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London Quick Take - 3 Sep - Stocks subdued in Europe after Wall St snaps losing streak as bond rout cools
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Meanwhile Andy Burnham, facing his first PMQs, sought to reassure the markets, saying that the government was “grounded in fiscal responsibility” and that Britain was cutting its deficit faster than any other country in the G7. On the whole it sounded like he was neither ruling out more borrowing nor more taxes...we could get both. The 'big spending vibes, small spending commitments' phase of his premiership cannot survive contact with the enemy, which in this case is the bond vigilantes. The best thing the government can do is send a clear signal that it will tackle the supply-side reform required to get the economy moving and more productive. Bond vigilantes would like this – it's more credible than tinkering with taxes and vibing about welfare spending cuts on the one hand and raising defence spending on the other.
US hiring has slowed. Private companies added 38,000 jobs in August, according to ADP, which is down from 46,000 and below forecast 47,000. It makes it the slowest month since January and comes ahead of Friday’s key nonfarm payrolls figures for last month. An unexpectedly soft print for July left market participants trimming expectations for a rate hike in September. July's nonfarm payrolls showed a drop of -23k jobs and more than -100k in downward revisions. And while the unemployment rate declined to 4.1% this was due to a decline in participation. Worker pay was virtually flat over the month with the 12-month increase in average hourly earnings sliding to +3.2%, the lowest since May 2021. As noted previously however, the breakeven employment rate has changed dramatically, which has implications for these monthly jobs reports.
Investors are also starting to look ahead to US-China talks later in September. Semiconductors, AI and Iran are sure to be among the topics, along with broader trade and tariff themes. The G20 has endorsed the US’s light-touch approach to AI regulation. Meanwhile, US Commerce Secretary Howard Lutnick said tariffs on semiconductors are coming and the companies know it.
Among stock movers, Snowflake shares leapt after-hours on growth in its artificial intelligence coding agent named CoCo. Broadcom shares fell despite strong earnings. There was some disappointing revenue forecast for the current quarter, but longer term outlook is very strong- forecasts AI chip market to double to ~$115B in FY27 and reach ~$230B in FY28; targets EPS >$30 in FY28, above estimates, bolstering challenge to Nvidia.
A global bond rout gathered pace then cooled yesterday as we arguably approached ‘event horizon’ territory for a period of heightened volatility across financial markets as bonds fail as hedges and correlations drive negative feedback loops across equities. A pullback in crude prices offered some relief to bonds but the pressure remains intense with investors hurting to hold onto long-duration debt of any kind. Wall Street snapped a three-day losing streak, with the S&P 500 and Nasdaq both rising almost half a percent. European stock markets are much more subdued this morning with uncertainty over the next move in bonds keeping investors on the sidelines it seems.
The yield on the UK 30yr gilt approached 6% yesterday to notch a fresh 18-year high at 5.944% before some cooling in oil prices saw the move retrace a bit, tracing back to 5.835%. The benchmark 10yr yield rolled over about 10bps from a high at 5.234% to around 5.13% this morning. US yields also moved lower after peaking. The 2-yr Treasury yield tested just above 4.419% Wednesday, nearly matching the intraday high of early 2025 before rolling over several basis points and trading at 4.365% early Thursday. The benchmark 10-year yield dropped back to 4.77% early Thursday after an intraday high of 4.818%. Implied odds for the Fed to hike this month moved down from 70% to 60%. Risks for bond still seemed skewed to the downside (ie higher yields) as it does not feel like we are the level where investors will want to step in front of this wildfire.
Comments from the US administration helped ease concerns in bond markets about the energy complex as Energy Sec Wright said 17mn barrels of oil had transited the Strait of Hormuz on Monday, which if true would be the highest level passing the waterway on a single day since the war started. Even if the Strait is not open fully such a high figure also doesn’t suggest Iran is in control of it. China also said it would work with Middle East countries to ensure crude keep flowing safely. It came as Chevron announced a big investment in Venezuela, which could add some additional barrels on the margins in due course, but will take years so should have limited impact on prices for now. Later on, President Trump said renewed hostilities with Iran will not continue for "too long." There is pressure on him to cool things down in time for the mid-terms. Brent crude futures have backed off from a high yesterday around $97 to below $95, meaning the weekend gap of 25/26 July is just about still holding. European gas prices have also cooled a touch after hitting a more than three-year high.
