Eurozone Government Bond Yields Edge Higher as Middle East Concerns Weigh — Market Talk

0727 GMT - Yields on eurozone government bonds edge higher as prospects of a U.S.-Iran peace deal fade, raising concerns about prolonged supply chain disruptions and inflation risk. Bond market investors are cautious as "Iran and the U.S. appear to harden their positions", Deutsche Bank Research strategists say in a note. Rises in yields are limited, however, after data Wednesday showed U.S. inflation fell in line with expectations. This reduced prospects of the Federal Reserve raising interest rates next month. Ten-year Bund yields rise 0.5 basis points to last trade at 3.162%, Tradeweb data show. ([email protected])0721 GMT - Bitcoin rises slightly after Wednesday's U.S. inflation data caused markets to trim odds of the Federal Reserve raising interest rates in September. The data showed inflation eased to 3.4% in July from 3.5% in June and core inflation decelerated to 2.5% from 2.6%. The data met forecasts but still marked two consecutive "relatively encouraging" core inflation reports and, combined with last week's weaker employment data, leaves less pressure on the Fed to act immediately in September, Deutsche Bank analysts say in a note. However, markets are still fully pricing a 25 basis-point rate rise by year-end, they say. Ongoing Middle East tensions also argue for continued caution. Bitcoin rises 0.5% to $63,833, LSEG data show. ([email protected])0714 GMT - The dollar rises to a two-week high against a basket of currencies as ongoing U.S.-Iran tensions and the continued closure of the Strait of Hormuz supports safe-haven assets and keeps oil prices elevated. The dollar briefly fell after data Wednesday showed U.S. inflation eased in line with expectations to 3.4% in July from 3.5% in June, prompting markets to trim expectations for a September interest rate rise by the Federal Reserve. This was "merely a continuation of the trend towards lower inflation, partly distorted by one-off effects" and the dollar's falls proved short-lived, Commerzbank's Michael Pfister says in a note. The DXY dollar index rises to as high as 100.083. ([email protected])0709 GMT - Treasury yields fall after Wednesday's U.S. inflation data showed prices eased in July, in line with forecasts, reducing the likelihood of the Federal Reserve raising interest rates next month. In addition, the high yield at an auction of 10-year Treasurys late Tuesday attracted investors. "Last night's new 10-year [Treasury] launched at the highest yield since 2007, attracting decent investor demand," Commerzbank's Hauke Siemssen says in a note. Attention turns to U.S. PPI data at 1230 GMT, where a benign reading could increase the odds of the Fed staying put next month, he says. The Middle East conflict and high oil prices remain a concern, however. The 10-year Treasury yield falls 1.4 basis points to 4.680%, Tradeweb data show. ([email protected])0701 GMT - India's inflation data doesn't warrant an immediate policy response by the Reserve Bank of India, say economists at ANZ Research in a note. India's July data signaled inflationary pressures were broadening beyond food and fuel in a measured way that isn't economically disruptive, they say. This gives the RBI room to remain patient for now, though risks continue to stem from elevated and volatile oil prices and the uneven spatial distribution of the southwest monsoon rains. ANZ expects the RBI to remain on hold in October but anticipates a first interest rate hike of 25-basis-points in December. ([email protected])0652 GMT - Sterling falls as concerns about the Middle East conflict overshadow data showing the U.K. economy grew in line with expectations in the second quarter. The economy expanded 0.4% quarter-on-quarter in the second quarter following 0.6% growth in the first quarter. While the data make it harder to argue that the economy is too fragile for tighter monetary policy, this isn't guaranteed as the full impact of higher energy prices is still to come and the Bank of England is waiting for second-round inflation effects, eToro analyst Sam North says in a note. Sterling falls to a one-week low of $1.3471, from $1.3494 before the data, according to LSEG. The euro rises to 0.8544 pounds from 0.8538 pounds. ([email protected])0642 GMT - The Reserve Bank of India is unlikely to raise rates this year, Citi Research analysts write in a note. July's CPI data was in line with expectations, they write. While food and beverage inflation, excluding vegetables, has seen a sharp uptick since the Middle East conflict began, it is being offset by subdued vegetable inflation, the analysts say. Underlying indicators still don't suggest meaningful generalized price pressures with regards to core CPI, which remained stable in July compared with June, they add. Citi retains its FY27 average headline CPI forecast of 4.7% on year, expecting monthly prints to come in above 5% during the September-December period. ([email protected])0547 GMT - U.S. inflation has likely peaked in 2Q, but could still pick up due to the energy price uncertainty, says UOB senior economist Alvin Liew in a note. Headline CPI rose 3.4% on year, easing slightly from June's 3.5%. Declining energy prices have helped to contain inflation, Liew notes. However, "energy prices are still elevated... and geopolitical tensions in the Middle East could quickly reverse recent disinflation progress if oil prices rise again," he says. UOB expects U.S. 2026 headline and core CPI to average around 3.5% and 2.8%, respectively.([email protected])0534 GMT - CBA says the Australian dollar edged below 0.7050 U.S. dollar in Asia following dovish comments by Chris Kent, Assistant Governor of the Reserve Bank of Australia. Kent told Reuters in a fireside chat that financial conditions remain somewhat restrictive and that the three rate increases earlier this year are having their intended effect. He also noted that softer housing market conditions tend to reduce the extent to which monetary policy needs to constrain growth in demand. Samara Hammoud, FX strategist at CBA, expects falling house prices to weigh on household spending and forecasts that the RBA will leave rates unchanged for now before delivering two rate cuts in 2027. ([email protected]; X @JamesGlynnWSJ)0503 GMT - Australia's big-four banks are reporting significant double-digit falls in home-loan applications since the federal government moved in May to change tax rules for property investment, making the sector less attractive. The drop in demand is underpinning forecasts for significant house-price falls over the next year. The Reserve Bank of Australia will have an eye on the situation, noting that falling house prices make consumers feel less wealthy, and hence likely to spend less. The situation has been deepened by the RBA's three interest-rate increases since the start of the year. ([email protected]; X @JamesGlynnWSJ)0429 GMT - AI, robotics and biotech will drive China's economy into the future, but these industries will need far fewer workers, says Louise Loo, head of Asia Economics at Oxford Economics. The new sectors need roughly half the labor of the old ones they displace, she says. Chinese labor supply is falling by only 0.5%-0.7% a year in the medium term, but labor demand may be falling even faster. Demography alone won't tighten labor markets enough to rebalance the job market if capital keeps moving to industries that need half the workers, Loo says. ([email protected];@JamesGlynnWSJ)0406 GMT - National Australia Bank expects house prices in Australia to fall by around 7% peak-to-trough in the current downturn, marking a sharp slowdown from the 9% growth over 2025. NAB economist Taylor Nugent adds declines of that magnitude are not outside recent experience, but they do support the bank's forecast for below-trend GDP growth. Modelling usually finds that a 10% fall in dwelling prices subtracts around 1 percentage point from consumption growth over a couple of years, he says. NAB's forecast for house prices compares with ANZ's recent call of an expected decline of more than 10%. ([email protected]; @JamesGlynnWSJ)