US

The global bond market rout stretched into a second day, weighing on equities, boosting gold prices to new highs, and lifting USD against most currencies. The bond market sell-off reflects genuine concerns over fiscal profligacy across Europe and the US.

However, the latest surge in longer-term bond yields, spearheaded by gilts, looks exaggerated given robust demand from investors. Yesterday, the UK raised £14 billion from a 10-year gilt syndication, its biggest on record and more than 10 times the amount offered. Also, Japan’s 10-year bond auction saw its strongest demand since October 2023. Today, Germany is set to sell €5 billion worth of a 10-year bonds. Tomorrow, France plans to sell 10, 15, and 30-year bonds while Japan is scheduled to sell a 30-year bond.

In the meantime, a dovish Fed can put additional downward pressure on USD and support risk assets. The US August ISM manufacturing print reinforced the case for a 25bps Fed funds rate cut in September. The headline index recovered less than expected to 48.7 (consensus: 49.0) vs. 48.0 and details were mixed. New Orders index point to improving demand conditions, Prices Paid index indicate softer inflation pressures, and the Employment index signals the labor market slump is moderating.

The US July JOLTS report is due today (3:00pm London, 10:00am New York). Job openings are expected to fall to a fourth-month low at 7382k vs. 7437 in June. More importantly, the ratio of job openings to unemployed workers has largely been stable at a level that suggests demand and supply for labor are roughly balanced. In contrast, the policy-relevant private non-farm payrolls data shows labor demand may be on the edge of a sharp decline.

Interestingly, Fed Governor Christopher Waller estimates that, after accounting for the annual “benchmark” revisions to 2025 (the preliminary estimate is due September 9), private-sector employment actually shrank, on average, in May, June, and July instead of posting gains of 52k. As such, Friday’s August non-farm payrolls will guide whether markets start to price-in a 50bps Fed funds rate cut at the September 16-17 FOMC meeting or stick with the current 25bps rate cut bet.

The Fed releases its Beige Book later today (7:00pm London, 2:00pm New York). The Beige Book will offer more insights into how higher tariffs are affecting growth and prices. The last Beige Book, published July 16, noted that the outlook for economic activity “was neutral to slightly pessimistic” while contact in a wide range of industries saw increased likelihood “that consumer prices will start to rise more rapidly by late summer.”

UK

GBP and long-term gilts stabilized after yesterday’s plunge. UK Chancellor of the Exchequer Rachel Reeves announced that the autumn budget will take place on 26 November, a month later than the typical timeframe. Investors worry the UK government will prioritize tax hikes over spending cuts to shore up the fiscal position.

We see room for GBP to edge lower versus EUR. First, the Bank of England (BOE) could step in and purchase gilt to rein-in runaway long-term yields. Second, higher taxes risk deepening the UK’s sluggish growth outlook and add pressure on the BOE to ease more aggressively.

AUSTRALIA

AUD/USD is trading in a tight range around 0.6520. Australia Q2 real GDP growth beat expectations. Real GDP increased 0.6% q/q (consensus: 0.5%) vs. 0.3% in Q1 (revised up from 0.2%) driven by household spending, government final consumption expenditure, and net exports. Public investment was the largest detractor from growth. RBA cash rate futures trimmed bets for 50bps of easing in the next 12 months.

Regardless, Australia’s August job print, due September 18, will be a bigger driver of RBA rate expectations. The RBA flagged that the pace of decline in the cash rate will largely be driven by labor market conditions. The July labor force report showed solid full-time job gains and argues for a gradual easing path, anchoring AUD/USD within its multi-month 0.6400-0.6600 range.

POLAND

National Bank of Poland (NBP) is expected to deliver a follow-up 25bps policy rate cut to 4.75%. At the last July 2 meeting, NBP unexpectedly cut rates 25bps because it forecasted CPI inflation to fall below the upper bound of the inflation target band (1.5%-3.5%) in the coming months.

Headline inflation eased further in August to a 14-month low at 2.8% y/y vs. 3.1% in July and supports the case for additional easing. The swaps market is pricing in 75-100bps of total easing over the next 12 months that would see the policy rate bottom near 4.00%. PLN/HUF has room to edge lower as Hungary’s central bank is firmly on hold. Also, HUF is undervalued relative to PLN based on deviation from real effective exchange rate trend.