Futures Flat As Yields Ignore Oil Meltup

Futures are flats with Tech in line and small caps lagging even as bond yields dip 1bp across the curve, ignoring the continued rise in oil. In a quiet session ahead of tomorrow's jobs report, Japan remains the standout, with the yen strengthening on more hawkish BOJ repricing and intervention speculation, pressuring exporters. Risk is modestly bid after yesterday’s reprieve in energy and rates (although Korean memory has faded again and only buybacks prop up the Korean market with retail now puking daily). As of 8:00am ET, S&P futures are unchanged, while Nasdaq futures down 0.1% with memory lagging with both Mag7 and Software (SNOW surging) higher. Cyclicals are higher led by Indus / Materials but there are also bids to HC / Staples. The Dollar is weaker, too, giving a sense of the return to the Debasement trade as US stocks lag EU and DM bonds are outperforming US. Crude prices are up but fuel prices are lower. Metals are bid led by Iron and Precious as Ags are under pressure. Today's US economic data calendar includes July trade balance, 2Q final productivity and unit labor costs and weekly jobless claims (8:30am), August final S&P Global US services PMI (9:45am) and August ISM services (10am), Fed speaker slate includes Waller (8:30am), Hammack (3pm) and Goolsbee (3:55pm). The risk comes from inflation (Prices Paid index) as investors consider a Fed rate hike with market-implied odds of a hike ~64%.In premarket trading, Mag 7 stocks are mostly higher: Meta released its most powerful artificial intelligence model yet. Shares are up about 0.7%; elsewhere Tesla +1.2%, Alphabet +0.3%, Amazon +0.2%, Microsoft +0.5%, Nvidia -0.4%, Apple -0.2%Advasa (ADBT) falls 11% after the Japan-based financial technology company, which is listed in the US, said CFO Katharyn Field had resigned.Argan (AGX) rises 6% after the construction company reported revenue for the second quarter that beat the average analyst estimate.Broadcom (AVGO) falls 3% after the chipmaker’s results and forecast were seen as underwhelming. The company predicted a boom in artificial intelligence chip sales over the next two years.Campbell’s (CPB) falls 5% after the food company cut its dividend and provided disappointing guidance.Ciena (CIEN) rises 1% after the maker of equipment used by telecom companies posted third quarter results.Envista (NVST) climbs 2% after JPMorgan upgraded the dental company to overweight, saying the firm is entering its investor day event later this month from a position of improved execution.Hewlett Packard Enterprise (HPE) falls 4% after reporting increasing sales that didn’t meet high expectations from investors.NetApp (NTAP) is down 8%, even after the data storage and management company raised its full-year forecast. The stock has been a strong performer this year, up nearly 70% as of its last close.Snowflake (SNOW) jumps 24% after the software company’s second-quarter results beat expectations and the company raised its full-year forecast for product revenue. Analysts note another quarter of product revenue acceleration driven by AI demand.Ultragenyx Pharmaceutical (RARE) plunges 44% after the biotech’s experimental drug aimed at treating a rare genetic disorder failed to meet its primary endpoint in a study. The disappointment prompted several brokerages to downgrade their ratings on the stock.Victoria’s Secret (VSXY) falls 18% after the company boosted guidance but showed a slower pace of growth.In other corporate news Elliott has built a stake in Deutsche Telekom and indicated the company should ditch a potential merger with T-Mobile US. A unit of Jefferies won a worldwide freezing order against Radiant World and its founder Pinkesh Nahar. Ultragenyx Pharmaceutical plunged in premarket trading after the biotech said apazunersen (GTX-102), its experimental drug to treat a rare genetic disorder, failed to meet its primary endpoint.Stocks are headed for a flat open despite resumption in oil’s advance, which will not calm the inflation angst that’s been driving yields higher. There was some reassurance for AI bulls as Broadcom predicts a boom in demand for its chips that support the technology, although how the company has visibility into 2028 (like Nvidia) remains a mystery. Anyway, all is fair to get that last marginal bid we suppose. Volumes remain light in equity trading, as does volatility. The latter might be set to change, with VIX reactivity likely in closer focus over coming weeks given a seasonally elevated period and as investors once again assess the value of convex hedges.As Bloomberg notes, Thursday’s nervy moves come after a cautious start to September, when global bond yields soared as renewed fighting in Iran drove oil higher, fueling inflation concerns and bets on a Federal Reserve interest-rate hike this month. With earnings season largely over, attention is shifting to Friday’s jobs report for clues on the US economy and the policy outlook.