More lackluster UK data adds to BoE headache

EU Mid-Market Update: More lackluster UK data adds to BOE headache; Market digesting ECB decision and US CPI ahead of Fitch decision on France; Microsoft avoids hefty fine in EU.

Notes/observations

- UK economic indicators are screaming stagflation with flat growth, sticky inflation, and softening labor markets amid fiscal pressures. July Monthly GDP was flat. Industrial/Manufacturing production heavily missed consensus. Inflation is persistently above BOE 2% target (last at 3.8% for core and 5.0% services), PMIs are fragile, and unemployment is forecasted to hit 5% by year end due to employer tax changes from prior UK budget. Berenberg expects slower inflation and two BOE cuts in 2026 as consumption and investment soften.

- Post ECB decision, Lagarde’s press conf signaled end of easing cycle as growth risks are balanced, disinflation complete and inflation seen below target through 2027.

- The CAC 40 slipped as investors braced for a potential France downgrade, with Societe Generale warning a likely cut to A+ could reinforce caution and justify a defensive stance.

- Markets pricing ~70bps of Fed cuts by year end, following Aug CPI reading yesterday.

- Oil falls on oversupply concerns. IEA sees supply outpacing demand, US inventories rising ; Macquarie analysts see oil markets set to 3Mbbl daily surplus.

- US treasury yields remain elevated, and gold is set for 4th weekly gain; Following yesterday’s spike in US jobless claims, Tier1 analysts expect next week's jobless claims to drop to 240K in the week ending Sep 13, since the surge in the prior week was largely due to a flood-related filing deadline in Texas.

- Microsoft averted an EU fine by agreeing to binding antitrust commitments for 7-10 years, unbundling Teams from Office 365 and Microsoft 365 at lower prices with wider price gaps, enabling customer switching and data portability, granting rivals interoperability with Outlook, Word, Excel and PowerPoint.

- TTN’s Note on ORCL rally this week: Oracle’s AI windfall is less a straight technology boom than a high-wire financial engineering play, built on selling vast multi-year compute capacity before it exists and then racing physics, grids, GPU supply chains, and customer balance sheets to turn a ballooning $455B backlog-anchored by long-dated OpenAI deals, partner-embedded multicloud deployments, and ASC-606 disclosure fuzziness-into billable, cash-flowing compute, with the next six quarters set to test whether the booked demand is steel-ribbed or vaporous.

- Asia closed mixed with Shanghai outperforming +1.7%. EU indices -0.5% to +0.3%. US futures -0.2%. Gold +0.1%, DXY +0.2%; Commodity: Brent +0.3%, WTI +0.2%; Crypto: BTC +1.1%, ETH +2.4%.

Asia

- Japan, US Finance Ministers release joint statement; Reconfirms G7 commitment of not targeting exchange rates for competitive purposes.

Global Conflict/tensions

France Foreign Min Barrot: Incursion of Russian drones into Polish airspace was not an acci.

Europe

- ECB rate cut debate said not to be over; The next real discussion would likely be in Dec as Oct was seen as too soon.

- ECB's Patsalides (Cyprus) noted that next move in rates could be higher; No need for imminent action barring shock.

Americas

- Pres Trump formally asks US appeals court to pause ruling that blocked Fed's Cook removal, by Monday (Sept 15th), before the Fed's next vote on interest rates.

- US Senate to hold conformation vote on Fed nominee Miran on Mon, Sept 15th.

- Treas Sec Bessent to join Pres Trump on official state visit to UK, Sept 12th - 18th; Also to meet with China trade team in .

Spain

- GOP leaders said to eye stopgap funding bill until Nov 21st.

Trade

- US said it would urge G7 to impose high tariffs on China and India over Russian oil purchases.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.16% at 554.46, FTSE +0.27% at 9,322.80, DAX -0.24% at 23,636.38, CAC-40 -0.44% at 7,789.03, IBEX-35 -0.44% at 15,240.50, FTSE MIB -0.25% at 42,326.00, SMI -0.48% at 12,235.03, S&P 500 Futures -0.17%].

