Indonesia's Stocks Fall, Currency Weakens As Protests Dent Sentiment

Winkelmann

Economic

Political

Stocks

Summary:

Indonesia is facing a tough political climate, as it grapples with protests over rising living costs, lawmakers' pay and police violence, hurting investor sentiment in Southeast Asia's largest economy.The Jakarta Composite Index fell as much as 3.6% on Monday, while the Indonesian rupiah depreciated to 16,500 against the U.S. dollar — its weakest intra-day level since Aug. 1 — according to LSEG data.While the violence and protests have rattled investors confidence, they are unlikely to challenge the underlying growth story for Indonesia, several market watchers said.

The latest selloff was primarily "sentiment driven," as investors reacted to developments over the weekend, said Howe Chung Wan, managing director and head of Asian fixed income at Principal Fixed Income.Indonesia still ranks among the more stable emerging markets, Howe said, shrugging off impact from the demonstrations as a near-term setback. "I don't think it completely changes the story at this point."

The near-term potential softness for rupiah is expected to be temporary and will likely reverse when domestic uncertainties fade, according to Christopher Wong, FX analyst at OCBC Bank. He refrained from giving more precise forecasts, citing heightened uncertainty.It was unclear if demonstrations in Jakarta or other cities will continue on Monday, with some Indonesian students and civil society groups having called off protests to avoid any violent escalation by authorities.Investors will watch the government's next steps to address the public's demands and improve market confidence, said Ari Jahja, head of Indonesia research, Macquarie Capital. "On slight positive side, Indonesia could emerge stronger if structural reforms are executed."

Radhika Rao, economist at DBS, agreed that the long-term growth drivers remain intact for Indonesia. Investors will watch for any signs of the government's priority to boost growth and jobs, she said, expecting part of Jakarta's spending cuts could be redirected to alleviate unemployment.Bank Indonesia still has ample room to keep policy accommodative, she said, expecting the central bank to act swiftly to calm markets and step in to support the rupiah when it's due.Yields on Indonesia's 10-year government bonds ticked higher to 6.335 on Monday while yields on the 30-year debts were little changed at 6.850, according to LSEG data.

What's fueling protests

Thousands of protestors in several major cities in the Southeast Asian nation have rallied for for about a week, demonstrating against increasing cost of living, high unemployment rate and what many see as excessive pay for lawmakers.Lawmakers' housing allowances which are said to be 10 times the country's monthly minimum wage at a time when tax hikes, layoffs and inflation have hit lower-income Indonesians, have been key to stoking public anger.

That discontent over economic hardship has morphed into a broader outrage after a motorcycle taxi driver was reportedly killed during police action at a protest site last Thursday. That incident set off a wave of violent protests across several Indonesian cities, calling for a police reform.Protests intensified over the weekend, with rioters targeting the homes of lawmakers, ransacking and looting properties, and burning government buildings, according to media reports. Hundreds of people reportedly stormed finance minister Sri Mulyani's residence in South Tangerang, forcing their way in and taking away valuables.

In an attempt to quell the public anger, Indonesian President Prabowo Subianto said on Sunday the country's parliament would listen and act on people's concerns, pledging to curb hefty allowances for lawmakers.Indonesia, the world's fourth-largest economy with a population of 284 million, had been seen as one of Southeast Asia's most stable economies. The latest protests, which killed at least five and injured hundreds, created the worst crisis for the country since Subianto took office about a year ago.

"This moment represents a key test for Prabowo's approach to dissent," said Bob Herrera-Lim, managing director at political consultancy Teneo. "The president may worry that continuing to yield ground on the streets for more than a few days may generate the impression that he is encouraging a popular opposition to emerge to challenge his government"

The president has warned that firm action will be taken against violent demonstrators. "We cannot deny that signs of extrajudicial, even unlawful, actions are beginning to emerge, some even leading to treason and terrorism," he reportedly said, while ordering the military and police to take stern action against rioters and looters.

