EU Market Open: USD/JPY recoups some losses and yields moderate into NFP report

• Crude futures kept afloat but with gains limited following the previous day's two-way trade and with a lack of major new geopolitical developments.
• USD/JPY recouped some losses after sliding as the yen recently outperformed due to intervention risks and hawkish BoJ rate hike bets.
• Norway's USD 2.3tln sovereign wealth fund manager has proposed an overhaul of its government bond portfolio that could see it cut its holdings of US Treasuries by about USD 80bln, as it looks to other types of debts to try to boost returns, according to FT.
• APAC stocks took impetus from the positive global risk sentiment and lower yield environment; European equity futures indicate a flat cash market open.
• Looking ahead, highlights include German Factory Orders (Jul), EZ Retail Sales (Jul), US Jobs Report (Aug), Canadian Jobs Report (Aug). Speakers include BoE Governor Bailey & ECB’s Lane.

SNAPSHOT

LOOKING AHEAD

• Highlights include German Factory Orders (Jul), EZ Retail Sales (Jul), US Jobs Report (Aug), Canadian Jobs Report (Aug). Speakers including BoE Governor Bailey & ECB’s Lane.
• Click for the Newsquawk Week Ahead.

IRAN CONFLICT

• US VP Vance said about 15mln barrels of oil went through the Strait of Hormuz on Wednesday and that they have a lot of additional tools at their disposal on Iran; some of which Trump will use and some he won't, while he added that major combat operations on Iran ended a long time ago. Vance said their message to the Iranians is that they are not talking unless Iran stops shooting at commercial shipping. Furthermore, he would not call the Iran operation a war and stated that if the Iranians keep on shooting at commercial ships, he thinks they have a responsibility, but certainly are not the only ones with the capability to ensure that the Iranians are not destroying world energy markets.
• US Treasury Secretary Bessent said the EU has joined Operation Economic Outcast and that he appreciates the EU's strong and early stance on Iran.
• Direct US-Iran talks have stopped, but mediators are maintaining back channels and trying to build a framework that could bring both sides back to negotiations on a new agreement, FT reported.
• US official confirmed to CBS News on Thursday that Iran's attacks the previous night did not impact any military facilities in the Middle East where US forces are based, including in Kuwait, which was targeted by Iranian forces.
• Israeli PM Netanyahu said to the General Staff Forum, "We are convinced of our ability to overthrow the Iranian regime. This is the central mission and it is imminent."
• IDF said it has completed clearing Hezbollah's underground infrastructure in the Ali Taher Ridge and is working to neutralise it, while it did not find any Iranian advisors or officers in the Ali Taher tunnels, according to N12.
• Iranian senior source said the situation on the battleground demonstrates Iran's readiness for a long-term confrontation with the US, while the source added that the US will get increasingly bound in the crisis around Iran, forcing it to extend its presence in the region, according to TASS.
• Iran’s Energy Minister said a large portion of the damage to energy facilities during the two recent wars has been repaired.
• Oman has quietly rejected Iran’s request to jointly charge service fees on commercial ships in the Strait of Hormuz, according to NY Post.
• South Korea prepared a plan to deploy non-combat naval assets to the Strait of Hormuz, according to Chosun Daily. South Korea's Blue House later commented that practical contribution options under review for the Strait of Hormuz include military measures and said claims that South Korea has provided no assistance on Hormuz are not true.
• IRNA reported several explosions were heard in Iraq's Erbil province.
• Israeli quadcopter drone opens fire in the Zeitoun neighbourhood, southeast of Gaza City.
• Yemeni sources reported heavy clashes between Houthis and Saudi-affiliated mercenaries on the Taiz axis and on the Muqbatah front and the western coast, while it was also reported that Yemen forces seized strategic areas in Taiz province.

US TRADE

EQUITIES

• US stocks rallied on Thursday, with gains broad-based and with outperformance in the Nasdaq. Sectors predominantly finished in the green, led by Consumer Discretionary, Communication Services and Financials, while Tech also rallied, with Materials and Energy the only sectors to close lower. T-notes were firmer across the curve, particularly at the front end, after dovish remarks from Fed Governor Waller, who kept the door open to a September hold following hawkish commentary from Chair Warsh last week. The influential Governor was optimistic on inflation, noting that if disinflation continues, he would support holding rates steady at the next meeting. However, he cautioned that a hot inflation print would see him consider a hike.
• SPX +1.06% at 7,748, NDX +1.16% at 29,482, DJI +1.18% at 53,691, RUT +0.51% at 2,968.
• Click here for a detailed summary.

