Caution From Powell

Samantha Luan

Economic

Forex

Political

Commodity

Summary:

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

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James Whitman

Central Bank

Economic

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

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Gerik

Economic

Vietnam’s Focus on Diversifying Trade Relations

Vietnam is pushing forward with its trade negotiations with the United States, its largest export market, even as the U.S. imposes tariffs on Vietnamese goods. The U.S. introduced a 20% tariff on Vietnamese exports starting August 7, along with a 40% tariff on goods transshipped through Vietnam from third countries.

Despite these challenges, Vietnam’s Prime Minister, Pham Minh Chinh, emphasized that the country is not only focused on negotiations with the U.S. but is also aiming to sign free trade agreements (FTAs) with Mercosur and the Gulf Cooperation Council (GCC) by the fourth quarter of 2025.

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

The tariffs imposed by the U.S. are expected to significantly affect Vietnam’s exports, with estimates from the United Nations Development Programme suggesting that the tariffs could cut as much as 20% of Vietnam’s exports to the U.S. This would make Vietnam the most affected country in Southeast Asia. However, despite the external challenges, Vietnam’s export performance remains positive, with a reported 15.8% increase in exports to $325.3 billion as of September 15, compared to the previous year.

In the face of rising geopolitical tensions and the U.S.'s “reciprocal” tariff policies, Vietnam aims to achieve a 12% export growth for 2025. The government remains committed to pursuing trade agreements with various global markets as part of its strategy to reduce dependence on the U.S. market and mitigate risks from external economic pressures.

Vietnam’s proactive approach in diversifying its trade relationships while managing challenges from major markets like the U.S. highlights the country’s resilience in global trade amidst evolving economic dynamics.

Source: Reuters

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James Whitman

Central Bank

Economic

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

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Gerik

Economic

Inflationary Pressures and Its Impact on Monetary Policy

In August, Australia’s monthly inflation rate climbed to 3%, marking the highest level in a year. This uptick was primarily attributed to rising housing costs, particularly electricity, as well as increases in food and alcohol prices. The inflation data, which came in above the forecasted 2.9%, has further solidified the argument for the Reserve Bank of Australia (RBA) to maintain its current interest rates rather than pursue an immediate rate cut.

The RBA’s trimmed mean measure, which excludes volatile items like food and energy, moderated slightly to 2.6% in August from 2.7% the previous month. While this measure still falls within the RBA's target range of 2-3%, it suggests that inflationary pressures may not be entirely under control, especially when considering the substantial rise in household energy costs. As a result, the RBA is likely to adopt a cautious approach at its upcoming policy meeting, maintaining rates steady and possibly delaying further cuts until November. This would follow the recent quarter-percentage-point rate cut to 3.6% last month, which was the third reduction of the year.

Factors Driving Inflation

Housing costs were one of the key contributors to inflation. Electricity prices alone surged 24.6% in the 12 months to August, significantly affecting households in Queensland, Western Australia, and Tasmania. Additionally, rents increased by 3.7%, marking the weakest growth since November 2022, while new dwelling prices saw a slight uptick, driven by price hikes from builders.

Another notable trend was the 3.3% increase in meals out and takeaway, marking the strongest annual rise in the past year, influenced by higher labor and ingredient costs. On the other hand, inflation in holiday travel and accommodation prices eased due to decreased demand post-school holidays.

Market Response and Future Projections

Market reactions to the inflation data were swift, with the Australian dollar erasing its losses and rising by 0.3%. The rise in government bond yields further reflected traders’ adjustment of expectations regarding future rate cuts. While there is still an expectation for a rate cut in November, the market has largely priced in a pause in the RBA's rate-cut cycle following the September meeting.

According to James McIntyre, economist at Bloomberg Economics, the unexpected inflation reading does not derail the RBA’s easing cycle but signals that the pace of rate cuts will be slower than initially anticipated. The data suggests that while inflation is still present, particularly in housing and services, the RBA may prioritize gradual monetary policy adjustments in the coming months.

The Road Ahead for the RBA

The RBA is expected to review these inflation figures carefully in the context of recent economic activity, including employment data, which shows ongoing labor market tightness. Governor Michele Bullock has emphasized that inflation has eased considerably and that the monthly CPI data remains volatile, making the quarterly report a more reliable measure for guiding policy decisions.

In the coming months, the Australian Bureau of Statistics (ABS) will begin publishing a more comprehensive monthly inflation measure, expected to provide clearer insights into the nation's inflation trends. However, the transition to this new data format is expected to be gradual, keeping the quarterly inflation reports as the primary benchmark for policy decisions.

In conclusion, while inflation in Australia remains a concern, the RBA’s cautious stance and the recent economic data point towards a more gradual approach to future rate cuts, with November likely being the earliest opportunity for further reductions.