Source: CNBC

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Samantha Luan

Forex

Economic

Markets

Friday’s US July PCE inflation gauges printed bang in line with expectations. Lacking signs of tariff-related inflationary pressures, they basically vindicated Fed chair Powell paving the way for a first rate cut in a year at this month’s meeting. A softer Chicago PMI and a downward revision in the US Michigan consumer survey’s inflation expectation gauges added to the US yield curve steepening. Net daily changes varied between -1.3 bps (2-yr) to +5.2 bps (30-yr). European rates followed the same curve movement, adding up to 3.8 bps at the long end. The first national inflation readings (Germany, France, Spain) suggest little to no surprises to tomorrow’s EMU print expected at 2%. That allows the ECB to stick to the sidelines for some time to come with its 2% deposit rate. The euro tried to capitalize on some dollar weakness that prevailed in the early US trading hours with EUR/USD pushing for the 1.17 barrier. The move lacked strength and conviction, perhaps due to the long weekend ahead in the US (markets closed today for Labour Day), but the pair is giving it another shot this morning (1.1714). A federal appeals court late Friday found that US president Trump had gone too far in his use of emergency powers, mostly under the veil of national security, to install his signature import tariffs. It gave the US administration a mid-October deadline to appeal to the Supreme Court before the ruling takes effect. It’s considered the most consequential ruling so far but comes along with several other judges having concluded that the president is acting without legal support. It’s one of the legal themes to keep an eye at, the other one being Trump vs Cook. Friday’s emergency hearing on the firing of the Fed board governor came with no initial ruling though. Stock markets ended Friday on softer footing. The main European and US indices (especially tech) printed losses up to 1%.

With US investors lacking and an uninspiring economic calendar elsewhere, including the euro area, trading is likely to be technically inspired. That’ll change starting tomorrow though. The US offers an important economic update, kicking off with the manufacturing ISM for August. The JOLTS job report is due Wednesday, the services ISM and ADP job report on Thursday and the official payrolls on Friday. After Powell’s pivot at Jackson Hole, markets are probably especially vulnerable for downside surprises in anything related to the labour market. That would trigger additional dovish repositioning (eg. from two to three rate cuts this year) in US markets, weighing on front-end yields and the dollar. The European focus is mainly directed towards France, where the vote of no confidence is drawing near (September 8). The OAT/swapspread is on our radar.

News & Views

South Korean August trade data showed export growth of 1.3% Y/Y in August, showing no harm so far from the higher reciprocal tariff rate installed by the US in July (15%). Semiconductor exports jumped by 27% with vehicle shipments rising by 9%. It will be interesting to see if export momentum holds going into year-end. The US Commerce Department complicated things on Friday by saying that it will revoke a waiver (in 120 days) for South Korean companies Samsung and SK Hynix to use US technologies in their Chinese operations. These regulations allowed them to import chipmaking equipment without applying for a new license each time (“validated end user”). South Korean imports fell by 4% Y/Y with the trade surplus slightly narrowing from $6.6bn to $6.5bn.

EC president von der Leyen said that the EU’s $150bn SAFE programme reached full subscription. Under the programme, cash will be borrowed against the EU budget to member states to jointly spend on military purchases. Those are mainly EU manufactured products with the EU imposing clauses that limit the amount of third-country components. The EC will now review the bids and optimize the distribution of the funds. Initial disbursements could already begin this year.

Source: ACTIONFOREX

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Balogun Opeyemi

Commodity

Fundamental Overview

Gold (XAU/USD) extended its bullish run on Friday, reversing early weakness to settle near $3,447, its highest level since mid-June. The rebound came after the US PCE inflation data reinforced expectations that the Federal Reserve may begin easing policy as early as September.

The Core PCE Price Index rose 0.3% MoM in July, in line with consensus and unchanged from June, while the annual reading ticked higher from 2.8% to 2.9%. Headline PCE grew 0.2% MoM, slightly below the prior 0.3%. While inflation remains sticky, the lack of an upside surprise strengthened bets that the Fed may maintain a dovish tilt, keeping US yields and the dollar under pressure.

Beyond inflation, gold continues to benefit from safe-haven demand. Ongoing geopolitical tensions and concerns about the Fed’s independence amid political pressures are increasing the appeal of bullion as a defensive asset. Furthermore, month-end flows and broad uncertainty in global risk sentiment have amplified gold’s resilience, setting it up for one of its strongest monthly performances this year.

In the near term, the interplay between Fed policy expectations and global risk appetite is likely to guide gold’s trajectory. Pullbacks may remain shallow, as market participants prefer to buy into dips amid heightened uncertainty.

