ECB expected to hike 25bps on Thurs with Dec guidance the open question

EU mid-market update: Houthi strikes spread in Southern Saudi Arabia, halting several Aramco production sites; ECB expected to hike 25bps on Thurs with Dec guidance the open question; Gilts underperform as UK fiscal doubt builds.

Notes/observations

- Houthi forces have opened a second energy front, and this one sits inside Saudi Arabia rather than in the strait. Riyadh's energy ministry confirmed sites across the southern region were hit this morning, with fires at several installations and operations halted; Houthi claims cover Aramco facilities at Abha, Najran and Jizan, and the group's military spokesperson has promised a broad operation deep into Saudi territory. 73 civilians were wounded. What changed overnight is scope rather than intensity: yesterday this was one repeatedly struck 400K bpd refinery on the Red Sea, today a coordinated multi-city wave taking in distribution sites as well as processing. Saudi refining and export capacity was the implicit buffer against Hormuz transit risk, and that buffer is now itself a target. Crude firmed on the ministry statement and oil and gas was one of the few European sectors bid at the open, with refined product the sharper exposure given what Jizan supplies. Hormuz tightened again, transits down to seven vessels, and Tehran says its posture toward US warships and bases has been recalibrated, with an exclusion zone to run from the blockade line into the Gulf. Freight is tightening alongside barrels: Panama has flagged a further cut to daily transits, and European winter gas is the second-order problem into the heating season.

- Trump’s rhetoric on the Iran conflict has followed a clear pattern of victory claims that never close the loop. In March, just two weeks in, he declared “We won… in the first hour it was over” while still insisting “we’ve got to finish the job” and keep oil flowing. By early September, with Brent near $100 and 18 U.S. service members dead, he had reframed the same fighting as “small potatoes,” a mere “military conflict” with “intermittent” strikes and “no fighting right now.” Yesterday’s post then re-linked an undefined American “win” to $3 gasoline and eventually sub-$2 prices - yet, like the August 28 “MISSION ACCOMPLISHED 2026” and September 3 “easily WINNING” statements before it, still offered no end-state, ceasefire terms, Hormuz reopening, or supply-restoration mechanism, leaving markets to price the risk of another flare-up every time the language shifts.

- This week looks like one of those packed with unpredictable catalysts where the market’s already doubting the Fed more than at any point since the SVB collapse, and a potential Anthropic S-1 filing to justify its valuation. Tech and AI dominate the calendar with China’s KubeCon and Arm events running now, a dense Wall Street conference cluster featuring AMD, Nvidia and others, Apple’s first major product launch under John Ternus on Wednesday, plus Oracle’s AI-capex-heavy earnings and Adobe’s results under a new CEO transition. Macro and policy risk sit right alongside: Canadian retaliatory tariffs kick in today, China trade data drops, the ECB decides on Thursday amid the energy shock, U.S. PPI and CPI land mid-week, Treasury steps up long-end buybacks tomorrow, and Fitch reviews Italy and Spain. Layer on the Republican midterm convention with Trump speaking both nights, Sweden’s election, and the BRICS summit in New Delhi, and the one has a genuine toss-up week where almost anything can move. Also note: September 9 is the deadline for responses to the Trump administration’s emergency application asking the Supreme Court to reinstate tighter USPS mail-ballot rules ahead of the midterms.

- ECB arrives on Thursday with the 25bps hike fully priced and only the December question open. A quarter point takes the deposit rate to the top of most neutral estimates, and the consensus condition for going further is a fresh energy shock, second-round wage effects, or de-anchored expectations. Saudi headlines make the first considerably less hypothetical, and euro-zone Q2 GDP was revised up on both measures with employment steady, which removes the growth alibi for stopping. Composition beneath the aggregate is poor: German trade surplus widened only because imports collapsed, exports falling for the first time since Jan, while France's trade deficit and current account both deteriorated. Long end is where the pressure is expressed. Gilts underperformed Bunds with fiscal uncertainty into the 28th Oct budget and Healey again refusing to rule out tax rises; UK retail sales at a four-month low and more than £15B pulled out of equity funds into bonds over the past year say domestic money is already positioned for that.

- Novartis has now failed twice in two days. Phase III del-desiran missed its primary endpoint in myotonic dystrophy, following pelacarsen on Friday, which writes down the asset base acquired for $12B and dragged European health care to the bottom of the sector table. Computacenter is the offsetting read: sales and profit up sharply and full-year guidance raised above market on AI and data-centre infrastructure demand, a rare European confirmation of the capex cycle ahead of this week's US technology conferences.

