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The Fed's September minutes confirm that most participants see another rate hike as likely before year-end, amid persistent inflation and upside risks. However, the timing remains unclear. Subsequent employment and inflation data, which came in softer after the decision, along with remarks from several officials, support a patient approach.

Our Take

We expect one additional rate hike this year, with December as our base case, although October remains a possibility. The October 14 inflation report, particularly the core reading, will be crucial. In our view, a monthly increase of 0.3% or more would strengthen the case for an October hike, while a reading of 0.2% or less would favor waiting.

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Banxico's minutes, scheduled for release today at 9 a.m., could provide further insight into the unanimous decision to hold the policy rate at 6.50% and the removal of language pointing to an extended pause. The focus will be on how policymakers assess persistent core inflation, the potential pass-through of peso depreciation into consumer prices, and external risks against a backdrop of weak domestic demand.

Our Take

We expect the minutes to support our forecast that rates will remain unchanged for the rest of the year. The removal of forward guidance signaling a prolonged pause could reflect greater flexibility to respond to incoming data, without necessarily signaling a rate hike. The key will be identifying what conditions could justify a policy adjustment and how concerned policymakers are about exchange rate pass-through, given that Banxico has ruled out a mechanical response to Fed moves.

Oil prices surged nearly 5% at one point following a report that the White House had asked the Pentagon to prepare military strike options against Iran that could be carried out before November's midterm elections. The report challenged expectations that Trump would wait until after the vote to escalate the conflict. Prices also received support from fresh attacks by the Houthi militia, backed by Yemen, targeting several airports in Saudi Arabia and an oil tanker in Qatar.

Our Take

The rally reflects a higher geopolitical risk premium as the prospect of a near-term military escalation increases, although the report does not confirm that a strike has been authorized. An intensification of the conflict could disrupt crude flows and keep prices elevated, prolonging inflationary pressures and reinforcing central banks' cautious stance.

Germany's trade surplus narrowed to €19.5 billion in August from €21.6 billion in July. Exports fell 0.8% month over month, while imports rose 0.9%, on a seasonally adjusted basis. Shipments to the United States dropped 6.3%, although total exports remained 6.2% higher than a year earlier.

Our Take

The figures suggest that external demand is providing less support to Germany's recovery. Although exports remain above year-earlier levels, the monthly decline and weaker shipments to the United States warrant caution. Sustained growth will increasingly depend on domestic demand offsetting a still-uncertain global trade environment.

France is seeking a deal to pass its 2027 budget in a fragmented parliament. The proposal includes €43 billion in new fiscal adjustment measures aimed at bringing the deficit down to 5.0% of GDP. Finance Minister Roland Lescure has kept negotiations open, but warned that the government could resort to constitutional powers to push the budget through if it fails to secure sufficient support.

Our Take

The challenge is to deliver a credible fiscal adjustment without undermining growth or deepening political tensions. An agreement could reduce uncertainty and ease pressure on French government debt, while a prolonged deadlock would keep borrowing costs elevated. For markets, both budget approval and the government's ability to meet its fiscal targets will matter.

Corporate News

Samsung Electronics reported quarterly earnings nearly nine times higher than a year earlier, driven by spending on artificial intelligence infrastructure. However, its shares declined as the results failed to meet investors' increasingly demanding expectations.

TSMC's sales surged 51%, reflecting robust demand for AI-related semiconductors. Despite the strong growth, its shares fell, suggesting that investors had already priced in even stronger results.

PepsiCo lowered its earnings outlook amid a slower-than-expected recovery in North America. The company faces rising costs and financially stretched consumers, a combination that makes it harder to restore sales momentum and improve margins.

Wolfspeed shares surged as much as 16% after the U.S. Department of Defense said it would lend the chipmaker up to $1.5 billion to develop materials the company described as critical to national security. Wolfspeed filed for bankruptcy last year.

The To-Do List

  • Monitor remarks from Fed officials Waller, Kashkari, and Musalem.

  • Follow the final vote on Giorgia Meloni's electoral reform, seen as a test of unity for her governing coalition.

  • Today, complete four rounds of 12 squats, 10 alternating lunges per leg, 12 push-ups, 15 dumbbell rows per arm, and a 30-second plank, resting 60 seconds between rounds.

  • Remember that today marks another anniversary of the founding of El Colegio de México in 1940, one of the most prestigious higher education and research institutions in Mexico and Latin America.

Quote of the Day…

"After me, the flood." ...King Louis XV of France