Flash PMIs put an October ECB hike in play

EU mid-market update: First mediated US-Iran round done in New York, Hormuz reopening still unconfirmed; Flash PMIs put an October ECB hike in play; Zelenskiy ready for an energy truce as Washington weighs a diesel export ban.

Notes/observations

- Tuesday managed to close the Nasdaq at a record while Treasury sold two-year money at 4.787%, the highest auction yield since May 2024. AMD had crossed $1T a day earlier, Meta has added roughly $200B since Muse launched ahead of Meta Connect, while JPMorgan and Wells Fargo were falling almost 4% yesterday. The $69B Treasury sale itself was perfectly serviceable, 2.63x cover, 0.2bp tail, so there is little evidence that 4.8% cash is choking financial markets indiscriminately. It is making investors much more selective about what deserves to clear that hurdle. Right now they are willing to pay extraordinary prices for AI revenue, compute scarcity and applications with visible uptake while punishing businesses whose earnings are directly exposed to funding costs. Brent slipping below $100 has made that separation easier: one large inflation input is retreating without touching the AI spending cycle.

- Xi arrives in Washington today just as Beijing has discovered how much Broadcom sits inside the Chinese AI machine. FT reports that SASAC has been surveying switches in state-controlled data centres and preliminary work suggests Broadcom may account for as much as 90% of the installed equipment; informal guidance to reduce that exposure is reportedly being considered. Less than 48 hours earlier Alibaba was advertising a future 500,000-chip Zhenwu V900 cluster and a 20GW global cloud footprint. The juxtaposition exposes the next Chinese semiconductor problem rather neatly: owning the accelerator does not make a half-million-chip cluster sovereign if the fabric coordinating those accelerators is still overwhelmingly American. Huawei’s UnifiedBus push now looks less like an accessory to Ascend and more like a missing industrial layer Beijing intends to replace. Meanwhile Bessent and He Lifeng have agreed to build a US-China AI dialogue and proposed incident-notification mechanism, while high-end chip controls were explicitly left out of their weekend talks. Xi therefore arrives to discuss how the two AI systems communicate in an emergency while Beijing is simultaneously auditing how much American hardware remains buried inside its own.

- New York has moved the Iran channel from messages carried by intermediaries to intermediaries physically walking between two rooms for hours. Trump said Witkoff and Kushner spent roughly three hours with the Iranian delegation Tuesday; Witkoff subsequently clarified that the exchanges were indirect, with mediators shuttling between the sides, and another round is expected. Tehran has separately told Reuters it could reopen Hormuz within seven days of Washington easing military pressure and lifting the blockade of Iranian ports (but then Iranian state-affiliated press denied the formal proposal was made). The barrel price has moved before the hulls: Brent is around $99, helped additionally by Saudi Arabia restarting the East-West Pipeline and preparing Yanbu exports. Trump was simultaneously threatening Iran with destruction at the UN, so nobody has removed the military tail; crude is simply attaching more weight to a negotiated route that now has people in rooms, stated Iranian conditions and another meeting rather than another anonymous feeler.

- SoftBank has effectively found debt investors willing to finance an OpenAI equity cheque that OpenAI itself does not have to borrow. More than $20B of preliminary orders are circling an offering of a little over $11-10B in dollars plus €1B, with proceeds earmarked partly for SoftBank’s October 1 $10B OpenAI instalment and replacement of its bridge facility. The longest dollar paper has been discussed around 9–10%, which puts the enthusiasm in proper perspective: twice-covered books are impressive, but Son is still paying high-yield prices to convert private AI equity exposure into term debt. The upside from OpenAI’s next valuation reset remains with SoftBank shareholders; creditors receive a fixed coupon against a conglomerate that is also expanding Arm-backed borrowing and other financing channels to keep writing AI cheques. OpenAI’s projected $278B of negative FCF through 2030 is consequently starting to appear outside venture portfolios—in the coupon required on SoftBank unsecured bonds.

