France's Flash October PMI Drop Below 50 Ahead Of Moody's Decision Later Today

The foreign exchange market looks eerily calm.  After the safe haven flows yesterday supported the Swiss franc and yen, today they have diverged. The yen’s minor gain puts its atop the G10, while the Swiss franc’s 0.25% loss puts its at the bottom. The pressure in the European bond market has eased today, but Moody’s review of France’s debt rating late today poses a challenge, and although the Macron government has threatened military assistance to quell the social unrest, more activity is likely this weekend. 

The Philadelphia Stock Exchange Semiconductor Index tumbled 6.7% yesterday. It was the largest drop since June and tested the 200-day moving average for the first time since June 2025. December WTI is within pennies of the contract high set on Tuesday (~$101.35).  Brazil’s presidential run-off between Lula and Bolsonaro will take place Sunday. It looks like dead heat. The markets responded favorably to Bolsonaro’s lead in the first round.  

Prices 

G10

• The euro seemed pulled between pressure on France and the sharp drop in US interest rates as the AI-meme showed more cracks. The former pushed the euro slightly below $1.1190 before the latter helped it recover to around $1.1230 after European markets closed yesterday. It is trading quietly but with a heavier bias between $1.1185 and about $1.1225.  Options for almost 650 mln euro at $1.12 expire today.  The flash October PMI was softer and pressure in European bonds has subsided today. 

• The yen was the strongest G10 currency yesterday, gaining about 0.85% against the US dollar, its best session of the month. It also reached a new high for the year against the euro. The dollar tumbled to JPY156.70 yesterday. After the low was recorded in early North American turnover, the greenback consolidated and reached about JPY157.35 before the buying dried up.  Yesterday’s low corresponds with the (38.2%) retracement of the dollar’s rally from the Sept 8 low (~JPY152.90). Follow-through selling today saw the dollar approach the next retracement (50%) near JPY156. The greenback recovered to new session highs around JPY157.15 before falling back to almost JPY156.50 in the European morning.  Options for almost $1.2 bln at JPY157 expire today. 

• Sterling reached nearly $1.3420 yesterday, its best level since September 16.  It faltered and was sold to sold to a two-day low (~$1.3355) in late European turnover before sterling recovered and reached almost 1.3410 in the NY afternoon. It is trading quietly today between about $1.3370 and nearly $1.3410. Options for GBP840 mln at $1.3400 expire today. 

• The Canadian dollar reached its best level yesterday since September 21. It has recouped a little more than half of its seemingly relentless losses beginning in early September. The US dollar was sold through (50%) retracement near CAD1.4030 and approached CAD1.40, where options for about $570 mln expire today. The US dollar is straddling the CAD1.40 level late in the European morning and is threatening to extend its pullback for the seventh consecutive session. The next retracement (61.8%) is by CAD1.3965. 

• Although the Australian dollar traded a few ticks on both sides of Wednesday’s range yesterday, the tone was more consolidative.  It probably needs to push above the $0.7050-65 area to be noteworthy. Options for about A$605 mln at $0.7000 expire today. It has been confined to a $0.7005-$0.7025 range so far today. 

EM 

• The Mexican peso’s slump was continued yesterday. The dollar surged to almost MXN18.86 yesterday in early North American turnover before it largely settled in a MXN17.65-MXN17.75 trading range.  It has been another tough week for the peso.  It is the seventh consecutive weekly loss, and it does not look complete.  The dollar is trading firmly in the upper end of yesterday’s range. The run-off in the Brazilian presidential election takes place this weekend and the polls show a tight race, but Bolsonaro is still favored. The dollar settled last week near BRL5.06 and reached almost BRL5.0 at the start of the week and traded back near BRL5.0555 yesterday. 

• The dollar continues to grind lower against the yuan. The greenback slipped slightly below CNH6.6690 today, a new low since July 2022.  The onshore yuan is slightly weaker but the two are traveling together.  The PBOC set the dollar’s fix at CNY6.7180 today (CNY6.7220 last Friday). It has been set higher on a weekly basis once since the end of July. 

• The Indian rupee snapped an eight-session advance yesterday and pulled back a little more today. In the eight-day run, the dollar fell from about INR96.77 to INR94.3225, its lowest level since September 3. It recovered to INR94.9425 yesterday and reached almost INR94.98 today and settled near the highs. 

Other Markets

• Equities continue to struggle.  Large Asia Pacific bourses mixed lower today and the MSCI index for the region fell for the fourth consecutive week.  Europe’s Stoxx 600, with less tech exposure, has fallen by about 1.6% this week, taking today’s 0.5% loss into account. The S&P 500 and the Nasdaq Composite are near the lower end of their recent ranges. The S&P 500 and Nasdaq 100 futures are little changed. 

