Futures Rise As Oil Prices Drop Ahead Of CPI Report

Futures are higher thanks to an overnight retreat in oil prices (which is unlikely to hold now that Houthi rebels effectively control the entire Red Sea) and bond yields which track oil tick for tick, but the tone could quickly shift with the week’s biggest catalyst, August CPI data, due before the cash open. As of 8:00am ET, S&P and Nasdaq futures gain 0.6% with Mag 7 stocks are mostly higher, led by AMZN (+0.6%) and META (+0.7%). In premarket trading, ORCL rose 7% as its AI cloud backlog beat estimates. MSFT is planning to more than triple its data center capacity to ease computing shortages. WTI crude fell 3% overnight amid the report that Gulf states are weighing a meeting with Iranian officials to discuss the future of the Strait, the first gathering since the war began more than six months ago. Oil is on track for a 8% jump since Monday, and the International Energy Agency warned higher prices would hit consumption. Bond yields are 1-3bp lower although they remain sticky near 3 year highs: 2Y and 10Y yields are 3.2bp and 2.4bp lower, respectively. While the meeting itself was net positive for risk assets, the situation in the Middle East remains uncertain, particularly regarding renewed developments in Yemen, as Houthi rebels seize a key Yemeni port city and struck Saudi oil infrastructure. US retail diesel prices topped $6 a gallon for the first time. Commodities are mostly lower except for precious metals. All eyes are on CPI at 8:30 am ET. We also get the September preliminary UMich sentiment (10 a.m.), 2Q household change in net worth (12 p.m.) and August federal budget balance (2 p.m.). Fed speakers remain in external communications blackout period ahead of Sept. 15-16 FOMC meeting

In premarket trading, Mag 7 are mostly higher (Nvidia +0.7%, Amazon +0.7%, Meta +1.1%, Alphabet +0.5%, Tesla -0.2%, Microsoft +0.3%, Apple -0.06%)

Adobe (ADBE) falls 4% after the company gave an outlook for sales that narrowly missed analysts’ estimates, adding fuel to concerns that artificial intelligence upstarts are hurting the software maker’s business.
Copart (CPRT) rises 4% as the vehicle auction firm is set to acquire all outstanding shares of ACV Auctions for $10.50 per share in cash. ACV (ACVA) surges 44%.
Kroger (KR) slips 2% after the company trimmed its annual sales guidance, a sign that fierce competition for grocery spending is weighing on the retailer.
NuScale Power (SMR) falls 4% after UBS cut its recommendation on the small modular reactor company to sell, citing sees increased competition.
Oracle (ORCL) gains 6% after the software company’s results featured better-than-expected cloud revenue amid strong AI demand.

In other corporate news, OpenAI is considering slowing down the development of cutting-edge artificial intelligence, with CEO Sam Altman hoping other AI companies will do the same. activist investor Oasis Capital has nominated directors at Vail Resorts in preparation for a proxy fight, Semafor reports. Tesla China launched the new Model Y Performance All-Wheel Drive version, with a starting price of 369,000 yuan ($54,975). In deals, online vehicle auctioneer Copart is making its largest-ever acquisition in the shape of ACV Auctions, a digital marketplace to buy and sell cars, for $1.9 billion in an all-cash transaction. Billionaire financiers Mark Walter and Todd Boehly are nearing a deal to sell their stakes in Chelsea FC to majority owner Clearlake Capital.

After surging yields and a rally in crude left the S&P 500 facing its worst week since June, index futures rebounded 0.5% as WTI crude fell 3% overnight amid the report that Gulf states are weighing a meeting with Iranian officials to discuss the future of the Strait. Oracle Corp. jumped 6% in early trading as its data center bets showed signs of paying off.

The AI trade got renewed optimism in the form of Oracle and Microsoft overnight. Oracle’s cloud infrastructure revenue jumped +121% to $7.4 billion, beating estimates. Microsoft’s announcement of plans to more than triple data center capacity to 38 gigawatts by 2032 will give AI infrastructure bulls fresh ammunition. Second derivative improvements in Oracle’s slowing rate of change of free cash flow losses (-$5 billion versus the Street at around double the burn) on healthy operating cash flow (+184% to $23 billion) provides some relief. Meanwhile, Oracle’s ability to charge more for aging GPUs challenges fears that rapid obsolescence will erode hyperscaler returns.