- Canada's retaliation on roughly $20B of US goods takes effect today and Trump has threatened to bar Bombardier from the US market, reopening tariff risk for European exporters.

- Asia closed mixed with Nikkei225 underperforming -1.7%. EU indices -0.1% to -1.3%. US futures -0.2% to -0.8%. Gold -0.2%, DXY +0.1%; Commodity: Brent +2.0%, WTI +3.1%; Crypto: BTC -1.1%, ETH -0.3%.

Asia

- China Aug Trade Balance: $119.1B v $120.0Be; Exports Y/Y: 25.0% v 25.9%e; Imports Y/Y: 28.2% v 31.0%e. Exports driven by AI electronics and front-loading. Softer-than-expected import demand pointed to still-subdued domestic consumption.

- China Aug Foreign Reserves: $3.438T v $3.428Te; Gold Reserves 76.73M troy oz v 76.08M m/m [22nd straight month of resumed purchases].

- South Korea Q2 Preliminary GDP (2nd reading) Q/Q: 0.6% v 0.6% advance; Y/Y: 3.7% v 3.7% advance.

- Japan Q2 Final GDP Q/Q: 0.4% v 0.4% prelim; GDP Annualized Q/Q: 1.4% v 1.1% prelim.

- Japan July Current Account Balance: ¥2.989T v ¥2.842Te; Trade Balance (BoP Basis): —¥399.9B v ¥374.2Be.

- Japan July Labor Cash Earnings Y/Y: 4.7% v 3.9%e; Real Cash Earnings Y/Y: 2.4% v 1.8%e.

- (JP) Japan sold ¥2.5T vs. ¥2.5T indicated in 5-year JGB Bonds; Avg Yield: 2.2390% v 2.1630% prior; Bid-to-cover: 3.42x v 4.15x prior.

- New Zealand Q2 Manufacturing Activity Q/Q: 3.1% v 3.1% prior.

- Australia ANZ Roy Morgan Weekly Consumer Confidence: No est v 74.9 prior.

- Japan Fin Min Katayama declined to comment on specific FX levels; no change to FX stance since Japan-US joint intervention; will closely communicate with US to achieve orderly FX markets.

Global conflict/tensions

- Iran Former Pres Rouhani proposes referendum on ending war.

- WSJ noted Tehran faced growing economic pressure as inflation accelerated and the economy contracted, threatening a key source of foreign currency earnings.

Europe

- UK Aug BRC Sales Like-For-Like Y/Y: 0.5% v 1.0% prior (4-month low).

- More reports circulate that Chancellor Healey declined to rule out tax increases in next month's Budget(**Note: British Chambers of Commerce (BCC) said to have urged Chancellor Healey to scrap the state pension triple lock with savings redirected to address economic challenges).

- German AfD party scored a historic victory in the eastern state of Saxony-Anhalt, seen at 44.5% (vs. 20.8% in 2021) in state election (**Note: German Chancellor Merz said to refuse to stand down after humiliating defeat by AfD).

Americas

- Republican strategists said to warn that concerns about inflation and affordability were becoming a growing political problem for President Trump .and the GOP ahead of the midterm elections.

Trade

- Canada's counter-tariffs take effect on US products as trade war heats. Trump warned that he could block Bombardier aircraft sales in the .US

Energy

- Saudi Energy Ministry noted that energy facilities were targeted in Southern region on Sept 8th's morning; Operations at "several" energy sites were halted.

- Europe said to be heading into winter with unusually low natural gas inventories, raising the risk of significantly higher energy prices if supply disruptions worsen.

Speakers/fixed income/fx/commodities/erratum

Indices [FTSE -0.24% at 10,795.80, DAX -0.57% at 25,833.49, CAC-40 -0.47% at 8,267.11, IBEX-35 -0.85% at 19,851.71, FTSE MIB -0.70% at 51,864.50, SMI -1.44% at 14,073.70, S&P 500 Futures -0.40%].

