Bond yields rise and stocks fall, moving flows to safe haven assets

EU mid-market update: Volatility returns as Sept begins; Bond yields rise and stocks fall, moving flows to safe haven assets; VIX highest since July.

Notes/observations

- Pressure mounts on UK govt to fix market’s concerns about fiscal stability and legitimacy of Chancellors plans. Participants are returning from holiday and selling UK assets, cable (GBP/USD) is down over 1% and long-end of yield curve continues climb, with 30-year at 1998 levels around 5.69%. Recent cabinet reshuffle has been seen as panic move by govt and raised investor concern about tax rises in the Autumn budget; Budget serves as a critical juncture for govt to course correct the ship.

- Stability concerns echoed across Europe as French confidence vote approaches on Sept 8th. French and German yields rise. German 10YR at 2.78%, French 10YR at 3.58%. The 30-year bund is highest since 2011.

- The yen weakened substantially as Secretary General of Japan’s ruling party LDP steps down. The uncertainty putting yen on offer and USD/JPY rising nearly 1%. Gains were pared slightly as PM Ishiba said ‘he is hard to replace’.

- Any LDP leadership race featuring Sanae Takaichi, Shinjiro Koizumi, and Toshimitsu Motegi would map to distinct BOJ paths and JGB curves - from a dovish pause and softer yen to gradual normalization with targeted relief or stimulus that pressures the long end.

- Key upcoming dates on trade war front: Sept 17 the Ninth Circuit hears back-to-back IEEPA tariff appeals (California v. Trump; Webber v. United States), and Sept 30 the D.C. Circuit hears Learning Resources v. Trump, all against the Federal Circuit’s 7-4 ruling that struck most IEEPA tariffs but stayed its mandate until Oct 14 - with the stay continuing if a cert petition is filed, keeping duties in place.

- Three things make this week’s US jobs report unusual: an ultra-low 75k-80k NFP consensus after July’s weak 73k and hefty downward revisions, explicit Fed guidance (Governor Waller backing a 25 bp cut in September unless there is a materially stronger upside, or a notably weaker print with contained inflation to justify bigger), and early-September benchmark revisions that could quickly rewrite Friday’s narrative.

- US Congress is coming back into the session today; Judge in Fed's Cook lawsuit case asked both sides to submit documents on Tues (Sept 2nd); Pres Trump will make an Oval Office announcement at 2 p.m. ET Tuesday, with the subject undisclosed. This comes as Treasury Secretary Scott Bessent said this week that all options are on the table for new Russia sanctions, and Press Secretary Karoline Leavitt noted on Aug 28 that Trump would address the Russia-Ukraine war later.

- Gold hits record high on safe-haven demand and SCO summit assessments; Dollar recovers >0.5% after five-week low; Fed independence and tariffs maintain uncertainty.

- Asia closed mixed with KOSPI outperforming +0.9%. EU indices -1.0% to 0.0%. US futures -0.4% to -0.7%. Gold +0.1%, DXY +0.6%; Commodity: Brent +1.6%, WTI +2.7%; Crypto: BTC +0.8%, ETH -1.0%.

Asia

- South Korea Aug CPI M/M: -0.1% v +0.2%e v 0.2% prior; Y/Y:1.7% v 1.9%e; CPI (ex-food/energy) Y/Y: 1.3% v 1.7%e.

- Australia Q2 Current Account Balance (A$): -13.7B v -16.0Be; Net Exports of GDP: 0.1% v 0.1%e.

- BOJ’s Dep Gov Himino noted that the real interest rate was still very low; reiterated forward guidance that was appropriate to raise rates if economic outlook was met; However, uncertainty still high and might be a slowdown in inflation as food price increases dissipate.

- Japan PM Ishiba said to ask ministers to compile economic measures to address inflation and tariffs. Top focus was on handling inflation; need to achieve wage growth above inflation.

- Japan Fin Min Kato stated to continue to monitor impact of inflation and US tariffs on corporate profits.

Europe

- PM Starmer’s reshuffle undermines Chancellor Reeves’s authority; PM brought in 3 economic experts to oversee the Chancellor ahead of October’s make-or-break Budget.

