Futures Rise Ahead Of French Government Collapse, Looming Inflation Data

US equity futures are higher ahead of today’s French vote of confidence which should end the Bayrou government, and into major inflation updates this week. As of 8:0am ET, S&P futures are up 0.2% and on pace for another record high after Friday’s post payrolls drop; Nasdaq futures gain 0.4% with all Mag7 names higher premarket, ex-AAPL which is flat into its product event tomorrow. Large caps are higher across virtually all sectors. In overnight news, US is reportedly considering annual export approvals to chip facilities in China. The yield curve is twisting steeper and the DXY is flat as USD / JPY appreciates after PM Ishiba announced his resignation, but is well off its session highs. Commodities are stronger, led by Energy, after OPEC+ confirmed a smaller than expected production increase of 137k bpd in Oct. Gold / silver continue to run higher, with the former hitting another record high of $3622; Ags are weaker. Today’s macro data focus is on NY Fed’s 1-Yr inflation expectations and Consumer Credit. 

In premarket trading, Magnificent Seven stocks are rising with the exception of AAPL (Tesla +1.3%, Microsoft +0.9%, Nvidia +0.5%, Amazon +0.4%, Meta +0.3%, Alphabet +0.4%, Apple -0.04%). 

• AppLovin (APP) rises 9%, Robinhood Markets (HOOD) advances +8% and Emcor Group Inc. (EME) is up 1.8% after S&P Dow Jones Indices said the stocks would be added to the S&P 500 Index.
• Chewy Inc. (CHWY) climbs 3% after Mizuho raised the recommendation on the online retailer of pet food to outperform.
• Dianthus Therapeutics (DNTH) shares were halted after announcing data for antibody claseprubart from a Phase 2 trial in generalized myasthenia gravis.
• EchoStar (SATS) rises 20% after SpaceX’s Starlink agreed to buy wireless spectrum from the company for about $17 billion.
• Forward Industries (FORD) soars 107% after the design company said it received $1.65 billion in cash and stablecoin commitments for a private investment in public equity offering to fund a Solana-focused digital asset treasury strategy.
• Ideaya Biosciences (IDYA) rises 6% after the drug developer gave initial data from an early-stage trial of its investigative therapy for lung cancer, with partner Hengrui Pharma.
• Nutanix (NTNX) is up 3% on inclusion in the S&P Midcap 400 Index.
• Premier Inc. (PINC) climbs 8% as investment firm Patient Square Capital is exploring an acquisition of the health-care services company Premier Inc., according to people familiar with the matter.
• Rapport Therapeutics (RAPP) jumps 155% after reporting positive topline results from its trial for focal onset seizures.
• Summit Therapeutics (SMMT) falls 22% after the release of new data cast doubt on the future of a closely watched lung cancer drug.

With stocks back at all time highs, investors will have to consider whether a cracking labor market could stall consumer spending, posing a headwind to equities. “For the time being, though, oodles of AI CapEx from the hyperscalers, plus solid earnings growth, calmer tones prevailing on trade, and a more accommodative policy stance, should all keep the path of least resistance leading higher,” Pepperstone strategist Michael Brown wrote. Among other events scheduled for the week, the ECB is expected to hold rates steady on Thursday, though President Christine Lagarde’s remarks will be parsed for signals on her readiness to contain French turbulence.

On Tuesday, the Bureau of Labor Statistics will release its preliminary payroll benchmark revision for the year through March, with another downward adjustment likely to show the labor market was weakening well before the recent slowdown in jobs growth.

Thursday’s consumer-price data is projected to show that progress on reducing inflation has stalled as higher US import duties filter through the economy. Still, investors see Fed officials lowering rates at their upcoming meeting, with some even expecting a jumbo half-point cut.

“Our economists believe you’d need to see pretty weak inflation this week to get that,” wrote Jim Reid, global head of macro research and thematic strategy at Deutsche Bank AG. “Of course, the focus will very much be on the continued impact of the tariffs in core goods categories, and we know these are still filtering through.”

In Europe, the Stoxx 600 rises 0.2% while the CAC 40 adds 0.3% ahead of a confidence vote in the French parliament later on Monday, where Prime Minister Bayrou’s government is likely to fall. The advance was fueled by energy stocks amid rising crude prices. The region’s bonds were broadly steady. Major markets are all higher led by Germany with UK lagging.

