Bessent builds an AI crisis channel three days before Xi reaches Washington

EU mid-market update: Bessent builds an AI crisis channel three days before Xi reaches Washington; Anthropiс IPO may slip past the midterms; Merz’s CDU disappears from Mecklenburg parliament.

Notes/observations

- Modest risk on appetite for equites as bond yields pull back meaningfully across Europe due to further decline in oil and optimism around U.S-Iran negotiation progress. Technology, banks and industrials led the open on the weekend China talks, where Bessent called the outcome successful and Greer confirmed export controls were never on the agenda; energy and staples lagged. Brent extended its decline with WTI weaker still, on expectations that the damaged Saudi pipeline restarts sooner than feared and on Gulf exports running well above August's lows. Count says the opposite: Hormuz transits over the weekend ran at 12 vessels against 35 the prior week, Houthis claimed a drone and missile strike on Aramco's Yanbu complex after a missile at Riyadh on Saturday, and IRGC's spokesman said there is still room for geographical expansion of the war. What is new is that Tehran has put open conditions to mediators for re-engaging: an end to fighting on all fronts, lifting of the naval blockade, release of frozen funds, and an end to the Saudi-Houthi war. First time Iran has named a price, and it lands as Trump repeats the war ends soon and convenes Gulf leaders in New York on Sept 22nd.

- U.S. and China have begun separating AI competition from AI accident management. Bessent called Sunday’s New York talks “very successful,” said the two sides had “operationalized” work begun in Beijing and agreed to establish a formal U.S.-China AI dialogue; Washington also proposed a notification mechanism for AI incidents that rise to the level of national security, while Chinese negotiators confirmed AI was discussed alongside trade and investment and working-level talks continue Monday. Advanced-chip and semiconductor-equipment controls were explicitly not part of the conversation. Washington is apparently offering Beijing advance warning when AI creates an unacceptable incident without offering any relief on the hardware restrictions intended to slow China’s ability to create the systems in the first place. The relationship may therefore acquire something resembling an emergency telephone without acquiring an arms-control agreement, useful for cyber incidents, autonomous systems or model behavior that one side could otherwise mistake for deliberate state action. It also gives Thursday’s Trump-Xi summit a deliverable that does not require either government to concede much industrial ground.

- Beijing is contributing something quieter to the summit: a 6.69 yuan. The offshore currency reached 6.6957, its strongest level in more than 3½ years, after the PBOC stopped leaning as aggressively against appreciation through its daily fixing. China still runs an external surplus on course to exceed $1T for a second year, so a firmer currency does very little to alter the underlying manufacturing imbalance Bessent objects to. It does, however, make U.S. goods marginally cheaper in China, reduces the local-currency cost of $100 oil and gives Washington a visible price to point at without Beijing cutting an industrial subsidy or surrendering an export market. The exchange rate may be the cheapest concession available to Xi this week precisely because expensive imported energy has made some yuan strength useful at home too.

- Tuesday puts Trump’s any Iran decision and Iran’s president in the same city. IRNA says Masoud Pezeshkian travels to New York on Tuesday for UN week; the U.S. has granted visas to Pezeshkian, Foreign Minister Abbas Araqchi and a reduced core delegation, albeit with severe movement restrictions, and Pezeshkian is due to address the General Assembly Wednesday. The formal explanation is straightforward—the U.S. has host-country obligations under the UN headquarters agreement—but the timing is less routine: Trump said only days ago that he faces a decision over whether to “go in and annihilate” Iran’s leadership, while also saying he is open to meeting Pezeshkian and convening Gulf leaders in New York. Tehran, meanwhile, is publicly attaching negotiations and Hormuz reopening to U.S. concessions. None of that guarantees a negotiation; it does mean Washington has deliberately avoided a situation in which escalation removes the people capable of conducting one. For roughly 48 hours this week, the military option, Gulf mediation and the senior Iranian diplomatic chain will all be physically available in New York.

- Germany received another electoral warning and industrial profit warning almost simultaneously. In Mecklenburg-Western Pomerania, the AfD won 38.3%, SPD 35.4% and Merz’s CDU just 4.9%, pushing the CDU below the threshold for representation in a state parliament for the first time in its post-war history; in Berlin, Die Linke finished first at roughly 25.7%, with the incumbent CDU-SPD coalition losing its majority. Merz called the Mecklenburg result a “disaster” but says he will continue with pension, tax, welfare and labour-market reforms. Remember: on Friday, Volkswagen cut its 2026 operating-margin outlook from 4–5.5% to no more than 1%, including a roughly €6B Porsche impairment, with China weakness and restructuring costs among the pressures. The painful arithmetic for Berlin is that the electoral room for difficult reforms has contracted just as the corporate case for them has become harder to disguise: Germany’s largest automaker is now guiding to a margin thin enough that relatively small changes in labour, energy, tariff or China economics can consume most of it.

