Global bond yields continue to rise

EU mid-market update: Global bond yields continue to rise; BOJ hawk hints >25bps hike step; OpenAI confirmed upcoming Astra is its first model to reach Critical cybersecurity capability.

Notes/observations

- Europe's hawkish turn has stopped being an echo of Washington and become the anchor. Nagel confirmed that markets have all but fully priced a September hike and said they understand the reaction function well, while declining to guide beyond that move; Makhlouf went further, saying the ECB must be prepared to raise again, even as he repeated there is no evidence of second-round effects. Domestic data is starting to back them. Italian producer prices swung from flat to a sharp monthly gain and accelerated hard on the year, the clearest evidence yet that the energy shock is reaching the European cost base rather than stopping at the pump. Spanish unemployment rose by more than twice the prior month's step. France's YTD deficit is running markedly wider than a year ago, and with the UK's new premier refusing to rule out tax rises, the two weakest fiscal positions in the region are being marked hardest: 10-year Bunds sit at a fifteen-year high and gilts at their highest since 2007, with Danish supply clearing well above its last outings. Nagel's own concession, that Germany must accept a wider deficit for a period, points the same way. Tape is defensive underneath: Ryanair cut its full-year traffic target while guiding lower winter losses on hedged fuel, VW's compromise talks on Blume's savings plan collapsed, and RWE lost generation to suspected sabotage at a substation near Bergheim.

- Shock behind all of it is imported, and it is arriving through oil. CENTCOM confirmed a second round of strikes this week on IRGC air defence, radar, maritime and mine-laying assets, and Iran answered across the region, ballistic missiles into Jordan, all but three intercepted, drones over Kuwait and Bahrain, combined attacks claimed on Erbil, and a blackout across Hormozgan that takes in Bandar Abbas and the port infrastructure around it. Casualty claims on both sides remain unverified and Washington has denied Iran's. Trump removed the off-ramp explicitly, saying he is not trying to force Tehran to the table and prefers his current position of near-total control of the strait. Crude is at its highest since late July; Wright put Monday's Hormuz flow at 17M barrels and reckoned Iran has only about 30M afloat, but transits are still running in single digits. The G20 fractured along the same fault line, with China refusing language on Hormuz, non-market economies and debt sustainability, forcing a chair's statement backed by nineteen members rather than a communique.

- Dell’s quarter makes the AI hardware cycle harder to explain away as a handful of hyperscalers over-ordering GPUs. It raised annual revenue guidance by $25B to $192B, lifted FY27 AI-server revenue to $74B from $60B, and says it has booked more than $130B of AI-server orders in twelve months, with the customer count now above 6,500 across neoclouds, sovereigns and enterprises. More revealingly, traditional server/networking revenue rose 122% as customers added CPU infrastructure for agentic workloads. AI is beginning to pull the ordinary data-centre stack behind it - general-purpose compute, storage, networking and deployment services - not merely Blackwell racks; Dell’s improving ISG profitability despite AI servers tripling also suggests scale is finally compensating for their notoriously thin initial margins.

- Upcoming OpenAI’s Astra model set to introduce a different scarcity: observable reasoning itself. The Information says OpenAI is using recurrent depth - sending internal states repeatedly through the same transformer layers before another token appears - and has deliberately limited the technique so Astra still emits enough legible chain of thought to monitor; OpenAI separately confirmed yesterday that Astra is its first model to reach Critical cybersecurity capability and will ship with additional CoT monitoring. Previous reasoning systems conveniently exposed more text as they spent more inference compute; recurrence allows additional sequential computation to happen between words, so the transcript can become only a partial trace of the decision process. Monitorability is therefore becoming an architectural budget, like latency or memory: once OpenAI can measure capability gained by adding another hidden loop and oversight lost by doing so, preserving readable reasoning carries an explicit performance cost that competing labs can choose not to pay.

- BOJ Takata’s speech is probably the clearest attempt yet to break the market’s assumption that the BoJ tightens in 25bp steps separated by long pauses. He said policy should be decided meeting by meeting, consecutive hikes are possible, and the Bank should consider a broader menu than simply adding 25bp each time; notably, he acknowledged that September tightening is already priced rather than trying to lean against it. That follows Bessent privately urging Ueda to take “decisive” monetary steps and publicly saying Abenomics has run its course. The September question is therefore no longer just whether the BoJ gets to 1.25%: Takata is opening the possibility that once normalization resumes, the old six-month cadence itself disappears.

- Ahead today: US ADP and the Bank of Canada.

