EU Market Open: Global yields surge as oil prices remain firmer, reigniting fiscal concerns

US Treasury Secretary Bessent told Japanese officials that rate hikes are needed, according to NHK; a Japanese MoF official expects the BoJ to act on the economy and not on US influence.
Nikkei 225 traded indecisively; USD/JPY traded rangebound, and 10yr JGB futures followed the declines in global peers.
Crude futures remained underpinned after gaining yesterday; UKMTO received a report of an incident involving a tanker and military forces in the Indian Ocean off Oman.
APAC stocks traded with a mild negative bias amid higher prices and yields; European equity futures indicate a lower cash market open.
Looking ahead, highlights include German Retail Sales (Jul), Global S&P Manufacturing PMI Final (Aug), EZ CPI Prelim (Aug), US ISM Manufacturing PMI (Aug), JOLTS Job Openings (Jul), Atlanta Fed GDP (Q3), US Midterm Primary Elections in Massachusetts, Speakers include Fed’s Barr & ECB’s Vujcic. Supply from Germany. Earnings from Dell & Palo Alto.

SNAPSHOT

As of 06:15BST/01:15EDT

LOOKING AHEAD

Highlights include German Retail Sales (Jul), Global S&P Manufacturing PMI Final (Aug), EZ CPI Prelim (Aug), US ISM Manufacturing PMI (Aug), JOLTS Job Openings (Jul), Atlanta Fed GDP (Q3), US Midterm Primary Elections in Massachusetts, Speakers include Fed’s Barr & ECB’s Vujcic. Supply from Germany. Earnings from Dell & Palo Alto.
Click for the Newsquawk Week Ahead.

IRAN CONFLICT

US President Trump said Iran strikes will be limited and that the Strait of Hormuz is in extremely good shape. Trump added that a lot of oil is coming out of Hormuz and they are averaging 30 ships a night out of Hormuz, while he said we'll see what happens regarding Iran.
Iran's Foreign Minister Araghchi said the US must return to its commitments and adhere to the provisions of the MoU.
Iran's Foreign Ministry spokesperson Baghaei said Europe cannot claim strategic autonomy whilst following US orders, stressing that true autonomy means making independent decisions.
IRGC said its defences shot down an enemy MQ-9 drone east of the Strait of Hormuz.
Gulf Cooperation Council condemned Iran's attacks on Jordan, stating they pose a direct threat to the security and stability of the region, according to Al Jazeera
UKMTO received a report of an incident involving a tanker and military forces in the Indian Ocean off Oman, while it was reported that a Saudi VLCC stopped while passing through the southern corridor of the Strait of Hormuz, according to IRIB.
Yemen military sources said government forces destroyed a Houthi Katyusha rocket launcher south of Hodeidah. It was also reported that Yemeni armed forces targeted the bases of Saudi and Emirati mercenaries in Al Makha and Al Khuwakh located in southwest of the country.

US TRADE

EQUITIES

US stocks started the week predominantly lower as resumed US-Iran strikes over the weekend increased geopolitical and growth risk for the market, although the Nasdaq 100 rallied into the close to settle with marginal gains. Oil prices rose, which added further upward pressure to the belly and long-end yields, with the 10yr yield at its highest since January 2025, while sectors were mostly in the red, except Energy, which benefited from higher oil prices, and Tech, which eked out marginal strength, with Nvidia holding onto post-earnings gains from last week. Utilities underperformed after bearish sentiment built from Friday's news that California lawmakers blocked proposed wildfire liability reforms, and PG&E (PCG -20%) received multiple downgrades.
SPX -0.33% at 7,686, NDX +0.08% at 29,457, DJI -0.70% at 53,191, RUT -0.54% at 2,956.
Click here for a detailed summary.

TARIFFS/TRADE

US VP Vance said they want to have a positive relationship with China, while he added that they also recognise that China is a competitor, according to Fox News.

NOTABLE HEADLINES

US President Trump said Fed Chair Warsh will do what he has to do and that interest rates are too high, while Trump announced new drug-pricing agreements, with nine new pharma companies committing to low prices.
US President Trump posted "I am going to suggest that Republicans and Democrats get together, and immediately craft Legislation to save the Movie, Television, and Entertainment Business in America. Congress should approve, immediately, a Federal Production Incentive to create Entertainment Jobs in America."
US Treasury Secretary Bessent made a case for lighter financial regulation at the G20 finance ministers gathering on Monday, arguing to CEOs that post-crisis rules have squeezed small banks, according to Axios.