There are some cracks in the AI narrative. Ramp AI highlights that AI spend declined in August among the top 1% of businesses investing in the technology. Adobe’s guidance miss resurrects questions about AI monetization for software incumbents. Anthropic’s monthly report describing misuses of its AI model shows it blocked possible efforts to build biological weapons

Traders are bracing for Friday’s inflation print at a time when worries over oil-driven price pressures have pushed global bond yields to the highest in years. Money markets price a 67% chance of a Fed hike next week. Economists expect the consumer price index to have risen 0.4% in August, an acceleration from a month earlier, due in part to higher gasoline costs (our full preview is here). Bloomberg Economics expects to see firmer core PCE forecasts after the CPI print, raising the odds of a Fed rate hike next week, after the PPI components feeding into the PCE deflator came in well above expectations yesterday.

“We had the Oracle numbers as a reminder that there’s a tech story that’s still very, very vibrant,” said Guy Miller at Zurich Insurance. “That’s what investors keep coming back to. We know for at least the next two quarters that earnings are going to be really robust.”

August’s CPI report is probably the most anticipated in years, with Fed policymakers — particularly Waller — signaling that the decision at next week’s FOMC meeting hinges on evidence that inflation is moderating. Bloomberg Economics leans “slightly toward the Fed holding rates steady at the September meeting. But it will be a very close call.” That said, as Goldman trader Brian Bingham lays out, Warsh is facing a bit of a dilemma

“The Fed is now in the most paradoxical of all positions, beholden to a single data print and potentially reactive to the rounding on the ECO screen… Warsh told the market in his first press conference that he didn’t want to focus on the number to the right of the decimal point, but now it’s the number to the right of that one that will be the determinant. Waller’s speech on Thursday was surprisingly and overtly dovish, confirming our view that the Board skews heavily if not unanimously dovish relative to the regional presidents, but offered little new information beyond implicitly confirming a 30bp core CPI will merit a hike. The market appears to be penciling the over/under at 25, but we struggle to see a meaningful rally on an in-line 20bp core print following this week’s jobs report; in a world where the meeting goes in pricing greater than 50% chance of a hike, the risk of the bond market interpreting a hold as a policy error seem far greater than the harm of hiking into above-target inflation.”

Elsewhere, BofA strategists note there’s no sign of “panic anywhere” despite the spike in bond yields and commodities. The pace of flows into global equities is slowing, with US stock funds registering their biggest three-week outflows since January at $14.2 billion. For the current bull market in stocks, the fear is a full-fledged hiking cycle, not a single move.

The Stoxx 600 is gaining 0.6% to staunch three days of losses. Banks, insurers and telecoms stocks are leading the way.Here are the biggest movers Friday:

Trainline shares climb as much as 8.8% after the train ticket retailer reported strong results in its first-half trading update. The group reiterated its revenue forecast for the full year and announced a new buyback
C&C shares rise as much as 8.9%, the most since 2022, after the alcoholic beverage maker delivered in-line interim results and said it is buying Asahi UK’s wholesale businesses. Analysts said the deal should provide scale
Everplay Group shares soar as much as 14%, hitting their highest level since February, after a strong launch of the video game company’s latest title, Wardogs, according to analysts
Omnia shares jump as much as 14%, hitting their highest level since 2017, after the fertilizer and chemicals maker said it’s in advanced discussions regarding a potential offer for all of its issued ordinary shares
GEA Group shares rise as much as 1.8% as the German machinery firm is upgraded to overweight from equal-weight at Barclays, which touts it as a high quality business with a compelling valuation
Novo Nordisk shares fall as much as 3.3%, hitting a three-month low, after the obesity drug giant was downgraded at Morgan Stanley. Analysts believe its valuation does not reflect “subdued” mid-term growth prospects
FlatexDEGIRO shares fall as much as 11% after the German online brokerage announced that the chairman of its supervisory board had resigned
Applied Nutrition shares drop as much as 5% after the protein-powder maker’s chief executive and chief operating officer offloaded shares at a discount to the last close. The shares remain above the offer price
Chemometec declines as much as 11%, the most in three weeks, after the Danish laboratory equipment firm reported its latest earnings and announced its latest guidance

