Key Highlights

• The White House says federal workers will face mass layoffs as the U.S. government shutdown continues.
• Asian equities rally strongly on tech optimism, led by a record day for inflows into South Korean equities at ₩3.14tn ($2.24bn).
• U.S. government considers buying equity stakes in Australian rare-earth and industrial metal mining companies to provide alternative to China. 

Chart of the Day

Surprising resilience in FX volumes in Q3

^{Source: BNY}

Normally we would expect FX volumes to soften over the course of Q3, especially after a rather strong Q2 this year, prompted by the early-April volatility surrounding U.S. tariffs, and additional geopolitics-linked factors through May. Nonetheless, we can see that there was clear surge flow in Q3, culminating in a relatively strong IMM date around September, and once again this demonstrated how changes in U.S. monetary policy have a far larger, and arguably more durable, impact on global FX activity. Although the flow peak was not as high as in Q1 this year and the surge flow in 2024 is yet to be repeated, current performance should be welcome by participants as a more sustained improvement in market appetite to take on risk and/or adjust hedges. The quarterly smoothed flow figures are also picking up, which is an even bigger accomplishment considering that the initial drop in Q3 volumes was significant. This means that flows toward the latter stages of Q3 had to be very strong to compensate for the sharp initial declines, which we note were seen across both developed and developing markets. Ex-post, we suspect that without the sudden Fed “pivot” toward a more dovish path and rate cuts for the rest of the year, volumes might not have matched Q2 levels. Heading into September, expectations were largely for relatively stable rates across the G10, as capacity for easing looked exhausted. These positions had to be adjusted, and in some respects swung to another extreme which had priced in too much Fed easing. The end of September witnessed some of that pricing adjust away from extreme Fed moves, and with additional commentary by key ECB, BoE and BoJ officials not ruling out additional moves in their current cycles toward year-end, we believe elevated volumes can continue in the remainder of the year. 

What's Changed?

Between the Golden Week holidays in Asia and the U.S. federal government shutdown, markets have less information to work from, meaning that obscurity is driving current trends. The tech sector rally is extending beyond the NASDAQ and leading rallies in APAC and EMEA as well. OpenAI’s valuation has jumped to $500bn, and companies linked to it are making gains, driving up the South Korean Kospi index, led by Samsung and Hynix. The headline economic data from Europe, with weaker unemployment in August, show up in bond yields: these remain tame even after rising inflation, adding to the equity gains. In contrast, the comments by Shinichi Uchida of the BoJ about a likely October rate hike led to disappointing 10y JGB sales but extensions of the Nikkei and JPY rallies. This leaves today’s U.S. session watching the government reopening debates, watching private data like the Challenger September layoff report and watching commodities for clues about growth and inflation. Markets without new information are trading “business as usual” but with some caution. This is showing up in more defensive positioning, broadening out holdings to find diversity and allocating to fixed income. The key driver for U.S. rally extensions will be keeping bond gains after the disappointing ADP report. For FX, the link between higher bonds and stocks brings a weaker dollar, as hedging costs go down and uncertainty persists. The focus on commodities also continues, with oil down but gold and industrial metals up. This tension between energy supply and demand circles back to the driver of the day: AI and the rise in electricity use in data centers. For today, what you don’t know can’t hurt you. 

What You Need to Know

U.S. soybean prices rose as much as 1.8% after President Trump said he would press Chinese President Xi Jinping to resume purchases when they meet later this month. China has avoided buying U.S. soybeans from the current harvest, turning instead to Argentina and Brazil in retaliation for tariffs. This has left U.S. farmers facing oversupply and depressed prices despite a crop projected at 117 million metric tons. With growers already harvesting about one-fifth of the crop, many fear losses and financial stress, compounded by high input costs. Trump reiterated plans to use tariff revenue for farmer aid, while Agriculture Secretary Brooke Rollins pledged a $2bn emergency package, though producers stressed that a trade deal with China remains the preferred outcome. Wheat +0.099% to 509.75, hogs -0.203% to 12320, soybeans -0.025% to 1012.75.

