Warsh comments continue to drive Sept Fed rate hike expectations higher

Asia market update: Risk appetite modestly hurt by weekend US/Iran skirmish, recent Warsh comments continue to drive Sept Fed rate hike expectations higher; Oil rises by >2%; Month-end flows in focus for bonds and FX; China Aug PMIs remained in contraction.

General trend and developments

- Fed rate hike probabilities continued to lift in Asia on Warsh’s comments from Fri. The probability of a rate increase is now >60%. Warsh prioritized the inflation outlook. Specifically, the inflation data does not suggest the trend has ‘meaningfully’ improved, according to the Fed Chair. Hence, traders of Fed Funds Futures (FFRs) now see a nearly 56% chance of a quarter-point hike in September, per the CME’s FedWatch tool. And on Polymarket, speculators indicated 49% odds that the Fed raises rates.

- Oil traders have, thus far, not panicked over the weekend skirmishes between the US and Iranian forces in the Middle East [Iran’s Larak Island, UAE and Jordan]. No damage nor fatalities have been reported. Equity markets generally trimmed losses as the session progressed.

- US Treasury Sec Bessent has continued to ‘make the rounds’ in the press. He has thus far commented on the G20, Iran, China and Japan.

- That being said, the US Treasury has blocked certain journalists from the G20 Finance Ministers' meeting in North Carolina [AP].

- NZIER Shadow Board indicates the possibility for a close RBNZ decision this week. The RBNZ is expected to confront weak growth and stubborn inflation when it sets rates on Wed. Aug ANZ Business Confidence showed m/m weakness, while the inflation expectation components were not helpful [Inflation expectations lifted from 3.14% to 3.26%]. The split NZIER vote for a RBNZ rate hike highlights why Wed’s rate decision could be challenging for the central bank’s board. Meanwhile, NZ politics have, also, been in focus with elections expected in Oct. The government is also said to have canceled the fuel tax hike planned for next year. Further, New Zealand First leader Peters has called for a return of the RBNZ’s dual mandate [Jul 29th].

- Like NZ, Australian inflation has remained sticky, while growth has eased. The Aug Melbourne data has kept inflation concerns alive, particularly the y/y figure. The increase was mostly attributed to transport price rises. Q2 inventories and corporate profits were the most recent releases to suggest that growth slowed in the quarter. Overall, we remain on alert for any possible negative impact of inflation on Q2 consumption and GDP [Q2 GDP data is due on Sept 2nd].

- Over the weekend, following months of deliberation between the United States and Venezuela—marked by U.S. earthquake-relief assistance that included the deployment of roughly 900 American military personnel inside the country following an earthquake that claimed approximately 5,000 lives—and a recent evaluation of leaving OPEC, Venezuela’s interim President Delcy Rodríguez announced a 25-year energy agreement with the United States aimed at raising production to as much as 1.5 million barrels per day.
Looking ahead, this week’s key economic releases and policy events feature several high-impact data points and central-bank decisions, based on the Asian-weighted focus regional time-zone calendar. Key releases include India’s Q1 GDP, global S&P Global/HSBC Manufacturing, Services and Composite PMIs, China’s August RatingDog Manufacturing and Services PMIs, Eurozone’s preliminary August CPI and unemployment, US August S&P Global/ISM Manufacturing, Services and Composite PMIs, South Korea’s August CPI, Australia’s Q2 GDP and the accompanying September RBA interest-rate statement, then New Zealand’s interest rate decision on Tuesday [Wednesday local time]. Additionally, the Asian markets will observe holidays in Malaysia, the Philippines and Vietnam on Monday, with the Vietnamese markets remaining closed on Tuesday and Wednesday.

-US equity FUTs -0.2% during Asia trading.

Looking ahead (Asian-weighted focus, using Asian time-zone)

-Mon Aug 31st: HK July Retail Sales, (Mon night, IN Q1 GDP, RBI Monetary and Credit Information Review, DE Prelim Aug CPI, US Aug Chicago PMI).

-Tue Sep 1st: Global S&P/HSBC Mnfg PMI, JP Q2 Capital Spending, KR Prelim Aug Trade Balance, AU Q2 Current Account & July Buiilding Approvals, CN Aug RatingDog Mnfg PMI, JP 10-Year JGB Auction, ID Aug Trade Balance & CPI, EU Prelim Aug CPI & Unemployment Rate, (Tue night, US Aug S&P/ISM Mnfg PMI, US July JOLTS).

