European Stock Markets Expected to Open Higher Amid Inflation and Trade Developments

Economic

Summary:

European stocks are projected to rise on Wednesday, as traders evaluate the latest inflation data and trade news. The U.K.’s FTSE index is expected to climb by 0.2%, while Germany's DAX is forecast to increase by 0.46%...

Focus on Trade and Inflation Data

The markets are focusing on the potential economic implications of U.S. President Donald Trump’s request for the European Union to impose tariffs of up to 100% on China and India due to their ongoing oil purchases from Russia. This proposal aims to intensify pressure on Moscow to end the ongoing war in Ukraine, but such actions could further destabilize global trade relations, particularly between the EU, China, and India.

Inflation data is also central to the market’s outlook, with China releasing key figures overnight and the U.S. expected to report later Wednesday. S&P 500 futures slightly increased, as traders awaited the release of the latest producer price index (PPI), a precursor to the more significant consumer price index (CPI) report on Thursday. Economists anticipate a 0.3% monthly increase in PPI, which could push the annual CPI rate to 2.9%. If these projections hold true, it would likely prompt another rate cut by the U.S. Federal Reserve during its meeting next week.

Global Economic Observations and Market Impacts

Asian markets also experienced slight increases following the release of inflation data from China, where consumer prices dropped 0.4% year-over-year in August, a steeper decline than the expected 0.2%.

In addition to inflation data, investors will also be analyzing earnings reports from major companies like Inditex and Associated British Foods, and industrial production figures from Spain and Italy. These developments are expected to influence European stock market movements as investors continue to navigate the current global economic landscape.

In summary, European markets are anticipated to open higher as they react to trade tensions, inflation reports, and earnings releases, signaling a period of cautious optimism amidst a complex global economic backdrop.

Source: CNBC

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Stock Market Movements in Asia

Asian stock markets experienced significant gains on Wednesday, following the upward trend of U.S. equities. Japan's Nikkei rose by 0.3%, South Korea’s KOSPI climbed 1.3%, and Taiwan’s stock market increased by 1%. Hong Kong's Hang Seng and Chinese blue-chip stocks also saw modest growth. These movements came in response to Wall Street’s strong performance, with major U.S. indices hitting all-time highs the previous day. The positive outlook in Asia was influenced by global risk sentiment, as traders assessed the likelihood of the Federal Reserve cutting rates in response to weak U.S. economic data.

The prevailing market sentiment is that the Federal Reserve will announce a rate cut during its meeting next week, with a 7% chance of a more aggressive half-point reduction, according to CME Group’s FedWatch Tool. The likelihood of a rate cut has increased following a disappointing U.S. payroll report, which showed weakness in the labor market. This has led investors to expect that the Fed will act swiftly to support economic growth. However, this view will face its final tests through the release of U.S. inflation data in the coming days. A surprise upside in inflation could challenge the consensus and dampen expectations of aggressive rate cuts.

Bond Market Reaction

In the bond markets, U.S. Treasury bonds experienced a second consecutive day of decline, pushing yields higher. The yield on the 10-year Treasury note rose to 4.093%, while Japanese government bond yields also saw a slight increase. This rise in bond yields is seen as a response to investor sentiment adjusting to the increasing likelihood of rate cuts by the Fed, while the broader market remains focused on inflation trends that could further influence monetary policy decisions.

Gold prices took a breather after hitting an all-time high on Tuesday, trading at $3,633 per ounce. The U.S. dollar strengthened slightly against major currencies, including the euro and yen, driven by a combination of Fed rate cut expectations and ongoing geopolitical tensions. Crude oil prices remained elevated following recent tensions in the Middle East, particularly after Israel’s attack on Hamas leadership in Qatar. Brent crude futures rose by 0.5%, while U.S. West Texas Intermediate crude saw a 0.6% increase.

Geopolitical Events and Central Bank Policies

Geopolitical concerns continued to impact markets, particularly in the Middle East, where tensions between Israel and Hamas could disrupt regional stability. Additionally, the European Central Bank’s policy decision on Thursday and the Bank of Japan’s upcoming meeting next week are closely watched by investors. While the ECB is expected to hold rates steady, the Bank of Japan is not anticipated to raise rates at its meeting, although differing opinions in the press suggest that policy shifts might be considered later in the year.

