EU Mid-Market Update: Sunak appears poised to be UK’s next PM with hope he could bring more stability to the country’s financial markets; Russia started to circulate reports on ‘dirty bomb’ in Ukraine.
– European preliminary PMI’s contracted across the board yet again, indicating further weakening across the continent (Contractions: UK (Manu, Serv, Comp), France (Manu), Germany (Manu, Serv, Comp); Euro Zone (Manu, Serv, Comp); Expansions: France (Serv, Comp)).
– China and Hong Kong stocks led Asia decline following Pres Xi’s third term reinstatement and release of delayed China data (Shanghai Composite -2.0%, Hang Seng -6.3%).
– On Sunday, Russian state press started to circulate reports citing ‘credible sources in Ukraine and various other countries’ that Ukraine is preparing a provocation using a ‘dirty bomb’ or ‘low-yield nuclear weapon’; US and Russia Defense Ministers held second telephone call in three days; US Defense Sec Austin rejected any pretext for Russian escalation & reaffirmed the value of continued communication.
– FTSE100 lags European equity rally amid Moody’s downgrade over weekend and domestic political turmoil. Johnson pulled out of leadership race. Sunak heavily favorite against competitor Mordaunt with current backers 171-25; Note: Sunak warned of dire effects if Truss were to implement tax cuts amid the summer campaigning.
– JPY off recent 32-year lows on suspected MOF intervention. USD/JPY retargets 150.0 following sharp drop on Friday amidst speculation of intervention by Japan. Officials have continued to decline comment on specific levels and whether on not intervention occurred.
– Asia closed mixed with Hang Seng underperforming at -6.4%. EU indices are mostly higher by 0.5%. US futures are -0.3% to -0.4%. Gold -0.2%, DXY +0.2%; Commodity: Brent -1.9%, WTI -2.1%, UK Nat Gas -11.7%; Crypto: BTC +0.8%, ETH +2.0%.
– China President Xi extended his rule over CCP and will lead the country into a 2nd decade. Filled top jobs with allies; Markets view that China’s one-man rule was now complete with economic policies being be less of technocratic policymaking, and succumb to political statecraft.
– China Q3 GDP Q/Q: 2.8% v 3.4%e; Y/Y: 3.3% v 3.4%e.
– China Sept Industrial Production Y/Y: 4.8% v 4.9%e.
– China Sept Retail Sales Y/Y: 2.5% v 3.5%e.
– China Sept Fixed Urban Assets YTD Y/Y: 5.9% v 6.0%e.
– China Sept New Home Prices registered its 13th straight decline (M/M: -0.3% v -0.3% prior; Y/Y: -1.5% v -1.3% prior.
– China Sept YTD Property Investment Y/Y: -7.5%e v -7.4% prior; Residential Property Sales Y/Y: No est v -30.3% prior.
– China Sept Surveyed Jobless Rate: 5.5% v 5.2%e.
– Australia Oct Preliminary PMI Manufacturing registered its 29th month of expansion but lowest since Aug 2021 (52.8 v 53.5 prior).
– Japan Oct Preliminary PMI Manufacturing registered its 2st month of expansion (50.7 v 50.8 prior).
– South Korea’s government said to double the ceiling of its corporate bond-buying facility run by state-run banks to KRW16T among other liquidity supply measures on concerns of a credit crunch in bond and short-term money markets (**Note: South Korea 3-Month Commercial Paper yields at highest level since 2009).
– Japan MOF said to have intervened after the yen hit ¥151.94 to the dollar. japan might have spent >$30.0B on last week’s currency intervention.
– BOJ Gov Kuroda stated that a weak JPY currency (Yen) was becoming factor in CPI; Reiterated stance that 2023 CPI likely under 2.0% target; Real wages falling.
– Japan Fin Min Suzuki stated that no change in stance and would take action if needed. Could not tolerate excessive FX moves and reiterated that stable moves were desirable and attempting to confront speculators.
– Japan Top FX Diplomat Kanda stated that had no change in view of response to excessive FX moves; Won’t comment on possible intervention Oct 21st.
– Japan Chief Cabinet Sec Matsuno had no comment on FX intervention, Reiterated govt stance to take appropriate action against excessive FX moves. Watching FX moves with great vigilance.
– (RBA) Assistant Gov Kent reiterated stance that Board was expected to continue to increase interest rates in periods ahead with size and timing on rate increases dependent on data.