- Tail risks: A second suspected attack on German transmission infrastructure in as many days, with Berlin pushing a broad new Russian sanctions list and a large explosion reported in Kyiv; Russia suspending grain export duties through year-end, improving Black Sea netbacks into an already disrupted logistics picture.

- Asia closed lower with KOSPI underperforming -4.0%. EU indices -0.5% to -0.1%. US futures lower by -0.1% to -0.5%. Gold -0.3%, DXY +0.1%; Commodity: Brent +0.3%, WTI +0.2%; Crypto: BTC -1.2%, ETH -2.3%.

Asia

- New Zealand Central Bank (RBNZ) raised the Official Cash Rate (OCR) by 25bps to 2.75% (as expected) for its 2nd straight rate hike under the current tightening cycle. Statement noted that gradually removing monetary stimulus was appropriate to return inflation to the 2% target mid-point while supporting growth and employment Decision reduced risk OCR needed to rise by more later; future OCR path was not pre-determined.

- RBNZ Gov Breman post rate decision press conference noted that a future OCR increase remained likely but the timing was uncertain.

- New Zealand July Building Permits M/M: -4.3% v -3.7% prior.

- South Korea Aug CPI M/M: 0.2% v 0.4%e; Y/Y: 3.1% v 3.2%e; CPI (ex-food/energy) Y/Y: 3.4% v 3.4%e.

- Australia Q2 GDP Q/Q: 0.4% v 0.3%e; Y/Y: 2.1% v 1.9%e.

- BOJ Gov Ueda noted that G20 discussed with central banks need to communication for appropriate monetary policy to achieve price stability as global environment changed.

- Japan Fin Min Katayama declined to comment on specific yield or currency levels while repeating that she is watching the JGB market with a high sense of urgency.

Global conflict/tensions

- Pres. Trump confirmed US strikes on Iran near the Strait of Hormuz due to Iran's 'failed attempt at adding sea mines to the Strait;' Threatened greater strikes if Iran retaliated (**Note: action followed recent attempted IRGC attacks on commercial shipping in the strait and on US service members in the region).

- Iran later launched an operation against US bases and interests in the region using missiles and drones.

- President Trump noted that agreement with Iran was not worth the paper it was written on.

Europe

- ECB Maklouf (Ireland) stated that must be prepared to raise interest rates further.

Americas

- No joint G20 communique issued as China declined to back four paragraphs of the US chair's statement. (China objected on covering Hormuz shipping disruptions, non-market policies and external surpluses).

- Treasury Secretary Bessent touched on Iran, China, Canada and bond yields. On Iran he noted China paid Iran in yuan currency and when it could not be converted to dollars, Iran starves. Agreed with China that the strait must be open and added that Iran did not have control of strait. On yields he noted that the most important thing was higher growth and had temporary elevated energy prices which would drop.

Energy

- Weekly API Crude Oil Inventories: -2.6M v +4.2M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE -0.46% at 10,739.68, DAX -0.48% at 25,834.73, CAC-40 -0.51% at 8,259.57, IBEX-35 -0.21% at 19,773.76, FTSE MIB -0.53% at 51,641.50, SMI -0.25% at 14,298.90, S&P 500 Futures -0.17%].

Market focal points/key themes: European equities are flat after Tuesday’s one-month lows, but the index calm hides a sharp internal rotation driven by rates, broker actions and index/deal flows: Deutsche Bank +2.0%, ING +1.5%, ABN AMRO +1.5% and Commerzbank +1.5% are benefiting from the jump in European yields, while fresh upgrades are lifting Amplifon +3.0%, IHG +2.5%, NatWest +1.5% and L’Oréal +1.0%. The underlying macro remains hostile because Bund yields near 3.35% and U.S. 10-year yields above 4.78% simultaneously compress equity risk premia, raise discount rates and increase refinancing costs, while oil above $90/bbl adds an inflation shock that makes renewed Fed/ECB tightening more credible. The clearest evidence that this is not a simple “risk-off” session is the dispersion: Ryanair has reversed an initially negative reaction to its lower traffic target as investors focus on its unusually strong fuel hedges, Nokia +1.0% is still supported by Euro STOXX 50 re-entry, while Wolters Kluwer -3.0% and Volkswagen -2.0% are being hit by index deletions and GEA -2.5% and EQT -2.0% by fresh shareholder supply. The most violent move is Lottomatica -11.0%, where the market is rejecting the Cirsa merger economics despite promised synergies, while WPP -2.0%, CVC -2.5%, ArcelorMittal -2.0% and Volvo Cars -2.0% show where the combination of expensive capital, AI disruption, weak cyclicals and deteriorating volumes is still producing genuine fundamental pressure.

