Key Highlights

• Kim Jong Un and Vladimir Putin will visit China to attend a military parade next week.

• Mexico is expected to raise tariffs on China in its upcoming budget to meet U.S. demands.

• White House trade advisor Peter Navarro says India could get a 25% tariff reduction if it stops buying Russian oil.

Chart of the Day

ZAR FACES REBALANCING RISK AGAIN

^{Source: BNY}

August was considerably quieter than June and July, with limited risk catalysts constraining FX flow scores and reducing the scope for rebalancing from asset performance. Among the 15 major currencies, INR and JPY stood out with net purchases, while EUR also saw a reduction in hedges despite remaining a low-yielder, potentially reflecting market alignment with views that the ECB has ended its easing cycle. By contrast, SEK and CHF were the weakest performers, reflecting persistent funding demand and CHF-specific issues. USD was lightly sold, consistent with recent trends and suggesting U.S. inflows were partly offset by hedging. As a result of these FX flows and combined with index performance, equity rebalancing needs were strongest in ZAR and JPY, even though the former has maintained resilience despite strong selling signals for three months straight. INR’s potential rebalancing was offset by weak equities. Elsewhere, losses in Brazil and Switzerland were not deep enough to trigger inflows. In fixed income, ZAR again gave the clearest signal, with selling pressure amplified by strong bond returns and growing exposures, while INR was again held back by poor index performance. Though still below signal thresholds, SEK may see some recovery flows, as both its currency and bond markets underperformed sharply, leaving investors underweight. Overall, August lacked strong rebalancing signals, a common outcome in months of firm risk appetite.

What's Changed?

Global equity market sentiment continues to hold despite some concerns about the AI boom slowing after Nvidia’s earnings announcement and modest outlook for Q3 sales. This comes despite profit-taking in Chinese shares and Japanese rate volatility linked to the BoJ’s decision in September. The notable deceleration in activity heading into the U.S. Labor Day holiday and month-end Friday has left today’s volumes lower, except in China and Sweden. U.S. stock market futures are higher, tracking Europe and Asia, on earnings, rates and mixed economic growth data. Three positive takeaways stand out from the overnight trading and news. First, European loans to households rose 2.4% y/y in July, the highest figure in two years, with loans to companies up 2.8% to their highest level since June 2023. This supports ECB policy, adding to growth hopes ahead of the CPI reports tomorrow and next week. Second, the Bank of Korea has kept its policy unchanged because of recovering domestic demand. Hopes of a further cut in tariffs continued as well, with KRW gaining on the back of FX discussions. Third, capital expenditure in Australia recovered, albeit only by a modest 0.2% q/q, suggesting that RBA rate cuts have helped growth and that global demand is holding up. The global bond markets are mostly bid, with France the exception as OAT yields match Italian BTPs. The FX markets are watching EM again, with KRW and MYR leading, while G7 has seen gains for SEK, JPY and AUD. Weaker USD and higher stocks are setting the bias towards a modest risk mood as we head into a heavy U.S. trading session, where GDP revisions, jobless claims, the 7y note sale and more Fedspeakers will all matter, as reactive policy and defensive repositioning into September dominate and make a risk reversal likely. Expect more volatility, less confidence from global investors and further concerns about bubble valuations in U.S. markets. 

What You Need to Know

French Prime Minister François Bayrou warned against new elections as he faces a confidence vote on September 8 that could force his resignation. With no parliamentary majority and opposition parties aligned to oust him, Bayrou cautioned that the country risks political paralysis and financial instability while struggling with what he called a “crushing” debt burden. He said he would negotiate directly with lawmakers over the coming days, expressing confidence that some parties may reconsider their stance. Bayrou’s move mirrors the downfall of his predecessor Michel Barnier, who was toppled in December under similar circumstances in a fractured parliament. He argued that another dissolution would not bring stability, given the opposing demands of the far left and far right. CAC40 +0.443% to 7743.93, EURUSD -0.009% to 1.1638, 10y OAT -1.6bp to 3.502%.

