Yields explode higher, pressurizing the situation across markets.

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 hosts and guests and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. Hey, everyone. It is Friday, 11th of September, 2026. 25 years to the day since the 9-11 attacks. The craziness, the absolute insanity of that day and the insanity and years of response and all that that brought with it just sort of unfurling in my mind as I think about it. It's really remarkable. It's been 25 years since that happened. So clearly remember that day and watching it unfold. Although, fortunately for me personally, of course, from afar, but we all know somebody that was there, it seems like, and that was involved in the horrors in New York City and elsewhere. So let's park that for now. I do have today, I was talking about these big events that really changed things on a multi-decade timeframe. We are in this period of transition. We are in a period of massive transition away from an old world order into a new world order that is starting to try to take shape, but we don't know what shape it will take. And I think I have a super good link, a super interesting read. This one passed along by Michael Evry, of course. It seems like everything he passes along is worth reading. And I think it sits very well and as a counterpoint to some of the other recent things I've been sending along that are a little bit too politically left-leaning, where I sort of admire some of the viewpoints, but they're also not providing answers for what the world should look like. And sometimes we don't know what the world should look like, but we do need to ask the questions and understand why. And I think it's a good link. And I think this, and I'll get to it, I'll actually quote extensively from it, but I do need to do the usual market wrap because a heck of a lot is going on right now and forcing markets to take note. And when I say forcing markets, I'm thinking here, especially of the global bond markets, as we saw a massive rise in global yields yesterday. Approximately, you could say it was just the ECB driving it, but there was a big oil ramp, oil price ramp going into that ECB. At least from our point of view, just trying to follow the basic headlines out there. And then we get the news that partially unwinds the oil move and actually to a very significant degree that without actually unwinding much of the bond yield move, by the way, and that is that this Gulf Cooperation Council, the six member meeting of them with some kind of Iranian delegation in Oman set to take place on Monday about managing shipping and agreeing on some kind of terms of shipping through the Strait of Hormuz. Is this a good link? Is this a good link? Is this a good link? Is this going to be enough to calm the situation? The market gets really hopeful really fast on these types of headlines. But let's see where this heads. And is Iran using the leverage of, well, it's all fine and good. But if the US doesn't stop bombing our tankers and stop trying to shut down our economy, we're going to continue to disrupt everything and encourage the Houthis and everything else. And if they do agree on something to get oil flowing through the Strait of Hormuz, and all of the Gulf Cooperation members are in favor of that. And if they do agree on that, and Iran tries to do so, and does the GCC then go to the US and say, guys, look, stop this so we can get crude oil flowing? Will the US say, okay, fine. Or will it continue to press its maximalist demands against Iran? This is hard to know. I don't know the answers to that. But it is quite remarkable how quickly the market seizes on these headlines and moves in a positive direction. Again, we had Brent above, what was it, 110 or near 110 yesterday, backing down below 106 before I came here to record the podcast. WTI was up above $104 or around $104 a barrel at the highs. You had diesel prices in the US hitting over $6 for the first time ever. And just regular grade unleaded at well above $4, approaching $4.5. And it's quite a patchwork of what price you actually pay the pump across the USA. But there is, you know, these round dollar amounts are quite a psychological impact, I would suspect, on consumers. And there is a linkage there to Donald Trump's approval rating. So that's providing its own leverage on whatever the US position may or may not be. But in the meantime, we had a pretty broadly, to say the least, negative day on the markets. High beta stuff was doing the worst in the cash session yesterday. So the SOX semiconductor index this time was a leader to the downside, minus over 2.5%. The Russell 2000 was off a percent as well. NASDAQ around a percent off. S&P 500, 0.6% lower. And then a pretty ugly session overnight in Asia as well. Europe was negative yesterday, but the vibes have turned a little bit positive, A, on this very solid rally in crude oil. Sorry, sell-off in crude oil of multiple dollars. And I guess as well on Oracle's earnings after the close yesterday, where their cloud growth of over 100% was surprising positively. And they're adding to this insane so-called remaining performance obligations figure. In other words, the capacity they need to build to supposedly satisfy some level of spending, if they are able to build the capacity of $664 billion, that RPO number. So Oracle, though, basically just recovering after hours what it had lost in the cash session yesterday. That takes it right back around that 200-day moving average if it opens where approximately where it's trading after hours. You know, interesting sentiment test there on, again, the most aggressive of the hyperscalers with its negative cash flows and all that it brings, but still showing very positive momentum in terms