Gold at record highs, Oil up on Trump's threat over Russia secondary sanctions

EU Mid-Market Update: Political turmoil is rife after Japan PM resigns and ahead of confidence vote for French PM; Gold at record highs, oil up on Trump's threat over Russia secondary sanctions; BLS annual revisions tomorrow, CPI on Thurs.

Notes/observations

- Yen is weaker after as Japan PM Shigeru Ishiba resigned over weekend after LDP-Komeito coalition lost Upper House majority on 20th July. LDP leadership election expected end-September/early October; Candidates likely from 2024 race, excluding Ishiba and Kishida. Takaichi (dovish) and Koizumi (centrist/reform oriented) are the likely frontrunners. Fiscal policy may shift expansionary as minority government seeks opposition support. BoJ rate hike expected January 2026, not September/October 2025. Japan’s $550B US investment raises fiscal risks, potentially increasing FILP bond issuance. USD/JPY may hit 149-150; looser fiscal policy could push it beyond 150 if dovish candidate wins; JPMorgan analysts see expectations for more dovish fiscal and monetary policies are likely to be factored into JP stocks.

- TTN Note: Japan’s 15% tariff “deal” is just a U.S. executive order, not a treaty, so a new PM or the courts can undo it, and a new Japanese cabinet can slow or reshape its loan-heavy pledges because nothing was ratified by the Diet.

- Fed futures now pricing 10% (v 15% peak on Friday) for 50bps cut at Sept 17th's meeting ahead of annual benchmark revisions tomorrow; On Tuesday, Sept 9 around 10:00 ET, the BLS will publish its preliminary benchmark revision aligning the payroll survey to QCEW UI tax records, and it is set to get outsized attention. The adjustment will re-anchor the level of March 2025 nonfarm payrolls and, based on private estimates, consensus chatter centers on a sizable downward revision in roughly in the 700-800K range.

- Euro slightly higher as French PM Bayrou faces likely no-confidence vote over budget cuts; OAT-Bund spread at 78.5bps, seen easing to 70bps by year-end. US dollar may get brief lift from Sept 15th corporate tax payments and Aug inflation data, but Fed expected to cut rates Sept 17th; Polymarket betting market prices 98% that French PM Bayrou to step down by end-Sept and 99% chance that today's no-confidence vote succeeds.

- US Pres Trump announced that Waller, Warsh and Hassett are the 3 finalists for Fed Chair nomination; Kalshi betting markets now pricing 30% chance (v 31% w/w) that Waller to be nominated as new Fed Chair by Trump, 29% chance for Hassett (v 18% w/w), 16% for Warsh (v 19% w/w).

- US Pres Trump also said he is now ready to move to "second stage" of Russia sanctions, but stopped short of saying he was committed to such a decision or what a second phase might entail. Thus, oil is trading higher despite OPEC+ increased production on Sunday.

- 10-year Bund yield stable at 2.67% ahead of ECB meeting on Thurs; UK gilts also steady at 4.65%.

- OpenAI now projects cumulative cash burn of roughly $115B through 2029 - ~$80B above prior expectations - with >$8B in 2025 (+$1.5B vs earlier), then ~$17B in 2026, ~$35B in 2027, and ~$45B in 2028. This follows xAI’s CFO Mike Liberatore resigned after only a few months in the role, underscoring governance and financing stress in the AI capex race.

- Investor conf season continues this week with NVDA presenting today, WMT tomorrow and DAL, LUV on Thursday.

- Asia closed mixed with Nikkei outperforming +1.6%. EU indices -0.3% to +0.7%. US futures +0.2-0.3%. Gold +0.7%, DXY -0.1%; Commodity: Brent +1.7%, WTI +1.7%; Crypto: BTC +0.5%, ETH +0.1%.

Asia

- Japan Q2 Final GDP Q/Q: 0.5% v 0.3%e v; GDP Annualized Q/Q: 2.2% v 1.0%e; Some cracks as private non-residential investment slowed.

- Japan July Current Account Balance: ¥2.684T v ¥3.162Te; Trade Balance (BOP Basis): -¥189.4B v ¥58.0Be.

- (CN) China Aug Foreign Reserves: $3.322T v $3.292T prior; adds gold for 10th straight month.