Earlier in the session, Asian equities rose, with Japanese stocks leading gains as investors looked to new leadership after Prime Minister Shigeru Ishiba announced his intention to step down. The MSCI Asia Pacific Index advanced as much as 0.8%, rising for a third session, with technology stocks including Alibaba, Tencent and Nintendo among the major contributors. Equity benchmarks in Japan added more than 1%, supported by a weaker yen and hopes for economic growth under the next government. While Ishiba’s departure had been expected since the ruling party’s poor election showing in July, uncertainty remained as he indicated his intention to stay on after securing lower US auto tariffs. Focus now shifts to who his successor will be, and the impact on plans for fiscal expansion and stimulus as well as central bank policy. Shares also gained Monday in Hong Kong, Taiwan and India, but slipped in Australia and Vietnam. Thailand’s SET gauge advanced as Anutin Charnvirakul’s election as prime minister was seen bringing stability after recent political turmoil. Asian equities overall have been tracking gains in global peers, as bets solidify for a Federal Reserve interest-rate cut later this month. The MSCI Asian stock benchmark is now around 3% away from topping its record high reached in 2021.

In FX, the euro is flat versus the dollar. OATs are also little changed with minimal movement in the 10-year yield spread with Germany. The yen has pared an earlier decline seen after Japanese Prime Minister Ishiba announced that he will step down. USD/JPY is up 0.2% at 147.70. The Bloomberg Dollar Spot Index falls 0.1% while the kiwi and Aussie dollar are leading gains against the greenback, rising 0.5% and 0.4% respectively.

In rates, treasuries are mixed in early US session, with intermediate to long-end yields cheaper and front-end tenors richer. 10-year yield near 4.07% is about 1bp lower on the day. UK and German counterparts outperforming by slightly; European regional yields are lower as curves bull flatten while Gilts curve bear flattens. Last week’s yield declines are stoking corporate bond sales anticipated to total $45 billion to $50 billion, concentrated ahead of August PPI and CPI reports Wednesday and Thursday. Political instability in Japan and France is also in focus. Fed officials are in external communications blackout ahead of Sept. 17 rate decision. 

In commodities, WTI crude futures climb 2% to $63 a barrel after OPEC+ agreed to raise production at a modest rate. Spot gold rises $27 to a record.  

The US economic data slate includes August New York Fed 1-year inflation expectations (11am New York time) and July consumer credit (3pm). In addition to PPI and CPI, Empire manufacturing and University of Michigan sentiment are  ahead this week. On Tuesday, the Bureau of Labor Statistics will release its preliminary payroll benchmark revision for the year through March, and another downward revision is expected

Market Snapshot

• S&P 500 mini +0.2%
• Nasdaq 100 mini +0.4%
• Russell 2000 mini little changed
• Stoxx Europe 600 +0.3%
• DAX +0.7%
• CAC 40 +0.3%
• 10-year Treasury yield +1 basis point at 4.09%
• VIX +0.4 points at 15.53
• Bloomberg Dollar Index little changed at 1201.19
• euro little changed at $1.1726
• WTI crude +2% at $63.1/barrel