Japan’s 10-year bond auction on Thursday showed weak demand, with the bid-to-cover ratio falling from last month and the gap between average and lowest accepted prices widening to the largest since March. The result pushed the 10y yield up 1.5bp to 1.66% and dragged futures lower, marking the second poorly received auction this week after Tuesday’s weak two-year sale. The soft outcome comes amid rising speculation of a BoJ rate hike in October, with overnight swaps pricing in a 60% chance. Investors are also weighing Friday’s speech by BoJ Governor Kazuo Ueda and the leadership vote in the ruling LDP party on October 4, both seen as key for fiscal and monetary policy direction. BoJ Deputy Governor Shinichi Uchida reaffirmed the Bank of Japan’s standing policy to raise rates if the economy performs in line with forecasts. Nikkei +0.866% to 44936.73, USDJPY +0.062% to 147.16, 10y JGB +0.7bp to 1.659%.

U.K. retailers will benefit from extended business rate relief, as the government confirmed that the existing 75% discount on business rates for retail, hospitality and leisure firms will be maintained into the next financial year. The measure, originally due to expire in March, will support around 230,000 businesses, with the discount capped at £110,000 per business. Industry groups had warned that the expiry of the relief would raise costs sharply for many high street shops, pubs and restaurants at a time of sluggish consumer spending and rising operating costs. The extension forms part of wider efforts to bolster the retail sector, which has faced persistent challenges from high inflation, online competition and shifting consumer habits. FTSE 100 +0.136% to 9459.29, GBPUSD +0.112% to 1.3493, 10y gilt -0.1bp to 4.695%.

What We're Watching

U.S. September Challenger Job Cuts forecast up 15% previously +13.3% y/y in August, further focus is on hiring plans as they expect weakest seasonal retail hiring since 2009.

U.S. weekly jobless claims, delayed by the federal shutdown, were expected to rise to 225k from 218k the previous week.

U.S. August factory orders, delayed by the federal government shutdown, were expected to recover to 1.4% m/m, vs. -1.3% in July, with final durable goods orders expected at 2.9% m/m.

Central bank speakers: Dallas Fed President Lorie Logan speaks.

U.S. Treasury sells $105bn in 4-week bills and $90bn in 8-week bills.

What iFlow is Showing Us

Mood: iFlow Mood drifted further into negative territory with increasing equity selling momentum, against a flattening-out of demand for core sovereign bonds. iFlow Mood is at -0.05.

FX: USD, DKK and NZD were the three currencies with inflows, against selling in the rest within the G10. Elsewhere, LatAm currencies were sold, against mixed flows in EMEA and APAC. Overall, IDR, CZK and DKK saw the most inflows, with COP, THB and ILS recording the biggest outflows.

FI: Strong inflows into U.K. gilts, followed by U.S. Treasurys and Chinese, Singapore and Eurozone government bonds. New Zealand government bonds were most sold.

Equities: EM Americas was the only region to record equity inflows, against selling in the rest of the iFlow universe. iFlow showed significant equities outflows in Canada, Switzerland, the U.K., Norway, China and Taiwan. Within DM, the materials, consumer staples, communication services and financial sectors were most sold, against buying in the industrials and consumer discretionary sectors. 

Quotes of the Day

“Obscurity is dispelled by augmenting the light of discernment, not by attacking the darkness.” – Socrates

“There’s a world of difference between truth and facts. Facts can obscure the truth.” – Maya Angelou

Economic Details

Euro area unemployment stood at 6.3% in August 2025, up from 6.2% in July but unchanged from August 2024, with 10.842 million people out of work. The EU unemployment rate was 5.9%, stable both m/m and y/y, corresponding to 13.089 million people. Compared with July, unemployment rose by 39,000 in the EU and 11,000 in the euro area. Youth unemployment reached 14.6% in the EU (+0.2 percentage points m/m) and 14.0% in the euro area (flat m/m), affecting 2.819 million and 2.220 million people, respectively. On a y/y basis, youth unemployment declined by 147,000 in the EU and 156,000 in the euro area. By gender, EU unemployment rates were 6.0% for women and 5.8% for men, while in the euro area they were 6.4% and 6.1%, all stable m/m. Euro Stoxx 50 +0.885% to 5630.61, EURUSD +0.154% to 1.175, BBG AGG Euro Government High Grade EUR +1.1bp to 2.927%.

