Key Takeaways
- Sweden's Riksbank unexpectedly cut its policy rate to 1.75% on Tuesday, defying market expectations for a hold at 2.00%.
- Deputy Governor Anna Seim entered a reservation against the decision, advocating for an unchanged policy rate due to concerns that a vulnerable supply side and expansionary fiscal policy in 2026 could lead to higher inflation.
- Germany's HCOB Composite PMI rose to a 16-month high of 52.4 in September, significantly exceeding forecasts, driven by a strong rebound in the services sector.
- France's HCOB Composite PMI declined to 48.4 in September, signaling a sharper contraction in economic activity and a cooling of cost pressures.
- The European Union and Indonesia have concluded talks on a free trade agreement, aiming to deepen economic ties and streamline trade between the two blocs.
Riksbank's Surprise Rate Cut and Dissent
The Riksbank, Sweden's central bank, surprised markets on Tuesday by cutting its policy rate to 1.75% from the previous 2.00%, a move that went against the consensus expectation for a hold. This decision marks a further easing of monetary policy, with the central bank indicating that the policy rate is expected to remain at this level for some time to come if the outlook for inflation and economic activity holds. Inflation excluding energy prices has reportedly declined somewhat and is approaching earlier forecasts.
However, the decision was not unanimous. Deputy Governor Anna Seim formally registered a reservation against the rate cut, arguing instead for an unchanged policy rate. Seim highlighted concerns that a vulnerable supply side, coupled with an expansionary fiscal policy in 2026, implies that inflation could surprise on the upside. This dissent underscores the ongoing debate within central banks regarding the balance between supporting economic activity and controlling future inflation risks.
Divergent Trends in Eurozone PMIs
Preliminary Purchasing Managers' Index (PMI) data for September revealed a mixed economic picture across the Eurozone's largest economies. Germany's HCOB Composite PMI surged to 52.4, marking a 16-month high and significantly surpassing the estimated 50.7. This robust performance was primarily driven by the services sector, which saw its PMI rise to 52.5 (estimated 49.5). Conversely, the manufacturing PMI for Germany fell to 48.5 (estimated 50.0), indicating a contraction in the goods-producing sector.
In contrast, France's HCOB Composite PMI for September fell to 48.4, below the estimated 49.7, indicating a continued and accelerated weakening of private sector activity. Both manufacturing and services sectors in France reported contractions, with the manufacturing PMI at 48.1 (estimated 50.1) and services at 48.9 (estimated 49.6). The survey also signaled a cooling of cost pressures for French private sector firms, with input price inflation easing to a five-month low.
EU and Indonesia Conclude Free Trade Agreement Talks
In other significant economic news, the European Union and Indonesia have successfully concluded negotiations for a Comprehensive Economic Partnership Agreement (CEPA). This agreement, finalized after nearly a decade of talks, aims to create a free trade zone covering over 700 million consumers and is expected to significantly boost trade and investment between the two regions. EU exporters are projected to save approximately €600 million annually in duties.
The deal is anticipated to cut duties on most tariff lines, grant EU companies new access to Indonesian services and investment markets, and secure supply chains for critical raw materials. Indonesian exports to the EU, including palm oil, footwear, textiles, and fisheries, are also expected to benefit significantly from tariff reductions.
Vanke Faces Debt Challenges
Chinese property developer Vanke is facing renewed financial pressure, having reportedly skipped interest payments on its onshore private debt. The company is now seeking lower rates, a development that underscores the ongoing liquidity challenges within China's real estate sector. This situation highlights the continued fragility of some major developers in the country, despite efforts to stabilize the market.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.