ECB quarter point settled with Dec left to today's projections

EU mid-market update: Trump's advisers concede Iran war may outlast his term, removing post-midterm oil timeline; Houthi capture of Mocha adds Bab al-Mandab to Hormuz; ECB quarter point settled with Dec left to today's projections.

Notes/observations

- Trump turned the Dallas convention into something closer to an economic term sheet for November: “pretend I’m on the ballot,” deliver Republican control of both chambers, and every adult gets a $5,000 dividend that must be spent in the U.S. At roughly 269M adults that is >$1.3T of potential domestic demand, before permanent Trump tax cuts or lower swipe fees, with no funding mechanism yet offered and congressional authorization still required - a really awkward promise on the eve of CPI while the Fed is debating whether demand is already too firm. The same speech tied three other live market stories directly to the election: Trump again said oil falls once the Iran war is won while simultaneously threatening another strike on Pickaxe Mountain; confirmed Xi is due in the U.S. in roughly two weeks, turning the September 24 summit into the next obvious venue for China/trade concessions; and said Canada still wants a deal. The notable shift is that fiscal, trade and geopolitical promises are now being bundled into one electoral contract: Republican victory is being sold not only as continuity of policy, but as the trigger for a very large cash transfer, permanent tax settings and hoped-for declines in oil prices. Same time: WSJ reports that top Trump Advisers, including VP Vance and Sec of State Rubio, has told him that the Iran war could last past Inauguration Day in January 2029.

- ECB delivers today into a long end that is no longer taking its cue from central banks. 25bps hike at 08:15 ET (13:15 GMT) is fully priced and nothing overnight disturbs it; German August CPI was confirmed at the flash, so the decision rests on the 15:45 CET projections and whether the 2028 path leaves December open. Banks were bid pre-open while long-duration software and semiconductor names were sold, which is where it is being expressed. Case for stopping weakened further: Spanish, Italian and Dutch industrial production all beat, reversing the run of core misses, with Sweden the outlier, GDP missing sharply as orders collapsed. Pressure on European duration, though, is imported. 10-year US reopening cleared at the highest yield since Aug 2007 even on a better cover, Treasury lifted its buyback to $6B, and the 30-year comes today; Japan's MOF then ruled out repurchasing JGBs, declining to cap a 10-year at its highest in decades as BOJ moves duration onto private books. Term premium, not the deposit rate, is setting the Bund and gilt long end, so a dovish December signal should steepen rather than rally the curve.

- Today is the first real test of whether US Treasury’s buybacks are large enough to matter rather than merely large enough to discuss. Yesterday’s $6B cap on 10–20Y purchases disappointed a market that had spent weeks pricing something more forceful, and the 10Y yield responded by touching 4.8528%, its highest since late 2023. Dealers now expect Treasury to buy close to the full $6B today because materially less would invite another cheapening of the back end; even then, the estimated effect is only about 6bp on 10Y yields. The more interesting question is what happens if that fails. Treasury can keep scaling buybacks, but the much stronger lever is issuance itself: cutting long-end auction sizes at the November refunding, trimming the 20Y, or in an extreme case shortening the debt mix much more aggressively. Recent dealer work puts a 2021–22-style coupon reduction at roughly 20bp of potential rate impact, versus as much as 53bp if 20Y/30Y issuance were effectively removed. So today’s operation is not really about $6B; it is a test of whether Bessent can stabilise duration with secondary-market purchases before Treasury is forced to start changing the supply of duration at source.

- Hormuz has developed a peculiar split: fuel availability for ships is improving while the willingness to send ships through the Strait is not. Wednesday saw only seven commodity-vessel transits versus 12 Tuesday and a 10-day average of 14, with no LNG tanker exiting; meanwhile bunker fuel is again readily available in Singapore and other hubs, although Singapore VLSFO remains more than 60% above pre-war levels and Fujairah bunkering is only around 40% recovered. The shipping problem is therefore migrating away from fuel logistics and back toward physical security. That matters even more if reports that the Houthis have taken Mocha are confirmed: control of a government-held port close to Bab al-Mandab would extend Houthi reach down Yemen’s Red Sea coast just as Hormuz remains impaired, while also representing a major reversal for Saudi-backed forces and raising the chance that Yemen’s frozen civil war starts moving again. Trump’s threat to strike Iran’s buried Pickaxe Mountain complex near Natanz adds a separate nuclear escalation route. Brent above $100 is consequently carrying something broader than a Hormuz premium: the Gulf’s two maritime exits are simultaneously becoming less dependable, while Saudi Arabia risks being pulled back into the Yemeni war on one side and the U.S.–Iran confrontation on the other.

