ECB speakers ratify October pricing, Bund and gilt yields at multi-decade highs

EU mid-market update: Houthis reported in control of Bab el-Mandab with Trump declining Riyadh's request to strike, Hormuz corridor talks set for Monday; ECB speakers ratify October pricing, Bund and gilt yields at multi-decade highs; US CPI today; Fed, BoE and BOJ next week.

Notes/observations

- Houthi forces have closed the second chokepoint, and the one power able to reopen it has declined to. Local Yemeni officials report Mayun island, which splits Bab el-Mandab, seized alongside coastal Dhubab, putting the group on both shores of a strait narrow enough to interdict with boats and drones. Advances down that coast were background; control of the transit is not. Riyadh read it that way, MBS calling Trump twice on Thursday to ask for strikes and being refused, Trump saying he may not go fully into Iran because of the election. Gulf security cover is now rationed against a domestic calendar, and nobody else is placed to force the strait. Hormuz ran the same direction overnight, IRGC destroying a US surface drone and US forces sinking two Iranian vessels caught laying mines and hitting a SAM site at Bandar Abbas. Mining shuts a waterway without anyone deciding to shut it. Crude spiked on the Yemen headlines before paring, and IEA deferred any recovery in Gulf flows to 2027, cutting 2026 supply and demand growth again. Product is the sharper exposure: US retail diesel passed $6.00 a gallon for the first time and Burgum declined to rule out export controls, which would pull barrels from the Atlantic basin and widen European distillate cracks into the heating season. Next Monday’s (Sept 14th) Iran–GCC meeting in Salalah is potentially more important than the earlier Iran–Oman corridor talks because it brings the Gulf states whose oil and LNG actually need the Strait into the proposed operating arrangement.

- Today’s CPI lands into a bond market that has already voted once. August PPI rose 5.4% y/y, Fed-hike odds climbed to roughly 70%, the 2Y reached 4.60% and the 10Y is now pressing 5%; more awkwardly for Bessent, Treasury bought only $5.2B of the $6B maximum in yesterday’s 10–20Y buyback even after dealers had warned that anything materially below the cap risked further back-end cheapening. That gives today’s CPI two jobs. It must tell the Fed whether the energy shock has escaped into domestic prices, and it must tell Treasury whether the long-end selloff is something $5–6B secondary-market operations can plausibly arrest. A soft print can rescue both institutions at once; a 0.4% core print would make another question unavoidable - whether November’s refunding eventually has to reduce the supply of duration, rather than Treasury continuing to buy small pieces of duration back after issuing it.

- Latest on the Houthi advance: Reuters confirms Mocha has fallen and Houthi forces have reached the Hanish islands; regional reports go further and claim Mayun/Perim itself has been seized, but that latter claim is not yet confirmed by the major wires. Mayun matters because it sits inside Bab el-Mandeb, while Saudi Arabia’s East-West Pipeline carries crude from Abqaiq to Yanbu precisely so exports can bypass Hormuz. That is why the separate overnight smoke/thermal signatures near the Petroline route deserve attention but not yet belief: there is still no confirmation from Aramco, the Saudi Energy Ministry or major wires that the pipeline was hit. If both stories eventually prove true, they would attack the same contingency plan from opposite ends - land infrastructure carrying crude westward and the maritime chokepoint needed to move it onward toward Suez. For now the confirmed fact is already bad enough: Iran has constrained Hormuz while its Houthi ally has acquired substantially more physical leverage around the alternative Red Sea exit.

