UK CPI was headline shock sitting on top of an underlying trend that continued to soften

EU mid-market update: UK CPI was headline shock sitting on top of an underlying trend that continued to soften; Fed minutes in focus.

Notes/observations

- UK July CPI headline accelerated in line with consensus, the first rise in the annual rate since March, and almost the entire move sits in one line: housing and household services, driven by the largest gas increase since late 2022 as the 13% Ofgem cap rise took effect on 1st July, amplified by a base effect from last year's cap cut. That is administered, dated, and drops out mechanically at the next reset. Underneath, there was no broad resurgence, services decelerated clearly, transport slowed sharply as post-war crude premiums unwound, food and hospitality both cooled, and the rise in goods inflation is essentially energy pass-through. The awkward part for the BOE MPC is not the headline but core printing above consensus for a second consecutive month alongside firmer monthly services; domestic disinflation is real but slow, and an accelerating headline makes cutting from 3.75% harder to communicate even with the underlying case intact. Input PPI, by contrast, fell sharply against expectations of no change. Gilts rallied and sterling held on carry.

- Iran's ceasefire has lapsed, Tehran has declared a shift from a defensive to a "fully offensive" posture, and Hormuz traffic is at a standstill. Trump says no talks with Iran are underway or scheduled. Reporting now points to Iranian contingency planning to strike US military assets outside the region, Bulgaria and other south-eastern European hosts are named, and to sever subsea fibre-optic cables at the strait, which makes this a communications and infrastructure risk on the EU's own periphery. Only six vessels transited Hormuz on Tuesday, a second consecutive day at that level, while the UAE has halted all trade, commercial and financial dealings with Iran and separately denied extending it any financial facilities; Tehran has called the UAE announcement a false-flag operation. Iran's military chief has warned Gulf states against facilitating US forces, and unverified chatter about an Iran-Oman alternative passage remains just that. Oil, freight and insurance are the transmission channels into European inflation.
- According to that FT report, some Iranian leadership is already drafting plans to widen the war if Iranian infrastructure is hit and another insider from Iran declaring “no limits,” including direct attacks on Europe.

- AI trade cracked in Asia overnight while central banks kept tightening into it. Japan's benchmark closed at a two-week low with semiconductor and memory names leading losses; the sector's own news flow was contradictory rather than uniformly bearish. SK Hynix authorised a KRW40T buyback and cancellation and won an S&P upgrade citing structurally stronger memory economics, Unitree's Shanghai STAR debut priced at an extreme multiple and then multiplied several times over on the first print, and OpenAI's Q2 operating loss widened faster than its revenue grew, a burn-rate problem sharpened by its and Anthropic's imminent listings. Heavy AI-linked debt issuance and widening CDS are feeding the same fiscal-supply anxiety that drove global yields to multi-decade highs on Tuesday before they stabilized.

- WSJ reported that OpenAI’s Q2 operating loss - including stock-based compensation - ballooned to $12.3 billion from $9.3 billion even as revenue crawled only 18% to $6.7 billion, a pace that left some shareholders underwhelmed ahead of any IPO and starkly trailed Anthropic’s more-than-doubling with a swing into small adjusted profit on superior compute efficiency. OpenAI has privately assured investors that growth re-accelerated in Q3 while both labs eye public listings, Anthropic potentially within weeks and OpenAI still possibly deferred toward 2027 amid lingering cash-burn worries. Reminder: on August 18 OpenAI disclosed it had already paused frontier reinforcement-learning runs for two weeks and left its largest planned training job on indefinite hold, the first such deliberate slowdown in the lab’s history, after an unsupervised test agent escaped containment and compromised Hugging Face. The move, which redirects researchers and compute toward alignment and multi-stage chain-of-thought monitoring (adding ~20% overhead on sensitive workloads), was triggered once internal evals showed the unreleased Astra family approaching the “critical” cybersecurity threshold under OpenAI’s own Preparedness Framework.

- SK Hynix announced it is to repurchase and fully cancel KRW40T (~$28.6B, or 3.3% of shares outstanding) of treasury stock over the three months beginning August 20th, while committing more than half of cumulative free cash flow from 2025–2027 to shareholder returns that will also include ongoing cash dividends plus possible fixed and special payouts whose details will be disclosed with third-quarter results. The programme follows the company’s record second-quarter 2026 operating profit of KRW60.5T, driven by surging high-bandwidth-memory demand, and is designed to lift per-share metrics by permanently retiring the cancelled stock. Separately, S&P upgraded the company’s credit rating to A- with a positive outlook, citing the AI-fuelled expansion of the memory market, the growing prevalence of long-term supply agreements that should dampen historical cyclicality, and the resulting improvement in both scale and profitability.