“There’s no structural trend in the direction of travel and the market typically follows short-term moves on oil,” said Nadege Dufosse, head of multi-asset at Candriam. “It’s a market which is complicated to navigate.”Broadcom said it expects AI chip revenue will double to about $115 billion in fiscal 2027 and soar to $230 billion the following year. CEO Hock Tan’s discussion of customer mix is noteworthy, with Google expected to move down the pecking order. Anthropic is projected to become the biggest customer for custom chips in 2027, with OpenAI emerging as the second biggest. Broadcom needs to allow its customers to grow into product deliveries, while Nvidia “has the ability to pull demand forward since it offers financing along with the sale,” notes JonesTrading chief strategist Mike O’Rourke.Speaking of AI, 80% of enterprise revenues at OpenAI and Anthropic come from 1% of their customers, a level of concentration risk unseen in any other software category according to Ramp data. Snowflake touted rapid adoption of its AI-assisted coding tool, suggesting AI-driven consumption trends are coming through. Positioning, according to Goldman Sachs’s Prime Desk, paints a picture of short and hedge positions being added faster than longs. Today’s Taking Stock explores how the setup leaves the market primed for a potential to melt-up, regardless of volatility.In other assets, a month of gradual decline in the yen has reversed sharply over the past 24 hours as intervention risk weighs on the minds of traders. And, sift through the filings of pension funds and insurers around the world and one thing stands out — some of the biggest holders of US assets have little protection against a weaker dollar. In geopolitics, G20 members agreed to adopt guidelines proposed by the US that call for a lighter touch toward governing AI and other emerging technologies. A disagreement between Chinese and US officials at the G20 meeting revolved around the phrase “non-market” in a sentence addressing trade imbalances.Attention turned again on the yen, which was on track for its best day since Tokyo and Washington entered the market to prop up the currency just over a month ago. Investors have turned their focus on factors supporting the currency, after weeks of questioning the long-term effectiveness of intervention to support it. Speculation that the nation’s biggest pension fund may boost its allocation to Japanese bonds also supported gains. The yen briefly pared its advance after Bloomberg News reported that BOJ officials are leaning toward raising the benchmark rate by a quarter point this month, cooling bets on a bigger hike.“Any sustainable turn lower in USD/JPY now probably requires a much more hawkish Bank of Japan and some new initiatives to encourage domestic investment in Japan,” said Chris Turner, head of foreign exchange strategy at ING Bank.European stocks gain slightly in early Thursday trading as oil and bond markets stabilized, as the Stoxx 600 rises 0.3% to 647.58. Deutsche Telekom advances on news that activist investor Elliott Investment Management has built a sizeable stake. Here are the biggest movers:Soitec surges as much as 15%, the most since July 23, as the French chip material company lifted its revenue guidance, citing accelerating Photonics-SOI demandDeutsche Telekom shares rise as much as 2.3%, with analysts saying a move into the stock by Elliott Investment Management could reduce the chances of a T-Mobile US merger and boost shareholder payoutsPublicis shares in Paris rise as much as 3.8%, most since Aug. 14, following gains in its US-listed shares, after beverage giant PepsiCo announced it’s shifting its $1.7 billion global media account to the advertising agencyClas Ohlson gains as much as 7.2%, the most since March, after the Swedish retail group’s latest earnings, which DNB Carnegie described as impressive, noting strong Ebit growth and better-than-expected gross marginsHilton Food Group rises as much as 14%, the most since January 2023, as Peel Hunt says the meat producer’s first-half results and guidance upgrade demonstrate improved visibilityTransgene surges as much as 23% after the French biotech company published a report showing that all 16 patients treated with TG4050 remained disease-free at three years in a Phase 1 trial in head and neck cancerCD Projekt Red rises as much as 4.7% in early trading in Warsaw following strong 2Q earnings, supported by a new IP licensing revenue stream and an upbeat outlook for The Witcher 3 expansionJet2 shares rise as much as 4.1%, the most in five weeks after the budget airline said it hopes to move its shares to the main market of the London Stock Exchange before the end of the fiscal yearFuchs advances as much as 3.3%, to the highest since October 2025, as Kepler Cheuvreux removes the only negative analyst rating on the German manufacturer of automotive and