Key Highlights

• Fed’s Austan Goolsbee says the September meeting feels “live” and hopes July’s “dangerous” services inflation number was a “blip.”

• Presidents Trump and Xi may not meet in October, with Xi likely to skip the ASEAN summit.

• Nvidia has reportedly ordered suppliers to halt work on its H20 artificial intelligence chip for China.

Chart of the Day

US TREASURY SHORT UTILIZATION, 1-3Y AND 7-10Y

^{Source: BNY}

Fed Chair Jerome Powell’s speech today is expected to set the tone for the September Fed decision, and, judging by current flows, the outlook for financial conditions doesn’t point to much relief soon. A vigorous defense of Fed/central bank independence aside, stagflation is on the agenda globally. This week’s price action suggests that after a good period of near-denial, the market is adjusting to the view that risk positioning is looking toppish and a more defensive posture is needed. Looking across different asset classes, especially in cross-border positioning, we note that the relevant “hedges” are relatively light. For example, USD is currently in the middle of a poor run among cross-border clients, indicating a clear preference for adding to hedges, even though the net result from Jackson Hole could be slightly higher front-end rates. In the U.S. Treasury market, the 1-3y has also not moved too much in short utilization despite the emergence of selling interest. Further down the curve, we note that the only portion with meaningful gains in short utilization is 7-10y. The 10y+ segment remains very well-behaved. Aside from a jump in short utilization in mid-July, there is still no interest in reducing exposure, as the yield and currency compensation is sufficient. However, the 7-10y segment is taking fewer chances, and this is where the bulk of the steepening risk is being applied. 

What's Changed?

After spending the week on the back foot in anticipation of Fed Chair Jerome Powell delivering a forceful message on inflation in his Jackson Hole speech today, there are some tentative signs of stabilization across developed market equities, with defensive positioning now feeling adequate. We reiterate our view that Powell may not offer enough clarity today and may stop short of endorsing a cut in September. As Chicago Federal Reserve President Austan Goolsbee highlighted yesterday, the meeting does “feel live,” and market pricing will likely remain that way over the coming weeks. However, his comments surrounding the “dangerous” services inflation print will continue to erode pricing of easing, and this cuts to the crux of the theme of Jackson Hole, which is “Labor Markets in Transition.” The disconnect between clear weakening in job creation and stubborn wage growth – which directly feeds into services inflation – has a material bearing on price expectations across the developed world. That goes especially for service-based economies such as the U.S. and the U.K. Some policymakers have already warned that structural labor market factors mean high services and inflation numbers will become the new norm, and these are matters that central bankers cannot resolve with simple rate cuts. Consequently, what Goolsbee calls “dangerous” at present may become more commonplace in the future, and the Fed and its peers will need to assess the areas of the economy where monetary policy can, and should, exert influence. For equity markets, even with policy relief, demand factors such as China’s ongoing pushback against domestic use of U.S. chips remain a source of uncertainty. This is adding to the weaker capital expenditure narrative for tech and semiconductors that has permeated through markets all week and that will likely only deepen for the remainder of the year as valuations and holdings struggle for justification.

What You Need to Know

Chicago Fed President Austan Goolsbee said recent inflation data have been somewhat better than expected but flagged the latest report showing a sharp rise in services inflation as a “dangerous data point,” which he hopes is only a temporary blip. Speaking at Jackson Hole, he said the Fed’s September policy meeting “feels like a live meeting,” as policymakers weigh their next steps after holding rates steady this year amid tariff-related uncertainty. Goolsbee stressed that the economic outlook remains mixed and that more data are needed before rate changes. S&P Mini 0.172% to 6399.25, DXY +0.132% to 98.749, 10y UST +0.8bp to 4.336%.

