ADVANCED ECONOMIES
EUROPEAN UNION / EUROZONE
Strength on multiple fronts. Business activity in September, measured by the composite PMI, reached its highest level since April 2023 (53.1, +1.1pt). This was led by a strong improvement in the services index (53.0, +1.4 pt) while the manufacturing PMI was stable and comfortably in expansion (52.7). Input and output price indices both rose sharply, especially services output prices (56.1, highest since February 2024) indicating the energy price shock is spreading. New car registrations in the EU rose 4.5% y/y in August and 5.3% year-to-date in August. Electric cars’ market share continues to rise (to 27.7% of new registrations year to date). Less positively, bank loans to corporates halved in August compared to July. On the trade front, the EU has adopted rare provisional safeguard measures (quotas and tariffs) against a type of industrial steel products, in response to a recent surge in imports from China. It also reached a “substantial agreement” on a new trade deal with The Philippines. As part of its efforts to safeguard the role of the euro in DLT-finance, the ECB has launched its new 'Pontes' project, which is a first step toward providing a digital euro for wholesale uses. Pontes creates a link between the TARGET2 interbank settlement system in central bank money and private DLTs. The ECB also announced it intends to purchase a limited amount of tokenised government bonds through its own balance sheet, to gain hands-on expertise in the digital asset ecosystem.
Upcoming: September European Commission Economic Sentiment Index (Tuesday).
ECB leadership race kick-started. While ECB watchers have been on tenterhooks for an official announcement by President Lagarde of an early departure (her term ends in October 2027), the news came from ECB Board member Isabel Schnabel announcing she would leave her role early, on January 3rd, 2027, to take on the role of Financial Counsellor at the IMF. The Eurogroup of finance ministers is now expected to take a package approach to choosing successors for the President, as the Board seat left vacant by Ms. Schnabel and the Chief Economist post is due to become vacant in May. The final decision on the Presidency rests with European Leaders. Country and gender balance considerations will be paramount.
France
Back to expansion, but mixed signals. The flash composite PMI returned to expansion for the first time since November 2025, reaching 51.2 in September after 48.5 in August. The improvement is driven by services, at 51.4 (+3.4 m/m), while the manufacturing PMI fell slightly to 50.3 (from 51.1 in August). Insee's business climate, however, fell back to 96 in September from 98 in August (100 = long-term average). It was weighed down by services, retail and wholesale trade. The business climate was stable in the manufacturing sector (101) and construction (96). Both surveys concur on the fact that selling price pressures are increasing in the manufacturing sector. Consumer confidence was stable for the 3rd consecutive month, at 86 in September (20-year average: 93). The government has announced an increase in fuel subsidies amounting to EUR 450 million. This measure is not expected to deteriorate further the fiscal deficit (projected by the government at 5.4% of GDP in 2026).
Upcoming: September Inflation (Wednesday); Draft budget law and final manufacturing PMI (Thursday)
Germany
Business activity and sentiment improve further. The composite PMI for September was above expectations by rising to 53.8 (+2 pts m/m), its highest level in 11 months. This was driven by the services sector returning to growth after five months of contraction (52.9; +3.2 pts m/m). Growth in the manufacturing sector leveled off slightly but remains robust. The production index stood at 55.9 (-0.8 pt m/m). Companies are reporting further signs of resilience, with an acceleration in production, stable outlooks, rising employment in services, and stabilisation in manufacturing. Price pressures are elevated and, in most categories, rising. Meanwhile, the September Ifo index of business climate rose to its highest since May 2023 (89.9; +1.2pts). Expectations for business development in the next 6 months rose to an 11-month high of 90.4 (+1.4pts). All sectors saw improvements in their indicators. Consumer confidence deteriorated further, however: the GfK index deteriorated to -30.6 in October (-3.8 pts m/m, its lowest since last May), driven by a significant drop in income expectations. Still, the decline in consumer sentiment was partially mitigated by a fifth month of improving economic expectations.
Upcoming: August retail sales, September unemployment rate and flash inflation (Wednesday).
UNITED KINGDOM
Rate hike increasingly likely, as indicated by the Bank of England’s Governor and two Deputy Governors (owing to the persistence of the energy price shock). Resilient activity points in the same direction: September PMIs showed continued expansion (composite fell slightly to 51.7), with services slowing down (51.7; -0.8 m/m), and manufacturing accelerating (to 52, +0.3 m/m) due to resilient demand in AI and defence. Business optimism held steady at a six-month high and manufacturing confidence reached its strongest point since February on robust investment and new projects, offsetting a slight dip in services caused by geopolitical concerns. GfK Consumer Climate unexpectedly rose to -13 in September (+1 m/m), hitting its highest level since August 2024 due to improved personal finance and economic outlooks.
Upcoming: Q2 GDP Final (Thursday); BoE DMP Firms Price Expectations survey (Friday).
