Powell's Jackson Hole keynote incoming

EU Mid-Market Update: Powell's Jackson Hole keynote incoming; DHL becomes the biggest logistics firm so far to pause shipping for US business customers ahead of de minimis deadline next Friday.

Notes/observations

- Positioning underway ahead of Jackson Hole Symposium after few hawkish Fed speakers yesterday; US Treasuries edge lower while UK Gilt yields crawl higher; US dollar higher after stronger PMI.

- Fed Chair Powells Keynote speech at 10:00 ET in Jackson Hole will be highlight of the event; Recent US economic data, including higher-than-expected initial jobless claims (235K vs. forecast 225K) and a sharply weaker Philadelphia Fed manufacturing index (-0.3 vs. forecast 6.5) indicate softening in the labor market. These echo concerns in the July FOMC minutes about downside employment risks. However, stronger flash PMIs (manufacturing at 53.3 vs. 49.5) suggest resilience elsewhere. This mixed picture will likely shape commentary, with Powell's speech today potentially signaling rate cuts amid economic slowdown fears. Tomorrow, a panel with BOE Gov Bailey, ECB Chief Lagarde and BOJ Gov Ueda.

- CME futures price a 73% chance of 25bps rate cut by Fed in Sept, which is down from 85% prior to strong flash PMIs yesterday. Conversely, Schroders analysts see a 20% probability of hard landing/recession, up significantly from an estimate of 10% in July.

- TTN Recap of most recent Powell’s Jackson Hole speeches and respective US 2-year yields moves an hour after: 2018 blessed gradualism and kept the soft-landing script intact (2y −1 bp). 2019 nodded to insurance easing amid tariff shock, with markets leaning further into cuts (2y −4 bp). 2020 turned constitutional: FAIT arrived, a tiny +0.4 bp front-end move masking a major regime change on overshoot tolerance. 2021 separated taper from liftoff and trimmed policy-error premia (2y −2 bp). 2022 delivered the credibility jolt — restrictive for some time — that re-anchored expectations (2y +4 bp). 2023 kept hike optionality alive under proceed carefully (2y +4 bp). 2024 validated easing without promising a long cycle — the time has come for policy to adjust — producing the era’s biggest Jackson Hole rally in the front end (2y −7 bp).

- WSJ’s Timiraos said Fed is quietly retreating from its five-year-old pandemic-era policy innovation under the "framework policy," aligning with Powell's June statement on discussing new language, a April panel recommendation to replace flexible average inflation targeting (FAIT) with average inflation targeting (AIT) that incorporates employment objectives, and a February congressional task force's planned broad review of the central bank's approach.

- Another large EU company announced temporary restrictions on shipping to US, following Trump signing EO that suspends de-minimis tax exemption for all countries of origin, effective Aug 29th. This time DHL in Germany, after bpost in Belgium on Wed.

- Oil gradually climbs as ceasefire hopes between Russia/Ukraine fade. Trump pulling back from negotiating role between Putin/Zelenskiy (likely after Russia bombed US non-military enterprise in Ukraine).

- China Pres Xi reportedly unlikely to attend ASEAN leaders summit in Oct, where he was long-rumored to meet with US Pres Trump.

- Asia closed mixed with Shanghai outperforming +1.5%. EU indices 0.0% to +0.5%. US futures +0.1-0.3%. Gold -0.3%, DXY +0.1%; Commodity: Brent -0.2%, WTI -0.2%; Crypto: BTC -0.4%, ETH +1.1%.

Asia

- Japan July National CPI Y/Y: 3.1% v 3.1%e; CPI (ex-fresh food) Y/Y: 3.1% v 3.0%e.

- Japan MOF said to raise long-term rate estimate to 2.6% in FY26/27's budget request (highest hike since 2008).

- RBNZ Chief Economist Conway noted that RBNZ did not need to be 'overtly stimulatory'. Recent economic weakness was temporary and linked to policy uncertainty.

- China Pres Xi reportedly unlikely to attend ASEAN leaders summit in Oct (**Reminder: Pres Trump said to be attending ASEAN Summit in Oct).

Europe

- UK Aug GfK Consumer Confidence: -17 v -19e (highest since Dec).

- EU said to speed up plans for a digital Euro.

Americas

- Focus on Jackson Hole: Money markets price ~70% odds of a September cut, down from >90% a week ago, but Fed rhetoric has leaned hawkish into the event.

- WSJ: Federal Reserve set to revise its policy framework, moving away from its 2020 approach which was designed for near-zero rates, and viewed as less relevant amid current economic challenges.

- Divisions grow inside fed ahead of decision on Sep rate cut.

- Fed's Goolsbee (voter): Tariff increases did not seem close to done and risk persistent inflation; The Fed had been getting mixed messages on the economy; Sept's FOMC meeting would be live; Rising services inflation was a 'dangerous' data paint.

- Fed's Hammack (non-voter for 2025): Would not support a rate cut based on today's data; Inflation was moving in the wrong direction.

- Fed's Collins noted rate cut might be appropriate soon if labor outlook worsened. Could not wait for full clarity on inflation to consider cuts.

- US Justice department calling on Federal Reserve to dismiss governor Cook.

- President Trump and Canada PM Carney held a call Thursday covering trade and the war in Ukraine.

- Trump administration may take equity stakes in firms receiving CHIPS Act subsidies, though not in those ramping up US investment such as TSMC and Micron.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.24% at 560.42, FTSE +0.02% at 9,310.95, DAX +0.14% at 24,324.24, CAC-40 +0.21% at 7,955.08, IBEX-35 +0.39% at 15,377.50, FTSE MIB +0.44% at 43,201.00, SMI +0.27% at 12,267.21, S&P 500 Futures +0.20%].