U.K. firms in the September 2025 Decision Maker Panel survey reported annual own-price growth of 3.8% in the three months to September, up 0.1 percentage points from August, while year-ahead own-price inflation expectations held at 3.7%. CPI inflation expectations rose slightly to 3.4% for the year ahead and stayed at 2.9% over three years. Annual wage growth was stable at 4.6%, with year-ahead growth expected at 3.6%, indicating a likely slowdown. Employment growth remained at -0.5%, with expectations slipping to 0.0%. Recruitment conditions were unchanged, with 9% of firms finding hiring much harder. Business uncertainty edged higher, with 58% of firms reporting high or very high uncertainty, though sales and price uncertainty stayed low by historical standards. FTSE 100 +0.136% to 9459.29, GBPUSD +0.112% to 1.3493, 10y gilt -0.1bp to 4.695%.

France’s state budget deficit stood at €157.5bn at end-August 2025, improving from €171.9bn a year earlier. General budget expenditure, excluding tax refunds, reached €300.4bn compared with €304.1bn in August 2024, a decrease of €3.7bn. This mainly reflected lower transfers to operators and the removal of the Covid-19 debt amortization program, partly offset by higher defense spending. Tax revenue rose to €199.6bn from €187.8bn, driven by higher personal income tax (+€3.1bn), corporate tax (+€1.8bn) and other domestic levies (+€4.1bn), while VAT receipts remained stable. Non-tax revenue fell to €16.7bn from €17.4bn, due to lower EU contributions under the recovery plan, partly offset by increased dividends and fines. Special accounts recorded a deficit of €31.5bn, slightly better than last year. CAC40 +0.783% to 8029.3, EURUSD +0.154% to 1.175, 10y OAT 0bp to 3.53%.

Italy’s employment fell 0.2% m/m in August 2025, down 57,000 to 24.17 million. Decreases in permanent and temporary employees were partly offset by a rise in self-employed workers. The employment rate dropped to 62.6% (-0.2 percentage points). Unemployment increased by 7,000 (+0.4%), deriving solely from men and those aged 25-49 and leaving the jobless rate stable at 6.0%. Meanwhile, youth unemployment rose to 19.3% (+0.62 percentage points). Inactivity among 15-64-year-olds increased by 60,000 (+0.5%), pushing the inactivity rate to 33.3% (+0.22 percentage points). Compared with August 2024, employment grew by 103,000 (+0.4%), driven by permanent employees and self-employed workers, while temporary contracts declined sharply (-8.9%). Unemployment fell 4.7% y/y (-75,000), and inactivity was broadly unchanged. FTSEMIB +0.307% to 43211.86, EURUSD +0.154% to 1.175, 10y BTP +0.3bp to 3.529%.

Spain’s registered unemployment fell by 4,846 in September, the first decline for the month since 2007 outside the pandemic period. This brought the total to 2,421,665, the lowest September level since the same year. Compared with September 2024, joblessness dropped by 153,620 (-6%), while seasonally adjusted unemployment fell by 29,689. Unemployment decreased across all sectors – construction (-4,670), services (-3,067), industry (-1,422), and agriculture (-1,166) – but rose among those without previous employment (+5,479). Female unemployment fell by 2,827 to 1,468,904, its lowest level since 2008, while male joblessness declined by 2,019 to 952,761. Youth unemployment rose 9.6% m/m to 183,716, still the lowest September level on record. In August, unemployment benefit coverage reached 82.5%, also a record high, with average payments rising 24.2% y/y to €1,372. IBEX 35 -0.227% to 15543, EURUSD +0.154% to 1.175, 10y Bono +0.1bp to 3.254%.

Switzerland’s consumer price index fell 0.2% m/m in September 2025, bringing the index to 107.5 points (December 2020=100), while easing to 0.2% y/y from 0.7% in August. Core inflation was -0.2% m/m and +0.7% y/y. Domestic product price inflation was -0.3% m/m, +0.6% y/y, while imported product inflation was -0.1% m/m, -0.9% y/y. The decline was mainly driven by lower prices for supplementary accommodation, hotels, international package holidays and air transport, alongside reduced private transport hire costs. Increases were recorded in knitwear, berries and household furniture. The harmonized index of consumer prices slipped 0.3% m/m and was flat y/y in September. SMI +0.659% to 12441.56, EURCHF +0.091% to 0.9359, 10y Swiss GB -1.2bp to 0.233%.