Market focal points/key themes: European equities retreated on Tuesday as surging crude prices past $90 a barrel—fueled by Iranian threats to strike Persian Gulf energy infrastructure—and near-certain ECB rate-hike expectations ignited fresh stagflation fears, sending the STOXX 600 down 0.2% with the DAX and FTSE 100 each off 0.2% and the CAC 40 falling 0.4%. Rate-sensitive growth, industrial and consumer-discretionary sectors led the declines while German Bund yields hovered near multi-year highs of 3.36%, compressing equity risk premiums ahead of Thursday’s ECB decision and a pivotal U.S. CPI print. Defying the broad sell-off, Rubis jumped 5% on raised FY EBITDA guidance, Computacenter surged 4% after nearly doubling H1 sales on explosive AI demand, Sandoz climbed 3% following ambitious long-term growth targets, and Telecom Italia rose 2% on a sweetened Poste Italiane takeover offer. On the downside, Dunelm plunged 11% after weak summer trading, Novartis cratered 10% on a second consecutive pipeline failure, Funding Circle dropped 8% amid a CEO exit announcement, and Infineon slipped 2.5% after a Morgan Stanley downgrade. Key EU-relevant catalysts this week include the ECB’s September 10 rate decision and updated projections amid the energy-driven inflation shock, Fitch’s sovereign reviews of Italy and Spain that could move peripheral spreads, and Sweden’s September 13 general election with implications for the krona and fiscal policy.

Equities

- Consumer staples: Dunelm [DNLM.UK] –11.0% (weak August trading after unusually hot weather hit homewares/furniture demand; FY27 adjusted PBT expected around FY26’s £211m, while the new three-year plan requires elevated investment and £30–40m of non-recurring spend).

- Energy: Rubis [RUI.FR] +5.0% (H1 EBITDA +18% to €434m; FY26 EBITDA guidance raised to €775–825m from €740–790m).

- Healthcare: Novartis [NOVN.CH] –10.0% (Phase III HARBOR study of del-desiran missed its primary endpoint in myotonic dystrophy; second major pipeline disappointment in two days after pelacarsen, with del-desiran originating from the $12bn Avidity acquisition), Sandoz [SDZ.CH] +3.0% (CMD unveiled mid-to-high-single-digit 2025–30 sales CAGR, 25–27% 2030 core EBITDA margin and ambition to more than double 2025 sales by 2035 with >30% margin).

- Technology: Computacenter [CCC.UK] +4.0% (H1 sales jumped to £6.85bn from £3.99bn and net income nearly doubled; FY profit guidance raised above market expectations on exceptionally strong AI/data-centre infrastructure demand), Infineon [IFX.DE] –2.5% (Morgan Stanley downgraded to Equal-weight, arguing upside to estimates is increasingly limited and the DRAM cycle is approaching a peak; PT €65).

- Telecom: Telecom Italia [TIT.IT] +2.0% (Poste Italiane increased the cash leg of its takeover offer 18% to €1.97/share, retaining 0.218 Poste shares per TIM share and waiving the minimum-acceptance condition; revised deal value ~€13.15bn).

Speakers

- Ukraine Pres Zelenskiy stated that he hoped to meet Trump later in Sept to discuss winter air defense package.

- RBA Dep Gov Hauser noted that the question was whether more was needed on interest rates; RBA stood ready to raise rates again if needed.

- Houthi rebels claimed responsibility for targeting Saudi Aramco facilities Abha, Najran and Jizan.

- Japan and Oman reportedly discussed international law regarding Strait of Hormuz.

Currencies

- Some risk aversion flows aided the USD as oil prices continued their steady grind higher. Brent moving back towards the $100/barrel level. Focus on Wed’s release of US CPI data.

- Yen continued its gains for a 4th day with price action not seen as being sparked by intervention. USD/JPY tested a 7-month low of 152.90 in late Asia trading. However the Yen was well off its best level as the session progressed.

- EUR/USD at 1.1610 by mid-session ahead of Thus ECB rate decision. Dealers noted that reacceleration of inflation cemented the case for another hike this week.

- The 10-year German Bund yield last at 3.39%, France 10-year Oat at 4.26% and 10-year Gilt yield at 5.19%; 10-year Treasury yield: 4.80%; 10-year JGB: 2.88%.

Economic data

- (NL) Netherlands Aug CPI M/M: 1.6% v 1.6% prior; Final Y/Y: 3.3% v 3.3% prelim.

- (NL) Netherlands Aug CPI EU Harmonized M/M: 0.1% v 0.1% prelim; Y/Y: 2.8% v 2.8% prelim.

- (DE) Germany July Trade Balance: €21.3B v €15.8Be; Exports M/M: -0.8% v +0.3%e; Imports M/M: -5.7% v -1.0%e.

- (DK) Denmark July Current Account Balance (DKK): 44.4B v 29.0B prior.

