EU Market Open: US yields surge as Fed hike bets build, while Middle East tensions support oil

• Crude futures remained firmer amid the ongoing conflict in the Middle East as Yemeni Houthis continued to target areas in Saudi Arabia, while Iran reiterated an unwillingness to negotiate an agreement with the US.
• IRGC Navy said the Strait of Hormuz is closed and remains under its control, according to Tasnim.
• APAC stocks traded mostly lower following the recent tech selling that was triggered by calls from industry CEOs for a slowdown in AI development; European equity futures indicate a flat cash market open.
• 10yr UST futures declined amid gains in oil prices and after the US 10yr yield hit 5% for the first time since 2023; DXY edged higher in APAC trade.
• Looking ahead, highlights include UK Jobs/Wages (Jul), French/Spanish Inflation Final (Aug), German/EU ZEW Economic Sentiment Index (Sep), and US ADP Employment Change Weekly. Speakers include ECB's Cipollone. Supply from the UK, Germany & US.

SNAPSHOT

• Click for the Newsquawk Week Ahead.

IRAN CONFLICT

• US President Trump said Iran wants to make a deal "quickly and badly" and that he will determine whether the US engages, although the administration is open to the concept.
• US imposes Iran-related sanctions on Russia's VTB Bank.
• US reportedly attacked fishing boats in the Iranian port of Kergan, Minab, according to Tasnim.
• US is said to be seeking a "step-by-step" agreement with Iran which could lead to negotiations while maintaining military and economic pressure, according to ILNA citing Pakistani sources.
• Iranian President Pezeshkian said US claims that Iran is seeking a nuclear weapon are a lie, while he questioned: "How can we negotiate with America, when they never adhered to their commitments?!"
• Iran's top security official Rezaee said don’t get distracted by the US President’s mixed signals from 'no negotiations' to 'we’re ready to talk', while he added that stakes around oil and the straits have changed, damage control won’t stop what’s coming, and there will be no talks until Iran's conditions are met, period!
• Iran has repeatedly said it does not want to negotiate an agreement with the US, while US President Trump again said that Iran wants to reach a deal quickly, according to Tasnim.
• Iran has no plans for talks under current circumstances, according to journalist Ghaderi, who stated that, as emphasised in conditions announced to the US, there will be no talks and the Strait of Hormuz will not be reopened until the war on all fronts ends, the blockade is lifted and Iran's financial resources are released.
• IRGC Navy said the Strait of Hormuz is closed and remains under its control, according to Tasnim. IRGC also stated that a supertanker attempting to pass through the restricted area south of the Strait of Hormuz exploded after hitting a mine, although US CENTCOM later denied IRGC's claim that a tanker in the Strait of Hormuz exploded after hitting a naval mine.
• Iran's Foreign Minister Araghchi held a phone call with Lebanon's House of Representatives Speaker Berri and discussed the need to strengthen coordination to confront Israel's efforts to ignite wars against Lebanon and countries in the region. Araghchi stressed Iran's keenness to preserve Lebanon's national sovereignty and territorial integrity in the face of Israeli aggression, while he affirmed Iran's full support for the proud Lebanese resistance in the face of Israeli occupation and aggression.
• Yemeni sources announced a new field advance by Houthi forces, saying that these forces have dominated the strategic heights of Kahbub, according to Fars News.
• Yemeni Armed Forces successfully intercepted two Saudi Arabian fighter jets, according to IRIB.
• Sources reported explosions in Saudi Arabia's Khamis Mushait and Abha following attacks by Yemeni armed forces, according to SNN.
• Saudi Arabia conducted airstrikes on Mokha, Yemen, according to Tasnim.
• UN Security Council will hold an emergency meeting on Tuesday regarding developments around the Bab Al-Mandab Strait, according to Fars News Agency.
• UK PM Burnham is considering Saudi requests for military support against Houthi attacks as the UK fears a "catastrophic" economic impact from a new front in the Iran war, according to Bloomberg.

