Market Reaction to Powell’s Comments

Global Market Trends and Political Developments

Source: CNBC

Assessing Economic Growth and Inflation Projections

Inflation and Economic Risks Consideration

Uncertainty and Future Rate Decisions

Source: Reuters

Federal Reserve (Fed) doves and risk-taking investors didn’t necessarily welcome Jerome Powell’s cautious tone in his speech yesterday, as the Fed Chair avoided committing to a rate cut at next month’s meeting. He repeated that the risks to the labour market are tilted to the downside, while inflation risks remain to the upside – a mixed picture that requires careful policy adjustment.

Even so, the US 2-year yield fell yesterday and is lower again this morning in Asia. Market pricing now puts the probability of an October cut at 94%. In that sense, the Fed could hardly be sweeter for doves – considering that US growth is still resilient, corporate earnings strong and inflation sticking around 3%. In other words, the Fed has no pressing reason to rush cuts beyond supporting the labour market. Powell’s remarks were arguably more reassuring than discouraging.

Other Fed officials are also speaking this week: some highlight the weakening jobs market, while others emphasise tariff-related inflation risks.

On the data front, the latest PMIs showed US business activity slowing to a three-month low in September, while prices paid for materials jumped to a four-month high. The good news: soft data supports the case for further cuts. The bad news: if inflation re-accelerates, the Fed won’t be able to move as quickly as markets might hope. For now, nothing alarming. The S&P 500 and Nasdaq retreated from all-time highs as Big Tech led a correction, but the broader narrative hasn’t changed. The Fed is easing into a resilient economy with inflation still above target, and two more cuts are expected this year. That’s fundamentally supportive for equity valuations: growth stocks benefit most from lower discount rates. Yesterday’s pullback looked more like a technical correction in a quiet session than a shift in sentiment. Interestingly, CFTC data still shows heavy net shorts in the S&P 500. Fed easing could help trigger position unwinds, adding fuel to the rally.

In Europe, PMI data was mixed but overall pointed to the euro area’s fastest private-sector expansion in 16 months. German services stood out, while French readings were softer amid political uncertainty. The stronger-than-expected outcome supports the view that the European Central Bank (ECB) won’t need to deliver another rate cut this year. The EURUSD tested resistance but failed to break higher. European equities were modestly higher, with ASML extending gains on global AI optimism.

Across the Channel, UK PMI figures came in weaker, with manufacturing contracting at a faster pace. Sterling faced selling pressure above 1.35, while the EURGBP held firm as eurozone growth prospects look relatively stronger. The FTSE 100 remains attractive to investors seeking commodity and energy exposure, with a weaker pound adding to the appeal of its energy majors – though currency risk hedging remains prudent.

Globally, the OECD revised growth forecasts higher for many major economies this year – except Germany – but warned that Trump’s trade war still poses a significant global risk. Growth forecasts for 2026 were revised lower, particularly for the euro area and India. Elsewhere, Japanese manufacturing shrank at the fastest pace in six months, while Australian inflation hit a 13-month high – both reflecting the impact of global trade frictions. The USDJPY is hovering near its 50-day moving average, while the AUDUSD benefits from dollar softness, stronger iron ore prices, and sticky domestic inflation that tempers dovish Reserve Bank of Australia (RBA) expectations.

In China, Alibaba jumped more than 6% after announcing new AI investments, reinforcing optimism around China’s tech sector. Reports that Cathie Wood is revisiting Alibaba after a four-year absence added to momentum. Even after a 120% rally this year, shares remain about 40% below their 2020 peak.

In commodities, gold extended gains to fresh record highs, with $3,800 per ounce now the next psychological target. Geopolitical tensions, a softer dollar and strong momentum continue to support demand despite overbought conditions. Meanwhile, US crude rebounded on heightened geopolitical risks and another draw in US weekly crude inventories. Still, solid resistance is seen near the $65pb level and the short-term outlook remains rangebound within the $62/65pb range.

Source: ACTIONFOREX

The Swiss National Bank’s threat to cut borrowing costs and deploy the world’s only negative monetary policy stance is likely to stay unfulfilled this week.

Almost all of the 24 economists surveyed by Bloomberg reckon officials will shirk from an interest-rate reduction below zero on Thursday, preserving firepower as they take a sanguine view on weak inflation.

SNB President Martin Schlegel and his colleagues have repeatedly insisted that they’re prepared to return if needed to a policy last deployed three years ago. But given the potential damage it can wreak on the financial system, the bar for a move is higher than for conventional easing.

That’s why, with price growth expected to accelerate — and despite the central bank’s frequent habit of surprising investors in the past — forecasters are relatively confident of the result at the upcoming quarterly monetary decision, which will be followed in October by a new discussion summary.