TARIFFS/TRADE

• US Trade Representative Greer said Canada wanted more tariff relief and that he's had a couple of texts and outreach with Canada, but hasn't had negotiations with Canada since. Greer also stated he met with Mexico's Trade Minister on Thursday and that Mexico is eager to do things to protect North America from Chinese imports. Furthermore, Greer said the US is looking to reduce its deficit with China and will probably make agriculture announcements during Chinese President Xi’s visit, adding that he is optimistic about the US-China relationship.
• USTR Greer warned that the UK choosing alignment with the EU over America is an issue for a US trade deal, according to FT.
• US lawmakers were urged by an auto industry group to pass a comprehensive ban on Chinese vehicles before year-end.
• South Korea's Interior Minister said South Korea and the US are continuing chip tariff talks.

NOTABLE HEADLINES

• US President Trump posted on Truth Social a request from Senator Grassley for Trump to help US farmers as he did for consumers of pharmaceutical products.
• US President Trump announced current Assistant Secretary of the Army for Civil Works Adam Telle will become Acting Secretary of the Army with immediate effect.
• US President Trump's administration asked the Supreme Court to allow mail-in ballot restrictions.
• Norway's USD 2.3tln sovereign wealth fund manager has proposed an overhaul of its government bond portfolio that could see it cut its holdings of US Treasuries by about USD 80bln, as it looks to other types of debts to try to boost returns, according to FT.

APAC TRADE

EQUITIES

• APAC stocks took impetus from the positive global risk sentiment and lower yield environment after Fed's Waller kept a September rate hold in play and following no major new geopolitical developments, while participants look ahead to the key US jobs data.
• ASX 200 lagged with price action rangebound as the outperformance in tech and telecoms was overshadowed by weakness in mining, resources, materials, utilities and energy, while a quiet calendar and lack of drivers kept the index in check.
• Nikkei 225 shrugged off the disappointing Household Spending data from Japan and briefly returned to above the 65,000 level amid lower yields and after a source report noted that the BoJ favours a 25bps rate hike this month and a flexible future pace, which helped ease concerns of a more aggressive move.
• KOSPI rallied amid strength in tech heavyweights with notable gains in SK Hynix, while Samsung Electronics was also firmer after industry data showed it narrowed the gap with market leader SK Hynix in the global HBM market during Q2.
• Hang Seng and Shanghai Comp were underpinned with the Hong Kong benchmark spearheading the advances alongside strength in property, tech and auto stocks, while the gains in the mainland were limited after the PBoC continued to drain liquidity with today's open market operations amount remaining at zero.
• US equity futures paused overnight after recent advances and with the NFP report on the horizon.
• European equity futures indicate a flat cash market open with EuroStoxx 50 futures unchanged after the cash market closed with gains of 0.3% on Thursday.

FX

• DXY traded indecisively and was contained within tight parameters near the prior day's trough after slipping beneath the 99.00 level as yields declined in reaction to comments from Fed's Waller, who kept a September rate hold in play, while participants now look to the key US jobs data to gauge the health of the labour market, the economy and potential clues on Fed policy.
• EUR/USD held on to recent gains after it benefited from the dollar weakness and returned to the 1.1600 handle, while the single currency was unfazed by reports that ECB hawk Schnabel could leave her role at the ECB before her term ends to move to the IMF.
• GBP/USD marginally extended on advances after returning to above the 1.3500 level following comments from Fed's Waller, while BoE's Pill also explained why he supported raising the bank rate to 4%.
• USD/JPY recouped some losses after sliding as the yen recently outperformed due to intervention risks and hawkish BoJ rate hike bets, while Household Spending data disappointed and a source report noted that the BoJ is favouring a 25bps hike and a flexible future pace.
• Antipodeans were mildly firmer amid the dollar weakness and positive risk sentiment.
• PBoC set USD/CNY mid-point at 6.7787 vs Exp. 6.7093 (prev. 6.7807)

