Morning Mail: ZEW survey, US retail sales, and UK labour market in focus 

In focus today

• In Germany, focus turns to the ZEW survey for August. Following great improvements in the first half of the year, the indicator took a hit last month with a decline in both the assessment of the current situation and expectations for growth. For today’s data, consensus is looking for a further decline in both the assessment of the current situation and expectations to a four-month low.
• In the afternoon, US retail sales and industrial production data is due for release. Retail sales will provide markets with the first hard data evidence of how consumer demand has evolved in August amid persistent tariff concerns. We expect to see cooling, but still relatively stable consumption growth.
• The UK labour market report is released. The last report revealed a solid upward revision in payrolls data, which has raised the bar for further rate cuts. The labour market remains on a cooling trend, though, and despite the improvement in August, PMI indices suggest a continued weakness.

Economic calendar

Economic and market news

What happened overnight

In the US, Lisa Cook is set to remain a Federal Reserve governor, following a ruling by a US appeals court. This means that Cook will be attending the FOMC meeting on Wednesday for which markets are pricing a 25bp cut. At the same time Stephen Miran, President Trump’s pick for Federal Reserve governor was confirmed in a 48-47 vote in the Senate.

In the trade war, South Korea and the US have yet to finalize a trade deal as the two are caught in the details. In addition to the 25% tariff from the US, the Japanese deal signed last week adds to the pressure with Japanese auto manufacturers facing a 15% tariff vs. South Korean auto manufacturers facing a 25% tariff. While the USD 350bn investment fund in the US from South Korea is presumably at the centre of the difficulties, senior South Korean officials have said that the country is not in a position to make this investment due to the relatively small size FX market. The Koreans are concerned that a significant increase in dollar demand would depress the won.

What happened yesterday

In the US, President Trump sounded optimistic on US-China talks on Truth Social, while also announcing talks on Friday with Chinese President Xi. Recently, the US has again been threatening to ban TikTok if China does not drop demands for easier tariffs and tech restrictions. Trump also called for US companies to switch from quarterly reporting to semi-annual reporting, in an attempt to reduce compliance burdens and allow managers to focus on running their companies.

In the Ukraine war, tensions continue to build in Europe, as Poland neutralised another drone that was flying above the presidential palace. Russia’s Zapad-2025 military drills in Belarus have also drawn attention. Surprisingly, two US military officers attended the drills – the first such visit in years. Poland has responded to the drills by deploying 40,000 troops to its border with Belarus.

Equities: Equities were marginally higher on Monday. Europe opened with substantial gains, but these faded once US markets opened. The S&P 500 eventually closed up 0.5%, while Stoxx 600 gained 0.4%. Once again, this was a Magnificent 7 market, with Alphabet and Tesla rising 4% despite little news. In Europe, it was more of a cyclical rotation, with consumer discretionary and banks leading the gains. In both regions, defensives sold off. The recent cyclical rebound marks a positive trend shift compared with the defensive rally seen in late August. Futures are little changed this morning.

FI and FX: A quiet start to the week with risk assets performing well, US and European rate curves bull flattening and the USD trading on the backfoot. Scandies picked up where they left off last week, this time with the SEK leading the way. Also, CAD and GBP had solid sessions, posting gains vs both EUR and the USD.