US-Iran Talks Seek a Breakthrough as Cooler PCE Data Fail to Ease Inflation Pressure

Daily News

Summary:

The main disagreement over the seven-day US-Iran proposal centers on the sequencing of implementation measures; US August PCE inflation cooled, but underlying inflation pressures remain...

Key Developments

1. Iranian Foreign Minister Receives US Feedback in Doha as Seven-Day Proposal Centers on Implementation Sequencing

2. Russia Extends Diesel Export Ban Through October 31

3. Report Shows Middle East Crude Oil Exports Rebounded in September

4. Japanese Large Manufacturers' Confidence Rises to More Than Eight-Year High, Strengthening Expectations for Another BOJ Rate Hike This Year

5. Rubio Orders Iranian UN Delegation to Leave US Immediately After US-Iran Talks Stall

6. BOJ September Summary of Opinions: Several Policymakers See Upside Inflation Risks and Call for Further Rate Hikes

7. Kashkari: Inflation Remains Elevated, Expects One More Rate Hike This Year and Another in 2027

8. US August PCE Inflation Cools, but Inflation Pressures Remain

9. US September ADP Employment Growth Beats Market Expectations

Detailed Coverage

Iranian Foreign Minister Receives US Feedback in Doha as Seven-Day Proposal Centers on Implementation Sequencing

An official briefed on the negotiations said Iranian Foreign Minister Abbas Araghchi and his team met with Qatari mediators in Doha on Tuesday evening. Araghchi received US feedback on the seven-day proposal and will discuss it in Tehran on Wednesday.

The document under negotiation outlines a seven-day plan aimed at building mutual trust and returning to an enhanced version of the memorandum of understanding signed by the United States and Iran in June. The main disagreement between the two sides concerns the sequencing of measures under the seven-day plan, rather than the specific substance of the proposal.

Russia Extends Diesel Export Ban Through October 31

The Russian government announced on September 30 that it would extend through October 31 a ban on direct exports by Russian fuel producers of diesel, marine fuel and gas oil, citing ongoing regional conflicts and supply shortages that continue to affect global energy markets.

According to a statement from the Russian Cabinet's press service, the measure is intended to maintain stability in the domestic fuel market. Supply pressures have intensified during the agricultural harvest season, when demand for fuel used by agricultural machinery and locomotives rises.

Report Shows Middle East Crude Oil Exports Rebounded in September

A latest report released by vessel-tracking firm Kpler on September 28 showed a significant rebound in crude oil exports from major Middle Eastern producers in September.

Data showed that Saudi Arabia, the United Arab Emirates, Iraq, Oman, Qatar, Kuwait and Iran exported a combined average of nearly 16.33 million barrels of oil per day in September, about 3.2 million barrels per day below the roughly 19.51 million barrels per day recorded before the Iran conflict began in February.

Kpler estimated that Middle East crude oil exports had recovered to around 80% of their pre-conflict level in September.

Japanese Large Manufacturers' Confidence Rises to More Than Eight-Year High, Strengthening Expectations for Another BOJ Rate Hike This Year

The Bank of Japan's quarterly Tankan survey released on Thursday showed that sentiment among large manufacturers rose to 24 in September from 22, marking the sixth consecutive quarterly improvement and the highest level in more than eight years. The reading provides further support for the BOJ to continue raising interest rates.

The Tankan survey is one of the key indicators closely watched by the Bank of Japan. Sentiment among large non-manufacturers edged down to 35 from 37.

The data indicate that Japanese companies continue to show resilience, which could further strengthen market expectations for another BOJ rate hike this year.

Rubio Orders Iranian UN Delegation to Leave US Immediately After US-Iran Talks Stall

According to Axios, a US official and another person familiar with the matter said Rubio on Monday ordered Iran's UN delegation to leave the United States immediately after US-Iran talks stalled.

Although the Iranian delegation was already expected to leave soon, Rubio's move amounted to a rare diplomatic rebuke and underscored the deep mistrust between the two countries as efforts to broker an end to the war have so far failed to produce meaningful results.

Qatari mediators had previously attempted to push the US-Iran diplomatic process toward a breakthrough, but made little progress as neither side was willing to compromise.

Rubio said at the time that the Iranian delegation had overstayed its welcome and should leave because the UN General Assembly had ended. Among the Iranian officials asked to leave New York was Foreign Minister Abbas Araghchi. The delegation headed to the airport several hours later and boarded a flight from New York to Doha at 1:20 a.m. local time on Tuesday.

BOJ September Summary of Opinions: Several Policymakers See Upside Inflation Risks and Call for Further Rate Hikes

The Bank of Japan's September Summary of Opinions showed broad agreement within the board that further rate hikes are warranted, although policymakers remain divided over the pace and magnitude of tightening. The overall tone was hawkish.

Several policymakers said the economy had demonstrated sufficient resilience, while underlying inflation had moved close to, or was broadly around, the 2% target. They also pointed to significant upside inflation risks stemming from crude oil prices and geopolitical conflicts.