Nvidia has reportedly told suppliers to halt production of its H20 AI chip for China after Beijing ordered local firms to stop purchases over alleged security concerns. China’s Cyberspace Administration claimed the chip contained location tracking and remote shutdown features, which Nvidia denies. CEO Jensen Huang said the firm is in talks with Chinese authorities and hopes its assurances are sufficient, while also confirming discussions with the U.S. government on a potential new “B30A” chip for China. The H20, less powerful than Nvidia’s Blackwell chips which were banned in April, had been allowed under trade negotiations, but tensions remain high as China pushes domestic chip development. Chinese Foreign Ministry spokesperson Mao Ning stated overnight that China believes “all countries should work together to maintain the stability and smoothness of global production supply chains.” NASDAQ Mini 0.114% to 23246.25, DXY +0.132% to 98.749, 10y UST +0.8bp to 4.336%.

A Trump-Xi meeting is unlikely to take place at the ASEAN leaders’ summit in Kuala Lumpur on October 26-28, as Chinese President Xi Jinping is not expected to attend. Sources report that he will likely be represented by Premier Li Qiang. President Trump has confirmed his attendance, but Xi’s absence means the long-anticipated first face-to-face encounter between the two leaders may be delayed. Trump has said he could still meet Xi before the end of 2025 if a trade deal is concluded, with aides from both sides considering the APEC summit in South Korea on October 30-November 1 as a possible venue. The Kuala Lumpur meeting, billed as ASEAN’s largest yet, will also include leaders from Brazil and South Africa. Washington and Beijing’s trade truce continues as the two sides pursue tariff negotiations. CSI 300 +2.097% to 4378, USDCNY +0.003% to 7.1807, 10y CGB +1.5bp to 1.784%.

Germany’s GDP fell 0.3% q/q in Q2 2025 (price, seasonally and calendar-adjusted), a sharper drop than the initial estimate, with weak manufacturing and construction driving the decline. Compared with Q2 2024, GDP was down 0.2% in real terms, though it rose 0.2% on a calendar-adjusted basis. Consumption rose 0.3% q/q, with private spending up just 0.1% and government consumption 0.8% higher. Gross fixed capital investment dropped 1.4%, including -1.9% in equipment and -2.1% in construction. Exports slipped 0.1% as goods fell 0.6%, while imports climbed 1.6%. Value added in construction fell 3.7%, and manufacturing declined 0.3%. Employment was flat y/y at 46.0 million, while productivity per hour rose 0.3%. Household consumption outpaced income, lowering the savings rate to 9.7% from 10.8% a year earlier. Germany lagged behind its peers: Spanish GDP rose by 0.7% q/q, with France at +0.3%, Italy at -0.1% and the EU as a whole at +0.2%. DAX -0.004% to 24292.35, EURUSD -0.104% to 1.1594, 10y Bund -0.4bp to 2.753%.

Japan’s nationwide CPI rose 3.1% y/y in July 2025, slowing from 3.3% in June, while increasing 0.1% m/m on a seasonally adjusted basis. Core CPI (excluding fresh food) also rose 3.1% y/y, while core-core CPI (excluding fresh food and energy) climbed 3.4% y/y, both up 0.1% m/m. Food prices were a key driver, with cereals up 27.4% and confectionery up 10.8%, while dining-out prices rose 4.5%. Communications costs increased 6.4% on higher mobile charges. By contrast, education costs fell 9.6% y/y, led by a 94% drop in public high school tuition fees. Energy’s contribution narrowed as electricity and city gas prices declined, partly offset by higher propane and kerosene costs. Nikkei +0.054% to 42633.29, USDJPY +0.135% to 148.57, 10y JGB +1.5bp to 1.625%.

What We're Watching

No key U.S. data today, with the focus on the Jackson Hole Symposium. Fed’s Jerome Powell speaks on the economic outlook at Jackson Hole at 10:00 ET.

Fed’s Susan Collins to appear on Bloomberg Television at 0:00 ET and Fed’s Beth Hammack on CNBC at 11:30 ET.

Canadian retail sales for June forecast at 1.5% m/m, 0.8% m/m (ex-autos) vs. -1.1% and -0.2%, respectively, in May.

What iFlow is Showing Us

Mood: iFlow Mood remains in the risk-off zone. Core sovereign bond demand stayed solid, while equities flows showed signs of recovery in a second day of net buying.

FX: HKD, IDR and THB posted the most outflows within the iFlow universe. LatAm currencies were moderately sold, against mixed and light flows in G10 and EMEA. Within the G10, JPY, EUR and NZD were bought, against outflows for USD, GBP and AUD.

