ADVANCED ECONOMIES
EUROPEAN UNION / EUROZONE
Resilient corporate sentiment, upside inflation surprises. The European Commission’s Economic Sentiment Index for September showed continued recovery in industry (+1.2 pts to -3.8, a 3.5 year high), with a clear rebound in production and employment expectations, while services improved further (+0.5 pt to 6.1). By contrast, household confidence and sentiment in construction weakened further, as did the composite index. These surveys broadly corroborate the PMIs, with the September manufacturing PMI revised up by 0.2 pt to 52.9. The unemployment rate held steady at a low 6.4%. Meanwhile, the September flash inflation estimate came in above consensus at 3.8%. The increase was driven mainly by energy (18.8% y/y, +4.5 pp) and services (3.2%, +0.2 pp). Non-energy industrial goods inflation eased slightly to 1.1% y/y, but the trend is firming: the 3m/3m annualised rate is at a three-year high of 2.5%. Speaking before the data release, ECB President Lagarde argued for a “measured response” and noted that the increase in bond yields was delivering some of the needed restraint. Tightening is also occurring via the cost-of-borrowing for mortgage loans, which increased in August for the fifth consecutive month to 3.6% (+6 bp m/m), a level unseen since September 2024. It was unchanged for loans to non-financial corporations (3.8%).
Upcoming: ECB minutes (Thu) and EU Trade Commissioner Šefcovic's visit to Beijing (Thu-Friday)
France
In the eye of the bond market storm. The government’s draft budget for 2027, despite targeting significant adjustment (see our detailed analysis), failed to stop the surge in the OAT yield, which passed 4.9% on Friday morning (a high unseen since 2002), while the OAT-bund spread reached a peak of 151 bps before easing somewhat along with the global bond market selloff. (The peak coincided with a statement by Bundesbank President Nagel that the ECB’s instruments are focused on monetary policy transmission, not any spread level). As expected, the draft budget law targets a deficit of 5% of GDP (down from 5.4% in 2026), implying EUR 54 bn of savings, of which about 2/3 coming from reduced spending. France’s independent fiscal watchdog commended the spending moderation effort but pointed out optimistic economic assumptions.
Meanwhile, inflation surprised on the upside: HICP inflation accelerated to 3.4% y/y in September (consensus: 3.1%), from 2.6% in August. The sharp rise in energy prices (21.2%) was amplified by a 10% y/y increase in the price of fresh food (linked to the summer drought). Core inflation rose to 1.6% y/y in September, up from 1.3% in August (services inflation at 2.2%; +0.3 pp m/m). The rise in industrial producer prices accelerated to 6% y/y in August from 4.3% in July (+67% versus +50% for refined products). Higher fuel prices also weighed on household consumption, which fell by -0.5% m/m in August. On the brighter side, the September manufacturing PMI was revised up by 0.3 points to 50.6.
Germany
Inflation accelerates to 3-year high. HICP inflation reached 3.3% y/y in September (vs 2.9% in August and 3.2% expected) according to the flash estimate (the highest since December 2023), driven by energy prices. Core inflation rose by 2.4% (same as in August) and services inflation edged down to 2.7% (vs. 2.8% in August). The unemployment rate was stable in September at 6.4%.
Upcoming: August Factory Orders (Tuesday) and industrial Production (Wednesday)
Italy and Spain
Upside inflation surprises, business sentiment gains. In Italy, HICP rose by 4.1% (vs. 3.2% in August), while core rose by 1.7% (vs. 1.5% in August). In Spain, HICP inflation accelerated to 5%?y/y (vs. 4.6% in August), while core inflation reached 3.1% y/y (vs. 2.9% earlier). Business sentiment, measured by the European Commission’s ESI, rose slightly in both manufacturing and services in Italy, and more significantly in Spain, where unlike in the rest of Europe, consumer sentiment improved as well. Less positively, Italy’s unemployment rate unexpectedly rose to 6.2%.
UNITED KINGDOM
Bold new policy paths and upward growth revision. Prime Minister Burnham broke several policy taboos in his Labour Party Conference Speech, notably reconsidering Brexit and abandoning the so-called “triple lock” guaranteeing that state pensions rise each year by the highest of inflation, wages, or 2.5%. These proposals would be taken up in the next Parliament. He also vowed to dismantle the legacy of Thatcherism in public services and utilities. Real GDP growth for Q2 2026 was revised upward to 0.5% q/q (vs 0.4% previously, following 0.6% in Q1), driven by a stronger-than-expected performance in trade and investment. Inflation expectations in the Bank of England’s Decision Maker Panel rose to 3.9% for own prices and 3.3% for CPI one year ahead.
UNITED STATES
Solid growth, underwhelming payrolls. Q2 GDP growth was revised up to 2.2% annualised (from 1.5%), with broad-based revisions to investment and consumption. The September ISM manufacturing index edged down (-0.1 pt to 54.5) on a drop in production. However, new orders, a leading indicator, improved, and the employment index held at its highest level in four years. Payrolls rose by 29,000 in September, well below expectations, while the two months prior were revised down by a combined 60,000. Job gains in healthcare (+23k) and leisure/hospitality (+10k) were partly offset by losses in Government (-10k). The unemployment rate rose to 4.2% (+0.1pp) on higher labour force participation. Private hourly earnings growth continued to slow (3% y/y, lowest since mid-2021). The August personal consumption expenditure (PCE) inflation report surprised to the downside (3.4% vs. 3.7% expected), and core PCE was unchanged at 3%. On the household side, the saving rate fell sharply (4.1% of disposable income in August, from 4.6% in July), explaining the unexpected resilience of consumption (+0.6% in August inflation-adjusted). All in all, this suggests the Fed will continue to raise interest rates but doesn’t need to rush. We expect the next 25 bps hike in December.