Markets in Asia echoed Thursday’s US moves. Asian stocks slumped as US bond yields climbed to their highest levels since 2023 and rising oil prices weighed on risk appetite. The MSCI Asia Pacific Index dropped as much as 1.9%, led by South Korea and Taiwan. SK Hynix and Samsung Electronics were among the biggest decliners after DeepSeek said it managed to reduce the amount of high-bandwidth memory needed for its latest model, stoking worries about the outlook for semiconductor demand. A gauge of Asian chip stocks is poised for its biggest drop in three weeks. Investors are looking ahead to Friday’s US consumer-price report for clues on the Federal Reserve’s interest-rate path, with rising bond yields and oil prices adding to market concerns. The MSCI Asia Pacific Index is down 0.7% this week, on track for its biggest weekly drop in almost two months. Attention is also turning to upcoming central bank decisions in the region. The Bank of Japan is due to announce its monetary policy decision on Sept. 18, while Taiwan’s central bank is scheduled to decide on rates next week.

The Bloomberg Dollar Spot Index remains muted, with the New Zealand dollar the outperformer among major currencies as the rise in oil prices firmed up bets on rate hikes.

In rates, treasuries hold modest gains led by short tenors ahead of August CPI data at 8:30 am ET time as oil prices fall for the first day this week. Front-end yields are about 3bp lower on the day after tenors across the curve reached new YTD highs. US yields are at least 1bp richer across the curve with 2s10s and 5s30s spreads steeper by 0.5bp and 1bp. 10-year is around 4.94%, less than 2bp richer on the day, trailing UK counterpart by 2bps. German yield curve leads global steepening move with front-end yields more than 5bp lower on the day. IG dollar issuance slate empty so far and unlikely to grow because of risk posed by the CPI report; six offerings totaling $6.3 billion were priced Thursday, with borrowers paying about 5bps in new issue concessions on deals that were 3.3 times oversubscribed

In commodities, oil prices are down more than 3% after the International Energy Agency warned about a deteriorating outlook for consumption. WTI crude oil futures are down 3.2% near session lows. Gold is rising, having come close to dipping below $4,300/oz. Diesel prices rose above $6 a gallon for the first time ever, raising the risk of further energy-driven inflation just ahead of peak demand season for the workhorse fuel of the global economy. Inflationary pressures showed up in corporate earnings with National Beverage saying results were hurt by higher packaging and ingredient costs.

The US economic data slate includes August CPI (8:30 a.m., September preliminary University of Michigan sentiment (10 a.m.), 2Q household change in net worth (12 p.m.) and August federal budget balance (2 p.m.). Fed speakers remain in external communications blackout period ahead of Sept. 15-16 FOMC meeting

Market Snapshot

Top Overnight News

The lightning Houthi advance down Yemen's Red Sea coast this week came with direct guidance from Iran's Revolutionary Guards seeking to open a new front in Iran's war with the U.S., according to Yemeni government, Iranian and ‌regional sources. By seizing the southwestern port city of Mocha, the Houthis have strengthened their chokehold on the Bab el-Mandeb Strait, a key waterway whose disruption further constricts global energy supplies after Iran's blockade of the Strait of Hormuz. Reuters
Iran and GCC states are considering meeting next week for talks on the Strait of Hormuz, people familiar said. The Houthis advanced toward coastal areas near the strategic Bab al-Mandeb Strait. Oil retreated. BBG
US average retail diesel prices topped $6 a gallon for the first time, adding to price pressures ahead of peak demand season. BBG
Fund managers wading back into South Korean memory makers’ stocks got a fresh gut check after DeepSeek’s latest artificial intelligence model raised doubts on the strength of demand. SK Hynix Inc. and Samsung Electronics Co. shares dipped 2.2% and 3.5% each in Asia, paring their nascent rebound from July’s steep selloff. DeepSeek’s comment that it has reduced the amount of high-bandwidth memory required in its AI models.
“Oracle’s GPU renewal pricing averaged 20% higher, highlighting the industry’s supply-demand imbalance and supporting Oracle’s and other cloud peers’ infrastructure outlook”. “The company’s commitment to keep fiscal 2027 funding needs unchanged also stands out despite a sequential $26 billion rise in remaining performance obligations to $664 billion”. BBG
Japan’s finance minister said Scott Bessent referring to himself as “the house” sounded “scary” when translated into Japanese. The US Treasury Secretary clarified his remark, saying he was trying to give the market “good framing so that they don’t panic.” BBG
Sanae Takaichi’s push for a more assertive military with US support will be tested as voters in Japan’s Okinawa pick a governor Sunday. Anger over US bases is overshadowed by worries about China. BBG
European Central Bank officials expect to raise interest rates further, with another increase possible as soon as next month. While policymakers’ views will continue to hinge on incoming economic data, tighter monetary policy may be required to contain inflation that’s stuck above 3%, said the people, who asked not to be identified discussing private conversations. BBG
Trump reiterated a pledge to provide a USD 5,000 Trump dividend to adults if Republicans win the Midterms and will make Trump tax cuts permanent, while he separately commented that the Trump dividend won't be a big problem at all and that he is doing it as a reward and not for the vote.
Trump said in a recorded interview with Fox News that they're going to take care of USD 40tln debt through growth, while he spoke with Johnson and Thune regarding USD 5,000 dividends.
Bessent said they have the best-performing bond market in the world and will get to the other side of the energy supply shock, while he added that the Treasury market is in very good shape and term premium is at the lowest differential in many years. Bessent stated regarding the Treasury buyback operation that they didn't buy back as many as he said, because they buy cheap.
Pentagon is in talks to get into AI infrastructure funding with a USD 5bln loan: WSJ.
Goldman expects a 0.23% increase in August core CPI (vs. +0.2% consensus), corresponding to a year-over-year rate of +2.40% (vs. +2.4% consensus). GS expects a 0.39% increase in headline CPI (vs. +0.4% consensus), reflecting higher energy prices.
Net and gross hedge-fund leverage remains well below this year’s highs, according to our Prime Services desk, suggesting positioning remains relatively cautious. Goldman Prime Brokerage