UNITED STATES
A ‘good news is bad news’ week. PMIs are typically little watched in the US owing to low correlation to GDP, nevertheless this week they were a key trigger for a brutal selloff in US yields across the curve, featuring 20+ basis point moves and a very weak 5Y bond auction. Hawkish Fed speakers talk also contributed (Barr, Williams, Paulson). The preliminary September composite PMI reading surged to 58.4, a five-year high, defying expectations of a drop. Both the Services and Manufacturing PMIs rose to multi-year highs. New orders, employment, and input prices all rose sharply, with input price growth accelerating. Core capital goods orders (non-defence, ex-aircraft) rose 1.6% m/m in August, well above expectations, after an upwardly revised +0.6% m/m in July — extending the momentum in business equipment investment. The US 30-year yield rose to 5.53%, its highest since 2004. The 10Y touched 5.23%. 30-year mortgage rates are at 7%.
Upcoming: GDP final estimate for Q2, August PCE report (Wednesday); September ISM manufacturing (Thursday); September non-farm payroll/employment report (Friday).
UNITED STATES / CHINA
Just a trade truce extension. On the eve of the Trump-XI Summit, the United States and China have extended their trade truce by two months, until 10 January. This highlights both their willingness to avoid new trade tensions and their inability to find a durable agreement on most key topics. Outstanding trade issues include Chinese purchases of US agricultural products, rare-earth supplies and tariff reductions on bilateral trade. Following the Leaders’ Summit, where AI and Iran were also discussed, the trade ministers announced a deal to apply a low tariff regime to $30bn of non-sensitive goods imported by each side.
JAPAN
No more (need for) reflationism. This stance was endorsed by both the ministers of Finance and Economic Growth on Friday 25th, as Prime Minister Takaichi told President Trump in New York that the weak Yen was a concern. The Yen strengthened, by 1.2% on the same day, to 157 per dollar. This should leave the BoJ freer to tighten monetary policy at the needed pace (we expect 2 more hikes by March 2027). Its underlying inflation indicator — CPI excluding fresh food and special factors — rose to 2.6% y/y in August from 2.3% in July, while business activity remains in steady expansion: the Composite PMI registered its 18th consecutive month of expansion in September, falling slightly to 52.5 (-1 pt m/m). Strong external demand for semiconductors, AI, and defence offset less dynamic domestic demand, especially in services. Cost pressures are moderating but remain high. Upcoming: August industrial production and retail sales (Wednesday), TANKAN survey (Thursday).
EMERGING MARKETS
Buoyant debt. Hard currency debt issuance is on track for another record year, after an already strong 2025, despite the rising global rates environment. $190 bn have been issued over January-August, about USD30bn more than over the same period last year. Qatar and Saudi Arabia even returned to the market this month.
Central Banks divergence. Central banks kept monetary policy on hold in Hungary (at 5.50% after three consecutive rate cuts, with inflation at 1.3% y/y in August), Indonesia (at 5.75% despite renewed depreciation of the rupiah, -2% against the USD since the beginning of September), Mexico (at 6.50%, for the third consecutive time), and Morocco (unchanged at 2.25% despite low inflation at 0.3% on average in the first 8 months of the year). Meanwhile, monetary authorities hiked the benchmark rate in South Africa (by 25bp for the second time since the start of the Iran war, to 7.25%. It occurred despite softer-than-expected inflation in July, at 4.4% y/y), and cut in Nigeria (by 350bp, to 23%. CPI inflation has been broadly stable since the start of the year, averaging 15.5% y/y over January-August).
HUNGARY
Back on the EU integration path. The Central Bank announced the inflation target will be gradually reduced to 2.5% from 2028 vs. 3% currently, in line with the objective to adopt the euro in the medium term. Meanwhile, the European commission has proposed to unlock EU funds worth EUR 4.2 bn (1.8% of GDP) in light of progress in the rule of law; it is still subject to the council’s vote.
COMMODITIES
Crude oil. Prices rose slightly over the week (106.7 USD/b Monday, 28th morning, +6.4% w/w) as ongoing negotiations did not provide better prospects for the oil market. The gap with physical barrel (Dated Brent) remains quite large (18.7 USD/b on Friday). On a better note, KSA has restarted its East-West pipeline, which should progressively recover its full transit capacity (4mb/d).
Diesel. US export restrictions? With Diesel prices reaching all time highs in the US (near USD 6.5/gal) six weeks away from the mid-term elections, the Trump administration has indicated it is considering a diesel export ban. Experts believe a ban would at best provide short-term relief to diesel prices in parts of the US, so it is not a foregone conclusion that export restrictions will be adopted. Most industry leaders and European leaders have been pleading against them (the US contributes to 40% of EU imports of diesel). In Europe, French President Macron has urged for a release of strategic reserves and regulatory changes to increase refining capacities in the near term. Given its critical role throughout the economy (in farming, transportation and some industrial usages), high diesel prices have a particularly broad stagflationary impact. US crack spreads declined by 10% w/w (to 98.2 USD/b), but the European benchmark declined as well (-0.2% w/w to 91.6 USD/b), thanks to adequate inventories.
European gas benchmark. Stable this week (to 73.8 EUR/MWh) on the back of an acceleration in EU stock refiling (70.9% of full capacity for a target at 80% by end-October).
