INTERNATIONAL TRADE: EU’s Share Of Chinese Exports May Have Bottomed Out
Chinese exports to the EU rose 14.2% Y/Y in USD terms in September, an acceleration from 10.4% in August for the highest rate since July 2022. On a 3mma basis, exports to the EU are up 11.3% (vs 9.1% in August). While a slow-moving process, the EU’s share of total Chinese exports (12m rolling sum) appears to have bottomed out and is starting to rise again, currently at 14.7% after plateauing at 14.4% last year.
- While some ECB officials have downplayed the impact of tariff-related Chinese trade diversion on the near-term inflation outlook in recent months, increased Chinese penetration in Eurozone/EU markets remains a longer-running disinflationary force.
- This medium-term theme may factor into discussions at the ECB’s December decision, where an updated set of macroeconomic projections incorporating 2028 will be provided. In September, ECB President Lagarde sought to downplay the relevance of the 2027 headline HICP projection undershooting the 2% target by tenth. Should this gap-to-target widen, it will provide doves with stronger arguments to deliver one more rate cut to 1.75%.
- Chinese export growth to the US remains sharply negative, falling 27.3% on a 3mma Y/Y basis in September (vs -23.6% in August). While some of this decline can be explained by increased transhipments via ASEAN countries (e.g. Vietnam), this year’s increase in effective tariff rates is still unsurprisingly suppressing trade flows. Chinese import growth from the US is also deeply negative (-16.8% 3mma Y/Y in September). The renewal of Trump administration tariff threats against China in recent days has reminder markets that trade policy uncertainty remains a key theme.
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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.