APAC TRADE

EQUITIES

APAC stocks traded with a mild negative bias amid higher prices and yields following the recent geopolitical flare-up, although some of the losses were stemmed as participants also digested recent data.
ASX 200 was pressured amid underperformance in the consumer, tech and telecom sectors, while Australia's 10yr yield was at its highest since 2011, but with downside in the index stemmed amid strength in the commodity-related industries and after better-than-expected data.
Nikkei 225 traded indecisively but was off earlier lows and briefly turned positive as headwinds from higher yields were partially offset by better-than-expected Company Sales and Profits data, while a Ministry of Finance senior official said the BoJ is expected to steer monetary policy aligned with the economy and not influenced by the US, in response to a recent report that US Treasury Secretary Bessent told Japanese officials that rate hikes are needed.
KOSPI initially dropped but then gradually returned to flat territory amid light pertinent newsflow and with indecisive performances in the tech heavyweights.
Hang Seng and Shanghai Comp were somewhat mixed as the Hong Kong benchmark underperformed amid weakness in some big platform names and property stocks, while sentiment was also not helped by a weak debut for fast fashion retailer Shein. Conversely, the downside in the mainland was cushioned by stronger-than-expected RatingDog Manufacturing PMI data.
US equity futures were rangebound after recent headwinds from higher yields and oil prices.
European equity futures indicate a lower cash market open with Euro Stoxx 50 futures down 0.2% after the cash market closed with losses of 1.0% on Monday.

FX

DXY eked slight gains but with the upside limited in rangebound trade amid a lack of major fresh catalysts and following the prior day's losses, while attention remained on geopolitics after US President Trump's threat to hit Iran hard following the latter's retaliation to the first US strikes in a month.
EUR/USD marginally pulled back overnight after the single currency recently benefitted from the softer dollar and reclaimed the 1.1600 handle, while participants now await EU PMIs and inflation data.
GBP/USD lacked demand with price action contained following the recent holiday closure, while there was little reaction to the acceleration in UK shop price inflation, and to reports that PM Burnham will signal fresh cost of living measures.
USD/JPY traded rangebound but on a firm footing on the 159.00 handle, with the Japanese currency nearing intervention watch levels, while Japanese Finance Minister Katayama held a bilateral meeting with US Treasury Secretary Bessent and discussed how smooth forex moves are crucial for US and global markets, as well as shared an understanding with Bessent on the significance of joint FX intervention
Antipodeans were mixed and somewhat choppy, albeit within tight parameters, with little reaction seen to the slightly better-than-expected Australian data ahead of tomorrow's GDP numbers, and with the RBNZ widely expected to deliver a back-to-back hike at its meeting tomorrow.
PBoC set USD/CNY mid-point at 6.7809 vs exp. 6.7170 (prev. 6.7828).

FIXED INCOME

10yr UST futures continued to trickle lower after upside in long-end yields as money market pricing leans towards a September Fed rate hike, and with Treasuries also facing headwinds from higher oil prices.
Bund futures extended declines with Bund futures testing 123.00 to the downside and are at their lowest level in 15 years, while participants await supply and looming data.
10yr JGB futures followed the declines in global peers as the Japanese 10yr yield hit the 3.00% level for the first time since 1996, with markets gearing up for a potential BoJ rate hike this month, while prices were not helped by the mixed 10yr JGB auction results and reports that US Treasury Secretary Bessent told Japanese officials that rate hikes are needed.

COMMODITIES

Crude futures remained underpinned after gaining yesterday on the US-Iran geopolitical flare-up and with US President Trump vowing to hit Iran hard in response to Iran's retaliation, while there were also reports that a Saudi VLCC stopped after it was struck by projectiles in the Strait of Hormuz.
US President Trump said they will fill up the strategic reserve and he wants to do it with Venezuelan oil, while he said it is up to Venezuela regarding leaving OPEC.
US President Trump's administration granted oil refineries the biggest amount of exemptions from mandates requiring them to blend renewable fuels since 2017.
Stocks of crude oil in the US SPR fell by about 3.1mln barrels to 286.6mln barrels last week.
Venezuelan oil company North American Blue Energy Partners, which was recently backed by the Trump administration, plans to dispatch over 50 drilling rigs in Venezuela in the next few years.
Spot gold was mildly lower in quiet trade beneath the USD 4,500/oz level after the prior day's uneventful performance which coincided with recent upside in yields and prior softening of the dollar.
Copper futures edged higher despite the mostly subdued overnight mood, while Chinese RatingDog Manufacturing PMI data provided some encouragement with a 10th consecutive month of expansion.

