August Data Could Change The Picture for September Rate Hike — Market Talk

0838 ET - Odds for a September rate hike rose to nearly 60% Friday after Fed Chairman Kevin Warsh's speech, but the future of Fed tightening could depend on upcoming August data, according to a BofA Securities in a note. "We aren't declaring victory yet, since very soft Aug data could still change the picture. But absent a material downside surprise, the onus is now on Warsh to deliver a Sep hike," analysts say. The August jobs report will be released this Friday. The July report was much weaker than analysts were expecting, having some economists question the underlying strength of the economy. ([email protected])0636 ET - Germany's governing coalition is likely to remain in place even in the event of a political setback, economists at Berenberg say. Three of Germany's federal states are to hold elections in the coming weeks. In one, Saxony-Anhalt, the populist AfD could win a majority, which would mark the first time since the end of World War II that a far-right party takes power in a regional government. "This could send shockwaves through the German political scene," Berenberg says. Still, Europe's largest economy boasts few alternatives to the current centre-right/centre-left coalition, the economists note. And Chancellor Friedrich Merz, though unpopular, is also likely to cling on to his position as head of the coalition, they say. "We expect no major impact on fiscal policies at the federal level...The coalition will probably implement its planned pro-growth reforms as well." ([email protected]; @joshualeokirby)0621 ET - U.S. Treasury yields and the dollar decline, reversing some of Friday's rises after Federal Reserve Chairman Kevin Warsh warned about inflation risks. Prospects of a Sept. 16 rate hike have increased, although investors await jobs data on Friday and inflation data next week. Rate-rise prospects and higher oil prices should support the dollar and yields, says DHF Capital S.A's Bas Kooijman. "Rising oil prices could also revive concerns about persistent inflation, placing upward pressure on yields and strengthening the dollar." The two-year Treasury yield--which rose almost 12 basis points after Warsh's speech--falls 2.3 basis points to 4.325%, according to Tradeweb. The 10-year yield falls 1 basis points to 4.710%. The DXY dollar index falls 0.2% to 99.525. ([email protected])0609 ET - Bitcoin trades steady at $78,545, LSEG data show, remaining below the key $80,000 level after U.S. Federal Reserve Chairman Kevin Warsh on Friday warned of inflation risks and the possibility of an interest-rate rise. U.S. money markets now price a 60% chance of a rate increase at the Fed's Sept. 16 decision, LSEG data show. Still, bitcoin has recovered modestly from losses after Warsh's speech. A U.S. rate hike in September isn't a done deal and much will depend on Friday's jobs figures and next week's inflation data. "Warsh has explained his current understanding of inflation, but this week's jobs data and the September 11 CPI report for August hold the key for the September meeting," says XM's Achilleas Georgolopoulos in a note. ([email protected])0546 ET - Gold prices fall as elevated U.S. Treasury yields and a more hawkish Federal Reserve outlook weigh on the non-yielding metal. The 10-year Treasury yield trades at around 4.71% while markets have raised expectations for a September rate increase following Fed Chairman Kevin Warsh's Jackson Hole remarks. Persistent inflation and the prospect of Fed rate increases risk lifting yields and the dollar, limiting gold's recovery, says Ewa Manthey, commodities strategist at ING. Gold futures are last 0.2% lower at $4,442.49 a troy ounce, having earlier fallen to a near two-week low of $4,395.89. ([email protected])0349 ET - Coming debates in Japan over consumption tax cuts and the fiscal 2027 budget could stoke fiscal sustainability fears, driving government bond yields higher and weighing on the yen, says Oxford Economics economist Shigeto Nagai. "We continue to believe that the yen's weakness will likely continue unless the Takaichi administration gives up their preference for the mix of expansionary fiscal policy and reluctance to support the normalization of interest rates," he says. Nagai adds that the Japanese government is unlikely to ignore pressure from Treasury Secretary Scott Bessent to stabilize the yen, given the strategic importance of the U.S.