US Treasuries shifted from Thursday\u2019s bear steepening into a flatter curve by the weekend, with yields up 2.3 bps on the 30-year and 4.7 bps on the 2-year. The very long end largely unwound the initial rally after a Treasury buyback plan capped at more than $4bn per operation, while front-end rates underperformed after an August PMI surge pointed to annualised Q3 growth nearing 3%. The composite PMI hit a 52-month high of 56, led by services at 56.8, as euro area PMI strength failed to alter pricing that fully embeds an ECB September rate rise; Bund yields were little changed, at less than 1 bp moves across the curve.<\/p>\n
In FX, EUR\/USD again failed at 1.17 and ended near 1.168, while the trade-weighted dollar index closed at 98.8 and USD\/JPY was at 158.95; sterling was muted, with EUR\/GBP around 0.856 versus 0.854 at last week\u2019s open. Brent climbed to $94.4, the highest since mid-July, ahead of a planned Iran-related announcement and press conference. Separately, Canada exited US trade talks, triggering a 50% tariff on $20bn of goods; earlier terms had included 15% autos and 25% steel\/aluminium under quotas, and Ottawa plans dollar-for-dollar retaliation from 8 September, with USD\/CAD at 1.38 after a summer move from 1.42 to 1.3750. Fitch kept Poland at A- with a negative outlook, projecting deficits of 6.9% of GDP in 2026 and 6.7% in 2027 (vs 6.2% forecast in February), then 6.1% in 2028; debt is seen rising from 59.7% of GDP in 2025 to 72.7% in 2028, while growth slows from 3.3% this year to 2.9% next year.<\/p>\n
We suggest derivative traders position for continued upward pressure on the front end of the US yield curve, especially after the blowout August PMI of 56 pointed to Q3 annualized growth approaching 3%. With the long end of the curve erasing almost all gains from the Treasury buyback, we recommend using short-term interest rate options to prepare for a hawkish surprise at the Jackson Hole Symposium. If Fed Chair Warsh fails to signal a credible plan to suppress the inflation risk premium on Friday, long-term yields are highly likely to break out to new highs.<\/p>\n
The threat of aggressive US sanctions on Iran\u2019s oil trade has already pushed Brent crude to a one-month high of $94.4 a barrel. We advise buying near-term Brent call options to capitalize on this momentum, particularly with global commercial crude inventories currently sitting below their five-year seasonal average. If tonight’s economic plan from the Treasury is as severe as expected, crude could easily test the $100 threshold in the coming weeks.<\/p>\n
In the currency markets, we recommend building long positions on USD\/CAD via options ahead of the September 8 tariff deadline. While elevated oil prices have kept the Canadian dollar temporarily steady near 1.38, the sudden collapse of trade talks and impending 50% US tariffs on $20 billion of Canadian goods will inevitably drag the Loonie down. Historically, trade war escalations of this scale between close trading partners lead to a swift 2% to 3% depreciation in the target currency once retaliatory measures are formalized.<\/p>\n
For European exposures, we suggest shorting the Polish zloty (PLN) against the Euro or buying credit default swaps on Polish sovereign debt. Fitch\u2019s decision to maintain a negative outlook on Poland’s A- rating highlights a massive fiscal deficit of 6.9% of GDP and a debt-to-GDP ratio projected to jump to 72.7% by 2028. Additionally, because money markets have already fully priced in a September rate hike by the European Central Bank, the Euro’s upside remains heavily capped at the 1.17 level.<\/p>\n\n\n\n