The Week Ahead - Mon Dieu!

French spreads have faced structural selling and hedge-fund deleveraging, with spillovers into French financials, the CAC, and Italian and Belgian bonds; the guest says the ECB’s options range from fewer rate hikes to QT or reinvestment changes and, ultimately, the TPI, but expects intervention to be politically difficult given France’s lack of fiscal credibility. The guest sees possible temporary relief if the budget passes, but not a return to prior spread levels, and says the €50 billion of remaining OAT issuance and 2027 supply could keep pressure on the market.

The guest expects core PCE inflation near 3% to keep the Fed concerned: they forecast no October hike but one more hike in December, despite officials pushing back on an October move while retaining a medium-term outlook for additional hikes. On activity, the guest forecasts September retail sales and the control group up 0.3% month over month, with only a small payback from August, and industrial production up 0.4%; if the retail forecast is right, the effect on third-quarter GDP tracking should be limited.

Across Asia, the guest sees early signs of inflation generalization, with Nomura’s index rising from 97.1 in March to 102 in August, though less than after the 2022 Russia-Ukraine war; the extent of pass-through could determine whether central banks make smaller recalibrations or tighten more sharply. The guest expects India’s RBI to have shifted to calibrated tightening after a 25-basis-point hike, but forecasts 50 basis points of further hikes rather than the 75–100 basis points priced by consensus, while expecting Singapore to tighten FX policy with a 0.5-percentage-point slope increase more likely; for China, the guest forecasts higher CPI and PPI mainly due to oil prices and a wider $121 billion trade surplus.