Technical Outlook

On the upside, immediate resistance is aligned at $3,452 (Friday’s high). A firm break above this zone would reinforce bullish momentum, paving the way toward the $3,480 region, before exposing the $3,500 psychological barrier. Sustained strength beyond $3,500 could trigger further extensions toward $3,520–$3,540 in the short term.

On the downside, the first key support rests at the $3,400 base. A failure to defend this level could open the door toward $3,380–$3,370, where heavier technical support is located. Deeper losses may expose $3,350, though this is likely to attract renewed buying interest.

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Samantha Luan

Economic

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Political

The dollar fell on Monday as investors looked ahead to a raft of U.S. labour market data this week that could determine the size of an expected rate cut by the Federal Reserve later this month.Traders were also still assessing Friday's U.S. inflation data and a court ruling that most of Donald Trump's tariffs are illegal, as well as the U.S. president's ongoing tussle with the Fed over his attempt to fire Governor Lisa Cook.The dollar fell 0.04% against the yen to 146.98 in the Asian session, extending its monthly decline of 2.5% against the Japanese currency in August.

The euro was up 0.25% to $1.1710, while sterling edged 0.14% higher to $1.3522. U.S. markets are closed for a holiday on Monday.Top of investors' radar this week will be Friday's U.S. nonfarm payrolls report, which will be preceded by data on job openings and private payrolls."Markets will pay close attention to those data releases in order to gauge the state of the labour market ... any downward surprises to the U.S. labour market data this week will increase market expectations of a rate cut, and that will further give us clues as to whether that cut will be a normal 25-basis-point cut or an outsized 50-basis-point cut," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

Investors are currently pricing in a roughly 88% chance the Fed will ease rates by 25bps at its September 16-17 meeting, according to the CME FedWatch tool.Against a basket of currencies, the dollar eased 0.15% to 97.69 , having clocked a monthly decline of 2.2% on Friday.Rate expectations aside, the dollar has also been weighed down by worries over Fed independence, as Trump steps up his campaign to exert more influence over monetary policy.

A court hearing on Trump's attempt to fire Fed Governor Cook ended on Friday with no immediate ruling on the unprecedented legal fight, meaning she will remain in place for now.At the same time, uncertainty over Trump's tariffs continues to linger.U.S. Trade Representative Jamieson Greer said on Sunday the Trump administration is continuing its talks with trading partners despite a U.S. appeals court ruling that most of Trump's tariffs are illegal."I doubt it will be market-moving if tariffs are going to stay in place, and even if they are ruled to be illegal, I think Trump will find another legal avenue to implement the tariffs," said CBA's Kong.In other currencies, the Australian dollar rose 0.11% to $0.6544 after earlier touching a two-week high, while the New Zealand dollar similarly advanced 0.13% to $0.5902.

The onshore yuan <CNY=CFXS> steadied near Friday's roughly 10-month high and last stood at 7.1318 per dollar.The yuan has drawn support from firm central bank fixings in the onshore market and a buoyant domestic stock market, even as China's economy struggles to mount a solid recovery.

China's factory activity in August expanded at the quickest pace in five months on the back of rising new orders, a private-sector survey showed on Monday, contrasting with an official survey released on Sunday that showed factory activity shrinking for the fifth straight month.

Source: Reuters

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IC Markets

Economic

Forex

Commodity

What happened in the Asia session?

Today’s Asia session was marked by a mixed equity performance, led by pronounced weakness in tech-heavy markets (Japan, Korea, Australia), a sharp rebound in select Chinese tech stocks, and strong moves in precious metals as investors sought safety amid policy and trade uncertainty. Key macro data from China (better-than-expected PMI) and South Korea supported regional outlooks, while currencies traded cautiously ahead of global monetary policy updates.

What does it mean for the Europe & US sessions?

Global stocks, especially in Europe, are starting September on a positive footing amid cautious U.S. sentiment and ongoing volatility. Key inflation and jobs data will steer market expectations for central bank policy, while technical trends and macro flows point to defensive positioning. Economists and traders are watching Eurozone CPI, China PMI, and upcoming U.S. labor data for signals on growth and risk direction.

