EU Market Open: Crude rises on geopolitics whilst APAC sees AI-related selling

• Crude futures began the week higher, with Saudi Arabia shutting its East-West Pipeline following attacks last week.
• Oman postponed the Persian Gulf meeting on Monday, where Iran had planned to formally unveil a temporary shipping lane agreement for the Strait of Hormuz.
• US President Trump said he warned Ukraine to stop targeting Russian oil refineries, as strikes have shut down diesel refining and helped lift prices of the fuel to record levels.
• AI-related selling was seen in APAC stocks after key industry executives called for a slowdown in AI development.
• APAC stocks were ultimately mixed after gradually improving from the initial risk-off mood seen at the start of the session; Europe is poised to open subdued.
• Looking ahead, highlights include the Swedish CPIF Final (Aug), Canadian CPI (Aug). Speakers include ECB's Schnabel, Cipollone & Lagarde.

SNAPSHOT

LOOKING AHEAD

• Highlights include the Swedish CPIF Final (Aug), Canadian CPI (Aug). Speakers include ECB's Schnabel, Cipollone & Lagarde.
• Click for the Newsquawk Week Ahead.

IRAN CONFLICT

• US President Trump said Iran-backed Houthis asked the US not to target them, while Trump reiterated that he expects the Iran war to end this year, possibly after the Midterms, but also suggested that the US could stay in Iran and keep the oil, like the Venezuela deal.
• US Energy Secretary Wright downplayed prospects of a breakthrough in the Strait of Hormuz as Iran planned to pitch other Gulf countries on a deal for passage through the key waterway.
• Iran had planned to formally unveil an agreement on a temporary shipping lane for the Strait of Hormuz on Monday, although it was reported that Oman postponed the Persian Gulf Foreign Ministers meeting for an indefinite period. Furthermore, Iran confirmed that the meeting was postponed at the request of regional countries.
• Iranian source said the understanding between Iran and Oman does not provide an immediate reopening of the Strait of Hormuz, although it establishes the basis on which it could reopen.
• Oman's Energy Minister said the Strait of Hormuz will be open and it's probably a short-term situation, while he is pleased Oman is still able to continue producing oil and gas. Furthermore, he stated that skyrocketing oil and LNG prices are not sustainable and the situation should stabilise in the medium-term.
• Iran’s President Pezeshkian met with Abu Dhabi’s Crown Prince on the sidelines of the BRICS summit, as Iran touted a deal to permit more ships through the Strait of Hormuz.
• Local sources reported the sound of several missiles being fired from Iran's Sirik, which were linked to Hormuz Strait operations, although there has been no official confirmation regarding the incident, according to SNN.
• UKMTO said early on Sunday that a vessel was struck by an unknown projectile while transiting the Strait of Hormuz. It was separately reported that an Iranian commercial vessel was struck off Qeshm Island early on Saturday, which killed one person and wounded three others.
• Saudi Arabia shut the East-West pipeline that bypasses Hormuz following attacks on Thursday, while the drone attack was said to have been launched from Iraq.
• Saudi Yanbu oil exports were halted after a pipeline attack, while weekend reports noted multiple explosions struck Saudi Arabia’s Yanbu Industrial City on Sunday.
• Sirens sounded in four Saudi cities following a Yemeni strike, according to Tasnim.
• Saudi Foreign Minister held a call with his UAE counterpart to discuss regional developments and de-escalation efforts, while it was also reported that Qatar's PM and Foreign Minister held a call with Kuwait's Foreign Minister to discuss the regional situation and coordination on diplomatic efforts to ease tensions, as well as support security and stability in the region.
• Iraq is said to be moving to contain a fallout from the attack that caused a closure of Saudi Arabia’s East-West pipeline, after reports noted that the strikes were found to have been launched from inside Iraq.
• Yemeni government forces have reportedly retaken positions west of Taiz that were previously infiltrated by Houthis and have advanced towards the Jir Bani Omar area as part of operations to expel Houthis from Taiz province.

US TRADE

EQUITIES

• US stocks gained on Friday, with broad-based strength seeing the SPX, NDX and DJI rise by around 1%, while the equal-weight S&P gained c. 0.8%. The majority of sectors finished higher, with Communication Services, Technology and Consumer Discretionary outperforming, while Utilities, Health Care and Energy lagged; Utilities and Health Care were the only sectors to close in the red. Sentiment was initially supported by Oracle (ORCL) earnings released after-hours on Thursday, although the stock ultimately faded its gains and closed the session lower. The highlight of the session was the US CPI report. The majority of metrics were in line with expectations, although core CPI rose 0.3% M/M, above the 0.2% forecast. The hotter-than-expected core print saw markets price a 25bps Fed rate hike in the week ahead with greater conviction, with the implied probability rising to around 86% from 70% pre-data, while several banks revised their calls from a hold to a hike. The initial reaction to the data was hawkish, with equities, T-notes and gold coming under pressure while the Dollar rallied. However, much of the initial move subsequently reversed. The Dollar finished broadly flat, gold erased its losses to close higher, while equities more than recovered their post-data weakness and finished firmly in the green. The Treasury curve ultimately flattened, with front-end yields rising while the long end was little changed.
• SPX +0.83% at 7,655, NDX +0.91% at 29,368, DJI +0.98% at 52,573, RUT +0.40% at 2,903.
• Click here for a detailed summary.