Top Overnight News

• Trump said Waller, Warsh and Hassett are the three finalists for Fed chair nomination. In relevant news, White House’s Hassett said Fed monetary policy needs to be fully independent of political influence, including from President Trump: CBS News interview.
• Trump issued a “last warning” via social media to Hamas to accept his peace terms. The proposed deal would include the release of all remaining hostages in exchange for ending the war in Gaza. Axios
• Trump signed Executive Orders on Friday regarding changing the name of the Department of Defense to the Department of War, and on ordering penalties against countries complicit in holding wrongfully detained Americans.
• A huge downward revision to the March US jobs count is expected Tuesday, a markdown that sets the table for the Fed to cut rates. BBG
• The French government will probably fall in a confidence vote today after a push to rein in France’s massive debt load, leaving investors facing months of budget deadlock. BBG
• The US is proposing annual approvals for exports of chipmaking equipment to Samsung and SK Hynix’s factories in China, people familiar said. The so-called site licenses would supplant indefinite authorizations granted under the Biden administration
• China is prepared to open its domestic bond market to major Russian energy firms in the latest sign of improved relations between Beijing and Moscow (Russian energy firms have been locked out of many financial markets by Washington and Brussels, which makes this move by China particularly significant). FT
• China’s export growth slowed to a six-month low as US shipments slumped again, though stronger sales elsewhere kept Beijing on track for a record $1.2 trillion trade surplus this year. BBG
• The yen fell and Japanese stocks gained as PM Shigeru Ishiba’s resignation triggered speculation about fiscal stimulus and slower monetary tightening under his successor. Long-maturity sovereign bonds stand out as being particularly vulnerable to selling. BBG
• German exports unexpectedly fell in July on a sharp decline in U.S. demand due to tariffs, while industrial output rose. German industrial production for Jul comes in a bit better than expected (+1.3% M/M vs. the Street +1%) while exports fall short (-0.6% vs. the Street +0.1%). RTRS
• The European Union is exploring new sanctions on about half a dozen Russian banks and energy companies as part of its latest round of measures to pressure President Vladimir Putin to end the war against Ukraine. The package could also see the EU target Russia’s payment and credit card systems, crypto exchanges as well as further restrictions on the country’s oil trade. BBG

Corporate News

• SpaceX, the Elon Musk-backed company that owns the Starlink satellite network, agreed to acquire wireless spectrum from Charlie Ergen’s EchoStar Corp. for about $17 billion in cash and stock.
• The US is proposing annual approvals for exports of chipmaking supplies to Samsung Electronics Co. and SK Hynix Inc.’s factories in China, a compromise aimed at preventing disruptions to the global electronics industry.
• South Korea’s biggest conglomerates are rushing to contain fallout from a sweeping US immigration raid at a Hyundai Motor Co.-LG Energy Solution Ltd. battery venture in Georgia.
• More than a year after BBVA SA unveiled its unsolicited takeover offer for Banco Sabadell SA, shareholders finally get their say.
• RWE AG and Apollo Global Management Inc. agreed to form a joint venture to invest in Germany’s power grid as the country seeks to ease network congestion in Europe’s biggest energy market.

Trade/Tariffs

• Japan’s trade negotiator Akazawa said he cannot say the trade issues with the US have been resolved, while he added that a US presidential order on auto tariffs was issued, but there are no orders yet on the most favoured nation status for pharmaceuticals and semiconductors.
• US-China trade talks have reportedly made little progress towards a deal, and an impasse was hit on the fentanyl issue, while senior China negotiator Li Chenggang’s trip to Washington suggests that China is attempting to keep talks open but is not willing to give any ground, according to WSJ.
• European Council President said the EU and US President Trump have “turned the page” on their prior “rocky” relationship, according to the FT.
• US is reportedly considering annual China chip supply permits for SK Hynix (000660 KS) and Samsung (005930 KS), via Bloomberg; firms would be required to outline their annual requirements.
• EU reportedly weighs new sanctions on Russia to hit banks and oil trade, according to Bloomberg.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks began the week mostly positive but with some of the gains capped amid several key market themes, including last Friday’s disappointing US jobs data and the subsequent boost in Fed rate cut bets, as well as Japanese PM Ishiba’s resignation announcement and the latest Chinese trade data. ASX 200 was dragged lower by weakness in energy, utilities and financials, while participants also reflect on the latest  Chinese trade data. Nikkei 225 outperformed amid a weaker currency and as the political uncertainty following Japanese PM Ishiba’s resignation, was seen as potentially delaying the BoJ resuming its rate hikes, while upward revisions to Q2 GDP added to the heightened risk appetite in Tokyo. Hang Seng and Shanghai Comp were ultimately positive but with cautiousness seen amid the latest Chinese trade data in which exports and imports missed forecasts, while there was also a recent report that US-China trade talks have made little progress towards a deal, and an impasse was hit on the fentanyl issue.