- Day after the hike, ECB council spent the morning confirming October rather than steadying the long end. Nagel put policy at the upper bound of neutral and conceded it may need to turn mildly restrictive, Dolenc called persistently higher oil and gas the likely case, and Kaasik framed the return to target in years. None leaned against an October move, and each conditioned-on energy, which hands the terminal rate to the strait rather than the data. Bunds sit at their cheapest since 2011, gilts at 2007 levels and French 30-year at 2003 highs, none of it retraced this morning. UK July activity was the clean upside surprise, GDP clearly ahead with manufacturing and services both beating, which removes the growth objection to a November BoE move, pins the gilt front end and leaves the long end on supply and fiscal doubt into 28th Oct; sterling picks up carry. Washington leans the same way: Trump has moved the $5K dividend from campaign line to claim of executive authority, saying he needs no Congressional approval and that $40T of debt is handled through growth. Bessent countered that investors are not demanding a premium for duration, which sits awkwardly against yesterday's 30-year clearing and an underfilled buyback. European duration wears this second hand, so a softer ECB line from here steepens rather than rallies.

- Oracle’s quarter gives a cleaner answer to the “circular AI capex” argument than most of the industry’s speeches. It added more than $30B of new AI-cloud contracts, taking backlog to $664B, while quarterly capex reached $28.5B—but $11.36B of that capex was effectively financed by customer prepayments. Free-cash-flow burn was still $5.4B, but roughly half what analysts expected. That distinction matters: an AI campus financed by Oracle borrowing billions in anticipation of demand is one thing; a campus whose future tenants hand Oracle cash before it is built is another. The sector’s next accounting divide may therefore be less “capex versus no capex” than vendor-funded versus customer-funded capex. The more Stargate-style projects require extra security, power and construction spending, the more valuable those prepayments become—and the more revealing it will be which AI customers are willing to write them.

- The UAE is now redesigning Stargate UAE as military infrastructure. After Iranian strikes damaged AWS facilities in the UAE and Bahrain, planners for the 5GW Abu Dhabi campus are reportedly considering dedicated air defence, hardened redundancy and putting some data centres underground; the first $30B, 1GW Stargate cluster is already under construction, with the initial 200MW still targeted for service this year. That changes the economics of Gulf compute in a way power-price spreadsheets never captured. The region’s attraction was cheap energy, sovereign capital and enormous contiguous sites; its new cost line is blast protection, duplicate power systems, staff security, insurance and possibly geographically dispersed capacity. The important consequence for OpenAI, Oracle, Nvidia, Cisco, SoftBank and G42 is not that 5GW disappears - it probably does not - but that a gigawatt in Abu Dhabi may now require materially more capital and take longer to become usable than a gigawatt did when the project was announced. Commercial cloud infrastructure has become part of the regional target set, and compute location now carries something much closer to sovereign-risk pricing.

- US CPI is today's event, and next week stacks three central banks: FOMC on 15th-16th Sept, where prediction markets now favour a hike over a hold, then BoE and BOJ on 17th-18th Sept.

- Asia closed lower with Nikkei225 underperforming -1.9%. EU indices +0.3-0.7%. US futures +0.5-0.6%. Gold +0.7%, DXY +0.1%; Commodity: Brent -2.7%, WTI -2.3%; Crypto: BTC -0.8%, ETH +0.3%.

Asia

- New Zealand Aug Manufacturing PMI: 53.1 v 54.3 prior (11th month of expansion).

- Japan Q3 BSI Large All Industry Q/Q: +5.3 v -0.5 prior; Manufacturing Q/Q: +7.6 v -1.8 prior.

- Japan Aug PPI (domestic CGPI) M/M: -0.2% v 0.0%e; Y/Y: 7.6% v 7.4%e.

- South Korea Sept 1-10 Days Exports Y/Y: 82.6% v 45.3% prior; Imports Y/Y: 20.7% v 23.1% prior.

Global conflict/tensions

- Iran said to be producing ballistic missiles again in underground facilities via stockpiled components and a network of underground facilities.

- Saudi Crown Prince called Pres Trump twice on Thursday and urged him to launch strikes against the Houthis amid Red Sea threat.

- More than 100 US military advisers said to be on the ground in Saudi Arabia providing intelligence and targeting support to the Kingdom in its military campaign against the Iran-backed Houthis.

