GLOBAL MACRO: Central Bankers Cautious On Stalling Services Disinflation
RBA Governor Bullock at the September 30 press conference and Kansas City Fed President Schmid (FOMC 2025 voter) last week commented on higher services inflation. Given that it reflects domestically-driven factors especially labour costs, as Bullock said, it is a key variable for central banks. They are also monitoring how it is behaving overseas and Bullock noted that it has been sticky and so the RBA needs to be careful. Q3 to date rose in the US and stabilised in the UK and Australia.
OECD services CPI y/y%
- Schmid said that services inflation has been higher than is consistent with meeting the 2% target. Bullock said in Australia that it has been a little higher than the RBA expected and that given its persistency overseas, the central bank will need to look at how far it moderates in its forecasts in the update due 4 November.
- Q3 average-to-date US services inflation is a little higher at 3.8% after 3.7% in Q2. September CPI was originally scheduled for 15 October but has been delayed to 24 October due to the government shutdown.
- Australia’s Q3 average monthly services CPI is steady at 3.4%, higher than the euro area and Canada but lower than the US, UK and Norway. The RBA focuses on quarterly data with Q3 due 29 October.
- UK Q3 average services inflation is stable at 4.9% suggesting that it has stalled at an elevated rate.
- Euro area services price pressures have moderated in Q3 to 3.1% after 3.5% in Q2 and Norway’s are also slightly lower at 3.75% compared to 3.9%.
- Canada is struggling with softer growth and higher unemployment and its services inflation moderated 0.5pp to 2.8% in Q3 to date, the lowest in our group, but even August was in line with July’s 2.8%.
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AUSSIE 3-YEAR TECHS: (U5) Bounces Further Off Support
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.550 @ 15:36 BST Sep 12
- SUP 1: 96.430/95.900 - Low Sep 3 / Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are trading off recent lows. A resumption of gains from here would further narrow the gap with resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Any continuation lower would instead strengthen a bearish threat. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would open 96.860, the Apr 7 high.
FED: MNI Fed Preview-September 2025: A Reluctant Return To Easing
We've published our preview of the upcoming FOMC meeting - Download Full Report Here
- The Federal Reserve is set to resume its easing cycle at the September 16-17 meeting with a 25bp cut to the funds rate range to 4.00-4.25%.
- The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
- The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
- The Statement will downgrade the description of the labor market to reflect a rise in the unemployment rate and poor payrolls growth, and is likely to include at least one dissent to the rate decision.
- But with a Committee that is fairly divided on the way forward, Powell will be noncommittal on future action, reiterating that policy is not on a preset course, and upcoming decisions will be data-dependent.
- A key undercurrent is an increasingly activist approach to Fed personnel management from the White House, which leaves the composition of the FOMC uncertain not just over the medium-term but also at this meeting.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 15
RATINGS: Fitch: France Cut To A+ From AA, Portugal Up To A From A-
Fitch has downgraded France's sovereign rating to A+ (with stable outlook) from AA-. Release here.
- Among other factors in the decision, Fitch cites "High and Rising Debt Ratio", "Political Fragmentation Hinders Consolidation", "Weak Fiscal Record", "High 2025 Deficit", "Uncertain Fiscal Consolidation Path", and "Fiscal Rigidities".
- In "Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade", Fitch cites "Public Finances: A sustained increase in government debt/GDP over the medium term, due to failure to implement fiscal consolidation measures and/or a persistent increase in financing costs" and "Macro: Materially lower economic growth prospects and weakened competitiveness." Conversely, potentially leading to positive ratings action would be "Public Finances: Confidence that government debt/GDP will be put on a downward trajectory over the medium term, for example, due to fiscal consolidation and/or stronger economic growth".
- Fitch also raised Portugal to A (stable outlook) from A-, while elsewhere, S&P raised Spain to A+ (stable outlook) from A.
- As MNI wrote earlier, we expected France to be downgraded to A+ and Portugal to be upgraded to A.
