Next week, issues such as political tension in France, turmoil in the markets and elections in Brazil will be on the agenda.
1. BUDGET DISCUSSIONS IN FRANCE
Discussions could continue for weeks after France’s minority government presents its draft budget for 2027. While political parties in the country are having difficulty reaching a consensus in the parliament, opposition parties have begun to draw clearer political lines before the presidential elections to be held next year.
France’s 10-year government bond yields are trading at their highest levels since 2002, approaching 5 percent.
Students and public employees decided to strike against budget cuts aimed at relieving the pressure on the state’s financial situation.
France’s public debt to gross domestic product (GDP) ratio has peaked at almost 120 percent. France plans to borrow at a record level next year by issuing bonds of 340 billion euros.
As the country’s elections approach, the pressure on the markets is increasing. The head of the Bank of France said that they cannot expect the European Central Bank (ECB) to solve the country’s debt problem.
The ECB, on the other hand, follows the developments in the country closely.
2. EURO IS LOOSING VALUE
As the calmness of the summer months is left behind in the foreign exchange markets, the dollar is gaining strength and the euro is trying to resist the loss of value.
The dollar index, which measures the dollar against six major currencies, is set to close its third consecutive week in the positive. While the index rose to the peak of 18 months, expectations that the weak course of the dollar will continue in 2025 have also been reversed.
Strong growth in the US economy, high bond yields and the rise in oil and natural gas prices support the dollar. The increase in energy prices also provides an advantage for the energy exporter USA, as long as appropriate policies are followed.
As important as the factors that support the dollar, the problems faced by other major currencies are at least as important. The outlook for sterling and yen is not bright either, but the real pressure is on the euro.
While the pressure is increasing in the bond markets of euro zone countries with high indebtedness, especially France, high energy costs are suppressing growth. This situation may make it difficult for the European Central Bank (ECB) to increase interest rates.
The euro fell below 1.13 against the dollar for the first time since May 2025. As volatility in the markets increased, positions taken with the expectation that the decline in the euro would deepen also increased. The euro lost value not only against the dollar but also against the pound, yen and Swiss franc.
3. ELECTION IN BRAZIL
Brazil goes to the polls on Sunday. The election will show whether Latin America’s largest economy will shift to the right, which has recently been seen in many countries in the region.
Brazilian President Luiz Inacio Lula da Silva is expected to finish the first round narrowly ahead. However, it seems difficult for Lula to win the election in the first round and the race is expected to go to the second round on October 25. Lula’s most likely opponent in the second round is Flavio Bolsonaro, son of former President Jair Bolsonaro. The conviction of Jair Bolsonaro for the coup attempt after the 2022 elections remains on the agenda of conservatives both in Brazil and abroad.
Investors are also watching the election closely. While high interest rates in Brazil make the country’s currency attractive to investors trying to profit from the real interest rate difference, they increase the pressure on households and companies and strengthen concerns about growth.
No matter who wins the election, a difficult financial situation awaits the new administration. As the rise in public debt continues, markets are cautious on both sides about whether the debt burden can be drawn to a more sustainable line.
4. WHAT WILL BE THE LATEST SITUATION IN THE FED?
Investors will focus on clues as to which direction the interest rate will be taken next week, after the US Federal Reserve (Fed) announced its first interest rate increase in three years.
Wednesday, minutes of the Fed’s September monetary policy meeting will be released. At the meeting in question, the Fed announced the interest rate increase for the first time since 2023 and pointed out that additional monetary tightening would be made until the end of the year.
Fed fund futures indicate that there is an expectation in the market that the Fed will announce another interest rate increase at its next meeting in October. But lately this possibility has begun to diminish.
While the latest economic data showed that inflation increased below expectations in August, New York Fed President John Williams stated in his statement on Tuesday that the Fed will have time to evaluate economic data before announcing another interest rate increase.
5. WHAT IS THE CONDITION OF JAPAN?
Two key economic data releases in Japan on Thursday will offer an insight into how the country is coping with the energy supply shock resulting from conflicts in the Middle East and a weakening yen.
First, the Reuters Tankan survey will be announced. The July-September period results of the survey, which reflects the Bank of Japan’s (BoJ) corporate confidence indicator, showed that companies in the manufacturing sector were more resilient compared to non-manufacturing sectors.
Later the same day, Fast Retailing, operator of global clothing chain Uniqlo, will announce its annual results. The company is seen as a benchmark for consumer spending in Japan and China.
Although analysts’ expectations are high, investors will focus on the company’s future expectations and the effects of rising energy costs and a weakening yen on profit margins.