In conclusion, global markets are reacting to a mix of economic data, central bank decisions, and geopolitical tensions. Investors are closely monitoring U.S. inflation data and the Fed’s next move, with expectations of a rate cut supporting risk-on sentiment in equities. At the same time, the bond market and commodity prices reflect underlying uncertainty, with potential shifts in monetary policy and geopolitical developments playing significant roles in shaping future market trends.

Source: Bloomberg

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Mexico’s New Import Taxes Proposal

Mexico's Treasury Secretary, Édgar Amador, unveiled a proposed 2026 budget that includes plans to impose new import taxes on products from over 1,400 categories, primarily targeting nations with which Mexico does not have a commercial treaty. While the proposal does not explicitly mention China, the tariffs are believed to largely affect Asian imports, particularly textiles and other goods. This move is part of Mexico's broader strategy to stimulate national production and reduce its trade deficits, aiming to bolster domestic consumption and industry.

The proposal comes amid heightened tensions with the U.S. over trade relations. Mexico’s government is under increasing pressure from the Trump administration to present a unified front against China, especially given the geopolitical context. The U.S. has threatened to impose additional 25% tariffs on certain products that fall outside the U.S.-Mexico-Canada Agreement (USMCA). In response, Mexico has been ramping up its own tariff policies, including a crackdown on pirated goods from Asia.

The new taxes, which aim to reduce Mexico's reliance on foreign imports, are set to be aligned with World Trade Organization (WTO) rules, ensuring compliance with international trade norms. However, Amador emphasized that Mexico would carefully monitor the impact of these tariffs on prices and production to avoid undue disruption to the local economy.

Political and Economic Context

The proposed tariffs will likely face scrutiny from China, Mexico's second-largest trading partner in Latin America. The Chinese government has already expressed opposition to the potential restrictions, with China’s spokesperson criticizing the measures as harmful to China's legitimate interests. This friction highlights the broader complexities in Mexico's trade policy, where it faces pressure from both the U.S. and China.

Despite these challenges, the Mexican government's proposal is expected to gain approval due to the ruling party’s majority in Congress, making it likely that the budget, including the new tariffs, will be enacted.

The new tariff measures are part of a broader economic strategy that Mexico is using to navigate the shifting global trade environment, especially as U.S.-China tensions continue to affect international trade flows. With increasing reliance on domestic production, Mexico seeks to position itself as a stronger economic player in Latin America, while also managing its complex trade relationships with both the U.S. and China.

Source: Reuters

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Legal Battle Over Fed Governor's Removal

In a significant legal ruling, U.S. District Judge Jia Cobb temporarily blocked President Donald Trump from firing Federal Reserve Governor Lisa Cook, who is facing allegations of mortgage fraud. The judge’s decision allows Cook to stay on the job as she challenges Trump’s move, which was based on claims of fraudulent mortgage applications. The ruling is a victory for Cook, who has consistently argued that the accusations against her were politically motivated.

Trump’s administration alleged that Cook had committed mortgage fraud by misrepresenting properties as her primary residence to obtain more favorable loan terms in 2021. The accusations were initially made by Bill Pulte, the head of the Federal Housing Finance Agency, who claimed that Cook had fraudulently listed homes in Michigan, Georgia, and Massachusetts. Trump cited these allegations in a letter announcing Cook’s dismissal from her position, despite her denial of any fraudulent intent.

However, Judge Cobb ruled that the charges did not meet the legal standards for removal under the Federal Reserve Act, which only allows dismissal based on misconduct related to a governor's duties. Additionally, the judge noted that Cook’s due process rights under the Constitution had likely been violated.

Fed Independence and Political Tensions

The ruling is seen as a reinforcement of the Federal Reserve's independence from political influence, a principle that is critical to the stability of the U.S. financial system. In her ruling, Cobb emphasized that allowing political interference in the Fed’s decisions could undermine the nation’s banking system and overall economic stability.

This legal battle also highlights the ongoing political tension between President Trump and the Federal Reserve. Trump has long criticized the Fed’s monetary policy, especially its reluctance to lower interest rates more aggressively. His previous attempts to pressure Fed Chair Jerome Powell to cut rates more quickly further underscore the political dynamics surrounding the central bank.