Market Focal Points/Key Themes: European indices opened generally higher; expectations around Fed easing seen supporting risk appetite; among outperforming sectors are materials and consumer discretionary; underperforming sectors include health care and industrials; Crane NXT to acquire Antares Vision; BBVA receives regulatory permission to acquire Sabadell, which still rejects offer; Helvetia secures further approvals for merger with Baloise; no major earnings expected in the upcoming Americas session.

Equities

- Consumer discretionary: Ocado [OCDO.UK] -10.0% (partner Kroger comments on automation during earnings call), LVMH [MC.FR] -0.5% (PBOC cut chatter).

- Financials: Euronext [ENX.FR] +1.0% (to join CAC-40 index), Hannover Re [HNR1.DE] +3.0% (analyst upgrade), BBVA [BBVA.ES] -1.0% (Sabadell unanimously rejects BBVA's tender offer).

- Industrials: Rheinmetall [RHM.DE] +0.5% (CEO calls for more investment in low-cost anti-drone capabilities; Denmark Defense Min: Will purchase air defence systems worth DKK58B).

- Materials: Vallourec [VK.FR] +3.5% (major contract).

Speakers

- ECB’s Nagel (Germany) noted that a steady hand policy was appropriate.

- ECB's Villeroy (France): Another rate cut is possible in coming meetings.

- ECB’s Escriva (Spain) staed that had reached our inflation target.

- ECB's Rehn (Finland) noted there was no room for complacency; Council remained vigilant. Risk that inflation remained slower than target should not be underestimated.

- ECB's Simkus (Lithuania) noted that inflation had settled at the target. No reason to adjust rates now. Important to keep doors open to all possibilities (**Note: Hints at Dec rate cut).

- ECB's Muller (Estonia) noted that rates were supportive of an economic recovery.

- ECB’s Kocher (Austria): Risks are balanced; decisions to be by meeting-by-meeting and data-dependent.

- Japan Economic Revitalization Min Akazawa noted that 15% US tariffs to cut Japan corporate earnings by up to 3%.

- China Fin Min Lan Fo'an stated that aimed to boost fiscal macro control next five years. Risk from hidden local debt had been reduced. To make fiscal policy more flexible and policy reserve based on research of economic situations.

- Indonesia Pres Prabowo said to order new stimulus for welfare and jobs.

- US Energy Sec Wright stated that believed EU could phase out purchases of Russian oil and gas faster.

Currencies/fixed income

- USD remained on soft footing following recent soft labor data but contained with recent ranges. Market looking towards next week FOMC rate decision and expected rate cuts to resume.

- EUR/USD drifted higher as markets continued to view the ECB in a good place on rates. Fed/ECB divergence has the door open for a test of 1.20 in coming weeks. Pair at 1.1715 by mid-session.

- GBP/USD found some headwinds on its way towards 1.36 as UK Monthly GDP data stagnated. Markets a tad concerned over the combination of weak UK growth and above-target inflation. BOE expected to pause at next week’s rate decision. Pair at 1.3535 by mid-session.

- USD/JPY at 1.47.50 area with focus on next week’s BOJ rate decision. BOJ seen keeping policy steady but likely to resume tightening before year-end. Upcoming LDP leadership race in early Oct prompting some yen weakness on fiscal concerns.

- Gold poised for its 4th straight week of gains as the metal was up almost 40% YTD.

- 10-year German Bund yield at 2.67% and 10-year Gilt yield at 4.61% 10-year Treasury yield: 4.03%.

Economic data

- (UK) July Monthly GDP M/M: 0.0% v 0.0%e; 3M/3M: 0.2% v 0.2%e.

- (UK) July Industrial Production M/M: -0.9% v 0.0%e; Y/Y:0.1 % v 1.1%e.

- (UK) July Manufacturing Production M/M: -1.3% v +0.1%e; Y/Y: 0.2% v 1.7%e.

- (UK) July Construction Output M/M: +0.2% v -0.2%e; Y/Y: 2.4% v 1.9%e.

- (UK) July Index of Services M/M: 0.1% v 0.0%e; 3M/3M: 0.4% v 0.3%e.

