NATO: Romania Confirms Drawdown Of US Troops As Trump Pivots To Indo-Pacific
Romania's Ministry of National Defence has confirmed that it has received notification of the US' intention to draw down its troop deployment numbers in central and eastern Europe, with the move likely to cause significant concern in eastern NATO states, as the shift could leave them vulnerable to Russian attack. Romanian Defence Minister Ionut Mosteanu, attempting to put a neutral spin on the move that will see US troop numbers decline in Bulgaria, Hungary, Slovakia, and Romania, said, “Every country has its own strategy, and our American allies said at the beginning of this year that they plan to focus more on the Indo-Pacific region".
- While changes in the deployment of US troops in NATO states are not unusual, a broad reduction in force posture on NATO's eastern flank could be viewed as a sign of waning US commitment to NATO's collective defence. Countries including Estonia, Poland, and Romania have experienced aerial incursions by Russian aircraft and drones in recent months. This raises the prospect of direct NATO-Russia confrontation, with some Russia hawks having called for NATO to shoot down Russian craft in such incidents.
- Alternatively, the situation could be viewed as a further attempt by the Trump administration to force NATO members to bolster defence spending. Trump has previously made commitments to Poland (the highest spender on defence as a percentage of GDP in NATO) that US deployments there would not be reduced, and indeed could even be increased.
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UK: Chancellor Delivers Speech To Labour Conference
Chancellor of the Exchequer Rachel Reeves is delivering her keynote address to the Labour party conference in Liverpool. Livestream here. Early in her speech, Reeves is interrupted by a pro-Palestinian protester, but resumes after a short pause. As noted earlier (see 'GILTS: Bull Flattening, Ramsden & Reeves Eyed', 10:34BST), the chancellor has reiterated Labour's manifesto pledge not to raise income tax, VAT, or employee national insurance.
- With a refusal to rule out tax rises in the November budget, the chancellor's pledge on the 'big three' revenue raisers leaves fewer options in terms of where the gov't can look to bolster its coffers (see 'UK FISCAL: VAT increase impacts on fiscal, CPI, monetary policy', 09:40BST).
- At ~15:00BST, Home Secretary Shabana Mahmood is due to deliver her keynote address. Given the prominence of immigration as a hot-button political issue in the UK at present, the new Home Secretary's plans for combating small boat crossings of the English Channel will be closely scrutinised amid continued strong polling for the right-wing populist Reform UK.
OUTLOOK: Price Signal Summary - Bear Threat In Bunds Still Present
- In the FI space, Bund futures have recovered from their recent lows. However, key support and the bear trigger remains exposed, it lies at 127.61, the Sep 3 low. Clearance of this level would cancel a recent bullish theme and confirm a continuation of the medium-term bear cycle. For bulls, a reversal higher would refocus attention on key resistance at 129.44, the Sep 10 high. First resistance is at 128.61, the 50-day EMA.
- Gilt futures traded lower late last week. The move down strengthens a bearish theme and does suggest the end of the recent corrective phase between Sep 3 - 11. Note that on the continuation chart, moving average studies are in a bear-mode position, highlighting a dominant downtrend. A continuation lower would open 89.94, the 76.4% retracement of the Sep 3 - 11 corrective phase. Initial resistance to watch is 91.28, the Sep 24 high.
FOREX: Reeves Looks to Reassure at Conference Speech
- The USD is slipping against most others in G10 early Monday, keeping the USD Index closely glued to the 50-dma of 98.038 - a level that's helped dictate price action well since the beginning of August. The inability of the USD to build on last week's gains does suggest those looking for a near-term greenback bounce may need more support before progress toward a more sustained recovery. This leaves the stress evident in the labor market as the key near-term driver, however resilient inflationary pressures continue to provide the counter, a topic raised by Fed's Hammack today, who stated inflation may stay above target out to 2028.
- The JPY, AUD are the firmest performers in G10 - with the JPY adding to gains as the Japanese government confirm an upgraded near-term view on the economy and economic conditions. This has helped USD/JPY revert back to key support of the 148.44 200-dma to erase a large part of last week's strength in the pair.
- Much market focus on UK Chancellor Reeves' appearance at the Labour Party Conference later today, at which she'll defend the government's record on the economy and potentially set out further clues for her intentions into the Autumn Budget as pressure grows on how to close the fiscal gap without breaching manifesto commitments of higher income tax, VAT or national insurance. Into the conference speech, GBP remains mixed, however traded lower last week, marking an extension of the current bear cycle that started Sep 17. The move down has resulted in a break of 1.3491, a trendline support drawn from the Aug 1 low. This undermines a recent bullish theme.
- Outside of the conference appearance, pending home sales and Dallas Fed Manufacturing data are due today, while Eurozone CPI data and the MNI Chicago PMI are the focus for the rest of the week.
