EUROPEAN FISCAL: Klingbeil Doesn't Rule out Tax Rises as Tax Revenues Disappoint
The German government has recently been noting that implied fiscal deficits could be 4.5% in 2026 and 3.5% in 2026 - but these estimates may appear a little optimistic. Tax estimates have been revised only marginally higher in today's semi-annual update. There is around a E20bln budget gap in 2027 - which Finance Minister Klingbeil did not explicitly make comments today regarding how this would be plugged. However, it is important to note that he did not rule out tax rises today, instead keeping all options open. He also did not rule out a recently floated idea of excluding interest payments resulting from the fiscal easing package from debt sustainability considerations (which would likely add to net Bund issuance).
- German tax estimates have been upwardly revised by a total of E33.6bln through 2029. However, for the federal level in isolation, tax estimates are now a little lower than seen in the spring projections, starting 2028 as compensation to municipalities for the government's "growth booster" will start to more than outweigh gains from a higher GDP growth view. See tables and charts below for details.
- What remains is that the revisions likely imply downside to the government's recent comments on potential for E18bln additional general government revenue for 2026 and E34bln for 2027, which would have reduced the projected general fiscal deficits to the above mentioned 4.5% of GDP in 2026 and 3.5% in 2027 (vs official estimates of 4.75% 2026 / 4.25% 2027).
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US DATA: Redbook Retail Sales Continue To Grow At A ~6% Clip
Johnson Redbook Retail Sales rose 5.7% Y/Y in the week ending September 20, a paring of the 6.3% gain the prior week. As such, month-to-date sales slipped back to 6.2% after printing 6.5% the prior week, but that's still in line with retailers' targeted 6.3% gain.
- With Y/Y sales growth continuing to run at a 6% clip, there are no signs that overall retail sales growth is moderating as Q3 comes to a close - with the usual caveat that these indices are reported in nominal and not volume terms.
- The report's anecdotes highlight the upcoming Amazon sales in October: "Sales declined during the week as back-to-school categories wrapped up and transitioned into fall merchandise. The cooler weather drove demand for seasonal items, particularly clothing. Basic apparel, food, and household supplies helped maintain performance at discount stores. Amazon’s Prime Big Deal Day sales are scheduled for October 7-9, marking the start of the holiday shopping season with various discounts. Other major retailers have also announced promotions to compete with this event. Additionally, retailers are beginning to offer Halloween merchandise to get an early start on the celebration."
US: Trump Hints Meeting w/Dem Leaders Could Be Cancelled, Shutdown Risk Spikes
President Donald Trump suggested in a statement on Truth Social he could cancel a Thursday meeting with Senate Minority Leader Chuck Schumer (D-NY) and House Minority Leader Hakeem Jeffries (D-NY) to discuss the September 30 govt funding deadline, citing various hot-button political issues.
- Trump wrote, "After reviewing the details of the unserious and ridiculous demands being made by the Minority Radical Left Democrats... I have decided that no meeting with their Congressional Leaders could possibly be productive."
- Trump added, keeping the possibility of a meeting open, "To the Leaders of the Democrat Party, the ball is in your court. I look forward to meeting with you when you become realistic about the things that our Country stands for."
- The statement suggests Republicans are closing the door to negotiations that could provide an off-ramp to rhetoric, forcing Schumer to make a decision on shutting down the government when Majority Leader John Thune (R-SD) holds a second vote on the House-passed short-term funding bill next week. As they are pressing for a 'clean' CR, Republicans believe, not without justification, that Democrats will be blamed for a shutdown.
- Polymarket shows the implied probability of a shutdown on October 1 spiked to 70%. Bettors likely see Schumer with few options left to prevent a shutdown without a major capitulation. Unless Thune and Trump make a handshake deal on Dems' demand for Obamacare subsidies extension, the most obvious offramp now is seven Dem senators joining with Republicans to pass the CR.
UN: Trump Calls For Immediate Hostage Release & NATO Stop Russia O&G Purchases
In his address to the United Nations, US President Donald Trump lambasts the organisation for "not being there for us" during peace negotiations. Says that the UN "has tremendous potential" but is "not coming close to living up" to this. Trump claims that the UN offers only "Empty words, and empty words don’t solve war."
- Says we "have to get a Gaza ceasefire", but that "Hamas rejects reasonable peace offers." Says recognition of a Palestinian state "would be too great for Hamas". Trump: "Those who want peace should be united behind one message: release the hostages". Trump: "We have to stop the Gaza war immediately".
- On Ukraine, Trump says the war in Ukraine "is not making Russia look good, it's making them look bad". Trump: "The question now is how many more lives are lost on both sides." Criticises Chinese and Indian purchases of Russian O&G, but also NATO countries. Trump: "They're funding a war against themselves...Europe has to step it up...They have to immediately cease energy purchases from Russia".
- Trump says that he is set to talk to European leaders later today to press the issue. Hungarian Peter Szijjarto said on 22 Sep that stopping Russian purchases was a 'nice idea', but "We can’t ensure the safe supply [of energy products] for our country without Russian oil or gas sources,"
