European Market Wrap - 2nd September 2026

European bourses were broadly lower, hampered by geopolitics and energy prices. USD/JPY dropped to a 158 handle, in a move which lacked a clear catalyst; potentially a rate check or intervention. Pakistan's foreign ministry said Army Chief Munir visited Tehran and generated substantial momentum on the Strait of Hormuz issue. EQUITIES European bourses traded choppy throughout Wednesday's session but are set to close with broad losses. The blue-chip Euro Stoxx 50 oscillated in a 6,339-6,385 range throughout the day and is set to break 2 consecutive days of losses. Helping the stabilisation in equities was the pullback in energy prices, with benchmarks set to close lower, with the Saudi Foreign Ministry calling for all sides to remain calm. Sectors held their negative bias. Travel & Leisure topped the sector pile, with Banks and Health Care completing the top 3 sectors. To the downside remained Media, with Retail and Utilities rounding out the sector laggards. Key movers included: Lottomatica (-9.0%), announced the acquisition of Cirsa (+17.9%) in an all-share deal worth EUR 2.8bln; Technip Energies (-4.1%), reportedly failed to win a contract with SpaceX; Deutsche Telekom (-1.0%), CFO is to step down in Apr'27; Nokia (+0.7%), to be added to the Euro Stoxx 50. US cash equities opened mixed with a slight positive tilt. Focus after hours will be Broadcom earnings. Last time, Broadcom spurred a broad-based tech selloff after it missed on quarterly revenue and guided AI semiconductor revenue that underwhelmed, while not raising its FY AI chip sales forecast. FX Initially mixed action in FX today with USD firmer against most G10 peers, bar the Yen. Yields began on the front foot, but came off peaks (see fixed for levels), though DXY saw a reversal from the 99.86 session peak with initial weakness coinciding with remarks from Saudi Arabia and numerous US officials, action which was exacerbated by JPY strength which recently emerged without a clear driver. JPY was the clear outperformer throughout the session with recent gains added to after sharp downside in USD/JPY and in various crosses. USD/JPY fell from 159.60 to a trough of 158.30 within ten minutes, a move which lacked a clear driver with markets now on intervention/rate check watch. Earlier, JPY strength was attributed to remarks from hawkish dissenter Takata, who implied that the BoJ could possibly hike 50bps in September or deliver back-to-back hikes, stating the BoJ “needs to consider a broad range of options, not just a 25bps hike each time”. On top of this, Governor Ueda provided some remarks overnight, ultimately not dissuading market bets of a hike in September. For USD specifically, Fed’s Williams was on CNBC He adopted a dovish tone, noting the Fed was “in a good place” and data is “not screaming the neutral rate has risen”. Waller is to speak tomorrow, which will be in focus given his recent shift away from a dovish tone. DXY hit a 99.43 trough after reversing from a 99.86 peak. RBNZ failed to impress hawkish expectations in its policy meeting where the OCR was raised by 25bps to 2.75% as expected. While flagging further tightening, the bank highlighted downside risks to the economy and rate projections showed less expected tightening than markets expect, with the OCR projection for December 2026 seen at 2.81% (OIS Implied Rate: 2.99%), September 2027 at 3.12% (OIS Implied Rate: 3.48%) and December 2027 3.15% (OIS Implied Rate 3.75%). As such, NZD was pressured against all G10 currencies, NZD/USD set to finish off worst levels after bouncing off 0.5802. AUD was lifted after stronger-than-expected GDP data, now set to finish one of the only currencies firmer against the Buck. AUD/NZD +1.3% after breaching the 1.2258 June high, and a peak of 1.2281 which is the highest level since 2013. Following an expected hold from the BoC, USD/CAD fell from 1.1.3902 to 1.3883 in an immediate reaction after the statement brought attention to the risks surrounding the Middle East and US-Canada tariff situation, noting "upside risks to inflation have increased, while new tariffs make growth prospects more uncertain". Focus on the presser which is set to begin at the bottom of the hour. Money markets now assign a 75% chance of a hike this year (vs 64% pre-announcement). FIXED Global fixed benchmarks are mixed. USTs (+2+ ticks) were flat for most of the European morning, but moved a touch higher into the afternoon. Bunds (-39 