-Japan alliance. ([email protected])0338 ET - Japan's nominal neutral rate likely lies at 1.75%, higher than the previously estimated 1.5%, given persistent yen weakness has pushed up inflation expectations, says Oxford Economics economist Shigeto Nagai. The rate will then likely decline gradually toward 1.5% in 2028 as inflation expectations edge down alongside the stabilization of the yen, he says. His new projection falls close to the midpoint of the Bank of Japan's estimated range for the neutral rate. "If the FX markets continue to demand faster rate hikes, then the BOJ would face a serious dilemma regarding whether it can risk excessive tightening to contain yen weakening pressures," he says. ([email protected])0319 ET - The Bank of Japan is expected to raise its policy rate in September and December this year and again in April 2027 to reach 1.75%, says Oxford Economics economist Shigeto Nagai. That is a higher policy rate projection and a faster pace than his previous forecast, which called for two hikes in December and June 2027. "We think the BOJ will want to address the pressure on the yen and the rise in inflation expectations," says Nagai, a former BOJ official. Still, as the policy rate is unlikely to reach the market-implied terminal rate of slightly above 2%, the 10-year Japanese government bond yield is forecast at 3%, he adds. The 10-year JGB yield is last up 1.5 bps at 2.940%. ([email protected])0307 ET - Eurozone government bond yields edge higher, taking the 10-year Bund yield to a 15-year high of 3.290%, according to LSEG data. The rise follows an increase in oil prices after U.S. forces attacked two Iranian rocket launchers in the Strait of Hormuz on Sunday, according to the U.S. Central Command, risking a return to all-out conflict in a region. The prospect of interest-rate hikes in both the eurozone and the U.S. this year reinforces the move. Brent crude rises 1.3% to $90.49 a barrel. The 10-year Bund yield last trades 0.9 basis points higher at 3.284%. ([email protected])0307 ET - Japan will likely leverage U.S. influence at the coming Group of 20 industrial and developing nations' meeting to rein in the yen's slide past 160 a dollar, says Nomura Research Institute economist Takahide Kiuchi. Japanese officials may reiterate close alignment with U.S. Treasury Secretary Scott Bessent on currency stability to hint at further joint interventions, he says. "Japan and the U.S. share a common interest in halting dollar strength and yen weakness," Kiuchi says. Both nations are poised to use the G-20 platform to keep currency volatility in check, he adds. The dollar was last trading around 159.85 yen. ([email protected])0306 ET - Any rise in the U.S. dollar could be limited, Commerzbank's Thu Lan Nguyen says in a note. The dollar edges lower Monday following strong gains on Friday after Federal Reserve Chairman Kevin Warsh hinted at a possible rate rise due to inflation concerns. A September rate rise is "by no means a done deal," Nguyen says. "I would be cautious about jumping on the dollar euphoria too quickly." Ahead of September's meeting will be Friday's U.S. jobs data, where another weak figure could "trigger a significant [dollar] correction." Inflation figures are also due next week. Inflation data recently "have hardly been a cause for alarm," she says. The DXY dollar index falls 0.1% to 99.619, having hit a two-week high of 99.726 on Friday. ([email protected])0235 ET - Nordic markets are seen opening slightly lower, with IG calling the OMXS30 down 0.4% to 3318. "The week begins with a suppressed risk appetite in Asia due to the fact that the U.S. and Iran have once again directed military attacks against each other," SEB's Dana Malas writes. Fed Chairman Kevin Warsh's speech in Jackson Hole on Friday also signaled disappointment that inflation remains above the 2.0% target and a risk that interest rates could rise, she says. The market now prices a roughly 60% probability of a rate increase on September 16. September could be an important month, with the European Central Bank and Bank of Japan expected to raise rates, Malas adds. OMXS30 closed at 3331.27, OMXN40 at 2733.09 and OBX at 2024.48. ([email protected])