TARIFFS/TRADE

• US President Trump said he’s not worried about Chinese President Xi calling off their summit scheduled for this month, while Japanese media reported that Beijing informed Washington it will cancel the planned summit if any new arms sales to Taipei are approved.
• US President Trump suggested he may be willing to permit a Chinese car company to build EVs in the US if it did so with US workers. It was separately reported that President Trump said the US will lift tariffs on Irish whiskey.
• US President Trump expressed optimism regarding resolving the trade dispute with Canada soon and downplayed prospects of leaving the USMCA, while Trump took verbal jabs at Europe regarding trade and immigration during his Ireland visit.
• Canadian PM Carney is set to meet with UK PM Burnham as Canada deepens its relations with Europe, while Carney proposed that Canada should become the EU's first 'associate member', and the bloc is said to be open to the idea.
• Philippines halted exports of fresh purple yam amid a rise in global demand.

NOTABLE HEADLINES

• US President Trump reiterated that the US should have the lowest interest rates in the world.
• White House economic advisor Hassett said they will 100% support what the Fed decides on rates.
• US House Speaker Johnson said President Trump's proposed USD 5,000 dividend would require congressional approval, contradicting Trump's claim that payments can be made without authorisation.
• Anthropic's CEO said "we need to slow down" AI developments, while OpenAI's CEO and SpaceX's CEO agreed with the Anthropic chief's view.
• NVIDIA (NVDA) plans to invest up to USD 10bln in the Anthropic IPO, with the latter seeking to raise USD 100bln at a USD 2tln valuation.
• OpenAI CEO Altman said the company will not conduct an IPO this year and will prioritise safety.

APAC TRADE

EQUITIES

• APAC stocks were ultimately mixed after gradually improving from the initial risk-off mood seen at the start of the session, which had been triggered by AI-related selling after key industry executives called for a slowdown in AI development. There were also headwinds from the conflict in the Middle East after Saudi Arabia shut its East-West Pipeline following drone attacks last week, which threatens the loss of 4% of global supply, while Oman postponed the Persian Gulf meeting on Monday, where Iran had planned to formally unveil a temporary shipping lane agreement for the Strait of Hormuz.
• ASX 200 was kept afloat in range-bound trade amid resilience in defensives and the consumer sectors, while there were some comments from RBA Assistant Governor Hunter, who stated that Australian household spending is holding up okay and business investment is showing signs of strength, but also noted inflation remains above target.
• Nikkei 225 slumped at the open amid notable losses in Kioxia and with SoftBank dropping by double-digit percentages owing to its heavy AI exposure, although the index is well off today's worst levels amid mixed yields in Japan and with the TOPIX index in the green.
• KOSPI underperformed amid losses in semiconductor heavyweights, while today marks the start of the Korea Exchange extending trading hours to allow stock trading until 8pm local time.
• Hang Seng and Shanghai Comp pared opening losses and moved into the green, but with upside capped ahead of tomorrow's activity data, while US President Trump said he is not worried about Chinese President Xi cancelling their planned summit after reports that Beijing informed Washington it will cancel the planned summit if any new arms sales to Taipei are approved.
• US equity futures declined at the open with underperformance in the Emini Nasdaq 100 after Anthropic CEO Amodei called for the slowdown of AI development, while OpenAI CEO Altman and SpaceX CEO Musk agreed with Amodei's view.
• European equity futures indicate a lower cash market open with Euro Stoxx 50 futures down 0.4% after the cash market closed with gains of 0.9% on Friday.

FX

• DXY gained amid higher oil prices and the early spooked sentiment, while participants look ahead to this week's key central bank rate decisions beginning with the FOMC mid-week, with money market pricing leaning towards a hike. Furthermore, there were some mixed comments from the administration as US President Trump reiterated that the US should have the lowest interest rates in the world, while White House economic advisor Hassett said they will 100% support what the Fed decides on rates.
• EUR/USD retreated further beneath the 1.1600 handle amid the dollar strength and after failing to benefit from recent hawkish comments from ECB officials, including Lagarde, who stated the current inflation shock is longer-lasting, while ECB's Kocher warned high oil prices could force the central bank to continue hiking rates.
• GBP/USD was lacklustre as participants await UK inflation data on Wednesday and the BoE rate decision on Thursday, with the latter expected to stand pat, while there was quiet weekend newsflow from the UK, although there were comments from US President Trump that he could settle the UK-Argentina dispute regarding the Falklands and that he would love to see Ireland unified.
• USD/JPY edged higher and returned to above the 154.00 level amid the upside in oil prices and despite a widely anticipated BoJ rate hike scheduled later in the week.
• Antipodeans retreated amid a firmer buck and as risk sentiment was pressured at the start of trade, while there were also declines seen in metal prices.
• PBoC set USD/CNY mid-point at 6.7698 vs Exp. 6.7083 (prev. 6.7743)