A more detailed look at global markets courtesy of Newqsuawk

APAC stocks were pressured with global risk sentiment weighed by a further surge in oil prices and upside in yields, as the geopolitical escalation in the Middle East threatens shipping in the Bab al-Mandab Strait, while there were social media reports citing satellite images that suggested a potential strike by Houthis on Saudi's East-West pipeline. ASX 200 declined amid higher yields, with the Australian 3yr yield at its highest in over 15 years, while Citi revised its call and now sees two more rate hikes by the RBA this year. Nikkei 225 underperformed owing to higher oil prices and yields, while participants also brace for a widely expected BoJ rate hike next week. KOSPI was dragged lower amid tech-related pressure, with notable losses in the industry heavyweights. Hang Seng and Shanghai Comp conformed to the broad risk-off mood in the region, with underperformance seen in miners, while recent comments from PBoC Deputy Lu Lei that they will refine the RRR framework and conduct open-market operations more flexibly and precisely failed to provide inspiration, with today's OMO remaining at an inconsequential amount.

Top Asian News

The Japanese Trade delegation is reportedly preparing a China visit in September, according to Kyodo.
Fitch assigns Softbank (9984 JT) a "BB+" rating; outlook stable.

European bourses are modestly firmer this morning (STOXX 600 +0.4%), benefiting from falling energy prices and cooling yields. For the UK specifically, the FTSE 100 (+0.5%) is largely unreactive to a strong GDP reading for July. But ultimately it will have little impact on the BoE next week, which is expected to keep rates on hold. European sectors hold a slight positive bias. Banks, Insurance and Telecoms form the top three; Tech, Basic Resources and Chemicals underperform.

Top European News

The French Finance Minister said the government has lowered the 2026 GDP forecast to 0.5% (prev. 0.7%), sees 2027 GDP at 1%, and that debt service costs are seen at EUR 65bln (EUR 4.5bln above original plans).
ECB’s Moulin said France is not in economic danger. The heatwaves cost the economy 0.1ppts of growth, and the economy will restart at a moderate pace.
BoE/Savanta Quarterly Attitude Survey (Aug): 1-year ahead 3.2% (prev. 4%), 2-year ahead 2.9% (prev. 3.5%), 5-year ahead 3.2% (prev. 3.9%).