ticks) and Gilts (-30 ticks) were pressured throughout the session, but set to end the London session off worst levels. USTs held towards the upper end of the day’s 107-17 to 107-27 range. Some of the mild strength was attributed to a bit of a scaling back in oil prices, following optimistic commentary out of Pakistan and Saudi officials urging calm. Domestically, US ADP Employment Change printed at 38k, beneath the consensus of 47k – no move was seen following the report. The more closely watched NFP report is due on Friday. Elsewhere, Fed's Williams provided two-way commentary where he highlighted that inflation expectations are well anchored, adding that recent trends have been encouraging. US yields are lower across the curve, with mild underperformance at the front-end, resulting in mild bull steepening. Bunds and Gilts were subject to selling pressure amidst elevated European gas prices, which are at their highest in three years. Earlier, ECB’s Makhlouf and Nagel were on the wires. The latter said that the ECB should be ready to lift rates further, adding that inflation and growth metrics make him “uneasy”. For Gilts, PM Burnham faced his first PMQs, where the session focused on surging debt costs and tax plans. The Prime Minister reiterated that he does not rule out tax increases, whilst adding that he will be sticking to fiscal rules. Greece will reportedly pay off its first bailout loan 2 years earlier than planned, according to sources. Plans to raise EUR 7-8bln from bond markets in 2027. At least EUR 5.1bln of the first round bailout loans will be pre-paid in 2027. US Commerce Secretary Lutnick asked about global bond yields and Treasury intervention, said he thinks the market will stabilise in a more positive way than people can imagine. Optimistic bond market will treat us very well, may take a couple of months, but rates will stabilise. Is comfortable with where things are. Berkshire Hathaway (BRK.B) CEO Abel said raising debt in Japan remains appropriate. COMMODITIES WTI Oct and Brent Nov futures extended their pullback from earlier highs but held onto a bulk of the prior day’s surge, with the latest US-Iran headlines doing little to materially shift the geopolitical backdrop. Iran reiterated that it does not reject negotiations but said the US must fulfil its commitments before Tehran takes steps to reopen Hormuz, while a US source said the latest strikes were pre-emptive and targeted an alleged Iranian plot against submarine cables in the Strait. WTI fell from a USD 92.29/bbl high to low around USD 89.04/bbl, slipping marginally into the red, while Brent declined from USD 97.04/bbl to low around USD 93.52/bbl, also slightly lower on the session. Dutch TTF remained elevated amid continued European stockpiling and Middle Eastern supply risks, although it moved well off earlier highs. TTF fell to near the lower end of its EUR 71.83-75.33/MWh session range, but remained firmer by around 1% at the time of writing. Precious Metals gave back the losses seen earlier in the day, initially driven by elevated oil prices, higher yields and inflation concerns continued to underpin Fed tightening bets. Spot gold recovered as DXY waned and then got hit amid sudden JPY strength (see FX section), pushing gold further in the green and towards the top of a USD 4,283-4,375/oz. Base Metals remained subdued amid elevated energy prices and renewed geopolitical concerns, but recovered from losses as DXY waned. COMEX copper traded around USD 6.52/lb, up modestly on the session after recovering from a USD 6.42/lb low and remaining below its USD 6.52/lb high, while 3M LME copper traded within a USD 14,098.55-14,277.28/t range. The Canadian Government will extend the temporary pause of federal fuel excise tax on gas and diesel until January 31st, 2027, according to CTV News. US Energy Secretary Wright said Venezuela production +25% and exports +50%; China will not have a claim to Venezuela's oil fields. Haven't had discussions with Venezuela on OPEC. Trump is changing importance of Strait of Hormuz. Venezuela output will allow for swapping barrels. US Navy is overwhelming Iranian attacks. Venezuelan oil will go into the SPR. K+S (SDF GY) said it is not considering any production cuts due to the current gas situation. Canada government will reportedly extend temporary pause of the federal fuel excise tax on gas and diesel into the new year, reported CTV citing sources. German Economy Ministry spokesman said gas storage