Americas

- Treasury Sec Bessent: Very good chance Stephan Miran would be seated on Fed before Sept FOMC meeting; Confident Supreme Court would uphold Pres Trump's tariffs. He also noted Pres Trump might declare a national housing emergency this fall to address rising prices and dwindling supply.

Energy

- US urging Europe to stop buying Russian oil/gas; threaten India with secondary sanctions over Russian energy ties.

- Treasury Sec Bessent stated that was reviewing possible Russian sanctions this week; China and India were bad actors in Ukraine, fueling Russian war machine. Making headway with Europe on need to crack down on India over Russian oil purchases.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.71% at 547.48, FTSE -0.44% at 9,156.09, DAX -0.90% at 23,806.68, CAC-40 +0.13% at 7,717.58, IBEX-35 -1.01% at 14,778.96, FTSE MIB -0.88% at 42,035.00, SMI -0.06% at 12,145.84, S&P 500 Futures -0.51%].

Market Focal Points/Key Themes: European indices opened generally lower and trended into the red through the early part of the session; political situation in France seen weighing on risk appetite; among sectors managing gains are consumer discretionary and energy; sectors trending lower include real estate and utilities; oil & gas subsector supported on concerns Ukraine conflict might not be resolved in the short term; Banca Monte Paschi confirms to raise offer for Mediobanka; DKSH acquires Aston Chemicals; no major earnings expected in the upcoming Americas session.

Equities

- Consumer discretionary: Kering [KER.FR] +3.0%, LVMH [MC.FR] +2.5% (analyst upgrade) - Consumer staples: Nestle [NESN.CH] -2.0% (dismissed CEO) - Energy: SMA Solar Technology [S92.DE] -23.5% (cut outlook) - Financials: Mediobanca [MB.IT] -2.0% (Monte Paschi raises tender offer).

- Healthcare: Sanofi [SAN.FR] +0.5% (hearing analyst upgrade).

Speakers

- ECB's Schnabel (Germany) stated that inflation risks were tilted to upside; ECB should keep interest rates steady as the euro zone economy was holding its own in the face of US tariffs and inflation might still come in higher than expected. Saw current rates as 'mildly accommodative that global rate hikes might come earlier than thought.

- ECB’s Kocher (Austria): Advocates caution ahead of next ECB rate decision.

- ECB's Simkus (Lithuania): No need to adjust rates right now; Cut could be discussed in Oct.

- China Foreign Ministry Official Guo noted that the govt decided to extend visa free policy to ordinary passport holders from Russia on trial basis from Sept 15th 2025 to Sept 14th 2026.

- Japan ruling party LDP Secretary-General Moriyama to step down over recent July election setback (**Note: close ally to PM Ishiba).

Currencies/fixed income

- USD was firmer against the major pairs on safe-haven concerns. Greenback had exhibited weakness and hit a five-week low on Monday as uncertainty over the Federal Reserve's independence.

- GBP/USD slumped over 1.3% to test below 1.34 during the session (biggest daily decline since April). Dealers noted that a recent PM Starmer’s reshuffle of key advisors seemed undermine Chancellor Reeves’s authority. UK govt trying to regain the confidence of markets who remain concerned over the fiscal outlook.

- USD/JPY rose to approach 149 area after LDP audit of the party's poor performance in the July upper house election was released in session and had ruling party LDP Secretary-General Moriyama and others announce their intent to step down.

- 10-year German Bund yield at 2.77% and 10-year Gilt yield at 4.78% 10-year Treasury yield: 4.27%.

- Long end yields continued to rise. 30-year German Bund at its highest level since 2011; 30-year Gilts at its highest level since 1998.

- Gold hit a fresh record above $3,500 per ounce.

Economic data

- (NL) Netherlands Aug Preliminary CPI Y/Y: 2.8% v 2.9% prior; CPI EU Harmonized M/M: 0.3% v 0.4%e; Y/Y: 2.4% v 2.5%e.

- (HU) Hungary Q2 Final GDP Q/Q: 0.4% v 0.4% prelim; Y/Y: 0.1% v 0.1% prelim.

- (FR) France July YTD Budget Balance: -€142.0B v -€100.4B prior.

