MNI ASIA OPEN:Gov Shutdown Risk, Policy Recal, Tariff Legality

EXECUTIVE SUMMARY

• Bloomberg: Trump’s Global Tariffs Found Illegal by US Appeals Court
• MNI BRIEF: Fed's Daly Says Soon Time To Recalibrate Policy
• MNI US: Risk Of Government Shutdown Increases After Trump 'Pocket Rescission'
• MNI US: Schumer Hints At Tanking Govt Funding Measure To Combat Trump Recission
• MNI US DATA: U.Mich Inflation Expectations Trim Latest Pop Higher In Aug Final
• MNI US DATA: Core PCE Inflation Confirms Acceleration Away From Target
• MNI US DATA: Chicago Business Barometer™ - Slows To 41.5 In August

US

MNI BRIEF: Fed's Daly Says Soon Time To Recalibrate Policy

San Francisco Fed President Mary Daly said Friday the time is coming for the Federal Reserve to reduce interest rates in order to prevent further damage to a weakening job market. "It will soon be time to recalibrate policy to better match our economy," she wrote in a LinkedIn post. "Congress has given the Fed two goals: full employment and price stability. Both are in tension at the moment, with tariffs pushing inflation higher and the labor market showing signs of slowing." 

NEWS

Bloomberg: Trump’s Global Tariffs Found Illegal by US Appeals Court - Most of President Donald Trump’s global tariffs were ruled illegal by a US appeals court that found he exceeded his authority in imposing them. A panel of judges in Washington on Friday upheld an earlier ruling by the Court of International Trade that Trump wrongfully invoked an emergency law to issue the tariffs.

MNI US: Schumer Hints At Tanking Govt Funding Measure To Combat Trump Recission

Senate Minority Leader Chuck Schumer (D-NY) suggested in a statement that he may withdraw Democratic support for a government funding measure, in light of President Donald Trump's decision to send Congress a USD$4.9B 'pocket rescission' package ahead of the September 30 government funding deadline. While Schumer didn't explictly threaten a shutdown, he said the "unlawful 'pocket rescission' package is further proof President Trump and Congressional Republicans are hellbent on rejecting bipartisanship and ‘going it alone’ this fall."

MNI US: Lisa Cook Hearing Adjourns Without Ruling On Trump Firing

A federal hearing in Washington, DC, on an emergency injunction from Fed Governor Lisa Cook to block her dismissal by President Donald Trump, has adjourned without a ruling. Matthew Russell Lee at Inner City Press wrote in live coverage of the hearing that US District Judge Jia Cobb, an appointee of former President Joe Biden who was randomly assigned to the case, indicated that Cook’s lawyers should submit supplementary filings by Tuesday.

• During the proceedings, Judge Cobb appeared sceptical of the Department of Justice's argument that Cook was given sufficient time to respond to the Trump administration’s accusations of mortgage fraud before Trump announced her dismissal. 

MNI US: Risk Of Government Shutdown Increases After Trump 'Pocket Rescission'

The White House Office of Management and Budget confirmed in a statement that President Trump cancelled USD$4.9 billion of Congressional authorised funds "using a pocket rescission." Steven Nelson at the NY Post notes that pocket recissions are "a legally debated maneuver that hasn’t been used in 48 years". The move will be seen by Democrats as another attempt by OMB Director Russ Vought to wrestle control of federal spending away from Congress and concentrate it in the Executive. 

US TSYS

MNI US TSYS: Late Buying on SF Fed Daly Recalibration Comment

• Treasuries are still mostly weaker after the bell - but swinging off late lows following late comments on LinkedIn from SF Fed Daly, that tariff-tied inflation is likely a one-off, that inflation/labor market are in tension, and lastly that "it will soon be time to recalibrate policy"
• Tsy Dec'25 10Y futures currently trades -.5 at 112-18.5 vs. 112-20.5 morning high, initial technical resistance above at 112-28.5 (2.000 proj of the Jul 15 - 22 - 28 price swing).
• Curves mildly steeper: 2s10s +3.597 at 60.622, 5s30s +4.177 122.498.
• US$ remains stable near modest lows (BBDXY -.39 at 1200.81.)

OVERNIGHT DATA

MNI US DATA: Chicago Business Barometer™ - Slows To 41.5 In August

The Chicago Business Barometer™, produced with MNI slowed 5.6 points to 41.5 in August. This almost fully unwinds the rise seen in July. The index has now been below 50 for twenty-one consecutive months. The decline was driven by a sharp pullback in New Orders, alongside falls in Employment, Production and Order Backlogs. This was partly offset by a rise in Supplier Deliveries.