The Dollar Index (DXY)

The Dollar is currently under pressure with investors prioritizing US employment data and Federal Reserve decisions this week—signs point toward further weakening if rate cuts are confirmed. Currency movements have been somewhat subdued due to US markets being closed for Labor Day, with trading expected to resume tomorrow. Against the yen, the dollar rose slightly to 147.20 but had recorded a monthly decline of 2.5%. The euro strengthened to 1.1693 against the dollar, and the British pound ticked higher to 1.3510.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 is still somewhat elevated, with the PCE price index at 2.6% and core inflation forecast at 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 Bullish

Gold (XAU)

September 1, 2025, marks a watershed moment for gold markets with record-breaking prices across global and domestic exchanges. The convergence of dovish Federal Reserve policy expectations, unprecedented central bank accumulation, U.S. dollar weakness, and persistent geopolitical tensions has created ideal conditions for gold’s continued ascent. With an 87-89% probability of a September Fed rate cut and analysts projecting potential targets of $3,700+ per ounce, gold’s rally appears positioned to continue despite reaching historic levels. The precious metal’s role as both an inflation hedge and safe-haven asset remains firmly intact as global economic uncertainty persists.

Next 24 Hours Bias

Weak Bearish

The Euro (EUR)

The Euro starts September 2025 stable and slightly stronger, as inflation drops and policy uncertainty fades. Economic growth remains modest, supported by EU investment and robust labor markets, while the political climate is increasingly reactive to populist movements and ongoing border and security issues. Eurozone GDP growth for 2025 is projected at about 0.9–1%, with inflation dropping to 2.1%—close to the European Central Bank’s target. Less restrictive monetary policies and increased EU public spending are improving economic confidence, even as trade policy uncertainty lingers.Central Bank Notes:

● The Governing Council kept the three key ECB interest rates unchanged at its July 24 meeting, maintaining the main refinancing rate at 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%, following eight consecutive cuts preceding this decision.

● The decision to hold rates steady was driven by evidence that inflation is stabilizing near the Governing Council’s medium-term target of 2%. Policymakers communicated that further rate moves would be data-dependent, explicitly refraining from pre-committing to any future path amid persistent global and domestic uncertainties.

● According to the latest Eurosystem staff projections, headline inflation is expected to remain around 2.0% for 2025, with projections indicating 1.6% for 2026 and a rebound to 2.0% in 2027. Downward revisions from previous forecasts primarily reflect lower energy price assumptions and a stronger euro. Inflation excluding energy and food is seen averaging 2.4% in 2025 and 1.9% in 2026–2027, little changed from prior projections.

● Real GDP growth for the Eurozone is forecast at 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027. The projections note that a strong first quarter offsets a weaker outlook for the rest of 2025. While business investment and exports are dampened by ongoing trade policy uncertainties—including recent U.S. tariff measures—rising government investment, particularly in defense and infrastructure, is expected to progressively underpin growth.

● Household spending should be supported by firm real income gains and a still-solid labour market. More favorable financing conditions are expected to help strengthen the economy’s resilience to further global shocks. Wage growth, although still elevated, continues to moderate, with profit margins partially absorbing cost pressures.

● Amid significant geopolitical and economic uncertainty, the Governing Council underscored its commitment to ensuring inflation stabilises sustainably at the 2% target. The ECB reiterated it would pursue a meeting-by-meeting, data-dependent approach to its monetary policy stance.

● Future rate decisions will be guided by the assessment of incoming economic and financial data, the outlook for inflation and underlying inflation dynamics, and the effectiveness of monetary policy transmission. The Council continues to stress that it is not pre-committed to any specific rate trajectory.

● The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are continuing to decline in an orderly and predictable way, as the Eurosystem has ceased reinvesting principal payments from maturing securities.

● The next meeting is on 11 September 2025

Next 24 Hours Bias

Weak Bearish

The Swiss Franc (CHF)

The Swiss Franc enters September 2025 from a position of considerable strength, having appreciated significantly against major currencies over the past year. Key developments include the SNB’s maintenance of zero interest rates with potential for negative territory, escalated US trade tensions with 39% tariffs on Swiss goods, and weakening economic growth momentum. The combination of safe-haven demand, deflationary pressures, and trade uncertainties continues to present challenges for Swiss policymakers, with markets anticipating potential further monetary easing at the September 25 SNB meeting. The franc’s strength, while reflecting its safe-haven status, poses ongoing concerns for Switzerland’s export-dependent economy amid deteriorating global trade conditions.Central Bank Notes:

● The SNB eased monetary policy by lowering its key policy rate by 25 basis points, from 0.25% to 0% on 19 June 2025, marking the sixth consecutive reduction.

