4% from $20,008 in 2016 and the hourly rate up 63.3% from $120. The Ministry of Labor estimates around 2.47 million workers, including 2.08 million local employees, will benefit. The ministry stressed this adjustment reflects CPI growth of 1.76% and continues to safeguard workers’ livelihoods while supporting industries affected by exchange rates and U.S. tariffs. TAIEX -1.704% to 25580.32, USDTWD +0.316% to 30.53, 10y TGB -2.4bp to 1.33%.

What We're Watching

U.S. August personal income forecast up 0.3% m/m after 0.4% m/m, while spending is expected up 0.5% m/m, matching July.

U.S. August core PCE forecast up 0.3% m/m, 2.9% y/y, unchanged from July.

U.S. September final University of Michigan consumer sentiment expected unchanged at 55.4 index points. 1y and 5y inflation expectation are expected at 4.8% and 3.9% y/y, which is unchanged.

Central bank speakers: The Fed’s Tom Barkin speaks about the U.S. economic outlook. The Fed’s Michelle Bowman speaks on monetary policy decision-making at the Cornell Club of New York.

What iFlow is Showing Us

Mood: iFlow Mood has stepped further into positive territory. Core sovereign bonds were net sold for the first time since February 2025, while equity markets saw steady demand. iFlow Mood is at 0.035.

FX: Within the G10, USD, DKK and JPY posted light inflows, against outflows in the rest, led by SEK and AUD. Elsewhere, LatAm, EMEA and APAC currencies were better bid, led by MYR, INR, KRW, HUF, CZK and CLP.

FI: Demand for Eurozone, Colombian and Hungarian government bonds and U.K. gilts remained strong. South Korean and New Zealand government bonds were most sold. U.S. Treasurys were lightly bought, while the cross-border selling trend continued.

Equities: Emerging market equities were sold for the first time since August 2025, led by EM APAC. Developed market selling continued, dominated by DM AMER outflows. Norway, Mexico, Philippines and Canada equities posted the most outflows within the iFlow universe. Within EM APAC, the communication services sector was most sold, against buying in the industrials and materials sectors.

Quotes of the Day

“Time is a circus, always packing up and moving away.” – Ben Hecht

“Clowns are the pegs on which the circus is hung.” – P.T. Barnum

Economic Details

The ECB Consumer Expectations Survey for the euro area showed median perceived inflation over the past 12 months stable at 3.1% in August. Expectations for the next 12 months rose to 2.8% from 2.6% and were steady at 2.5% looking three years ahead, while five-year expectations edged up to 2.2%, the highest figure since August 2022. Nominal income growth expectations increased to 1.1% from 0.9%, while spending growth expectations stayed at 3.3%. Economic growth expectations remained at -1.2%, but the expected unemployment rate rose slightly to 10.7% from 10.6%. Home price expectations rose to 3.4% from 3.3%, mortgage rate expectations were unchanged at 4.5%, and respondents reported tighter access to credit both in the past and expected over the next year. Euro Stoxx 50 +0.408% to 5467.08, EURUSD +0.146% to 1.1683, BBG AGG Euro Government High Grade EUR +1.1bp to 2.927%.

Spain’s Q2 GDP grew 0.8% q/q, 0.2 percentage points higher than in Q1, while y/y growth eased slightly to 3.1% from 3.2%. Domestic demand contributed 3.5 percentage points to annual growth, while external demand subtracted 0.5 percentage points. Household consumption rose by 0.8% q/q, public spending by 0.1% and investment by 1.8%, with exports up 1.3% and imports up 1.6%. By sector, construction rose 2.3% q/q, services 1.0% and industry 0.9%, while primary activities shrank by 6.4%. In current prices, GDP increased by 5.6% y/y, with the GDP deflator up 2.4%. Employment rose 3.5% y/y in full-time equivalent terms, and hours worked were 1.3% higher. Compensation of employees grew 7.1% y/y. IBEX 35 +0.681% to 15259, EURUSD +0.146% to 1.1683, 10y Bono -1.4bp to 3.323%.

Italy’s September consumer confidence index rose to 96.8 from 96.2, with improvements in assessments of the economic climate (97.0 to 98.8), current conditions (99.2 to 99.9) and the future outlook (92.2 to 92.6), while the personal climate was stable at 96.0. The composite business confidence index edged up to 93.7 from 93.6, supported by gains in construction (101.3 to 101.5) and market services (95.1 to 95.6), while manufacturing was unchanged at 87.3 and retail trade fell to 101.6 from 102.7. Within sectors, industry saw better order assessments but weaker production expectations, services reported stronger order expectations but weaker current conditions, and retail suffered poorer sales judgments alongside rising inventories. FTSEMIB +0.227% to 42338.4, EURUSD +0.146% to 1.1683, 10y BTP -1.5bp to 3.592%.