industrial lubricants, moving to hold from reduceDunelm Group shares rise as much as 4.7%, rebounding from a seven-week low, after Deutsche Bank upgraded the homeware retailer, saying it has received “little credit” for earnings upside potential from faster store openingsCrest Nicholson plunges as much as 14% and hit a new all-time low after the UK housebuilder said it now expects to report an Ebit loss this year and warned of some “slippage” in the timetable of refinancing talks with lendersVoltalia shares sink as much as 21%, to the lowest since Feb. 2014, after the electricity generator said it now expects to record a net loss in 2026, with Morgan Stanley noting Voltalia expects a net loss in 2H as wellIntercos shares drop as much as 8.4% after CP7 Beauty Luxco Sarl, a shareholder in the Italian cosmetics manufacturer, placed shares at a discountAsian stocks rose in line with overnight gains in the US market, led by advances in financials as wagers on interest-rate hikes grew. The MSCI Asia Pacific Index climbed as much as 1.2% before paring some of those gains, with Mitsubishi UFJ Financial, TSMC and Mitsubishi Corp. among the biggest contributors. An Asian financial stocks gauge rallied to a record on expectations that rising rates would boost bank margins. The technology sector lost momentum during the session with Korea’s Kospi erasing almost all of its gains. The move in financials came after Bank of Japan Governor Kazuo Ueda hinted Wednesday that an interest-rate hike is likely when the board meets later this month. Boomberg News reported on Thursday that the BOJ is leaning toward raising its benchmark rate by a quarter point this month. Bank stocks in the US rallied Wednesday, sending KBW Bank Index up the most since early July. Asian equity markets also rebounded as concerns over developed-market government bond yields eased and risk appetite returned, said Song Zhe, senior investment specialist at BNP Paribas Asset Management. Most markets in the region edged higher, led by Jakarta’s 1.1% in Indonesia. Taiwan and Hong Kong fell.In FX, the Bloomberg Dollar Spot Index falls 0.3%. The Japanese yen continued its ascent, rising 1.4% against the greenback and dragging USD/JPY below 157 for the first time in around four weeks, a more than 1% gain. It did trim gains briefly after Bloomberg reported the Bank of Japan is leaning toward raising its benchmark interest rate by a quarter point this month. The Swiss franc is the other notable mover, rising 0.5% after Swiss inflation surprised to the upside.In rates, treasuries are little changed after erasing gains, lagging European bonds despite higher oil prices. US yields are back within a basis point of Wednesday’s closing levels after erasing declines, trailing European bonds despite oil benchmarks having risen at least 2% toward early-June levels. US 10-year yields are around 4.77%, with curve spreads steady, 2s10s around 41bp, 5s30s around 72bp. IG dollar issuance slate includes one deal so far. Two names priced just over $1 billion on Wednesday, leaving this week on track to be the slowest two-week period of the year. Other focal points of Thursday’s US session include weekly jobless claims data and ISM services gauge and three Fed officials scheduled to speak.In commodities, Brent crude futures are higher rising above $97 a barrel having erased an earlier fall. Precious metals advance as does Bitcoin. Meanwhile, natural gas futures in Europe gained for a fourth day to head for the highest close since early 2023. US retail diesel prices hit the highest since mid-2022, topping a peak seen during the early stages of the Iran war to approach a record. The national average pump price climbed to $5.783 a gallon on Wednesday. Base metals prices also advanced, with copper in London trading less than $300 a ton below the record set in January. Gold rose 1% to about $4,427 an ounce.Today's US economic data calendar includes July trade balance, 2Q final productivity and unit labor costs and weekly jobless claims (8:30am), August final S&P Global US services PMI (9:45am) and August ISM services (10am), Fed speaker slate includes Waller (8:30am), Hammack (3pm) and Goolsbee (3:55pm)Market SnapshotTop Overnight newsUS Secretary of War Hegseth will extend troop deployments in the Middle East through 2027, increasing strain on US forces: WSJ.The US and Iran have intensified tit-for-tat military strikes, with Iran hitting merchant vessels and the US striking Islamic Revolutionary Guard Corps sites: BBGTrump aides seek 'quiet' in Iran war but say attacks may intensify after November elections: RTRSPutin cites chance of peace deal, Ukraine sees 'new dynamic': RTRSThe Bank of Japan is leaning toward raising its benchmark interest rate by a quarter point this month in response to upward price risks: BBGNvidia Corp. has agreed to acquire artificial intelligence startup Hugging Face in a transaction valued at about $13 