The energy shock cools in America and heats up in Europe

Two data releases, one day, opposite directions

On 30 September inflation data from either side of the Atlantic pointed in opposite directions. According to the US Bureau of Economic Analysis, the PCE price index, the measure of consumer prices the Fed watches, rose 3.4% year on year in August. Financial News put expectations at 3.7%; the core index also came in at 3.0% against an expected 3.3%.

In Europe the picture was reversed. FXStreet reported that annual inflation in Germany rose from 2.9% in August to 3.3% in September. Investing.com said harmonised inflation in France climbed from 2.6% to 3.4%; even the highest of 19 analyst forecasts had been 3.3%. Euronews reported that Italy's national index rose from 3.3% to 4.2%, its highest level since September 2023.

Sources give two different figures for Italy. Euronews cites Istat's national index at 4.2%, while the Reuters summary refers to a rise from 3.2% to 4.1%. The gap most likely reflects the difference between the national and EU-harmonised measures, but this could not be verified. On 29 September Spain had also reported inflation of 4.9%, its highest since 2023.

Energy hits each side differently

On both sides the source of price pressure is energy. In the US, petrol prices rose 4.4% month on month in August, yet the headline index still came in 0.3 points below expectations. In Italy, by contrast, annual inflation in energy products rose from 17.1% to 22.3%, and regulated energy reached 25.9%.

In the US, demand can still absorb the energy shock. Consumer spending rose 0.9% month on month in August, while the saving rate fell to 4.1%. For now, households are meeting higher prices by saving less. In Europe the energy component feeds directly into the index, and in Italy fresh food inflation also accelerated from 3.8% to 5.5%.

The oil price is not narrowing this gap. According to the Reuters summary on Euronext, Brent ended September up about 14%, its biggest monthly gain since July. The November contract expired at 103.50 $, and the new benchmark December contract closed at 98.03 $. From 1 October headline Brent will look about 5 $ lower, but that difference reflects the contract roll, not easing.

The Fed found room to wait, the ECB did not

CME FedWatch data cited by Asia Business Daily showed the probability of a 25 basis point hike on 28 October falling from 51% to 35% in a single day. Financial News put the same figure at about 37%; according to Reuters, markets assign roughly a 63% probability to rates staying on hold. The US 2-year yield fell 4 basis points to about 4.84%.

For the ECB the same day sent the opposite message. French inflation exceeding every forecast strengthens the case for a further hike. Yet according to FXStreet, the euro rose only 0.1% against the dollar to around 1.1350 after the German data. The currency market does not yet appear to be pricing an ECB–Fed divergence.

In France the problem is confidence

According to Tech Times, France's 10-year yield is 4.74% and Germany's 3.63%, a gap of 111.2 basis points. Newsquawk reported the same morning, at 07:00 UTC, that the spread had reached 120 basis points. At the start of the year it stood at about 55 basis points, so it has doubled.

The government presents a 54 billion euro savings package on 1 October, with a parliamentary vote on 17 November. Public debt reached 119.3% of GDP in 2026. Interest payments are running 5 billion euros above forecast in 2026 and 7 billion in 2027, which swallows part of the savings from the outset. The country has had 3 prime ministers in 14 months, and the presidential election is in April 2027.

Sources also differ on how the spread is measured. The 9-point gap between 111.2 and 120 basis points may come from the time of measurement; this could not be verified. Both figures point to a level not seen since 2012.

Bonds suffer their worst month in years

According to Reuters, global bonds ended September with their worst month in years. The US 10-year yield rose 53 basis points over the month, its largest monthly increase since September 2022. The 30-year yield rose about 39 basis points, and France's 10-year yield posted its biggest quarterly jump in roughly 40 years.

The relief after the PCE release did not last until the close. The 10-year yield fell to about 5.23% in the morning, but according to Yahoo Finance it ended the day 4 basis points higher at 5.29%. This shows the pressure is coming more from the term premium than from policy rate expectations. The term premium is the extra return investors demand for holding longer-dated bonds.

Equities took their share of the strain. According to Yahoo Finance, the Dow Jones fell 0.9% and the S&P 500 0.3% on 30 September; the Dow ended September down 4.9%. According to Reuters, the STOXX 600 fell 2.5% in Europe over the month.

Two channels into Türkiye

The euro area is Türkiye's largest export market. Its current share of exports does not appear in the event records underlying this report and could not be verified here. The 25.9% rise in regulated energy in Italy is squeezing household budgets, and that squeeze may feed through demand into orders for Turkish exporters.

The second channel is the cost of borrowing. The French spread returning to 2012 levels and the chance that the ECB stays tight could tighten euro-denominated credit conditions. A US 10-year yield holding at 5.29% also keeps emerging-market borrowing expensive. Meanwhile Brent's 14% rise in September adds further pressure to October inflation through fuel prices.

Three indicators stand out for the coming weeks. First, the aggregate euro area September data and statements from ECB members. Second, whether the French spread stays above 120 basis points through the 17 November vote. Third, whether the US 10-year yield remains above 5.29%.