- (ES) Spain Aug Unemployment Change: +21.9K v -1.4K prior; Employment Net Change M/M: +29.8K v +31.1K prior.

- (AT) Austria Aug Preliminary CPI M/M: 0.2% v 0.3% prior; Y/Y: 4.1% v 3.6% prior.

- (BR) Brazil Aug FIPE CPI (Sao Paulo) M/M: 0.0% v 0.2%e.

- (EU) Euro Zone Aug CPI Estimate Y/Y: 2.1% v 2.1%e; CPI Core Y/Y: 2.3% v 2.2%e.

- (IT) Italy July PPI M/M: 0.6% v 2.2% prior; Y/Y: 2.4% v 3.9% prior.

Fixed income issuance

- (IT) Italy Debt Agency (Tesoro) opened its book to sell new 7-year and new 30-year BTP via syndicate.

- (UK) DMO opened its book to sell new 4.75% Oct 2035 Gilts via syndicate; guidance seen bps to +8.25-8.75 to UK treasuries.

- (ES) Spain Debt Agency (Tesoro) sold total €5.76B vs. €5.0-6.0B indicated range in 6-month and 12-month bills.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:15 (CH) Switzerland to sell 3-month Bills.

- 05:30 (DE) Germany to sell €4.5B in 1.90% Sept 2027 Schatz.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €3.2B in 3-month, 6-month and 12-month bills.

- 05:30 (ZA) South Africa to sell combined ZAR3.75B in 2037, 2040 and 2044 bonds.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 06:00 (PT) Portugal July Industrial Production M/M: No est v -3.6% prior; Y/Y: No est v 2.9% prior.

- 06:30 (EU) ESM to sell €1.1B in 3-month Bills.

- 07:30 (NL) ECB’s Elderson (Netherlands).

- 08:00 (BR) Brazil Q2 GDP Q/Q: 0.3%e v 1.4% prior; Y/Y: 2.2%e v 2.9% prior; GDP 4 Quarters Accumulated: 3.2%e v 3.5% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 09:00 (SG) Singapore Aug Purchasing Managers Index (PMI): No est v 49.9 prior; Electronics Sector Index: No est v 50.2 prior.

- 09:30 (CA) Canada Aug Manufacturing PMI: No est v 46.1 prior.

- 09:45 (US) Aug Final S&P Manufacturing PMI: 53.3e v 53.3 prelim.

- 10:00 (US) July Construction Spending M/M: -0.1%e v -0.4% prior.

- 11:00 (DK) Denmark Aug Foreign Reserves (DKK): No est v 680.5B prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 11:30 (US) Treasury to sell 52-Week Bills.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 14:00 (US) Trump to make an announcement.

- 17:00 (KR) South Korea Aug Foreign Reserves: No est v $411.3B prior.

- 19:00 (AU) Australia Aug Final PMI Services: No est v 55.1 prelim; PMI Composite: No est v 54.9 prelim.

- 19:00 (KR) South Korea Q2 Preliminary GDP Q/Q: No est v 0.6% prior; Y/Y: No est v 0.5% prior.

- 20:01 (IE) Ireland Aug PMI Services: No est v 50.9 prior; PMI Composite: No est v 52.5 prior.

- 20:30 (JP) Japan Aug Final PMI Services: No est v 52.7 prelim; PMI Composite: No est v 51.9 prelim.

- 20:30 (SG) Singapore Aug PMI (whole economy): No est v 52.7 prior.

- 20:30 (HK) Hong Kong Aug PMI (whole economy): No est v 49.2 prior.

- 20:30 (VN) Vietnam Aug PMI Manufacturing: No est v 52.4 prior.

- 21:00 (NZ) New Zealand Aug ANZ Commodity Price M/M: No est v -1.8% prior.

- 21:30 (AU) Australia Q2 GDP Q/Q: 0.5%e v 0.2% prior; Y/Y: 2.1%e v 1.3% prior.

- 21:45 (CN) China Aug S&P PMI Services: No est v 52.6 prior; PMI Composite: No est v 50.8 prior.

-23:00 (TH) Thailand to sell THB15B in 2040 Bonds.