Appeal and Ongoing Investigation

The Justice Department is expected to appeal the ruling, and the case may eventually reach the U.S. Supreme Court for a final decision. Meanwhile, the criminal probe into Cook’s alleged mortgage fraud continues. However, her lawyers argue that if there were any errors, they were unintentional clerical mistakes, not intentional fraud, and that Cook’s removal was an unjustified power grab by the administration.

This case is shaping up to be a significant flashpoint in the ongoing debate over the independence of U.S. financial institutions and the extent to which political pressures should influence economic decision-making.

Source: Reuters

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Australia's Investment in Underwater Drone Technology

Australia's defense sector is set for a major boost with the unveiling of the "Ghost Shark" underwater drone, a cutting-edge technology aimed at enhancing the nation's military capabilities. The drone, developed under a contract with Anduril Australia, is designed for long-range operations, capable of conducting surveillance, reconnaissance, and targeted strikes. This new addition is part of Australia's broader strategy to strengthen its defense in the face of growing regional challenges, particularly from China's expanding military influence.

The Australian government is investing A$1.7 billion ($1.1 billion) into the development and manufacture of the "Ghost Shark." The drones will be operational by early 2026, with a plan to deploy dozens of them over the next five years. The project is expected to improve Australia’s strategic position, particularly in securing vital sea lanes crucial for international trade and ensuring national security.

Strategic and Regional Context

Deputy Prime Minister Richard Marles emphasized the importance of this investment, pointing out that Australia's current strategic environment is one of the most complex and challenging since the end of World War II. He stated that the goal of these defense investments is not just about increasing military power, but also about deterring conflict and ensuring peace and stability in the region.

As part of its ongoing defense modernization efforts, Australia is also collaborating with the U.S. and the UK to develop a fleet of nuclear-powered submarines, which may be deployed by the 2030s under the Aukus agreement. This further underscores the nation's commitment to bolstering its defense capabilities in response to regional security concerns.

Anduril's Role in the Project

Anduril, a U.S.-based defense contractor known for its innovative defense technologies, is at the forefront of developing the "Ghost Shark" drone. The company, which specializes in drones, artificial intelligence, and augmented reality, has been a key player in redefining modern defense systems. Anduril's focus on integrating AI and advanced technologies into defense platforms is central to Australia's strategy of upgrading its military infrastructure.

The investment in the "Ghost Shark" underwater drone is a significant step in Australia's ongoing effort to adapt to a rapidly changing geopolitical landscape. By integrating advanced technology into its defense operations, Australia aims to maintain a strong deterrent against potential threats while ensuring the stability of crucial maritime trade routes. This initiative marks a broader shift towards enhancing long-range attack and area denial capabilities, reinforcing Australia's role in regional security.

Source: Reuters

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Markets Reflect Optimism Over Rate Cuts

In early Wednesday trading, most Asian markets saw positive momentum, mirroring the record gains on Wall Street. The Nikkei 225 in Japan rose by 0.5% to 43,684.29, while Australia’s S&P/ASX 200 gained 0.2%, reaching 8,824.20. South Korea’s Kospi surged 1.3% to 3,303.51. Hong Kong’s Hang Seng added 0.7%, closing at 26,131.20. The Shanghai Composite, however, showed slight movement, dipping by less than 0.1% to 3,804.28.

The optimism is largely tied to Wall Street’s recent performance, driven by stronger-than-expected data on U.S. jobs, which has bolstered the belief that the Federal Reserve will cut interest rates at its next meeting. Investors have been betting that the Fed will take action to stimulate the economy, which could further boost stock market performance.

U.S. Jobs Data Fuels Fed Rate Cut Expectations

A critical factor influencing the market's movement is a report indicating the U.S. job market’s slowing pace. On Tuesday, the U.S. government revised its previous count of jobs for the period through March 2025, reducing the total by 911,000 jobs or 0.6%. This weaker job growth report has intensified speculation that the Federal Reserve will ease rates for the first time this year.

With inflation still a concern but showing signs of easing, market analysts believe the Fed may prioritize job market recovery over inflation, which could prompt a rate cut aimed at stimulating the economy.