– Ukraine was said to be preparing a provocation using a ‘dirty bomb’ or ‘low-yield nuclear weapon’; Russian Defense Min Shoigu held talks with US, UK, French and Turkish Defense Ministers.
– Ukraine Foreign Min Kuleba spoke to US Sec of State Blinken. Both agreed Russia’s ‘dirty bomb’ disinformation campaign might be aimed at creating a pretext for a false flag operation.
– UK Tory Leadership Candidates (**Note: Need 100 MP’s backing to proceed). Rishi Sunak said to become the first lawmaker to garner at least 100 MPs votes; Sunak could become the UK’s next prime minister as early as Monday. Boris Johnson pulled out of leadership race. Penny Mordaunt said to be staying in UK PM leadership race; She sees a route to 100 Tory nominations.
– UK Chancellor of the Exchequer (Fin Min) Hunt reportedly considering up to £20B in tax rises on high earners in his medium-term fiscal budget announcement due on Oct 31st.
– Bank of England to hold eight bond sales (aka QT) from Nov 1st to end of year, each at £750M.
– Moody’s revised outlook on UK and BOE to negative from stable; Affirmed UK rating at Aa3.
– Fitch affirmed Germany sovereign rating at AAA; outlook stable.
– Fitch affirmed Greece sovereign rating at ‘BB’ rating; Outlook Positive.
– Start of two-week strike at Liverpool port.
– Italy’s far right leader Giorgia Meloni formally accepted job of forming Italy’s next govt. She and the cabinet were sworn in on Saturday, Oct 22nd. Appointed Giancarlo Guirgetti as Finance Minister.
– Fed’s Daly (non-voter) stated that it did not want to be too reactive; Could easily find itrself overtightening. Did not just keep going up at 75bps increments and would do a step down but not to pause. Saw hikes between 50bps or 25bps increments at some point.
– Fed’s Evans (non-voter) stated that would need to raise rates further and hold that stance for a while; Exact stance of policy to depend on outlook and risks.
– Fed’s Bullard (voter) noted that the job market remained extremely strong which gave the Fed leeway to fight inflation. Hoping to get the disinflationary process going in 2023.
Indices [Stoxx600 +0.56% at 398.50, FTSE -0.23% at 6,953.90, DAX +0.49% at 12,793.02, CAC-40 +0.46% at 6,063.05, IBEX-35 +0.70% at 7,598.78, FTSE MIB +0.35% at 21,642.00, SMI +0.74% at 10,495.30, S&P 500 Futures -0.42%].
Market Focal Points/Key Themes: European indices open higher across the board with all sectors starting the day in the green, but turned around after Prelim EU, UK PMIs came in below expectations; financials and materials sectors leading to the upside; lagging sectors include energy and consumer discretionary; oil & gas subsector underperforming following drop in crude prices; Frasers raises stake in Hugo Boss; earnings expected during the upcoming US session include Qualtrics, Schnitzer Steel and Discover.
– Energy: TotalEnergies [TTE.FR] -1.5% (oil down amid investor concerns over China leadership).
– Financials: Barclays [BARC.UK] +1.5% (Boris Johnson out of UK PM leadership race), Credit Suisse [CSGN.CH] +1% (settlement of French tax case).
– Healthcare: Novartis AG [NOVN.CH] +1.5% (trial results), Koninklijke Philips [PHIA.UK] -1% (earnings; restructuring; job cuts).
– Telecom: Pearson plc [PSON.UK] +4% (trading update).
– Hungary Fin Min Varga saw 2022 GDP growth at 45% with growth slowing down in 2023.
– Japan govt and Bank of Japan (BOJ) said to collaborate closely on policy mix; Japan govt expected BOJ to watch market moves’ impact..
– Japan LDP ruling party Sec Gen Motegi said to indicate economic stimulus package around €26T.
– Japan Fin Min Suzuki again declined to comment on FX markets.
– Japan Econ Min Yamagiwa said to intend to step down from post.
– BOK Gov Rhee stated that it was looking to stop herd behavior in FX market.
– Iran Foreign Ministry spokesperson stated that the US lacked the political will for a revival of the 2015 nuclear agreement.
– USD generally softer against the major pairs on hopes that the Fed would slow its pace of tightening.
– EUR/USD higher ahead of Thursday’s ECB decision. Markets noted that a 75 basis-point interest-rate rise should be a done deal. Pair at 0.9830 by mid-session.