“Inflation is clearly away from zero and on an upward trajectory,” said Karsten Junius, chief economist of J Safra Sarasin. “They will tread water.”

The case for a cut would be to stoke inflation and to deter inflows into the currency, whose strength depresses import prices. The franc hit a decade-high against the dollar last week, and is not far off a similar level against the euro. Containing it would help exporters reeling from US President Donald Trump’s import tariffs of 39%, the highest for any advanced economy.

The shock of a rate reduction could be another reason to move, maximizing the currency impact. The Swiss have a record of springing surprises: A Morgan Stanley analysis in July found that they hold the least meetings of all major central banks, but act against market pricing most often when they do.

The SNB could also want to mirror global peers. The Federal Reserve delivered its first reduction since Trump’s return to office this month, and on Tuesday, Sweden’s Riksbank moved too.

“There are more reasons for the SNB to cut rates than hold we think, given we expect inflation to fall over the coming quarters — rather than rise as the SNB expects — and mounting downside risks to inflation, including from the probable hit to growth from higher US trade tariffs and incoming cuts to electricity bills,” said Melanie Debono, an economist at Pantheon Macroeconomics.

She is currently alone in anticipating a quarter-point reduction, after other forecasters shifted view. Those at Goldman Sachs Group Inc. did so as recently as last Friday and called the end of the easing cycle, in a reflection of how pressure for a cut has weakened. Futures contracts suggest currency investors aren’t poised for a move either.

Inflation is just 0.2%, but that’s faster than the SNB forecast. Price growth has stayed positive for the past three readings and while it previously dipped below zero in May, that was Switzerland’s only negative reading in four years. Economic growth has also held up.

Further ahead, wages that look to increase above average could balance rent cuts from a drop in a key mortgage benchmark.

Moreover, while officials have threatened a cut, their recent emphasis has been on its adverse effects. And the apparent doctrine the SNB has evolved on the franc, given limited ammunition, now seems to be to act judiciously to stem gains as a wave-breaker rather than push against every trade.

What the SNB does have this time is a new tool to communicate. Four weeks after its decision, it will release a summary of arguments made by policymakers during their discussion, in a move toward producing the sort of minutes-like publications that other central banks do.

The document will aim to balance the SNB’s approach of maintaining a single collective message in public while offering transparency on the thinking behind its actions. Its usefulness for investors remains to be seen.

“There’s a danger that these minutes will be just a longer version of their press release,” said Gero Jung, head of investment strategy at Banque Cantonale du Valais. “Clearly, there will be nothing in there which the SNB doesn’t want to say publicly.”

While there’s near-consensus on the decision this week, economists are less united on the SNB’s steps in future. Roughly a quarter of those recently surveyed by Bloomberg predict a cut in December, by which time officials will have a better picture of the impact of US tariffs. Government officials are meanwhile trying to reach a deal with Washington.

For Swiss Life Chief Economist Marc Bruetsch, things will need to get markedly worse for the SNB to act.

“There are isolated signs of a further deterioration,” he said. “But I doubt that these are sufficient to make the SNB introduce subzero rates.”

Source: Bloomberg

Vietnam’s Focus on Diversifying Trade Relations

Impact of U.S. Tariffs on Vietnam’s Export Outlook

Source: Reuters

European Central Bank Executive Board member Piero Cipollone doesn’t see major threats to inflation in either direction, with interest rates currently well positioned.

Europe’s economy has been “quite resilient” despite the uncertainty caused primarily by trade, Cipollone told Bloomberg Television. After a slowdown this quarter, growth should resume its earlier pattern, he said.

“We think that the risks on inflation are very balanced,” the Italian official said. “We are in a good place. I mean, we are right on target. We will be close to target for the next two years.”

Policymakers appear content to leave borrowing costs where they are for the time being, with inflation at their 2% goal and output in the 20-nation euro zone continuing to expand despite headwinds from higher US tariffs. President Christine Lagarde, however, has refrained from commenting on the risk balance for prices.

While investors and analysts have ruled out another reduction in the deposit rate from its current level of 2%, some officials want to reassess the situation at the end of the year. When they convene in December, they’ll get new quarterly projections that should reveal more about Donald Trump’s levies and whether inflation will undershoot the target.

Cipollone highlighted that inflation expectations are key for the ECB, and that they’ve been “consistently nailed to around 2%,” calling this “reassuring.”

For now, monetary-policy settings are appropriate, he said, adding that he and his colleagues will assess “lots of information” before the next round of quarterly forecasts in December.

“We think that we are in a position that we can manage the incoming events,” he said. “We are ready to react — whatever is needed, in any direction.”

Source: Bloomberg