Oil Prices Edge Up Despite Middle East Tensions

In commodities, oil prices saw modest increases despite the rising geopolitical tensions in the Middle East. U.S. crude added 51 cents, reaching $63.14 a barrel, while Brent crude, the international benchmark, gained 51 cents to $66.90. Despite the escalation in Gaza, including Israel’s strike on Hamas' leadership in Qatar, the oil price rise remained relatively contained.

The U.S. dollar showed slight weakening, with the yen rising to 147.31 from 147.37 yen. Meanwhile, the euro edged down to $1.1705 from $1.1714, as global currencies react to shifting expectations regarding U.S. economic conditions and the Fed’s monetary policy.

The optimism surrounding potential Fed rate cuts continues to drive positive sentiment across global stock markets, even as geopolitical tensions and inflationary risks persist. With global markets awaiting further data on U.S. job growth and inflation, the outlook remains uncertain but cautiously optimistic, especially in light of the anticipated policy moves from the Federal Reserve.

Source: AP

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Forex

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What happened in the U.S session?

The September 9, 2025, US session was characterized by a paradoxical market response where equity indices reached record highs despite the largest jobs revision in history. The 911,000 downward revision to payrolls data solidified expectations for Fed rate cuts while simultaneously supporting risk assets. The most impacted instruments were equities (particularly healthcare and financial stocks), Treasury bonds (with rising yields), the strengthening dollar, and energy commodities benefiting from supply constraints and geopolitical tensions. Market attention now turns to this week’s inflation data, which will provide crucial input for the Fed’s September policy decision.

What does it mean for the Asia sessions?

Wednesday’s trading in Asia will be dominated by China’s inflation data, ongoing Fed rate cut speculation, and Japan’s political transition. The combination of weak US labor data, persistent Chinese deflationary pressures, and geopolitical tensions is creating a complex environment favoring safe-haven assets like gold while supporting risk assets through monetary easing expectations. Traders should monitor US PPI data later in the week as it could influence the magnitude of the Fed’s rate cut and subsequent Asian market reactions.

The Dollar Index (DXY)

The US dollar faces a pivotal week with inflation data that could either reinforce or challenge Fed rate cut expectations. While markets are largely convinced of a September rate cut, the extent and pace of future easing will depend heavily on Thursday’s CPI report. The dollar’s technical position suggests a continued bearish bias unless inflation significantly exceeds expectations. Key levels to watch include support at 97.00 and resistance at 98.37, with a break below 97.00 potentially targeting the year-to-date lows near 96.37.Central Bank Notes:

● The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25% to 4.50% at its meeting on July 29–30, 2025, keeping policy unchanged for the fifth consecutive meeting.

● The Committee reiterated its objective of achieving maximum employment and inflation at the rate of 2% over the longer run. While uncertainty around the economic outlook has diminished since earlier in the year, the Committee notes that challenges remain and continued vigilance is warranted.

● Policymakers remain highly attentive to risks on both sides of their dual mandate. The unemployment rate remains low, near 4.2%–4.5%, and labor market conditions are described as solid. However, inflation remains somewhat elevated, with the PCE price index at 2.6% and a core inflation forecast of 3.1% for year-end 2025, up from earlier projections; tariff-related pressures are cited as a contributing factor.The Committee acknowledged that recent economic activity has expanded at a solid pace, with second-quarter annualized growth estimates near 2.4%. However, GDP growth for 2025 has been revised downward to 1.4% (from 1.7% projected in March), reflecting expectations of a slowdown in the coming quarters.

● In the revised Summary of Economic Projections, the unemployment rate is expected to average 4.5% in 2025, and headline PCE inflation is forecast at 3.0% for the year, with core PCE at 3.1%. Policymakers continue to anticipate that inflation will moderate gradually, with ongoing risks from tariffs and global conditions.

● The Committee reaffirmed its data-dependent and risk-aware approach to future policy decisions. Officials stated they are prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede progress toward the Fed’s goals.

● As previously outlined, the Committee continues the measured run-off of its securities holdings. The pace of balance sheet reduction, which slowed since April (monthly redemption cap on Treasury securities reduced from $25B to $5B, while holding agency MBS cap steady at $35B), was left unchanged this month to support orderly market functioning and financial conditions.

● The next meeting is scheduled for 16 to 17 September 2025.