- (DK) Denmark July Industrial Production M/M: 6.4% v 6.2% prior.

- (HU) Hungary Aug CPI M/M: 0.2% v 0.2%e; Y/Y: 1.3% v 1.4%e.

- (FR) France July Trade Balance: -€6.7B v -€5.8B prior; Current Account: -€4.7B v -€1.6B prior.

- (CZ) Czech Aug Unemployment Rate: % v 5.0%e.

- (CZ) Czech Aug International Reserves (CZK): $B v $181.0B prior.

- (TW) Taiwan Aug CPI Y/Y: 2.0% v 2.4%e; CPI Core Y/Y: 2.3% v 2.5%e; PPI Y/Y: 16.8% v 17.8% prior.

- (ZA) South Africa Q2 GDP Q/Q: -0.2% v -0.2%e; Y/Y: 0.9% v 1.2%e.

- (IS) Iceland Aug Preliminary Trade Balance (ISK): -63.1B v -39.4B prior.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) opened its book to sell 2047 green SGPB bonds; guidance seen +10bps to Jun 2043 bonds.

- (UK) DMO opened its book to sell 5.375% Jan 2056 Gilts via syndicate; guidance seen 0.75-1.0bps to Dec 2055 Gilts.

- (ID) Indonesia sold total IDR12.0T vs. IDR10.0T target in Islamic bills and bonds (sukuk).

- (NL) Netherlands Debt Agency (DSTA) sold €3.0B vs. €2.0-3.0B indicated range in 2.75% July 2036 DSL Bonds; Avg Yield: 3.463% v 3.206% prior.

- (ES) Spain Debt Agency (Tesoro) sold total €2.41B vs. €2.0-3.0B indicated range in 3-month and 9-month bills.

- (AT) Austria Debt Agency (AFFA) sold total €1.438B vs. €1.438B indicated in 2030 and 2036 RAGB Bonds.

Looking ahead

- (US) New Hampshire, Rhode Island Primary Elections.

- (ZA) South Africa Central Bank (SARB) Cassim at Moody's & GCR Summit.

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

- 05:30 (AU) RBa’s Hauser.

- 05:30 (DE) Germany to sell combined €1.50B in 2033 and 2041 Green Bonds.

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

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

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month and 12-month bills.

- 05:30 (ZA) South Africa to sell combined ZAR2.55B in 2038, 2040 and 2044 bonds.

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

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

- 06:00 (US) Aug NFIB Small Business Optimism: 99.3e v 99.8 prior.

- 06:00 (FI) Finland to sell combined €2.0B in 9-month and 12-month Bills.

- 07:00 (CL) Chile Aug CPI M/M: 0.3%e v 0.1% prior; Y/Y: 3.8%e v 3.5% prior.

- 07:00 (BR) Brazil Aug FGV Inflation IGP-DI M/M: 0.0%e v -0.9% prior; Y/Y: 2.6%e v 2.8% prior.

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

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

- 10:00 (BR) Brazil Aug Vehicle Production: No est v 253.9K prior; Vehicle Sales: No est v 279.5K prior; Vehicle Exports: No est v 39.3K prior.

- 11:00 (US) Aug NY Fed 1-year Inflation Expectations: 3.6%e v 3.6% prior.

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

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

- 13:00 (US) Treasury to sell 3-Year Notes.

- 15:00 (US) July Consumer Credit: $11.7Be v $14.2B prior.

- 15:00 (AR) Argentina July Industrial Production Y/Y: 0.0%e v 2.0% prior; Construction Activity Y/Y: No est v 4.0% prior.

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

- 17:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 4.50%.

- 19:00 (KR) South Korea Aug Unemployment Rate: 2.8%e v 2.8% prior.

- 19:50 (JP) Japan Aug M3 Money Supply Y/Y: No est v 1.4% prior; M2 Money Supply Y/Y: No est v 2.2% prior.

- 21:30 (CN) China Aug CPI Y/Y: 0.8%e v 0.5% prior; CPI Core Y/Y: 0.9%e v 0.9% prior; PPI Y/Y: 3.7%e v 3.5% prior.

- 22:35 (CN) China to sell 1-month and 3-month bills.

- 22:35 (CN) China to sell 50-Year Additional Bonds.

- 23:00 (ID) Indonesia Aug Consumer Confidence: No est v 116.8 prior.

- 23:30 (JP) Japan to sell 6-Month Bills