- Anthropic is heading toward an IPO just as the half-life of an AI pricing advantage is collapsing. It launched Opus 5.5 yesterday at roughly 40% lower operating cost than Fable 5.1, with comparisons showing it ahead of GPT-5.6 Sol on software-development work; within hours, however, OpenAI replaced that comparison target by releasing GPT-6 Sol and Luna at API prices 50% below their GPT-5.6 predecessors. At the same time Anthropic is discussing becoming the direct tenant of as much as 1GW at Apollo-controlled Stream Data Centers, potentially filled with Google/Broadcom TPUs and supported by a Google credit guarantee, after already agreeing a roughly 401MW, 20-year TeraWulf lease. That produces a rather unforgiving IPO equation: model prices are being repriced in months while the infrastructure needed to serve them is being contracted in gigawatts and decades. Taking control of the data centre can strip out a cloud-provider margin and improve utilization economics, but it also makes Anthropic responsible for keeping enormous fixed capacity economically busy while OpenAI, Google and Chinese labs keep cutting the price of intelligence above it. A Google guarantee would make the structure even more peculiar—Anthropic reducing its dependence on hyperscaler cloud by leasing the building itself, while still using a hyperscaler’s chips and balance sheet to make the lease financeable. By the time investors see the prospectus, the question may be less whether Claude can beat GPT on a benchmark than whether Anthropic can keep enough paid tokens flowing through twenty-year infrastructure commitments while GPT-6 keeps resetting what those tokens are worth.

- Meta Connect starts today with Muse already having done the hard part: it arrived before the keynote with users, subscriptions and a ~$200B equity rerating behind it. The agent launched September 8, reached roughly 2.8M downloads in 12 days, and Meta shares have risen more than 20% since launch; JPMorgan has already floated Muse as potentially the biggest consumer-AI launch since ChatGPT. Connect on September 23–24 is therefore much less about announcing another chatbot than about showing where Meta intends to put the agent next: AI glasses, WhatsApp, desktop and eventually whatever replaces part of the phone interface are all distribution surfaces Meta already owns or controls. The awkward timing is useful too. Amazon has blocked Muse from shopping on its site, Meta just patched a macOS exploit, and the company is testing human concierges to complete some phone calls—evidence that the agent is acquiring users faster than the surrounding trust, permissions and merchant infrastructure are being standardised. That makes Connect unusually consequential for the stock: if Zuckerberg can turn Muse from an app people downloaded into the default agent sitting inside glasses, messaging and Meta’s identity graph, the economic argument shifts from $20/$100 subscriptions toward owning the interface through which other companies’ transactions are initiated. If today is mostly new glasses hardware with Muse bolted on, the recent valuation move may have run considerably ahead of that architecture.

- Flash PMIs have put an October ECB hike on the table, and Nagel is not leaning against it. Euro-area composite beat clearly: manufacturing is in its best run for more than four years on AI and defence spending, services in Germany and France returned to expansion after five and eight months of contraction, and price gauges turned up again. Nagel would not rule out mildly restrictive territory and said he is not relaxed on core, challenging the path Lane set on Monday. Pricing has barely started: Bunds gave back only part of the oil rally, OATs pared gains and euro did not respond, so October risk sits in Schatz and has room to build if other Governing Council members follow. Durability is the open question: French new orders barely rose, and German institutes see growth fading once the fiscal impulse is spent. UK printed the reverse mix, services and composite marginally short, output near stagnation and prices rising; that keeps BoE hawkish while naming gilt yields as the brake on growth, and argues for euro outperforming sterling on the crosses.