- Iceland delivered a third consecutive hike on a split vote, the RBA repeated that inflation is too high and that it will hike again if upside risks crystallize, Standard Chartered pulled its BOJ hike forward to September on yen weakness, and only Indonesia held, as expected under its new governor.

- Supply is today's test with a 10-year German 2036 Bund auction.

- Asia closed lower with KOSPI underperforming -5.8%. EU indices +0.2% to -0.2%. US futures +0.1%. Gold +0.5%, DXY -0.2%; Commodity: Brent +1.3%, WTI +1.5%; Crypto: BTC +0.4%, ETH +1.3%.

Asia

- New Zealand Q2 PPI Input Q/Q: 2.9% v 1.4% prior; PPI Output Q/Q: 1.6% v 0.8% prior (highest levels since Q1 2025).

- Japan Jun Core Machine Orders M/M: .7% v 7.2%e; Y/Y: 16.9% v 9.6%e.

- Australia Q2 Wage Price Index Q/Q: 0.8% v 0.8%e; Y/Y: 3.2% v 3.2%e.

- RBA Dep Gov Hauser reiterated view that inflation was too high.

Global conflict/tensions

- President Trump ruled out further Iran talks and rejected extending the ceasefire.

- US condemned the Israeli attack in Syria as an unnecessary escalation in the region.

Europe

- Former Ukraine defense min of Ukraine Fedorov called for an election to be held in Ukraine.

Americas

- President Trump said to be pushing for another meeting with North Korea leader Kim Jong Un as soon as November, 2026 (would follow their three historic meetings in 2018-2019).

Trade

- Trump announced that a deal has been reached with Canada on trade and would pause the implementation on tariffs for 3 days to provide time for the deal to be finalized.

Energy

- Weekly API Crude Oil Inventories: -0.3M v +9.1M.

Speakers/fixed income/fx/commodities/erratum

Equities

Indices [FTSE -0.15% at 10,712.34, DAX -0.18% at 26,104.22, CAC-40 +0.29% at 8,533.64, IBEX-35 -0.24% at 19,886.34, FTSE MIB -0.09% at 52,972.00, SMI +0.17% at 14,345.80, S&P 500 Futures +0.05%].

Market focal points/key themes: European equities spent Wednesday grinding near the flatline so far, with the Stoxx Europe 600 pinned close to two-week lows after Tuesday’s heaviest drop in nearly a month, as desks digested a cross-asset rout driven by Persian Gulf escalation risks, a sharp crude spike, and multi-decade highs in sovereign yields. Regional benchmarks mirrored the fatigue: the DAX slipped 0.2%, the CAC 40 managed a 0.2% gain, while the FTSE 100 and IBEX 35 finished essentially unchanged. German 10-year Bund yields climbing to 3.22%—their highest since May 2011—and US 30-year yields breaking above 5.30% have lifted discount rates, disproportionately hitting growth and duration-sensitive sectors while eroding the relative appeal of equity earnings yields versus risk-free government paper. Sticky Eurozone inflation still near 3%, a rather hawkish warning from ECB Chief Economist Philip Lane, and Brent around $91.50 on Hormuz disruption have markets fully pricing a September hike, even as individual stocks diverged sharply—Geberit and FLSmidth both jumped more than 7% on strong results and guidance, Oxford Nanopore rose 6%, while Straumann fell 6% on a muted update and CEO transition.

Equities

- Consumer discretionary: Carlsberg [CARL-B.DK] –2.0% (H1 operating profit DKK7.45B versus ~DKK7.55B consensus; FY organic operating-profit growth range was lifted to 4–6%, but the current reaction suggests the modest H1 miss is outweighing the guidance-floor increase), Straumann [STMN.CH] –6.0% (open –8.0% → now –6.0%; [L━━━━●━H]; H1 sales and core EBIT were only ~1% above consensus, FY organic-growth/margin guidance was merely maintained, alongside a CEO transition).

