ON DECK FOR TUESDAY, SEPTEMBER 2
KEY POINTS:
- Risk-off sentiment as September volatility arrives
- How the late Friday tariff ruling could be impacting stocks and bonds
- Eurozone CPI surprises a touch higher
- SK, Peruvian inflation surprise lower
- US ISM-manufacturing on tap
- Global Week Ahead—Will Nonfarm Support Powell’s Pivot? (reminder here)
Markets are wasting no time reminding us that September can be a rough month for risk appetite. Stocks are broadly lower with US futures down ¾% to 1%, TSX futures slightly lower, and European cash markets mostly lower by over 1% in Germany. Sovereign bond yields are broadly higher and led by the US longer-end. The dollar is broadly stronger.
THE TARIFF RULING’S COMPLICATED AFTERMATH
There are few fresh catalysts. Some of this may be spillover from the late-Friday US court ruling against the April 2nd ‘Liberation Day’ reciprocal and fentanyl tariffs. Uncertainty surrounding next steps increased by contrast to those who argued that even though tariffs are foolish, set rates gave something to plan around. The Supreme Court will likely have to weigh in at some point over coming months. The federal court ruled against them but kept them in place and pushed the issue back to a lower court. One uncertainty is whether striking them down only applies to the parties in the lawsuit or more broadly. Trump could shift tools and tactics; only IEEPA tariffs were struck down in the suite of options shown in the table on the next page. The absence of tariff revenues is a plus for the US and world economies but could end the diversion of revenues from American businesses and consumers to government; hence higher yields.
Apprehension ahead of the week’s US data particularly Friday’s nonfarm payrolls may be another consideration. Who knows, maybe the anti-democracy gathering of Putin, Xi Jinping and Modi over the weekend isn’t helping the mood either.
MIXED INFLATION READINGS
Overnight releases were very light.
- Eurozone CPI landed at 0.2% m/m (0.1% consensus) and core inflation held at 2.3% y/y (2.2% consensus). Core m/m was among the stronger historical readings (chart 1). Most of the information was digested as individual countries released late last week.
- South Korean CPI was softer than expected (-0.1% m/m NSA, +0.2% consensus). Core inflation fell to 1.3% y/y (1.7% consensus, 2.0% prior).
- Peru’s inflation also landed softer than expected (-0.3% m/m NSA, +0.2% consensus) as the y/y rate fell to 1.1% (1.7% prior) for its softest reading since 2018. Chart 2.
US MANUFACTURING SECTOR IN FOCUS
The main focus into the N.A. session will be US data and namely the ISM-manufacturing reading and is forecast to improve a touch (10amET). Watch supply chain measures, price pressures and industry anecdotes, but Thursday’s ISM-services matters much more to the broad economy. Construction spending in July is also due out (10amET).
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