- DeepSeek’s V4.1 Flash is the more awkward development for the memory trade today. The new Causal Encoder-Decoder design reportedly cuts HBM requirements 3.9x and SSD use 8x versus V4-Flash, largely by processing the input once through a 20-layer encoder and projecting a global KV cache into the decoder instead of rebuilding a full layer-by-layer cache; KV state falls to roughly 890 bytes per token. DeepSeek says the model is faster, cheaper and more capable than V4 Pro, and has already begun routing Pro traffic onto Flash-priced capacity. The important semiconductor point is uncomfortable for Micron/ Samsung / SK Hynix: China’s AI-chip makers are simultaneously paying extreme premiums for scarce HBM, while one of China’s strongest model labs is engineering aggressively to need much less of it. If the claimed 3.9x reduction holds at production scale, the six months since V4 begin to look less like a temporary optimisation and more like a separate Chinese scaling path—use architecture to economise on the component export controls and domestic supply constrain most severely. That does not make HBM demand bearish: cheaper million-token agents can multiply workload volumes faster than memory per task falls. But it does make “AI capability growth = proportional HBM growth” a much weaker assumption, particularly in China, where memory efficiency now has an economic value far above its value in an unconstrained U.S. stack.

- Asia closed mixed with ASX200 underperforming -1.0%. EU indices -0.3% to +0.2%. US futures +0.2% to -0.1%. Gold -0.1%, DXY 0.0%; Commodity: Brent +0.8%, WTI +1.1%; Crypto: BTC -1.0%, ETH -0.7%.

Asia

- Australia Sept Consumer Inflation Expectation: 4.9% v 4.9% prior. Heightening concerns that inflation could prove more persistent than previously expected.

- BOJ’s Masu stated that would continue to raise rates.

- President Trump stated that China President Xi is confirmed to arrive in a couple of weeks, in line with the White House’s confirmation of a September 24th arrival.

Global conflict/tensions

- Iran seen escalating its confrontation with the US in an effort to break the economic pressure created by the Strait of Hormuz standoff. Fave launched multiple missile attacks targeting US warships, including an aircraft carrier, and fired a major missile barrage at US forces in Jordan.

- Senior White House officials have privately warned President Trump that the conflict with Iran could continue through the remainder of his presidency (**Note: Brent crude stayed above $100/barrel and saw its first close above $100 since July). Trump stated that the war would end “immediately” following November’s midterm elections, claiming Iran lacked the capacity to hold out any longer.

Europe

- UK Aug RICS House Price Balance: -28% v -30%e.

- UK PM Burnham suggested that another Scottish independence referendum could be considered if there is clear public demand for one.

- Institute for Fiscal Studies (IFS) Triple lock cost to jump by £20bn a year.

Americas

- WSJ: inflation report due before next week's Federal Reserve meeting could determine whether policymakers raise interest rates.

- Republican Midterm Convention in Dallas saw Trump promised every American adult a $5,000 "dividend" if Republicans retained Congress following November’s midterm elections.

- Treasury announced to buy back $6.0B in nominal coupons (short of expectations of $8-$10B). Yields surged to nearly three-year highs.

Energy

- Weekly API Crude Oil Inventories: -0.3M v -2.6M prior.

- Trump said elevated energy prices caused by the ongoing Iran conflict are unlikely to decline until after the US midterm elections.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE -0.31% at 10,637.05, DAX -0.18% at 25,507.10, CAC-40 +0.09% at 8,164.24, IBEX-35 +0.27% at 19,733.30, FTSE MIB +0.23% at 51,995.50, SMI -0.28% at 13,765.60, S&P 500 Futures +0.10%].