CRYPTO

Bitcoin eked slight gains in rangebound trade beneath the USD 79,000 level.

NOTABLE ASIA-PAC HEADLINES

US Treasury Secretary Bessent told Japanese officials that rate hikes are needed, according to NHK.
Japanese Finance Minister Katayama said she held a bilateral meeting with US Treasury Secretary Bessent and discussed how smooth forex moves are crucial for the US and global markets, as well as a need for cooperation between the two countries. She also shared an understanding with Bessent on the significance of joint FX intervention, while she told the G20 that Japan is investing in strategic areas to boost economic growth, and that arbitrary export controls are bad for the economy and must be scrapped.
Japan Ministry of Finance senior official said they expect the BoJ to steer monetary policy aligned with the economy and not influenced by the US.
South Korean President Lee said an interest rate increase is unavoidable and that fiscal policy should play a role amid rising interest rates.

DATA RECAP

Chinese RatingDog Manufacturing PMI (Aug) 51.5 vs. Exp. 51.0 (Prev. 50.9)
Japanese Capital Spending YY (Q2) 1.6% vs. Exp. -0.2% (Prev. 0.0%)
Japanese Company Profits YY (Q2) 24.6% vs Exp. 15.2% (Prev. 14.6%)
Japanese Company Sales YY (Q2) 5.9% (Prev. 1.1%)
Australian Building Permits MM (Jul P) -3.6% vs. Exp. -4.8% (Prev. 7.2%)
Australian Current Account (Q2) -27.2B vs. Exp. -30B (Prev. -27.1B)
Australian Net Exports Contribution to GDP (Q2) 0.1% vs. Exp. 0.1% (Prev. -0.8%)

GEOPOLITICS

MIDDLE EAST

Israeli forces advanced further into Syria's Deraa province, according to Al Jazeera.

RUSSIA-UKRAINE

Explosions were heard in Ukraine's capital of Kyiv, while Ukraine's Air Force announced that UAVs were detected heading towards Zaporizhzhia. There were also reports that a fire broke out in the port area of Russia's Ust-Luga due to a drone attack, according to the local governor.
Ukrainian President Zelensky said he had a good call with President Trump's representatives Witkoff and Kushner, while they are discussing setting a date for visiting Ukraine.
Poland intercepted a Russian reconnaissance plane over the Baltic Sea.
US Treasury Secretary Bessent told Russia's Finance Minister Siluanov on the sidelines of the G20 that the US will not provide Russia with economic relief until the Ukraine war ends, while he said no agreements with Russia are possible until the war ends, according to a source familiar with the meeting.
UK government said Chancellor Healey called on allies to step up their pressure on Russia and set out new action to stop Russian President Putin evading sanctions to fund his illegal war, while the Chancellor will double the maximum fine available to the Office for Financial Sanctions Implementation from 50% to 100% of the value of a sanctions breach.
Germany's Vice Chancellor Klingbeil said he made it clear during Europeans' preliminary meeting that he would not stand together with the Russian Finance Minister for a joint photograph, while he used the opportunity in the plenary session to address the Russian Finance Minister directly in which he told him to his face that the Russian government must end the war, what its consequences are, and that Germany stands on the side of Ukraine.

EU/UK

NOTABLE HEADLINES

UK PM Burnham will signal fresh measures to help voters with the cost of living on Tuesday, while decisions on welfare are likely to be delayed into next year, according to FT.
UK PM Burnham will tell MPs that bringing essential services such as water, energy and transport under greater public control is key to boosting economic growth and cutting household costs, while the government is considering measures to make it easier to bring struggling utilities such as Thames Water into public ownership.
UK government said British businesses can now access the full benefits of the UK’s membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
ECB's Rehn warned that conflict of attrition in Iran could keep inflation high, according to FT.

DATA RECAP

UK BRC Shop Price Inflation (Aug) 1.5% (Prev. 0.9%)