Top Asian News

• Japanese PM Ishiba said he has decided to resign as LDP president and gave instructions to hold an emergency LDP leadership election, while he will continue to carry out responsibilities until a new leader is elected and thought it was the right timing to step down given the conclusion of the Japan-US trade agreement. Furthermore, he said the party will decide on the schedule for the leadership race and he will not run in the LDP leadership race.
• Japan LDP’s Aizawa said they are to set the LDP leadership election date on Tuesday, while it was separately reported that the LDP is making final arrangements for a leadership vote on October 4th, according to TBS. Furthermore, Japanese Chief Cabinet Secretary Hayashi intends to run in the next LDP presidential election and former Foreign Minister Motegi also revealed his intention to run in the next LDP presidential election.
• South Korea’s Foreign Minister said over 300 Koreans were detained by US authorities at the Hyundai plant and President Lee ordered all-out efforts to respond to the arrest of Korean nationals. However, it was later reported that South Korea said a deal was reached with the US to release workers in the Hyundai Motor raid, according to WSJ.
• China is preparing to reopen its domestic bond market to major Russian energy companies, according to FT.
• China Auto Industry Body CPCA says China sold 2.02mln passenger cars in August, +4.9% Y/Y.

European bourses (STOXX 600 +0.2%) opened with a positive bias and have traded sideways throughout the morning so far – action which follows on from similar sentiment in the APAC region. European sectors opened with a strong positive bias but are now mixed. Construction & Materials takes the top spot, joined closely by Energy and then Industrials to complete the top three. For Energy specifically; the complex has been boosted by significant upside in the crude benchmarks after eight core OPEC+ countries upped its oil output target by 137k bpd in October. For Industrials, the sector has seemingly been boosted by Alstom (+1%) after it received a EUR 538mln contract.

Top European News

• Italy’s Economy Minister said the government sees 2025 GDP growth in line with its 0.6% target.
• ECB and PBoC extend bilateral euro-renminbi currency swap arrangement.
• HSBC expects BoE to hold rates steady in November and February, revising previous forecast of rate cuts; now projects BoE to resume cutting from April 2026.

FX

• USD trickled lower in the European morning after rangebound APAC trade, and in the aftermath of last Friday’s disappointing jobs data, which boosted Fed rate cut bets with money markets fully pricing in at least a 25bps cut at the Fed meeting on September 17th and a slight off chance for a 50bps move. On the topic of Fed independence, US President Trump said Waller, Warsh and Hassett are the three finalists for Fed chair nomination. DXY resides closer to the bottom end of today’s current 97.644-97.942 range.
• EUR is holding modest gains against the softer dollar, though political risk remains in focus with French PM Bayrou’s government facing a confidence vote later today. On that, today’s French confidence vote (statement 14:00 BST / 09:00 ET, result ~18:00 BST / 13:00 ET), with PM Bayrou expected to lose as his coalition holds only 210/577 seats; failure likely forces resignation and raises risks of snap elections if no successor emerges. EUR/USD trades in a current 1.1703-1.1734 range.
• JPY briefly climbed above the 148.00 level overnight amid political uncertainty after PM Ishiba announced his resignation, although the yen is off its worst levels as participants also digested the stronger-than-expected revised GDP data. Japanese PM Ishiba said he has decided to resign as LDP president and gave instructions to hold an emergency LDP leadership election, while he will continue to carry out responsibilities until a new leader is elected. The political uncertainty from PM Ishiba’s resignation is seen as potentially delaying a resumption of BoJ’s rate normalisation. USD/JPY sits closer to the bottom of a 147.51-148.57 range.
• GBP lacks clear direction with price action contained near the 1.3500 level amid a very light calendar for the UK for most of the week until Friday’s monthly GDP and output data. Desks note sterling remains vulnerable via Gilts, with UK government bonds still the “weak link” despite the recent abatement of last week’s global bond sell-off. Starmer’s cabinet reshuffle left Chancellor Reeves untouched, preserving her market credibility, but fiscal challenges remain. GBP/USD resides in a narrow 1.3482-1.3526 range.
• Antipodeans lacked firm conviction in APAC trade but edged higher during European hours to become the clear G10 outperformers at the time of writing, with the high-beta FX coat-tailing on the broader rise of base metals and broader constructive sentiment across the market.
• EUR/NOK trades on either side of its 100 DMA (11.7274) in a current 11.6811-11.7554 range. Focus on Norwegian elections, where opinion polling currently points to a continuation of the current Red-Green bloc, with a lead of around 6pp.
• PBoC set USD/CNY mid-point at 7.1029 vs exp. 7.1317 (Prev. 7.1064)
• SNB Chairman Schlegel said there is a high bar to the next interest rate cut, according to Migros-Magazin. It was separately reported that Schlegel said he is aware of undesirable effects of negative rates, while he added that US tariffs raise uncertainty and have a negative impact on the economy.