- Accordingly, the German print was the kind of PMI Merz would have preferred to receive before losing Mecklenburg-Western Pomerania. The September composite jumped to 53.8 from 51.8, the strongest reading since last October and two full points above consensus; services returned to expansion at 52.9 after five months below 50, manufacturing remained at a healthy 53.8 and employment increased for a second month. Yet the joint institutes’ new forecasts tell a less flattering longer story: 1.3% growth in 2026, 1.1% in 2027 and only 0.4% in 2028. Fiscal spending and exports are finally lifting the current-year numbers, while the estimated speed of the economy drops away once that impulse fades. Input prices also accelerated to a four-month high despite the recent oil reversal. The awkward political timing is obvious: the cyclical data have begun repairing themselves just as voters delivered the CDU its most severe state-level rebuke, while the structural growth numbers still give Merz little evidence that the underlying German model has been repaired.

- Today’s $70B five-year Treasury sale is a cleaner extension of the Bessent argument than yesterday’s two-year auction. Two-year paper at 4.787% sits close enough to the expected Fed path that buyers can largely treat it as a monetary-policy instrument; despite the highest stop since May 2024, yesterday’s sale cleared with a respectable 2.63 bid/cover and only a tiny tail. Five years contains much more of the argument over how long restrictive policy lasts, how much Treasury supply investors must warehouse and whether falling crude really lowers the medium-term inflation premium. The previous five-year auction stopped at 4.393%; today Treasury sells another $70B, followed by $44B of seven-years tomorrow. A clean five-year reception alongside a stubborn ~5% 10Y would leave the uglier supply premium concentrated further down the curve. A sloppy one would make it harder to keep describing the long-end problem as somebody else’s maturity.

- Cross-asset: Europe opened firmer with the STOXX 600 +0.4%, while Asian technology stayed supported into Xi’s arrival; Brent is around $99.2 and WTI roughly $90.1, extending the large retreat generated by the Iran proposal and Saudi pipeline restart. The dollar has gone the other way: DXY ~100.6–100.7, EUR/USD ~1.143–1.145, its strongest dollar reading in roughly two months, as markets continue to entertain another Fed hike even after crude’s collapse. UST 10Y is around the 4.93–4.96% area after yesterday’s oil-led rally; gold is softer around $4,329 as high real/nominal yields overwhelm some of the geopolitical bid. The unusual pair remains intact: oil has surrendered much of the war premium while the dollar and front-end rates have surrendered almost none of the Fed premium.

- Asia closed higher with KOSPI outperforming +0.9%. EU indices -0.5% to +0.2%. US futures -0.1% to +0.1%. Gold -0.9%, DXY +0.3%; Commodity: Brent +0.3%, WTI -0.4%; Crypto: BTC -0.4%, ETH -0.4%.

Asia

– Indonesia central bank (BI) left the BI rate unchanged at 5.75%; as expected.

– Reportedly China considering new measures to attract international talent to work in China, specifically in the advanced manufacturing sector - press.

– Hong Kong regulators are planning to unveil Yuan and market link measures on Wed - SCMP.

– HKMA: To work with the industry on digital bond market; notes work on China government bond market collateral.

– South Korea President Lee plans to meet with US President Trump on the sidelines of the UN General Assembly; both leaders affirmed commitment to deepening cooperation in various areas [nuclear submarines, fuel reprocessing, shipbuilding, wartime control transfer] - Press.

Europe

– German Trade Union IG Metall: Regional pay talks start Oct 7th, warning strikes possible from Nov 1st; Demanding 5% pay rise for 3.7M workers.

– Swiss upper house of parliament rejects govt proposal for overhaul of UBS capital rules; Swiss Fin Min called on lawmakers to reject AT1 compromise - press.

– Hungary Central Bank (MNB) post rate decision statement: Lowering inflation target from 3.0% to 2.5%, effective from Jan 1st 2028.

– EU Commission proposes to unlock €4.2B Hungary cohesion funds - press.

– Italy reportedly plans to stick with commitment to keep deficit below EU's 3% of GDP ceiling this year from 3.1% in 2025 - press citing sources.

– Deutsche Bank BoFA Conference: 2026 NII expected slightly above the prior ~€14B guidance; structural hedges mean higher rates provide only gradual upside, with a larger benefit in 2027 and an even bigger one in 2028 as hedges reset, while preserving downside protection if rates fall.