Market focal points/key themes: European equities stabilized in early Thursday trading, with the pan-European STOXX 600 index rising a modest 0.1% after plunging 1.4% the previous day to its lowest close since late July, as markets awaited the European Central Bank’s highly anticipated interest-rate decision. Trading remained cautious across major European centers amid lingering cost-push inflation risks, with Brent crude still trading firmly above $100 a barrel following recent Middle East military clashes that disrupted oil infrastructure and tanker traffic. Money markets have now almost fully priced in a 25-basis-point hike that would lift the ECB’s deposit rate to 2.50%, a sharp reversal from the hold scenario that dominated expectations only weeks earlier, driven by the oil-price surge and preliminary Eurostat data showing Eurozone headline CPI accelerating to 3.3% year-on-year on a 14.3% energy-price spike. Policymakers, including President Christine Lagarde, have signaled that the central bank cannot afford to let energy-driven inflation feed into second-round wage effects, so attention is focused on the afternoon press conference and the updated staff projections—especially the 2027 inflation outlook—to determine whether this move marks a one-off adjustment or the start of a broader autumn tightening cycle. Beyond the ECB decision and Friday’s U.S. CPI release, notable movers included AUTO1 Group rebounding 3%, Société Générale and Deutsche Bank each gaining 1.5% on higher-rate expectations, while Associated British Foods slumped 8.5% on weak Primark guidance, SAP fell 3.5% amid technology-sector pressure, and THG dropped 3% after softer revenue growth.

Equities

- Consumer discretionary: Associated British Foods [ABF.UK] –8.5% (Primark Q4 LFL sales guided –3% and FY27 sugar losses now seen at £70m–£170m versus £25m–£60m in FY26, overwhelming the maintained FY26 group-profit outlook and new Primark home-delivery plan), THG [THG.UK] –3.0% (H1 adjusted EBITDA +109% to £42.8m is eclipsed by Q3 revenue growth slowing to ~2% as the EU removes the €150 de-minimis exemption and imposes a €3-per-item-category charge; FY outlook merely maintained).

- Financials: Société Générale [GLE.FR] +1.5%, Deutsche Bank [DBK.DE] +1.5% (banks outperform ahead of the expected 25bp ECB hike, with higher policy-rate expectations supportive of lending-margin economics).

- Industrials: Hensoldt [HAG.DE] –0.5%, Rheinmetall [RHM.DE] –0.5% (negative German-defence indications largely persisted but moderated after the open, extending Wednesday’s defence-sector weakness rather than reflecting a fresh company announcement).

- Technology: SAP [SAP.DE] –3.5% (large-cap technology/software selling is the main drag on a flat DAX as higher global yields and renewed duration/AI-disruption concerns pressure software valuations), ASML [ASML.NL] –1.0% (European technology weakness alongside SAP, with higher global bond yields increasing discount rates for long-duration growth/semiconductor valuations).

Speakers

- Hungary Central Bank (MNB) Gov Varga saw strong political commitment to the euro. Country faced growth issues not an inflation one.

- China PBoC Dep Gov Lu Lei: To build modern financial system by 2035; Monetary & financial stability always a goal. China did not need to devalue yuan currency for trade advantages.

- Iran said to be using a barter-like arrangement to bypass sanctions on its oil sales and buy billions of dollars’ worth of goods from China, including military gear.

- Houtchis reportedly take control of Yemeni Red Sea city of Mocha [**Note: The reported capture would also be a major battlefield reversal for Saudi-backed Yemeni forces and raises the risk of a broader return to full-scale civil war after the relative lull that followed the 2022 truce].

- Pakistan Foreign Ministry noted that there was nothing under discussion about reacting militarily against Houthi attack on Saudi Arabia.

Currencies

- FX price action continued to watch developments in the Middle East as oil prices remained above $100/barrel. Overall the major currency pairs held steady in the aftermath of higher oil prices and global bond yields. Renewed inflation concerns have sent global bond yields back to multi-decade highs.

- EUR/USD was near two-week highs ahead of ECB decision. ECB expected to tackle the inflation threat by raising its key rates for a 2nd time since the war started in late February.