Australia August household spending eased slightly at 0.1% m/m, 5.0% y/y from 0.4% m/m, 5.3% y/y in July. The rise was driven by services spending, notably on airline travel and accommodation, while goods spending declined -0.2%. Among spending categories, transport, and miscellaneous goods and services were both +0.8% m/m. Conversely, recreation and culture, and alcoholic beverages and tobacco both fell by 0.9% m/m. On the year, services spending was up 8.1% y/y while good spending was up +2.5% y/y. Elsewhere, Australian exports plunged -7.8% m/m to $41.858bn in August, the biggest fall since July 2022 (-10.9% m/m), while imports rose 3.2% m/m. This resulted in a small trade surplus of $1.825bn vs. $6.612bn in July. ASX +0.14% to 5115.2, AUDUSD +0.121% to 0.6621, 10y ACGB -3bp to 4.337%.

Japan September consumer confidence rose from 34.9 to 35.3. The percentage expecting prices to go up in September was 93.4%, the same as the previous month. In other data, the latest financial account figures show that in the week ending September 26, net flows into both foreign bonds and equities by Japanese clients were muted. For Japanese assets, foreigners sold large quantities of JGBs and Japanese equities that week, at ¥-1.997tn and ¥-963bn, respectively. If seasonal patterns hold, we should see renewed buying of Japanese equities in Q4. Nikkei +0.866% to 44936.73, USDJPY +0.062% to 147.16, 10y JGB +0.7bp to 1.659%.

South Korean inflation rose more than expected in September, to 2.1% y/y from 1.7% in August. The core ex-food and energy CPI measure normalized to 2.0% y/y after a one-off cut in telecommunication fees took the August rate to 1.3% y/y. On the month, headline CPI grew 0.5% m/m, the fastest since January 2025 (0.7% m/m). The Bank of Korea commented that inflation is projected to remain stable at around 2%, but uncertainties remain high due to the U.S. tariff policy and geopolitical risks. KOSPI +2.702% to 3549.21, USDKRW -0.118% to 1401.45, 10y KTB +2.7bp to 2.967%.

In the Philippines, outstanding loans from universal and commercial banks grew 11.2% y/y in August, slower than July’s 11.8%, while seasonally adjusted lending rose 0.4% m/m. Loans to residents expanded by 11.6% y/y, while those to non-residents decreased by 5.9%, easing from July’s 8.1% fall. Business loans increased 9.9% y/y, with notable gains in real estate (11.0%), electricity, gas, steam and air-conditioning (28.1%), wholesale and retail trade (8.1%), finance and insurance (6.9%) and information and communication (7.5%). Consumer lending rose 23.9% y/y. Domestic liquidity (M3) advanced 6.6% y/y to ₱18.6tn, up from 6.2% in July, and rose 0.5% m/m. Net foreign assets rose 4.8% y/y, reversing a 0.6% fall in July, while claims on the domestic sector grew 9.8% y/y. PSEi +0.228% to 6039.76, USDPHP +0.018% to 58.16, 10y PHGB -4.7bp to 5.91%.

Hong Kong retail sales rose 3.8% y/y in value terms in August 2025 to $30.3bn, following a 1.8% gain in July. For January-August as a whole, sales declined by 1.9% y/y. Online sales grew 8.9% y/y in August to $2.6bn, accounting for 8.4% of total sales, and were up 3.0% over the first eight months of the year. In volume terms, overall retail sales increased 3.2% y/y in August but fell 3.1% across the first eight months. By category, strong gains came from jewelry, watches and valuable gifts (+16.4%), other consumer goods (+14.2%), cosmetics (+5.0%) and optical shops (+5.7%), while supermarkets (-0.8%), food and tobacco (-3.6%), motor vehicles (-8.9%) and fuels (-11.4%) recorded declines. Hang Seng +1.709% to 27314.39, USDHKD -0.021% to 7.7802, 10y HKGB -1.2bp to 1.417%.