Upcoming: September ISM services (Monday); FOMC Minutes (Wednesday)
JAPAN
Booming business sentiment. The Tankan survey index of large manufacturers rose to +24 (+2 pts q/q), while small and medium enterprises saw significant gains (+14; +5 pts q/q and +23; +5 pts q/q respectively), driven by demand for semiconductors and production equipment. Services sentiment weakened slightly (+35; -2 pts q/q for large firms). Investment intentions remain strong among large corporations and are showing signs of recovery in SMEs.
EMERGING ECONOMIES
Manufacturing PMIs generally stronger. The index rose to 56.7 in Taiwan (the highest level since 2021) and 53.9 in South Korea, boosted by strong global demand for AI goods. Korean exports increased by a record 83.5% y/y in September (of which chips: +263% y/y), mostly led by export prices. The manufacturing PMI also improved and was comfortably above 50 in India, Indonesia and Thailand. It declined slightly in Vietnam (to 51.9). Malaysia and the Philippines stood out with PMIs falling slightly below 50. PMIs also generally improved in central Europe. In Latin America, PMIs were more mixed: falling sharply in Brazil to 44.8, its lowest level since early 2023, but slightly improving in Mexico (to 50) and Colombia (to 54.6).
LATIN AMERICA
Brazil
A tight runoff, a tough policy mix inheritance. Senator Flávio Bolsonaro and Brazil’s incumbent President Luiz Inácio Lula da Silva will face off in a runoff on October 25th after neither won a majority in Sunday’s general election (47% vs. 45% of the vote respectively). Since Brazil returned to democracy in 1989, no candidate who trailed in the first round has won the runoff. The next President will inherit a slowing economy and a difficult policy mix: pressing ahead with fiscal consolidation while normalising monetary policy amid recurring supply shocks (adverse weather conditions, El Niño, war in the Middle East).
ASIA
China
Better outlook on small stimulus and higher PMIs. Following a string of data showing too sluggish domestic demand to meet the Government’s growth target of 4.5 to 5%, the State Council announced a package of stimulus measures, including the expansion of some relending facilities aimed at financing tech/innovation, agriculture and SMEs; new spending to be financed by carried-over local government debt quotas; and a small interest rate subsidy on mortgages. The latest PMIs published by the NBS and by RatingDog improved marginally, with both now showing expansion in both manufacturing and services.
EUROPE, MIDDLE EAST
Poland
Strong uptick in September’s inflation reading. Inflation came in at 4.0% y/y in September (the highest level since June 2025) after 3.4% y/y in August, driven by higher prices at the pump. The increase led the government to lower its VAT rate on fuel to 8% (23% previously) from October until year-end, which should help ease inflationary pressures. Overall, inflation may not significantly exceed the Central bank’s target on average in 2026. The Central bank may nonetheless consider one rate hike by year end.
Türkiye
A financial scandal with limited macro impact. A Ponzi scheme collapse has impacted around 455k retail investors with assets reportedly worth about 1% of GDP. The crisis was swiftly handled by the authorities to prevent financial contagion. 131 funds and two home-finance institutions involved in the scandal were suspended and taken over by public banks for orderly and fair disposal of their assets. Three investment banks and 2 factoring companies were transferred to the Savings Deposit Insurance Fund. So far, 217 people have been subjected to legal action, of whom 90 have been jailed pending trial. Since September 9, the BIST-30 index lost 10% but is still 25% higher than at end-2025, and foreign investors bought equities at the highest pace in 3 months last week, suggesting a buy-the-dip reading of the situation. There has been no or marginal spillover effects on the exchange rate, domestic interest rates and sovereign spreads. At this stage, contagion risk to the banking sector is very low but the damage to small investors may have negative spillovers on consumption through negative wealth effect. Separately, the manufacturing PMI fell further in September to 47.9, signaling deepening contraction.
Saudi Arabia
Budget deficit jumps on cost of war. Budget deficit is now forecasted at USD 65.4 bn this year (-4.9% of GDP), up from USD 44.3 (-3.3% of GDP) in the initial financing bill. Revenue is expected to be slightly higher (+3.7%) as high oil prices more than offset the decline in oil export volume. But spending has been revised up by 9.3%. The new growth projection is also bearish, with GDP expected to contract by -3.6% due to the decline in oil activity while consensus sees economy growing by +0.2%.
COMMODITIES
Energy
Limited relief, electricity excepted. Re-escalation risks appear to be rising in the very short term in the Gulf and the Red Sea. At the same time, the record high level of Gulf oil exports in September (above 80% of pre-war level including bypass and trade shuttle) has been enough to stabilize prices at a high level, albeit not to put significant and lasting downward pressure on crude prices.
- Crude oil: prices declined slightly over the week but remain high (-3.5% w/w to USD 101.6/b on Monday morning for Brent). The gap with physical barrel prices (Dated Brent) is rising again USD 24.4/b on Friday), signalling persisting tensions on the physical market.
- The diesel market got some relief from a G7 decision late on Friday to release 100 mb of oil and diesel emergency stocks, focused on the latter. It should take place over the next four months and reportedly puts off the table US export restrictions. The European benchmark fell markedly (-12% w/w to USD80/b on Monday morning). However, market pressure could rise again soon as most Chinese refiners announced the suspension of fuel exports for October as the government want to prioritize domestic supply security.
- EU wholesale electricity prices rose sharply in September, reaching EUR146/MWh on average, the highest level since Dec 2022.