FIXED INCOME

• 10yr UST futures eked out slight gains in otherwise uneventful trade, with upside limited amid higher oil prices and as participants await the rate decision from the Fed this week, while US President Trump reiterated his call for the US to have the lowest interest rates in the world.
• Bund futures traded marginally higher and got some reprieve from last week's selling pressure, but with the rebound contained following hawkish rhetoric from ECB officials.
• 10yr JGB futures conformed to the slightly positive performance in global counterparts, albeit with price action somewhat choppy ahead of the key rate decisions from the Fed and BoJ, with money markets heavily leaning towards both central banks hiking rates.

COMMODITIES

• Crude futures began the week higher as the conflict in the Middle East continues to threaten global energy supplies, with Saudi Arabia shutting its East-West Pipeline following attacks last week, which risks the loss of 4% of global supply, while it was also reported that Oman postponed the Persian Gulf Foreign Ministers meeting, where Iran had planned to formally unveil an agreement on a temporary Hormuz shipping lane.
• Saudi oil buyers and traders warned the kingdom could run out of oil stocks for exports if it doesn’t restart a major pipeline to the Red Sea within days, which could lead to a loss of up to 4% of global supply.
• Marhelm cited sources within Saudi Arabia that stated the damages to the East-West Pipeline will take over a month to repair due to a lack of spare parts and deeply impacted supply chains. Furthermore, it was stated that minor damages to the pipe have been repaired, but catastrophic damage to pumping infrastructure will take longer to fix.
• Iraq kept its October Basrah medium crude official selling price to Asia unchanged at parity to the Oman/Dubai average.
• Spot gold mildly declined after last week's post-CPI whipsawing and as participants await the FOMC.
• Copper futures retreated with demand hampered alongside the early negative mood across the region and with the focus this week on major central bank rate decisions.

CRYPTO

• Bitcoin gradually advanced after climbing back above the USD 77,000 level.

NOTABLE ASIA-PAC HEADLINES

• Chinese President Xi used the BRICS summit as a platform for laying out Beijing’s vision for AI and said that China will lead the creation of a BRICS ‘community’ for open-source AI.
• Chinese President Xi held a bilateral meeting with Indian PM Modi in a signal of a reset of ties between the two countries.
• China called on state-owned enterprises to sharpen overseas investment strategies and strengthen security safeguards.
• Japan's government is considering subsidising defence equipment production.
• Japan’s GPIF could sell as much as USD 62bln of US Treasuries without a formal revamp of its asset allocation policy, according to analysts at Banco Santander.

GEOPOLITICS

RUSSIA-UKRAINE

• US President Trump said he warned Ukrainian President Zelensky to stop targeting Russian oil refineries as strikes have shut down diesel refining and helped lift prices of the fuel to record levels.
• Ukrainian President Zelensky's chief of staff said Kyiv is preparing for trilateral talks to resume in October.
• Ukraine struck Russian refineries as Russia targeted ports in Odesa, while Ukraine said a Russian drone struck a passenger train headed to Warsaw near the Ukrainian-Polish border and that Russia also attacked a truck near Ukraine’s border with Poland.
• Russian state nuclear energy corporation head accused Ukraine of attacking diesel fuel trucks and endangering the Zaporizhzhia nuclear plant.
• Russia’s Kremlin said Indian PM Modi and Chinese President Xi offered their services for Ukrainian peace talks, according to TASS.

OTHER

• US President Trump said he could settle the UK-Argentina dispute regarding the Falklands, while he separately commented that he would love to see Ireland unified.
• North Korea fired multiple short-range ballistic missiles towards its east coast on Saturday.

EU/UK

NOTABLE HEADLINES

• UK faces a GBP 258bln infrastructure spending gap, according to FT citing a report on the state of Britain’s infrastructure.
• Exit polls showed that Sweden's centre-left opposition is on course for an election win in a blow to the far-right, while broadcaster SVT's revised projections suggest the opposition bloc is on course to win 175 seats and the incumbent right-wing bloc is on course to win 174 seats.
• Swedish election is reportedly too close to call as total count may take days.
• Bank of France issued a statement denying it sold debt holdings on the market, as it faces increasing criticism from presidential candidate Melenchon and his far-left party.
• Italy’s Economy Minister said they need to keep public finances in check as the ECB hikes rates.
• ECB President Lagarde said the current inflation shock is longer-lasting, with the volatility and pressure on energy prices to continue amid the conflict in the Middle East.
• ECB's Kocher warned that high oil prices could force the central bank to continue hiking rates.