- APAC stocks were mostly positive as markets digested key events over the weekend including Israel's strike on Iran and the Japanese election.
- Israel's strike on Iran was aimed at military targets and not petroleum or nuclear facilities; Iran President said will respond.
- Japan’s ruling coalition lost its parliamentary majority in Sunday’s election; the ruling party may seek partners in an effort to form a government.
- European equity futures are indicative of a positive cash open with the Euro Stoxx 50 future +0.2% after the cash market closed higher by 0.2% on Friday.
- JPY lags peers post-election, DXY is a touch higher, EUR/USD is sub-1.08 and Cable remains on a 1.29 handle.
- Looking ahead, highlights include Japanese Unemployment, Comments from BoC Governor Macklem & ECB’s de Guindos, Supply from US, Earnings from Philips, ON Semiconductor, Waste Management, Welltower, Ford, Wacker Chemie, KPN & Philips
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US TRADE
EQUITIES
- US stocks ultimately finished mixed on Friday in which the SPX, DJI and RUT faded the gains from an initial strong opening while the Nasdaq outperformed but still closed off highs with the latter underpinned by the tech sector as semis performed well following a strong Western Digital (WDC) report on Thursday evening. Sectors were also varied in which Tech, Communication and Consumer Discretionary edged notable gains, while energy was relatively flat but still finished in the green and the rest declined.
- SPX -0.03% at 5,808, NDX +0.59% at 20,352, DJIA -0.61% at 42,114, RUT -0.49% at 2,208.
- Click here for a detailed summary.
NOTABLE HEADLINES
- Chinese hackers reportedly targeted phones of the Harris campaign, according to WSJ.
APAC TRADE
JAPANESE ELECTION
- Japan’s ruling coalition lost its parliamentary majority in Sunday’s election in which the LDP and its junior coalition partner won 209 seats with all but 20 of the 465 seats accounted for, which is short of the 233 needed for a majority although the ruling party may seek partners in an effort to form a government, according to reports citing Japanese press.
- Japanese PM Ishiba said the election results were very difficult, while he responded “That would be the case” when asked if he would continue in his current position despite the election results. Furthermore, Ishiba commented that they cannot allow any gaps in domestic politics amid very difficult security and economic conditions, while he added that they must go ahead with various measures including compiling an extra budget. Furthermore, Ishiba said he is not thinking at this moment specifically about a new coalition and will compile an economic stimulus package and extra budget taking into account various parties' ideas.
EQUITIES
- APAC stocks were mostly positive as markets digested key events over the weekend including Israel's strike on Iran which was aimed at military targets and not petroleum or nuclear facilities, while the election in Japan saw the ruling coalition lose its majority.
- ASX 200 traded indecisively as gains in tech and the mining sectors offset the weakness in real estate, utilities and energy.
- Nikkei 225 quickly shrugged off the initial post-election jitters and surged on the back of a weaker currency and prospects that the political uncertainty could delay the resumption of the BoJ's rate normalisation.
- Hang Seng and Shanghai Comp swung between gains and losses but ultimately eked mild gains after the PBoC announced it is to utilise outright reverse repo operations today, which will be conducted on a monthly basis and is a new policy tool aimed at managing liquidity.
- US equity futures (ES +0.4%) were underpinned at the resumption of trade following Israel's limited strike on Iran.
- European equity futures are indicative of a positive cash open with the Euro Stoxx 50 future +0.2% after the cash market closed higher by 0.2% on Friday.
FX
- DXY gradually benefitted from the surge in USD/JPY but with gains in the dollar capped amid quiet US-specific newsflow and with the Fed in a Blackout period ahead of the November 7th policy decision.
- EUR/USD lacked demand following its recent failure to hold on to the 1.0800 status and with comments over the weekend from ECB officials including Knot who noted it is important that the ECB keeps all options on rates, while Nagel said they shouldn’t be too hasty in taking action on rates.
- GBP/USD remained subdued after pulling back from resistance at the 1.3000 level late last week and with little scheduled for the UK this week outside of Wednesday's Budget announcement.
- USD/JPY surged firmly above the 153.00 level with the Japanese currency pressured following Sunday's election in which the ruling coalition lost its majority, while the political uncertainty is seen to add a hurdle for the BoJ to resume hiking rates.