– UK government bonds surged and the pound rallied after Rishi Sunak looked set to become the UK’s next prime minister as investors bet the former chancellor would bring more stability to the country’s financial markets. GBP/USD reapproached the 1.14 area in early trading but drifted lower toward 1.1330 by mid-day. 10-year Gilt yield lower by 20bps to test 3.83% area.
– USD/JPY rose in the session after some volatility ensued late Friday into the Asian open on suspected Japanese FX intervention. Dealers noted that BOJ did approx. $30B on yen buying on Friday and possibly more as the week began to combat the weak JPY currency. Pair tested 145.50 area overnight but was back above 149 level by mid-EU session.
– (FI) Finland Sept PPI M/M: -0.3% v -0.1% prior; Y/Y: 23.7% v 27.0% prior.
– (CZ) Czech Oct Business Confidence: 5.0 v 5.2 prior; Consumer Confidence: -34.5 v -33.8 prior; Composite Index (Consumer & Business Confidence): -2.9 v -2.6 prior.
– (HU) Hungary Aug Average Gross Wages Y/Y: 16.6% v 15.6%e.
– (FR) France Oct Preliminary Manufacturing PMI: 47.4 v 47.0e (2nd straight contraction and lowest since May 2020); PMI Services: 51.3 v 51.5e; PMI Composite: 50.0 v 50.2e.
– (DE) Germany Oct Preliminary Manufacturing PMI: 45.7 v 47.0e (4th straight contraction and lowest since June 2020); PMI Services: 44.9 v 44.9e; PMI Composite: 44.1 v 45.5e.
– (EU) Euro Zone Oct Preliminary Manufacturing PMI: 46.6 v 47.9e (4th straight contraction and lowest since 2020); PMI Services: 48.2 v 48.2e; PMI Composite: 47.1 v 47.6e.
– (CH) Swiss weekly Total Sight Deposits (CHF): 597.6B v 619.8B prior; Domestic Sight Deposits: 541.7B v 555.4B prior.
– (TW) Taiwan Sept Unemployment Rate: 3.6% v 3.7%e.
– (TW) Taiwan Sept Industrial Production Y/Y: -4.8% v +0.4%e.
– (TW) Taiwan Sept M1 Money Supply Y/Y: 6.6% v 7.6% prior; M2 Money Supply Y/Y: 6.8% v 6.9% prior.
– (UK) Oct Preliminary Manufacturing PMI: 45.8 v 48.0e (3rd straight contraction); PMI Services: 47.5 v 49.0e; PMI Composite: 47.2 v 48.0e.
Fixed income issuance
– None seen.
– (IL) Israel Oct 12-month CPI Forecast: No est v 2.9% prior.
– 05:25 (EU) Daily ECB Liquidity Stats.
– 05:30 (DE) Germany to sell €6.0B indicated in 6-month and 12-month BuBills.
– 05:30 (EU) European Union to sell combined €4.0B in 2026 and 2037 NGEU Bonds.
– 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).
– 06:00 (IL) Israel to sell combined ILS1.0B in 2024, 2028, 2031 and 2052 bonds.
– 06:00 (BE) Belgium Debt Agency (BDA) to sell 2032 and 2052 Bonds.
– 06:45 (US) Daily Libor Fixing.
– 07:00 (IS) Iceland to sell 3-month and 6-month Bills.
– 07:00 (IN) India announces details of upcoming bond sale (held on Fridays).
– 07:25 (BR) Brazil Central Bank Weekly Economists Survey.
– 08:00 (PL) Poland Sept M3 Money Supply M/M: 0.8%e v 1.6% prior; Y/Y: 7.6%e v 7.4% prior.
– 08:00 (CL) Chile Sept PPI M/M: No est v -0.5% prior.
– 08:00 (UK) Daily Baltic Dry Bulk Index.
– 08:30 (US) Sept Chicago Fed National Activity Index: -0.10e v 0.00 prior.
– 08:30 (BR) Brazil Sept Current Account: -$3.0Be v -$4.1B prior; Foreign Direct Investment (FDI): $5.0Be v $7.7B prior.
– 09:00 (FR) France Debt Agency (AFT) to sell €4.4-5.6B in 3-month, 6-month and 12-month bills.
– 09:45 (US) Oct Preliminary S&P/Markit Manufacturing PMI: 51.0e v 52.0 prior; PMI Services: 49.4 v 49.3 prior; PMI Composite: No est v 49.5 prior.
– 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.
– 16:00 (US) Weekly Crop Progress Report.
– 17:00 (KR) South Korea Oct Consumer Confidence: No est v 91.4 prior.
– 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v -2.8% prior.