Sweden’s August trade balance recorded a deficit of SEK 8.9bn, compared with a surplus of SEK 6.3bn a year earlier. Exports of goods totaled SEK 144.0bn, down 5% from SEK 151.7bn in August 2024, while imports reached SEK 152.9bn, a 3% decline from SEK 158.0bn. Trade with non-EU countries produced a surplus of SEK 11.3bn, whereas trade with EU partners showed a deficit of SEK 20.2bn. The shift reflects weaker overall trade flows, with one fewer working day in August 2025 compared with the same month last year. OMX +0.326% to 2632.068, EURSEK +0.141% to 11.0533, 10y Swedish GB -2bp to 2.742%.

Sweden’s July trade in goods weakened vs. June, with exports down 13% m/m and 2% y/y in current prices, while imports fell 9% m/m and were flat y/y. Exports of iron ore and concentrates dropped 45% y/y in value and 38% in volume terms, while petroleum product exports fell 22% y/y by value and 6% by volume but rose 11% m/m by value. Machinery and transport equipment exports rose 2% y/y but declined 23% m/m, with passenger car exports down 18% y/y and 38% m/m. Imports of mineral fuels and electric current plunged 29% y/y, while food, beverages and tobacco imports increased 11% y/y and 5% m/m.

Tokyo September inflation dropped more than expected. Both the headline and core-ex fresh food and energy rates eased to 2.5%, compared with 2.6% y/y and 3.0% y/y in August, respectively. On the month, core ex fresh food and energy declined by -0.5% m/m, the most since April 2021 (-0.8% m/m), while the headline rate was down -0.4% m/m. Looking into the breakdown, food inflation fell furthest most, down 0.6 percentage points to 6.1%, with rice inflation easing to 46.8% y/y (Aug: 67.9% y/y), while the fuel, light and water component rebounded to -2% y/y from -8.8% in August. Nikkei -0.874% to 45354.99, USDJPY -0.041% to 149.74, 10y JGB +0.4bp to 1.654%.

New Zealand’s NZ-Roy Morgan Consumer Confidence index rose from 92.0 to 94.6 in September, unwinding the fall seen last month. The current conditions index climbed six points to 88.1, while the future conditions index was broadly steady at 99.0. Perceptions of current personal finances improved, with a net -13% of households reporting being worse off than a year ago, the strongest showing since early 2022. A net 14% expect to be better off next year, while a net 11% think it is a bad time to buy major household items. Economic outlook expectations fell three points to -23% for the next 12 months, while the five-year view rose to +6%. Inflation expectations remained at 4.8%, and house price inflation expectations eased to 2.5%, the lowest since July 2024. NZX 50 -0.32% to 13111.73, NZDUSD -0.052% to 0.5764, 10y NZGB +0.7bp to 4.227%.

Singapore’s manufacturing output fell 7.8% y/y in August, with a sharper 37.3% drop in biomedical manufacturing, though excluding that cluster output only declined by 2.9%. On a seasonally adjusted m/m basis, total output contracted by 9.7%. Transport engineering grew 18.9% y/y, led by aerospace at 36.0%, while chemicals rose 3.5% on strong gains in petroleum and other chemicals, though petrochemicals fell 18.0%. Precision engineering slipped 1.7% as machinery and systems weakened, while electronics output dropped 4.8% as semiconductor and related segments contracted despite a 42.4% surge in infocomms and consumer electronics. General manufacturing plunged 13.9% on lower food, beverages and tobacco output. Year-to-date, total manufacturing rose 2.1%. STI -0.027% to 4272.7, USDSGD -0.07% to 1.2929, 10y SGB +4.1bp to 1.831%.

South Korea Composite Business Sentiment Index (CBSI) for all industries for September 2025 rose to 91.6 (August: 91.0), the highest level since November 2024. This was supported by semiconductor demand, along with the government’s consumer coupons and other stimulus measures aimed at boosting domestic demand. That said, the outlook for all industries for October fell by 3.3 points to 88.5. Looking into the breakdown, the CBSI for manufacturing sector stood at 93.4 (Aug: 93.3), but the outlook for October fell by 2.7 points to 89.4. The CBSI for the non-manufacturing sector improved to 90.5 (August: 89.4), but the outlook for October softened by 3.6 points to 87.9. KOSPI -2.451% to 3386.05, USDKRW +0.068% to 1410.2, 10y KTB +3.8bp to 2.885%.

Taiwan’s August composite leading economic signal score rose by 1 point to 30, maintaining a “green light.” Taiwan’s economic outlook is supported by sustained expansion in AI-related applications, boosting demand for technology products and exports, alongside global investment in AI infrastructure and data centers. Domestic investment momentum is expected to remain firm, driven by AI supply chain expansion, international firms establishing R&D centers locally, and increased government budgets for public works and technology development. On the consumption front, wealth effects from record-high stock prices, combined with government measures such as cash handouts, tax cuts and subsidies, as well as expanded budgets for tourism, concerts and sporting events next year, are set to lift demand. However, uncertainties from U.S. tariff policy, global monetary adjustments and geopolitical risks remain potential constraints. TAIEX -1.704% to 25580.32, USDTWD +0.316% to 30.53, 10y TGB -2.4bp to 1.33%.