Euro Area Consumer Confidence Takes Centre Stage as Energy Costs Rise

Events to watch today

The euro area will release its flash consumer confidence indicator for September. Confidence improved over the summer, although renewed pressure from higher energy costs may weigh on sentiment once again.

At the New York Fed’s Treasury Market Conference in the US, Federal Reserve governors Adriana Kugler? No, Williams and Michael Jefferson will both speak. Williams has generally favored a dovish approach, but voted to raise rates at last week’s meeting, making his comments particularly significant.

In Hungary, the central bank is expected to maintain its policy rate at 5.50% when it announces its decision this afternoon.

Attention will also turn to New York, where the US, Denmark and Greenland are scheduled to sign a new security agreement at 16:30 CEST on the sidelines of the UN General Assembly. Denmark says the pact would place Arctic security under NATO’s umbrella. The agreement has not been published, but Reuters reports that the US intends to establish two new military bases in Greenland under the deal.

Economic and market developments

Overnight

Commodities: Brent crude was trading near USD 101 per barrel this morning after briefly falling below USD 100 yesterday. Prospects for US-Iran diplomacy during the UN General Assembly and a partial recovery in Saudi exports have eased concerns about supply. European TTF natural gas prices also dropped more than 7% yesterday to below EUR 75 per MWh. Saudi oil transit through the Strait of Hormuz has increased to approximately 2.9 million barrels per day in recent days, up from 700,000 in August, although risks linked to Red Sea routes and Houthi activity remain. The Wall Street Journal reported that the Trump administration has proposed investing USD 5 billion in a fund to rebuild Middle Eastern energy infrastructure and reduce dependence on the strait.

Yesterday

Euro area: Governments are again considering fiscal measures to offset higher energy costs. Germany agreed on Friday to a EUR 2.5 billion relief package, equal to 0.06% of GDP, including a temporary fuel-tax reduction. Italy plans to abolish its vehicle ownership tax at a cost of about EUR 2 billion, or 0.1% of GDP, although the funding source remains unclear. France has expanded targeted assistance for fishermen and farmers but rejected broad fuel-tax cuts. These measures are modest relative to GDP and are unlikely to affect the ECB’s current stance. However, the prospect of further fiscal support is growing, and persistent or poorly targeted measures could push the ECB toward a more hawkish position.

Sweden: Inflation expectations edged higher in Origo’s latest surveys. Among money market participants, one-year and five-year expectations both increased to 2.1% in September from 2.0% in August, while the two-year estimate remained at 2.1%. In the broader quarterly survey, one-year CPIF expectations rose from 1.7% in the second quarter to 2.0% in the third quarter, with longer-term projections broadly unchanged. The gap between wage expectations from employee organizations, at 3.3%, and employer organizations, at 3.1%, narrowed at the two-year horizon. Overall, the findings present little cause for concern for the Riksbank ahead of Thursday’s rate decision, although wage expectations remain above pre-pandemic levels and are consistent with the central bank’s 2% inflation target.

Equities: Markets posted another broad-based risk-on session as lower oil prices supported another rise in equities. Such sensitivity to energy markets is likely to remain a defining feature for the rest of the year. Falling oil prices have reduced fears of an energy crisis entering winter, eased inflation concerns and encouraged markets to price in a more dovish outlook for central banks. Confidence has also improved. With the underlying growth and earnings environment strong, developments around energy supply and the Strait of Hormuz remain the principal constraints on further market gains.

Cyclicals outperformed decisively, led by technology. The Nasdaq reached another record high, while the MSCI World moved within 1% of its peak. Technology has outperformed year to date, and 2026 earnings estimates for the sector have been revised upward by nearly 45%. By contrast, health-care estimates have been reduced by around 5%. Technology has therefore become cheaper this year, while health care has become more expensive, despite technology outperforming the sector by almost 30%. The relative earnings momentum between the two sectors remains exceptionally strong.

Asian markets are gaining ground following the strong US session, while European markets are also pointing higher. The outlook in the US is more mixed as oil prices edge upward again.

Fixed income and FX: Treasuries rallied Monday in a bull-steepening move, reversing Friday’s post-FOMC decline. Four consecutive days of lower oil prices eased inflation concerns and improved risk sentiment ahead of the Trump-Xi summit. The 10-year Treasury yield closed at 4.95%, down 5 basis points from Friday, while the 30-year yield fell 4 basis points to 5.29% and the two-year yield declined 3 basis points to 4.75%. European bonds outperformed, as falling oil prices prompted markets to reduce expectations for ECB rate increases. The German 10-year yield dropped 5 basis points to 3.46%, its largest one-day decline in four months. The two-year Bund fell 5 basis points to 3.21%, while the 30-year Bund declined 4 basis points to 3.80%. EUR/USD stabilized between 1.1450 and 1.1500 after its post-FOMC decline despite yesterday’s fall in oil prices. SEK traded little, although EUR/SEK remained close to 11.30 despite benign risk sentiment, rising equities and lower oil prices. EUR/NOK stayed anchored just above 10.80.

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