Fixed Income

• USTs are contained, holding onto the bulk of the NFP induced upside we saw on Friday. On Friday, USTs hit a 113-21+ peak. Today, the benchmark holds at the upper end of 113-07+ to 113-14 parameters. The main update on the Fed front post-NFP has been Trump saying that Waller, Warsh and Hassett are the three finalists for the Chair role.
• JGBs are slightly firmer. PM Ishiba has announced that he will be stepping down as LDP leader and by extension PM. As such, a new LDP leadership vote is expected to take place on October 4th, according to Reuters sources. Ishiba’s resignation is not a huge surprise, as the tone in recent weeks had been moving towards him stepping down as various high-ranking LDP officials had announced their intention to resign, taking responsibility for the lower house election result. The announcement by Ishiba saw long-end yields climb amid concern that Ishiba’s successors may outline more expansionary fiscal policy than has been the case under Ishiba. Specifically, the 30yr yield climbed to a 3.299% peak, just eclipsing the record high set last week. JGBs themselves saw downside of just under 30 ticks following Ishiba’s announcement, with the 10yr yield moving a little higher as a result.
• OATs are near enough flat into the confidence motion. The base case remains that PM Bayrou will lose the motion and have to submit his resignation to President Macron, an outcome that is priced by the market now and as such, should not spur any significant widening of spreads; OAT-Bund remains around the 80bps mark. The process begins at 14:00BST but the actual vote and subsequent results are not expected until the evening. Politico guides that 18:00BST is the earliest the outcome could be known.
• Bunds are in-fitting with the above. Firmer by a handful of ticks in 128.91 to 129.21 parameters, eclipsing Friday’s peak by a tick. Focus for the bloc is firmly on France, but as it stands, the risk of contagion is regarded as slim by desks. Aside from France, today’s September EZ Sentix figure came in below the forecast range at -9.2 (exp. -2.0, prev. -3.7).
• Gilts echo above. Similarly to Bunds, Gilts have eclipsed Friday’s best at the top end of 91.09 to 91.34 parameters, besting Friday’s high by two ticks.

Commodities

• Crude gained following the decision by OPEC+ members to continue hiking production for October, albeit at a slower pace of increase of 137k bpd (as touted), while Goldman Sachs kept its Brent/WTI price forecast unchanged for 2025 and noted that the decision to start gradually unwinding the 1.65mln bpd of cuts likely reflects that OECD commercial stocks remain low. WTI currently resides in a USD 61.85-63.08/bbl range while Brent sits in a USD 65.51-66.78/bbl range.
• Precious metals climbed in the European morning after trading rangebound overnight as traders took a brief breather from the aftermath of last Friday’s jobs data, owing to a weaker dollar and Fed rate cut bets. – Drivers remain a mix of: 1) overhang from Friday’s data, 2) geopolitics (Trump-Russia tensions + more EU sanctions), 3) sustained central bank demand (PBoC), and 4) technical momentum after topping USD 3,600/oz. Spot gold currently resides in a USD 3,579.72-3,617.29/oz range after topping the psychological USD 3,600/oz for the first time.
• Base metals are a little firmer. Losses from last Friday were met with a limited APAC recovery as participants digested disappointing Chinese trade data. Prices then tilted firmer during the European morning amid the softer dollar and broader risk appetite. 3M LME copper resides in a USD 9,888.10-9,934.00/t range, at the time of writing.
• US President Trump issued an executive order on Friday exempting graphite, tungsten, uranium, gold bullion and other metals from tariffs, while silicone and certain pharmaceuticals/chemicals were included in the tariff list.
• Eight OPEC+ members agreed to raise the oil production by 137k bpd in October (as touted), citing a steady global economic outlook and current healthy market fundamentals, while the next meeting is to be held on October 5th.
• OPEC Secretary General said projections indicate OPEC+ under the leadership of OPEC members will increase production from 49mln bpd to around 64mln bpd by 2050.
• Iraq’s PM said they will make arrangements to facilitate the entry of oil majors into Iraq, and they are in talks with ExxonMobil (XOM) on major energy projects, while Iraq hopes fellow producers will reconsider its oil export quota to better reflect its production capacity.
• Iraq’s SOMO and Oman’s OQ signed two MOUs on oil storage and Iraqi oil trading, while one MOU includes developing an integrated crude oil storage project in Oman’s Raz Markaz with an initial capacity of 10mln bbls.
• Russia’s Novak said they discussed 7-month OPEC+ compliance, which is high, and they agreed to monitor the market further, while he added the market is balanced and Russia is fully compliant with the OPEC+ deal.
• ADNOC is said to mull USD 10bln plus financing for the Santos (STO AT) deal, according to Bloomberg.
• Italy’s Energy Minister said there is no plan to dismantle coal-fired plants in continental Italy by year-end, and they are relaxed about the level of gas storage filling in Italy and in Europe, while the official added that US suppliers are currently offering LNG at a competitive price.
• PBoC purchased gold in August for 10th month in a row, according to data cited by Reuters.