Source: Reuters

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Gerik

Economic

Political

Key Points from the U.S.-ASEAN Trade Talks

The 57th ASEAN Economic Ministers' Meeting, taking place in Kuala Lumpur on Wednesday, will be overshadowed by concerns over the hefty tariffs the U.S. has imposed on Southeast Asian exports. The meeting, which includes U.S. Trade Representative Jamieson Greer and trade ministers from the 10 ASEAN member states, will focus on trade and investment agreements, but the looming tariff issue is likely to dominate the discussions.

The U.S. tariffs, which range from 19% to 20% for most Southeast Asian countries, have raised significant concerns among the region’s economies, which rely heavily on exports for growth. Laos and Myanmar face a 40% tariff, while Singapore is subject to a 10% tariff. Malaysia’s trade minister, Tengku Zafrul Aziz, acknowledged the situation, stating that whether tariffs will be discussed remains to be seen. However, he emphasized the importance of ongoing discussions, pointing out that both ASEAN and the U.S. value their trade and investment relationship.

Vietnam Most Affected

Vietnam, the sixth-largest exporter to the U.S., faces the most severe impact, with the 20% tariff on its goods potentially leading to annual losses of up to $25 billion. This makes it the worst-hit country in the region, as per estimates from the United Nations Development Programme. The country’s export-dependent economy could face significant challenges in maintaining its growth.

While ASEAN countries have pursued separate negotiations with the U.S. regarding the tariffs, there is growing pressure for a more unified stance. The possibility of additional sectoral tariffs on industries like semiconductors, crucial to economies like Thailand, Malaysia, and Vietnam, could drive the bloc to adopt a more coordinated approach. U.S. President Donald Trump has indicated plans to impose a 100% tariff on semiconductors but stated that companies manufacturing in the U.S. or committing to do so would be exempt from the new measure.

The ongoing trade tensions, exacerbated by U.S. tariffs, will continue to shape the discussions between ASEAN nations and the U.S. at the meeting. With economies like Vietnam facing significant losses, there is an increasing need for a unified approach to address these challenges. The outcome of the talks may significantly impact the future trajectory of U.S.-ASEAN relations, especially in critical sectors like semiconductors.

Source: Reuters

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Gerik

Economic

Key Points from the US-China Talks on Rare Earths

During a press briefing on September 23, 2025, U.S. Congressman Adam Smith revealed that the rare earths dispute between the U.S. and China remains unresolved. Smith, who is leading the first U.S. House of Representatives delegation to China since 2019, expressed concerns about the ongoing challenges in addressing this issue.

The U.S. and China have had extensive discussions on rare earths, a critical resource for technology and defense industries, but Smith confirmed that "the rare earth question" is still a matter that needs to be worked on.

Rare Earths and Global Supply Concerns

China holds a dominant position in the global market for rare earths, which are crucial for various technologies, including electric vehicles and military equipment. Beijing has used its influence over these resources strategically in its trade relations with the U.S.

Amid the growing tensions, the U.S. and China agreed on a framework in June to address rare earth magnet shipments, but full details of the agreement remain vague. U.S. Trade Representative Jamieson Greer has acknowledged that the U.S. has seen a significant increase in supplies, but European companies continue to face shortages.

Wider Issues in US-China Relations

In addition to rare earths, Smith also addressed other sensitive issues, such as TikTok’s future operations in the U.S. Following privacy and security concerns, the U.S. is negotiating a plan to transfer TikTok’s U.S. operations to a consortium led by Oracle Corp., with details still under wraps. The U.S. and China are also nearing a deal involving a large Boeing aircraft order, which is expected to play a major role in upcoming trade discussions.

On security, Smith emphasized the need for dialogue regarding China’s rapidly growing nuclear arsenal, urging both sides to engage in talks to avoid potential misunderstandings.

Bilateral Engagements and the Road Ahead

The U.S. delegation's visit is intended to build goodwill ahead of a potential summit between U.S. President Donald Trump and Chinese President Xi Jinping, expected to take place next month in South Korea. During meetings with Chinese officials, including Premier Li Qiang and Foreign Minister Wang Yi, both sides expressed support for more exchanges to stabilize bilateral relations. Despite the lingering tensions, there is a mutual understanding of the importance of maintaining open channels for dialogue.

The U.S. delegation’s trip also touched upon issues like the flow of fentanyl and fair access to China’s markets for U.S. firms, marking continued efforts to address both economic and security concerns in the relationship.

While the rare earths issue remains unresolved, the ongoing dialogue between the U.S. and China offers a glimmer of hope for future cooperation. As both sides continue to navigate their complex relationship, the resolution of these disputes could be pivotal in shaping the future of global trade and security dynamics.