First Light News: Bessent’s Presser in Focus

For a month that should have been a temporary period of ‘quiet’, we had anything but last week, with the bond market and tariffs front and centre.

US Treasury vs Iran & the Bond Market

The US Treasury market remains firmly in the spotlight this morning, following US Treasury Secretary Scott Bessent’s announcement that the Treasury would double its bond buy-backs for longer-dated maturities to US$4 billion, funded by issuing fresh short-term bills. Although bonds were bid on Wednesday, yields pulled back to just shy of pre-announcement levels at the tail end of last week.

My read is that a couple of billion more in buybacks is a drop in the ocean, with the issue more about the term premium and structural pressures. Look at it this way: US debt recently surpassed an eye-watering US$40 trillion (NOT billion). The July US budget deficit reading showed a US$432.3 billion deficit for the month, the largest single-month shortfall since March 2021. Layer this on top of AI companies issuing debt to compete for the same pool of investors; a few billion more in buybacks does very little. The real purpose of this ‘bond intervention’ is likely to have been more about optics than mechanics, but, as you have seen, it has not really had the desired effect.

Up today, however, we have a press conference from Bessent at around 6 pm GMT. This will be a key watch and will primarily focus on two factors. First, we have the Treasury versus Iran, where Bessent is set to impose ‘Economic D-Day’, to which Tehran has threatened to shut down all oil exports from the Gulf. Second, we have the Treasury versus the bond market, with no ‘easy fix’ for Bessent here. There are clearly more questions than answers right now.

US-Canada Trade Talks Break Down

The US-Canada trade talks broke down last Friday, with Canada pulling back after the verbal agreements reportedly differed from the text the US offered.

We now have 50% US tariffs on roughly US$20 billion of Canadian goods. However, Canadian PM Mark Carney is not backing down, and his government sees little chance of resuming talks before the US midterms. Carney has said he will retaliate in early September, rolling out ‘dollar-for-dollar’ levies. According to polls, Canadians are backing him for now, despite the economic cost. The question is whether Canada responds with restrictions on its energy supplies.

The CAD took a small hit at the open versus the USD, with the USD/CAD now up 0.4%.

Week Ahead

The data slate will be thin at the start of this week and does not begin livening up until Wednesday.

The July Australian CPI print lands at 1:30 am GMT, followed by the July US PCE price index and the second estimate for US Q2 26 GDP at 12:30 pm, and, of course, Nvidia will report its Q2 FY27 results after the cash market close.

Then Fed Chairman Kevin Warsh will take centre stage at the Jackson Hole Economic Symposium on Friday at 2 pm. It will be interesting to see how much Bessent complicates matters for Fed Chairman Kevin Warsh today, as he delivers his first speech at Jackson Hole. However, alongside a number of other key central bank figures – including the ECB’s President Christine Lagarde and BoE Governor Andrew Bailey – the focus will be on whether Warsh remains tight-lipped about the direction of interest rates and the Fed’s inflation-fighting approach. I am not expecting him to give much, despite the OIS curve fully pricing in a 25 bp Fed rate hike by year-end.

Written by FP Markets Chief Market Analyst, Aaron Hill