of those growth numbers. Adobe, the reception of that was somewhat negative. I didn't really see the headlines. I just noted that their revenues continued to grow at a solid pace. I think it was almost 13% for the quarter year and year. But the stock was down a couple of percent, both in the cash session and after the reported earnings. And then you have Apple up 3.6%. One of the better gainers on the S&P 500. That was a positive. That was a reception there of this Duo foldable Apple screen, figuring that this thing might get snapped up by those users. And we're talking around the shop here this morning, and there seems to be quite a, it's almost like a black or white thing, or there's like a dividing line between folks that would consider getting a smartphone that's a foldable and those that would never consider it and simply don't understand it. I know this personally as well. I'm interested in having one, but my own wife says that she, can't fathom why anybody would want one of these things. What, what is, what on earth is it for? And a colleague of mine at work has the opposite. He, he doesn't understand it, but his wife wants one. So who knows? Clearly there is a market for these things, but is the, is the market going to drive Apple's overall growth will be the critical question there. All right. But I'm, you know, I'm neglecting the elephant in the room here. I did mention it, of course, at the top, this massive rise in the front end yields. A few moving parts here. So let's, let's go through it. We, again, we saw, I think the, uh, the day over day, the Delta was 16 basis points for the German two-year yield, the largest move. And I think it was over 18 months, uh, for a single day, the largest move to the upside. Um, and the, what seemed to set it off was the ECB meeting came out, uh, you know, don't listen to me because I was scratching my head at why they needed to, uh, you know, move in a hawkish direction on top of what is already priced in, but the market did price them more aggressively after what was by, by all means a hawkish meeting with a core and headline inflation revised higher for next year and 2028 that core inflation for 2028 rise, I think is particularly impactful suggesting a more sustained, uh, rate hike cycle. If, if that's what they're going to bring, or I should say, if that's how a core inflation evolves. And despite those higher inflation projections and the ongoing energy pinch, you saw them raising next year's GDP projection. It's not massive stuff, but just this idea that, uh, they're going to hike rates, energy, uh, prices are skyrocketing. And yet they think, uh, uh, growth now will be a slightly stronger 0.2% stronger than predicted, uh, at the prior, uh, June forecast. So, uh, there you have it. Uh, you, you got the big, uh, reception of that in the market with, uh, this massive sell-off, the front end rose more rapidly than the long end. That bund, the 10-year bund, by the way, hitting three and a half percent, quite a psychological level, and actually clearing the, uh, Eurozone sovereign debt crisis, Euro highs, and going all the way back now to, uh, somehow the yield was higher than that in 2009 at some point. Uh, but it was, uh, higher than that in 2009. So we're at a 17-year high in German yields. And, and importantly as well, the Germany-France, uh, spread, so that 10-year yield spread, which is sort of a focus on, you know, the stability of, uh, so, so-called peripheral debt. And arguably France shouldn't be considered peripheral because it's, it's too big to fail kind of a, a territory when you're talking in France. But that rose another several basis points to 94 basis points or so. on the close of the highest level since the Eurozone sovereign debt crisis. You know, it needs to, I would say, blow out day after day, I think, and maybe a little bit independently of the direction of German yields, I think, to become a bigger issue. But this is still something we need to track. Now, the currency market reaction was somewhat muted. And I think that tells its own story. And let's take ourselves through this one major currency at a time. So the crude oil rally was happening quite sharply ahead of the ECB meeting and was pressuring the dollar actually a little bit stronger because of the impact on risk sentiment, I suppose. The ECB meeting comes out. Euro rallies quite sharply, if still within the day's range. But then that move kind of fades. And I think one of the reasons for that is that despite the size and scale of the European rates move, that was essentially matched in the U.S. I mean, not quite basis point for basis point, but nearly so. And you saw a massive rise in the U.S. front end yields and U.S. back end yields as well. And this is spooking risk sentiment, which tends to, in these sort of moments of broad risk off, tends to favor the dollar a little bit. So basically, the euro dollar settled back a little bit lower. You saw the 10-year importantly rising and getting close within sort of striking distance of this massive, not only psychological, but actual high level, highest level that has traded since 2007 around the 5% area. So. So this is spooking markets and for good reason. To what degree is this its own dynamic or purely connected to the crude oil price? I think we get that separation maybe today with the U.S. CPI release. And if these crude oil prices continue to recede, but we stay pinned somewhat higher in yields, it's just saying maybe that it's not just mill because the oil price is a bit higher here, which at times it has felt like has been the key variable driving much of the global bond yield situation. But that's, you know, and this is a key concern here. These yields obviously pressuring, if they continue higher, this is, I