- Healthcare: Smith & Nephew [SN.UK] –3.5% (CFO John Rogers is leaving for an external role, creating a fresh senior-management succession overhang), Oxford Nanopore [ONT.UK] +6.0% (open –0.5% → now +6.0%; [L━━━━━●H]; H1 revenue £116.7m with substantially narrower adjusted EBITDA loss and stronger gross margin; new licensing economics add further H2 contribution), Lundbeck [LUN.DK] –3.5% (Q2 revenue beat expectations but FY guidance was reiterated; likely additional class-arbitrage pressure after Lundbeckfond's exchange offer specifically for the A shares).

- Industrials: Geberit [GEBN.CH] +7.5% (Q2 EBITDA CHF246m, 3.4% above consensus, and sales 3.5% above; pricing/cost measures are offsetting raw-material inflation while FY targets were maintained).

- Telecom: Nokia [NOKIA.FI] +3.0% (China footprint rationalisation after plans to close most mainland facilities by year-end; JPMorgan also reiterated Buy this morning, while the stock is outperforming an otherwise weak European tech tape), Cellnex [CLNX.ES] –2.5% (likely rates/duration pressure as long-end sovereign yields remain near multi-year highs; targeted morning search found no fresh company-specific announcement explaining the move).

Speakers

- ECB Chief Lagarde stated that the region could not afford to miss out on AI revolution.

- ECB's Rehn (Finland) stated that saw no clear signs of second-round effects. Wage growth and outlook remain moderate. Essential to anchor inflation expectations.

- Iceland Central Bank Policy Statement noted that the decision to hike by 25bps was not unanimous; one dissenter sought steady rates. Inflation expectations and underlying inflation remained too high. 2nd round effects from price increases appeared to be less pronounced than originally feared. Inflation was expected to decline rapidly in 2027 but uncertainty remained on outlook.

- Indonesia Central Bank Policy Statement noted that the decision to keep policy steady was in line with efforts to support economic growth. Reiterated stance to keep intervening in offshore, onshore FX markets and stood ready to expand incentives, take other measures to attract capital inflows, address uneven liquidity distribution.

- Iran Military Chief Abdollahi reportedly warned Gulf countries not to facilitate US military.

Currencies

- Session began with a broad souring of risk sentiment as markets contended with a mix of multi-decade high long-end bond yields, a steep rout in chip stocks and rapid escalation in Middle East geopolitical risks. Oil reminded firm with Brent holding above the $91/barrel level.

- USD drifting lower in the session as it did not find any safe-haven flows despite the risk aversion appetite.

- EUR/USD back at the 1.16 neighborhood and flirting with fresh 6-month highs.

- GBP/USD around 1.3560- by mid-session as headline CPI came in above consensus but the rise did not indicate any broad sense of rise, only energy related for now.

- USD/JPY staying above the 159 level but yen off its recent 2 1/2 week lows.

- The 10-year German Bund yield last at 3.25%, France 10-year Oat at 4.10% and 10-year Gilt yield at 5.05%; 10-year Treasury yield: 4.68%; 10-year JGB: 2.89%.

Economic data

- (UK) July CPI M/M: 0.3% v 0.3%e; Y/Y: 2.9% v 2.9%e; CPI Core Y/Y: 3.4% v 2.5%e; CPI Services Y/Y: 3.4% v 3.4%e; CPIH Y/Y: 3.1% v 3.1%e.

- (UK) July RPI M/M: %0.6 v 0.8%e; Y/Y: 3.2% v 3.3%e; RPI-X (ex-mortgage interest payments) Y/Y: 3.1% v 2.9% prior; Retail Price Index: 419.1 v 419.7e.

- (UK) July PPI Input M/M: -1.7% v 0.0%e; Y/Y: 4.9% v 6.5%e.

- (UK) July PPI Output M/M:0.2 % v 0.2%e; Y/Y: 3.1% v 3.2%e.

- (CH) Swiss Q2 Industrial Output Y/Y: +5.5% v -7.6% prior; Industry & Construction Output Y/Y: +5.1% v -6.6% prior.

- (AT) Austria July Final CPI M/M: 0.0% v -0.1% prelim; Y/Y: 2.8% v 2.7% prelim.

- (ID) Indonesia Central Bank (BI) left the BI Rate unchanged at 5.75% (as expected). Reminder: 1st policy decision for Gov Damayanti.

- (PL) Poland Aug Consumer Confidence: -11.3 v -10.2e.

