Today is ECB day in terms of an interest-rate announcement and on the surface all is quiet.But beneath this quite a lot is going on and we can start with my subject of yesterday and the announcement by the US Federal Reserve.
The Committee decided to conclude the reduction of its aggregate securities holdings on December 1.
This will have echoed around the twin towers of the ECB and indeed the Bank of Italy as the Governing Council is meeting there this time around,because of this.
The APP and PEPP portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.
In fact ECB President Christine Lagarde chose to stand firmly behind this at the last press conference.
The fact that we are not reinvesting and that we are letting our portfolio on a run-off mode is proceeding smoothly. We had telegraphed it very carefully. It was anticipated, it was predictable, and I think that everyone who cares about those issues knows exactly how this proceeds and what very limited impact it has.
As so often with her she has talked herself into a corner. Because events have moved on and there are two main issues now. Most Euro area countries would like lower bond yields because they got used to them being in many cases negative and spent on that basis.Even Germany has a 30-year bond yield of 3.2% at the moment. Next is from Madame Lagarde’s home country because “Le Spread” is at 0.78% so not at what might be considered a red alert level but in central banking language elevated. You do not have to take my word for it as her she is denying this from the last press conference.
As I said as well, euro area sovereign bond markets are orderly and are functioning smoothly with good liquidity. If you observe the spreads, they have considerably tightened over the course of the last two years, and the spreads relative to bonds have a rather limited width between the other Member States relative to German bonds.
If that were true it is especially curious that she threatened to intervene in it! But even in calmer waters the French ten-year is now above the Italian one albeit by only 0.01%, Thus it would be a lot easier to intervene on the French side if you are no longer letting bonds run off and shrinking your balance sheet. So be on your guard for a change of language today.
Next up is this from the Bank of Japan.
The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5 percent.
This will come as no great surprise to readers here as I have argued for months that the Bank of Japan is as interested in raising interest-rates as Arsenal fans are in supporting Tottenham. Also the exchange-rate has set a new all-time high this morning at 178.71. Remember when it rising above 160 was considered a big deal? In the central banking competitive devaluation game the Bank of Japan is winning and the ECB losing.
Economic Growth
Today’s official releases have rather a stand out. But let me start with the strugglers.
According to Statistics Finland, output adjusted for working days fell by 0.2 per cent in September 2025 from the previous year’s September. Seasonally adjusted output decreased by 0.4 per cent in September from the month before. According to revised data, working day adjusted output fell in August 2025 by 0.7 per cent (previously -0.5%) from August last year.
Finland seems to be in rather a trough. Then there is a country which sadly has been a perennial struggler in line with my Girlfriend in a Coma theme.
In the third quarter of 2025, gross domestic product (GDP), expressed in chained values with a reference year of 2020, adjusted for calendar effects and seasonally adjusted, is estimated to have remained stationary compared to the previous quarter and to have grown by 0.4% in trend terms. ( Italy Statistics)
Next is a country that joined the strugglers around 2018 although it was only later revisions which revealed this.
0.0% compared to the previous quarter (price, seasonally and calendar adjusted)
; +0.3% compared to the same quarter of the previous year (price adjusted);
+0.3% compared to the same quarter of the previous year (price and calendar adjusted) ( Germany or Destatis)
On the other side of the coin is something really rather extraordinary. Because the country one might reasonably expect to have had a difficult quarter has produced this earlier today.
Gross domestic product (GDP) in volume* accelerates in the third quarter of 2025: it increases by 0.5%, after +0.3% in the second quarter. ( Insee)
Yes France surged apparently and just shrugged off my worry which is the past inventory build.
Finally, changes in inventories are contributing negatively to GDP growth this quarter: -0.6 points after +0.5 points in the second quarter of 2025. ( Insee)
How did it do this? Well whilst there are all sorts of reasons to think that exports might be in a trough such as the tariff war and the surge in Chinese exports replacing others we are instead told this.
The contribution of foreign trade to growth was positive in the third quarter (+0.9 points after -0.4 points): exports accelerated sharply this quarter (+2.2% after +0.3%) while imports declined slightly (-0.4% after +1.4%). ( Insee)
If we now switch to the S&P Global PMI they told us this only last week.
Bucking the wider trend, France posted a fourteenth consecutive monthly reduction in output, and one that was the sharpest since February.
The “sharpest” fall was outside of the GDP release as it was for October.But whilst I am not a great fan of the PMI survey it is reasonable to think they should have some sort of grip on trade and exports. Actually they went further.
The subdued trend in France’s private sector persists. The Flash Composite PMI for October fell to 46.8, indicating a continued and stronger contraction in overall economic activity. Output in both manufacturing and services is declining, pointing to broad-based weakness. Our in-house HCOB nowcasting model predicts zero growth for the third quarter.
They seem to have missed the exports surge.
In terms of export performance, October survey data signalled a further deterioration, although the extent to which new business from abroad shrank was less pronounced than in September.
Regular readers will recall that I posted this exactly a year ago.
Regular readers will be aware that I only challenge official figures when the evidence is strong. Today we have seen numbers which are inconsistent with pretty much everything else that has been produced on the German economy. I fear that someone wanted to avoid the word recession being used and applied pressure.
France would not have been in a recession, at least according to the official figures, but these numbers are simply not credible. If we switch to Euro area supporters let me point out that @fwred calls this release “remarkable” and I think I will leave it there.
Comment
On the basis above of weak Euro area growth which is only 0.2% for the third quarter if you believe the French numbers and inflation at 2.2% then there is a much better case for Euro area interest-rate cuts than in the United States. In fact one can now argue that the money supply looks less clear cut as well.
- Annual growth rate of broad monetary aggregate M3 stood at 2.8% in September 2025, after 2.9% in August 2025
The recent peak was 4% in February and 3.9% in May so it looks as though the series is weakening. Should that continue we can expect the ECB to be back on the path to lower interest-rates.
