Europe Bashing The information presented in this publication is communicated to you strictly for informational purposes and does not constitute investment advice, a sales offer, or a purchase solicitation, and should not be used as a basis or considered as an incentive to engage in any investment. The macro point There are only two things that matter for the options market right now: the US presidential election and US employment. Good news, we will have new data at the end of the week concerning the labor market. However, be careful not to overinterpret the figures! We'll explain why. When things go wrong in the United States, they systematically go even worse in Europe. The latest manufacturing activity indicators have shown this. Across the Atlantic, activity is slowing. But we are still far from the danger zone. The manufacturing industry is still in expansion. In Europe, it is collapsing, notably in Germany where the PMI has dropped to 40.3 – levels known during the worldwide Covid lockdown. The most optimistic think that poor European statistics could prompt the ECB to accelerate rate cuts. It would be necessary. But it's not certain that it will happen. Last week, influential members of the Governing Council once again emphasized the importance of monitoring wage pressures in the services sector. Fortunately, not all eurozone countries are in the same situation. Spain, benefiting from the Sanchez government's stimulus measures, greater fiscal prudence, and a very dynamic tourist season, is doing well. What about France? It's complicated. Given the high deficit level (close to 6% of GDP according to the latest estimates), significant fiscal consolidation is necessary. We are talking about finding 30 to 40 billion euros. In an ideal world, the state's scope would need to be reviewed. In reality, it is likely that the old recipes will prevail: cuts in ministries and tax increases. Several avenues are being considered: increasing taxation on donations, inheritances, or questioning the flat tax (which had nonetheless had a very positive effect on business creation according to France Stratégie). This allows for quick fiscal revenues and therefore shows a good image to the European Commission. However, it could compress economic activity and potentially cause a recession. For now, this is not our central scenario for 2025. We still expect rather anemic growth, close to 0.5-0.7% (to be adjusted once the budget is unveiled). The good news last week is that China has reignited its economy. Be careful before getting too excited, these are mainly monetary measures aimed at supporting the real estate and stock markets (which have been in correction since May). The billions of yuan to be injected into the economy will in no way translate into a consumer recovery. This year, as next year, China should not be able to reach its 5% growth target. We estimate that GDP growth should be limited to 4.8% this year. It may seem a lot. It is not the case considering China's economic development stage. These measures should, however, help stabilize the yuan – which had experienced unusual volatility in recent weeks. This is the main positive point according to us. Finally, on the American side, the latest indicators confirm the scenario of a soft landing for the economy. Maintaining a high budget deficit in the coming years – between 5% and 7% of GDP – should help avoid a recession. This deficit is not problematic as it has led to a boom in wealth production and productivity (it could reach 3% this year while it is negative in the eurozone). We believe that over the next three years, American growth should significantly outperform that of the eurozone. Structurally, this is a supporting factor for the US dollar. Technical point In the foreign exchange market, we find that the possibility of EUR/USD going much further is limited. The large gap in terms of economic activity between the United States and the eurozone is likely to cause a long-term problem. Also, we are approaching the US presidential election, which could prompt operators to favor safe havens, hence the dollar over the euro. The Swiss franc has barely moved following the 25 basis point rate cut decided by the Swiss National Bank (SNB). A minority of analysts anticipated a 50 basis point cut, considering that the SNB might want to hit hard in September, knowing that its next meeting is not until December. It was unlikely. However, the issue of the strong franc remains a problem. The SNB reiterated that it might intervene again in the foreign exchange market. Be cautious if you are exposed. The supports and resistances displayed below indicate the respective low and high points within which prices are expected to evolve during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.09901.10331.12151.1245EUR/GBP0.82330.83000.84900.8511EUR/CHF0.92900.94000.94910.9589EUR/CAD1.47991.49771.51431.5210EUR/JPY157.90160.88162.53163.11 Announcements to follow There are two things that matter for the stock market at the moment: the US presidential election and US employment. The latter will be the main focus this week. We continue to believe that the job market is doing well. It is important to refrain from overinterpreting the reported figures, which are partly skewed. Indeed, job creations and the unemployment rate are affected by the unusually high grant of work visas (an average of 60,000 visas are issued per month compared to 40,000 before Covid) and by a growing number of illegal immigrant workers. Employment figures are therefore somewhat less clear than in the past. In any case, no monetary policy change is expected in the immediate term. The US Federal Reserve (Fed) is likely to cut rates twice this year, by 25 basis points each time. We align with the market consensus. Below you will find the publications and events that should have a major impact on the evolution of currency rates.DayHourCountryIndicatorWhat to Expect?01/10/202411:00EURConsumer Price Index (September)First estimate at 2.2% year-on-year02/10/202414:15USAADP Survey (September)Previous at 99k.04/10/202414:30USAUS Employment (September)Unemployment rate at 4.2% in August and job creations at 142k.