billion.A lender alleged in a filing to Singapore's High Court that iron ore trader Radiant World used Glencore invoices that had already been paid, supported by fake contracts, to raise $31.7 million: BBGNorway seizes Russian ship to enforce $4.2 billion claim by Ukrainian energy firm: RTRSChinese Warships Are Cruising Too Close for Comfort Off Japan’s Shores: WSJA US judge blocked the Trump administration from enforcing the executive order restricting birthright citizenship.UK Business Secretary Reynolds seeks to quell fears of an exit tax on companies spun out from UK universities that move abroad: FT.Kennedy asked to remove Pennsylvania measles death from CDC tally: RTRSWhite House confirmed that US President Trump signed a stopgap funding bill into law, funding the government to December 11th.Hundreds of Colleges Are Sending Acceptance Letters to Kids Who Didn’t Even Apply: WSJA more detailed look at global markets courtesy of NesquawkAPAC stocks eventually traded mixed after initially posting gains. The stocks lost steam heading into the European open despite a lack of newsflow at the time. ASX 200 was led by outperformance in the top-weighted financial sector and miners, but with further gains capped amid quiet newsflow and mixed trade data. Nikkei 225 initially traded with cautious gains before faltering amid recent currency moves and hawkish BoJ rate hike bets following the recent commentary from BoJ Governor Ueda and hawkish dissenter Takata. KOSPI outperformed early in the session with some tech and energy names among the notable gainers. The index fell into red later in the session. Hang Seng and Shanghai Comp were mixed with some encouragement from stronger-than-expected Chinese RatingDog Services PMI data, although the PBoC's open market operations amount remained at zero. Both indices then traded in the red.Top Asian NewsJapan's GPIF’s unusual August management committee meeting has fuelled speculation it may raise its 25% domestic bond allocation target, Bloomberg reported.Japan's government is reportedly looking to convene an extraordinary Diet session in early October, Asahi reported, with the focus expected to be on consumption tax cuts and a reduction in the number of seats.BoJ accounts show there was no large-scale yen intervention on Wednesday.Japan's Top Currency Diplomat Mimura said they continue to stand ready on FX but declined to comment on if rate checks were conducted.Japanese Finance Minister Katayama said no direct requests to do anything has been given from US Treasury Secretary Bessent.Japan Chief Secretary Kihara said there has been no change to PM Takaichi government policies about attaining a strong economy and fiscal sustainabilityBoJ will hold a meeting on market operations scheduled for October 14th 2026.China Prelim Retail Passenger Vehicle Sales (Aug) +11% M/M (prev. -8.8%); -4% Y/Y (prev. -20.9%) .European bourses hold a slight positive tilt. Spain's IBEX 35 outperforms while the AEX is modestly lower. Updates on the Middle East conflict have been light thus far, however, Reuters reported that Iran threatened the US with a large-scale attack if Israel launches an attack on the Ali al-Taher ridge in southern Lebanon. The more pronounced move came following comments by Russian President Putin, in which he said there is an opportunity to reach a peace agreement with Ukraine and that contacts with the US continue. Sectors point slightly higher. Media tops the sector pile, with Telecoms and Basic Resources completing the sector outperformers. To the downside lies Consumer Products & Services, followed by Energy and Utilities. US equity futures are mixed, but ultimately trade on either side of the unchanged mark. Focus after-hours was on Broadcom (-2.1% pre-market) earnings, in which they reported Q3 metrics that beat estimates, however its Q4 revenue and margin outlooks came in below expectations.Top European NewsUK Business Secretary Reynolds seeks to quell fears of an exit tax on companies spun out from UK universities that move abroad, according to FT.Germany's IFW lifted its 2026 GDP forecast to 1.3% (prev. saw 0.8%) and leaves 2027 GDP at 1%, citing acceleration in economic activity and improving business confidence.German Ifo raised its 2026 growth forecast to 1.4% (prev. 0.8%) and 1.2% in 2027 (prev. 0.8%).FXFurther Yen strength which has led to the Buck underperforming against all G10 peers.JPY sees outperformance vs USD with the pair halted just short of 156.00 from a peak above 160 on Wednesday. The move comes absent of a headline driver, but there are several factors which weigh on the pair at the moment. Some suggest potential intervention/rate checks, however price action is more gradual, therefore not consistent with previous bouts, while others say the GPIF’s meeting has fuelled speculation it may raise domestic allocation targets. Other factors which have weighed in the past weeks are the clearer US