MNI US DATA: U.Mich Inflation Expectations Trim Latest Pop Higher In Aug Final

The final release for the U.Mich consumer survey in August saw sentiment marked a little lower still whilst initially reported increases in inflation expectations were trimmed. 

• U.Mich consumer sentiment: 58.2 in Aug final (cons & flash 58.6) after 61.7 in July
• U.Mich 1Y expectations: 4.8% in Aug final (cons 5.0, flash 4.9) after 4.5% in July
• U.Mich 5-10Y expectations: 3.5% in Aug final (cons & flash 3.9) after 3.4% in July

MNI US DATA: Trade Deficit Widens As Industrial, Capital Goods Imports Pick Up

The goods trade deficit widened to an unexpected extent in July's advance report, to $103.6B ($90.2B expected, $84.9B prior). That was the biggest deficit since March's record tariff-induced shortfall, and notably up from a monthly average $89.0B over Q2. The driver was imports, which jumped 7.1% M/M for the biggest percentage increase since January; exports were relatively stable with not much to catch the eye (at -0.1% M/M, they declined for a 3rd consecutive month and are now at a 6-month low).

MNI US DATA: Core PCE Inflation Confirms Acceleration Away From Target

Core PCE inflation was close to expectations in July as the Y/Y accelerated to 2.9% for its fastest since February as it moves further away from recent lows of 2.6% having stalled above the 2% target. Recent trend rates are a little hotter but the median FOMC member will still need to see a further acceleration to meet their 4Q25 forecasts from June. 

• Core PCE inflation was close to expectations in July at 0.27% M/M (MNI av of unrounded estimates 0.28) in July after 0.26% M/M in June (revised from 0.256 to 0.263), with marginal downward revisions coming earlier in Q2. The year-ago rate firmed from 2.77% to 2.88% Y/Y (cons 2.9), having recently bottomed at 2.6% Y/Y in Jun 2024 and Apr 2025.
• The median FOMC member expects further acceleration in core PCE inflation ahead, eyeing 3.1% Y/Y in Q4 in the June SEP (revised up from 2.8% in March) in a central tendency range of 2.9-3.4%. Latest three- and six-month run rates of 3.0% annualized in July sat between the Y/Y and this end-year view.
• The six-month run rate is still above the Y/Y, as has been the case for seven months now, but the gap is the smallest since January when it first opened up. 

MNI US DATA: Solid July For PCE, But Consumption And Income Momentum Remain Tepid

July's Personal Income and Outlays report showed a modest uptick in income and spending on the month - however, the broader trends remain mixed at best. The bedrock of income, employee compensation, posted solid gains, but the overall trend in real disposable income growth remains soft.

• Nominal personal income (a 3-month high 0.44% M/M after 0.29% ) and spending (0.53% after 0.37%) both had very marginal prior revisions and came in exactly in line with rounded expectations for July.
• Real spending growth printed 0.33% M/M growth after 0.08%, which when considering softer prints in the prior 3 months meant the quarterly pace of growth fell to 1.0% (3M/3M annualized) after an upwardly revised 1.6% in June (known from the second Q2 GDP reading out previously). That's the slowest pace in 3 months though Q3 is off on better footing than Q2 from a month-to-month perspective.
• The breakdown shows real goods spending rose 0.9% M/M, the fastest in 4 months after 3 consecutive contractions 

MNI CANADA DATA: Q2 GDP -1.6% Annualized On Auto Exports; July Flash +0.1%

Canada Q2 GDP -1.6% annualized, most in 5 years, amid US trade tensions. Figure is close to Bank of Canada’s "current tariff scenario" of -1.5% and lower than -0.8% economists expected. Exports -27% or the most since 2009 financial crisis excluding the pandemic. Business investment in machinery and equipment fell the most since 2016, StatsCan said Friday. Final domestic demand +3.5% in Q2 from -0.9% in Q1. 