FIXED INCOME

• 10yr UST futures paused overnight after gaining in the aftermath of Fed Waller's comments, in which he said he would support holding the policy rate steady in September if August inflation data shows continued progress, but would consider a hike if inflation is hot, while he also stated they can wait one meeting and that there is little cost in doing so. Nonetheless, markets now await the key US jobs data, which could provide a further impulse on September rate expectations.
• Bund futures pulled back following the prior day's mild rebound and failed to sustain the reclaim of the 123.00 level, while participants also look ahead to German Factory Orders and EU Retail Sales data.
• 10yr JGB futures tracked the recent upside in global peers and with a previous report noting that the BoJ is favouring a 25bps hike and a flexible future pace, which contradicts the suggestion by Board Member Takata, who had left the door open for a larger move this month.

COMMODITIES

• Crude futures kept afloat but with gains limited following the previous day's two-way trade and with a lack of major new geopolitical developments, while US VP Vance said during a White House briefing that he would not call the Iran operation a war and declined to offer a timeline for an end to the conflict.
• Iraq's SOMO said August oil exports were 73mln bbls, the highest since the start of the Iran war, while Iraq's oil revenues in August stood at around USD 4.5bln.
• Iran's Oil Minister said they started drilling over 30 wells in South Pars, and some were successful.
• Spot gold took a breather after extending its rebound yesterday to briefly return to above the USD 4,500/oz level amid a weaker dollar, while attention turns to the US jobs data for potential clues on Fed policy.
• Copper futures stalled after recently advancing alongside the positive risk sentiment.

CRYPTO

• Bitcoin was indecisive overnight after surging around 6% yesterday to above the USD 81,000 level.

NOTABLE ASIA-PAC HEADLINES

• Japanese PM Takaichi will keep Finance Minister Katayama during a cabinet reshuffle.
• Japan's Finance Minister Katayama said interest rate moves are determined by various factors in markets and they will control FY bond issuance properly, while she added that FY27 budget requests total about JPY 143tln and don't represent a large increase. Katayama said they are closely watching bond markets with a high sense of urgency and noted that there were no specific requests from US Treasury Secretary Bessent. Furthermore, she said Bessent assessed PM Takaichi's economic policies very highly and has long held a view that the yen has been undervalued, due largely to interest rate differentials.
• Japan's top FX diplomat Mimura affirmed they are always in contact with US authorities and continue to be ready on FX, with no change in the fighting stance on FX.
• RBNZ Assistant Governor Silk said a rate hike in October or December is still open, but stated a hike is more likely in December and that the RBNZ wants to support continuing improvement in the economy.
• RBNZ MPC member Hansen said Wednesday's rate hike was a clear consensus decision and that further policy decisions will depend on trends in a wide range of economic datasets, while he is watching for surprises in data, not a single indicator, before deciding what should happen in October.

DATA RECAP

• Japanese Household Spending MM (Jul) 0.5% vs. Exp. 2.6% (Prev. -6.4%)
• Japanese Household Spending YY (Jul) -3.6% vs. Exp. -1.6% (Prev. -3.3%)

GEOPOLITICS

RUSSIA-UKRAINE

• Ukrainian President Zelensky said US negotiators are to visit Kyiv and Moscow, while Ukraine expects a meeting with the US in the coming days.
• Ukraine's air force announced a jet drone detected in the Kyiv region and that guided bombs struck the Donetsk region, while it was separately reported that a UAV attack caused a fire at an oil depot in Sochi, according to TASS.

OTHER

• US President Trump reiterated that Spain doesn't do what they should in NATO, while he added that they did the right thing on Iran and just want the war to end in Ukraine.
• US issued fresh Cuba-related sanctions, while US Secretary of State Rubio said the Cuban regime continues to pose a deep threat to the US.
• Argentina's President Milei will sign a decree sanctioning companies working on oil exploration of the Falkland Islands, while he stated that the Falkland's Sea Lion Project presents a clear danger and plans to build a naval base in Tierra del Fuego.

EU/UK

NOTABLE HEADLINES

• European defence officials are pushing back against EU attempts to cut reliance on US tech giants and warned the move could leave Europe with inferior systems, greater cyber risks and problems in co-ordinating with NATO allies, according to FT.