Market focal points/key themes: European chip names under pressure today after Nvidia CEO Huang confirmed China directive on H20 chips and media reports that Nvidia asked some of its suppliers including Foxconn, Samsung and Amcor to stop production of H20 chips, ahead of earnings results next week. DHL joined bpost in temporary suspension of US shipments due to de minimis exemption expiration next Friday.

Equities

- Consumer discretionary: Deutsche Post DHL [DPW.DE] -1.0% (pauses shipping to U.S. for business customers ahead of de minimis tax exception expiration next Friday).

- Healthcare: Ambu [AMBUB.DK] +2.5% (earnings).

- Industrials: Renk Holding [R3NK.DE] +2.0% (analyst upgrade), Hensoldt [HAGG.DE] +3.5% (analyst upgrade).

- Technology: ASML [ASML.NL] +0.5% (Nvidia halts H20 production after China directive) - Materials: Akzo Nobel [AKZA.NL] +5.0% (activist stake).

Speakers

- Germany Econ Min Reiche: Q2 GDP data shows the urgent need for action.

- Hungary Central Bank (MNB) Gov Varga reiterated stance of backing a careful and patient monetary policy.

- Japan FY26 budget requests said to total ¥120T9*8Note: Earlier reports circulated that the MOF would raise long-term rate estimate to 2.6% in FY26/27's budget request (highest hike since 2008).

Currencies/fixed income

- USD drifted slightly softer during a quiet EU session. Market participants waiting to see if Fed Chair Powell’s speech at Jackson Hole would support or further weaken rate cut bets. Divisions appearing to grow inside fed ahead of decision on Sep rate cut.

- EUR/USD just above the 1.16 level by mid-session. German GDP reading highlighted the headwinds the region faces.

- USD/JPY moved higher on Japanese fiscal concerns. Reports circulated that Japan FY26 budget requests to total ¥120T and MOF would raise long-term rate estimate to 2.6% in FY26/27's budget request (highest since 2008). Yen unable to find support from higher yields. Japan 30-year JGBs hit record high at 3.201% (since contract debut 1999).

- 10-year German Bund yield at 2.75% and 10-year Gilt yield at 4.74%. 10-year Treasury yield: 4.33%.

Economic data

- (NL) Netherlands July House Price Index M/M: 0.7 v 0.9% prior; Y/Y: 8.6% v 9.3% prior.

- (DE) Germany Q2 Final GDP Q/Q: -0.3% v -0.1% prelim; Y/Y: 0.2% v 0.4% prelim; GDP NSA (unadj) Y/Y: -0.2% v 0.0% prelim.

- (DE) Germany Q2 Private Consumption Q/Q: 0.1% v 0.2%e; Government Spending Q/Q: 0.8% v 0.3%e; Capital Investment Q/Q: -1.4% v -0.8%e.

- (SE) Sweden July Unemployment Rate: 8.0% v 9.4% prior; Unemployment Rate (seasonally adj): 8.9% v 8.6%e.

- (FR) France Aug Business Confidence: 96 v 97e; Manufacturing Confidence: 96 v 96e.

- (MY) Malaysia mid-Aug Foreign Reserves: $122.0B v $121.3B prior.

- (FR) France July Retail Sales Y/Y: -1.9% v -1.1% prior.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 81.7K v 86.4K tons prior.

- (TH) Thailand May Foreign Reserves w/e Aug 15th: $266.6B v $265.6B prior.

- (TW) Taiwan July Unemployment Rate: 3.3% v 3.3%e.

- (RU) Russia Narrow Money Supply w/e Aug 15th (RUB): 18.74T v18.64 T prior.

- (TR) Turkey July Foreign Tourist Arrivals Y/Y: -5.0% v -1.5% prior.

- (TW) Taiwan July M1 Money Supply Y/Y: 3.4% v 2.4% prior; M2 Money Supply Y/Y: 2.9% v 3.5% prior.

- (EU) Euro Zone Q2 Negotiated Wages: 4.0% v 2.5% prior.

- (IS) Iceland July Wage Index M/M: -0.2% v +0.4% prior; Y/Y: 7.6% v 8.2% prior.

Fixed income issuance

- (IN) India sold total INR360B vs. INR360B 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 2033, 2043 and 2050 Bonds.

- 06:00 (IE) Ireland July PPI M/M: No est v -2.0% prior; Y/Y: No est v -4.6% prior.

- 06:00 (UK) DMO to sell £6.0B in 1-month, 3-month and 6-month bills (£1.0B, £2.0B and £3.0B respectively).

- 07:30 (IN) India Forex Reserve w/e Aug 15th: No est v $693.6B prior.

- 08:00 (MX) Mexico Q2 Final GDP Q/Q: 0.7%e v 0.7% prelim; Y/Y: 0.0%e v 0.1% prelim; GDP Nominal Y/Y: No est v 7.7% prelim.

- 08:00 (MX) Mexico Jun IGAE Economic Activity Index (Monthly GDP) M/M: 0.3%e v 0.0% prior; Y/Y: +1.4%e v -0.2% prior.

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

- 08:30 (CA) Canada Jun Retail Sales M/M: +1.5%e v -1.1% prior; Retail Sales (ex-auto) M/M: +0.8%e v -0.2% prior.

- 09:00 (CL) Chile July PPI M/M: No est v 1.3% prior.

- 09:00 (IN) India announces upcoming bill issuance (held on Wed).

- 10:00 (US) Fed Chair Powell at Jackson Hole.

- 12:00 (EU) Potential sovereign ratings after European close (Moody's on Austria, Sweden; Fitch on UK).

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