ADVANCED ECONOMIES
The past week saw unusually large increases in sovereign bond yields across developed markets (see our Markets Overview of 14 September 2026).
EUROZONE
A “no-brainer” ECB hike. As expected, the ECB increased its main policy rate by 25 bps to 2.5%. It revised up both its growth and inflation forecasts, with the latter expected to be more protracted than previously thought. GDP ex- Ireland is expected to grow by 1.2% in 2026 and 2027, and by 1.4% in 2028. Inflation would peak at 3.6% in Q4 2026, then fall to 2.5% in Q2 2027 and would hover close to 2.0% thereafter. Although no forward guidance was provided, the market took a hawkish read, pricing ½ a rate hike in October and more than 3 additional hikes in total by mid-2027. This seems overdone to us. We expect one more hike in December, but it depends largely on the evolution of energy prices. Meanwhile, Q2 GDP growth was revised up to 0.6% q/q (+0.2pp) due to a sharp revision in Ireland data. That said, growth was broad-based with GDP growth excluding Ireland up 0.4% q/q, overwhelmingly driven by net exports. Employment climbed again (0.1% m/m) as solid gains in Spain and Portugal offset another (moderate) decline in Germany.
European Union
Procurement simplification & innovation boost: The European Commission unveiled its proposals for a new Procurement Regulation focused on simplification and the European Innovation Act. Both initiatives are designed to strengthen the single market and Europe’s competitiveness.
France
Falling behind. INSEE revised its 2026 growth outlook down to 0.4% even as the other large Eurozone economies are picking up steam. The government also downgraded its forecast, to 0.5% (same as ours). These include a 0.1% downgrade on account of summer’s heatwaves. For Q3, INSEE forecasts 0.1% q/q GDP growth, 0.1 pp lower than our forecast and the Banque de France’s nowcast. Manufacturing output declined in July for the third consecutive month, by 0.8% m/m and 1.2% 3m/3m. This appears driven primarily by supply constraints in sectors experiencing strong demand (capital goods, including aeronautics and electronics). More positively, solid momentum in goods exports continues (+4% y/y in July, +5.2% YtD), mostly to Europe. Loan demand is falling as interest rates rise: new housing loans plunged 17% m/m in July, as interest rates reached their highest since January 2025 (3.30% on average, +3 bp m/m). y/y growth for bank and market financing to non-financial corporates (NFCs) fell in July to 3.5% (-4 bp m/m) and 4.4% (-4 bp m/m) respectively. On the budget front, the government is considering reducing the exceptional surtax on large corporates and generating EUR 6bn of savings from pensions.
Germany
Solid intra-EU export growth. German exports grew by 4.0% over Jan-July compared to the same period in 2025 (despite a -0.8% m/m wobble in July, missing expectations of a 0.1% rise). Gains are particularly robust to the EU and euro area (+6.5%). This offsets persistent losses to the US (-1.5%) and China (-12.7%).
UNITED KINGDOM
Strengthening growth backdrop as Chancellor unveils strategy. Real gross value-added rose 0.4% in the three months to July, led by a rise in professional, scientific and technical activities (+2.1%, with scientific R&D up 7.0%) and information and communication (+2.5%). The AI cycle is gaining traction, with positive spillover effects on the manufacturing sector. The latter rebounded 0.5% in the three months to July, with output for computer, electronic and optical products sector being the biggest contributor (+3.9%). The RICS housing survey was positive too, with the sales expectations index improving for the fifth month running in August and to its highest since January. The jobs market is showing tentative signs of improvement. Staff placements increased for the first time since September 2022, although vacancies declined again, pointing to continued weakness in labour demand, according to the S&P and KPMG UK Jobs Report.
John Healey, the UK's new Chancellor of the Exchequer, stressed fiscal discipline as his “first priority” in his first major speech. While declining to rule out tax rises, he pledged to tackle rising costs for businesses and double the number of UK unicorn firms.
UNITED STATES
Inflation heats up, housing cools further. August Core CPI came in at 0.29% m/m (stable), a pace inconsistent with the Fed’s 2% objective and above consensus expectations (0.2% m/m). Housing and non-housing core services both posted their largest monthly gains since April. Energy compounded price pressures, with headline CPI up 0.4% m/m and stable at 3.4% y/y. Producer price inflation jumped to 5.4% y/y (up 0.5pp), while core PPI edged up to 4.7% (up 0.3pp), both above expectations. Diesel passed the $6/ gallon (national average), for the first time ever. These price developments raised the market-implied probability of a rate hike next week to 90% vs. 60% at the start of the week. Meanwhile, existing home sales contracted for a third month in a row in August (-2.0% m/m), pushing the annual growth rate into negative territory (-1.7% y/y). 30-year mortgage rate hit 6.85% last week, the highest since June 2025.
JAPAN
Bullish data and Yen resurgence. Wage growth hit a three-decade high in July.Nominal earnings climbed 4.7% y/y in July (up 0.7pp), the fastest pace since 1994. Real wages improved for a third straight month to 2.4% y/y (up 0.2pp). Q2 GDP growth was revised upward to 0.4% q/q advance (up 0.1 pp from initial est.). Machine tool orders jumped to 64.7% y/y in August (up 14.3pp) – a pick-up most pronounced in foreign orders. With the BOJ multiplying hawkish signals, the USD/JPY exchange rate is down to 154, its strongest since February, up almost 4% on the week and over 6% since the joint US/Japan in August.