levels are tighter than in previous years but there is no risk of gas shortages this winter. Chevron (CVX) , Keo Capital, Eni (ENI IM) and Primavera among companies to sign energy agreements in Venezuela soon, according to sources. Dutch central bank has removed 86 T of gold from New York and Ottawa to London in order to improve tradability. Russia’s Kirishi refinery (400k BPD) halted oil processing on Aug 30 following a Ukrainian drone attack, sources suggest. Chevron (CVX) reaches a deal for two oil fields in Venezuela’s Orinoco Belt; Co. expects total project costs in Venezuela to remain below USD 20/bbl and plans to invest USD 7bln in a joint venture targeting production of 600k BPD by 2026. EU approves Germany’s electricity supply safeguard mechanism, capped at EUR 35bln, as expected. Iraq increased oil exports in August as lower crude prices attracted more buyers, sources say. Two Iraqi energy officials say Iraq’s oil exports rose to about 2.34mln BPD in August from about 1.35mln BPD in July. Russia reportedly suspends grain export duties through 2026, RIA reported. EUROPEAN DATA Italian PPI (Jul MM) 2.4% (Prev. 0%). Italian PPI (Jul YY) 7.8% (Prev. 5.8%). Spanish Unemployment Change (Aug) 44.419K vs. Exp. 15.4K (Prev. 19.517K). French Budget Balance (Jul) -145.9B (Prev. -106.8B). NOTABLE HEADLINES Germany’s cabinet approves a EUR 10bln income-tax reform, as expected. TRADE/TARIFFS US Commerce Secretary Lutnick said he was in room with US President Trump and Canada PM Carney; they set out a path about moving forward. Canada blew up the US/Canada deal due to politics. US was treated disrespectfully. Mexico launches an anti-dumping investigation into Japanese steel plates. CENTRAL BANKS Fed's Williams (Voter, Neutral) said bond market driven by strong US economy and big investments in AI. Yields. Yields not driven by inflation outlook or financial conditions. Hard to know if there is an inflation component within bond yield movement. There is correlation between bond yields and middle east conflict. Some of this is probably contained in the risk premium. Yields are affecting cost of funding but demand for investment is high. Most of yield moves come from investment surge. Treasury buybacks do not complicate his job of conducting monetary policy. Policy. Fed looks at totality of data when setting policy. It is our job to act on policy, no one else can do that for us. Was asked about whether market moves can help the Fed do its job. Supported previous decision to hold rates. Inflation/Labour. Middle East conflict and tariffs are the biggest drivers of inflation. There's also some effects of higher services inflation as well. Not seeing second round effects. Inflation expectations are well anchored. Sees trend of inflation moving down, Fed needs to be data dependent. Labour market is stable and solid. Will be asking himself if inflation data is signalling the Fed is moving in the right direction. Will need to get to 2% inflation in foreseeable future. No clear case to see whether they are bringing inflation back to target, recent trends have been encouraging, but we look at all the data. Neutral rate. Asked about impact of surge on investment on the neutral rate, said investment will drive higher productivity growth, which traditionally results in higher rates and higher neutral rates. However, current real interest rate is around 1% which has moved up a little bit. Data is not screaming the neutral rate has risen. Would expect neutral rate to rise in this scenario, but data now showing that yet. Asked if rates are in a good place, said they are in a good place to balance Fed dual mandate. Balance sheet. Looking forward to task force balance sheet review. Looking forward to that discussion at the FOMC. BoJ's Takata said they need to consider a broad range of options, not just a 25bps hike each time. Adds, a different response is needed from the normal semi-annual pace of tightening. ECB's Nagel said Germany is on track for "about" 1% GDP growth this year. ECB's Nagel said that markets see a more than 95% chance of a September rate hike; markets understand rather well, the ECB's way of reacting. HSBC sees the RBA Hiking In September and Q4 to a 4.85% Cash Rate. PBoC bought a net CNY 50bln of sovereign bonds in August, injected a net CNY 65bln via other structural monetary policy tools, while its PSL operations resulted in a net withdrawal of CNY 52.1bln. Banxico Deputy Governor Heath said recent inflation