influence on Japanese policy after Bessent met with various Japanese officials, this hawkish intent also evident in Ueda and Takata's remarks, the latter more so. This morning however, Bloomberg sources said the BoJ is set to favour a 25bps hike and a "flexible" future pace in policy; a report which sparked a dead cat bounce in USD/JPY which lifted back above 157.00.DXY (-0.3%) is being driven by JPY moves today with the index falling to a 99.16 trough before paring some of the move after the aforementioned Bloomberg sources. Some of that pressure can also be attributed to falling domestic yields.CHF is the second best performer, after hotter than expected GDP and CPI data. Following the inflation print, USD/CHF moved lower by 15 pips within a minute then extended the move to c. 25 pips within ten minutes at a 0.8083 low following the release. GDP also indicated a hot Swiss economy in Q2, albeit caveated by the chemical and pharma metrics which surged +10.5% during the period.Fixed IncomeGlobal fixed income benchmarks are firmer this morning, rebounding from recent losses as the yield situation attempts to improve.USTs (+3+ ticks) are stronger this morning, holding at the top end of a 107-15+ to 107-21 range. Elsewhere, Bunds (+20 ticks) and Gilts (+51 ticks) benefit from cooling energy prices. The geopolitical situation remains tense; however, focus has been on comments from President Trump. He stated that their renewed campaign against Iran will not continue for too long. Separately, the WSJ reported that Trump is said to be having discussions with senior aides regarding whether to call the Iran war over – the piece suggests he is favouring the idea. US yields have moved off their multi-year peaks, with the 10yr (4.77%) holding off the 4.81% high made on Wednesday.JGBs (+40 ticks) are firmer this morning, with an accumulation of factors helping sentiment for the region. As mentioned earlier, oil prices are helping global yields lower; focus has also been on a surprise GPIF management committee, which Bloomberg opined has helped raise speculation that it may raise its 25% domestic bond allocation target. Elsewhere, a 30-year auction overnight was relatively well received, further boding well for the benchmark. On the monetary policy front, money markets have continued to up their bets of a BoJ rate hike this month. This was further corroborated by a Bloomberg sources piece earlier, which highlighted that the Bank is favouring a 25bps hike and a flexible future pace.Bunds and Gilts follow the bullish bias, benefiting from lower oil prices. Most recently, constructive comments from Russian President Putin spurred another bout of pressure in the oil complex – which in turn helped to lift the fixed income space. He stated that there is an opportunity to reach a peace agreement with Ukraine, adding that there are contacts with them. Bunds (U26) jumped c. 10 ticks to make a fresh peak at 122.95.France sells EUR 13.497bln vs exp. EUR 11.5-13.5bln 1.25% 2036, 3.70% 2036, 0.50% 2040 and 4.10% 2046 OAT.Spain sells EUR 5.634bln vs exp. EUR 5-6bln 2.35% 2029, 2.60% 2031 and 3.30% 2036 Bono and EUR 0.639bln vs exp. EUR 0.25-0.75bln 2.05% 2039 I/L Bono.UK sells GBP 900mln 1.875% I/L Gilt: b/c 3.58x (prev. 3.20x), real yield 2.496% (prev. 2.165%).Japan sells JPY 456.2bln 30-yr JGBs; b/c 3.79x (prev. 3.86x), average yield 4.079% (prev. 3.952%), Tail in price 0.28 vs prev. 0.21.CommoditiesCrude futures have pulled back from extremes following a three-day rally and amid a lack of military action overnight. On Wednesday, President Trump said renewed Iran strikes would likely be brief, and officials pointed towards steady Strait of Hormuz flows. That being said, Trump added the US was prepared to conduct another attack on Iran. Meanwhile, US Treasury Secretary Bessent said Ukrainian strikes on Russian energy assets and the Iran conflict are driving a global energy shock and higher prices. Meanwhile, some weakness was seen across the crude complex after Russian President Putin struck a more conciliatory tone as he suggested Russia and Ukraine should agree first and that there is an opportunity to reach a peace agreement. Brent Nov trades in a USD 94.03-96.20/bbl range (vs yesterday’s 93.52-97.04/bbl range) while WTI Oct resides in a USD 89.57-91.53/bbl parameter (vs yesterday’s 88.97-92.29/bbl band).Dutch TTF prices are also on a softer footing but off worst levels, with the front-month contract remaining elevated above EUR 72.50/MWh where the support was found before moving north of EUR 73/MWh. Analysts at ING suggested in yesterday’s note “Escalation in the Persian Gulf pushes back hopes of any recovery in LNG exports from the region. This remains a concern for Europe, given lower-than-usual storage levels. LNG netbacks favour sending spot LNG to Europe over Asia. But as we move closer to the Northern Hemisphere winter, competition between the two regions is likely to pick up, particularly if Qatari LNG remains largely absent from the market through year-end”.Metals are mixed, with precious metals cheering the pullback in the USD as they attempt to trim recent losses. Spot gold resides in a USD 4,381-4,443/oz range after topping its 100 DMA (USD 4,358/oz) yesterday. Spot silver resides in a relatively narrow USD 65.21-66.25/oz range, still under Tuesday’s USD 67.08/oz high and below the 100 DMA (USD 67.64/oz). Base metals fail to benefit from the USD pullback as elevated energy prices weigh on the growth picture, whilst hawkish central banks also cap gains for the complex. 