– OECD updates economic outlook: Mostly raises 2026 growth and cuts 2027.

– Denmark Central Bank (Nationalbanken) on economic outlook: Raised both 2026 and 2027 GDP forecasts.

Americas

– VP Vance expected to announce cutting hundreds of thousands of people from ACA ('Obamacare') coverage - Washington Post.

– OpenAI reportedly to allow outside groups assess AI models at an earlier phase - press.

– Treasury Sec Bessent being seriously considered for Trump's new AI Czar post - Semafor.

– US regulators rush to draft crypto rulebook following Clarity Act stalled in the Senate - CNBC.

– White House comments on Trump schedule for Wed: Trump to host arrival ceremony with China President Xi on Wed at 6 pm ET.

Conflict/tensions

– Iran press says flights from Tehran to Baghdad and Muscat have been canceled starting midnight on Wednesday.

– Iran's strict conditions to open the Strait of Hormuz were the reason to accept Witkoff's request for meeting - Iranian state media.

– Iran armed foreces call Trumps statements on Iran at UN are tools for domestic propaganda - press.

– Several explosions heard off of Iran's Qeshm Island - IRNA.

Trade/energy

– US-China safety mechanism will consist of a channel between Treasury Sec Bessent and China Vice Premier He Lifeng in the event of an AI-related national security event - Politico.

– Spain said to mull capping gas prices to curb power bills - press.

– India PM Modi expected to sign a completed trade agreement with Canada - Globe & Mail.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE +0.17% at 10,726.55, DAX -0.34% at 25,511.95, CAC-40 +0.09% at 8,162.36, IBEX-35 -0.22% at 19,747.90, FTSE MIB +0.26% at 52,230.50, SMI +0.13% at 13,970.90, S&P 500 Futures +0.06%].

Market Focal Points/Key Themes: European equities traded mixed on Wednesday, with the FTSE 100 rising 0.17%, the FTSE MIB gaining 0.26% and the CAC 40 edging up 0.09%, while the DAX fell 0.34%, the IBEX 35 declined 0.22% and the Euro Stoxx 50 was essentially flat at +0.02%, as a sixth consecutive decline in oil prices and renewed AI optimism provided selective support. Brent crude slipped 0.40% to $98.83 after reports that Saudi Arabia had restarted its East-West Pipeline and may already have resumed Red Sea exports from Yanbu, while President Trump claimed progress in New York talks with Iran yet simultaneously threatened to “annihilate” the country if no agreement was reached. The most notable individual movers were Ceres Power, surging 6.0% on H1 results that sparked a clear liquid UK mid-cap earnings rally, and Sweco B, up 5.0% after a Handelsbanken upgrade to Buy, against Arcadis’s 8.0% plunge following the withdrawal of WSP’s proposed acquisition and KWS Saat’s 6.0% drop on weaker-than-expected annual sales. Asian markets continued to ride AI-driven demand, with Samsung and Taiwan benchmarks firming, even as investors weighed Chinese President Xi’s Washington visit, Fed officials’ defence of last week’s rate hike and a firmer dollar that left the euro near a two-month low.

Equities

- Consumer discretionary: JD Sports Fashion [JD.UK] +1.0% (H1 revenue was in line while pre-tax profit and adjusted items beat estimates, with FY27 guidance affirmed), Diageo [DGE.UK] -1.0% (appointed Joanne Wilson as CFO, with the executive not due to join until 2027).

- Energy: Ceres Power [CWR.UK] +6.0% (H1 results triggered the morning's clearest liquid UK small/mid-cap earnings rally).

- Technology: SAP [SAP.DE] +2.0% (tracked renewed AI enthusiasm and the overnight advance in US technology shares).

-Telecom: Tele2 [TEL2B.SE] -1.5%, Telia [TELIA.SE] -1.5% (defensive telecoms lagged as Stockholm trading rotated toward technology and financial stocks).