Equities

- Consumer discretionary: Lottomatica [LTMC.IT] -11.0% (open -7.5% → now -11.0%; [L●━━━━━H]; Cirsa merger arbitrage has intensified - Lottomatica issues 0.668 new shares/Cirsa share, existing Lottomatica holders fall to 67.5% ownership, Cirsa holders get 32.5%, Blackstone becomes ~24% holder, while Cirsa gets a €262m pre-close dividend; strategic merits/€115m synergies are being overwhelmed by dilution and deal terms today), InterContinental Hotels [IHG.UK] +2.5% ([L━━━━━●H]; UBS upgraded Hold → Buy; stock is holding almost at the session high after yesterday's ~4% fall), Ryanair [RYA.IE] +1.0% (FY27 traffic target cut 216m → 214m, but 80% of fuel is hedged through Mar-27 at ~$67/bbl versus jet fuel around $140; capacity cuts could reduce winter losses by €70-100m and management sees higher industry fares / pressure on less-hedged rivals; shares have reversed the initial negative reaction).

- Financials: Deutsche Bank [DBK.DE] +2.0% (Goldman Sachs upgraded Neutral → Buy; sees a new period of higher profitability from improving revenue momentum, positive operating leverage and greater capital flexibility; rising European yields add a rates tailwind), CVC Capital Partners [CVC.NL] -2.5% ([L━━●━━━H]; likely deal-overhang as CVC considers whether to counter Veritas' improved bid for Bodycote after losing board backing; higher bond yields are an additional valuation headwind for PE).

- Industrials: Volkswagen [VOW3.DE] -2.0% (Euro STOXX 50 deletion effective Sep. 21 compounds fresh WirtschaftsWoche report that management plans to propose ending production at four German plants between 2031-34; autos also weak in today's higher-energy-cost tape).

- Technology: STMicroelectronics [STMPA.FR] +1.5% (Citi maintained Buy and raised PT €62 → €65; separate supportive AI/data-centre backdrop, but no evidence that Dell's overnight move is the direct driver).

- Telecom: WPP [WPP.UK] -2.0% ([L━━●━━━H]; continued selling after restructuring/job-cut reports as WPP responds to AI-driven disruption; European media is today's weakest STOXX sector, down ~1.5%).

Speakers

- ECB’s Nagel (Germany) noted that markets saw >95% probability of Sept rate hike and understood rather well our way of reacting. Situation was uncomfortable but cautious about giving any indication beyond Sept; lots of uncertainties. Meeting-by-meeting approach would serve well in the future.

- China Foreign Ministry Daily Briefing stated that was ready to work with U.S on G20's positive role; Regreted G20's failure to issue communique.

- Pakistan Foreign Ministry spokesperson: Remain engaged to resolve Mid-East conflict between US & Iran.

Currencies

- USD was firmer against the European pairs as risk aversion sentiment percolated as Mid East tensions simmered. Once again US and Iran traded blows in skirmishes. Price action beginning to register growing concerns about the economic impact of the energy shock. Dealers noted that rate hikes for the major economies have firmed since Fed Gov Warsh’s hawkish lean in Wyoming last week. Among the G4 markets currently pricing approx. 33 bps of hikes for the BOE, 46 bps for ECB and almost 45bps for BOJ. Fed seen just under 40bps of hikes.

- EUR/USD at 1.1580 by mid-session. ECB speak ahead of next week’s rate decision remained hawkish but USD safe-haven flows having the edge in pricing at this time.

- USD/JPY dipped below the 160 level as BOJ Takata hinted of more aggressive rate moves.

- The 10-year German Bund yield last at 3.38%, France 10-year Oat at 4.25% and 10-year Gilt yield at 5.25%; 10-year Treasury yield: 4.80%; 10-year JGB: 2.99%.

Economic data

- (NO) Norway Q2 Current Account Balance (NOK): 279.B v 248.2B prior.

- (FR) France July YTD Budget Balance: -€145.9B v -€106.8B prior.

- (ES) Spain Aug Unemployment Change: +44.4K v +19.5K prior; Employment Net Change m/m: +83.8K v 79.6K prior.

- (IT) Italy July PPI M/M: 3.0% v 0.0% prior; Y/Y: 9.3% v 6.8% prior.

- (BR) Brazil Aug FIPE CPI (Sao Paulo) M/M: 0.0% v 0.1%e.

- 04:30 (ZA) South Africa Q3 BER Business Confidence: # v 42e.

Fixed income issuance

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

- (DK) Denmark sold total DKK4.195B in 2035 and 2052 DGB Bonds.