MARKETS SNAPSHOT

Key market levels of markets in late NY trade:
DJIA down 102.95 points (-0.23%) at 45522.17
S&P E-Mini Future down 48.5 points (-0.74%) at 6467.25
Nasdaq down 267.8 points (-1.2%) at 21431.34
US 10-Yr yield is up 2.1 bps at 4.2245%
US Sep 10-Yr futures are down 1.5/32 at 112-15.5
EURUSD up 0.0014 (0.12%) at 1.1697
USDJPY up 0.02 (0.01%) at 146.95
WTI Crude Oil (front-month) down $0.62 (-0.96%) at $63.98
Gold is up $36.08 (1.06%) at $3453.24

European bourses closing levels:
EuroStoxx 50 down 45 points (-0.83%) at 5351.73
FTSE 100 down 29.48 points (-0.32%) at 9187.34
German DAX down 137.71 points (-0.57%) at 23902.21
French CAC 40 down 58.7 points (-0.76%) at 7703.9

US TREASURY FUTURES CLOSE

3M10Y +5.414, 7.512 (L: 1.774 / H: 7.77)
2Y10Y +3.962, 60.987 (L: 56.387 / H: 61.525)
2Y30Y +6.522, 130.766 (L: 123.219 / H: 130.766)
5Y30Y +4.577, 122.898 (L: 117.802 / H: 123.008)
Current futures levels:
Sep 2-Yr futures up 1.625/32 at 104-0.375 (L: 103-30.375 / H: 104-00.625)
Sep 5-Yr futures up 1/32 at 109-10.25 (L: 109-06.25 / H: 109-12)
Sep 10-Yr futures down 1.5/32 at 112-15.5 (L: 112-11.5 / H: 112-18.5)
Sep 30-Yr futures down 17/32 at 114-21 (L: 114-14 / H: 115-07) 
Sep Ultra futures down 30/32 at 116-24 (L: 116-17 / H: 117-20)

MNI US 10YR FUTURE TECHS: (Z5) Bullish Trend Structure

• RES 4: 113-06   2.236 proj of the Jul 15 - 22 - 28 price swing
• RES 3: 113-00   Round number resistance
• RES 2: 112-28+ 2.000 proj of the Jul 15 - 22 - 28 price swing
• RES 1: 112-20+ High Aug 28
• PRICE:‌‌ 112-17+ @ 1356 ET Aug 29
• SUP 1: 111-29   20-day EMA
• SUP 2: 111-17+ 50-day EMA
• SUP 3: 111-13+ Low Aug 18 and a key support
• SUP 4: 110-25   Low Aug 1 

The trend outlook in Treasury futures remains bullish. This week’s gains have delivered a print above 112-15+, the Aug 5 high and a bull trigger. A clear break of this hurdle confirms a resumption of the bull cycle and paves the way for a climb towards the 113-00 handle. Moving average studies are in a bull-mode position, reinforcing current trend conditions. First support to watch is 111-29, the 20-day EMA.

SOFR FUTURES CLOSE

Current White pack (Sep 25-Jun 26):
Sep 25 +0.015 at 95.910
Dec 25 +0.025 at 96.240
Mar 26 +0.025 at 96.495
Jun 26 +0.020 at 96.765
Red Pack (Sep 26-Jun 27) +0.010 to +0.015
Green Pack (Sep 27-Jun 28) -0.01 to +0.010
Blue Pack (Sep 28-Jun 29) -0.015 to -0.01
Gold Pack (Sep 29-Jun 30) -0.025 to -0.015

REFERENCE RATES (PRIOR SESSION)
​​​​​​​
US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.34% (-0.02), volume: $2.870T
• Broad General Collateral Rate (BGCR): 4.33% (-0.02), volume: $1.157T
• Tri-Party General Collateral Rate (TCR): 4.33% (-0.02), volume: $1.122T
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $115B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $227B

FED Reverse Repo Operation

RRP usage more than doubles to $77.898B going into month end with 26 counterparties this afternoon, from $31.966B yesterday. Compares to $22.344B on Tuesday, Aug 19 - lowest since April 5, 2021 vs. this year's high usage of $460.731B on June 30.

MNI BONDS: EGBs-GILTS CASH CLOSE: Curves Bear Steepen To End The Week

European curves bear steepened to close the week. 