Euro area August economic sentiment weakened slightly, with the Economic Sentiment Indicator down 0.5 points to 95.2, while the EU measure fell 0.3 to 94.9. Both were below the long-term average. Employment expectations improved marginally, rising 0.3 points to 97.8 in the euro area and 0.6 to 98.1 in the EU. By sector, confidence declined slightly in industry, services, construction and consumers, with retail trade the only area improving. Among major economies, Spain posted the sharpest fall (-2.6), while Germany and Italy declined by 1.0 each; the Netherlands rose by 3.5 and Poland by 0.5, while France was stable. Industry confidence slipped as production expectations fell, though order books and stock assessments were steady. Services sentiment weakened on softer past demand, while consumer confidence edged down as households grew more pessimistic about their finances. Construction sentiment deteriorated slightly, though employment expectations improved. Price expectations fell in industry, retail and construction but rose in services, while consumer price expectations for the next year increased. Economic uncertainty eased slightly to 16.9, with managers in services, industry and retail less uncertain about the outlook. Euro Stoxx 50 +0.284% to 5408.38, EURUSD +0.078% to 1.1648, BBG AGG Euro Government High Grade EUR -2.5bp to 2.86%.

Despite only moderate falls on the Hang Seng Index, mainland investors sold a net HKD 20.4bn of Hong Kong shares through the stock connect program, in an indication that profit-taking is coming through after the recent run. We have highlighted that foreign participation in the recent rally remains limited, while corporate earnings are also lagging. Consumer-linked stocks continue to highlight difficulties in raising margins due to cut-throat competition, and fiscal stimulus for households remains elusive. Hang Seng -0.935% to 24966.09, USDHKD +0.107% to 7.7942, 10y HKGB -1.2bp to 1.417%.

A 2y JGB auction drew poor demand with b/c of 2.84, the weakest figure since 2009 and well below the 4.47 recorded at July’s auction. The bond’s auction average yield came in at 0.863%, with a 1.1bp tail vs. 0.3bp in July. JGB auction demand had been poor across maturity segments this month, indicating weakening demand as BoJ officials continue their hawkish commentary. BoJ rate-setter Junko Nakagawa stated overnight that “the bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation” if the BoJ’s current economic outlook is realized. Nikkei +0.676% to 42807.88, USDJPY -0.123% to 147.24, 10y JGB +0.3bp to 1.631%.

The Bank of Korea (BoK) kept its benchmark interest rate unchanged at 2.5%. The decision was not unanimous, with one member voting for a 25bp rate cut. The BoK commented that, while there is still high uncertainty surrounding the economic growth outlook, it has shown modest improvement, mainly driven by domestic demand. However, movements in housing prices in Seoul and its surrounding areas and in household debt need to be monitored further. The BoK is maintaining a rate cut stance but highlighted that future rate cuts are not guaranteed and are dependent on growth. KOSPI +0.287% to 3196.32, USDKRW -0.51% to 1387.6, 10y KTB -3.3bp to 2.822%.

What We're Watching

U.S. Q2 GDP second estimate expected to be revised up to 3.1% q/q from an advance reading of 3.0% q/q.

U.S. weekly jobless claims forecast at 230k vs. 235k the week prior, with continuing claims at 1.966 million from 1.972 million.

U.S. July pending home sales expected down -0.2% m/m, + 0.1% y/y, after -0.8% m/m, -0.3% y/y in June.

Central bank speakers: Federal Reserve Board Governor Christopher Waller to speak at an event in Miami in a conversation about monetary policy, inflation and the Fed’s outlook for the rest of the year.

U.S. Treasury sells $100bn in 4-week bills, $85bn in 8-week bills and $44bn in 7y notes.

What iFlow is Showing Us

Mood: Normalization continues, but at a gradual pace. Equity buying is rising, with steady core sovereign bond demand. iFlow Mood remains in risk-off territory.

FX: IDR and CLP stood out with the most outflows, while EUR, JPY, CNY and NZD posted the most inflows. USD, AUD and GBP were lightly sold. EUR and JPY scored holdings drifted deeper in overheld territory.

FI: APAC government bonds were broadly sold, against better buying elsewhere, including U.S. Treasurys, U.K. gilts and Eurozone government bonds within the G10. Elsewhere, there was strong demand for Chilean and South African sovereign bonds. In APAC, Indonesian government bonds were most sold, followed by Singapore and Malaysia.

Equities: European and U.K. equities were most sold, followed by Malaysia, Taiwan and Hungary. Norway, Sweden, Chile, Israel and Singapore equities posted the most demand. Within DM EMEA, the health care sector posted significant inflows, followed by light buying in the energy and communication services sectors, against selling in the rest, led by the industrial, information technology and consumer staples sectors.