Snapshot: G10s are mixed against the USD this morning. NZD is the clear outperformer, as traders increased their bets of further hikes at the RBNZ, with markets now pricing in four hikes at the Bank. Elsewhere, the CHF lags a touch.
USD is steady and trades within a 99.00 to 99.17 range. Thursday saw the release of a mixed PPI report, which ultimately spurred little reaction in the USD. But the Dollar did strengthen in the prior session on account of higher yields. Focus today is solely on the CPI report, which will be a decisive factor into the Fed policy meeting next week. A benign report showing continued progress on underlying inflation would strengthen the case for the Fed to remain on hold, particularly given Waller's stated reaction function. Conversely, a hot report or evidence that disinflation is reversing would likely reinforce expectations for a 25bp hike.
EUR is flat this morning and holding within a 1.1595 to 1.1617 range, in the aftermath of the ECB policy decision on Thursday. Thereafter, ECB source reports suggested that officials expect more tightening this year, with the debate potentially as soon as October. As such, sell-side banks have broadly pulled forward their bets of another hike at the ECB; the likes of Citi, Barclays and UBS see another round of tightening in December. Interestingly, Danske Bank believes that the Bank will deliver two 25bps hikes, each in October and December.
JPY is slightly firmer this morning, with USD/JPY holding around 154.20, in a 153.96 to 154.61 range. Overnight, a Reuters source report reiterated that the BoJ will raise rates next week, and potentially signal its readiness to speed up hikes. The report, alongside some scaling back of the pressure seen in the prior session, has helped the Yen this morning. The next hurdle for the currency will be US CPI, where a hot report will likely see yield differentials widen once again.
GBP is currently flat, but did see some mild upside following a strong GDP report earlier. In July, the UK economy grew 0.4% (exp. 0.00%), largely thanks to a boost in AI. While the data signals economic resilience, it is unlikely to alter expectations for next Thursday’s BoE policy decision. It does, however, provide the MPC’s hawks with ammunition to argue for tighter policy.

Fixed Income

Global fixed income benchmarks have steadily climbed off earlier lows, as energy prices ease off best levels.
USTs (+1 tick) reside at the upper end of its 106-04+ to 106-14+ range, with the US CPI on the docket later today. Yields remain towards elevated levels (US 10yr 4.94%), and a hot inflation report today will likely give the 10-year enough of a reason to breach the 5.00% mark; a level not seen since Oct’23.
Bunds (-1 tick) pare some of Thursday's losses, with the 10yr yield holding around 3.50% in the aftermath of the ECB policy meeting and the surge in energy prices. To recap, the ECB meeting was largely as expected, with nothing to significantly shift market pricing as we await further data and energy developments. Thereafter, ECB source reports suggested that officials expect more tightening this year, with the debate potentially as soon as October.
Gilts (+28 ticks) opened slightly higher, in line with their peers. Strength which comes amidst cooler energy prices, though despite a strong UK GDP report. The UK economy continues to show resilience despite higher energy prices, with July GDP printing at 0.4% (exp. 0%) while the 3-month average also held steady at 0.4% (exp. 0.3%). Manufacturing and industrial production figures were also solid. This set of data is unlikely to change expectations for the BoE rate decision next Thursday.
Australia sells AUD 800mln 2.75% November 2029 bonds: b/c 4.47x, avg. yield 5.0396.

Commodities

WTI and Brent futures pull back slightly following a week of hefty gains on the back of escalating geopolitics. The downside today comes amid reports that Iran and Gulf states are planning to meet, pushing to iron out a deal for the Strait of Hormuz. Moreover, sources suggested Iran’s Foreign Minister and Pakistan’s Army Chief reportedly discussed ways to restore diplomatic efforts to de-escalate the conflict on all fronts. Talks reportedly focused on the US-Iran war, the possibility of returning to negotiations and Houthi attacks on Saudi Arabia. Modest downside was seen in crude prices after the IEA slashed its 2026 world oil demand forecast.
WTI Oct resides in a USD 99.50–104.46/bbl range (vs yesterday’s USD 95.37–104.04/bbl range) compared to Monday’s USD 90.87–94.73/bbl range. Brent Nov trades in a USD 103.85–109.97/bbl range (vs yesterday’s USD 100.19–109.68/bbl range) and compared to Monday’s USD 95.97–98.06/bbl band. Dutch TTF has also pulled back from EUR 83/MWh intraday extremes before finding support just under EUR 80/MWh, oscillating on either side of the level. It’s also worth noting that US diesel prices hit a record USD 6.06 per gallon, with California approaching USD 8 per gallon.
Metals are mixed, with precious metals cheering a slight pullback in oil prices, whilst base metals remain capped amid elevated energy levels. Spot gold trades on either side of its 100 DMA (USD 4,336/oz) in a current USD 4,300-4,361/oz range (vs USD 4,433/oz weekly high). 3M LME copper resides in a narrow USD 14,170.78- 14,356.00/t range at the time of writing.
IEA OMR: 2026 world oil demand to fall by 2.5mln BPD (vs prev. forecast of a 1.6mln BPD fall), citing impasse in US-Iran talks on resolving their conflict; sees total world oil supply 1.74mln BPD lower than demand in 2026 (vs prev. forecast of 1.27mln BPD lower); now sees full recovery in oil supplies from Gulf producers deferred until 2027; the need for progress in resolving Middle East and Russia-Ukraine conflicts is greater than ever to avoid further oil market tightening.
US retail diesel price tops USD 6 per gallon, according to AAA.
US Interior Secretary Burgum said every idea is on the table when asked about diesel export controls.
China's NDRC raised gasoline and diesel prices by CNY 435/t and CNY 420/t respectively, effective September 11th.

