FXT Economic Data Summary (Asia-Pacific | 09/08)

Eurozone Recovery Extends to Current Conditions

The Eurozone Sentix Economic Index rose from 0.9 to 5.1 in September, well above the 2.1 forecast, marking a fifth straight monthly increase and the highest level since February 2022. The Current Situation Index improved from -8.0 to -3.3, its strongest since March 2022, while Expectations climbed from 10.3 to 13.8. The gap between current conditions and expectations continued to narrow, prompting Sentix to classify the Eurozone economy as being in an upturn.

However, the current situation reading remains negative, suggesting activity has yet to strengthen broadly, while inflation expectations continued to edge higher and could weigh on bond markets. FXT analysis suggests the sustained Sentix recovery indicates the weakest phase may be passing, though Germanys performance and inflation trends remain key to a more durable recovery.

SNB Foreign Exchange Reserve Growth Slows Sharply

Swiss National Bank foreign exchange reserves increased from CHF 768.1 billion to CHF 770.1 billion in August, marking a third consecutive monthly rise. However, the CHF 1.9 billion increase was well below July‘s CHF 9.3 billion and June’s CHF 48.0 billion. Official reserve assets excluding gold also rose from CHF 780.2 billion to CHF 782.1 billion. After reserves jumped from CHF 710.9 billion in May to CHF 758.9 billion in June, the pace of expansion has steadily slowed.

The value of gold reserves increased from CHF 109.4 billion to CHF 119.5 billion. Since monthly reserve changes can reflect transactions, exchange-rate movements and asset-price fluctuations, the increase alone does not confirm renewed SNB intervention. FXT analysis suggests reserves are still expanding, but the sharp slowdown since early summer provides little evidence of a stronger intervention signal.

Persistent Inflation Risks Remain the BoEs Main Concern

Bank of England Chief Economist Huw Pill reinforced his hawkish stance, arguing for an early increase in Bank Rate from 3.75% to 4%. His main concern is not higher energy prices themselves, but the risk that external costs feed into wages, services inflation and corporate pricing, creating more persistent domestic inflation. Markets currently price only slightly above a 15% chance of a September hike, while the probability for November exceeds 70%, leaving a clear gap with Pills preference for earlier action.

Recent UK price, wage and inflation-expectation indicators have been relatively moderate, but forward-looking analysis still points to underlying inflation above 2% with Bank Rate at 3.75%. Pill believes a modest early adjustment could reduce the risk of more aggressive tightening later, while stressing that one hike would not necessarily start a new tightening cycle. FXT analysis suggests the BoE remains alert to second-round inflation effects, and persistent price pressures could bring market expectations for the next hike forward.

Japans Services Growth Accelerates

Japan‘s Services PMI rose from 51.2 to 52.5 in August, marking a third consecutive month of expansion and the fastest growth since March. New orders recovered from July’s 25-month low, supported mainly by domestic demand, although employment growth slowed to around a one-year low. The Composite PMI climbed from 52.7 to 53.5, its highest since February, while new business expanded at one of the fastest rates in nearly three years, signaling stronger private-sector momentum.

Amid Middle East tensions and a weaker yen, firms continued passing higher costs on to consumers, with service-sector selling prices rising at the second-fastest pace since the survey began in 2007, behind only the April 2014 consumption-tax increase. Although input-cost inflation eased, output prices remained elevated. FXT analysis suggests stronger activity alongside continued price increases gives the Bank of Japan further grounds to tighten policy, with wages and consumption likely to remain key indicators.

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