- Antipodeans languished at multi-month lows amid a quiet calendar, pressure in commodities and a weaker yuan fix.
- PBoC set USD/CNY mid-point at 7.1307 vs exp. 7.1311 (prev. 7.1090).
FIXED INCOME
- 10yr UST futures extended on last Friday's retreat beneath the 111.00 level as markets reacted to Israel's strikes against Iran with some hoping that the direct military exchange between Israel and Iran is now over, while there is also incoming supply including the latest US 2yr and 5yr auctions.
- Bund futures slipped below last week's trough to print its lowest in around three months.
- 10yr JGB futures initially gained amid the political uncertainty in Japan before reversing course and conforming to the selling in peers and the higher global yield environment.
COMMODITIES
- Crude futures dropped at the reopen following Israel's strike on Iran on Saturday which was aimed at military targets as opposed to oil infrastructure or nuclear sites.
- Libya’s NOC said ENI and BP resumed exploration in Libya after onshore drilling was halted in 2014.
- South Korean President Yoon’s office said South Korea may consider an additional fuel tax cut if the global market shows severe volatility, while the Finance Ministry noted South Korea sees a limited impact from Middle East risks on crude supplies, trade and the supply chain for now.
- Spot gold mildly gapped lower with havens shunned after Israel's limited reprisal attack against Iran.
- China's September YTD gold output fell 1.17% Y/Y to 268 metric tons and gold consumption fell 11.18% Y/Y to 741.7 metric tons, according to the Gold Association.
- Copper futures were pressured alongside the initial indecisive mood in China despite the PBoC's new liquidity tool.
CRYPTO
- Bitcoin pared some of its gains from over the weekend and pulled back from a brief return above the USD 68,000 level.
NOTABLE ASIA-PAC HEADLINES
- PBoC announced to conduct an outright reverse repo operation today and will conduct monthly outright reverse repo operations once a month with a tenor of less than one year which it will use to trade with primary dealers in the opening market. Chinese press noted that the PBoC's new outright reverse repo will cover tenors including 3-month and six-month, while it will improve liquidity adjustments in the year ahead with the tool meant to counteract the maturing Medium-term Lending Facility loans towards year-end.
DATA RECAP
- Chinese Industrial Profits YY (Sep) -27.1% (Prev. -17.8%)
- Chinese Industrial Profits YTD YY (Sep) -3.5% (Prev. 0.5%)
GEOPOLITICS
MIDDLE EAST
- Israel conducted a military strike on targets in Iran early on Saturday and the military said the retaliatory strike has been completed with the objectives achieved, while targets included missile manufacturing facilities used by Iran in its attacks on Israel over the past year. Furthermore, a US official noted that Israel’s strikes were on military targets in Iran as opposed to oil infrastructure or nuclear sites, while Iran said the Israeli strike killed four people who all served in the country’s military air defence.
- Israeli PM Netanyahu said the Israeli air force hit hard Iran’s ability to defend itself and its ability to produce missiles, while he added Israel’s attack on Iran was strong, precise and achieved all of their objectives, according to Reuters.
- Israeli politicians inside and outside PM Netanyahu’s coalition lamented the strikes as not aggressive enough, according to The New York Times. It was also reported that estimates in Israel indicate Iran would need a year before it can rebuild its missile capabilities, according to Sky News Arabia.
- Israel's Channel 13 quoted military officials that stated they do not rule out that the Air Force will have to carry out another military operation in Iran in which any further attack on Iran will focus on government targets and infrastructure, while they will not strike any Iranian nuclear targets in any new attack, according to Sky News Arabia.
- Israel expects that Iran would launch a counterattack against the Jewish state in response to its successful strike against Iranian military targets including missile production facilities, according to security sources cited by Jerusalem Post.
- Iran’s Supreme Leader Khamenei said Israel’s attack should neither be downplayed nor exaggerated and noted officials should determine how best to demonstrate Iran’s power to Israel, according to IRNA.
- Iran’s President said Iran is not seeking war but will respond appropriately to Israel’s attack, according to state media.
- Iran’s Foreign Minister said Iran has no limits in defending its territorial integrity, according to Tasnim. The minister also stated in a letter to the UN Secretary-General that Tehran reserves the right to respond to Israel’s criminal aggression.