Trade/Tariffs

Canadian PM Carney said the latest US trade measures against Canada are modest and he reiterated that Canada is always ready to sit down and negotiate with the US.
South Korea's PM Han said talks on strategic investment projects with the US are progressing, and that the government will ease regulations and improve conditions for foreign investment. Han added that South Korea does not discriminate against companies based on nationality, and that US strategic investment talks must deliver mutual benefits and commercial returns.

Central Banks

The French Finance Minister said the government has lowered the 2026 GDP forecast to 0.5% (prev. 0.7%), sees 2027 GDP at 1%, and that debt service costs are seen at EUR 65bln (EUR 4.5bln above original plans).
ECB’s Moulin said France is not in economic danger. The heatwaves cost the economy 0.1ppts of growth, and the economy will restart at a moderate pace.
BoE/Savanta Quarterly Attitude Survey (Aug): 1-year ahead 3.2% (prev. 4%), 2-year ahead 2.9% (prev. 3.5%), 5-year ahead 3.2% (prev. 3.9%).

Geopolitics: Middle East

Gulf Foreign Ministers plan to meet with their Iranian counterpart in an effort by Oman and Iran to secure a deal on shipping through the Strait of Hormuz, according to FT.
US President Trump said Iran has some missiles, but most were knocked out, while he maybe won't go full into Iran because of the election. Trump also stated that the Iran war will end after the US midterm elections and that Iran is waiting for political change in America.
US VP Vance privately sought assessments from US military commanders who warned that the Iran war was draining critical stockpiles of Patriot interceptors and long-range missiles, and could weaken US deterrence against China, Russia and North Korea, NYT reported. It added that commanders told Vance that Iran was more resilient than expected and willing to absorb heavy damage without collapsing, prompting Vance to advise President Trump and become more involved in efforts to end the conflict.
US Treasury Secretary Bessent said they are going to sanction a large bank on Monday.
Iran’s Foreign Minister and Pakistan’s Army Chief reportedly discussed ways to restore diplomatic efforts to de-escalate the conflict on all fronts, according to sources. The talks were focused on the US-Iran war, the possibility of returning to negotiations and Houthi attacks on Saudi Arabia.
Al Jazeera reported the entirety of Yemen’s Red Sea coastline is now under Houthi control. It was later reported that the Houthis captured Dhabab and that Yemeni government forces have reportedly withdrawn from Peim Island.
Iranian sources said that Tehran ordered the Houthis last week to intensify attacks on Saudi Arabia and promised to provide more funding, weapons and senior officers, according to Iran International. Furthermore, Yemen military sources said the IRGC directed a recent Houthi campaign along the Red Sea coast.
Iranian President Pezeshkian said that he does not support the continuation of the war, and Iran must withstand the coming circumstances so that negotiations with the "enemy" are not under other conditions, Al Jazeera reported.
Saudi Crown Prince MBS called President Trump twice on Thursday, urging him to launch strikes against Houthis, but Trump declined, and US officials stressed the administration has no plans to intervene directly against the Houthis for now, according to Axios.
Houthis launched a missile attack on southern Saudi Arabia, according to IRNA.
UAE is reportedly revising plans for its 5GW AI campus following Iranian attacks, according to sources.

Geopolitics: Ukraine

The European Commission resumed work on options that could persuade governments in the bloc to approve the use of Russia’s frozen assets for Ukraine, according to FT.