Yen-tervention: Worries about Japan’s fiscal splurge and debt burden are a factor in the global bond rout. There’s been coordinated US-Japan action in July and August to weaken the yen and perhaps there was some more yesterday as USDJPY tumbled sharply on nothing specific...markets are seeing a chance the Bank of Japan moves more aggressively to tighten policy following comments from the hawkish BoJ policymaker Takata, who hinted at 50bps moves rather than 25bps increments. USDJPY has backed off sharply once again overnight to take a 156 handle as Japan successfully got off a 30yr bond auction.
The yield on the UK 30yr gilt approached 6% yesterday to notch a fresh 18-year high at 5.944% before some cooling in oil prices saw the move retrace a bit, tracing back to 5.835%. The benchmark 10yr yield rolled over about 10bps from a high at 5.234% to around 5.13% this morning. US yields also moved lower after peaking. The 2-yr Treasury yield tested just above 4.419% Wednesday, nearly matching the intraday high of early 2025 before rolling over several basis points and trading at 4.365% early Thursday. The benchmark 10-year yield dropped back to 4.77% early Thursday after an intraday high of 4.818%. Implied odds for the Fed to hike this month moved down from 70% to 60%. Risks for bond still seemed skewed to the downside (ie higher yields) as it does not feel like we are the level where investors will want to step in front of this wildfire.
Comments from the US administration helped ease concerns in bond markets about the energy complex as Energy Sec Wright said 17mn barrels of oil had transited the Strait of Hormuz on Monday, which if true would be the highest level passing the waterway on a single day since the war started. Even if the Strait is not open fully such a high figure also doesn’t suggest Iran is in control of it. China also said it would work with Middle East countries to ensure crude keep flowing safely. It came as Chevron announced a big investment in Venezuela, which could add some additional barrels on the margins in due course, but will take years so should have limited impact on prices for now. Later on, President Trump said renewed hostilities with Iran will not continue for "too long." There is pressure on him to cool things down in time for the mid-terms. Brent crude futures have backed off from a high yesterday around $97 to below $95, meaning the weekend gap of 25/26 July is just about still holding. European gas prices have also cooled a touch after hitting a more than three-year high.
Yen-tervention: Worries about Japan’s fiscal splurge and debt burden are a factor in the global bond rout. There’s been coordinated US-Japan action in July and August to weaken the yen and perhaps there was some more yesterday as USDJPY tumbled sharply on nothing specific...markets are seeing a chance the Bank of Japan moves more aggressively to tighten policy following comments from the hawkish BoJ policymaker Takata, who hinted at 50bps moves rather than 25bps increments. USDJPY has backed off sharply once again overnight to take a 156 handle as Japan successfully got off a 30yr bond auction.
Meanwhile Andy Burnham, facing his first PMQs, sought to reassure the markets, saying that the government was “grounded in fiscal responsibility” and that Britain was cutting its deficit faster than any other country in the G7. On the whole it sounded like he was neither ruling out more borrowing nor more taxes...we could get both. The 'big spending vibes, small spending commitments' phase of his premiership cannot survive contact with the enemy, which in this case is the bond vigilantes. The best thing the government can do is send a clear signal that it will tackle the supply-side reform required to get the economy moving and more productive. Bond vigilantes would like this – it's more credible than tinkering with taxes and vibing about welfare spending cuts on the one hand and raising defence spending on the other.
US hiring has slowed. Private companies added 38,000 jobs in August, according to ADP, which is down from 46,000 and below forecast 47,000. It makes it the slowest month since January and comes ahead of Friday’s key nonfarm payrolls figures for last month. An unexpectedly soft print for July left market participants trimming expectations for a rate hike in September. July's nonfarm payrolls showed a drop of -23k jobs and more than -100k in downward revisions. And while the unemployment rate declined to 4.1% this was due to a decline in participation. Worker pay was virtually flat over the month with the 12-month increase in average hourly earnings sliding to +3.2%, the lowest since May 2021. As noted previously however, the breakeven employment rate has changed dramatically, which has implications for these monthly jobs reports.
Investors are also starting to look ahead to US-China talks later in September. Semiconductors, AI and Iran are sure to be among the topics, along with broader trade and tariff themes. The G20 has endorsed the US’s light-touch approach to AI regulation. Meanwhile, US Commerce Secretary Howard Lutnick said tariffs on semiconductors are coming and the companies know it.
Among stock movers, Snowflake shares leapt after-hours on growth in its artificial intelligence coding agent named CoCo. Broadcom shares fell despite strong earnings. There was some disappointing revenue forecast for the current quarter, but longer term outlook is very strong- forecasts AI chip market to double to ~$115B in FY27 and reach ~$230B in FY28; targets EPS >$30 in FY28, above estimates, bolstering challenge to Nvidia.
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