● Inflationary pressure has decreased further as compared to the previous quarter, decreasing from 0.3% in February to -0.1% in May, mainly attributable to lower prices in tourism and oil products.

● Compared to March, the new conditional inflation forecast is lower in the short term. In the medium term, there is hardly any change from March, putting the average annual inflation at 0.2% for 2025, 0.5% for 2026, and 0.7% for 2027.

● The global economy continued to grow at a moderate pace in the first quarter of 2025, but the global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions.

● Swiss GDP growth was strong in the first quarter of 2025, but this development was largely because, as in other countries, exports to the U.S. were brought forward.

● Following the strong first quarter, growth is likely to slow again and remain rather subdued over the remainder of the year; the SNB expects GDP growth of 1% to 1.5% for 2025 as a whole, while also anticipating GDP growth of 1% to 1.5% for 2026.

● The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.

● The next meeting is on 25 September 2025.

Next 24 Hours Bias

Medium Bearish

The Pound (GBP)

The British Pound on September 1, 2025, demonstrates resilience despite fiscal headwinds, supported by strong business activity data and reduced expectations of aggressive Bank of England rate cuts. While Sterling has gained nearly 2% monthly against the Dollar and sits at $1.3520, it faces ongoing challenges from elevated inflation (expected to peak at 4% in September), fiscal policy uncertainties, and the lasting structural impact of Brexit.The currency’s performance reflects a delicate balance between improving economic indicators and persistent inflationary pressures that limit monetary policy flexibility. Market analysts maintain cautiously optimistic outlooks with 12-month targets around $1.32-1.34, though pre-Brexit strength levels remain elusive.

Central Bank Notes:

● The Bank of England’s Monetary Policy Committee (MPC) voted on 7 August 2025 by a majority (exact split likely 5–3–1 or similar, based on expectations) to cut the Bank Rate by 25 basis points to 4.00%. Multiple members supported the move, citing fragile economic growth and signs of disinflation, while others preferred a larger reduction, and at least one member voted to hold the rate steady due to concerns about persistent inflation.

● The Committee unanimously decided to continue reducing the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the next 12 months, targeting a balance of £558 billion by October 2025. As of 7 August, the gilt stock stands at £590 billion.

● Disinflation has been substantial since 2023 owing to policy tightening and the fading of external shocks. However, an unexpected uptick in headline CPI inflation—to 3.6% in June—reflects pass-through from regulated prices and earlier energy price rises, as well as signs of sticky core inflation.

● Headline CPI inflation is now 3.6%, above the Bank’s 2% target, reflecting regulated and energy price effects. The Committee expects inflation to remain around this level through Q3 before resuming its downward trend into 2026.

● UK GDP growth remains weak. Business and consumer surveys point to lacklustre activity, and the labour market continues to loosen, with increasing evidence of slack. Wage growth has softened but remains above pre-pandemic norms.

● Pay growth and employment indicators have moderated further, and the Committee expects a significant slowing in pay settlements over the rest of 2025.

● Global uncertainty remains elevated, especially with rising energy prices and supply disruptions linked to conflict in the Middle East and renewed trade tensions. These factors prompt the MPC to remain vigilant in monitoring cost and wage shocks.

● The risks to inflation are considered two-sided. With the outlook for growth subdued and inflation persistence less clear, the Committee argues that a gradual and careful approach to further easing is warranted, with future policy decisions highly data-dependent.

● The Committee’s bias is still towards maintaining monetary policy at a restrictive stance until there is firmer evidence that inflation will return sustainably to the 2% target over the medium term. Further adjustments to policy will be decided on a meeting-by-meeting basis, with scrutiny of developments in demand, costs, and inflation expectations.

● The next meeting is on 18 September 2025.