- USD/JPY steady at 153.60 area. BOJ member Masu stressed that it should continue to raise the policy interest rate and adjust the degree of monetary accommodation.

- The 10-year German Bund yield last at 3.44%, France 10-year Oat at 4.34% and 10-year Gilt yield at 5.27%; 10-year Treasury yield: 4.86%; 10-year JGB: 2.90%.

Economic data

- (NL) Netherlands Aug Producer Confidence: 3.7 v 2.4 prior.

- (NL) Netherlands July Manufacturing Production M/M: +1.6% v -1.0% prior; Y/Y: 9.0% v 5.0% prior; Industrial Sales Y/Y: 7.0% v 9.6% prior.

- (FI) Finland July Industrial Production M/M: -1.0% v +1.9% prior; Y/Y: 4.5% v 4.4% prior.

- (DE) Germany Aug Final CPI M/M: 0.2% v 0.2% prelim; Y/Y: 2.9% v 2.9% prelim.

- (DE) Germany Aug Final CPI EU Harmonized M/M: 0.2% v 0.2% prelim; Y/Y: 2.9% v 2.9% prelim.

- (SE) Sweden July GDP Indicator M/M: -0.8% v -0.1%e; Y/Y: 2.5% v 2.9% prior.

- (SE) Sweden July Private Sector Production M/M: 0.0% v 0.3% prior; Y/Y: 3.6% v 1.7% prior.

- (SE) Sweden July Industrial Orders M/M: -24.1% v +32.2% prior; Y/Y: -0.5% v +29.5% prior.

- (SE) Sweden July Industry Production Value Y/Y: +0.2% v -0.5% prior.

- (SE) Sweden July Service Production Value Y/Y: 5.0% v 2.7% prior.

- (NO) Norway Aug CPI M/M: -0.3% v +1.0% prior; Y/Y: 3.3% v 3.2%e.

- (NO) Norway Aug CPI Underlying M/M: -0.5% v -0.4%e; Y/Y: 3.0% v 3.0%e.

- (DK) Denmark Aug CPI M/M: -0.3% v +1.3% prior; Y/Y: 2.0% v 1.7% prior.

- (DK) Denmark Aug CPI EU Harmonized M/M: -0.4% v +1.5% prior; Y/Y: 2.0% v 1.6% prior.

- (ES) Spain July Industrial Production M/M: 0.6% v 0.2%e; Y/Y: 2.3% v 1.1% prior; Industrial Output (unadj) Y/Y: 2.6% v 3.8% prior.

- (AT) Austria July Industrial Production M/M: -0.2% v +1.1% prior; Y/Y: -1.1% v +0.7% prior.

- (CZ) Czech Aug Final CPI M/M: 0.3% v 0.3% prelim; Y/Y: 1.9% v 1.9% prelim.

- (CZ) Czech July Import Price Index Y/Y: 4.6% v 3.3% prior; Export Price Index Y/Y: 2.3% v 1.6% prior.

- (TR) Turkey July Industrial Production M/M: -1.0% v +0.2% prior; Y/Y: -0.3% v -1.3% prior.

- (IT) Italy July Industrial Production M/M: 0.7% v 0.3%e; Y/Y: 0.0% v -0.6%e; Industrial Production NSA (unadj) Y/Y: 0.0% v 2.4% prior.

- (GR) Greece July Industrial Production Y/Y: -1.2% v +1.2% prior.

- (ZA) South Africa Q2 Current Account Balance (ZAR): -205B v -101Be; Current Account to GDP (ZAR): -2.6% v -1.3%e.

Fixed income issuance

- (UK) DMO sold £5.0B in new 4.625% May 2030 Gilts.

- (IT) Italy Debt Agency (Tesoro) sold total €7.75B vs. €6.5-7.75B indicated range in 3-year; 7-year and 50-year BTP Bonds.

Looking ahead

- (UR) Ukraine Q2 Final GDP Y/Y: No est v 0.6% prelim.

