As we start a new weeks, the upward pressure on long-end bond yields from last week has shown initial signs of easing. Indeed, the 30yr Treasury yield is down -5bps overnight to 5.22%, whilst the 10yr yield is down by the same amount to 4.
69%. That’s been supported by an announcement by the Treasury to CNBC that some/all of the cash in the Treasury General Account may be used to fund buybacks (bringin the US ever closer to Yield Curve Control and a new QE, much to Kevin Warsh's horror) and by a pullback in oil prices, with Brent crude oil finally reversing course after a run of 6 consecutive gains to trade at $93.10/bbl.
That pullback in Treasury yields this morning follows last week’s surprise announcement that the US Treasury will increase its buyback operations for longer-dated Treasuries. That briefly eased the pressure on yields when it was announced, with the 30yr yield down -9.2bps on Wednesday to 5.
19%, after reaching a post-2007 high of 5.31% last Monday. But even with that intervention, yields then crept back up into the weekend, with the 30yr yield closing at 5.
27% on Friday, less than 4bps beneath its closing peak earlier in the week. Moreover, investor concern about wider financial repression led to clear effects in other asset classes, with the dollar index down -0.87% last week, whilst gold rose +5.
18%. And this morning, gold is up another +0.72% to a 3-month high of $4,636/oz.
One reason why yields moved higher into the weekend was the ongoing rise in oil prices last week, which added to fears about inflation. Indeed, if we look at the oil futures curve, it’s clear that markets are starting to price in a longer closure of the Strait of Hormuz again. For instance, the 12-month Brent future hit a 2-month high of $79.
16/bbl on Friday, which isn’t far off its peak in the Iran conflict of $83.58/bbl back in May. So those expectations of higher oil prices put upward pressure on yields as well, and the weekend newsflow hasn’t shown any sign of progress towards a US-Iran deal either.
The conflict is set to stay in the headlines this week, as US Treasury Secretary Bessent has said that he’ll be holding a press conference today to outline what he described as “the greatest coordinated economic isolation in the history of the world”. That follows President Trump’s post last week that “ANY country that allows its financial institutions, businesses, airports, or government entities to provide any type of lifeline to Iran will itself face TREMENDOUS Economic Consequences.” Bessent also wrote an article in the FT overnight, in which he referred to an “economic D-Day”.
Elsewhere, tariffs were also back in the headlines over the weekend, after the trade talks between the US and Canada broke down. Canadian PM Mark Carney said they were “walking away from a bad deal”, and would now “match Washington’s new tariffs dollar for dollar”. So that means Canada will now face 50% tariffs on around $20bn worth of goods, and Carney said that their own retaliatory tariffs would take effect on September 8.
Meanwhile on the US side, President Trump posted that “Canada wants the benefits of being a State, without being one!!! They have also charged our great farmers, for many years, massive amounts of Tariffs. No more!!!
” There’s already been a market reaction this morning to the breakdown of the talks, with the Canadian dollar weakening against every other G10 currency, including a -0.26% fall against the US Dollar. Otherwise, Bloomberg also reported overnight that Canada saw little chance of the talks resuming before the midterm elections.
So with all that in mind, as we look forward, the week ahead has several other events, with a big one set to be Fed Chair Warsh’s speech at Jackson Hole on Friday. This is a speech that’s often used by Fed Chairs to make big announcements or send policy signals, and last year saw former Chair Powell acknowledge that policy might need adjusting, shortly before they cut rates again the following month. We’ll have to see what Warsh discusses this time, but he said at the July press conference that he hadn’t yet decided “whether it’s going to be a big-picture speech or whether it’s going to be a more traditional set up for all the action we’re going to have between September and December”.
We did a preview of the event (link here), where we note that the prevailing view is that if Warsh goes for the “big-picture” speech, then his options include a discussion of the Fed’s taskforces he set up, or possibly a speech on AI’s impact on the economy and his thinking. Alternatively, if he goes for the “more traditional” speech, they think Warsh could do a “cleanup” of the July press conference, and he may wish to counter one market narrative that Fed policy actions could be delayed until the task forces have completed their work. Otherwise, he might also discuss how officials are viewing inflation dynamics, or how the FOMC views the monetary policy implications of evolving financial conditions and recent volatility in long-term interest rates.
But whatever he decides, market pricing is still very much in the balance for the next meeting in 3 weeks’ time, with futures currently pricing in a 39% chance of a hike. So investors are keeping an eye out for anything that could shift this in either direction.Elsewhere this week, earnings season is winding down, but we do have a few releases left including the perhaps the most improtant of all - Nvidia - on Wednesday.
In the last few years, Nvidia’s earnings have often been a big macro event in their own right, with reactions on a par with US jobs reports and CPI prints. But in the most recent quarters, the positive earnings surprises haven’t been as big as we saw in 2023-24, and after each of the last 4 earnings reports, Nvidia’s share price actually fell the next day. Speaking of Nvidia, Bloomberg also reported over the weekend that some of their biggest customers had been told about price hikes for servers containing its AI chips.
So that adds to the signs that AI is having inflationary consequences, and isn’t a straightforward positive supply shock. Source: EarningsWhispersOtherwise, the data calendar is fairly light next week, with a few inflation reports likely to be the main focus. That includes the US PCE reading for July on Wednesday, which is the Fed’s target measure, for which our US economists expect core PCE at a monthly 0.
18%. Then in Europe, we’ll start to get some of the flash CPI prints for August, including from France and Spain on Friday, ahead of the Euro Area-wide number next week. Courtesy of DB, here is a day-by-day calendar of key global events this weekMonday August 24Data: US July Chicago Fed national activity indexTuesday August 25Data: US August Conference Board consumer confidence index, Philadelphia Fed non-manufacturing activity, Richmond Fed manufacturing index, business conditions, July new home sales, June FHFA house price index, Germany August Ifo survey, France August consumer confidenceCentral Banks: Fed’s Barkin speaksEarnings: IntuitAuctions: US 2-yr Notes ($69bn)Wednesday August 26Data: US July PCE, personal income, personal spending, durable goods orders, Japan July PPI services, Australia July CPICentral banks: ECB's Cipollone and Fed’s Barkin speakEarnings: NVIDIA, Crowdstrike, SalesforceAuctions: US 2-yr FRN (reopening, $28bn), 5-yr Notes ($70bn)Thursday August 27Data: US July advance goods trade balance, wholesale inventories, August Kansas City Fed manufacturing activity, initial jobless claims, Germany September GfK consumer confidence, France July PPI, Eurozone July M3, Canada Q2 current account balance, China July industrial profits, Norway Q2 GDPCentral banks: Jackson Hole symposium (through August 29), BoJ’s Himino speaks, ECB’s account of the July meetingEarnings: Marvell, Toronto-Dominion Bank, Autodesk, Workday, Dollar Tree, Pernod RicardAuctions: US 7-yr Notes ($44bn)Friday August 28Data: US August MNI Chicago PMI, Kansas City Fed services activity