think, really toxic for into equity markets. Now, back to the currency story. Let's connect it a little bit with what's going on in Japan. Yes, Japanese yields were also a bit higher. At the front end, though, they are fully pinned right at unchanged or plus minus a basis point or so relative to these 15 basis point type moves we're seeing elsewhere. Yes, dollar-yen arose. A bit 154 was 67 or something like that was the high, but then it settled back lower during the overnight session. And I think that and this is, you know, this type of move and yields, especially the long term yields, which traditionally have been associated with yen weakness. And here we have the yen, yes, a tad weaker, but not no sense of panic and just kind of consolidating a bit within a tight range here. I suspect, A, that this speaks quite strongly of the yen's potential if this situation calms. Especially volatility calms and global bonds and if the energy price recedes. But secondly, could the yen itself, the structural situation here. Let's remember, Japan is the world's largest net international investor or its net international investment position is the largest surplus in the world. And if it is mobilizing partially via this GPIF, we're all inferring this is not a confirmed news item. The inference that the Japan is going to start, at least in a flow sense, restricting how much is investing abroad and investing more at home. Could even theoretically liquidate some of its overseas holdings or there could be tax incentives or other incentives or even forcing at the, you know, at the ultimate extreme, if that ever happens, of Japanese savings back into Japan. Whatever the case, could this yen, this change of psychology around the yen and potentially in their net international investment position also. Be behind, at the margin at least, the aggravated rise in these bond yields over the last couple of days elsewhere in the world. Question mark. Don't know. It's something we need to follow. But certainly, I think this relatively stable yen, while rising global yields certainly don't help the yen. The fact that they haven't hurt it that much could speak to the yen's potential here. Now, if we continue to march higher in global yields. I think the basics. The best case for the yen might be that it just kind of sticks around in a range, maybe even backfills a bit more towards the weak side, but doesn't sort of lose its shirt over this development outside of Japan like it normally would have in past cycles. But let's see. Let's see how the price action develops. A, over today's, I'm getting into this habit of saying A, B, C, 1, 2, 3. First, over today's US CPI release and the follow-on action in the treasury market there. But especially over the FOMC next week, depending on how the CPI number queues up that decision, which, by the way, despite that massive rise in US treasury yields at the front end of the curve, we're still not at fully priced for next week. We'll either get a hot print that almost fully prices us, I suspect, for a rate hike, or we get an inline to soft print that just keeps the decision uncertain going into next Wednesday. And then we have a Friday Bank of Japan meeting as well, where it's about the agape. With that rate hike, that next rate hike fully priced in, but the market a bit uncertain what the guidance will be for following meetings. I'll put in a link to my FX trader piece that I wrote this morning. You can read that for some further thoughts there. I think the Bank of Japan sort of forward guidance and hawkishness slash dovishness or less hawkishness would be modulated by wherever dollar yen is trading going into that meeting. I think that will be a key variable for their podcast. Germany, but he also has some very serious, very interesting thoughts that he put together, sort of political philosophy. He asked some really critical questions about the nature of defining sovereignty and how the state works and who actually runs the state. These are types of questions that this book, Nerd Reich, actually grapples with. Again, these crazy answers that some of these guys come up with, but it is true that when you have the inertia of a big bureaucratic state, when you change out the political heads, do they have really any power or is it really just the big bureaucratic state and sort of the system, whatever you want to call it, that decides things and how do you shake that up if you do indeed decide that the world needs to change? And then apparently, I'm not really that familiar with Carl Schmitt's works, but he apparently comes up with some conclusions that are rather dodgy and for all obvious reasons as a support of who he supported. But the questions themselves and the commentary around the structure of these systems is a fact. Philosophically serious stuff. Same with Karl Marx. Karl Marx was an amazing diagnostician of how the world works and then his solution was absolutely awful and unworkable and created all kinds of misery for the people that followed it, right? So this sort of actually brings in both some of Karl Schmitt's questions and ideas and says that actually you need to look at Marx as well for some of the ways that we need to look at how the world works. And I think that's a good example of how the world has come to be the way it is, that diagnostician angle of where Marx was actually very, very accurate in Das Kapital and his other writings. All right. So opening paragraph, the post-Cold War liberal order has come to an end. Every serious analyst across the political spectrum acknowledges this, even if the acknowledgement arrives wrapped in euphemism. Then he says things like a strategic autonomy, de-risking or friend-shoring, i.e. the political spectrum of the world has come to an end. of