Early Morning Reid Macro Strategy

DB Research Early Morning Reid Macro Strategy

Key Market Data (Index @ Close // Change) (S&P 500 @ 7719 // 0%) (STOXX Europe 600 @ 650 // +0.00%) (iTraxx Crossover @ 250 // +1) (Brent Oil^ @ 97.64 // +1.28%) (10yr Treasury^ @ 4.78 // -1 bp) (10yr Bund @ 3.39 // 5 bp) (Dollar Index^ @ 98.84 // -0.26%) (Further Fed hikes/cuts priced for 2026 @ 34 // -1 bp) (Further ECB hikes/cuts priced for 2026 @ 48 // 2 bp) ^ - Change from previous day's 4:30 GMT to 04:30 GMT

I've published my new Chartbook this morning on the Deutsche Bank Research Institute site here where it’s open to all - friends, family or foe! I did everything I could to avoid calling it a "back-to-school" pack as that has suddenly become a bit too mainstream in recent years. Absent a really imaginative title it's called "The Home Straight" which is just a different way of saying we're now all back to work in the final stretch of the year towards Christmas.

We lead with the recent rise in bond yields, putting the move into longer-term perspective. While the forces pushing yields higher are unlikely to fade anytime soon, the latest increase should be viewed less as a new regime shift, or due to immediate fiscal concerns, and more as a continuation of the long normalisation from the extraordinary conditions of the 2010s. On a related theme, we make the case for the Fed to embark on a modest hiking cycle and show why the ECB is also likely to deliver two further rate hikes this year. Elsewhere, we examine the latest developments ahead of the US mid-term elections, review one of the strongest global earnings seasons on record in Q2, and continue our spotlight on the implications of AI for markets and the economy. See the pack here for more.

Talking of bonds, the op-ed I did yesterday in the FT was the second most read article in the paper. It's still prominent and appears in the paper edition today for those who still have a paper copy. I can't remember the last time I saw one of those! Otherwise the link is here.

So today kicks off the "home straight" to the end of the year after yesterday's Labor Day holiday where markets were understandably quiet with what focus there was on oil and German politics. Brent (+0.75%) continued to edge higher which helped the 10yr bund (+4.8bps) close at another post-2011 high of 3.39% with equities fairly subdued. US equity futures have just ticked very slightly into positive territory this morning after being slightly below for most of the session yesterday when the cash market was closed. Elsewhere the Yen is up half a percent to 153.52 and to the highest level since February.

This has likely been helped by Japan’s real wages increasing by +2.4% year-on-year in July, exceeding expectations of +1.8% and marking the strongest growth since May 2021. This also represents the seventh consecutive month of wage gains, indicating a gradual improvement in income trends. Meanwhile, total cash earnings rose +4.7%, the largest increase since January 1997, accelerating from a revised +4.0% increase in June. The stronger-than-expected wage data reinforces the overwhelming case for

DB Research Early Morning Reid Macro Strategy

the Bank of Japan (BOJ) to raise interest rates at next week’s policy meeting, following its previous hike three months ago, and supports the prospect of further monetary policy tightening in the months ahead. Q2 GDP has also been revised up overnight, moving from 1.1% annualised to 1.4%. However, expectations were at 1.8%.

In the rest of Asia, the KOSPI (+1.54%) is being driven by the tech rebound again, while the Nikkei is close to flat. The Hang Seng (-0.27%) and Shanghai Comp (+0.32%) are moving in different directions with the ASX (-0.84%) the largest decliner.

In a low energy 24 hours the Middle East story has rumbled on as concerns about fresh US-Iran hostilities pushed oil prices higher still. In part, that followed the tanker attacks over the weekend, but it was also reported that the Houthi rebels had hit Saudi Arabian oil infrastructure yesterday. So that helped push Brent crude (+0.75%) to a 6-week high of $97.00/bbl, with WTI also up +1.33% to $92.70/bbl. Brent is up another +0.62% this morning. And there was no sign of…