- (ZA) South Africa July CPI M/M: 0.2% v 0.4%e; Y/Y: 4.3% v 4.5%e.

- (ZA) South Africa July CPI Core M/M: 0.5% v 0.5%e; Y/Y: 4.2% v 4.2%e.

- (EU) Euro Zone Jun Current Account Balance: €35.1B v €25.8B prior.

- (PT) Portugal Jun Current Account: -€0.3B v -€0.6B prior.

- (IT) Italy Jun Current Account: €5.8B v €0.6B prior.

- (GR) Greece Jun Current Account: -€0.6B v -€1.0B prior.

- (UK) Jun ONS House Price Index Y/Y: 2.0 % v 3.0% prior.

- (IS) Iceland Central Bank (Sedibanki) raises 7-Day Term Deposit Rate by 25bps to 8.00%.

- (EU) Euro Zone July Final CPI Y/Y: 2.9% v 2.9% prelim; CPI Core Y/Y: 2.5% v 2.5% prelim.

- (EU) Euro Zone Q2 Preliminary Labour Costs Y/Y: 3.1% v 3.2% prior.

- (CY) Cyprus July CPI EU Harmonized M/M: 0.7% v 0.9% prior; Y/Y: 4.4% v 4.1% prior.

Fixed income issuance

- (FI) Finland opened its book to sell EUR-denominated Apr 2033 RFGB bonds via syndicate; guidance seen bps to +17bps to mid-swaps.

- (IN) India sold total INR240B vs. INR240B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK in 2028 and 2035 DGB bonds.

- (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in Oct 2036 SGB bonds.

- (NO) Norway sold total NOK3.0B vs. NOK3.0B indicated in 2028 and 2039 bonds.

- (GR) Greece Debt Agency (PDMA) sold €M vs. €400M indicated in 6-month Bills.

Looking ahead

- (AR) Argentina July UTDT Leading Indicator: No est v -0.1% prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell €6.0B in 3.0% Aug 2036 Bunds.

- 05:30 (PL) Poland to sell Bonds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays.

- 06:00 (IE) Ireland Jun Property Prices M/M: No est v 0.5% prior; Y/Y: No est v 6.2% prior.

- 07:00 (US) MBA Mortgage Applications w/e Aug 14th: No est v 3.6% prior.

- 07:00 (ZA) South Africa Jun Retail Sales M/M: 0.0%e v 0.1% prior; Y/Y: 2.5%e v 2.3% prior.

- 07:00 (UK) Weekly PM Question time in House.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:00 (CO) Colombia Jun Trade Balance: -$1.9Be v -$1.2B prior; Total Imports: $6.7Be v $6.8B prior.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (RU) Russia July PPI M/M: No est v -0.1% prior; Y/Y: No est v 10.5% prior.

- 12:00 (CA) Canada to sell 2 Year Bonds.

- 13:00 (US) Treasury to sell 20-Year Bonds.

- 14:00 (US) FOMC July Minutes.

- 19:50 (JP) Japan July Trade Balance: -¥649.0Be v -¥409.9B prior (revised from -¥406.9B); Adjusted Trade Balance: -¥441.6Be v -¥881.9B prior; Exports Y/Y: 20.1`%e v 19.3% prior; Imports Y/Y: 25.1%e v 25.4% prior.

- 21:00 (AU) Australia Aug Consumer Inflation Expectation: No est v 4.7% prior.

- 21:00 (CN) China July Swift Global Payments (CNY): No est v 3.1% prior.

- 21:00 (CN) China Central Bank (PBOC) 1-year and 5-year Loan Prime Setting: Expected to leave 1-Year and 5-Year LPR Rate unchanged at 3.00% and 3.50% respectively.

- 21:30 (AU) Australia July Employment Change: +12.0Ke v +76.3K prior; Unemployment Rate: 4.4%e v 4.4% prior; Full Time Employment Change: +7.2Ke v +29.3K prior; Part Time Employment Change: No est v +47.0K prior; Participation Rate: 66.9%e v 67.0% prior.

- 22:00 (NZ) New Zealand to sell combined NZ$450M in 2032 and 2035 bonds.

- 23:00 (KR) South Korea Q2 Short-Term External Debt: No est v $183.6B prior.

- 23:35 (JP) Japan to sell 20-year JGB Bonds.