Geopolitics: Middle East

• US President Trump posted that he had warned Hamas about the consequences of not accepting a hostage deal and said this was his last warning.
• Hamas said it received some ideas from the US side through mediators to reach a ceasefire deal in Gaza.
• Israel’s Foreign Minister Saar said the war in Gaza can end tomorrow if hostages are released and Hamas lays down its arms, while he said establishing a Palestinian state would jeopardise Israel’s security and urged Denmark not to recognise a Palestinian state. It was also reported that Denmark’s Foreign Minister said they are not ready to recognise a Palestinian state but added Israel does not have a veto over any Danish recognition of a Palestinian state.
• Yemen’s Houthis targeted Israel’s Ramon Airport with drones, although operations at the airport were resumed following the drone strike from Yemen.
• Israeli Defence Minister Katz posts “Today a huge hurricane will hit the skies of Gaza City…The IDF continues as planned and is preparing to expand the manoeuvre to defeat Gaza”.
• Iranian Official Baghaei says “We have not yet reached a conclusion with the IAEA, but the process of talks has been positive”, via Iran International on X.
• Israeli PM Netanyahu says “We will complete our missions in the West Bank, Gaza and everywhere “, via Al Hadath.

Geopolitics: Ukraine

• Ukraine’s PM said the main building of the Ukrainian government was damaged by an enemy strike for the first time during the war and that firefighters were working to extinguish the blaze at the government building. In relevant news, Ukraine’s Air Force said on Sunday morning that Russia launched 805 drones and 13 missiles on Ukraine overnight, while it was separately reported that Ukraine attacked Russia’s Druzhba oil pipeline in the Bryansk region.
• Russian Defence Ministry said Russian forces took control of Khoroshe in Ukraine’s Dnipropetrovsk region and carried out strikes on Ukraine’s military-industrial complex and transport infrastructure facilities, according to TASS.
• US President Trump said he is ready to go to the second round of sanctioning Russia, while Trump commented on Friday that the Ukraine war will end, or there will be hell to pay, and they are working on security guarantees to Ukraine.
• US envoy to Ukraine said Russia’s latest strike on Kyiv is not a signal it wants to diplomatically end the war.
• US and the EU plan to discuss new Russia sanctions on Monday, according to AP News. European leaders will visit the US on Monday or Tuesday to discuss ways to end the war in Ukraine, according to the BBC.
• EC President Costa says the EU prepares 19th package of sanctions against Russia in close coordination with US.
• Russian Foreign Minister Lavrov says, “Moscow is ready for dialogue with everyone”, according to Al Arabiya.
• IAEA chief Rafael Grossi reports progress in talks with Iran over full resumption of nuclear inspections, hoping for a successful resolution within days; there is still time but not much.

Geopolitics: 

• Tensions rose in Istanbul as hundreds of Turkish police blocked access to the main opposition’s Istanbul headquarters following a court-ordered leadership change of the party’s local administration, according to Bloomberg.