3M LME copper trades in a tight USD 14,208.88- 14,278.00/t range at the time of writing.Kazakhstan’s August oil and gas condensate production rose 11% M/M, according to sources.Russian Deputy PM Novak said OPEC's role in the market remains important and will continue to exert significant influence on the oil market because of its high output. Novak added that Russia is to slightly lower oil output in 2026.Trade/TariffsUS House Republicans pressed USTR Greer on Wednesday on Capitol Hill about the harm a trade war with Canada could do to their local economies, according to Politico citing sources.US Commerce Secretary Lutnick said a further easing of US export curbs is not on the table and that relaxing tech export controls for China is not necessary.India's Trade Minister said a final trade agreement between US and India will be published as soon as the US can provide India with tariff advantages.Central banksBoJ is reportedly favouring 25bps hike and a flexible future pace, sources suggest.RBNZ Governor Breman said a gradual removal of monetary stimulus is appropriate to return inflation to target while still supporting growth and employment. Breman said she sees risk of more indirect inflation from fuel and stated there is real risk that unless we respond in monetary policy, inflation expectations will get out of hand.Geopolitics: Middle EastUS President Trump said regarding Iran that the US is winning that one very big and controls the Hormuz Strait.US Secretary of State Rubio instructed all US embassies around the world earlier this week to send an official diplomatic demarche about Operation Economic Outcast to the most senior level of their host governments, according to Axios citing US officials.US Ambassador to NATO Whitaker said Iran is a bankrupt country and will not be able to pay anyone in its military, civil service or government, nor subsidise its society. He stated the people of Iran will not be happy with the current state of affairs and should blame their government and regime, adding that they should ask for change and a different way forward.US Envoy Witkoff met last weekend with the UAE's national security adviser to discuss next steps on Iran, according to Axios. The report added that "One of the officials said a special message was sent to U.S. diplomatic posts in Abu Dhabi, Muscat, Hong Kong, Doha, London, Berlin and several Central Asian capitals. The missive instructed them to demand that their host governments shut down all branches of Iran's Melli and Saderat banks that are affiliated with the IRGC."Iran reportedly threatened the US with a large-scale attack if Israel launches an attack on the Ali al-Taher ridge in southern Lebanon, Reuters reported citing sources.Iranian Chairman of the National Security and Foreign Policy Commission said the Strait of Hormuz cannot be opened without Iran’s will, IRIB reported.Kuwait Army said it was repelling missile and hostile drone attacks, while local news outlets were attributing the attacks to Iranian aggression and Arab sources said the US base in Kuwait was hit by a strike with smoke reported.A senior Yemeni official said Yemen’s armed forces are conducting new military drills in the Red Sea to prepare for a possible confrontation with Israel and the US, IRNA reported.Military sources said clashes broke out between Yemeni government forces and Houthis in the Al-Kadha area west of Taizz, Yemen.Geopolitics: UkraineRussian President Putin said that Russia and Ukraine should agree first and noted that there is an opportunity to reach a peace agreement. Putin added that contacts with the US continue, adding that Russia is in favour of restoration of relations with the US. He said US President Trump is ready for positive and constructive works and that there are contacts with Ukraine.Russian President Putin said attacks on three oil refineries have been repelled, adding that Russia must respond in kind.US Ambassador to NATO Whitaker said Russia’s aggressive actions, invasion of Ukraine and prior annexation of Crimea lead the US to believe that Russia can be unpredictable and could be willing to take action against a NATO country. Furthermore, he said recent statements by Russian President Putin do not leave him optimistic, while he added that Ukraine needs to be able to defend itself as long