Next 24 Hours BiasMedium Bearish

Gold (XAU)

Gold’s historic rally to new record highs above $3,670 per ounce reflects a powerful convergence of fundamental drivers that show little sign of abating. Federal Reserve rate cut expectations, U.S. dollar weakness, sustained central bank buying, and persistent geopolitical tensions have created an exceptionally favorable environment for precious metals. With major institutions forecasting continued gains toward $3,700-$4,000 levels, gold appears positioned to extend its remarkable 2025 performance as investors seek refuge from economic uncertainty and currency debasement concerns.Next 24 Hours Bias

Strong Bullish

The Australian Dollar (AUD)

The Australian Dollar faces a complex environment on September 10, 2025. While domestic economic data shows resilience with strong GDP growth and improving business conditions, consumer sentiment has retreated from recent highs amid concerns about the economic outlook. The currency is primarily benefiting from US dollar weakness as Fed rate cut expectations intensify following disappointing US jobs data.Central Bank Notes:

● The RBA held its cash rate steady at 3.60% at its September meeting on 8–9 September 2025, following a 25 basis point reduction at the August meeting. This maintains a cautious yet supportive stance, with the decision largely anticipated given recent evidence of inflation settling within the target band.

● Inflation readings continue to ease, with headline CPI most likely tracking near 2.1–2.3%—comfortably within the 2–3% target range. September quarter figures are pending, but leading indicators show further moderation in non-housing components, even as insurance and housing-related costs remain sticky.

● The RBA’s preferred trimmed mean inflation is estimated at around 2.7%–2.9%, further reflecting progress toward the midpoint of the target range. Energy and food volatility still create some short-term uncertainty, but underlying inflation is broadly on track.

● Global conditions are a key source of risk. While U.S.–EU trade tensions have stabilized slightly, volatility in equities and commodities persists, with uncertainty feeding through to Australia’s trade and export outlook.

● Domestic demand shows tentative improvement. Real household incomes and a stabilizing housing sector have underpinned modest consumption growth, though business investment remains uneven—service sectors outperforming manufacturing and construction.

● Labour market tightness persists, but momentum continues to slow from earlier in the year. Employment gains remain, but job vacancies and hiring intentions have softened, with underutilization rising marginally for the second straight month.

● Wage growth has slowed in line with easing labour pressures, but unit labour costs remain elevated due to weak productivity. The RBA continues to flag subdued productivity as a medium-term cost risk.

● Forward indicators suggest household consumption may be softer than previously forecast. Elevated rents and high borrowing costs are dampening discretionary spending, despite modest income recovery.

● The Board continues to highlight the risk that household spending could underperform, potentially weighing on business investment and job creation if confidence remains subdued.

● Monetary policy remains mildly restrictive, in line with greater inflation control and ongoing economic rebalancing. The decision to hold rates recognizes both progress and ongoing uncertainties, with future moves explicitly tied to incoming data.

● The Reserve Bank reinforced its goals of price stability and full employment, stating readiness to adjust policy if economic or inflation outcomes diverge from baseline projections.

● The next meeting is on 29 to 30 September 2025.

Next 24 Hours Bias

Weak Bullish

The Kiwi Dollar (NZD)

The New Zealand Dollar has experienced a notable recovery in early September 2025, driven primarily by US Dollar weakness following disappointing employment data and supportive Chinese trade figures. While the currency has reached three-week highs around 0.5940, domestic economic challenges, including RBNZ dovish policy, weak GDP growth, and rising unemployment, continue to limit substantial upside potential. The NZD’s near-term trajectory will largely depend on global risk sentiment, Fed policy decisions, and China’s economic performance, with technical resistance around 0.60 serving as a key level to watch.Central Bank Notes:

● The Monetary Policy Committee (MPC) agreed to cut the Official Cash Rate (OCR) by 25 basis points to 3.00% on 20 August 2025, marking a three-year low and continuing the easing cycle after July’s pause. The vote was split 4-2, with two members advocating a 50-basis-point cut, highlighting diverging views within the Committee.

● Policymakers indicated that significant uncertainty and a stalling economic recovery prompted this move, leaving the door open for further rate cuts later in the year, with a possible trough around 2.5% by December.

● Annual consumer price index inflation rose to 2.7% in the June quarter and is expected to reach 3% for the September quarter—at the upper end of the MPC’s 1 to 3% target band—but medium-term expectations remain anchored near the 2% midpoint..

