European September PMIs reflected a stabilizing economy, though the details revealed skepticism regarding sustained growth. Analysts suggest that these figures support a prolonged pause in the European Central Bank’s (ECB) normalization efforts while authorities assess the effects of previous monetary easing and recent fiscal initiatives. Market responses indicated a lack of significant movement, with German and European yields remaining stable and EUR/USD hovering just above the 1.18 mark.
Meanwhile, the US economy appears to be on a growth trajectory, with current PMIs indicating an annualized rate of 2.2% for Q3. Inflation is projected to stay above 2% in the near term. However, US Treasuries initially reacted with minor losses but later turned to gains during Federal Reserve Chair Jerome Powell’s speech, which reiterated messages from last week’s Federal Open Market Committee (FOMC) meeting. Yields across the board fell by 1.7 to 4.6 basis points in a phenomenon known as bull flattening. Diverse views emerged from Fed policymakers: while Governor Michelle Bowman expressed concerns about the central bank potentially falling behind on inflation and suggested it may be time for decisive action, others like Raphael Bostic voiced apprehension regarding persistent inflation pressures. The debate about adopting an inflation range instead of a fixed target continues, although the Fed’s recent strategic review reaffirmed its commitment to the 2% inflation goal.
In foreign exchange markets, the British pound experienced volatility following its PMI data, which was deemed concerning, closing close to its intraday lows at around EUR/GBP 0.874. UK government bonds (gilts) performed better compared to US Treasuries and Bunds, particularly at the longer end of the yield curve. US equities showed signs of fatigue near record levels, with European markets following suit, prompting curiosity about underlying momentum as the economic calendar remains sparse for the day.
In Hungary, the central bank opted to keep its policy rate stable at 6.5%, citing subdued growth and a protracted economic recovery. The Bank revised its 2025 growth forecast downward to 0.6%, maintaining its projections for 2026 and 2027 at 2.8% and 3.2%, respectively. Inflation is anticipated to exceed the bank’s tolerance threshold of 4% for the remainder of this year, with a gradual decline expected by early 2026. The MNB indicated that achieving price stability sustainably is possible through tight monetary conditions, despite both upside inflation risks and downside growth uncertainties. The Hungarian forint has shown resilience, trading at around EUR/HUF 390, its strongest level since mid-2024.
On the other side of the globe, Japan’s private sector output is experiencing a slowdown, with the composite PMI dropping from 52 to 51.1. Sectoral trends display a divergence: while services continue to grow robustly, manufacturing production has seen a sharper decline. New orders are rising at a slower pace, and export business remains lackluster. Employment growth has also weakened, reflecting cautious business sentiment and ongoing cost pressures, prompting firms to raise prices further. This inflationary trend could influence the Bank of Japan’s policy considerations, with expectations mounting for a potential rate increase by the end of October from 0.5% to 0.75%.