- Iranian air defence said Israel attacked certain military centres in Tehran, Khuzestan and Ilam, while it successfully tracked and countered Israeli aggression although limited damage was caused to some locations, according to Reuters. It was also reported that Israel sent a message to Iran before the attack and warned it not to respond, according to Axios. Furthermore, Sky News Arabia quoted unanimous sources that stated Iran informed Israel through a foreign mediator that it will not respond to the strike.
- IRGC commander said the Israeli attack failed to achieve its goals and the failure confirms Israel's miscalculation, while the commander added that bitter and unimaginable consequences await Israelis, according to Sky News Arabia.
- US President Biden said he hopes the Israeli strikes against Iran are the end and it looks like Israel didn’t hit anything except military targets. It was separately reported that a senior Biden official said the direct military exchange between Israel and Iran should be over and warned that there will be consequences for Iranian responses, according to Reuters.
- Israel conducted an airstrike that targeted some military sites in central and southern areas of Syria, according to Syrian state media.
- Hezbollah urged residents of more than two dozen Israeli settlements to immediately evacuate and said these settlements have become bases for the Israeli military and are now legitimate targets. Hezbollah also said it targeted Israel’s Tel Nof airbase south of Tel Aviv with drones, according to Reuters.
- Egyptian President Sisi said Egypt proposed a two-day ceasefire in Gaza to exchange four Israeli hostages with some Palestinian prisoners, while he added talks will take part within 10 days of implementing a temporary ceasefire to reach a permanent one. However, Israeli media later reported that two ministers rejected the proposal by Egypt regarding a Gaza ceasefire, according to Sky News Arabia.
- Iran’s Interior Ministry said ten Iranian border guards were killed in the attack in southeastern Iran in the latest clash with suspected Sunni Muslim militants.
OTHER
- Russian President Putin said he hopes NATO heard his words about permitting Ukraine to fire Western long-range weapons at Russia and warned Russia will use a range of responses if Ukraine is permitted to strike into Russia with Western long-range weapons, according to TASS.
- Russian forces took control of the village of Izmailivka in Ukraine’s Donetsk region and captured Oleksandropil in eastern Ukraine, according to RIA.
- NATO said a high-level delegation from South Korea will brief the North Atlantic Council on Monday regarding North Korean troop deployment to Russia.
- Foreign and defence ministers from South Korea and the US will hold talks on October 31st.
- US State Department approved the potential sale of radar turnkey systems to Taiwan for an estimated cost of USD 828mln and the potential sale of advanced surface-to-air missiles system to Taiwan for an estimated cost of USD 1.19bln. It was also reported that China said it filed a diplomatic complaint with the US and reserved the right to retaliate after the weapons sales to Taiwan, according to Bloomberg.
EU/UK
NOTABLE HEADLINES
- UK PM Starmer said the Budget will include tough decisions and a long-term plan, with Chancellor Reeves due to announce tax hikes and extra borrowing, according to Bloomberg. The Times suggests that tax hikes could amount to GBP 35bln.
- UK Chancellor Reeves said the UK government is to announce GBP 500mln in aid from energy suppliers, while the announcement could be made in the upcoming budget.
- UK retail investors are "piling" into Gilts amid fears that the Labour government will raise the capital gains tax rate on shares in the budget this week, according to The Times.
- ECB’s Knot said he expects the Eurozone economy will strengthen and inflation risks have become more balanced, while he added it is too soon to declare victory over inflation and that it is important the ECB keeps all options on rates. Furthermore, Knot said need to see a bit more conviction that wages will fall as forecast and the labour market is tight, as well as noted that the market has brought forward the path for rate cuts and they will have to see in December if that was over-enthusiastic.
- ECB’s Nagel said they shouldn’t be too hasty in taking action on rates.
- Georgian President Zourabichvili said regarding the election results that they have been the victims of a Russian special operation and that Georgian authorities took away citizens’ right to choose, while she does not recognise the election results due to fraud and called for protests against the results. Furthermore, European Council President Michel said they call on Georgia’s central election committee and other authorities to swiftly, transparently and independently investigate and adjudicate electoral irregularities and allegations.
- Moody’s affirmed France at Aa2; Outlook revised to negative from stable.
DATA RECAP
- UK Lloyds Business Barometer (Oct) 44 (Prev. 47)