- US Tsy Sec Bessent noted that the Treasury was planning to sanction a large bank on Monday, signaling further pressure on the financial sector.

Europe

- ECB Officials reportedly expect more tightening ahead, with another hike possible in October.

- Labour party mayors across England said to be considering the introduction of a 5% tourist or holiday tax.

Americas

- US Tsy Sec Bessent downplayed concerns over a smaller-than-expected government debt buyback operation and the recent rise in Treasury yields.

Energy

- Yemen Houthi's reportedly reach Red Sea islands of Hanish (**Insight: Establishing positions on the Hanish Islands seen as strengthening their ability to threaten traffic through Bab al-Mandeb).

- Iran and Gulf states said to meet in push for Hormuz deal (Gulf Foreign Ministers said to be planning to meet their Iranian counterpart in a push by Oman and Iran to secure a deal temporarily managing shipping thru Strait of Hormuz).

- US average retail diesel price rises past $6.00/gallon for the 1st time ever - American Automobile Association.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE +0.45% at 10,656.81, DAX +0.42% at 25,507.07, CAC-40 +0.60% at 8,165.41, IBEX-35 +0.76% at 19,809.26, FTSE MIB +0.70% at 52,171.50, SMI +0.61% at 13,824.20, S&P 500 Futures +0.57%].

Market focal points/key themes: European equities hovered near two-month lows on Friday and are set for their sharpest weekly decline since April, with the Stoxx Europe 600 on track for a loss of more than 2% despite a modest 0.3% rebound. The sell-off was driven by Brent crude surging to a four-month high near $110 (up nearly 13% on the week) amid restricted Persian Gulf tanker traffic after U.S.-Iran clashes and Houthis seizing Yemen’s Mocha port, plus the ECB’s unexpected 25 bp hike to 2.50% as energy costs pushed eurozone CPI to 3.3%. Higher yields and input costs hit rate-sensitive growth and cyclical stocks hardest, while money markets now price a high chance of another ECB rise before year-end. Attention turns to Friday’s U.S. CPI, which could lock in a Fed hike next week after last week’s strong jobs data. Notable movers included Panoro Energy (+5%) and Leonardo (+2%) on oil and defence bids, while Nordic Semiconductor and Prysmian each fell 5.5% on rates pressure and dilution.

Equities

- Consumer discretionary: Lottomatica [LTMC.IT] +4.5% (extends the post-Cirsa combination re-rating; Berenberg reiterated Buy following the merger agreement, with the primary Milan line around +4.3%).

- Financials: UniCredit [UCG.IT] –0.5% (capital increase approved for the Commerzbank exchange offer while Berlin continues pressing for Commerzbank to preserve its German identity, listing and employment footprint, keeping political/execution risk around the transaction elevated).

- Healthcare: Genmab [GMAB.DK] –2.5% (high-duration biotech selling continues amid the rates-driven growth de-risking; no new company-specific negative release surfaced with the move).

- Industrials: Outokumpu [OUT1V.FI] –4.5%, thyssenkrupp [TKA.DE] –3.0% (steel/cyclical de-risking into the oil-driven inflation and rates shock; Outokumpu particularly exposed to higher scrap, freight and fuel costs while European steel demand remains fragile), Leonardo [LDO.IT] +2.0%, BAE Systems [BA.UK] +1.5%, Rheinmetall [RHM.DE] +0.5% (renewed defence/geopolitical bid amid continued U.S.–Iran/Houthi escalation; Leonardo additionally supported by BNP Paribas upgrading to Outperform and raising its target).

- Technology: SAP [SAP.DE] –3.0% (one of the clearest European duration casualties as sovereign yields remain near multi-year highs following the ECB hike and hawkish inflation message; Xetra roughly –2.8%).

Speakers

- ECB's Nagel (Germany) noted that the recent rate hike was a clear commitment on inflation; too early to speculate on next move. Next move to depend on energy price developments. At the upper bound of neutral territory but might need to go into mildly restrictive.

