By Jamie McGeever
ORLANDO, Florida, Aug 25 (Reuters) – Oil prices fell sharply on Monday, with Brent crude back below $90 a barrel, sparking a solid rise on Wall Street and strong rally in Treasuries, as investors digested recent news on U.S. bond buybacks and escalation of the U.S.-Canada trade war.
In my column today, I look at the resurgent trade spat between the U.S. and Canada, and why the world is watching nervously. Tit-for-tat tariffs cast a shadow over the whole USMCA trade agreement, but escalation also has wider implications beyond North America — none of them particularly positive.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. Why the bond market may be resetting expectations about the US
2. Bessent’s D-Day sanctions are more Anzio, but Iran response is key: Russell
3. The US fiscal hole has an AI problem at its core: Mike Dolan
4. Canada slaps retaliatory tariffs on US goods worth $20 billion as trade war intensifies
5. German GDP, business sentiment beat expectations in latest sign of momentum
Today’s Key Market Moves
• STOCKS: Japan +0.5%, Europe and UK +0.3%. S&P 500 and Dow +0.3%, Nasdaq +0.7%.
• SECTORS/SHARES: Seven sectors on the S&P 500 rise, four fall. Tech +1%, energy -1.7%. Moderna +14%, Super Micro Computer +10%. Nike -3%.
• FX: Dollar slips, Bitcoin rises above $80k. USD/CNY 6.7195, lowest since February 2023.
• BONDS: U.S. yields fall as much as 8 bps, 10-year yield’s biggest fall in 2 months. Curves flatten. 2-year auction draws good demand from indirect bidders.
• COMMODITIES/METALS: Oil down 3-4%, gold rises to 3-month high.
Today’s Talking Points:
Make a new plan, Stan
U.S. Treasury Secretary Scott Bessent has faced plenty of criticism since his decision to increase long bond buybacks, a move he says is aimed at addressing liquidity issues but which most observers say is simply to lower yields. None of it will have stung as much as the public takedown from his former colleague Stanley Druckenmiller, who says markets were correct to view it as a “mistake”.
Druckenmiller and Bessent worked together with George Soros in 1992, when Soros famously shorted sterling and “broke” the Bank of England. In later years, Druckenmiller worked closely with a certain Kevin Warsh, who became a partner at the billionaire investor’s Duquesne Family Office. “Druck”, one of the most revered investors in history, who has long warned of dangers of fiscal indiscipline, says Bessent’s liquidity tools cannot be used to fix solvency issues. So far, no comment from Bessent or Treasury.
Mind the gap
Figures on Tuesday showed German growth in Q2 was faster than initially estimated, and business morale hit its highest level in a year in August. Europe’s economic engine appears to be going up through the gears — GDP has expanded at almost 1.5% annual rate over the past three quarters, notes JPMorgan, driven by fiscal stimulus, strong exports, consumer spending and private sector capex. Deutsche Bank on Tuesday revised up its 2026 real GDP forecast to 1.0% from 0.5%.
Germany’s momentum, together with strong growth in other countries like Spain, explains why Citi’s European economic surprises index has surged to its highest in three and a half years. In contrast, the U.S. surprises index has tailed off recently, and the gap between the two is now the widest (in Europe’s favor) since February 2023. With energy prices on the rise again, could the ECB accelerate the pace of anticipated rate hikes? Not according to sources cited by Reuters today.
Yuan to watch
Coincidentally, China’s yuan is also trading at its strongest level against the dollar since February 2023, trading through 6.72 per dollar. A break through 6.70 to levels last seen four years ago seems a matter of “when”, not “if”. The PBOC is trying to cool the pace of appreciation though, administering daily fixings at levels weaker than market expectations — Beijing is still wedded to its export-driven growth model, as evidenced by its booming, $1 trillion trade surplus.
With the dollar coming under increasing downward pressure – in large part from concerns around Fed and, in particular, Treasury policy – the PBOC will probably have to continue leaning against yuan strength, drawing further criticism that it is ‘manipulating’ the exchange rate. Not a term used by the U.S. Treasury, of course. Not yet, anyway.
What could move markets tomorrow?
• Australia CPI inflation (July)
• U.S. durable goods (July)
• U.S. GDP (Q2, second estimate)
• U.S. Treasury sells $70 billion of 5-year notes at auction
• Nvidia earnings (released after the market close)
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(Reporting by Jamie McGeever;)
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