data is very good, but not a victory. Risk assessment is on the rise, number one factor is persistent services inflation. Nordea pulls forward Riksbank tightening call; sees 25bps hike to 2.00% in November, another 25bps hike in February 2027. GEOPOLITICS RUSSIA-UKRAINE Ukraine said it hits 12 large Russian oil refineries in August. Suspects in the Leipzig drone incident have been identified, including a Russia-born man with a Latvian passport and another man from Belarus holding a Russian passport, SZ reported. NATO Secretary General Rutte said the alliance’s unity is unshaken and its support for Ukraine remains clear. European Commission President von der Leyen said the Leipzig incident marks a new escalation on European soil; he incident has strengthened resolve to support Ukraine; said the EU will increase pressure on Russia. Russia’s Kirishi refinery (400k BPD) halted oil processing on Aug 30 following a Ukrainian drone attack, sources suggest. Ukrainian President Zelensky announced the start of a plan to swarm Moscow’s airports with AI-guided drones to isolate Russian elites and pressure Russian President Putin to negotiate a truce. Russia reportedly suspends grain export duties through 2026, RIA reported. EU’s Foreign Policy Chief Kallas said we need to work together on what more we can do in a situation where Russia is escalating attacks on Ukraine. Russian Foreign Ministry said that Foreign Minister Lavrov may meet Rubio on the sidelines of the UN General Assembly in New York. Russia's Deputy Security Council Chairman Medvedev said "Germany deserves a direct strike on military equipment production for Kyiv", Ria reported. Within Medvedev's Telegram channel: "They deserve a direct strike on all German military equipment production facilities for the Bandera clique. And quite possibly on several other locations in Berlin as well". MIDDLE EAST Pakistan's foreign ministry said Army Chief Munir visited Tehran and generated substantial momentum on the Strait of Hormuz issue; positive about all parties returning to the negotiating table. US Treasury Secretary Bessent said his advice regarding Iran and Russia is to “stay away from them,” adding that no one should support the regimes, according to a Fox News Interview. US CENTCOM said the US military never targets civilians, responding to Iranian reported that a US strike killed people at a wedding in Sirik. Recent US strikes were preemptive and aimed at disrupting an alleged Iranian plot to target submarine cables in the Strait of Hormuz, a US source tells Al Arabiya. Iran reiterates that regional countries should prevent the US from using their territory for attacks against Iran. Iranian Parliament Speaker Ghalibaf said Iran does not reject negotiations but views them as a tool in its broader confrontation with the US and Israel, Tasnim reported; reiterates US must fulfill its commitments before Iran "takes steps" to reopen Hormuz. Pakistan said it is concerned about escalating tensions between Iran and the US, is continuing diplomatic efforts, and hopes negotiations between Tehran and Washington will resume, Nour News reported. Iran's IRGC said two tankers were blown up and stopped a few hours ago after striking mines in the Strait of Hormuz; IRGC also warns of additional penalties for shipping companies. Iranian media said a missile strike on Camp Titin near the Red Sea demonstrated that moving US forces farther from the Strait of Hormuz does not necessarily place American bases beyond Iran’s reach, Press TV reported. Saudi Foreign Ministry said it has urged all parties to remain calm, halt escalations and respect international law and return to negotiations. Iranian hackers attempted cyberattacks on US energy, telecommunications and other critical infrastructure, but the attacks have so far been unsuccessful, NBC reported citing sources. NOTABLE NORTH AMERICAN NEWS US Commerce Secretary Lutnick said to companies, if you build in America, you will get tariff relief. Will see targeted and thoughtful tariff policy. Positively mentions TSMC and MU for their investment in US. US Commerce Secretary Lutnick criticises those who oppose data centres. NORTH AMERICAN DATA US ADP Employment Change (Aug) 38K vs. Exp. 47K (Prev. 44K). Job-stayers median change in annual pay 4.4% (prev. 4.4%). Job-changers median change in annual pay 7.3% (prev. 7.5%). US MBA Mortgage Applications (Aug/28) 0.8% (Prev. -1.0%). US MBA 30-Year Mortgage Rate (Aug/28) 6.79% (Prev. 6.78%).