Sunrise Market Commentary

Markets

• August US payrolls showed broad-based gains in the consensus-smashing 162k net increase in employment. June and July figures were upwardly revised by 55k. The market only expected 55k jobs gains. The unemployment rate stayed level at 4.1% even if the participation rate increased from 61.4% (lowest since 2021) to 61.6%. Wage growth (0.3% M/M & 4.1% Y/Y) was in line with forecasts. While the labour market currently isn’t the main focus of the US central bank, stellar payrolls do remove a potential obstacle for lifting the policy rate as soon as next week. The market implied probability of a 25 bps rate hike increased to 60% going into Friday’s August US CPI report. Consensus expects a 0.4% M/M acceleration for the headline number which keeps the Y/Y-figure steady at 3.4%. The increase in energy prices clearly suggests upside risks. Core CPI is expected at 0.2% M/M and 2.4% Y/Y and is the one to watch here. As Fed Waller put it last week: “If there is continued progress towards our 2% goal, then I am willing to support holding the policy rate at its current level.” If the disinflation process stalls further, he could consider a rate hike.
• The ECB is widely expected to raise its policy rate (2.25% to 2.5%) on Thursday. New GDP/CPI forecasts and the central bank’s assessment of recent developments within its framework guidance are key. The ECB currently conducts policy within the “adverse” scenario that asks for measured adjustments to interest rates. The duration of the current energy supply shock gradually puts the “severe” scenario into play which stalls the (inflation) return to the 2% target for longer and asks for a more forceful reaction from the ECB. The technical break of the 2-y EU swap rate above 3% suggests that at least part of the market starts looking in that direction.
• US markets are closed today in observance of Labour Day. With the EMU calendar being empty and the agenda backloaded with ECB meeting and US CPI, this leaves scope for low-volume, sentiment-driven trading. We think energy prices will pull most headlines following tit-for-tat tanker strikes between the US and Iran. Brent crude trades close to $98/b this morning. Apart from a two-day July spike above $100/b, it’s the highest level since the end of May. European gas prices (Dutch TTF future) spike to €75/MWH, matching their highest level since the end of 2022. The momentum higher in energy will keep the front end of core bond yield curves under (bear flattening) pressure. EUR/USD fell back to the 1.16 big figure last Friday with the pair potentially suffering from higher gas prices especially if they are a drag on general risk sentiment as well. The German AfD’s regional election victory in Saxony-Anhalt is a talking point as well, but the path to assemble a government is tough.

News & Views

• A group of seven OPEC+ members (Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman) which previously announced additional voluntary adjustments (reversing cuts from 2023 for a volume of $65bn b/d), reaffirmed commitment to market stability after a virtual meeting on September 06. It will also maintain the September 2026 production till October 2026. The impact of the move is mostly symbolic as flows through the Strait of Hormuz are sharply reduced due to the war in the Persian Gulf region. The group is now expected to execute an audit on the production quota that can be implemented by the member states in 2027.
• Rating agency Fitch upgraded the Portuguese credit rating from A to A+. The outlook on the rating is stable. The upgrade reflects strengthened public finances, including a projected path of declining government debt, underpinned by a strong political commitment. Fitch expects the Portuguese debt rate to continue to decline from 89.7% in 2025 to 87% of GDP in 2026. It is seen improving further to 82.9% in 2028 due to continued primary surpluses and moderate nominal growth. Refinancing risks are seen as contained by a favorable debt structure. The government surplus is seen narrowing from 0.7% in 2025, to 0.1% in 2026. Small budget deficits are now expected of around 0.4% of GDP in 2027-2028. Growth is expected relatively stable at 2.1% in 2026 from 1.9% last year. Investment is a key source of growth, as RRP absorption accelerates in the program’s final year, while private consumption remains the main driver, supported by a resilient labor market, real wage gains and elevated household savings. The external situation is still improving. The current account surplus might narrow to 0.2% of GDP in 2026 (1.2% in 2025) but is seen recovering to around 0.5% in 2027-2028 as the energy price effect partially unwinds.