The macro calendar brings a two sided catalyst set to markets

The macro calendar brings a two-sided catalyst set to markets

MARKET LINES The bond market remains the primary driver of market sentiment, as the U.S.-Iran conflict seems digested. Yesterday, Waller’s remarks reassured bond markets and drove stocks higher, bringing them close to their all-time highs. Japan remains the other source of short-term risk and market volatility, with the possibility of further FX intervention—which sent the JPY into a tailspin (by 3 standard deviations) yesterday (+1.9% vs. the USD)—and the risk of more BOJ rate hikes than expected (the market prices +55bps by next January) and a wave of carry trade unwinding.

The next major potential catalysts for the markets are clearly macro ones now that earnings season has ended. Today’s U.S. jobs data (we forecast 25K vs. consensus 55K, August Jobs Preview: Treading Water), next week’s U.S. inflation data (on the 11th), the ECB (on the 10th—we anticipate a +25bp hike; ECB September Preview: Another Pre-Emptive Hike),, the BOJ (the 18th), and then the Fed (the 16th; we anticipate a hold, contingent on low inflation figures—see Data-Dependent Fed and Dead Heat in Brazil).. Unlike micro news (positively skewed), these risks are significantly more symmetrical. Given low volatility levels and low hedging costs, it seems prudent to tactically hedge equities in our view against a negative shock at low cost.

► EUR rates eased after four consecutive sessions of tensions, despite persistently high oil and gas prices The move was more pronounced at the front end, which outperformed the rest of the yield curve, following the rally in U.S short-term rates ► The 10-year Bund fell 3 bp to 3.35%, after hitting a low of 3.33%, while the 2-year yield fell 4 pb to 2.96% Curves steepened slightly, with the 10s30s spread closing up 2 bp at 6.5 bp ► Sovereign spreads tightened, with France performing well. The 10-year OAT-Bund spread narrowed by about 2 bp, while the BTP-Bund spread also benefited from the easing The French auction was also generally well absorbed, despite political and fiscal risks ► Across the Channel, Gilts significantly outperformed, with the British 2-year yield falling by nearly 10 bp to 4.52%, despite Pill’s hawkish comments. ► See our ECB meeting (next Thursday) preview:: ECB September Preview: Another Pre-Emptive Hike.

► The DXY slid 0.62% to 98.98, with the greenback weighed down by private payrolls data and a decline in US bond yields ► Supported by dollar weakness, EURUSD closed at 1.1621, up 0.29%. ► The Japanese yen fell to a one-month low, shedding 1.97% to 155.58. JPY consolidates at 156.3 this morning vs USD. ► High-beta currencies AUDUSD and NZDUSD capitalized on the weaker dollar, rising 0.35% to 0.7193 and 0.58% to 0.5882, respectively

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► European indices posted a modest rebound (SXXP +0.5%) amid a bond market pullback, with the dollar and oil prices remaining stable All sectors within the SXXP were in positive territory except for utilities and consumer goods Media, auto, and financials outperformed The SXXP remains 2% below its high. ► The rebound was more pronounced in the U.S amid the bond rally The SPX rose more than 1% to a one-month high, driven by large-cap stocks; the Nasdaq gained more than 1.4%, and the VIX fell back below 15. ► Asian stocks are up this morning: Nikkei up 1.5%, Kospi up 1,7%, HSI up 1.8%. European futures are flattish this morning.

► Tightening of iTraxx indices (-0.3 bps for the Main) following C Waller's speech Note the outperformance of Stellantis on the hybrid debt market yesterday (+0.4 price figure for both euro- denominated tranches) ► Strong activity on the primary market with over €5bn issued in the corporate segment and high oversubscription rates (notably on both TenneT tranches), in contrast to the previous two days

► Brent price is stable again this morning at 95$/bbl and TTF at 71.6 EUR/MWh.

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