- ECB's Simkus (Lithuania) stated that inflation was too high both in EU and Lithuania.

- ECB's Moulin (France) noted that France was not in economic danger but the situation remained a concern. Was justified for ECB to raise rates.

- ECB's Kocher (Austria) noted it was too early to say anything about next ECB decision; Remained committed to inflation below 2%.

- ECB’s Dolenc (acting Slovenia member): Persistently higher oil and gas prices were increasingly likely.

- France Fin Min Lescure cut the 2026 GDP growth forecast from 0.7% to 0.5%. Saw 2026 CPI at 2.1% with peak at 3.0% towards end-2026 and noted 2027 CPI was seen at 1.8% (below ECB 2% target).

- BRICS Joint Statement: Concerned with unilateral trade and finance -related actions. Supported rules-based trading system with World Trade Organization (WTO) at the core. Sought faster and cheaper cross border payments.

- Japan trade delegation said to be preparing for a trip to China in Sept.

- Iran's Foreign Minister and Pakistan's Army Chief said to have discussed the Houthi attacks on Saudi Arabia. Discussed ways to restore diplomatic efforts to de-escalate the conflict on all fronts.

- Iranian backed Houthis said to have reached Yemeni port city of Dhubab.

- IEA Monthly Oil Report (OMR) cut the 2026 global oil demand growth from -1.6M bpd to -2.5M bpd while raising 2027 global oil demand growth from 2.4M bpd to 2.6M bpd. On the supply side the IEA cut 2026 global oil supply growth from -4.3M bpd to -5.7M bpd and cut 2027 global oil supply growth from 8.3M bpd to 8.0M bpd.

Currencies

- FX price action was subdued in the session with focus on upcoming US CPI data. The persistent rise in oil prices keeping a hawkish tone in various central bank speak. For the Fed, markets currently see a 72% chance of a hike at the upcoming Sept policy meeting and an 85% chance of a hike occurring at the Oct meeting (if paused in Sept). Dealers noting that 10-year Treasury yield hitting 5% looked more like an inevitability than a forecast.

- EUR/USD holding above the 1.16 level and little changed from pre-ECB rate hike level from Thurs. Swaps imply 16bps of ECB hikes in October, 38bps in December and 84bps by the end of next year. ECB speak remained hawkish bit not committing to any pre-condition route.

- USD/JPY holding above the 154 level despite some analysts seeing multiple BOJ rate hikes thru 2027.

- The 10-year German Bund yield last at 3.50%, France 10-year Oat at 4.43% and 10-year Gilt yield at 5.33%; 10-year Treasury yield: 4.94%; 10-year JGB: 2.97%.

- Brent oil tested $110 level on Thurs and currently consolidating the sharp gains. Price under $105/barrel by mid-morning.

Economic data

- (NL) Netherlands July Trade Balance: €10.9B v €11.7B prior; Exports Y/Y: 2.1% v 3.4% prior; Imports Y/Y: 0.4% v 0.7% prior.

- (FI) Finland July Current Account Balance: -€0.2B v +€2.8B prior.

- (UK) July Monthly GDP M/M: 0.4% v 0.0%e; 3M/3M: 0.4% v 0.3%e.

- (UK) July Industrial Production M/M: +0.2% v -0.2%e; Y/Y: 0.6% v 0.2%e.

- (UK) July Manufacturing Production M/M: 0.9% v 0.2%e; Y/Y: 2.6% v 2.1%e.

- (UK) July Construction Output M/M: 0.1% v 0.1%e; Y/Y: -2.5% v -2.3%e.

- (UK) July Index of Services M/M: 0.4% v 0.0%e; 3M/3M: 0.6% v 0.5%e.

- (UK) July Visible Trade Balance: -£21.0B v -£22.4Be; Overall Trade Balance: -£3.5B v -£5.0Be; Visible Trade Balance (ex-precious metals): -£21.4B v -£21.1B prior.