-Wed Sep 2nd: KR Aug CPI, AU Q2 GDP & RBA Interest Rate Statement, NZ RBNZ Interest Rate Decision & Statement & Press Conference, (Wed night, US Aug ADP Nonfarm Employment Change, CA BoC Interest Rate Decision & Statement & Press Conference, RU July GDP & Retail Sales & Unemployment Rate).

-Thu Sep 3rd: Global S&P/HSBC Svcs PMI, AU July Trade Balance, CN Aug RatingDog Svcs PMI, VN Aug CPI & Retail Sales & Industrial Production & Trade Balance, JP 30-Year JGB Auction, MY Interest Rate Decision, EU July PPI, (Thu night, US July Trade Balance & Q2 Nonfarm Productivity & Q2 Unit Labor Costs, CA July Trade Balance & Q2 Labor Productivity, US Aug S&P/ISM Svcs/Composite PMI).

-Fri Sep 4th: KR/TW/HK/PH Aug FX Reserves - USD, JP July Household Spending, PH Aug CPI, SG July Retail Sales, EU July Retail Sales, (Fri night, US Aug Average Hourly Earnings & Nonfarm Payrolls & Unemployment Rate).

Holidays in Asia this week

-Mon Aug 31st: Malaysia, Philippines, Vietnam.

-Tue Sep 1st: Vietnam.

-Wed Sep 2nd: Vietnam.

Headlines/economic data

Australia/New Zealand

-(AU) ASX 200 opens -0.2% at 9,071.

-(NZ) New Zealand NZIER Shadow Board recommends RBNZ raise OCR rates to 2.75% on Wed, Sept 2nd [local time].

-(AU) Australia Aug Melbourne Institute Inflation M/M: 0.5% v 1.0% prior; Y/Y: 4.8% v 4.0% prior.

-(AU) Australia July Private Sector Credit M/M: 0.6% v 0.7%e; Y/Y: 8.4% v 8.5% prior.

-(AU) Australia Q2 Inventories Q/Q: -0.2% v 0.5%e.

-(NZ) New Zealand Aug ANZ Business Confidence: 53.7 v 56.1 prior.

-(NZ) New Zealand Government cancels fuel tax hike planned for next year [2027], delays the fuel taxes by 1 year - Press.

China/Hong Kong

-(CN) Shanghai Composite opens -0.7% at 3,927; (HK) Hang Seng opens -0.6% at 25,421.

-(CN) China Aug (Govt official) manufacturing PMI: 49.8 V 49.5E (2nd month of contraction).

-(CN) Follow up: President Xi: China making every effort to search for missing people in mudslide disaster - Xinhua.

-(CN) China-Nepal floods: Nepal and China respond to catastrophic flash floods on the China-Nepali border that has killed 676 people and left nearly 3,000 missing - SCMP [weekend update].

-(CN) China set to draft rules on solid-state batteries - China Daily [update].

-(CN) China PBOC sets the yuan mid-point at 6.7828 v 6.7811 prior.

-(CN) China PBOC Open Market Operation (OMO): Sells CNY447B in 1-day Overnight Reverse Repos.

-(CN) China PBOC Open Market Operation (OMO): Sells CNY5B in 7-day Reverse Repos; Net drains CNY221B v drains CNY246B prior.

Japan

-(JP) Nikkei 225 opens -1.1% at 65,669.

-(JP) Japan July Retail Sales M/M 2.4% V 1.6%E; Y/Y 4.0% V 3.3%E.

-(JP) Japan July preliminary industrial production M/M: 0.1% V -0.7%E; Y/Y: 4.1% V 3.3%E.

-(JP) Japan July Annualized Housing Starts: 774K v 768Ke; Y/Y: 8.2% v 7.6%e.

-(JP) Japan's Takaichi Cabinet approval rating at 53% v 53% prior [Asahi poll].

-(JP) Japan Chief Cab Sec Kihara: To appropriately control bond issuance for fiscal need.

-(JP) OPENAI.IPO Softbank Group-Backed SB Energy awarded warrants valued at $5.5B to OpenAI - WSJ [citing SB Energy draft IPO documents].

Korea

-(KR) Kospi opens -2.6% at 6,613.

-(KR) South Korea July Industrial Production M/M: +0.2% v -0.5%e; Y/Y: 3.6% v 4.7%e.

-(KR) Bank of Korea (BOK) head said Korea's $20B US investment is not likely to pressure the Won (KRW) - Korea Times [update].

-(KR) Bank of Korea to sell KRW600B in 3-month Monetary Stabilizations Bonds (MSB); Avg Yield: 3.025%.

-(KR) SKHY Chairman Chey: SK Hynix considers Japan memory fabrication JV.

-(KR) SKHY Considering outsourcing some base chip production for HBM4E to Intel Foundry - Herald Business.