These policymakers argued that the BOJ should respond preemptively to prevent inflation from overshooting its target and should accelerate the pace of rate hikes, with some suggesting that the policy rate should move relatively quickly toward an approximate neutral or target level, leaving room for subsequent adjustments in either direction.

Two dissenting policymakers, however, said the consumer price index remained below 2% and that data on domestic demand did not show clear signs of a strong economy. They argued that the sustainability of current inflation had not yet been sufficiently confirmed and that premature rate hikes could weigh on an already fragile recovery in domestic demand.

They also said the BOJ should continue to monitor the cumulative lagged effects of previous rate hikes and avoid significantly accelerating tightening based solely on short-term data. Policymakers should carefully weigh the combined impact of exchange-rate movements and fiscal pressures on the real economy to avoid an overly aggressive policy shift.

Kashkari: Inflation Remains Elevated, Expects One More Rate Hike This Year and Another in 2027

Minneapolis Fed President Neel Kashkari said on Wednesday that although the latest data showed inflation running below economists' expectations, price increases remained a concern.

Inflation remains too high, at around 3%, and has stayed elevated for more than five years. The latest inflation data have not materially changed that assessment.

Kashkari expects one more rate hike this year and another in 2027. He also said that higher interest rates may not have much of an impact on investment by hyperscale cloud-computing companies, while the recent rise in bond yields is a global phenomenon.

US August PCE Inflation Cools, but Inflation Pressures Remain

The US Commerce Department reported that core PCE inflation rose 0.2% month over month and 3.0% year over year in August, while headline PCE inflation increased 0.3% month over month and 3.4% year over year.

The figures came in below expectations across the board. In particular, the annual increase in core PCE inflation was the lowest since February, directly easing market concerns about further near-term monetary tightening by the Federal Reserve.

However, the decline in the latest figures was not entirely attributable to a sudden cooling in underlying prices. It was also partly related to an adjustment by the Bureau of Economic Analysis (BEA) to its methodology for calculating the PCE price index.

The BEA updated its methodology for calculating the PCE price index and applied the new methodology retrospectively to the first quarter of 2021. This means that part of the weaker-than-expected core PCE reading reflected changes in statistical methodology and the benchmark base, rather than a corresponding decline in actual price pressures in the economy.

Over a longer period, inflation pressures have not fully subsided. The headline PCE price index rose 0.31% month over month in August, significantly faster than the 0.05% increase in July and the 0.10% decline in June. The six-month annualized rate accelerated to 3.6%, up from 3.3% over the previous six-month period and 2.3% a year earlier. Headline PCE inflation rose 3.4% year over year.

More importantly, the so-called "supercore" PCE measure, which tracks services inflation excluding housing costs, did not continue its previous cooling trend. Its year-over-year growth rate accelerated again, while its monthly increase also widened significantly.

Therefore, when changes in statistical methodology are separated from actual price movements, the report does not support a simple conclusion that US inflation has clearly cooled.

US September ADP Employment Growth Beats Market Expectations

ADP employment data released on Wednesday showed that private-sector employment increased by 90,000 in September, above the upwardly revised 36,000 increase in August and the market expectation of 68,000.

The report marked a rebound in job growth following three months of slowing employment gains, while wage growth remained steady.

The education and health services sector added 55,000 jobs, making the largest contribution. Other sectors that recorded employment gains included leisure and hospitality, with 22,000 jobs; manufacturing, with 17,000; and construction, with 15,000.

Employment declined in several sectors, including financial activities, which lost 16,000 jobs; professional and business services, which lost 11,000; and natural resources and mining, which lost 1,000.

Overall, the report reinforced the view expressed by several Federal Reserve officials that, following concerns about an economic slowdown in 2025, the labor market has remained broadly healthy. The greater policy risk at present comes from persistent inflation pressures.

Key Events Today

14:30 (UTC+8) Switzerland September CPI

16:00 (UTC+8) Bank of England Governor Andrew Bailey Speaks

16:20 (UTC+8) ECB Executive Board Member Piero Cipollone Speaks

16:45 (UTC+8) ECB Governing Council Member Gabriel Makhlouf Speaks

17:00 (UTC+8) Eurozone August Unemployment Rate

18:35 (UTC+8) ECB Governing Council Member Joachim Nagel Speaks

20:00 (UTC+8) BOE Monetary Policy Committee Member Catherine Mann Speaks

21:05 (UTC+8) Richmond Fed President Thomas Barkin, Boston Fed President Susan Collins and Kansas City Fed President Jeffrey Schmid Speak

21:30 (UTC+8) ECB President Christine Lagarde Speaks

22:00 (UTC+8) US September ISM Manufacturing PMI

22:00 (UTC+8) ECB Governing Council Member Boris Vujčić Speaks

23:30 (UTC+8) ECB Executive Board Member Isabel Schnabel Speaks

03:30 (UTC+8) New York Fed President John Williams Speaks

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