US Event Calendar

8:30 am: Aug CPI MoM, est. 0.4%, prior 0.1%
8:30 am: Aug Core CPI MoM, est. 0.2%, prior 0.2%
8:30 am: Aug CPI YoY, est. 3.4%, prior 3.4%
8:30 am: Aug Core CPI YoY, est. 2.4%, prior 2.5%
10:00 am Sep P U. of Mich. Sentiment, est. 51, prior 51.7
2:00 pm: Aug Federal Budget Balance, est. -211.1b, prior -344.79b

DB's Jim Reid concludes the overnight wrap

It's hard to believe it but it's 25 years today since the attacks of 11 September 2001. I was on holiday in Spain at the time and watched the events unfold on a small television in disbelief. I remember the horrendous shock of seeing the towers that I had visited clients in only weeks before collapse. I also remember selfishly wondering how I would get home, whether people would ever work in high-rise buildings again, and feeling that the world was going to change forever.

Time tends to push life back towards normality more quickly than you expect. Yet it's also fair to say that many of the geopolitical forces shaping the world today can be traced back to those attacks. And with no obvious end to the US-Iran conflict in sight, markets continued to slump yesterday as fears about stagflation cascaded across multiple asset classes.

Yet again, the main driver was a big jump in energy prices, with Brent crude surging above $107/bbl, whilst European natural gas (+3.53%) hit its highest level since 2022. So that led to mounting speculation about faster rate hikes, while a hawkish ECB decision and a smaller-than-signaled Treasury buyback then gave the selloff even more momentum. As a result, the relentless rise in yields showed no sign of easing, with Germany’s 2yr yield (+16.6bps) posting its biggest daily jump since the debt brake reform announcement 18 months ago, while 10yr Treasury yields (+12.2bps) neared the 5% level. So it was another terrible day for bonds, and that put further pressure on risk assets too, with the S&P 500 (-0.58%) posting a 4th consecutive decline for the first time since June. The cross-asset sell off has continued into Asian markets this morning, with the Nikkei (-2.24%) and KOSPI (-1.85%) sharply lower and 10yr JGB yields +6.7bps higher even as 10yr US yields, US equity futures and oil are fairly stable as we await today's important US CPI.

Once again, it is geopolitical fears driving everything. In terms of the latest Middle East headlines, yesterday saw growing concerns over the safety of Red Sea shipping, and the potential knock-on effects for Saudi oil exports, as Houthi rebels captured Yemen’s port city of Mokha, which is located close to the Bab el-Mandeb Strait on the southern end of the Red Sea. The mood also wasn’t helped by news that Saudi Arabia’s oil output has fallen to its lowest since 1990. Beyond that, investors continued to digest the newsflow over recent days which has suggested that the Strait of Hormuz would not reopen anytime soon. For instance, President Trump’s own remarks on Wednesday night suggested he thought the war was going to end after the midterm elections in November. Meanwhile, a WSJ report we mentioned yesterday said that White House advisers had privately raised the prospect with Trump that the war could continue for the rest of his term.

With no signs of de-escalation, investors faced up to a longer closure of the Strait of Hormuz, and oil prices saw a relentless surge higher. For instance, Brent crude (+6.34%) ended the session at $107.63/bbl, its highest level since May, whilst WTI (+6.69%) was also up to $102.48/bbl. Moreover, the entire oil futures curve moved higher, with the 6-month Brent future (+3.21%) also at its highest since May, at $88.85/bbl. So it was clear investors are pricing a more protracted period of high energy prices. And the tightness has been even more pronounced in refined product markets, with US wholesale diesel prices trading within 1% of their 2022 peak this morning.

That backdrop was cemented by the ECB’s latest decision, which had several hawkish elements. They delivered a 25bp rate hike as expected, taking their deposit rate up to 2.50%. But the statement had a new line that “inflation is set to remain well above target for an extended period”, and ECB President Lagarde called the hike “a no brainer”. In addition, their latest forecasts also moved hawkishly, with both inflation and growth upgraded for the years ahead. Most notably, the 2028 core inflation forecast was revised up two-tenths to +2.3%, so price pressures are seen staying visibly above the 2% target throughout the forecast horizon. The statement language on growth and the labour market was also more upbeat.

To be fair, ECB President Lagarde’s Q&A didn’t really reinforce the hawkishness, as she said that the Governing Council was not taking a view on the direction of policy going forward and avoided endorsing market pricing. However, this did little to stem the hawkish market repricing which then extended further after a Bloomberg sources story reported that another ECB hike was possible as soon as October, even if December may prove more appropriate. This left money markets fully pricing another three hikes from the ECB over the next year. Still, our European economists’ maintain their call for only one more hike in December to 2.75%, as further hikes may be difficult to justify when there is no evidence of second round effects.