Next 24 Hours Bias

Weak Bearish

The Canadian Dollar (CAD)

The Canadian dollar faces a complex environment on September 1, 2025, balancing between domestic economic weakness and potential US monetary policy easing. While the currency has shown modest strength today, underlying pressures from weak GDP growth, declining oil prices, and anticipated Bank of Canada rate cuts continue to weigh on medium-term prospects. The upcoming September 17 Bank of Canada meeting will be crucial in determining the currency’s near-term direction, with markets increasingly pricing in monetary policy easing to support the struggling economy.Central Bank Notes:

● The Bank of Canada maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70% as of July 30, marking the third consecutive meeting with rates on hold.

● The Council cited ongoing U.S. tariff adjustments and unresolved trade negotiations as driving factors for elevated economic uncertainty. The persistence of tariffs well above early-2025 levels continues to present downside risks for growth and keeps inflation expectations elevated, supporting a cautious approach to monetary easing.

● The lack of a clear U.S. policy path, plus frequent threats of additional tariffs, led the Bank to highlight risks to Canadian exports and broader demand, amplifying uncertainty about future growth.

● Canada’s economic growth in the first quarter came in at 2.2%, slightly stronger than the original forecast, while the composition of GDP growth was largely as expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence.

● Canadian GDP growth is expected to be near 0% in Q2 2025, closely aligned with the more optimistic scenario outlined earlier in the year. Weakness in manufacturing activity—driven by both U.S. trade disruptions and sector-specific challenges like wildfires—contributed to softer output. A partial recovery is anticipated in Q3 due to rebuilding efforts and stronger retail sales in June.

● Consumer spending slowed, especially as households front-loaded durable goods purchases ahead of tariffs. Housing activity remains subdued, with resales and construction still soft despite some government tax relief measures.

● Headline CPI inflation continued to ease, holding close to 1.7% in June, aided by declines in energy prices following the removal of the fuel charge. However, the Bank’s measures of core inflation and underlying price pressures moved up further due to higher import costs from tariffs and lingering supply disruptions.

● The Governing Council reiterated that it will carefully weigh ongoing upward inflation pressure from tariffs and cost shocks against the gradual downward pull from economic weakness. While additional rate cuts remain possible, timing and scale will depend on trade policy developments and inflation’s path.

● The next meeting is on 17 September 2025.

Next 24 Hours Bias

Medium Bearish

Oil

Oil markets on September 1, 2025, reflect a fundamental shift toward oversupply concerns overwhelming geopolitical risk premiums. While Ukrainian attacks on Russian energy infrastructure and broader Middle East tensions continue to provide some price support, the combination of aggressive OPEC+ production increases, record U.S. output, and weakening Chinese demand is creating substantial downward pressure on prices.The market faces a critical juncture as traders await the September 7 OPEC+ meeting, which could determine whether the cartel will pause its production increases or continue prioritizing market share over price support. With oil inventories building and demand growth slowing globally, the structural bear case for oil appears increasingly compelling, suggesting prices may continue trending lower through the remainder of 2025 unless significant supply disruptions occur or demand unexpectedly accelerates.Next 24 Hours BiasWeak Bullish

Source: IC Markets

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Winkelmann

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In focus today

In the euro area, attention shifts to August unemployment data. While the labour market has remained robust with low unemployment, employment growth has moderated lately. We expect the unemployment rate to remain unchanged at 6.2%. Additionally, the final manufacturing PMI is due today. With much of Europe on holiday in August, late responses not captured in the preliminary release could influence the final print. This is particularly important as the flash estimate surprised significantly on the upside.

This week offers plenty of key data, including euro area inflation on Tuesday, Sweden’s flash inflation figures on Thursday, which will be closely watched and key to near-term Riksbank rate decisions. The week concludes with the US jobs report on Friday.

Economic and market news

What happened overnight and over the weekend

In China, PMIs for August released this morning and yesterday highlight ongoing economic softness. Official PMI manufacturing rose slightly to 49.4, while RatingDog PMI (formerly Caixin PMI) edged up to 50.3. While better than expected, weakness persists in construction and employment indices, underscoring the need for stronger stimulus targeting housing and consumption. The price indices were the main bright spot suggesting easing deflationary pressures as output price indices improved.

In the US, an appeals court ruled IEEPA tariffs illegal but allowed them to remain until 14 October, giving the Supreme Court time to intervene. The Trump administration has prepared a backup plan to replace IEEPA tariffs with broader sectoral tariffs, similar to Section 232 tariffs on steel and aluminium, though these would take longer to implement. While fewer tariffs would be positive for now, the prolonged uncertainty poses a downside risk.

