POLAND: October Rate Cut Cannot Be Ruled Out After Flash Sept CPI
Sep-30 13:23
Flash September CPI printed at +2.9% Y/Y, missing expectations of +3.0% as food prices surprised to the downside. Analysts estimate that core inflation may have edged lower to +3.1% Y/Y from +3.2% in August. Although the gap to the consensus projection was marginal, a sub-3% reading coupled with the recent approval of an extension to household electricity price freeze increase the probability of the resumption of monetary easing.
- In Goldman Sachs’ view, today’s relatively benign inflation print, along with the Q4 power price freeze, solidifies expectations for a rate cut at the October monetary policy decision. With the energy price cap now in effect till the end of the year, Goldman anticipate that headline inflation will remain below 3% over the coming months. Consistent with their dovish views, GS expect the NBP to cut rates from 4.75% currently to a terminal rate of 3.50%.
- ING note that the fact that inflation remained stable in September could provide another argument for the MPC to ease monetary policy. However, the Council maintains a cautious approach and may postpone another rate cut until November when the new macroeconomic staff projections are released. But ING say a 25bp rate cut cannot be completely ruled out, especially given that a bill prolonging the freeze in energy prices until the end of this year has recently been signed. Apart from one more 25bp cut this year, ING foresee two more 25bp rate cuts in 2026.
- JP Morgan argue that lower CPI raises on the margin the odds of an October cut, but say November is still more likely. The slightly better-than-expected inflation print does not fundamentally change the outlook but is a positive outcome, yet the MPC has so far reiterated the need to move cautiously. JPM think it is more likely that the NBP will hold until November when it produces a new inflation projection. Next year they expect two more cuts to 4.00%.
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RATINGS: S&P Upgrades Portugal To A+ From A
Aug-29 20:28
S&P has upgraded Portugal's long-term credit rating to A+ from A, with a stable outlook (had been positive).
- This is the 7th S&P upgrade for Portugal, from a low of BB in 2012-15. Only four ratings are higher (AA-, AA, AA+, AAA). This is the same rating as Slovakia, and just above Spain (A) per S&P.
- Per Bloomberg: "*S&PGR UPGRADES PORTUGAL TO 'A+' ON LOWER DEBT; OUTLOOK STABLE"
STIR: Still Eyeing September And December Cuts
Aug-29 20:16
With few market-moving data points this week, implied Fed rate cuts essentially held onto their post-Jackson Hole upward repricing, adding a couple of basis points of easing for good measure heading into the Labor day weekend.
- Indeed, the lack of movement is somewhat remarkable given this week's extraordinary "firing" of Fed Governor Cook, which is currently being fought out in the courts. In all it probably added to the dovish tone on the near-term rate outlook post-Jackson Hole but not substantially so, at least so far.
- The current path sees a September rate cut priced with nearly 90% implied probability, with 56bp of cuts through end-year (a cumulatively priced second cut in December) and 83bp through March 2026 (3+ cuts).
MACRO ANALYSIS: MNI US Macro Weekly: One Week, Two Labor Days
Aug-29 20:10
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- A busy pre-holiday week for data brought mixed economic signals and little net change in Fed easing expectations, putting next week’s labor day – Friday with its nonfarm payrolls report, of course, with apologies to Monday’s federal holiday – in focus for the FOMC and market participants alike.
- Second-quarter GDP was revised up by more than expected in the second reading, to 3.3% Q/Q SAAR, driven by better-than-previously estimated domestic demand but still leaving 1st half growth in slightly weaker territory vs last year. That said, the Atlanta Fed's Q3 GDPNow estimate jumped to 3.47% (though the implied contribution from net exports in the quarter looks somewhat dubious, as we explain).
- The other major release of the week was July's Personal Income and Outlays report, which showed a modest uptick in income and spending on the month. However, the broader trends remain mixed at best, as real disposable income growth remains soft and services consumption is failing to regain traction.
- Core PCE inflation was close to expectations in July as the Y/Y accelerated to 2.9% for its fastest since February as it moves further away from recent lows of 2.6% having stalled above the 2% target. Recent trend rates are a little hotter but the median FOMC member will still need to see a further acceleration to meet their 4Q25 forecasts from June.
- Labor data were mixed. Latest jobless claims were in line to slightly better than expected, with initial claims trending a little higher but still impressively low whilst continuing claims are broadly plateauing after sharper increases in 1H25. But within the Conference Board consumer survey, the labor differential edged lower again, suggesting a continued upward trend in the unemployment rate.
- Elsewhere: regional Fed activity surveys were individually mixed, but combined generally showed an improvement in both manufacturing and services activity albeit with continued upside price pressures.
- Consumer sentiment (UMichigan and Conference Board surveys) and housing activity remained soft.
- Apart from Gov Waller again making the case from rate cuts, other FOMC colleagues who commented this week were a little more guarded when it came to the need for easing, to our ear.