US TRADE

EQUITIES

• US stocks were sold on Monday but finished off earlier lows, with weakness primarily driven by chip and memory names after a group of prominent AI CEOs, including those from OpenAI, xAI and Anthropic, called for a slowdown in the pace of AI development amid safety concerns. The majority of sectors finished lower, although Communication Services, Health Care and Consumer Staples outperformed. The AI developments weighed heavily on semiconductor and memory names given their significant exposure to the AI buildout, while cybersecurity names such as CrowdStrike (CRWD) and Palo Alto Networks (PANW) rallied. Software names also outperformed as concerns over increasingly advanced AI replacing existing software services eased. Elsewhere, Financials came under pressure after Bank of America (BAC), speaking at the Barclays conference, warned that sales and trading revenue is expected to be roughly flat Y/Y. Citi (C), however, pared earlier losses after guiding to low-single-digit Y/Y growth in investment banking revenue and mid-single-digit growth in markets revenue.
• SPX -0.47% at 7,621, NDX -0.82% at 29,127, DJI -0.31% at 52,412, RUT -0.41% at 2,892.
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TARIFFS/TRADE

• UK, Japan and Turkey are seeking deals to include their car-making sectors in the EU's Made in Europe rules, according to FT.

NOTABLE HEADLINES

• US President Trump said he hopes everyone realises that price increases across America were caused by Biden and the Biden administration, not by "TRUMP". He added that with the temporary exception of oil, prices are falling sharply and oil will drop "like a rock" once the conflict with Iran ends.
• US President Trump posted "Just like I delivered on the Great Big Beautiful Bill, which everyone said was impossible to pass, and the $1,776 to our great Military Warriors, I will get the $5000 for adult citizens if the Republicans win the House and Senate. JUST GET OUT AND VOTE!!!"
• US President Trump called NVIDIA (NVDA) CEO Jensen Huang to discuss AI, according to NYT.
• US President Trump posted "I am the Hoax Buster, and I’m right now breaking another Hoax — That AI is going to take over, consume, and destroy the World, and that Robots will be marching into our Cities, and getting rid of us all! This is even wilder than the RUSSIA, RUSSIA, RUSSIA HOAX, or the Global Warming Scam."
• US Senators are debating requirements for AI giants to commit to preventing catastrophe.
• US Supreme Court rejected Trump administration mail ballot curbs for the Midterms.

APAC TRADE

EQUITIES

• APAC stocks traded mostly lower following the recent tech selling that was triggered by calls from industry CEOs for a slowdown in AI development, which President Trump pushed back against, while participants digested mixed Chinese activity data and await major central bank meetings.
• ASX 200 underperformed amid weakness in the mining, materials, resources and financial sectors, while risk sentiment was also not helped by the rising yield environment.
• Nikkei 225 was choppy, while Kioxia benefited from reports that Kioxia is weighing a US listing next year. However, the index then stumbled and briefly turned negative before rebounding again.
• KOSPI saw two-way price action amid the choppy mood in the local tech giants.
• Hang Seng and Shanghai Comp were indecisive following several data releases from China, including a continued contraction in House Prices and mixed activity data in which Industrial Production topped forecasts but Retail Sales disappointed, while Fixed Assets Investment weakened and the Urban Unemployment ticked higher.
• US equity futures remained subdued following the tech-led declines on Wall St and upside in yields.
• European equity futures indicate a flat cash market open with Euro Stoxx 50 futures ultimately unchanged after the cash market closed with losses of 1.0% on Monday.

FX

• DXY marginally extended on recent gains amid higher oil prices and with the US 10yr yield breaching 5% for the first time since 2023, while participants await key central bank rate decisions beginning with the FOMC on Wednesday, with money markets pricing an 84% chance of the Fed hiking rates.
• EUR/USD remained subdued after giving up ground to the firmer buck and with the single currency also failing to benefit from the recent hawkish-leaning comments from several ECB speakers.
• GBP/USD retreated back beneath the 1.3500 handle following the prior choppy performance and lack of pertinent catalysts, although the latest UK employment and average earnings data releases are due today.
• USD/JPY continued its rebound alongside higher US yields and continued gains in oil.
• Antipodeans were contained amid the frail risk sentiment, mixed Chinese activity data and weaker New Zealand Electronic Card Spending data.
• PBoC set USD/CNY mid-point at 6.7670 vs Exp. 6.7051 (prev. 6.7698).

