Global yield breakout dominates market focus

Welcome to the Saxo Market Call. Before we get started, it's important we emphasize that the views and opinions expressed in this podcast are those of the host and guests, and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. Hey everyone, it's Tuesday, 1st of September, 2026, and market a little bit mixed to slightly down. If you look at the median stock, certainly down in the U.S. yesterday, the S&P 500 equal weight down more than half a percent, 0.6 plus percent, and the S&P 500 only down about a third of a percent, Russell 2,000, half a percent, and NASDAQ just above zero, actually, a positive day led by semiconductors, which were up over half a percent on the day. So a bit of a change to the vibe, but we're going into month end as well, and we saw a pretty ugly action in Europe, I think, there getting the signal from fixed income, and it is the treasury market, it is the global bond market with yields going higher here, and to very significant levels if we look at these longer term charts, I think this is spooking the market, and especially important now will be any follow-on momentum. I mean, you have the 10-year in the U.S., for example, it's only at a 19-month high, having finally broken above that 4.75% level that was serving as resistance for quite some time here recently. The big multi-year high going all the way back, I assume, to 2007, I haven't looked at my chart, is just below 5% from the highs in the yields that resulted from the rate hike cycle beginning in 2022. But if you look over in Europe, we have the major 10-year yields going to new highs since the EU sovereign debt crisis, so a 15-year high-ish in German bunds, I don't know when it happened in 2011. But I think actually the proper 15-year high, 3.33% on the German 10-year, and the Japanese 10-year hitting that nominal 3% level overnight, I think it closed just a hair below, and there was a very strong auction, but global yields are under pressure. Asian equity markets managed to absorb this reasonably okay, so it's not like we've developed a whole lot of energy here, but we do need to keep our eyes pinned on the treasury yield, and especially that 10-year plus. If it starts to see an advance there in yields to 5% plus, we may see a different and more serious market correction here, but that's not to make a prediction, I suspect that's the pressure point for the market is the yield picture, and we do hold all this incoming U.S. data if it proves to be hot, or even if it doesn't, if the concern is more on the fiscal dynamics, et cetera, that is a key angle as well. We got a German CPI number in yesterday, speaking of yields. Very slightly softer than expected, 0.2 on the headline, 2.9%, and that was versus about a tenth percent more expected. Still, it was up 2.8% was the year-on-year figure from July, so that was up. We have the EU flash CPI for August up today, as we do the ISA manufacturing and the JOLTS jobs opening survey for August, as previewed yesterday, and the rest of the week, we also have ADP. ADP Wednesday, so tomorrow, the ISM services on Thursday, and then the jobs report from the U.S. on Friday, so plenty of data to get a picture of that, although the chief concern, assuming that all that stuff is more or less in line, is the, or are the inflation data points that come rolling in in the coming, well, week, we have the next CPI data point late next week in the U.S. Looking over at some specific stories, we can start a little bit with geopolitics. Oil prices are still quite high, Trump posturing on bombing Iran, I can't remember the exact phrase he used, but sounding aggressive there. We have signs of turmoil at the top of the U.S. military as the army, secretary of the army, I guess that's his title, he, Driscoll is his name, he resigned apparently over, you know, fallout with secretary of war, Pete Hegseth, and tensions around certain key firings, so there's, I think there's, there's a lot of turmoil. In the U.S. military, there's this whole need to rebuild the military on different principles than was the case during the Cold War, and the so-called war on terror that followed that with new weapon systems needed, the whole, yeah, everything upside down, basically, the need to do mass manufacturing for this war of asymmetry when you're dealing with so many small, low-price drones, for example, and missiles, and things that when you're doing interception, you're not going to be able to do that. So, there's a lot of turmoil. You can't be spending millions of dollars for each time you need to intercept a cheap drone or missile. So, there's that, and then we have the, this is an interesting story to follow, chiefly, I think, for the U.S.-U.K. relationship going forward, and that is one of Trump's political allies, and really, there's some geostrategic reasons for the U.S. to be interested in boosting Argentinian economy, getting its shale oil developed, its shale gas developed there, especially for, you know, this ongoing sort of hemispheric hegemony and energy, et cetera. So, we have Millet in Argentina and Trump, the Trump administration in the U.S. geostrategic position and wanting to be very pro-Argentine, of course, with the caveat being that they direct that energy towards other U.S. allies and not towards Russia and China, et cetera. But Argentina, of course, is very much long-term. Long thought that the Falkland Islands should be its. The U.K. fought this very popular war when, you know, they were coming out of a time of economic sort of humiliation, really, even in the U.K. in the late 70s, and that war was a big patriotic exercise in reestablishing its control or, you know, reaffirming its control of the Falkland Islands. It seems like, you know, Trump personally, I think he'd be happy to sacrifice these because he sees scoring more points with Argentina as being worth more. Potentially than maintaining the special relationship with the U.K. So I'm really curious to see how this does turn out. In any case, Trump is supposedly, quote unquote, reviewing the relationship or its position on the Falklands. OK, and the other news, I mean, looking at where yields are pressuring markets elsewhere. Again, I think it's this key hawkish speech on Friday from Fed Chair Warsh. We didn't see any follow on action in FX. I'm not entirely sure. How much of that is this sort of pent up concern or that the market is sort of log jammed or stopped up because of the concern that Japan will step in with massive new intervention in dollar yen, which is currently pressurizing right around that 160 area, big psychological level. In other words, if it wasn't for that, would dollar yen be trading already close to the highest of the cycle, reflecting where we are in global bond yields, which tend to be, as they rise, tend to be negative for the Japanese yen. So FX is kind of. Parked in no man's land right now. There's a little bit of a carry overlay and the Swiss franc continuing to weaken. And we've got Euro Swiss back challenging the zero spot 94 level. The highs for the cycle going back a year are right around 