elites who destroyed a world order and cannot quite bring themselves to say so plainly. The neoliberal settlement consisting of free capital, managed labor, the progressive convergence of all humanity toward liberal democratic capitalism under American tutelage has collapsed as a political program, as an intellectual framework, and most decisively as a description of reality. What remains is the institutional shell and the class of interests that built it, still fighting to maintain their position in a world that has passed them by. Really powerful language, I think, in that opening paragraph. And I won't read the whole thing, don't worry. But he basically goes on to look at how, you know, some people are simply not recognizing that the world is passing them by, that the world order we created has created so much instability that it has to change. It has to revert to the priorities that Michael Every covers every single day and very consistently, the need to reestablish control of supply chains, that you can't just have a free market. And so he goes on to say that the world order we created has created so much instability that it has to change. It has to revert to the priorities that Michael Every covers every single day and very consistently, the need to reestablish control of supply chains, that you can't just have free market. So he goes on to say that the world order we created has created so much instability that it has to revert to the priorities that Michael Every covers every single day and very consistently, the need to reestablish control of supply chains, that you can't just have free market. It has recovered the language of national interest without apology and begun the long work of imagining a state capable of governing a productive economy rather than merely administering a financial one. The institutional left, meanwhile, has performed a remarkable feat of political self-immolation, having presided over three decades of wage stagnation, manufacturing collapse, and working class abandonment. It now presents itself as the guardian of the very order that produced these outcomes. The party of labor became the party of capital and called the transition progress. So that's the end of the excerpt that I'll read, really damning his language there and criticizing of the left, defending the establishment. I fully agree with that, but the problem is I think the populist answer so far talks a lot of the right talk and some of the sort of deep policy of what's going on is addressing those China vulnerabilities, et cetera. So I think the problem is I think the populist answer so far talks a lot of the right talk and some of the sort of deep policy of what's going on is addressing those China vulnerabilities, et cetera. Are we in any way really de-financializing our economy yet and moving in the direction and addressing these huge ills of a hyper-financialized economy? Not yet at all, and that's where we need to head to rebalance our economy. So anyway, I thought it was a very interesting opening there. I haven't read the full piece. Again, calling also on these philosophers and their ways of looking at the different problem. And even if you don't agree with it, I think it grapples with some of the problems. I think it's one of the key questions that we need to ask as we try to see whatever answers take shape in the coming years. Super interesting stuff. Back to where we are with markets. Again, I've talked about it all week. The CPI report, is it about the information value in that CPI report or is it about the market forces being unleashed to get it out of the way? Ironically, yesterday we got those market forces unleashed ahead of the fact, I think because of the forcing from oil prices and the ECB meeting was a key target. It was a key trigger as well. So today, I guess we could get confused by a soft print and sort of head back lower. It would certainly seem to be to be likely dollar positive if we got a soft print today, but I'll just take it one step at a time. We'll see what the release is and we'll discuss the after effects early next week, which is going to be a critical week with that FOMC meeting on Wednesday and with the meeting already on Monday with the GCC and Iran. And does this bring some kind of DSP? Escalation, especially if this other aspects or ability of Saudi to export oil gets further impacted as was the concern yesterday and today really with this pipeline. That's the first key is Monday and the oil price heading into the FOMC on Wednesday and then of course the Bank of Japan on Friday. It's going to be an action-packed week ahead. Earnings season is totally dead as we gear up into October for the next round of earnings season. So it's really not about that. It is these big macro forces. Central Bank policy and the pressure from global bond markets and whether that continues to put the cinch on risk appetite. And by the way, I didn't mention it. The S&P is teetering now below that key technical level, the prior high. It didn't really trade with any momentum during the cash session after gapping lower. So it's a bit of a we're in a bit of a tilt area. Once again, we've tilted below support. It feels like next week will be about either an acceleration lower to sort of confirm that spook. By what's going on in the backdrop or markets take a stand. It feels like an either or week ahead. So there will be plenty to talk about next week. Have a wonderful weekend when you get there. Stay careful and we'll be back next week 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 read more about our podcast, click the link in the description below. To reach out, you can drop us an email at marketcallatsaxobank.com. That's marketcallatsaxobank.com. Saxo. Serious trading worldwide. ♪ ♪