- China Aug Trade Balance: $102.3B v $97.4Be; Exports Y/Y: 4.4% v 5.5%e (6-month low); Imports Y/Y: 1.7% v 4.9%e v 4.1% prior.

- China Politburo Standing Committee Meeting this week (Sep 8 – 12th). China’s leadership said to be growing concerned that loose monetary policy is fueling an overheated stock rally, raising the risk that the PBoC might delay fresh easing measures.

- Japan PM Ishiba to resign; to remain in office until ruling-party LDP votes for new leader; Sanae Takaichi and Shinjiro Koizumi as contenders; Nikkei higher by over 1,5% spurred partly by expectations of a potential shift towards fiscal expansion and slower monetary tightening under a new adm.

- Japan LDP's Aizawa: To establish LDP leadership election date Tuesday, Sept 9th.

Europe

- France PM Bayrou appears to be poised to lose confidence vote; could deepen the country's economic and political malaise and could even put the future of Macron's presidency in doubt.

- Dealers note that President Macron will then need to decide if he reappoints Bayrou, chooses a new premier who would be the seventh government chief of his presidency, or calls snap legislative elections. - Macron could also resign, but he has repeatedly ruled out this course of action.

- SNB Chief Schlegel: SNB would not hesitate to act if necessary but had "high bar" to next interest-rate cut. Aware of undesirable side effects of negative rates.

- Italy Fin Min Giorgetti reiterated 2025 GDP growth at 0.6% but has suffered due to the ongoing tariff dispute.

Americas

- President Trump: Waller, Warsh and Hassett were the 3 finalists for Fed Chair nomination.

- White House's Hassett says Fed needs to be fully independent from Trump.

Energy

- Eight OPEC+ members agreed to again boost oil output, by a further 137K bpd in Oct, as expected.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.20% at 550.30, FTSE +0.12% at 9,219.17, DAX +0.60% at 23,732.51, CAC-40 +0.22% at 7,691.68, IBEX-35 +0.62% at 14,933.90, FTSE MIB +0.18% at 41,684.00, SMI -0.35% at 12,318.54, S&P 500 Futures +0.18%].

Market Focal Points/Key Themes: European indices open higher across the board and remained upbeat through the early part of the session; improved risk sentiment attributed to increased expectations of easing from the Fed; industrials energy; consumer telecom; oil & gas subsector rising on sanction risks on Russia; Treatt receives takeover offer from Natara; Nestle Health makes offer for Seres Therapeutics; earnings expected in the upcoming US session include Casy’s General Stores.

Equities

- Consumer discretionary: Ryanair [RYA.IE] -2.0% (analyst downgrade).

- Energy: Shell [SHEL.UK] +1.0% (OPEC+ increases production; US Pres Trump said ready to move to "second stage" of Russia sanctio.

- Industrials: Rheinmetall [RHM.DE] +1.5% (US Pres Trump said ready to move to "second stage" of Russia sanctions), Volkswagen [VOW3.DE] +1.0% (CEO interview) - Technology: ASML [ASML.NL] +1.0% (to invest into Mistral; OpenAI cash burn chatter), Sonova Holdings [SOON.CH] -1.0% (to be replaced in SMI index), Iqe PLC [IQE.UK] -8.5% (trading update; Board expanding the scope of the previously announced Strategic Review to also incorporate the potential sale of the company and is seeking buyers)

- Materials: Treatt [TET.UK] +18.0% (offered to be acquired).

Speakers

- EU said to be considering new sanctions on Russia that would target banking and oil sectors.

- Poland Central Bank (NBP) Member Wnorowski noted that was more likely to cut rates once than twice by end-2025.

- Sweden govt said to have announced SEK30B in tax cuts in 2026 budge.

- South Korea Foreign Min noted that trade talks with US being slightly delayed as a similar agreement to US-Japan's one would be problematic.

- Indonesia Pres Prabowo said to be looking to reshuffle Finance Ministry leadership.

- China reportedly planning to set up trade adjustment assistance system designed to stabilize supply cha.

- IAEA Dir Gen Grossi noted that was hoping for Iran-monitoring deal in 'next few days'.

Currencies/fixed iIncome

- USD contained within recent ranges. Markets currently see approx 75% chance that the Fed would make the equivalent of a quarter-point rate cut at each of its three remaining policy meetings this year. Fed begun its communications blackout on Saturday, which would last until September 19th.