94.10. So that's interesting to see if that theme deepens as yields go higher. But the follow on action in gold was quite significant as we did drop back below that 4,500 level. And that at minimum is the hurdle. That gold bulls need to reattain to get the gold market back on track. We are very constructive on gold for the long term. But this near term technical situation looks a little bit ugly, given that that key hurdle that was passed on the recent rally has now been rejected. So 4,500 to 4,600 area looks really key for gold for resistance and for the status of that market. Bitcoin as well is mired somewhat in the range, digesting that massive move off the sub 60,000 levels to as high as 80 plus thousand. And I suspect we are also, you know, that that that crypto, the crypto sort of, well, the entire crypto market, really, whether it's Bitcoin or or Ethereum or the others will be linked to its potential upside will be linked to the next layer. If when and if they are coming. And I would say it's when not if they're coming of policy moves meant to either suppress yields or force more savings into treasuries, et cetera. Whatever the whatever the mechanism is, policy mechanism is, and we're assuming it's not going to be traditional QE, but whatever it is, financial repression is the is the rubric is the title of those next moves and that will be supportive for crypto as well as people look for alternatives to. If you have currencies, I've got a couple of single company news, but I just want to round out a little bit on the energy discussion. I mentioned that crude oil was quite high. European natural gas is very high. We've reached this 70, 70 euros level for the TTF contract. And just for relative terms, that approximately is around. So the U.S. units for the U.S. natural gas contracts, at least trade at two dollars. What is it? Two dollars eighty five or something like that. at recently, it's a very different-- it's megawatt hours, I believe, the European price. But to get the equivalent, you approximately divide by three. And so if you have a US price of two spot 85, the European price for gas in US equivalent units is around 24. So we're talking about, you know, eight plus times the price for natural gas. And that has to do with the storage situation where we're only 65% full in Europe, which, you know, is equivalent to about 60 days of supply. And I should say, I think that's around 60 days of winter supply. But of course, the, or sorry, winter demand, but the demand can be extremely bumpy in terms of whether there's a cold snap or not, whether the winter is particularly mild or particularly severe. Maybe with El Nino, you know, the winter might be a bit milder, you can't count on it. But it's a key thing for the gas price right now that the storage levels are only 65% full. This is normal about 80% this time of year, because we're getting close to when the drawing season starts or when the sort of the supply and demand balance out and you start to draw on supplies. So it was this low approximately in 2021, not quite as low as it is now. But this is a key input to the whole situation. It is the highest price since going all the way back to the winter of 2022 to 2023. Of course, that was the first winter after the outbreak. So it was a key input to the whole situation. Or the EU sort of shutting off what it could of Russian supplies. So certainly a focus there, a risk for inflation inputs, a risk for really for the economy with these types of prices for natural gas. And a reminder that Qatar is not really exporting any meaningful natural gas. I think they restarted, there were certainly some LNG ships that were trying to get through. I don't know, these were previously loaded ones that tried to transit. I think from the sound of it, they're ready to go with production, but they're afraid to ship these LNG tankers. Again, with kinetic situations in the Strait of Hormuz, it's one thing when a crude oil tanker gets hit, you have a spill and that's nasty. But if a refined product ship gets hit and God forbid, an LNG tanker gets hit in a serious strike, these things are massive bombs. So they're just not shipping any serious LNG through the Strait of Hormuz or any at all at the moment. And that's traditionally pre-Iran war of global LNG supplies. So there's quite a pinch there. One of the articles I will send a link to is a Wall Street Journal article discussing this whole LPG crisis and how the Iran war has impacted that. And especially important fuel for cooking, for example, in India. All right. And then I mentioned we had a couple of single equity stories. One of the interesting ones yesterday, Elon Musk said, I don't know, I don't know, I don't know. I don't Elon Musk is really swinging into action here. We have a cyber cab event, Tesla cyber cab event. I believe it's today. It's an invite only event in Austin, Texas. Something to do, I guess, with the latest version of the cyber cab, this proper sort of autonomous vehicle with no pedals, no steering wheel. Market getting a bit excited about that. And with this 5.5% advance, Tesla share price, the Tesla share price has actually closed the gap that developed, I guess it was after the, I think of July or the prior quarter's earnings. There was a huge gap in July over the, over the earnings. And now that has been entirely closed almost exactly to the, to the cent. So interesting resetting of Tesla share price. And then the other Elon Musk company in action here is SpaceX. I actually don't know what SpaceX did yesterday, but there was a story afoot that he is looking to use SpaceX to make and manufacture basically turbine parts. And these are, the turbines that are the gas turbines that the likes of GE Vernova make that are used of course in to, to, to generate electric power in the U S and there's a huge bottleneck here. I mean, if, if GE Vernova and some of these others, I guess it's Siemens is the other major supplier. If they could provide twice the supply of these things, they could probably sell that output. In any case, Howmet Aerospace also makes parts for these turbines. It was off 7.5%. And GE Vernova itself was also down yesterday. The critical components, and I guess SpaceX already has some kind of expertise in this area related to manufacturing bits and pieces of rockets and all the, what do you call it? The fuselage and other parts of the rocket, because they are talking about making blades and veins of these turbines, which are apparently one of the worst bottlenecks. So very interesting to see them stepping into that space. And then we have the next one, which is the cloud infrastructure. So this is a very interesting topic. And I think it's, I think it's a very interesting topic. And I think it's, for today. stay careful out there and we'll be back soon with the next saxo market call this has been the saxo market call podcast thanks for joining today's episode we're always happy for your feedback and questions of all kinds to reach out you can drop us an email at market call at saxobank.com that's market call at saxobank.com saxo serious trading worldwide