Quotes of the Day

“Speed has never killed anyone. Suddenly becoming stationary, that’s what gets you.” – Jeremy Clarkson

“All the seemingly positive valuations and judgments of ressentiment are hidden devaluations and negations.” – Max Scheler

Economic Details

Italy’s August consumer confidence fell to 96.2 from 97.2, with all components weakening. The sharpest declines were in future expectations (93.9 to 92.2) and the economic climate (98.2 to 97.0), while personal (96.9 to 95.9) and current conditions (99.7 to 99.2) saw smaller drops. Business confidence remained stable at 93.6, masking divergences across sectors. Sentiment declined in manufacturing (87.8 to 87.4), construction (102.3 to 101.3) and retail trade (105.7 to 102.8), while services strengthened (93.8 to 95.0), driven by gains in transport, storage and information and communication, though tourism weakened. Manufacturing firms reported lower production expectations, improved order assessments and rising inventories, while construction firms noted weaker order books but higher employment expectations. Retail confidence fell broadly across both large-scale and traditional distribution channels. FTSEMIB -0.716% to 42349.41, EURUSD -0.009% to 1.1638, 10y BTP -1.2bp to 3.561%.

France’s June trade sales volume rose 0.5% m/m after a 0.5% decline in May. Wholesale trade excluding motor vehicles increased 0.8%, led by a 16.3% rebound in metals and metal ores. Sales in wholesale and retail trade and repair of motor vehicles and motorcycles grew 0.4%, driven by a 0.8% rise in motor vehicle parts and accessories, though motorcycle sales fell 2.8%. Retail trade excluding motor vehicles was flat, as a 0.5% fall for specialized stores was offset by gains for non-specialized stores (+0.5%) and retail not in stores (+1.1%). In Q2, overall sales volumes rose 0.8% y/y, with retail up 3.4% and wholesale up 0.4%, while motor vehicle trade fell 2.9%. CAC40 +0.443% to 7743.93, EURUSD -0.009% to 1.1638, 10y OAT -1.6bp to 3.502%.

Switzerland’s August KOF economic barometer fell 3.9 points to 97.4 after a revised 101.3 in July, slipping below its medium-term average. The decline was broad-based across most indicator groups, with manufacturing and hospitality particularly weak. Within producing industries, all aspects of business activity worsened, with export-related indicators and general business conditions under marked pressure, reflecting the impact of new U.S. tariffs on Swiss imports. Subsector data showed deteriorating outlooks in chemicals and pharmaceuticals, wood, glass, stone and clay, electrical equipment, and food and beverage production. Paper and printing indicators improved slightly, while those for the automotive and machinery sectors were largely unchanged. The negative developments were partly offset by a more positive reading in foreign demand, which provided the only supportive contribution in August. SMI +0.38% to 12207.12, EURCHF -0.084% to 0.93314, 10y Swiss GB +0.5bp to 0.305%.

Switzerland’s GDP rose 0.1% in Q2 after 0.7% in Q1, reflecting weak growth as industrial value added and exports fell while services expanded broadly. Manufacturing contracted by 2.4% with a 4.8% decline in chemicals and pharmaceuticals, reversing Q1 gains linked to front-loading ahead of U.S. tariffs. Exports fell 2.7%, and imports dropped 3.7%. Domestic demand edged up 0.1%, with private consumption rising by 0.3% and government spending by 0.9%, supporting gains in hospitality (+1.5%), healthcare (+0.3%) and public administration (+1.2%). Trade (+1.9%) and business services (+0.5%) also grew, while financial services fell 0.2%. Construction investment (-0.1%) and equipment spending (-0.8%) weakened. SECO now forecasts slower growth, with GDP projected at 1.2% in 2025 and 0.8% in 2026, down from earlier estimates due to higher U.S. tariffs.

Sweden’s July trade surplus was SEK 4.5bn, down from SEK 6.8bn a year earlier, as exports fell 2% y/y to SEK 153.8bn and imports declined 1% to SEK 149.3bn. Trade with non-EU countries generated a surplus of SEK 27.7bn, while EU trade posted a deficit of SEK 23.2bn. Seasonally adjusted figures showed a surplus of SEK 6.7bn in July, slightly lower than June’s SEK 7.4bn and May’s SEK 7.8bn. The number of weekdays was unchanged compared with July 2024, meaning calendar effects did not influence the trade results. OMX -0.422% to 2645.631, EURSEK -0.133% to 11.0822, 10y Swedish GB -1bp to 2.593%.

