France’s Credit Rating Preserved Amid Market Surprise

In focus today

In Germany, the Ifo business climate indicator for October is expected to show modest improvement in the current economic assessment, with sentiment likely to ease slightly. Meanwhile, Sweden’s September producer prices are due, with August’s 0.9% m/m and 6.8% y/y increases driven by petroleum products. Analysts are closely watching plastic and rubber price movements as leading indicators for consumer goods inflation. In China, September industrial profits are anticipated to rebound to 4.2% y/y growth, supported by recovering manufacturing PMI and higher PPI levels, particularly in raw materials and semiconductor sectors. The week ahead features critical monetary policy decisions from the Fed, ECB, and Bank of Japan, all expected to maintain current rates before resuming tightening later in the year. Key data releases include US Q3 GDP and inflation measures across major euro-area economies.

Economic and market news

What happened overnight

In commodities, Brent crude eased below USD115/bbl as hopes emerged for de-escalation in US-Iran tensions following Qatari-mediated talks in Tehran. While US President Trump indicated “decision time” approaches on potential deal-making with Tehran, market attention remains on ongoing attacks on Saudi Arabia and the possibility of strikes post-midterm elections.

In Latin America, Brazil’s presidential runoff saw Lula secure a historic fourth term with 51.76% of the vote, defying pre-election polling that favored Bolsonaro. This outcome reversed expectations after Bolsonaro’s projected victory triggered a 10% drop in Brazilian real futures and a 15% decline in Brazil-linked ETFs. Lula’s win also underscores challenges to US regional influence ambitions.

In Venezuela, opposition leader María Corina Machado’s return from exile intensifies political tensions with the US-backed interim government led by Delcy Rodríguez, with potential calls for new elections.

What happened over the weekend

In the euro area, October’s flash PMIs indicated softening growth momentum, with the composite index falling to 51.9 from 53.1. Manufacturing edged down to 52.4 while services declined more sharply to 51.7. Limited energy price pass-through to underlying inflation supports the ECB’s gradual tightening strategy ahead of Thursday’s policy review and the anticipated December rate hike.

Also in the euro area, Moody’s maintained France’s credit rating at Aa3 with a negative outlook, defying widespread market expectations of a downgrade. The decision hinges on adoption of a 2027 deficit-reduction plan projecting 5.2% GDP contraction, below the government’s 2024 forecast of 5.4% but above the 5% target. Ongoing protests and union strikes scheduled for November 5th pose risks to fiscal consolidation efforts.

In the US, the S&P Global flash composite PMI slipped to 57.6 in October from 58.4, driven by a stronger-than-expected manufacturing rebound (56.0 vs. 55.5 forecast) and a modest services slowdown (57.9). Manufacturing selling prices rose at the fastest pace since 2022, signaling renewed inflationary pressure, while services cost pressures remained contained. The data supports expectations for an unchanged Fed policy decision on Wednesday.

In the UK, October flash PMIs revealed robust improvements across sectors, with the composite rising to 53.1 from 52.0 as services reached 53.1 and manufacturing edged up to 52.8. New orders hit a 26-month high and employment growth resumed for the first time since September 2024. However, rising input cost inflation to a June 2023 peak, driven by energy and raw material prices, introduces hawkish dynamics ahead of the BoE’s November meeting.

In Denmark, business sentiment declined to 104.5 in October from 107.1, marking the lowest level in four months but remaining above the 2004-2023 historical average of 100. Retail sector sentiment eased from its peak, while industrial optimism extended to a fourth consecutive month of growth.

Equities: Global equity indices ended Friday with losses, as the S&P 500 fell 0.5% and Stoxx 600 declined 0.3%. Technology stocks stabilized after earlier AI-driven volatility, with semiconductor and memory shares advancing. Real estate and technology sectors remained positive, while consumer staples tracked lower despite recent strength, weighed by rising energy costs.

FI and FX: Moody’s decision to place France’s rating on watch for downgrade pressured government bonds, though EUR/USD found support around 1.12 with expectations of gradual depreciation. The Norwegian Krone continued its G10 FX leadership, supported by elevated energy prices and resilient domestic indicators, as EUR/SEK stabilized near 11.10 and NOK/SEK broke above 1.06 for the first time since late 2022 following improved risk appetite.

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