Sunrise Market Commentary

Markets

• Yesterday’s beat by the July PCE (3.7% headline, 3.3% core) was miniscule in size but was nevertheless responsible for the biggest move on a daily basis. Defying expectations for a minor deceleration to 3.6% in the headline (contrasting with the earlier-published CPIs), coming within a broader batch of solid economic data and being the Fed’s preferred inflation gauge, it pulled US yields from their intraday lows to end the day higher. Net daily changes varied between +0.3 (30-yr) to +3.6 bps (2-yr) with the front underperforming the long end. It doesn’t settle the debate on a September rate hike with Fed Warsh speech looming tomorrow and other key data (payrolls, ISMs, CPI) still on tap before the next policy meeting, but it sure keeps the idea warm. The market implied probability for such a move stood around 40% yesterday. A $70bn 5-yr bond sale tailed slightly and is considered the tenor’s 10th straight weak result. With public finance concerns firmly back on the radar, spotlights now turn to tonight’s 7-yr auction. European yields overcame initial oil price driven weakness to trade 2.9-3.4 bps higher across the curve. ECB’s Schnabel aided the move by solidifying September hiking expectations. She singled out gas prices as a key worrying factor. The Dutch TTF contract indeed enjoys a strong bottom with prices yesterday hitting a low of €62/MWh before rebounding to €65.6 in the close. Intraday dynamics in Brent (+/- $88/b) were similar but less outspoken. The positive (price pressuring) effect of talks between Iran and Oman for an interim framework aimed at resuming shipping through the Hormuz Strait were partially offset by Russian president Putin reportedly preparing an escalation in the Ukraine war now talks are at a dead end. The US dollar took the lead on currency markets, inspired by the set of data. DXY (99.16) had its best day since USTS Bessent’s intervention last week. EUR/USD dipped to 1.165 in the mirror image. Everything remains the exact same from a technical point of view though. We expect that to be the case today as well, both for FI and for FX. The eco calendar is of second tier importance while markets are now squarely focused on Warsh at the Jackson Hole Symposium tomorrow. The Fed chair’s preference for saying basically nothing has backfired last time around with the long end of the curve and the dollar pricing inherently higher uncertainty through risk premia. The ECB July meeting minutes serve as an interesting distraction prior to the speech but we expect them simply to confirm current market thinking. Strong Nvidia results set the stage for a slightly greener stock market open today, tech in particular.

News & Views

• The Bank of Korea raised its policy rate this morning as expected by 25 bps, from 2.75% to 3%. One out of seven board members dissented to the decision, proposing to keep the policy rate unchanged. The median of six-month ahead conditional base rate projections implies another rate hike ahead to 3.25%. Assuming a dovish position in the dot plot by today’s dissenter, suggests a clear indication that risks are tilted to even more policy tightening over that period (3.50% by Feb 2027). The phrasing to decide “on the timing and pace of further increases” resembles this view. The domestic economy is expected to continue its robust growth (3.3%-2.9% for 2026-27; up from 2.6%-2.1% in May), supported by sustained strong exports and investment, and by a strengthening recovery in consumption, while inflation is projected to remain above the target level for a considerable time, driven by the pass-through of accumulated cost pressures and increasing demand-side pressures. Headline CPI is projected at 2.7% for this year and 2.3% next year (unchanged from May) while the new core CPI forecast (2.5% for this year and next) is an upgrade from 2.4%-2.3% previously. Trends on the housing market are an attention point as they continue increasing at a high pace while household loans also increased substantially. The Korean won continues trading near best levels against the dollar since September of last year (USD/KRW 1380).
• A survey by GKI showed that both Hungarian consumer and business sentiment deteriorated slightly in August, ending a six-month wave of building optimism. Consumers especially turned more pessimistic about the country’s outlook over the next 12 months, but the pull-back was broad-based across all categories (perceived and expected financial situation, big-ticket buying). For businesses, the only sector to report an improved outlook was business services. The employment indicator now shows companies planning headcount reduction now slightly outnumbering those looking to hire. The price indicator levelled off. Looking three months ahead, 16% of companies plan to hike prices, while 7% intend to cut them.