What happened Friday

In the US, July’s PCE figures aligned with expectations, with headline inflation at 2.6% y/y and core inflation rising to 2.9% y/y, marking the third consecutive monthly increase in core inflation and leaving the door open to a potential rate cut in September. Meanwhile, August’s revised Michigan Consumer Sentiment index dropped to 58.2, indicating a modest decline in consumer confidence, as both current conditions and future expectations weakened, with a growing number of consumers viewing jobs as ‘hard to get’.

In euro area, we received inflation figures for France, Germany and Spain ahead of the euro area inflation release this Tuesday. Both France and Spain reported lower-than-expected inflation. French HICP inflation fell to 0.8% y/y, below the expected 0.9%, driven by muted services inflation, while Spain’s headline inflation remained steady at 2.7% y/y, below the anticipated rise to 2.8%, though core inflation edged up to 2.4% y/y. In contrast, German HICP inflation surprised to the upside at 2.1% y/y, driven by base effects in energy and goods as well as strong food prices. Overall, we expect euro area HICP inflation to come in at 2.0% y/y (cons: 2.1%).

In Sweden, GDP figures were revised upward as expected, slightly exceeding consensus at 0.5% q/q and 1.4% y/y. Consumption rose 0.4% y/y in Q2, signalling some recovery for households, while retail sales improved in July but remained below early-year levels. Backward revisions lowered GDP growth for both FY2025 and FY2024, yet Q2 recovery momentum was stronger than anticipated, presenting a mixed outcome for the Riksbank.

In Norway, the NAV unemployment rate remained steady at 2.1% (s.a.), aligning with Norges Bank’s June MPR estimate and should in isolation support the case for a September rate cut. Meanwhile, Norwegian retail sales rose by 0.6% m/m in July, slightly below our expectations of a 1% lift signalled by leading indicators, following a largely flat performance in Q2.

Equities: Global risk sentiment deteriorated on Friday amid a sell-off in US yields, led by the long end, with the 30-year US Treasury yield rising by 4bp. The S&P 500 closed -0.6% on Friday, erasing earlier gains from the week and ending broadly unchanged for the week. Unsurprisingly, defensives outperformed cyclicals by 1pp on Friday. The sell-off in cyclicals was led by the tech sector, after a strong run last week, declining 1.6%. In Europe, the CAC 40 continues to underperform amid lingering political turmoil.

FI and FX: On a relatively muted day in the FX market terms of price action, SEK, NZD and AUD gained vis-à-vis GBP and JPY. EUR/USD ended the week close to the 1.17 level, EUR/SEK close to 11.05 and EUR/NOK around 11.75. The 10Y US Treasury yield finished the week at 4.23% – around the lowest in about two weeks. Both the 10Y US and German swap spreads ended the week at a tighter level.

Source: ACTIONFOREX

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Economic

Forex

Asia’s manufacturing activity split across the region’s various hubs in August with Indonesia and Thailand powering ahead while South Korea and Japan cooled as tariffs weighed on output.In Indonesia, output and new orders increased for the first time in five months and production in Thailand rose at the fastest pace in 13 months, according to S&P Global data published on Monday. Overall activity in South Korea, Japan and Taiwan remained below the 50-mark that is the midpoint between expansion and contraction.

Asian producers have been whipsawed by US tariffs this year, and August marked the arrival of President Donald Trump’s so-called “reciprocal” tariffs on nations around the world. Overall exports have eased in recent months after a surge earlier in the year as firms sought to get ahead of the levies.The impact of higher US import duties varied across the region: In Japan, new export orders contracted at the quickest pace since March 2024, with reduced demand from Europe, China and the US. In South Korea, the decline was the biggest since April. Even in Thailand, a surge in new orders was led by domestic demand, as new export orders fell for the first time since April.

Meanwhile, Indonesia strengthened as overall activity expanded for the first time since March, allowing firms to raise prices by the most in about a year. New export orders rose at the steepest rate since September 2023 and companies remained optimistic for the year. In recent days, though, widespread protests have gripped the nation on inequality and labour concerns.Vietnam and Malaysia purchasing managers indices are reported later in the week and will provide a fuller picture of activity in the region.