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

- 05:30 (ZA) South Africa July Total Mining Production M/M: No est v 0.3% prior; Y/Y: -4.0%e v -4.0% prior; Gold Production Y/Y: No est v 6.2% prior; Platinum Production Y/Y: No est v -8.4% prior.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 06:00 (IE) Ireland Aug CPI M/M: No est v 0.1% prior; Y/Y: No est v 3.4% prior.

- 06:00 (IE) Ireland Aug Final CPI EU Harmonized M/M: No est v 0.6% prelim; Y/Y: No est v 3.4% prelim.

- 06:00 (PT) Portugal Aug Final CPI M/M: No est v 0.1% prelim; Y/Y: No est v 3.3% prelim.

- 06:00 (PT) Portugal Aug Final CPI EU Harmonized M/M: No est v 3.3% prelim; Y/Y: No est v 3.6% prelim.

- 07:00 (ZA) South Africa July Manufacturing Production M/M: 0.2%e v 0.9% prior; Y/Y: -2.0%e v -1.7% prior.

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-Week Repo unchanged at 37.00%.

- 07:00 (CZ) Czech Central Bank comments on CPI data.

- 07:30 (CL) Chile Central Bank Economist Survey.

- 08:00 (BR) Brazil July IBGE Services Volume M/M: 0.2%e v 0.0% prior; Y/Y: 1.2%e v 2.0% prior.

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

- 08:15 (EU) ECB Interest Rate Decision: Expected to raise Key Rates by 25bps. Expected to raise Deposit Rate by 25bps to 2.50%; Expected to raise Main 7-Day Refinancing Rate by 25bps to 2.65%; Expected to raise Marginal Lending Facility by 25bps to 2.90%.

- 08:30 (US) Initial Jobless Claims: 205Ke v 206K prior; Continuing Claims: 1.78Me v 1.779M prior.

- 08:30 (US) Aug PPI Final Demand M/M: 0.4%e v 0.0% prior; Y/Y: 5.2%e v 4.7% prior.

- 08:30 (US) Aug PPI (ex-food/energy) M/M: 0.3%e v 0.2% prior; Y/Y: 4.6%e v 4.2% prior.

- 08:30 (US) Aug PPI (ex-food/energy/trade) M/M: 0.3%e v 0.4% prior; Y/Y: No est v 4.7% prior.

- 08:45 (EU) ECB chief Lagarde post-rate decision press conference.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 4th: No est v $774.2B prior.

- 09:00 (PL) Poland Central Bank (NBP) Gov Glapinski post-rate decision press conference.

- 10:00 (US) Aug Existing Home Sales: 3.98Me v 4.06M prior.

- 10:00 (US) July Final Wholesale Inventories M/M: 1.3%e v 1.3% prelim; Wholesale Trade Sales M/M: No est v -3.0% prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 10:30 (US) Atlanta Fed GDP Now.

- 10:00 (DK) Denmark Central Bank (Nationalbanken) possible rate announcement (usually follows ECB action).

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (US) Weekly DOE Oil Inventories.

- 13:00 (US) Treasury to sell 30-Year Bond Reopening.

- 14:30 (MX) Mexico Central Bank Releases Regional Economy Report.

- 15:00 (AR) Argentina Aug National CPI M/M: 1.8%e v 2.1% prior; Y/Y: No est v 33.8% prior.

- 18:30 (NZ) New Zealand Aug Manufacturing PMI: No est v 54.3 prior.

- 19:00 (PE) Peru Central Bank Interest Rate Decision: Expected to leave Reference Rate unchanged at 4.25%.

- 19:50 (JP) Japan Q3 BSI Large All Industry Q/Q: No est v -0.5 prior; Manufacturing Q/Q: No est v -1.8 prior.

- 19:50 (JP) Japan Aug PPI (domestic CGPI) M/M: 0.0%e v 0.1% prior; Y/Y: 7.4%e v 7.2% prior.

- 20:00 (KR) South Korea Sept 1-10 Days Exports Y/Y: No est v 45.3% prior; Imports Y/Y: No est v 23.1% prior.

- 22:35 (CN) China to sell 5-year and 10-year Additional Bonds.

- 23:30 (JP) Japan to sell 3-Month Bills.