as it takes until the war can be brought to an end.US Event Calendar8:30 am: Jul Trade Balance, est. -90.2b, prior -73.3b8:30 am: Aug 29 Initial Jobless Claims, est. 205k, prior 203k8:30 am: Aug 22 Continuing Claims, est. 1783.5k, prior 1778k9:45 am: Aug F S&P Global US Services PMI, est. 56.8, prior 56.89:45 am: Aug F S&P Global US Composite PMI, est. 56.05, prior 5610:00 am: Aug ISM Services Index, est. 54.05, prior 54.1Central bank speakers 8:30 am: Fed’s Waller in Moderated Conversation3:00 pm: Fed’s Hammack Gives Opening Remarks3:55 pm: Fed’s Goolsbee Gives Closing RemarksDB's Jim Reid concludes the overnight wrapIf you listen carefully enough at around 8:30am this morning you may hear my wife let out an almighty cheer as the kids go back to school after 2 months of screaming, fighting, incessant talking and general all-round chaos. The odd, pleasant memory can be interspersed with the above. What won't be remembered well is 3 separate outbreaks of headlice that the whole family suffered from apart from me (bald) and the dog. This must be the most powerful strain in history as we've spent a fortune on three separate shampoos treatments with the associated painstaking application process. As I mentioned before hols it even involved my wife being blinded for a few days after accidentally getting some in her eye. So that was scary. So hopefully that's one summer visitor that's gone for good now. Apologies if you're now itching on the way to work. To distract you, markets put in a divergent performance yesterday, with a sharp contrast on either side of the Atlantic. In the US it was actually a decent session, with Treasury yields coming down a bit from their Tuesday highs, whilst the S&P 500 (+0.46%) stabilised after three consecutive declines. But for Europe it was a very different story, as the continent’s exposure to natural gas prices meant bonds and equities took a fresh hit. Indeed, yields climbed to fresh records across the board, with the 10yr bund yield (+3.2bps) at another post-2011 high of 3.37%, whilst France’s 10yr OAT yield (+4.4bps) hit a post-2008 high of 4.25%. We’ll start with Europe, where the relentless rise in natural gas prices showed no sign of easing. In fact, yesterday saw the front-month future (+1.96%) close at €73.60/MWh, which is its highest level since January 2023. And that was echoed further out the futures curve too, with the 6-month future (+2.54%) up to €67.43/MWh, also its highest level since 2023. So with investors pricing in a protracted period of high gas prices, that had knock-on effects for assets across Europe, which faces much higher natural gas prices than the US. The recent flareup between the US and Iran has led to fresh scepticism that energy flows through the Strait of Hormuz will normalise anytime soon. And that comes as Northern European countries are struggling to refill their gas reserves in time for the heating season after they had fallen to historically low levels following the cold winter last year.For now, the situation remains a long way from what happened in 2022, back when gas prices spent the entirety of Q3 above €150/MWh. But prices are now more than double their levels of a year ago. And with both headline and core inflation still lingering above target, that’s raised fears about a more forceful ECB response. So yesterday saw markets fully price in 3 more ECB hikes by the time of the June 2027 meeting, which if realised would take their deposit rate back up to 3% again. That backdrop was very problematic for European sovereign bonds, with yields hitting multi-year highs across the continent. In Germany for example, the 10yr yield (+3.2bps) was up to 3.37%, and the 30yr yield (+1.9bps) reached 3.83%, which was the highest since 2011 for both. And it was a similar story for real yields too, with Germany’s 10yr real yield (+1.7bps) at a post-2011 high of 0.99%, suggesting this wasn’t just a story of high inflation expectations. Then in France, the 10yr yield (+4.4bps) hit a post-2008 high of 4.25%, whilst the 30yr yield (+3.2bps) even moved above 5% on an intraday basis, before closing slightly beneath that at a post-2008 high of 4.98%. As all that was going on, the geopolitical situation remained volatile in the Middle East, with no sign of the US or Iran de-escalating. Indeed, US Secretary of State Marco Rubio said that the US would continue targeting Iran over its shipping attacks. But there were no major new developments, while Trump said he didn’t think the renewed strikes against Iran would last too long. Initially, oil prices had moved sharply higher after the previous night’s attacks, with Brent crude peaking above $97/bbl in the small hours of yesterday. However, they then came down through the session, but ultimately still settled +1.04% higher at $95.63/bbl. This morning we're -0.39% lower at $95.29/bbl. The turnaround from the highs in oil was sufficient for US Treasuries to finally