Polarization of Trade, AI Development Between China, U.S. Seems Likely to Continue — Market Talk

0723 GMT - The polarization of trade and artificial-intelligence development between China and the U.S. is likely to continue for the foreseeable future, says Eastspring Investments in a note. The meeting between President Trump and Chinese leader Xi Jinping "delivered much pageantry, but essentially no tangible economic results," says Eastspring. The continuing divergence between the two economic powers suggests investment in China has to be centered on earnings streams supported by government policy and specific areas of local demand, Eastspring adds. Meanwhile, elevated oil prices stemming from the U.S.-Iran conflict and a potential ban on U.S. diesel exports could push diesel prices in certain parts of Asia higher, bleeding into inflation and likely pressuring regional currencies including the Korean won, Indian rupee and Thai baht, the asset manager says. ([email protected])0717 GMT - The Swiss franc falls to a 16-month low against the dollar and an 11-day low versus the euro. The franc continues to be hit by prospect of the Swiss National Bank keeping interest rates at 0% while peers, including the U.S. Federal Reserve, raise interest rates in response to rising oil prices due to the Middle East conflict. "The franc's weakness appears a more structural problem at this stage," ING's Francesco Pesole says in a note. The dollar rises to as high as 0.8339 francs and ING sees it reaching 0.84-0.85 if the Fed raises interest rates in October. The euro rises to as high as 0.9471 francs. ([email protected])0707 GMT - The Indonesian rupiah is likely to hold around the 18,000 rupiah level against the greenback for the remainder of this year, DBS's Yeang Cheng Ling and Joanne Goh say in a report. The Federal Reserve is expected to keep their rates firm or hike further, keeping the dollar firm and limiting room for a meaningful rupiah appreciation, DBS says. S&P Global Ratings' reaffirmation of Indonesia's investment grade sovereign rating and stable outlook also removes a key tail risk for the market, it adds. This reflects confidence in the country's fiscal discipline and commitment in keeping the deficit below the 3% of GDP ceiling. The dollar is 0.1% higher at 17,990 rupiah.([email protected])0707 GMT - Demand for euro-denominated bank bonds eases off due to investor caution as bond market volatility rises, ABN Amro strategists say in a note. Investors are demanding a higher premium to buy bank bonds, causing issuers to reduce supply, the strategists say. "This week, no new euro bank bonds have yet come to the market, suggesting issuers have shifted in wait-and-see mode." ([email protected])0654 GMT - Bitcoin recovers only marginally after reaching a one-week low on Monday as lingering worries over the Iran war and expectations for further U.S. interest-rate rises curtail risk sentiment. President Trump's rejection of Iran's proposal for a seven-day ceasefire lifts oil prices and strengthens inflation concerns, making the rate backdrop less supportive for bitcoin, Zaye Capital Markets analyst Naeem Aslam says in a note. Trump's later comments that the conflict could end very soon while further action remains possible leave bitcoin exposed to fast changes in geopolitical risk, he says. Bitcoin rises 0.4% to $83,873 after hitting as low as $82,516 Monday, according to LSEG. It has pulled back from the near eight-month high of $87,315 reached last week.([email protected])0654 GMT - The Reserve Bank of Australia is signaling that a further interest rate increase is likely in November, but it may need to go even further, says George Tharenou, chief economist at UBS. UBS forecasts quarterly headline inflation in 3Q 2026 to come in at 3.8% on year, well above the target of 2.5%. So beyond November, the risks around the official cash rate are shifting to the upside, with a rising risk of a further hike in February to 5.10%, he adds. ([email protected]; @JamesGlynnWSJ)0653 GMT - The dollar appreciates as oil prices rise on persistent concerns over supply disruptions stemming from the Middle East conflict. The U.S. is a net oil exporter while the dollar also benefits from its safe-haven role. The prospect of the Federal Reserve raising interest further in response to price pressures brought about by the conflict is also supporting the dollar. Investors will be assessing U.S. labor market data this week to gauge the outlook for rates. The Job Openings and Labour Turnover Survey will be released at 1400 GMT while the key nonfarm payrolls report is due Friday. The DXY dollar index rises 0.1% to 101.275, close to the eight-week high of 101.398 reached Thursday. ([email protected])0602 GMT - The Netherlands and Italy line up for government bond sales in the eurozone on Tuesday. The backdrop is the ongoing selloff in developed market bonds. "Govies [government bonds] remain heavy, underperformance versus credit is telling," Commerzbank's Christoph Rieger says in a note. The Netherlands will launch a new January 2048-dated DSL via a Dutch Direct Auction. The Dutch State Treasury Agency has set the preliminary initial spread guidance on the new 20-year bond at 2.5-6.5 basis points above Germany's May 2047 Bund, which is the pricing reference bond in the upcoming issuance. Meanwhile, Italy will auction up to 8 billion euros in three bonds, including a new February 2032-dated BTP, the existing October 2036 BTP and the April 2036-dated CCTeu, a floating rate note. ([email protected])0600 GMT - JGBs were mixed in the afternoon Tokyo session after the Japanese Finance Ministry's auction of 40-year sovereign debt. The bid-to-cover ratio stood at 3.10, higher than the 2.82 at the prior 40-year JGB sale in July, indicating solid demand. However, JGB prices may have been somewhat weighed by rising oil prices that lead to higher inflation in Japan and could prompt a fast pace of BOJ rate increases. The two-year JGB yield was down 0.5 bps at 1.960%, the 10-year yield was little changed at 3.085%, and the 30-year yield was unchanged at 4.170%. ([email protected])0554 GMT - The Reserve Bank of Australia Governor Michele Bullock is clearly keeping the door open for an interest rate rise in November. At her press conference following the central bank's decision to hike rates, she pointed the finger at the Middle East conflict, saying, "it has made us all poorer...it is making things much worse." Still, she was quick to add that domestic demand is also too high.([email protected]; @JamesGlynnWSJ)0534 GMT - U.S. Treasury yields rise in Asia trade but remain slightly below the fresh multiyear peaks reached Monday. President Trump's rejection of Iran's proposal for demands to reopen the Strait of Hormuz triggered the latest selloff, pushing oil prices higher, even as more oil tankers cross the waterway. The 10-year Treasury yield rises 1.3 basis points on the day to 5.254%, hovering close to Monday's peak of 5.274%--the highest level since June 2007, according to Tradeweb. The 30-year Treasury yield is up 0.4 basis points at 5.565%, below Monday's 5.583%, a level last seen in 2002. ([email protected])0529 GMT - As geopolitical pressures and uncertainties persist, First Abu Dhabi Bank anticipates that the dominant macro risk this week will again be the Middle East conflict and its impact on energy markets, inflation expectations and the global rates outlook. Markets will also be on watch for any Federal Reserve communication that might help to clarify the rates path going forward, says chief economist Simon Ballard. "The latter would now be particularly important for portfolio position given the (12-0) unanimous nature of FOMC's rate hike decision earlier this month," he says in a note. ([email protected])