● Despite the near-term uptick, headline inflation is projected to return toward 2% by mid-2026, as tradables inflation pressures ease and significant spare capacity continues to dampen domestic price momentum.

● Domestic financial conditions are broadly aligning with MPC expectations, as lower wholesale rates have translated into reduced borrowing costs for households. However, declining consumption and investment demand, higher unemployment, and subdued wage growth reflect ongoing economic slack.

● GDP growth stalled in the second quarter of 2025, contrasting with earlier projections. High-frequency indicators point to continued weakness driven by rising prices for essentials, weakening household savings, and constrained business lending.

● The MPC cautioned that ongoing global tariff uncertainties and policy shifts, especially recent changes in US trade regulations, could amplify market volatility and present both upside and downside risks to New Zealand’s recovery.

● Subject to medium-term inflation pressures continuing to ease as projected, the MPC signaled scope for further OCR cuts, possibly down to 2.5% by year-end, consistent with the latest Monetary Policy Statement outlook.

● The next meeting is on 22 October 2025.

Next 24 Hours Bias

Medium Bearish

The Japanese Yen (JPY)

The Japanese Yen faces a complex environment on September 10, 2025, balancing political uncertainty against supportive economic fundamentals. While Prime Minister Ishiba’s resignation initially weakened the currency, stronger GDP data and potential BoJ rate hikes provide underlying support. The yen’s trajectory will likely depend on the outcome of the October LDP leadership election, Federal Reserve policy decisions, and how effectively Japan’s new leader can stabilize the political situation. Current trading around 147.3 per dollar reflects this uncertain but potentially strengthening outlook for the Japanese currency.Central Bank Notes:

● The Policy Board of the Bank of Japan decided on 31 July, by a unanimous vote, to set the following guidelines for money market operations for the inter-meeting period:

● The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.

● The BOJ will maintain its gradual reduction of monthly outright purchases of Japanese Government Bonds (JGBs). The scheduled amount of long-term government bond purchases will, in principle, continue to decrease by about ¥400 billion each quarter from January to March 2026, and by about ¥200 billion each quarter from April to June 2026 onward, targeting a purchase level near ¥2 trillion in January to March 2027.

● Japan’s economy is experiencing a moderate recovery overall, though some sectors remain sluggish. Overseas economies are generally growing moderately, but recent trade policies in major economies have introduced pockets of weakness. Exports and industrial production in Japan are essentially flat, with any uptick largely driven by front-loaded demand ahead of U.S. tariff increases.

● On the price front, the year-on-year rate of change in consumer prices (excluding fresh food) remains in the mid-3% range. This reflects continued wage pass-through, previous import cost surges, and further increases in food prices, particularly rice. Expectations for future inflation have begun to rise moderately.

● The effects of the earlier import price and food cost increases are expected to fade during the outlook period. There may be a temporary stagnation in core inflation as overall growth momentum softens.

● Looking forward, the economy is likely to see a slower growth pace in the near term as overseas economies feel the pinch of ongoing global trade policies, putting downward pressure on Japanese corporate profits. Accommodative financial conditions are expected to buffer these headwinds somewhat. In the medium term, as global growth recovers, Japan’s growth rate is also expected to improve.

● With renewed economic expansion, intensifying labor shortages, and a steady rise in medium- to long-term expected inflation rates, core inflation is projected to gradually pick up. By the latter half of the BOJ’s projection period, inflation is forecast to move in line with the 2% price stability target.

● There are multiple risks to the outlook, with especially elevated uncertainty regarding the future path of global trade policies and overseas price trends. The BOJ will continue to closely monitor their impact on financial and foreign exchange markets, as well as on Japan’s economy and inflation.

● The next meeting is scheduled for 17 to 18 September 2025.

Next 24 Hours BiasMedium Bearish

Oil

The oil market on September 10, 2025, presents a complex picture of competing forces. While geopolitical tensions from Israel’s Qatar strike and potential Russian sanctions provide near-term price support, fundamental factors point toward continued weakness. OPEC+’s modest production increase signals recognition of demand concerns, but the group’s commitment to unwinding cuts ahead of schedule suggests confidence in market absorption capacity.Next 24 Hours Bias

Medium Bearish