- EU/USD drifting higher towards 1.1750 as the pair shrugged off French political concerns.

- Weaker JPY currency spurred partly by expectations of a potential shift towards fiscal expansion and slower monetary tightening under a new administration. Pair at 147.50 by mid-session but off its Asian session highs of 148.57.

- 10-year German Bund yield at 2.65% and 10-year Gilt yield at 4.64% 10-year Treasury yield: 4.08%.

Economic data

- (SE) Sweden Sept SEB Housing-Price Indicator: 29 v 35 prior.

- (DE) Germany July Industrial Production M/M: 1.3% v +1.0%e; Y/Y: +1.5% v -0.3%e.

- (DE) Germany July Trade Balance: €14.7B v €15.5Be; Exports M/M: -0.6% v 0.0%e; Imports M/M: -0.1% v -1.0%e.

- (DK) Denmark July Industrial Production M/M: 1.2% v 3.4% prior.

- (CZ) Czech July Industrial Output Y/Y: 4.9% v3.1%e.

- (CZ) Czech July Trade Balance (CZK): -1.7B v -2.0Be.

- (CZ) Czech Aug Unemployment Rate: 54.5% v 4.4%e.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 472.9B v 472.3B prior; Domestic Sight Deposits: 442.0B v 444.7B prior.

- (EU) Euro Zone Sept Sentix Investor Confidence: -9.2 v -2.0e.

- (IS) Iceland Aug Preliminary Trade Balance (ISK): -33.8B v -44.0B prior.

- (HU) Hungary Aug YTD Budget Balance (HUF): -3.026T v -2.786T prior.

Fixed income issuance

- None scheduled.

Looking ahead

- (FR) France Parliament holds no confidence vote on PM Bayrou govt.

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

- 05:30 (DE) Germany to sell €1.5B in 12-month BuBills.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (IL) Israel to sell bonds.

- 06:00 (TR) Turkey to sell bonds (2 tranches).

- 06:00 (NO) Norway announcement on upcoming bond issuance (held on Wed).

- 06:00 (RO) Romania to sell RON500M in 6.85% July 2030 bonds.

- 06:00 (RO) Romania to sell RON400M in 7.2% Oct 2033 bonds.

- 07:00 (CL) Chile Aug CPI M/M: 0.2%e v 0.9% prior; Y/Y: 4.2%e v 4.3% prior.

- 07:00 (BR) Brazil Aug FGV Inflation IGP-DI M/M: 0.2%e v -0.1% prior; Y/Y: 3.3%e v 2.9% prior.

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

- 07:30 (CL) Chile Aug Trade Balance: +0.8Be v -$0.1B prior; Exports: No est v $8.1B prior; Imports: No est v $8.2B prior; Copper Exports: No est v $4.0B prior.

- 07:30 (CL) Chile Aug International Reserves: No est v $46.2B prior.

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

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

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

- 08:30 (UR) Ukraine Q2 GDP Q/Q: No est v 0.7% prior; Y/Y: No est v 0.9% prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €5.7-7.1B in 3-month, 6-month and 12-month bills.

- 11:00 (US) Aug NY Fed 1-Yr Inflation Expectations: No est v 3.1% prior.

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

- 12:30 (FR) ECB’s Villeroy (France).

- 15:00 (US) July Consumer Credit: $10.2Be v $7.3B prior.

- 15:00 (AR) Argentina July Industrial Production Y/Y: No est v 9.3% prior; Construction Activity Y/Y: No est v 13.9% prior- 16:00 (US) Weekly Crop Progress Repo.

- 18:45 (NZ) New Zealand Q2 Manufacturing Activity Q/Q: No est v 5.1% prior; Manufacturing Activity Volume Q/Q: No est v 2.4% prior.

- 19:01 (UK) Aug BRC Sales Like-For-Like Y/Y: 2.0%e v 1.8% prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 88.0 prior.

- 19:50 (JP) Japan Aug M3 Money Supply Y/Y: No est v 0.6% prior; M2 Money Supply Y/Y: No est v 1.0% prior.

- 20:01 (IE) Ireland Aug Construction PMI: No est v 47.1 prior.

- 20:30 (AU) Australia Sept Westpac Consumer Confidence: No est v 98.5 prior.

- 21:30 (AU) Australia Aug NAB Business Confidence: No est v 7 prior; Business Conditions: No est v 5 prior.

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