- AIS traffic has now effectively become poor statistic for the amount of Gulf oil actually moving. CENTCOM commander Admiral Brad Cooper says crude, LNG and cargo movements through Hormuz over the last two weeks were higher than at any point in the past six months, even though commercial trackers counted fewer vessels over the weekend; U.S.-escorted ships are increasingly transiting with transponders switched off. Saudi crude exports have recovered to more than 4mb/d in September from 2.4mb/d in August, while JPMorgan estimates Saudi flows through Hormuz recently reached roughly 2.9mb/d. Brent is nevertheless down around 2% near $102 this morning despite another Houthi attack, because physical barrels are turning up even when they do not appear neatly on a shipping screen. The emerging Gulf system—military escorts, dark transits, Sohar STS transfers and eventually restored Petroline capacity—is cumbersome and expensive, but it is moving enough crude that the verification problem is now larger than the immediate barrel problem. Insurers and freight desks may care deeply about that distinction; prompt crude increasingly does not.

- OpenAI’s latest numbers turn “cash burn” into something closer to an infrastructure funding schedule. The company now expects $278B of negative free cash flow from 2026–30, substantially above the roughly $180B previously shown to investors, even while revenue is projected to climb from $36B this year to $350B in 2030; projected compute and infrastructure spending through 2030 is about $856B. OpenAI raised $122B only in March but could exhaust that pool by 2028 and is already discussing another round above a $1.2T valuation. Anthropic is choosing almost the opposite financing sequence: its IPO has reportedly moved to November after midterms, allowing another quarter of numbers and a new model to reach investors first, with current backers expecting annualised revenue above $110B by year-end. OpenAI is therefore asking private capital to absorb several more years of the factory-building phase, while Anthropic is preparing to hand part of that financing burden to public shareholders considerably earlier. The IPO divergence is becoming a disagreement over who should own the expensive years, not simply which model company deserves the higher multiple.

- And equity fundraising is only the visible layer of the AI capital stack. FT estimates Big Tech has supported as much as $300B of AI infrastructure exposure through residual-value guarantees and related structures, allowing specialist vehicles to borrow against GPUs and data centres while the hyperscaler guarantees some value if the economics disappoint. Broadcom has reportedly supplied $29B of guarantees supporting chip deliveries to Anthropic; Nvidia has used residual-value guarantees of up to 25% in some transactions, including financing linked to SB Energy’s enormous OpenAI buildout. OpenAI’s $278B projected burn therefore likely understates how much financial capacity the AI buildout is consuming—the equity loss sits in one place, the debt in an SPV, the purchase commitment somewhere else and the residual-value risk back with the supplier. AI infrastructure is starting to manufacture its own shadow balance sheet.

- Over the weekend, Trump announced 7the U.S. will have permanent control over Greenland’s security and that adversaries will need American written approval before establishing bases, military presences or sensitive investments; Denmark and Greenland insist sovereignty and ownership of mineral resources remain unchanged, and the detailed text has not yet been published. The U.S. already enjoyed exceptionally broad military access under the 1951 defence agreement, so additional runways and bases are not necessarily the novel part. If the final document really gives Washington approval rights over sensitive third-country investment, it would amount to something closer to an external CFIUS right over strategic Greenlandic assets—negative control without buying the territory, taking the minerals or formally acquiring sovereignty. Golden Dome infrastructure and exclusion of Chinese investment may therefore prove economically more consequential than Trump’s language about “permanent control.”

- Japan has now reached the awkward point where a rate hike and an intervention threat are being asked to perform the same job. The BoJ raised rates to 1.25%, the highest in 31 years, yet USD/JPY still rose roughly 2% last week because the 7–2 vote and Ueda’s reluctance to promise the next hike disappointed a market already positioned for a stronger yen. Officials subsequently conducted reported rate checks and USD/JPY is around 156.8 this morning, with Japan shut for a holiday and liquidity unusually thin. The Ministry of Finance can buy yen to create the immediate price response that Friday’s rate decision failed to produce, but doing so would also expose the distinction between the two institutions: the BoJ is trying to set a sustainable domestic rate path; the finance ministry is increasingly being asked to police the exchange-rate consequences of how slowly that path is communicated.