- (UK) July Visible Trade Balance: -£22.2B v -£21.9Be; Overall Trade Balance: -£5.3B v -£4.1Be.

- (DE) Germany Aug Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 2.2% v 2.2% prelim.

- (DE) Germany Aug Final CPI EU Harmonized M/M: 0.1% v 0.1% prelim; Y/Y: 2.1% v 2.1% prelim.

- (FR) France Aug Final CPI M/M: 0.4% v 0.4% prelim; Y/Y: 0.9% v 0.9% prelim.

- (FR) France Aug Final CPI EU Harmonized M/M: 0.5% v 0.5% prelim; Y/Y: 0.8% v 0.8% prelim; CPI (ex-tobacco) Index: # v 121.00e.
- (ES) Spain Aug Final CPI M/M: 0.0% v 0.0% prelim; Y/Y: 2.7% v 2.7% prelim.

- (ES) Spain Aug Final CPI EU Harmonized M/M: 0.0% v 0.0% prelim; Y/Y: 2.7% v 2.7% prelim.

- (ES) Spain Aug CPI Core M/M: +0.3% v -0.2%e Y/Y (final): 2.4% v 2.4% prelim.

- (TR) Turkey July Current Account Balance: $1.8B v $1.5Be.

- (TR) Turkey Central Bank (TCMB) Aug Inflation Expectation Survey: Expected inflation next 12 months: 22.3% v 22.8% prior.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 94.1K v 81.9K tons prior.

- (TH) Thailand May Foreign Reserves w/e Sept 5th: $269.8B v $267.4B prior.

- (RU) Russia Narrow Money Supply w/e Sept 5th (RUB):18.80T v 18.68T prior.

- (IT) Italy Q2 Unemployment Rate: 6.3% v 6.3% prior.

- (CZ) Czech July Current Account Balance (CZK): -14.9B v -13.0Be.

- (UK) BoE/Ipsos Quarterly Inflation Attitude Survey (Next 12 Months): 3.6% v 3.2% prior.

- (CN) China Aug YTD New Yuan Loans (CNY):13.46T v 13.571Te.

- (CN) China Aug YTD Aggregate Financing (CNY): 226.56T v 6.487Te.

- (CN) China Aug M2 Money Supply Y/Y: 8.8% v 8.6%e; M1 Money Supply Y/Y:6.0% v 6.0%e; M0 Money Supply Y/Y: 11.7% v 11.8% prior.

Fixed income issuance

- (IN) India sold total INR280B vs. INR280B indicated in 2030 and 2055 bonds.

Looking ahead

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

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2031, 2038 and 2046 Bonds.

- 06:00 (UK) DMO to sell £6.5B in 1-month, 3-month and 6-month bills (£1.0B, £2.5B and £3.0B respectively).

- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to cut the One-Week Auction Rate by 200bps to 16.00%.

- 06:30 (IN) India Aug CPI Y/Y: 2.1%e v 1.6% prior.

- 07:30 (IN) India Forex Reserve w/e Sept 5th: No est v $694.2B prior.

- 08:00 (PL) Poland July Current Account Balance (PLN): -€0.6Be v +€0.7B prior; Trade Balance: -€0.8Be v +€0.1B prior; Exports: €28.1Be v €28.0B prior; Imports: €28.7Be v €27.9B prior.

- 08:00 (BR) Brazil July IBGE Services Volume M/M: 0.4%e v 0.3% prior; Y/Y: 2.7%e v 2.8% prior.

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

- 08:00 (RU) Russia Central Bank (CBR) Gov Nabiullina post rate decision press conference.

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

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

- 08:30 (CA) Canada July Building Permits M/M: 4.0%e v -9.0% prior.

- 08:30 (CA) Canada Q2 Capacity Utilization Rate: 78.8%e v 80.1% prior.

- 10:00 (US) Sept Preliminary University of Michigan Confidence: 58.0e v 58.2 prior.

- 11:00 (EU) Potential sovereign ratings after European close (S&P on Spain; Fitch on France and Portugal).

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

- 12:00 (RU) Russia Q2 Preliminary GDP (2nd of 3 readings) Y/Y: 1.1%e v 1.1% advance.

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