Eurozone Bond Yield Edge Lower, Look Stabilizing After Tuesday's Rout — Market Talk

0757 GMT - Eurozone government bond yields edge lower, moving in line with U.S. Treasury yields, as global bond markets stabilize after Tuesday's selloff. Input from economic data is likely to be limited, with final inflation figures for July due. "We will get additional details on the drivers of inflation, all of which seemed relatively benign in July," RBC Capital Markets' analysts say in a note, expecting the flash estimate data to be confirmed. Supply will come from Germany which auctions 6 billion euros in August 2036 Bund, while Finland is set to go ahead with the syndicated launch of a new seven-year bond. The 10-year Bund yield declines 0.2 basis points to 3.253%, having hit a high of 3.272% on Tuesday, according to LSEG. ([email protected])0754 GMT - The rise in U.K. inflation in July is probably not enough to prompt the Bank of England to raise interest rates but sterling should remain little affected for now, ING's Chris Turner says in note. The realization that the BOE is unlikely to increase rates might not weigh on sterling until later in the year, he says. In a low volatility environment, sterling remains supported by its attractive yields in 'carry trades' where investors borrow in low-interest rate currencies to invest in ones with higher rates, he says. The euro could probably remain near 0.8550 pounds for the time being, he says. The euro trades flat at 0.8553 pounds. Annual inflation rose to 2.9% in July, as expected. ([email protected])0725 GMT - Yields on U.K. government bonds, or gilts, fall after the release of the U.K. inflation data for July. Annual headline inflation increased to 2.9% in July, from 2.6% in June, in line with the consensus forecast by economists in a WSJ poll. Annual core inflation was unchanged at 2.6%. The data was largely in line with expectations. "There was little sign of contagion of the energy shock to other goods and services," Aberdeen's Felix Feather says in a note. Ten-year gilt yields fall 2.4 basis points to last trade at 5.050%, Tradeweb data show. Ten-year gilt yields hit a 3.5-week high of 5.110% on Tuesday. ([email protected])0723 GMT - Bitcoin falls following declines in U.S. stocks overnight as a selloff in global government bonds and Middle East tensions weighed. Global bonds yields surged on Tuesday, reflecting inflation concerns and deficit fears. "Higher yields remain our main worry for the market," Jefferies economist Mohit Kumar says in a note. Inflationary pressures are likely not just from oil prices but also food prices due to droughts, which are external shocks that won't be offset by higher interest rates, he says. There is also no easy way out of the U.S.-Iran conflict, he says. President Trump said no talks with Iran are underway or scheduled after a U.S.-Iran ceasefire expired Monday. Bitcoin drops 0.4% to $64,306, LSEG data show. ([email protected])0702 GMT - While the rise in U.K. inflation in July to 2.9% from 2.6% marks the start of a gradual increase, it is unlikely to spur the Bank of England into raising rates, KPMG's Yael Selfin says in a note. Domestic price pressures are moderating and inflation is broadly in line with the BOE's latest projections, she says. Encouragingly, underlying inflation continued to ease in July, Selfin says, with services inflation slowing to 3.4% from 3.6%. Given that the labor market is softer than in 2022, higher energy costs are unlikely to trigger significant second-round effects over the coming months. "We expect interest rates to remain unchanged for the remainder of the year," she says. ([email protected])0653 GMT - The Nikkei Stock Average fell 3.2% to 65326.42, its lowest close since Aug. 4, on risk-off sentiment. "Rising bond yields, higher oil prices and renewed geopolitical concerns [are] weighing on investor appetite," StoneX's Matt Simpson says in commentary. "The sell-off has been particularly pronounced across technology and semiconductor stocks," the senior market analyst adds. Among worst performers on Japan's benchmark index, electronics equipment maker Furukawa Electric slumped 14%, memory manufacturer Kioxia Holdings slid 13%, and major AI proxy SoftBank Group dropped 10%. The dollar was at 159.15 yen, compared with Y159.73 around Tuesday's Tokyo market close. ([email protected])0641 GMT - The dollar falls as investors turn cautious ahead of the release of the Federal Reserve's July meeting minutes later in the day. Markets have recently trimmed expectations for Fed interest-rate rises following weak U.S. labour market data and subdued inflation prints. While Fed Chair Kevin Warsh has refrained from providing forward guidance, the minutes could provide clues on whether tightening is possible. The minutes will be released at 1800 GMT. The DXY dollar index falls 0.2% to 99.472. ([email protected])0635 GMT - Sterling stays higher against the dollar and holds steady versus the euro, little moved after data showed U.K. inflation accelerated in line with expectations. Annual inflation rose to 2.9% in July from 2.6% in June, as forecast by economists in a WSJ survey. Core inflation remained at 2.6%, albeit above the 2.5% expected. The slack in the labor market should avoid second-round inflation effects, allowing the Bank of England to look through the near-term rise in inflation and push back against market pricing for interest-rate rises, Schroders economist David Rees says in a note. Sterling rises 0.15% to $1.3549 and the euro trades flat at 0.8556 pounds, both little changed from levels before the data.([email protected])0613 GMT - Standard Chartered expects the Bank of Japan to raise interest rates by 25 basis points in September, rather than its earlier projection of October, say analyst Chong Hoon Park and strategist Nicholas Chia in a note. They also expect further hikes in the first and third quarters of 2027. They previously forecast a rate hike only in the second quarter. "Our revised expectation implies an additional 25bps hike this cycle, to a terminal rate of 1.75% (1.5% prior)," they say. Persistent yen weakness has also amplified imported inflation pressure, reducing the BOJ's ability to stay patient even as consumer spending remains soft, they say. ([email protected])0613 GMT - The impact of rising oil prices on Japan's inflation is likely to be limited, and the rise in market-based inflation expectations will likely prove transitory rather than persistent, says SMBC Nikko Securities economist Junichi Makino. The government has said the country will likely have enough energy supply into next year via reserves and alternative sourcing. Although inflation expectations reached 2.1% as of Tuesday--slightly above the central bank's 2% target--they could drop from that level if oil prices fall and the yen's weakness unwinds, Makino says.([email protected])0602 GMT - The fair value for the dollar appears to be around 150 yen based on interest rate differentials, says SMBC Nikko Securities economist Junichi Makino. With the pair currently trading near 160 yen, roughly 10 yen of that total is considered speculative, he notes. "Speculators will ultimately be forced to unwind their short-yen positions, and this process appears to have already begun," he says. "As speculators unwind their positions, the dollar-yen rate could move closer to its fair value of around 150." The dollar is trading at 159.25 yen. ([email protected])0558 GMT - Underperformance in French government bonds, or OATs, likely has more room to run given key economic and political events ahead, Commerzbank's Hauke Siemssen says in a note. "We think that the OAT underperformance can continue with the French budget season and next year's elections looming large," the rates strategist says. The 10-year French OAT-German Bund yield spread is "scratching" on last year's highs above 85 basis points, and the 10-year OAT yield is also trading some 4-5 basis points above the 10-year Italian BTP yield, "underscoring the recent bearish momentum in France," he says. ([email protected])