- (SE) Sweden sold total SEK5.0B vs. SEK5.0B indicated in 2036 and 2037 bonds.

- (NO) Norway sold total NOK3.0B vs. NOK3.0B indicated in 2028 and 2036 Bonds.

- (GR) Greece Debt Agency (PDMA) sold €500M vs. €400M indicated in 12-month Bills.

Looking ahead

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

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

- 06:00 (EU) European Union to sell combined €4.5B in 3-month, 6-month and 12-month bills.

- 06:00 (IE) Ireland Aug Unemployment Rate: No est v 5.1% prior.

- 06:00 (CZ) Czech Republic to sell 2038 floating rate bonds.

- 07:00 (US) MBA Mortgage Applications w/e Aug 28th: No est v -1.0% prior.

- 08:00 (BR) Brazil July Industrial Production M/M: +0.5%e v -1.8% prior; Y/Y: -0.4%e v +1.7% prior.

- 08:00 (MX) Mexico Aug Vehicle Domestic Sales: No est v 130.8K prior.

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

- 08:15 (US) Aug ADP Monthly Employment Change: +47Ke v +44K prior.

- 09:00 (SG) Singapore Aug Purchasing Managers Index (PMI): No est v 51.4 prior; Electronics Sector Index: No est v 52.4 prior.

- 09:45 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 2.25%.

- 10:00 (US) July Factory Orders: +0.7%e v -0.3% prior; Factory Orders (ex-transportation): 0.4%e v -0.4% prior.

- 10:00 (US) July Final Durable Goods Orders: 1.1%e v 1.1% prelim; Durables (ex-transportation): 0.4%e v 0.4% prelim; Capital Goods Orders (non-defense/ex-aircraft): 0.2%e v 0.2% prelim; Capital Goods Shipments (non-defense/ex-aircraft): 1.4%e v 1.4% prelim.

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

- 10:30 (CA) Bank of Canada (BOC) Gov Macklem post rate decision press conference.

- 11:00 (DE) Denmark Aug Foreign Reserves (DKK): No est v 699.6B prior.

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

- 12:00 (RU) Russia July Real Retail Sales Y/Y: 5.2%e v 7.3% prior.

- 12:00 (RU) Russia July Unemployment Rate: 2.2%e v 2.2% prior.

- 12:00 (RU) Russia Jun Real Wages Y/Y: No est v 4.5% prior.

- 14:00 (US) Fed Beige Book.

- 16:10 (NZ) RBNZ members in Parliament.

- 17:00 (KR) South Korea Aug Foreign Reserves: No est v $428.0B prior.

- 18:45 (NZ) New Zealand Q2 Terms of Trade Index Q/Q: -1.9%e v -2.0% prior.

- 19:00 (AU) Australia Aug Final Services PMI: No est v 52.9 prelim; Composite PMI: No est v 52.5 prelim.

- 20:01 (IE) Ireland Aug Services PMI: No est v 55.2 prior; Composite PMI: No est v 54.9 prior.

- 20:30 (JP) Japan Aug Final Services PMI: No est v 52.3 prelim; Composite PMI: No est v 53.4 prelim.

- 20:30 (HK) Hong Kong Aug PMI (whole economy): No est v 51.0 prior.

- 20:30 (SG) Singapore Aug PMI (whole economy): No est v 59.2 prior.

- 20:30 (VN) Vietnam Aug Manufacturing PMI: No est v 52.9 prior.

- 21:00 (NZ) New Zealand Aug ANZ Commodity Price M/M: No est v -3.9% prior.

- 21:00 (AU) RBA's Jones.

- 21:30 (AU) Australia July Trade Balance (A$): 1.5Be v 1.9B prior; Exports M/M: No est v 9.6% prior; Imports M/M: No est v -0.2% prior.

- 21:45 (CN) China Aug Ratingdog Services PMI: 50.6e v 50.4 prior; Composite PMI: No est v 50.8 prior.

- 22:05 (VN) Vietnam Aug CPI Y/Y: 4.7%e v 4.5% prior.

- 22:05 (VN) Vietnam Aug Trade Balance: -$1.0Be v -$3.6B prior; Exports Y/Y: 27.3%e v 25.0% prior; Imports Y/Y: 41.5%e v 41.4% prior.

- 22:05 (VN) Vietnam Aug Industrial Production Y/Y: No est v 14.5% prior.

- 22:05 (VN) Vietnam Aug Retail Sales Y/Y: No est v 14.5% prior.

- 23:35 (JP) Japan to sell 30-year JGB Bonds.