The combination of higher energy prices and a hawkish ECB put fresh pressure on sovereign bonds across the board. In Europe, that was particularly clear at the front end, with Germany’s 2yr yield (+16.6bps) up to 3.23%, marking its biggest daily jump since March 2025 when the debt brake reforms were announced. That was clear further out the curve too, with the 10yr bund yield (+5.6bps) finally exceeding its Euro crisis high in 2011 to close at 3.50%, a level last seen in 2009. And there were even bigger selloffs in other European countries, with France’s 10yr OAT yield (+9.8bps) reaching a post-2008 high of 4.44%, whilst the UK’s 10yr gilt yield (+11.2bps) hit a post-2007 high of 5.37%.

For the US it was much the same story, amidst mounting speculation that the Fed would hike rates next week. Indeed, futures raised the probability of a September hike from 60% on Wednesday to 72% by last night’s close. And looking further out, 85bps of hikes are now priced in by the July 2027 meeting, so that means at least 3 hikes are fully priced in over the next year. In turn, Treasury yields surged higher, with the 2yr yield (+15.5bps) rising to 4.59%, its highest since July 2024, whilst the 10yr yield (+12.2bps) rose to 4.96%, the highest since October 2023. And notably, the 30yr yield (+7.6bps) reached its highest since 2007, at 5.36%. Later in the session, the performance of Treasuries wasn’t helped by news that the US Treasury bought back $5.19bn of long-dated debt, falling short of the $6bn maximum it had announced on Wednesday.

As all that was happening, we did get the latest US PPI inflation print for August. That showed headline PPI up +0.4% on the month, with the July print revised up a tenth to +0.1%. So that pushed the year-on-year reading up to +5.4% (vs. +5.3% expected). But significantly, the components that feed into PCE came in on the stronger side, which cemented the view that the Fed would end up hiking next week. Meanwhile today, we’re set to get the CPI print at 13:30 London time, which is the last big release ahead of the Fed’s decision. Our US economists expect higher gas prices to boost the headline number, with monthly CPI at +0.38% in August, which would keep the year-on-year rate at +3.4%. Meanwhile for core, they expect a relatively softer +0.21% monthly print, which would see the year-on-year number fall a tenth to +2.4%.

All this took a toll on equities, as fears of stagflation and more rate hikes led to fresh declines. In the US, that meant the S&P 500 (-0.58%) fell for a 4th consecutive session, taking the index to a fresh one-month low. Matters weren’t helped by a sharp slump for chip stocks, with the Philly semiconductor index (-2.66%) falling back after 5 consecutive gains. But the decline was still broad-based, with two-thirds of the S&P 500’s constituents moving lower on the day. Then in Europe, the STOXX 600 (-0.69%) fell to a two-month low, with further declines for the DAX (-0.84%) and the CAC 40 (-0.49%) as well.

Coming back to Asia, and as mentioned at the top the Nikkei (-2.24%) and the KOSPI (-1.85%) are leading the declines. Elsewhere, the Shanghai Composite (-1.82%), the CSI 300 (-1.59%), the S&P/ASX 200 (-1.00%) and the Hang Seng (-0.85%) are also sharply lower. S&P 500 futures (+0.20%) are edging back up with the Nasdaq equivalent and European futures fairly flat.

Early morning data showed that Japan’s business sentiment index for large corporations across all industries has turned positive for the first time in two quarters (at 5.3). Manufacturers posted +7.6, driven by strong demand for semiconductor manufacturing equipment and other production machinery amid expanding AI and data center investment. Separately, the PPI slowed slightly in August but remained close to its highest level in over 3-½ years as high energy costs and a weak yen factored into rising business costs. The PPI grew +7.6% year-on-year in August, higher than expectations of +7.4% but cooled slightly from the +7.7% print seen in July, which was revised up from +7.2%.

Looking at the day ahead, the main data highlight will be the US CPI print for August. Otherwise, we’ll get the University of Michigan’s preliminary consumer sentiment index for September, and the UK’s monthly GDP reading for July. Meanwhile, central bank speakers include ECB President Lagarde, and the ECB’s Lane.

Today's Top Stories