- Cross-asset: falling energy is doing more for Monday risk appetite than falling rates. UST 10Y ~4.97%, Bund 10Y ~3.47%, both below last week’s extremes; DXY ~100.23, USD/JPY ~156.8, while the yuan is near its strongest level since early 2023. Brent is ~$102.1 (-1.7%), WTI ~$98.3 (-2%), and gold is down roughly 0.5% as immediate energy-tail risk is marked lower. STOXX 600 +0.6%, DAX +0.8%, despite the German elections; MSCI Asia ex-Japan +0.9%, Korea +1.4%, Taiwan +1.0%, with U.S. Nasdaq futures around +0.6%. The oddest price of the morning may still be Germany: a historic governing-party defeat and a Volkswagen profit warning have so far been easier for equities to absorb than another $5 move in crude.

- Asia closed higher with KOSPI outperforming +1.7%. EU indices +0.6-1.3%. US futures +0.7-1.1%. Gold -0.6%, DXY +0.1%; Commodity: Brent -1.7%, WTI -1.7%; Crypto: BTC +4.3%, ETH +4.5%.

Asia

- China MOFCOM: Premier to deliver speech at the digital trade expo.

- China Politburo holds meeting; Sets 5th plenum for Oct 26-29th - press.

- China state press confirms Pres Xi to visit US during Sept 23-25th.

- China Foreign Ministry Daily Briefing: Will work with U.S to manage differences.

- BOJ said to have conducted rate checks in FX markets - Nikkei.

- Japan PM Takaichi cabinet approval rating unchanged at 62% - Nikkei poll [follows cabinet reshuffle announcement on Sept 17th].

- Japan said to ease curbs on regional bank loans on AI and energy - Nikkei.

- South Korea Blue House: President Lee is expected to visit the US and Mexico Sept 21-27th; Presidential Chief of Staff Kang Hoon-Sik has resigned.

Europe

- Germany Chancellor Merz calls Mecklenburg-Western Pomerania election a 'disaster' after far-right AfD wins with ~38% (more than doubling previous result) while his CDU crashes to historic postwar low of 4.9% and fails to enter state parliament; in Berlin, far-left Die Linke takes first place (~25%) while CDU drops to ~20% and AfD rises to ~16% – financial press [update].

- Volkswagen cut FY26 operating return on sales to "up to 1%" (prior: 4%-5.5%); Guides FY26 Rev to midpoint of -0.3% to 0.0% range.

- Porsche AG CEO refutes press reports about further 4K job cuts; No change to outlook - press.

- ECB ECONOMIC BULLETIN: 2026 energy price shock has been smaller than in 2021-22, with higher renewable generation weakening the link between wholesale gas and electricity prices.

- Scope Ratings cuts France credit rating one notch to A+ from AA-.

- France Finance Ministry: Public debt to GDP ratio is expected to reach 119.3% of GDP in 2026 and 121.7% in 2027.

- Scope Ratings raises Greece credit rating one notch to BBB+ from BBB.

- Moodys raises Greece outlook to Positive from Stable; Affirms Baa3 rating.

- Moodys cuts Poland sovereign rating to A3 from A2; Outlook revised to Stable from Negative.

- UK reportedly considering lowering mansion tax threshold to £1.5M from £2M.

- Number 10 North drives Manchester expansion; Public affairs and media firms test regional access - FT.

- NATO: We welcome the announcement that agreement will be soon signed by the US, Denmark, and Greenland; The Arctic and North Atlantic are essential for our collective security.

- Finland Finance Ministry updates economic outlook, raising GDP projections.

- Turkey regulator extends fund liquidation period to 6 months - US financial press.

Americas

- California Gov Newsom signs Executive Order to address the dangers of AI and rein it in before it is too late; Pushes for creation of AI 'kill switch'.

- DOJ: A ban on handgun sales to 18-20 year olds is unconstitutional and cannot be criminally enforced.

- President Trump bans CNN, MS Now, Politico from the White House - Truth Social post.

- Intelligence sources say Russia is seeking to undermine US 2026 elections - NYT.

- First known breakout by Google's AI reported as Gemini model hacked three companies - press- Anthropic Reportedly IPO may be postponed until after the midterm elections, timing still could change; Plans to launch a new AI model ahead of IPO - press.

