Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 09/09/25
The ECB is expected to stand pat on Thursday, while the US labor market slowdown strengthens the case for monetary policy easing by the Federal Reserve
The French government lost the confidence vote in the Parliament by 364 to 194, as widely anticipated. Market reaction was muted, albeit a period of uncertainty will continue, at least until the formation of a viable government, with President Macron nominating a new Prime Minister in the next days. The likelihood of new parliamentary elections remains.
French government bond spreads have retreated only slightly from their multi-year highs, whereas euro area and French equities both stood at +0.8% yesterday, while entering Tuesday September 9th little changed. The euro exchange rate appreciated by +0.3% in the past week against the USD and was little changed on Monday September 8th to €/$1.174, albeit due to the increasing possibility of aggressive interest rate cuts by the Federal Reserve (see below).
Attention will also turn to the ECB meeting on September 11th. Following a reduction of 200 bps since June 2024, the DFR stands at +2.0%, at the middle of the range of most estimates regarding the “neutral” levels. At the same time, CPI inflation remains roughly in line with the 2.0% target. In that context, the ECB is expected to keep rates steady for a 2nd consecutive meeting.
The focus will be on the forward guidance (meeting statement, Press conference), combined with the economic projections which are conducted on a quarterly frequency, for a better assessment of monetary policy prospects. The ECB will most likely maintain its data-dependent and meeting-by-meeting approach on forward guidance, not pre-committing to any course of action.
On ECB’s economic projections, market developments since the previous exercise suggest modestly higher assumptions for oil prices in USD terms. Nevertheless, euro’s appreciation since June by +3% against the USD and by +2% in effective exchange rate terms, could prompt a slight downward revision for inflation projections, modestly below the 2.0% target for 2025-2026.
On euro area real GDP growth, ECB’s forecasts in June for +0.9% in 2025, followed by +1.1% in 2026 and +1.3% in 2027, appear roughly on track. Note that Q2:2025 growth was unrevised in the 3rd estimate, at +0.1% qoq (+1.5% yoy) from +0.6% qoq (+1.6% yoy) in Q1:2025.
Data per expenditure component in Q2:2025 revealed a less benign picture for fundamentals, with a strong contribution of +0.5 pps to the headline growth from inventories, alongside a strong reading for government consumption (+0.5% qoq), offsetting muted performances for private consumption (+0.1% qoq), gross fixed capital formation (-1.8% qoq) and net exports (-0.2 pps contribution).
The latest US labor market report corroborated the view for a substantial slowdown in job creation, with headline non-farm payrolls averaging +29k on net as of August, the lowest since September 2010 excluding the pandemic period and well below a long-term (since 2000) average of +93k.
That development likely cements the case for a -0.25% cut in the Federal Funds Rate by the Federal Reserve on September 17th (current target range of 4.25% - 4.50%). Apart from such an event now being fully priced-in by investors, as implied by FFR futures, cumulative cuts of -75 bps by end-2025 are now priced, instead of -50 bps a week ago
The French government lost the confidence vote in the Parliament by 364 to 194, as widely anticipated. Market reaction was muted, albeit a period of uncertainty will continue, at least until the formation of a viable government, with President Macron nominating a new Prime Minister in the next days. The likelihood of new parliamentary elections remains.
French government bond spreads have retreated only slightly from their multi-year highs, whereas euro area and French equities both stood at +0.8% yesterday, while entering Tuesday September 9th little changed. The euro exchange rate appreciated by +0.3% in the past week against the USD and was little changed on Monday September 8th to €/$1.174, albeit due to the increasing possibility of aggressive interest rate cuts by the Federal Reserve (see below).
Attention will also turn to the ECB meeting on September 11th. Following a reduction of 200 bps since June 2024, the DFR stands at +2.0%, at the middle of the range of most estimates regarding the “neutral” levels. At the same time, CPI inflation remains roughly in line with the 2.0% target. In that context, the ECB is expected to keep rates steady for a 2nd consecutive meeting.
The focus will be on the forward guidance (meeting statement, Press conference), combined with the economic projections which are conducted on a quarterly frequency, for a better assessment of monetary policy prospects. The ECB will most likely maintain its data-dependent and meeting-by-meeting approach on forward guidance, not pre-committing to any course of action.
On ECB’s economic projections, market developments since the previous exercise suggest modestly higher assumptions for oil prices in USD terms. Nevertheless, euro’s appreciation since June by +3% against the USD and by +2% in effective exchange rate terms, could prompt a slight downward revision for inflation projections, modestly below the 2.0% target for 2025-2026.
On euro area real GDP growth, ECB’s forecasts in June for +0.9% in 2025, followed by +1.1% in 2026 and +1.3% in 2027, appear roughly on track. Note that Q2:2025 growth was unrevised in the 3rd estimate, at +0.1% qoq (+1.5% yoy) from +0.6% qoq (+1.6% yoy) in Q1:2025.
Data per expenditure component in Q2:2025 revealed a less benign picture for fundamentals, with a strong contribution of +0.5 pps to the headline growth from inventories, alongside a strong reading for government consumption (+0.5% qoq), offsetting muted performances for private consumption (+0.1% qoq), gross fixed capital formation (-1.8% qoq) and net exports (-0.2 pps contribution).
The latest US labor market report corroborated the view for a substantial slowdown in job creation, with headline non-farm payrolls averaging +29k on net as of August, the lowest since September 2010 excluding the pandemic period and well below a long-term (since 2000) average of +93k.
That development likely cements the case for a -0.25% cut in the Federal Funds Rate by the Federal Reserve on September 17th (current target range of 4.25% - 4.50%). Apart from such an event now being fully priced-in by investors, as implied by FFR futures, cumulative cuts of -75 bps by end-2025 are now priced, instead of -50 bps a week ago