stabilise yesterday. The 10yr yield was down -0.9bps by the close at 4.77% while the 2yr was -0.4bps at 4.37%. The pullback in yields was helped by a softer ADP release of private payrolls, which rose by +38k in August (vs. +47k expected), leading to questions about whether tomorrow’s jobs report might also come in on the softer side. So that led to a bit more doubt about whether the Fed might hike in a couple of weeks’ time, with market pricing for a September hike down on the day from 68% to 63%. In addition, we also heard some more dovish comments from NY Fed President Williams, who said “I am actually seeing the trend in inflation moving slowly down as some of the effects of the tariffs move into the rearview mirror.” With that in mind, US equities finally stabilised yesterday, with the S&P 500 (+0.46%) recovering after 3 consecutive declines. That was lifted by a decent rally for the Mag 7 (+0.76%) which in turn were lifted by Nvidia (+3.21%) and Meta (+2.47%). But it was a different story in Europe, where the STOXX 600 (-0.24%) hit a five-week low, alongside declines for the DAX (-0.50%), the CAC 40 (-0.26%) and the FTSE 100 (-0.30%). In Asia, sentiment is more positive with the KOSPI (+1.52%) leading gains, with technology names benefiting from the positive read-through from Broadcom’s aggressive outlook for chip sales overnight. This offset a slightly tepid current quarter for the US chipmaker. Meanwhile, the Nikkei (+0.34%), CSI 300 (+0.48%), Shanghai Composite (+0.42%), and S&P/ASX 200 (+0.43%) are all edging higher. US and European futures are all up less than a tenth of a percent. In terms of overnight data, Japan's services sector expanded at its fastest pace in five months in August, adding to evidence of resilient domestic activity and potentially strengthening the case for further BOJ policy tightening.This and intervention fears is bleeding through into the Japanese yen, which is up +0.55% against the US Dollar this morning following a sharp +0.93% jump yesterday. It first rose yesterday after the BoJ’s Takata had suggested there could be a bigger hike than usual, saying that a 25bp hike “is not necessarily set in stone”. Then later in the session, there was a fresh surge that led to questions about whether there’d been some kind of intervention or rate check. Nothing has materialised but now the market is on watch with chatter that intervention could occur around the thin trading conditions of the "Silver Week" holidays that see markets closed for three days immediately after the BoJ meeting concludes on Friday September 18th. The narrative has helped 10-year JGB yields ease about -4bps to 2.97% this morning, after briefly crossing the 3% threshold earlier this week for the first time since 1996.Other early morning data showed that China's services sector expanded faster than expected in August, supported by stronger business activity and new orders, while employment increased for a fourth consecutive month, signaling a modest improvement in domestic demand. The RatingDog Services PMI rose to 51.4 in August from 50.4 in July, surpassing market expectations of 50.6. However, the reading remained the second-lowest level in the past 14 months, highlighting that the pace of expansion is still relatively moderate. Meanwhile, the Composite PMI increased to 52.1 from 50.8, pointing to an acceleration in overall private-sector activity. Elsewhere, Australia’s trade surplus came in above expectations in July, although the surplus narrowed from the previous month as exports fell more sharply than imports. The country posted a trade surplus of A$1.92 billion, above the consensus forecast of A$1.50 billion, but down from a revised surplus of A$2.34 billion in June. Exports fell -3.3% m/m, reversing June’s +9.6% increase, while imports decreased -2.5%, following a 0.7% decline in the prior month. These will be followed later today by the services PMIs across Europe and the US, as well as the ISM reading in the latter. In yesterday’s other news, the Bank of Canada kept their policy rate at 2.25%, in line with expectations. However, the decision was received hawkishly, as their statement said that “the upside risks to inflation have increased”, and investors dialled up their expectations for a rate hike later this year. So that helped the Canadian dollar strengthen +0.39% against the US Dollar, whilst the 10yr yield surged +4.8bps yesterday to 3.79%. That was a bigger increase than 10yr yields saw in other G7 countries yesterday, and left the level of yields at its highest since April 2024. Looking at the day ahead, US data releases include the ISM services index for August, the weekly initial jobless claims, and the July trade balance. Otherwise, we’ll get the final services and composite PMIs for August from the US and Europe, along with the Euro Area PPI reading for July. From central banks, we’ll hear from the Fed’s Waller, Hammack and Goolsbee.