Market News

The upside surprise, a rise to -14 against a Reuters poll consensus for a decline to -18, adds to a run of stronger than expected UK data and could feed into expectations for firmer household spending in the months ahead. The jump in the major purchases sub-index to its highest since December 2021 is the most consequential detail for retailers and durable goods sectors, since that measure tends to lead actual big ticket spending more directly than the headline gauge. The improvement is corroborated by a cluster of other confidence surveys, including YouGov/Cebr, BRC-Opinium, Barclays and LSEG/Ipsos, reducing the chance this is noise in a single dataset. Still, GfK's own note that inflation is back on the rise, alongside ongoing Middle…

The composite reading's slip to 52.5 from 53.2 still points to a third straight month of private sector expansion, keeping the growth narrative intact even as the pace moderates. The more telling signal for policymakers is the reacceleration in input price inflation, the first pickup after three months of easing, concentrated more heavily in manufacturing where fuel, freight and raw material costs rose. That firms responded by slowing their own charge inflation rather than passing costs through in full suggests margin compression is building, a dynamic that could show up in corporate earnings before it shows up in headline inflation data. The six month high in business confidence and the pickup in new export orders offer some offsetting…

The pace of the rally is prompting banks to revisit both their timelines and their ceilings, with the metal already through a target that had been pencilled in for later in the year. Softer expectations for further Federal Reserve tightening are seen reviving exchange traded fund demand after a period of outflows, while central banks continue to use price dips as buying opportunities to build reserves. Analysts are also pointing to an unusual decoupling between gold and long-term real yields, suggesting the metal is responding more to concerns about fiscal sustainability than to the level of yields themselves. Positioning risk is building on the other side of the ledger, with short interest on COMEX already thin, leaving less scope for…

The on month decline snaps an 11 month run of gains and points to some near term easing in the pipeline pressures that feed into consumer prices, though the year on year rate remains elevated at 7.7 percent. The mix within the data is notable, with industrial goods and utility costs providing the disinflationary pull while agricultural, livestock and fisheries prices moved in the opposite direction on weather related supply disruption. That split suggests the relief is concentrated in energy and administered prices rather than reflecting a broad based cooling in cost pressures. The steeper 1.8 percent monthly drop in the domestic supply price index, which folds in import prices, points to imported cost relief as the primary driver, a…

The remarks land as traders sharply pare bets on a September rate increase, with pricing falling to around 30 percent from more than 70 percent at the end of July. Daly's comments suggest a voting bloc within the Fed sees little urgency to act preemptively despite the bond market turmoil, which could reinforce the recent repricing lower in near term hike odds. Musalem's undecided stance, paired with his stated preference for a July hike, keeps a hawkish tail risk alive and may limit how far yields retrace even if Daly's view proves more representative of the committee. Both officials pushing back on credibility concerns, while attributing the selloff instead to fiscal financing needs and AI related capital demand, could ease the most…

It's a busy data agenda ahead, with the eyes mainly on the CPI data from Japan. 

I'll have a preview to come on this separately (ADDED, here it is), inclduing implications for the Bank of Japan's next policy meeting. 

Rising Treasury yields reasserted themselves as the dominant cross asset driver, unwinding much of Wednesday's relief rally that followed the Treasury Department's buyback announcement. Traders read the expanded long dated buybacks as potentially inflationary given already ample dollar liquidity, sending yields back up the curve and pressuring risk assets. Crude added to the squeeze, with Brent settling near 93 dollars a barrel, a level not seen in months, as the standoff between Washington and Tehran over the Strait of Hormuz showed no sign of easing. Equity weakness was broad based rather than concentrated, hitting financials, retail and technology names alike, though Walmart's earnings miss and softness in AI linked hyperscalers gave…

Market pricing for a Bank of Japan rate hike in September has climbed to ~80 percent, up sharply from around 65 percent in early August, after media reports pointed to government support for an early tightening move. Attention is shifting toward the pace of subsequent hikes rather than whether the BoJ moves at all in September, a dynamic that could stoke concern about a faster than expected tightening path. Should the Takaichi administration signal it now backs earlier action, that would help ease worries the BoJ has fallen behind the curve, offering some stabilisation for long and super long dated JGB yields. An October move remains possible but would be read as the more dovish outcome relative to current pricing. Analysts see the policy…

• US Treasury auctions off $9 billion of 30-year TIPS at 2.973% vs 2.991% WI
• Fed's Musalem says hiking rates now could save more aggressive action later
• US Treasury Secretary Bessent says the long-dated bond buyback could be more than 4 billion
• US leading index for July +0.2% vs +0.1% expected
• Fed's Daly doesn't see evidence calling for pre-emptive rate hikes, policy in good place
• US August Philly Fed business index +47.4 vs +25.0 expected
• Canada July PPI +0.6% vs -0.5% expected
• US initial jobless claims 206K vs 210K expected

The US labor market continues to show resilience as initial jobless claims fell to 206K beating expectations of 210K and declining from a revised 212K in the prior week. The data reinforced the view that layoffs remain limited…

• High yield: 2.973%
• WI level at the time of the auction 2.991%
• Stopped through by 1.8 bps
• Bid-to-cover ratio 2.82X
• Direct (domestic buyers) 13.4%
• Indirect (international buyers) 84.4%
• Dealers 2.1%

The US Treasury's $9 billion auction of 30-year Treasury Inflation-Protected Securities (TIPS) attracted exceptionally strong participation from foreign investors.

The auction stopped at a high yield of 2.973%, below the 2.991% when-issued (WI) yield trading in the market at the time of the sale. The resulting 1.8 basis point stop-through indicates investors were willing to accept a lower yield than expected to secure the bonds, a sign of stronger demand.

Demand metrics were also robust. The auction recorded a bid-to-cover ratio of 2.82x, meaning…

• Strong growth and investment is influencing bond market
• Fed credibility is not in question
• Fed is focused on making monetary policy independent of fiscal policy
• Monetary policy is neutral or accomodative right now
• Financial conditions are pretty accomodative here
• Number one concern of public is inflation
• Businesses are facing high input costs
• Super El Nino might be next supply shock
• Given current Fed rates, see lower probability of getting inflation to 2%
• Hiking rates now could save more aggressive action later
• Underlying inflation is between 2.5-3.0%, and it's too high and must be lowered
• Productivity is seeing a recovery
• The best thing the Fed can do for growth is get inflation back to 2%
• Forward guidance is useful when rates are at zero
• Forward…

• Buyback could be more than 4 billion
• Part of it is signalling 
• We want to show that yields do not reflect underlying fundamentals
• Probably going to announce increased focus on fiscal consolidation 
• Nothing magic about $40 trillion debt number
• Expect tariff 2026 income will be similar to 2025
• Very good chance we've seen peak deficit
• Market got a little ahead of itself
• Treasury and the Fed would work together if any change in balance sheet
• Rates have nothing to do with the buyback decision
• We would adjust to any kind of Fed bond runoff
• We will see what the conditions are in the bond market and whether more action will be needed
• Need to focus on the fundamentals
• We're trying to keep the market in equilibrium

On Iran:

• Press conference on Monday to discuss…