-Energy: BP [BP.UK] +1.0% (JPMorgan upgraded to Overweight from Neutral).

-Industrials: Arcadis [ARCAD.NL] -8.0% (WSP withdrew its proposed acquisition, removing the takeover premium embedded in the shares).

Speakers

– (EU) ECB's Makhlouf (Ireland): Not seeing 2nd round effects yet.

– (US) Fed's Williams (moderate, voter): Ample reserves enable strong interest rate control; Does not comment on monetary policy or economic.

– (US) Fed's Jefferson (voter): Banks using Fed's discount window report its faster and more efficient since self-service portal was started; Does not comment on monetary policy or the economy.

– (BR) Brazil Pres Lula: Brazil will see record exports in 2026 despite tariffs - UN address.

– (US) President Trump: I urge Iran to make a deal; We will get one done one way or another - UN General Assembly speech.

– (US) Treasury Deputy Sec Brooke: Will continue to expand and enhance the buyback program.

– (LT) Latvia PM: in talks to join France's nuclear deterrence umbrella and France will help with Latvian air defenses.

– (FR) French Minister Bregeon (govt spokesperson): confirms govt will expand fuel aid to 5.5M eligible drivers.

– (US) Pres Trump: Have been talking with Iran, even today officials talked for three hours; Discussed energy, immigration and Rolls Royce with UK PM Burhman.
– (US) Fed's Barkin (non-voter): Last week's rate hike will help restore price stability; We will see if more hikes are needed.

– (US) Pres Trump: Ukraine Pres Zelenskiy and I are figuring out a solution to end the war; US relationship with Ukraine and Europe is strong.

– (US) Treasury Sec Bessent: Examining whether ban on diesel exports is feasible.

– (UR) Ukrainian President Zelenskyy: We are ready for an energy ceasefire with Russia.

– (IR) US President Trump: Kushner and Witkoff met with Iranian mediators, including Foreign Min Araghchi; There is a lot of momentum for Iran to make a deal.

– (AR) UK PM Burnham: Discussed Falkland Islands with Trump, set out the UK position.

– (DE) ECB's Nagel (Germany): Can't exclude ECB move into mildly restrictive territory; Not concerned about labor market developments; Oil prices are not the only indicator but have become more relevant over past 4 years.

– (US) New York Fed’s Perli: We have maintained very strong interest rate control, we have kept reserves within the ample range, and our Treasury bill purchases have run smoothly.

– (CA) Canada PM Carney: See opportunity to sell more potash to the US.

– (IQ) Iraq Oil Min: Road transport of crude oil from southern oilfields to Kirkuk is expected to increase exports via Turkey's Ceyhan port to over 600K bpd; Also considering plan to export more crude by truck to Turkey.

– (US) Sen Grassley (R-IA): Will take seriously the request from Sen Curtis (R-UT) to investigate Donald Trump Jr. over funding of his wedding-related event.

– (IR) Witkoff comments on Iran: Mediators will continue their work; hopes talks will be constructive and promising; confirms engaged in lengthy talks with the delegation from Iran.

– (IR) Iran Foreign Ministry Spokesperson: Confirms engagement with the US side in New York occurred through Qatar mediator; the purpose of the US talks was to relay Iran's demands - IRNA.

– (HK) Hong Kong Finance Chief Chan: Affirms NO intention to change the HKD peg to the USD.

– (JP) Japan PM Takaichi: Reiterates working to help stabilize the Strait of Hormuz; agreed with Trump on economic security ties.

– (PL) Poland Central Bank (NBP) Kotecki: We are approaching a serious discussion about an interest rate hike, possibly in Nov.

– (IR) Iran Dep Oil Min: Half of damaged capacity of the South Pars gas field is back into production.

– (ID) Indonesia Central Bank (BI) Gov Damayanti: Measures to stabilize rupiah will be strengthened; Going forward rupiah is seen stable; Domestic economic growth remains good - pre-rate decision press conference.

Economic data

– (HK) Hong Kong Aug CPI Composite Y/Y: 1.7% v 1.7%e.