FIXED INCOME

• 10yr UST futures declined amid gains in oil prices and after the US 10yr yield hit 5% for the first time since 2023, while prices were also not helped by incoming supply and ahead of Wednesday's FOMC.
• Bund futures lack demand after recent choppy trade and with participants awaiting German ZEW data and today's EUR 5bln Schatz issuance, followed by EUR 2.5bln of Bunds tomorrow.
• 10yr JGB futures conformed to the lacklustre mood in global peers amid the somewhat mixed results of the 20yr and with the BoJ widely expected to hike rates later in the week.

COMMODITIES

• Crude futures remained firmer amid the ongoing conflict in the Middle East as Yemeni Houthis continued to target areas in Saudi Arabia, while Iran reiterated an unwillingness to negotiate an agreement with the US and the IRGC announced that a supertanker exploded after hitting a mine in the Strait of Hormuz, although US CENTCOM denied this.
• US President Trump commented that oil is flowing through the Hormuz Strait.
• Saudi Arabia is seeking to further boost oil supply through the Strait of Hormuz, according to Bloomberg citing sources.
• US Interior Secretary Burgum sees possibility of Venezuelan coal exports being part of US deal.
• EPA Administrator said the US is proposing to rescind all major greenhouse gas emission standards for all power plants.
• Spot gold eked slight gains and returned to above the USD 4,300/oz level, but with the upside capped after the recent choppy performance and as participants await the FOMC on Wednesday.
• Copper futures were lacklustre alongside the subdued risk appetite and mixed Chinese activity data.

CRYPTO

• Bitcoin gradually retreated back beneath the USD 78,000 level.

NOTABLE ASIA-PAC HEADLINES

• China's stats bureau said August economic activity was generally steady, though the impact of an unfavourable external environment is deepening. NBS stated residents' ability and willingness to spend should be enhanced, while it added the supply of high-quality goods and services should be improved.

DATA RECAP

• Chinese Industrial Production (Aug YY) 5.2% vs. Exp. 4.8% (Prev. 4.5%)
• Chinese Retail Sales (Aug YY) 0.4% vs. Exp. 0.8% (Prev. 0.6%)
• Chinese Fixed Asset Investment (YTD) (Aug YY) -7.2% vs. Exp. -7.2% (Prev. -6.7%)
• Chinese Unemployment Rate (Aug) 5.3% vs. Exp. 5.2% (Prev. 5.2%)
• Chinese House Price Index (Aug MM) -0.1% (Prev. -0.1%)
• Chinese House Price Index (Aug YY) -3.0% (Prev. -3.2%)
• New Zealand Electronic Retail Card Spending (Aug MM) -0.9% (Prev. 1.2%)
• New Zealand Electronic Retail Card Spending (Aug YY) 0.2% (Prev. 3.4%)

GEOPOLITICS

RUSSIA-UKRAINE

• Ukrainian President Zelensky said Ukraine proposed partners secure an agreement with Russia and that Ukraine is ready to ensure a corresponding halt to its strikes. He also said Ukraine would agree to an energy truce if Russia does, but is not convinced Russia is willing to abide by any agreement.
• Moscow and Kyiv have resumed talks on a possible energy ceasefire, but Putin is reluctant to reach a deal before winter, according to the FT citing sources.
• Sources cited by Russian press said US President Trump's statement on an energy truce is "an impromptu move", and that no decision was made on an energy truce in the latest talks in Moscow between the US delegation and Russian President Putin.
• Ukraine conducted a renewed attack on an oil refinery in Russia's Sisran, according to Tasnim. There were also reports that a missile strike damaged a logistics depot in Russia's city of Taganrog, while explosions were heard in Ukraine's capital of Kyiv.
• Polish Armed Forces launched air operations amid Russian drone strikes on Ukraine.
• US House Democrats are moving amendments to the Graham Russia/Iran sanctions bill that would scrap broad secondary tariffs, exempt the EU from "country" treatment, tighten waiver authority and authorise USD 15bln in new military financing for Ukraine, according to RFE.
• France is lobbying EU countries to lift sanctions on Uzbek-Russian oligarch Alisher Usmanov as part of a prisoner release with Azerbaijan, according to the FT citing sources.
• NATO military jets were scrambled in Lithuania due to a drone near Vilnius and a military fighter jet shot down the drone in Lithuanian airspace, according to the National Crisis Management Centre.

EU/UK

NOTABLE HEADLINES

• ECB staff committee urged for clarification whether President Lagarde will leave before the end of the term, warning that prolonged uncertainty risks damaging trust in the institution, according to FT.