• The overall price action for the session was set from the start, with light bear steepening seen on both the UK and German curves from early trade.
• There was little reaction to national-level August flash inflation data, which was generally seen as being on the soft side for headline but core measures were mixed.
• Likewise, US data in the European afternoon was largely in line with consensus, not bringing much reaction on either side of the Atlantic.
• The German and UK curves both bear steepened, with Bunds slightly underperforming Gilts. For the week, both the UK (2Y yield -0.1bp, 10Y +2.9bp) and German (2Y yield -0.8bp, 10Y +0.2bp) curves twist steepened.
• Periphery/semi-core EGB spreads widened, with OATs outperforming and closing the week below the 80bp mark, rising around 9bp for the week on political concerns but below the 81.8bp post-Jan closing high set Wednesday.
• Next week's scheduled highlights include the Eurozone-wide inflation reading, BOE Treasury committee testimony, final PMIs, UK retail sales, and German factory orders.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.6bps at 1.94%, 5-Yr is up 1.4bps at 2.257%, 10-Yr is up 2.9bps at 2.724%, and 30-Yr is up 3.8bps at 3.336%.
• UK: The 2-Yr yield is up 0.7bps at 3.943%, 5-Yr is up 0.6bps at 4.103%, 10-Yr is up 2.3bps at 4.722%, and 30-Yr is up 3bps at 5.6%.
• Italian BTP spread up 2.1bps at 86.3bps / French OAT up 0.7bps at 79.3bps

MNI FOREX: USD Index Set to Close at Unchanged Levels This Week

• The USD index has edged lower on Friday, as the stagflationary picture painted by the U.S PCE & Chicago PMI data as well as ongoing uncertainty surrounding Fed independence weigh on the greenback. This has culminated in the dollar index returning to very similar levels to last week’s close.
• Overall, markets are adhering to the most recent dovish tilt from the Fed, however, the significance of the upcoming US data (NFP and CPI) before the September meeting, is keeping bearish dollar momentum in check for now.
• NZDUSD strength stands out today, as the pair extends its bounce from firm pivot support at 0.5800 to around 1.8%. However, as bearish trend conditions remain overall, this might suggest that good supply is seen into 50-day EMA resistance around 0.5930. There have been some primary signs on Friday of momentum stalling above 1.1100 for AUDNZD, however, look for dips back towards 1.1000/1.1030 to be well supported.
• For the majors, USDJPY has been happy to oscillate either side of 147.00, while the late dollar weakness has helped propel EURUSD back to the 1.17 handle. For the latter, French political concerns leave us moderately lower on the week, however, a false break of key 50-day EMA support on Wednesday keeps bullish trend conditions firmly intact for now.
• GBP remains a relative underperformer to end the week, remaining down 0.07% at 1.3500 despite a bounce from 1.3446 session lows. This dynamic has allowed EURGBP to extend its most recent recovery, to test resistance at 0.8674. A break above this level would signal a stronger reversal, placing the cross at its highest levels in three weeks.
• Next week’s calendar will undoubtedly be centred around the US employment report on Friday. Elsewhere, US ISM PMIs are also scheduled, as well as Australia GDP and Swiss CPI.

MONDAY/TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
01/09/2025	0530/0730	**	CH	Retail Sales
01/09/2025	0700/0900		IT	Employment and Unemployment (p)
01/09/2025	0715/0915	**	ES	S&P Global Manufacturing PMI (f)
01/09/2025	0745/0945	**	IT	S&P Global Manufacturing PMI (f)
01/09/2025	0750/0950	**	FR	S&P Global Manufacturing PMI (f)
01/09/2025	0755/0955	**	DE	S&P Global Manufacturing PMI (f)
01/09/2025	0800/1000	**	EU	S&P Global Manufacturing PMI (f)
01/09/2025	0830/0930	**	GB	BOE Lending to Individuals
01/09/2025	0830/0930	**	GB	BOE M4
01/09/2025	0830/0930	**	GB	S&P Global Manufacturing PMI (Final)
01/09/2025	0900/1100	**	EU	EZ Unemployment
01/09/2025	1200/1400		EU	ECB Schnabel Chairs Panel at ECB Legal Conference
01/09/2025	1400/1600		EU	ECB Cipollone Chairs Panel at ECB Legal Conference
01/09/2025	1800/2000		EU	ECB Lagarde Speech at ECB Legal Conference
02/09/2025	0130/1130		AU	Balance of Payments: Current Account
02/09/2025	0900/1100	**	IT	PPI
02/09/2025	0900/1100	***	EU	EZ HICP Flash
02/09/2025	1130/1330		EU	ECB Elderson and Machado in Panel at ECB Legal Conference
02/09/2025	1345/0945	***	US	S&P Global Manufacturing Index (final)
02/09/2025	1400/1000	***	US	ISM Manufacturing Index
02/09/2025	1400/1000	*	US	Construction Spending
02/09/2025	1400/1000	*	US	Construction Spending
02/09/2025	1530/1130	*	US	US Treasury Auction Result for 26 Week Bill
02/09/2025	1530/1130	*	US	US Treasury Auction Result for 13 Week Bill
02/09/2025	1700/1300	**	US	US Treasury Auction Result for 52 Week Bill