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HEM: Oct-25 Views & Challenges

• Hawkish inflation and policy rate pricing shifts toward our UK/EA view did not stop US rates frontloading more cuts.
• We still see markets overpricing easing, with UK inflation expectations stuck above target, and neutral rates high.
• A break in activity data, especially unemployment, and underlying price/wage inflation, would threaten our view.

HEW: Watching What Didn’t Happen

• The US government shutdown removes the potential for official statistics to damp dovish concern, raising the likelihood of October’s cut, especially with other weak data.
• EA unemployment’s rise reflected rounding rather than substance. UK national accounts revealed healthy balance sheets, aside from the government, and bullish lending stats.
• Next week’s calendar stays thin with US releases suspended and Europe’s cycle focusing on the following week. The RBNZ, BoT, BSP and Peru announce rates next week.

By Philip Rush

EA: Rounding Jobs For Migrants

• A surprise rise in EA unemployment reflects rounding rather than alarming weakness, with labour supply and demand still surging. Finland’s woes are more idiosyncratic.
• Supply has trended much faster post-pandemic, sustaining demand at its old trend without extreme capacity constraints. Migration has more than accounted for the rise.
• Ukrainians are dominating the flow and complicating the read through to disinflationary spare capacity. Wage growth is an even more critical signal when supply is uncertain.

By Philip Rush

EA: Core Excess Revealed In Sep-25

• Inflation’s break above target to 2.23%, within 1bp of our forecast, came as past energy price falls dropped out to reveal the more resilient underlying pressures.
• Small upside surprises in large countries, like Germany and Italy, were balanced in number and contribution by larger surprises in small ones, like Greece and Estonia.
• We expect less negative payback in October and January, preventing our profile from languishing below the target through 2026, like the consensus view does.

By Philip Rush