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Markets drop-kicked into September. What's going on?

Podcast 19 minutes to read
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Summary:  Today we discuss the ramp in metals prices as we are finally over the summer doldrums, although the US has yet to open after the long holiday weekend. Something seems to be spooking markets overnight and into early European trading, and that something may be the fresh grind higher in long interest rates, with the long UK Gilt, for example, hitting its highest yield level since 1998 this morning. We also look at the impact on currencies and possibly the stock market from this latest rise in rates. This and more on today's pod, which features Saxo Head of Commodities Strategy Ole Hansen and is hosted by Saxo Global Head of Macro Strategy John J. Hardy.


Listen to the full episode now or follow the Saxo Market Call on your favorite podcast app.

Today’s links

An excellent long read on how China’s economy will attempt to navigate the new era of trade conflict with the US and others.

A LinkedIn post getting a lot of play maps US consumer spending growth this yearversus all other years back to 2000, and shows that this year’s growth is the weakest in that time frame outside of 2008 and 2009.

As mentioned on today’s pod: worth noting that “foreign” central bank holdings of gold have risen above holdings of US treasuries for the first time in nearly 30 years.

Thoughtful Money has the legendary economist Lacy Hunt talking his usual deflationary stuff, but he is always convincing and builds a formidable case. In the likely case he is right, it will spark the next round of Fed/Treasury responses that stave off any chance we ever see those deflationary forces realized. The guy was on the Fed in the 1960’s!

Chart of the Day - GBPUSD

Sterling is coming unglued a bit today, in part perhaps on the news that Keir Starmer is assembling a team to have a go at new policy positions to announce at the autumn budget statement in October - although sterling weakness may have more to do with long UK gilt yields extending higher. I have long bemoaned the structural risks for sterling given the UK’s twin deficits, which require higher and higher yields to offset those risks, but those high funding costs in turn then feed into pressuring the UK economy - driving the risk of an ugly negative spiral if this government can’t get ahead of the dynamics. The currency has held up surprisingly well save for a chunky drop versus a strong Euro (although have a look at GBPSEK - intriguing levels being tested there - Sweden has a spotless national balance sheet - with national debt of only 35% of GDP). The UK structural risks are shared by the US, of course, but the US dollar is the global funding currency and is in constant demand for servicing the bulk of global financial assets. If the wobble in risk sentiment here has global fiscal trajectory concerns at its root, sterling could be at ground zero for the negative fallout if the the focus intensifies. If the sub-1.3150 neckline-like area shown on the chart breaks down, the pair could explore the range all the way down toward 1.2100 eventually, barring a forceful government response to shore up confidence. (To be fair to the Labour government, it is well aware that it is sitting on this particular powder keg, having the Truss episode in recent memory.)

 

02_09_2025_GBPUSD
Source: Saxo

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