– (UK) Sept preliminary manufacturing PMI: 52.0 V 51.5E.

– (TW) Taiwan Aug M2 Money Supply Y/Y: 6.8% v 7.4% prior.

– (ZA) South Africa Aug CPI M/M: 0.0% v 0.1%e; Y/Y: 4.4% v 4.5%e.

– (EU) Eurozone Sept preliminary manufacturing PMI: 52.7 V 52.6E.

– (TW) Taiwan Aug Industrial Production Y/Y: 23.5% v 26.7%e.

– (DE) Germany sept preliminary manufacturing PMI: 53.8 V 54.0E (8th straight expansion).

– (PL) Poland Aug Unemployment Rate: 5.8% v 5.8%e.

– (FR) France Sept preliminary manufacturing PMI: 50.3 V 50.9E (2nd straight expansion).

– (MY) Malaysia Foreign Reserves Mid-Sept: $131.7B v $132.0B prior.

– (NO) Norway Aug Trend Unemployment Rate: 4.5% v 4.5% prior.

– (IN) India Sept Preliminary Manufacturing PMI: 55.7 v 52.8 prior (63rd month of expansion).

– (SG) Singapore Aug CPI M/M: 0.6% v 0.6%e; Y/Y: 2.3% v 2.3%e.

– (NL) Netherlands Q2 Final GDP Q/Q: 0.6% v 0.4% prelim; Y/Y: 1.6% v 1.3% prelim.

Overnight data

– (AU) Australia Sept preliminary manufacturing PMI: 49.3 V 52.0 PRIOR [lowest since Dec 2024, first contraction in 6 months].

– (US) Sept Richmond Fed manufacturing INDEX: -2 V 2E.

– (EU) EUROZONE SEPT ADVANCE CONSUMER CONFIDENCE: -16.5 V -16.0E.

Fixed income issuance

– (SE) Sweden sells total SEK5.0B vs. SEK5.0B indicated in 2033 and 2037 bonds.

– (IN) India sells total INR240B vs. INR240B indicated in 3-month, 6-month and 12-month bills.

– (VN) Vietnam Finance Ministry sells total VND27.0T in 5-year, 10-year and 30-year bonds.

– (UK) DMO to sell £4.25B of 4.875% 2036 Gilt on Sept 29th.

Looking ahead

- 05:30 (DE) Germany to sell combined €2.0B in 2047 and 2056 Bunds.

- 05:30 (PL) Poland to sell Bonds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays.

- 06:00 (CZ) Czech Republic to sell combined CZK5.0B in 2035 and 2043 Bonds.

- 07:00 (RU) Russia to sell OFZ Bonds.

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

- 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to raise Interest Rates by 25bps to 7.25%.

- 09:45 (US) Sept Preliminary S&P Manufacturing PMI: 53.6e v 53.9 prior; Services PMI: 56.0e v 56.5 prior; Composite PMI: No est v 56.0 prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:30 (US) Treasury to sell 2-Year FRN Reopening.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (CA) Canada to sell 10 Year Bonds.

- 12:00 (RU) Russia Aug Industrial Production Y/Y: No est v % prior.

- 13:00 (US) Treasury to sell 5-Year Notes.

- 18:00 (HU) Hungary Sept Business Confidence: No est v -9.1 prior; Consumer Confidence: No est v -3.7 prior; Economic Sentiment: No est v -7.7 prior.

- 20:30 (JP) Japan Sept Preliminary Manufacturing PMI: No est v 54.9 prior; Services PMI: No est v 52.5 prior; Composite PMI: No est v 53.5 prior.

- 21:30 (AU) Australia Aug Employment Change: +20.0Ke v -15.8K prior; Unemployment Rate: 4.5%e v 4.5% prior; Full Time Employment Change: No est v +16.3K prior; Part Time Employment Change: No est v -32.2K prior; Participation Rate: 66.9%e v 66.9% prior.