Sunrise Market Commentary

Markets

• The rise in global yields continues unabatedly. Ongoing elevated oil/energy prices, markets anticipating tighter monetary policy and higher (fiscal) risk premia all are possible explanations for this trend move. Ongoing tensions in the Middle East pushed the oil price back to the $90/b area. While the move wasn’t that big as such, it supported a higher for longer narrative. The October TTF European gas reference contract also moved to €70/MWh, closing at the highest levels since the start of the conflict in the Middle East. Eco data were few except for the German inflation data for the month of August. The HICP measure rose 0.2% M/M and 2.9% Y/Y, up from 2.8% in July. While slightly softer than expected, the report evidently didn’t change the case for further ECB tightening, starting at the September 10 meeting. German yields added between 3.1 bps (2-y) and 4.5 bps (10-y) with longer maturities touching multi-year peak levels. The US yield curve also bear steepened with the 2-y yield ceding marginally (-0.2 bp) but longer maturities rising up to 3.7 bps (30-y). At 4.765% the US 10-y yield closed at the highest level since early 2025. Higher yields/risk premia and ongoing tensions in the Middle East weighed on equity markets. The Eurostoxx 50 lost 1.01%. The S&P 500 ceded 0.33%. The post-Jackson Hole rebound of the dollar took a breather (DXY close 99.43, EUR/USD 1.1618, USD/JPY closed at 159.74).
• Bond markets again show a long series of “highest yield since” headlines. Japanese yields add 4-5 bps across the curve. The 10-y yield is touching the 3% barrier for the first time since 1996. Brent oil trades at $91.5/b. Iran President Pezeshkian said that the country will take reciprocal action immediately if the US returns to its commitments under the MoU. The market impact is limited. The dollar gains marginally this morning. Later today the eco calendar is well-filled. In EMU the Flash CPI estimate will be published. KBC expects the headline CPI to rise to 3.2% from 2.9% with core inflation seen moderating to 2.4% from 2.5%. In the US, the US August manufacturing PMI and the Jolts job openings will be published. The Manufacturing PMI is expected to hold at a solid 55.2. While the market focus remains on inflation, solid eco data further remove any reason for the Fed to wait with delivering on its inflation commitment. For now, we don’t see any reason for the upward trend in yields to reverse. Despite yesterday’s pause, the dollar probably also still has room to build on last week’s bottoming out process/rebound. UK markets today reopen after yesterday’s summer holiday.

News & Views

• UK shop price inflation hit a two year high in August, the British Retail Consortium said today. Prices increased at a 1.5% clip, up from 0.9% in July and above the 3-month average of 1.2%. Non-food inflation rose 0.9%, sharply up from 0.2% last month. Prices in the non-food category were 2.8% higher vs 2.2% in July. The BRC’s chief executive noted that “The impact of higher energy, input and commodity costs is beginning to filter through into prices […]. In non-food, electrical prices rose amid the ongoing AI boom, which is forcing up the price of memory chips and storage.” She added that the months ahead look challenging for households, citing rising bills that put further pressure on budgets.
• Hungary met a 31 August deadline to meet the criteria for accessing locked-up European funds. Payments to Hungary were suspended due to corruption concerns and erosion of European norms and standards. After securing a major election victory, current PM Magyar acted swiftly to rectify that, resulting in Hungary now able to tap all of the €10bn pandemic-era aid plus additional funds stemming from the cohesion funding. Hungarian assets including the forint have rallied strongly amongst others on expectations of unlocking these funds. The forint yesterday was little changed around EUR/HUF 365.