- OpenAI reportedly expects roughly $278B of negative FCF from 2026 through 2030 despite forecasting nearly tenfold revenue growth to $350B in 2030 - FT.

- Trump Admin has asked budget director Vought to draft an order that would bring health research funding under President Trump's direct control - Politico.

- Federal court files suit alleging that Anthropic, OpenAI, SpaceXAI and Google made an illegal deal to slow the pace of AI development - press.

- White House issues President Trump meeting schedule for Mon: To meet with NYC Mayor Mamdani at 4:10 PM ET, to meet with France President Macron at 5:35 PM ET.

- US Fed and BOE to increase scrutiny of bank exposures to trading firms after loss by Jane Street - FT.

Conflict/tensions

- Iran officials Iran have conveyed their conditions to mediators for re-engaging in negotiations for ending the war with the US - Al Jazeera.

- Houthis claim to have attacked a 'sensitive' Saudi Aramco facility in Yanbu with drones and ballistic missiles; Saudi's say they repelled the attack - press.

- 12 vessels crossed the Strait of Hormuz over the weekend v 35 during the prior week; cites shipping data – financial press.

- IRGC's spokesman: Still room for geographical expansion of war.

- Reportedly Pakistan Min's visit to Iran was unrelated to US-Iran mediation - Iranian press.

- IAEA: Informed that a cooling tower of nuclear reactor unit in Kursk, Russia was hit by a drone; The reactor unit's operation was not affected.

- White House confirms Pres Trump has signed the Russia sanctions bill into law.

- South Korea Military: Notes 3 South Korea soldiers were injured; cites 'explosion' south of the military demarcation line.

Trade/energy

- Senior US official: AI is on the agenda for the Trump-Xi meeting; Will also discuss the Busan Truce.

- China delegation has departed NYC after holding trade talks with the US.

- China Chief Trade Negotiator: Trade talks 'not bad', talks today [had a] 'good' atmosphere; talks will be continued on Mon among working group.

- China buys more US soy cargoes days before Trump-Xi meeting - press.

- Thailand Fin Min: Considering oil tax cut.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE +0.60% at 10,723.02, DAX +0.97% at 25,540.73, CAC-40 +0.80% at 8,129.28, IBEX-35 +0.97% at 19,702.16, FTSE MIB +1.09% at 52,105.50, SMI +0.73% at 13,886.80, S&P 500 Futures +0.66%].

Market focal points/key themes: European equities advanced more firmly on Monday, with the Euro Stoxx 50 rising 1.18%, the DAX gaining 1.02%, the FTSE MIB up 1.07%, the IBEX 35 adding 0.99%, the CAC 40 climbing 0.83% and the FTSE 100 advancing 0.57%, recovering after Friday’s sell-off that erased the prior week’s gains and left the STOXX 600 down 0.33% for a third consecutive weekly decline. The rebound was driven by a 1.7% drop in crude futures as physical supply bypassed Middle East bottlenecks, easing margin pressure that had intensified after Saudi Aramco halted European allocations following East-West pipeline strikes, while markets largely set aside a political shock in Germany where Chancellor Merz’s CDU posted its worst state-election result since 1949. The most notable individual movers were Berentzen-Gruppe, surging 22.5% on a board-backed €5.55-a-share takeover offer from Sazerac, and Soitec plus Kuehne + Nagel, each rising 4.0% on semiconductor strength and an Amazon logistics extension respectively, against Ipsen’s 8.0% decline after the FDA approved a competing lanreotide injection. Continental desks stayed cautious ahead of scheduled remarks by ECB President Lagarde and board member Cipollone for any signal on whether the recent rate rise to 2.50% was a one-off energy adjustment or the start of a more prolonged restrictive stance.

Equities

- Consumer discretionary: Kering [KER.FR] -2.5%, Hermès [RMS.FR] -1.5% (luxury stocks weakened on softer Chinese-demand assumptions, with Bernstein cutting Hermès estimates and price target).

- Energy: Engie [ENGI.FR] -2.0%, BP [BP.UK] -1.5% (energy names fell as Brent extended its decline on recovering Gulf exports and increased hopes of geopolitical de-escalation).

- Financials: Standard Chartered [STAN.UK] +2.5%, Barclays [BARC.UK] +2.0% (banks rebounded from Friday's selloff as falling oil eased inflation concerns and supported risk appetite).