• Benchmark 10-year yields in Europe took heart from the dramatic decline in US rates amid the tech-led equity market sell-off. France was the notable exception. Its 10-year yield rose nearly six basis points and the premium over 10-year German bunds widened to 173 bp. The 10-year Treasury yield fell ~16 bp to about 4.96%, its lowest yield in a month.  The US two-year yield fell ~1 6bp to 4.64%, its lowest since September 16.  Asia Pacific yields fell 5-9 bp today. European yields are narrowly mixed, but tensions are slightly more relaxed. The 10-year US Treasury yield is nearly three basis points higher (to 4.98%). 

• Gold was taken for around $120 yesterday. It fell to almost $4021 for the first time since early August. It traded below $4000 today but recovered and is near $4024 in late European morning turnover. The low for the year was recorded at the end of June near $3943. Silver did not wait for gold.  It extended yesterday’s losses and fell to about $53.45, a new low for the year today.  It peaked in January a little below $122. 

• December WTI consolidated firmly yesterday, above Wednesday’s settlement ($97.15). Although it traded inside Wednesday’s range, which itself was inside Tuesday’s range, the $99.30 close was a new settlement high for the contract. It is trading a little above $101 now, and pennies from the contract high made earlier this week. 

Data

• The US preliminary October PMI is expected to soften, and the composite is seen pulling back to 57.1 from 58.4.  If so, it would snap a four-month advance. Still, it would be a strong reading. The first estimate of Q3 GDP is due next week (median forecast in Bloomberg’s survey is 2.8%).  Activity in Q4 is expected to moderate but hold above 2%. The final October University of Michigan consumer confidence and inflation expectations tend to have less impact than the preliminary report.  

• Canada reports August retail sales. After slumping by 0.7% in July, they are expected to have jumped 1.3%, according to the median forecast in Bloomberg’s survey. We already know that light vehicle sales increased in August. Through July, retail sales have risen by an average of 0.6% a month this year compared with an average decline of 0.1% in the first seven months of 2025. More broadly, consumption rose 3.3% at an annual rate in Q2 and may have slowed in Q3. 

• Mexico reports August IGAE economic activity, which is similar to a monthly GDP estimate. It is seen rising by 0.3%, but given the base effect, the year-over-year rate may slow to around 3% from about 3.5% in July. 

• The eurozone’s flash October PMI slowed.  The composite eased to 51.9 from 53.1. It is the first decline since May. It finished last year at 51.5. The manufacturing PMI is at 52.4 (52.9 in September), and the services PMI slipped to 51.7 (from 53.0).  Separately, the ECB’s September inflation survey was little changed. The one-year expectation of 3.1% compares with August’s 3.0%.  The three-year expectation was steady at 2.9%. 

• Late today, Moody’s will announce the conclusion of its review of France credit worthiness.  It current Aa3 rating is two notches above the S&P and Fitch. Moody’s has a negative outlook, and a two-step catch-up move seems likely.  

• The UK reported September retail sales (-0.1% vs. median forecast in Bloomberg’s survey for a 0.1% decline. On the other hand, the flash PMI was firmer than expected.  Recall that unlike most countries, the UK retail sales are reported on a volume basis so rising prices which have lifted other countries’ retail sales do not impact the British report.  The composite PMI rose to 53.1 from 52.0. The manufacturing PMI is 52.8 (from 51.9), and the services PMI is 53.1 (from 52.1).

• Australia’s preliminary composite PMI slumped to 47.7 from 51.3 in September.  It is the third consecutive decline and suggests that four rate hikes this year are moderating activity. It finished last year at 51.0.  The manufacturing PMI is 49.7 (from 49.6 in September) and is the first back-to-back sub-50 reading since the end of 2024.  It was at 52.0 in July and August. The services PMI is 47.8 (from 51.9).  

• Japan reported September CPI rose to 2.1% (from 1.9%), and for the first time this year, the core rate rose above the 2.0% target (2.1%). The measure that excludes fresh food and energy rose 2.4% (from 1.9%). The report was largely anticipated by the Tokyo CPI data that was released a few weeks ago.  The swaps market remains confident that the Bank of Japan will not raise rates next week and assesses around a 75% chance of a hike at the following meeting in December, down from almost 80% at the end of last week.  The market does not typically respond much to the PMI.  The October preliminary composite PMI is 52.3, unchanged from September. The manufacturing PMI is 53.3 (from 54.1 in September), and the services PMI stands at 52.0 (from 51.3 in September).