• Returning after a long weekend due to the Labour Day holiday, US investors see the glass half empty rather than half full looking forward to key US eco data to be published today (ISM manufacturing ISM) and later this week (Jolts openings tomorrow, ADP, jobless claims and services ISM on Thursday and payrolls on Friday). After a positive close yesterday, the EuroStoxx 50 eases 0.50%. The S&P 500 also ceded 0.7% at the open. Major US indices are nearing resistance of all-time top levels. If markets are currently priced for a ‘perfect’ soft landing; maybe both much better than expected data (and higher yields) as well as really negative surprises (recession fears, cfr early last month) might trigger volatility. A further decline in the oil prices also suggests lingering uncertainty on global (including Chinese) demand. Brent oil is touching a new YTD low near $ 74.6 p/b. After trading little changed this morning in Europa, the risk-off repositioning pushed EMU and US yields of a cliff this afternoon. US yields are falling between 3.5 bps (2-y) and -6.2 bps (30-y). Similar story for Bund yields (2-y -5 bps , 30-y -8.4 bps). Even so, we think the downside in ST EMU yields is still rather well protected. Last week’s sticky underlying inflation metrices and financial newswires reporting an on internal debate within the ECB on the neutral policy rate level for this easing cycle, currently makes investors cautious to fully discount additional 25 bps steps at the three remain meeting this year. In FX, the dollar doesn’t profit from the risk-off. DXY trades gains little changed. The euro also still looks vulnerable among the majors (EUR/USD 1.1055). The yen outperforms. The risk-off, a decline in core yields and the BOJ governor Ueda reconfirming the BOJs intention to raise interest rate further if the economy develops as expected, all further supported the yen (USD/JPY 145.55 from 146.9, EUR/JPY 161 from 162.65). Smaller, especially commodity related currencies (CAD, AUD, NZD, NOK) are fighting an uphill battle. At the time of finishing this report, the US manufacturing ISM is holding most of last month’s decline (47.2 from 46.8). Details are mixed with orders declining further (44.6 from 47.4), but prices paid (54.0 from 52.9) rising. The decline in employment slows (46 from 43.4). In a first reaction, the risk-off repositioning continues. • An important reality check the UK Gilts market as DMO launched a new 2040 bond. Despite recent negative headlines on the state of UK public finances, the sale attracted a big orderbook of over £110 bln for a deal size of £8 bln. UK(LT) gilts today are trading more or less in line with their German counterparts. Sterling initially captured a better bid, but the unfolding risk-off sentiment prevent a new test of the 0.84 support area (currently 0.842).
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