US Event Calendar

• 11:00 am: NY Fed Inflation Expectations
• 3:00 pm: Jul Consumer Credit, est. 10.2b, prior 7.37b

DB’s Jim Reid concludes the overnight wrap

It’s another bumper week of events as we build to next week’s FOMC. Although the Fed is now on its media blackout, Wednesday’s PPI and especially Thursday’s CPI will shape pricing ahead of that, with all eyes still focused on the tariff impact. 28bps of cuts are now priced in for the next meeting, so a quarter-point cut is fully priced but without much being priced in for a 50bps move. Our economists believe you’d need to see pretty weak inflation this week to get that. We’ll preview that US inflation data below but before we do the main highlights for the rest of the week are: the French confidence vote in the National Assembly, German industrial production and the New York Fed’s inflation expectations today; the preliminary annual benchmark revisions by the US BLS for payrolls tomorrow; Chinese inflation, the State of the Union address by European Commission President von der Leyen, and a 10yr UST auction on Wednesday; the ECB decision and a 30yr UST auction on Thursday; and finally on Friday there’s the  University of Michigan survey. 

We’ll go through a few of these events now and review Friday’s payrolls and its impact below. But let’s first take a look at what’s expected in Thursday’s US CPI. In their preview here (“Webinar: August CPI preview & webinar registration”), our US economists are expecting monthly headline CPI to rise to +0.36% in August, which would be the strongest monthly print since January. That’s partly because of their forecast for a +1.7% increase in seasonally adjusted gas prices, along with some positive payback in food-at-home prices. So, they think core CPI will be a little weaker at +0.32%, although that would still be in line with the six-month high we had last month. If that’s correct, then that would lift the year-on-year headline number by two-tenths to +2.9%, with core edging up a little but still rounding to +3.1%, the same as last month. Of course, the focus will very much be on the continued impact of the tariffs in core goods categories, and we know these are still filtering through, given several rates like the 50% on copper only came into force last month.

In terms of the implications for the Fed, the jobs report on Friday has seen the tide turn to increasing concern about tepid employment growth rather than permanently above-target inflation. That report showed nonfarm payrolls up just +22k (down from +79k in July and clearly beneath the +75k print expected). Moreover, there were another -21k of downward revisions to the previous two months, which was well below the huge -258k revisions in the previous report, but still the 6th time in the last 7 months that the revisions had been negative. So that meant the unemployment rate moved up a tenth to 4.3%, the highest since October 2021. And the broader U6 measure (which includes underemployed and marginally attached workers) moved up to 8.1%, again the highest since October 2021. As it stands, the latest revisions mean that June this year has a -13k print, which is the first negative month since December 2020. It also marks an end to the second-longest streak of consecutive positive payroll prints in data back to 1939. See our economists’ “August employment: Summer slump redux” for more. The one caveat they discuss around the weak data is that the slide in payrolls does look similar to that seen between June and August last year even if there is evidence of labour market weakness in the numbers.

Overall, they don’t view the report as soft enough to push the FOMC towards a larger-than-usual 50bp cut next week, partly because the median dot in June was in line with two cuts and an unemployment rate at 4.5% by year-end. So nothing out of the ordinary yet relative to this. However, keep an eye out for the preliminary BLS annual benchmark revisions tomorrow for another rewrite of history. These only impact the period to March so it won’t have anything about the most recent five months. But there are likely to be downward revisions of as much as 50-60k per month over the year according to our economists, based on the survey linked to the revisions calculations. Bessent nodded to this sort of number yesterday in a press interview.

Elsewhere, we see what is likely to be a low-key ECB decision on Thursday. Our European economists expect them to keep the deposit rate on hold at 2% and think the ECB has reached its terminal rate in this cycle. In their preview here, they look at what is needed to build the case for a further easing.

More importantly in Europe is today’s confidence vote in France. Proceedings start at 3pm local time with the vote results likely to be known after 5pm CET. That’s likely to see a defeat for Prime Minister Bayrou’s minority government, but most interesting is what happens next. President Macron is expected to nominate a new PM that could achieve a majority to pass the budget. This would probably require the backing of the centre-left Socialists as the right-wing populist National Rally has called for snap parliamentary elections to be held. There are also general strikes called in France for September 10 and September 18, and Politico reported over the weekend that Macron is aiming to have Bayrou’s replacement lined up before the second one of these. At the start of last week, France’s fiscal situation was a real pressing issue for markets, along with the UK gilt market selloff, but the US bond rally has taken some of the sting out of this. Nevertheless, both countries remain in a precarious situation if global rates turn again.

