DB Early Morning Reid Macro Strategy

DB Early Morning Reid - Macro Strategy

Key Market Data (Index @ Close // Change) (S&P 500 @ 7674 // +0.43%) (STOXX Europe 600 @ 654 // +0.59%) (iTraxx Crossover @ 251 // -3) (Brent Oil^ @ 93.05 // -0.18%) (10yr Treasury^ @ 4.71 // 1 bp) (10yr Bund @ 3.26 // 0 bp) (Dollar Index^ @ 98.84 // +0.14%) (Further Fed hikes/cuts priced for 2026 @ 26 // 3 bp) (Further ECB hikes/cuts priced for 2026 @ 42 // 0 bp) ^ - Change from previous day's 4:30 GMT to 04:30 GMT

As we go to press this morning, the upward pressure on long-end bond yields from last week has shown initial signs of easing. Indeed, the 30yr Treasury yield is down -2.4bps overnight to 5.25%, whilst the 10yr yield is down by the same amount to 4.71%. That’s been supported by a pullback in oil prices, with Brent crude oil (-1.37%) finally reversing course after a run of 6 consecutive gains to trade at $93.10/bbl. But even as there’s been some relief on the rates and inflation side overnight, the negative momentum in equities has continued, with S&P 500 futures down another -0.10% after the index fell -1.43% last week. Meanwhile in Asia this morning, there’s also been a decent pullback across the board, including declines for the KOSPI (-3.15%), the Hang Seng (-2.09%), the CSI 300 (-1.26%), Shanghai Comp (-0.71%) and the Nikkei (-0.52%).

That pullback in Treasury yields this morning follows last week’s surprise announcement that the US Treasury will increase its buyback operations for longer-dated Treasuries. That briefly eased the pressure on yields when it was announced, with the 30yr yield down -9.2bps on Wednesday to 5.19%, after reaching a post-2007 high of 5.31% last Monday. But even with that intervention, yields then crept back up into the weekend, with the 30yr yield closing at 5.27% on Friday, less than 4bps beneath its closing peak earlier in the week. Moreover, investor concern about wider financial repression led to clear effects in other asset classes, with the dollar index down -0.87% last week, whilst gold rose +5.18%. And this morning, gold is up another +0.72% to a 3-month high of $4,636/oz.

One reason why yields moved higher into the weekend was the ongoing rise in oil prices last week, which added to fears about inflation. Indeed, if we look at the oil futures curve, it’s clear that markets are starting to price in a longer closure of the Strait of Hormuz again. For instance, the 12-month Brent future hit a 2-month high of $79.16/bbl on Friday, which isn’t far off its peak in the Iran conflict of $83.58/bbl back in May. So those expectations of higher

oil prices put upward pressure on yields as well, and the weekend newsflow hasn’t shown any sign of progress towards a US-Iran deal either.

The conflict is set to stay in the headlines this week, as US Treasury Secretary Bessent has said that he’ll be holding a press conference today to outline what he described as “the greatest coordinated economic isolation in the history of the world”. That follows President Trump’s post last week that “ANY country that allows its financial institutions, businesses, airports, or government entities to provide any type of lifeline to Iran will itself face TREMENDOUS Economic Consequences.” Bessent also wrote an article in the FT overnight, in which he referred to an “economic D-Day”.

Elsewhere, tariffs were also back in the headlines over the weekend, after the trade talks between the US and Canada broke down. Canadian PM Mark Carney said they were “walking away from a bad deal”, and would now “match Washington’s new tariffs dollar for dollar”. So that means Canada will now face 50% tariffs on around $20bn worth of goods, and Carney said that their own retaliatory tariffs would take effect on September 8. Meanwhile on the US side, President Trump posted that “Canada wants the benefits of being a State, without being one!!! They have also charged our great farmers, for many years, massive amounts of Tariffs. No more!!!” There’s already been a market reaction this morning to the breakdown of the talks, with the Canadian dollar weakening against every other G10 currency, including a - 0.26% fall against the US Dollar. Otherwise, Bloomberg also reported overnight that Canada saw…