Bias of Monetary Stances Easing in Many Economies – Currency Thoughts
Bias of Monetary Stances Easing in Many Economies
October 16, 2025
Money markets are becoming more confident that the Federal Reserve will cut its interest rates several times in coming months, as the risks of weakening labor market conditions outweigh perceived risks of excessive inflation. Yesterday’s published Beige Book yielded five districts recently experiencing flat growth, four showing modest contractions and just three (Boston, Philadelphia and Richmond) with slightly positive economic activity. Employment has been generally flat, and inflation has been moderate.
Bank of Japan Board member Tamura acknowledged that interest rates are in a rising mode but cautioned that amid uncertainty related to trade and domestic politics that that BOJ officials mustn’t act hastily. The IMF echoed Tamura’s sentiment, expressing some doubt related to wage behavior that a foundation for 2% or higher sustained inflation has yet been achieved.
Bank of England Governor Bailey said British growth in currently weaker than its potential.
The outcome of the latest spike in U.S.-Chinese trade tensions remains very unclear, as Trump’s messages keep see-sawing between aggressive and conciliatory language.
In overnight financial market action, the dollar slipped modestly, but stock markets were lifted by better-than-expected corporate earnings and signs of macroeconomic policy support. Equities rose by 2.5% in South Korea, 1.4% in Taiwan, 1.2% in Japan and 1.0% in India where the Modi government reportedly has agreed to scale back imports of Russian energy. While The German Dax and some other European stock markets have traded a bit lower, a 0.8% rise in the Paris CAC reflects relief that the cabinet of reappointed Prime Minister Lecornu survived a no-confidence vote after suspending pension reform plans. Australian and New Zealand stock markets rose by 0.9% and 0.6% this Thursday.
Ten-year sovereign debt yields are up a basis point in the United States and Germany but down a basis point in the U.K. and Italy.
The price of gold, now over $4260, keeps setting fresh alltime highs, whereas Bitcoin edged 0.1% lower. WTI oil is 0.2% higher.
While more U.S. data failed to be reported as scheduled this Thursday (retail sales, PPI and jobless insurance claims), investors were able to peruse some fresh reports. The National Association of Home Builders monthly housing market index rose five points to a 6-month high of 37 in October, but the Philly Fed manufacturing survey relapsed from September’s eight-month high of 23.2 to a 6-month low in October of -12.8.
The confrontational trade environment was reflected in some trade data out today:
- Euroland’s unadjusted EUR 1.0 billion trade surplus in August was down from EUR 3 billion a year earlier, with both exports (down 4.7%) and imports (down 3.8%) lower than a year earlier. The seasonally adjusted surplus widened 3.7 billion euros to EUR 9.7 billion but was still below the monthly average of EUR 20.6 billion in the first quarter of this year.
- Italy’s surplus was the smallest in a streak of seven straight surpluses.
- The British goods and services trade deficit of GBP 3.39 billion was its widest in five months and included the largest deficit among trade goods (GBP 21.18 billion) since January 2022 just before the Russian invasion of Ukraine.
- India in September recorded its biggest trade deficit ($32.15 billion) in ten months.
At 4.5% in September, the Australian jobless rate exceeded expectations and was at a 46-month high. A 14.9K increase in jobs only slightly reversed August’s drop and was somewhat smaller than forecast.
Food price inflation in New Zealand fell to a 5-month low of 4.1% in September.
British industrial production rose 0.4% in August, which merely reversed the July drop and resulted in a 0.7% year-on-year decline. Likewise, monthly GDP in the U.K. rose only 0.1% in August after a 0.1% drop in July. All of that increase came from production, while service sector activity stagnated.
Czech producer price deflation of 1.0% in September was deeper than forecast and negative for an eighth straight months.
Core domestic machinery orders in Japan fell unexpectedly by 0.9% in August after a 4.6% plunge in July. Japan’s tertiary index of service sector activity fell 0.4% in August and recorded a slightly smaller 1.2% year-on-year increase.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British trade and industrial production, Euroland trade balance
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