Speaking of politics, Japan’s PM Ishiba announced over the weekend that he will step down, after several weeks of speculation after the poor summer election results. The leadership race will now take place and likely take 2-3 weeks, although the new LDP leader will need some support from opposition parties to become PM given LDP-Komeito have lost their majority. A key issue at stake is the direction of monetary policy, and the two front runners seem to be Koizumi and Takaichi with the former more likely to coincide with higher Japanese rates. That’s contributed to a weaker Japanese yen overnight, which has fallen by -0.48% against the US Dollar to 148.15 per dollar. Meanwhile, yields are fairly stable, and the Nikkei (+1.33%) is closing back on its record high this morning after there were decent upward revisions to Japan’s growth data. It showed the economy growing at an annualised +2.2% rate in Q2, having initially pointed to a +1.0% rate. So that means the economy has expanded for 5 consecutive quarters now, the longest run since 2016-18.

On that data theme, China’s trade numbers overnight showed export growth slowing to +4.4% year-on-year in August, which is its slowest in 6 months. Similarly, import growth also slowed to +1.3% (vs. +3.4% expected). That’s been driven by a big decline in exports to the US given the higher tariffs, with US exports down -33.1% on the previous year in August. But the major equity indices have mostly held up this morning across Asia, not least as expectations mount that the Fed will cut rates next week after the jobs report So the Hang Seng has advanced +0.35%, the Shanghai Comp (+0.17%) and the KOSPI (+0.12%) have posted modest gains, and the CSI 300 is only down -0.01%. US equity futures are also positive, with those on the S&P 500 up +0.09%, whilst Treasury yields have pared back their Friday declines, with the 10yr yield up +2.5bps to 4.10%.

Recapping last week in more detail now. US equities posted a modest advance, with the S&P 500 still up +0.33% (-0.32% on Friday), even as jitters mounted about a labour market slowdown give the jobs report. Interestingly, tech stocks outperformed despite initial concerns over AI-linked valuations, pushing the NASDAQ up +1.14% for the week (-0.03% Friday), whilst the Mag 7 were up +2.17% (-0.27% Friday). Equities were softer in Europe however, with the STOXX 600 -0.17% lower (-0.16% on Friday), with the DAX (-1.28%, -0.73% on Friday) and FTSE MIB (-1.39%, -0.91% Friday) leading the declines.

For bonds, last week started with a major selloff that initially pushed yields up to multi-year highs. Indeed, the 30yr UK gilt yield reached its highest since May 1998, and French OATs moved up to levels last seen in 2009 amidst ongoing fiscal concerns. But the US jobs report meant that reversed by the weekend as investors priced in faster rate cuts. So that left 2yr Treasury yields -10.8bps lower on the week (-7.9bps on Friday), while 10yr yields fell by a larger -15.4bps to 4.08% (-8.6bps on Friday), and 30yr yields by -16.9bps to 4.76% despite being just a whisker away from 5% on Tuesday. This reversal of the August curve steepening came despite ongoing questions about Fed independence. In a WSJ op-ed on Friday, Treasury Secretary Scott Bessent criticised the Fed for “mission creep” and called for an independent review of the central bank. Meanwhile in Europe, bonds saw a more modest rally, with 10yr bund yields down -6.2bps on the week to 2.66% while 10yr gilt yields fell -7.6bps to 4.65%.

The rally in bonds was also supported by lower oil prices, with Brent crude falling -3.85% (-2.22% Friday) to a 3-month low of $65.50/bbl amid the weaker US outlook as well as the news that OPEC+ was considering another oil production increase in October. This was confirmed over the weekend, with the group agreeing to raise production by 137kbbl/day. That said, the group’s statement also signaled some caution, with any further return of production “subject to evolving market conditions”. Brent crude oil prices are +1.21% higher this morning as a result. Meanwhile, with all the two-way turmoil last week, gold had its best week since April (+4.02%), reaching a new all-time high of $3,587/oz.