FI: Demand for sovereign bonds remained intact, led by U.K. gilts, U.S. Treasurys, and Polish, Peruvian and Colombian government bonds. There were notable outflows in Norwegian, Israeli, Mexican and Chinese government bonds.

Equities: Moderate and mixed flows with selling bias in G10 and APAC, against better sentiment in the LatAm and EMEA regions. The U.K., Europe and Mexico were most sold, against good buying interest in Chile and Türkiye, followed by Japan. Within DM EMEA, notable flows included large-scale selling of the consumer staples and communication services sectors against significant buying in the health care sector.

Quotes of the Day

“There is no treasure house of nature quite like this place.” – John D. Rockefeller, Jr., on Grand Teton National Park, which occupies northern sections of Jackson Hole valley

“There are no words that can tell the hidden spirit of the wilderness, that can reveal its mystery, its melancholy and its charm.” – Theodore Roosevelt, on Wyoming

Economic Details

U.K. consumer confidence improved in August 2025, with GfK’s overall index score rising two points to -17, the highest this year but still within a narrow range. Sentiment on personal finances strengthened, with both retrospective and forward-looking measures up three points, partly reflecting the Bank of England’s August rate cut that delivered the lowest borrowing costs in over two years. The major purchase index gained two points to -13, while views on the general economic situation diverged: the 12-month retrospective measure rose two points to -42, but expectations for the next 12 months slipped one point to -30. The savings index dropped four points to +30. Despite the improvement, confidence remains cautious amid high inflation, rising unemployment and uncertainty ahead of the autumn budget. FTSE 100 -0.066% to 9303.02, GBPUSD 0% to 1.3412, 10y gilt +1.6bp to 4.745%.

France’s business climate was stable in August 2025, with the composite indicator unchanged at 96, below its long-term average of 100. Conditions deteriorated sharply in retail trade, which fell to 92, while services eased slightly to 95. Manufacturing remained stable at 96, and building construction improved to 98 on stronger future activity prospects and higher capacity utilization. In contrast, the employment climate weakened again, dropping one point to 95, its lowest level since July 2024. This was largely attributable to a fall in past workforce size in services excluding temporary work agencies. Both business and employment indicators therefore remain below average, reflecting a persistently subdued environment. CAC40 +0.142% to 7949.6, EURUSD -0.104% to 1.1594, 10y OAT -0.8bp to 3.455%.

France’s manufacturing business climate was stable in July 2025, with the composite indicator at 96, below the long-term average of 100. Most balances of opinion, including production, order books and employment trends, remained virtually unchanged and below average, while finished goods inventories fell sharply back below average. Expectations for selling prices declined to their lowest level since September 2024. Workforce shortages were more frequently cited as a constraint, while supply-side obstacles eased to 21%, the lowest figure since Q2 2017 outside of the pandemic. By sector, the climate worsened significantly in food and beverages (92) and in machinery and equipment, particularly electronics, while it improved in transport equipment, driven by “other transport equipment.” Other manufacturing remained stable at 94, which is still below average.

Sweden’s unemployment rate was 8.0% in July 2025, equating to 474,000 people, while seasonally adjusted and smoothed data showed a higher figure of 8.7%. with 502,000 people out of work. Youth unemployment stood at 17.3% (unadjusted) or 23.8% (adjusted). The labor force totaled 5.91 million, with a participation rate of 77.5%. Employment reached 5.44 million, giving a 71.3% rate overall: 69.4% for women and 73.1% for men. Employees numbered 4.94 million, including 4.14 million permanent and 806,000 temporary staff, with temporary jobs rising. Total hours worked averaged 102.3 million per week, while unused labor supply equated to 673,000 full-time jobs. OMX +0.64% to 2663.52, EURSEK +0.039% to 11.1755, 10y Swedish GB -0.3bp to 2.538%.

