Data to Keep the Hawks Fed

Sticky US inflation, recovering consumption and resilient employment should reinforce the Federal Reserve’s hawkish bias and support the US dollar, while China’s recovery strengthens and France’s fiscal deterioration remains a country-specific risk.

• August headline PCE is expected to rise 0.3% month on month from 0.2% in July, with core PCE at 0.3% month on month and 3.3% year on year; real personal spending is forecast at 0.5% month on month after no growth in July.
• September US ADP private payrolls are expected to increase by 72,000, up from 38,000 in August, although annual revisions and methodological changes to the PCE data could muddy the inflation signal.
• China’s September PMIs indicate a modest recovery, supported by mortgage subsidies for first-time buyers and changes to bank lending policies; the article argues that USD/CNH’s downtrend remains intact as currency appreciation supports consumer purchasing power.
• UK second-quarter GDP growth was revised to 0.5% quarter on quarter, while tighter fiscal policy expected in the October 28 Autumn Budget could reduce the need for the Bank of England to deliver the 100 basis points of hikes priced over the following twelve months.
• France’s 10-year yield premium over Germany reached 120 basis points, and its 2027 financing requirement is projected at a record €339.7 billion; a deficit near 6.0% of GDP could move the country further from its commitment to return below 3% by 2029.

Takeaway: The expected US data favor further dollar strength and a hawkish Fed repricing, while China offers improving momentum; France’s fiscal weakness should continue to pressure its bonds without yet becoming a systemic eurozone shock.