- (RO) Romania Aug CPI M/M: 0.2% v 0.6%e; Y/Y: 6.2% v 6.6%e.

- (CH) Swiss Aug SECO Consumer Confidence: -32.8 v -32.0e.

- (TR) Turkey July Retail Sales Y/Y: 10.4% v 11.5% prior.

- (TR) Turkey July Current Account Balance: $0.0B v $0.7Be.

- (TR) Turkey Sept Expected Inflation Next 12 Months: 23.7% v 23.7% prior.

- (CN) Weekly Shanghai Deliverable Copper Inventories (SHFE): 54.8K v 63.0K tons prior.

- (TH) Thailand May Foreign Reserves w/e Sept 4th: $B284.0 v $283.2B prior.

- (IT) Italy Q2 Unemployment Rate: 5.6% v 5.3% prior.

- (RU) Russia Narrow Money Supply w/e Sept 4th (RUB): 22.56T v 22.39T prior.

-( UK) BoE/Ipsos Aug Quarterly Inflation Attitude Survey (Next 12 months): % v 4.0% prior.

Fixed income issuance

- (IN) India sold total INR320B vs. INR320B indicated in 2029, 2033 and 2056 bonds.

Looking ahead

- (DE) Germany July Current Account Balance: No est v €19.0B prior.

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

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2043, 2046 and 2058 Bonds.

- 06:00 (UK) DMO to sell £4.5B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £2.0B respectively).

- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave the Key 1-Week Auction Rate unchanged at 14.00%.

- 07:30 (IN) India Forex Reserve w/e Sept 4th: No est v $740.8B prior.

- 08:00 (IS) Iceland Aug Unemployment Rate: No est v 4.0% prior.

- 08:00 (MX) Mexico July Industrial Production M/M: -0.2%e v +0.2% prior; Y/Y: 1.8%e v 1.7% prior; Manufacturing Production Y/Y: 1.0%e v 0.1% prior.

- 08:00 (BR) Brazil Aug IBGE Inflation IPCA M/M: -0.3%e v +0.1% prior; Y/Y: 4.3%e v 4.4% prior.

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

- 08:00 (ES) Spain Debt Agency (Tesoro) announcement on upcoming issuance (if any).

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:30 (US) Aug CPI M/M: 0.4%e v 0.1% prior; Y/Y: 3.4%e v 3.4% prior.

- 08:30 (US) Aug Core CPI M/M: 0.2%e v 0.2% prior; Y/Y: 2.4%e v 2.5% prior.

- 08:30 (US) Aug; CPI NSA Index: 334.871e v 333.918 prior; Core CPI Index: 337.578e v 336.789 prior.

- 08:30 (US) Aug Real Avg Hourly Earning Y/Y: No est v -0.2% prior; Weekly Earnings Y/Y: No est v 0.1% prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia July Trade Balance: No est v $12.5B prior; Exports: No est v $43.3B prior; Imports: No est v $30.8B prior.

- 10:00 (US) Sept Preliminary University of Michigan Confidence: 51.0e v 51.7 prior.

- 12:00 (US) Q2 Financial Account Household Change in Net Worth: No est v $113.0B prior.

- 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report.

- 12:00 (RU) Russia Q2 Preliminary GDP (2nd reading) Y/Y: No est v 1.3% advance.

- 12:00 (RU) Russia Aug CPI M/M: -0.1%e v +0.5% prior; Y/Y: 6.3%e v 6.0% prior.

- 12:00 (RU) Russia Aug CPI Core M/M: No est v 0.4% prior; Y/Y: No est v 5.2% prior.

- 13:00 (US) Weekly Baker Hughes Rig Count data.

- 13:00 (EU) Potential sovereign ratings after European close (S&P on Spain; Fitch on Italy & Spain; DBRS on Ireland).

- 13:00 (IE) ECB’s Lane (Ireland, chief economist).

- 14:00 (US) Aug Federal Budget Balance: -$211.1Be v -$432.3B prior.