Sweden’s Q2 2025 real estate prices rose across most segments. Prices of one-dwelling or two-dwelling buildings climbed 1% q/q and 3% y/y to average SEK 4.0mn nationally, and vacation home prices surged 12% q/q and 2% y/y to SEK 2.5mn. Agricultural property prices rose 3% q/q to SEK 3.7mn, while prices of multi-dwelling and commercial buildings fell more than 3% q/q. In the wider economy, private sector profitability weakened, with the operating margin down 0.8 percentage points to 7.6% and the profit share of value added down 1.3 percentage points to 29.4%. Gross operating surplus fell by 4.3% y/y and operating profit by 7.2%, while gross fixed capital formation increased by 10.1%, led by non-residential construction. Inventories contracted by SEK 3.7bn.

Polish bank shares opened sharply lower overnight as the government plans a sharp hike in the corporate tax rate for banks, raising it to 30% in 2026 from 19%, while pledging to cut the bank asset tax by 10% from 2027. The Finance Ministry also proposed a 15% increase in excise duties on alcohol next year, with rates set to decrease from 2027. The measures aim to shore up revenue for defense and social spending, as Poland’s fiscal deficit is projected to exceed 6% of GDP this year, the second widest in the EU after Romania, with public debt potentially breaching the EU’s 60% threshold in 2026. Prime Minister Donald Tusk has delayed plans to raise tax-free income, citing rising defense outlays at 4.7% of GDP, though President Karol Nawrocki has vowed to resist tax hikes hitting households while pledging relief for families with children. WIG -2.78% to 108889.1, EURPLN +0.172% to 4.2641, 10y PGB +1.6bp to 5.434%.

Japan’s Ministry of Finance is preparing to raise its assumed interest rate for long-term government bonds to 2.6% for fiscal 2026/27 budget requests, the highest level in 17 years, the Yomiuri newspaper has reported. This is up from 2.1% initially assumed for fiscal 2025, which was then cut to 2.0% in the final budget. The move is expected to increase debt servicing costs. Separately, the ministry plans to allocate around ¥30tn ($202bn) to debt servicing in the 2026/27 budget request, a record high driven by rising long-term interest rates. Government offices are due to submit annual budget requests for the year starting April 2026 by the end of August. Nikkei +0.054% to 42633.29, USDJPY +0.135% to 148.57, 10y JGB +1.5bp to 1.625%.

Malaysia’s CPI rose 1.2% y/y in July 2025, with the index at 134.7 from 133.1 a year earlier. The increase was mainly driven by insurance and financial services inflation, which surged to 5.5% from 1.5% in June. Food and beverages prices rose 1.9%, slowing from 2.1%, with food away from home up 4.3% and food at home flat at -0.3%. Price growth also eased in personal care (3.9%) and housing and utilities (1.3%). Twelve states recorded inflation below the national rate, led by Kelantan at 0.0%, while Johor (1.8%) had the highest. Headline inflation rose 0.1% m/m and core inflation held steady at 1.8%, supported by higher insurance, personal care, food and restaurant costs. KLCI +0.389% to 1599.07, USDMYR +0.098% to 4.2283, 10y MGB +0.8bp to 3.388%.

Taiwanese unemployment rate was 3.40% in July, up 0.04 percentage points from June but down 0.05 percentage points y/y; after seasonal adjustment it stood at 3.33%. The number of unemployed people reached 409,000, an increase of 5,000 m/m, due mainly to new graduates and summer jobseekers, while long-term unemployment fell to 44,000. Employment rose by 21,000 m/m to 11.64 million, driven by a 23,000 increase in services, though industry was flat and agriculture fell slightly. The labor force expanded to 12.05 million, with participation rising to 59.51%, up 0.13 percentage points m/m. Underemployment also rose, with 117,000 people working fewer hours than desired, pushing the LU4 underutilization rate to 5.48%. TAIEX -0.825% to 23764.47, USDTWD +0.292% to 30.591, 10y TGB +0.2bp to 1.415%.

The Reserve Bank of India (RBI) has sought input on whether 4% remains the optimal inflation target and whether the tolerance band of two percentage points either way should be changed or removed. India’s central bank said that the current inflation-targeting framework has worked well for the economy and signaled it could be kept intact. SENSEX -0.555% to 81545.27, USDINR +0.287% to 87.5112, 10y INGB +1bp to 6.538%.