Other Asia

-(IN) India Commerce Ministry: India, Brazil target $30B bilateral trade by 2030.

-(IN) USD/INR India Central Bank (RBI) said to be likely selling USD through state-run banks to limit the Rupee weakness – traders.

-(IN) SBIN.IN Chairman Setty: SBI [0.65%], [Subsidiary] SBI Capital Markets [0.35%] to dilute up to 1% stake in NSE via public-offering - PTI Interview.

-(MY) Malaysia PM Anwar: Government to reinstate subsidized fuel quota for RON95 transport fuel to 300 liters monthly per citizen.

-(SG) Singapore July M2 Money Supply Y/Y: 2.7% v 4.0% prior.

North America

-(US) Treasury Sec Bessent: Prioritizing growth as host of G20 Finance Track, stronger growth is not only possible, but necessary; US plans to sanction another bank this week - AP interview.

-(US) Fed Fund FUTs price in a 62.6% (v 57.0% prior) probability of a +25bps September rate hike to 3.75%-4.00%, following Friday's Fed Warsh's Jackson Hole comments.

-(VE) Venezuela Interim President Delcy Rodriguez: Energy agreement with US will be for 25 years; Agreement with US seeks to increase production to 1.5M bpd [weekend update].

-(US) NHC: Disturbance in northern Gulf of Mexico has 20% chance of tropical cyclone formation in next 7 days; 10% chance of tropical cyclone formation for a disturbance headed toward the Leeward Islands in the next 7 day [weekend update].

-(US) US Treasury has blocked certain journalists from the G20 Finance Ministers' meeting in North Carolina [Tues, Sept 1st] – AP [update].

-(US) Pres. Trump: For many years, the USA has been losing more than 60 Billion Dollars a year with Canada. Why??? Our ... - post on Truth Social.

-(US) Pres. Trump: Let all Canadian Companies that are doing business with America move to the United States, immediate... - post on Truth Social.

-(US) Pres. Trump: One of the things I am going to do with the Venezuelan Oil is fill up the Strategic National Reserve... - post on Truth Social.

-(US) Follow Up: LIV Golf prepares for bankruptcy filing in Sept - FT.

-(US) SPCX CEO Elon Musk: SpaceX and Tesla to build 100GW/year of solar production capacity through in-house casting measures, accelerating natural gas turbine production by up to 18 months - post on X [weekend update].

Europe

-(RU) Russian Defense Ministry: Russian forces have begun preparations to launch massive strikes against energy infrastructure in Ukraine - IFX.

-(IS) US issues statement on Iceland after Iceland voted against restarting EU membership talks; US looks forward to strengthening partnership with Iceland.

-(RU) Russia govt extends diesel export ban into Sept - Russian press [weekend update].

-(UR) Ukraine's Defence Minister: War plan needs to be 'clear', communicated down the chain of command.

-(FI) Finland July Retail Sales Volume Y/Y: 2.0% v 2.6% prior.

Middle East

-(IR) US struck two Iranian launchers on Larak Island today - Axios [weekend update].

-(IR) Follow up: IRGC: Confirms launched attack on two US bases in Jordan with ballistic missiles in response to US attack on Larak Island.

-(IQ) Iraq Oil Ministry: Kurdistan region oil exports to Turkey's Ceyhan port stand at around 150K bpd [weekend update].

-(IR) Pres. Trump: Kharg Island being blown to smithereens!!! President DJT [details not disclosed] - post on Truth Social.

-(IR) Iranian Army: Attacked UAE's Al Minhad air base with drones early on Monday - Iran State TV.

-(IR) President Trump: [Reiterates] Iran cannot have a nuclear weapon; Iran blockade has been 'unbelievable' - Pre-recorded Fox News Interview.

-(IR) Iran attacking US forces in Jordan, missiles have been intercepted; no 'significant' impact thus far reported from the Iran attacks - Fox News.

-(IR) Commodity vessels transiting via Strait of Hormuz fall to 5/day over the weekend.

Levels as of 01:20 ET

Nikkei 225 -0.4%; ASX 200 -0.2%; Hang Seng -0.4%; Shanghai Composite +0.2%; Kospi +0.2%.

Equity S&P500 Futures -0.2%; Nasdaq100 -0.2%; DAX -0.2%; FTSE100 flat.

EUR 1.1595-1.1578; JPY 160.20-159.74; AUD 0.7171-0.7153; NZD 0.5924-0.5901.

Gold -0.5% at $4,433/oz; BTC -0.1% at $78,059; WTI Crude Oil +2.8% at $85.73/bbl; Copper +0.2% at $6.6730/lbs.