EMERGING ECONOMIES
EUROPE, MIDDLE EAST, AFRICA
Central Europe
Inflation contained so far. August inflation data pointed to a marginal uptick (Hungary: 1.3% y/y from 1.2% in July; Czech Republic: 1.9% y/y from 1.7% in July). Poland’s inflation, at 3.4% y/y, was near the upper end of the central bank’s target range. Meanwhile, Romania’s inflation fell markedly (6.2% y/y from 8.2% y/y), as expected, from base effects. Going forward, inflationary pressures are tilted to the upside due to the recent rise in fuel prices at the pump. Meanwhile, the recent decline in food prices should reverse in the coming months. As a consequence, most Central banks will likely remain on hold though Hungary still has a wider window to continue easing.
Qatar
mounting fiscal pressure. The budget deficit more than doubled to USD 5.8 bn in Q2 (26 times the deficit in Q2 2025). Total revenues dropped 57% y/y. Expenditures also fell sharply (-22% y/y).
Saudi Arabia
A sharp economic contraction. Real GDP contracted by 4.7% in Q2, the steepest decline since the pandemic, driven by the sharp fall in hydrocarbon GDP (-24.4% y/y). Non-oil activity growth slowed to 0.9% y/y from 2.5% y/y in Q1; it remained resilient thanks to robust domestic demand, notably public investment.
South Africa
Poor growth performance in Q2: the economy contracted by 0.2%q/q, ending six consecutive quarters of expansion. y/y real growth slowed to 0.9% from 1.9% in Q1, reflecting difficulties in the manufacturing and mining sectors, and weak investment.
Türkiye
Near term set back to growth and inflation progress but rosier medium-term outlook. The central bank held its one-week repo rate at 37% on September 10, citing upside risks to inflation. Annual headline CPI was 31.5% in August. The ministry of Finance strongly revised up its inflation forecast for this year (28.4% at year-end) and next and downgraded its growth forecast to 3.3%, from 3.8% earlier. However, it presented a relatively optimistic medium term soft-landing scenario: inflation falls to single digits, growth accelerates toward 5%, unemployment declines, and the current account deficit narrows simultaneously. This will require a significant improvement in productivity and potential growth to avoid renewed demand-side inflationary pressures.
ASIA
China
Low inflation, strong exports, and structural patches. In August, CPI inflation rose to +0.8% y/y from +0.5% in July, due to higher energy prices, but it remained below its Q2 average (+1.1% y/y). Food prices continued to fall (-1.4% y/y) and core inflation remained low (+1% y/y vs. +0.9% in July and +1.1% in Q2) given the absence of demand-side inflationary pressure. Foreign trade continued to grow strongly in August, driven by both volume and prices; export value was up 25% y/y vs. 23.9% in July and import value was up 28.2% y/y vs. 27.6% in July. The trade surplus reached a gigantic USD806 bn in the first eight months of 2026, up from USD782 bn in the same period in 2025. The authorities adopted a new set of measures to address industrial over-capacity, notably in the batteries sector. The government also announced a large recapitalisation plan for 8 major financial institutions (RMB360 bn): 3 state-owned banks (Agricultural Bank of China, ICBC and Export-Import Bank of China) as well as insurance companies will benefit from the scheme, which aims to stimulate credit supply and support the financial soundness of these institutions.
LATIN AMERICA
Latam
Inflation accelerated in August except in Argentina, notably in Chile (4.1% y/y from 3.5% in July), driven mainly by food and transportation costs, and Colombia (6.2% y/y from 6.0% in July), particularly due to rising food prices. In Mexico, headline inflation picked up to 3.3% (from 3.1% y/y in July), though core disinflation continued (3.9% y/y, slowing steadily since January 2026). In Argentina, monthly inflation slowed to 1.7% in August, its lowest monthly level in 14 months. But core inflation was stable at 1.8% m/m. y/y inflation rates slowed down marginally to 33.5% and 31.9% for headline and core CPI respectively. Despite sluggish growth, inflation is likely to remain above target across Latin America for some time. This could prompt Mexico’s central bank to raise interest rates, while in Colombia and Brazil, monetary easing remains possible, contingent on the degree of fiscal tightening. Meanwhile, the Chilean central bank held its policy rate at 4.5%, reflecting a cautious stance amid sticky core inflation and external risks.
Mexico
Revenue-based fiscal consolidation in 2027. Growth forecasts in the Budget proposal are more conservative than in previous years (1.5%–2.5% for 2027), while the deficit is set to narrow slightly to -3.9% of GDP (from -4.1% in 2026), but debt will rise to 55% of GDP. Consolidation relies on ambitious revenue growth, driven by an expanded corporate tax base, stricter fiscal controls, and measures to combat evasion, offsetting a 15% drop in oil revenues. Spending is nearly flat in real terms.
COMMODITIES
Energy prices continue to rise on the back of renewed tensions in both straits of Hormuz and Bab el Mandeb. Saudi oil exports through the E-W pipeline have stopped, at least temporarily. They are equivalent to roughly 4% of global oil supply. Crude oil prices breached 100 $/b (above 107$/b on Monday morning) and Brent Dec 2026 futures reached 100 $/b for the first time this year. Two new sources of pressure: Weekly US SPR stock release has been the lowest since end-March (1.2mb for the week ending 4 September) and Chinese crude oil imports expected to increase in September for the third consecutive month after the decade-low level recorded in June. Unsurprisingly, refined product prices reached new highs. Diesel cracks gained around 10% in Europe (92$/b) and 6% in the US (110$/b) over the week. The US diesel fuel price reached 6$/gallon for the first time ever. The IEA has sharply lowered its oil demand forecast for 2026. Demand is expected to decline by 2.5 mb/d (compared to the previous estimate of 1.6 mb/d), before growing by 2.6 mb/d in 2027.
TTF gas prices rose above 83€/MWh on Monday morning, the highest since end-2022. EU gas pre-winter inventories reached 67.6% of full capacity this week (official target is 80% at end-October).