Sweden’s August economic tendency barometer rose to 96.0 from 94.3 in July, marking a second consecutive monthly increase but still signaling weaker-than-normal sentiment. The rise was broad-based across sectors. Manufacturing edged up to 97.0 (+1.2), remaining below normal, while construction rose marginally to 98.0 (+0.5), indicating a normal level. Trade sentiment strengthened sharply to 103.2 (+3.5), the strongest across all sectors and above historical averages, led by daily goods trade. Services improved to 99.2 (+2.2), reaching a normal level, while household confidence rose slightly to 91.1 (+0.3) but continued to indicate weak sentiment. Overall, business confidence is now in line with historical norms, while households remain more pessimistic.

Türkiye’s August economic confidence index rose 1.7% m/m to 97.9, with increases in the consumer (84.3), real sector (100.6), services (111.1) and retail trade (108.8) indices, while construction fell 4.0% to 85.3. In July, exports rose by 11.0% y/y to $24.9bn and imports by 5.4% to $31.4bn, narrowing the trade deficit by 11.8% to $6.4bn, with coverage at 79.5%. January-July exports reached $156.3bn (+5.1%) and imports $212.2bn (+6.9%), widening the deficit by 12.2% to $55.9bn. Manufacturing accounted for 95.5% of exports, with high-tech goods at 4.2%. Germany was the top export market in July, while China led imports. Seasonally adjusted exports rose 8.5% m/m, while imports fell 5.8%. BI 100 -1.481% to 11359.01, USDTRY +0.021% to 41.0515, 10y TGB -2bp to 31.22%.

Hungary’s July unemployment rate was 4.3%, with 211k people unemployed and 4.712 million employed. In the May-July period, average employment stood at 4.681 million, 30k fewer than a year earlier, driven by a 24k decline among men to 2.477 million, while female employment was unchanged at 2.203 million. Employment in the domestic primary labor market fell by 41k y/y to 4.506 million, while 69k were in public work and 105k worked abroad. The employment rate for 15-64-year-olds was stable at 75.3%, with male and female rates of 79.1% and 71.4%, respectively. The number of unemployed people averaged 212k in May-July, unchanged y/y, with both sexes recording a 4.3% rate. The average job search duration was 11.5 months, while registered jobseekers fell 1.4% y/y to 221k. Budapest SI -0.878% to 104232.1, EURHUF +0.144% to 396.83, 10y HGB +2bp to 7.06%.

The latest Japanese weekly portfolio update, as of August 22, 2025, indicated de-risking, with outflows from foreign bonds and equities as well as JGBs and the Nikkei. Notable flows included foreign investors net selling Japanese stocks (-¥496.8bn) and long-term debt securities (-¥106bn). Japanese investors also liquidated overseas holdings for the first time in a month, led by equity sales (-¥306.1bn). We believe markets should be aware of the risk of seasonal selling bias for ahead for Japanese stocks. Nikkei +0.676% to 42807.88, USDJPY -0.123% to 147.24, 10y JGB +0.3bp to 1.631%.

New Zealand July filled jobs rose 0.2% m/m, matching the highs seen in January 2025. Looking into the details, the new jobs came from education and training (+2.0%, 4,181 jobs) and health care and social assistance (+1.3%, 3,610 jobs), while construction (-5.6%, 11,276 jobs), manufacturing (-2.3%, 5,427 jobs) and administrative and support services (-4.6%, 4,562 jobs) were all down. NZX 50 +0.321% to 12903.08, NZDUSD +0.052% to 0.5862, 10y NZGB -4bp to 4.333%.

New Zealand business confidence rose 2 points in August, with a net 50% expecting better business conditions, while expected own activity fell 2 points to a net 39%. Past own activity fell 5 points to +1, while past employment rose 1 point to -12. There were some interesting, isolated lifts in the data in the late-month sample following the RBNZ cut, but no generalized confidence improvement was evident. Inflation indicators fell: the net percentage of firms expecting to raise prices in the next three months fell 1 point to 43%, while those expecting cost increases fell 2 points to 74%. One-year-ahead inflation expectations eased slightly to 2.6%.

In the Philippines, the BSP cut rates by 25bp to 5.0%, in line with expectations. Its forward-looking statement was broadly unchanged, reiterating that it “will safeguard price stability by ensuring monetary policy settings are conducive to sustainable economic growth and employment.” The overall tone was not as dovish as at the June meeting. There was no mention of a “need for a more accommodative policy stance” (from the June policy meeting); instead, the BSP commented that it “will determine the monetary policy response based on the evolving outlook for inflation and growth.” PSEi -0.915% to 6215.95, USDPHP -0.088% to 57.125, 10y PHGB -1.8bp to 5.892%.