- Healthcare: Novo Nordisk [NOVOB.DK] -5.5% (CMD), Ipsen [IPN.FR] -8.0% (AMRX FDA approves lanreotide injection for acromegaly, GEP-NETs and carcinoid syndrome).

- Technology: Soitec [SOI.FR] +4.0%, Infineon [IFX.DE] +3.0%, STMicroelectronics [STM.FR] +2.5% (European chipmakers followed Friday's US semiconductor rally and Monday's Asian hardware gains as AI-demand optimism revived).

- Materials: Antofagasta [ANTO.UK] +2.5%, Anglo American [AAL.UK] +2.5% (China-exposed miners advanced as Asian risk appetite improved ahead of the Trump-Xi summit).

Speakers

- (US) FHFA Dir Pulte: Buying more MBS as we speak.

- (US) President Trump: Repeats Iran war is going to end very soon; Its a great honor to have China's Xi visit next week - press Q&A.

- (DK) Trump: announces security deal with Greenland and Denmark "completely addressing ALL of our many U.S. concerns"; Will immediately begin developing a large Military presence and will work with Greenland in its development and construction.

- (CN) China central bank adviser Huang Yiping: AI could worsen the current economic imbalance of supply outstripping demand; China has been rebalancing its economy, but not enough.

- (US) Trump: I am forming AI Force, much like Space Force; Will appoint an AI czar in the near future.

- (TR) Turkish Foreign Minister Fidan: Current Middle East crisis is no longer tolerable economically; Its unacceptable that Saudi Arabia has been made a part of the US-Iran war when they have no desire to join the conflict.

- (US) USTR Greer: Confirms US export controls were not on the agenda in the talks with China; confirms trying to find a list of goods; 'Operationalized' Board of Trade, notions on Board of Trade and AI is now a 'reality'.

- (US) Treasury Sec Bessent comments after talks with China officials: The talks were 'very successful'; Notes the 'operationalization' of certain issues, completing where we left off in Beijing.

- (US) President Trump: Reiterates gas prices were much higher under Biden than under "TRUMP." So were almost all other prices.

- (EU) Council President Costa: Reiterates the EU wants the closest possible ties with Canada; both sides can work together on defense and AI - Politico.

- (EU) ECB's Stournaras (Greece): ECB must be mindful of upside inflation risks but shouldn't act hastily; If there is a doubt then better wait for December.

- (US) Fed's Kashkari (voter): Inflation is too high across all sectors of the US economy, not just in rising oil prices (update).

- (FR) France Fin Min Lescure: France's strategic oil stocks are full; Fuel aid will not involve generalized tax cut.

- (EU) ECB's Panetta (Italy): Current market prices on AI are optimistic.

Economic data

- (HK) Hong Kong Q2 Current Account Balance: $96.0B v $36.4B prior; Overall Balance of Payments (BOP): $54.7B v $35.2B prior.

- (PL) Poland Aug Employment M/M: -0.2% v -0.1%e; Y/Y: -0.8% v -0.8%e.

- (PL) Poland Aug Construction Output Y/Y: 6.7% v 7.6%e.

- (TR) Turkey Aug Real Sector (Manufacturing) Confidence: 102.5 v 102.4 prior.

- (CH) Swiss Aug M3 Money Supply Y/Y: 3.5% v 3.3% prior.

- (SG) Singapore Q2 Unemployment Rate: 1.9% v 2.0%e.

- (UK) Sept Rightmove House Prices M/M: +0.7% v -2.0% prior; Y/Y: -0.8% v -1.0% prior.

Fixed income issuance

- (PH) Philippines sold total PHP42.0B vs PHP42-60.0B indicated in 3-month, 6-month and 12-month bills.

- (KR) South Korea sold KRW3.0T v KRW3.0T indicated in 5-year Bonds: Avg Yield: 4.275% v 4.085% prior.

Looking ahead

- 05:30 (DE) Germany to sell combined €5.0B in 6-month and 12-month BuBills.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-4.0B in 3-month and 6-month bills.

- 07:00 (IL) Israel to sell bonds.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 07:30 (IN) India Aug Core Industries Output Y/Y: No est v 5.4% prior.

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

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

- 08:30 (US) Aug Chicago Fed National Activity Index: -0.06e v -0.08 prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €5.9-7.1B in 3-month, 6-month and 12-month bills.

- 11:00 (CO) Colombia July Trade Balance: No est v -$2.2B prior; Total Imports: No est v $6.8B prior.

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

- 16:00 (US) Weekly Crop Progress Report.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 71.9 prior.