- European bourses are mostly lower, with sentiment hit following poor LVMH/ASML results; the FTSE 100 leads after the region’s cooler-than-expected inflation metrics.
- Dollar is flat, GBP is the clear underperformer after headline/services inflation figures declined more than expected.
- Bonds continue to build on the prior day’s gains, with upside also fuelled by the aforementioned UK CPI report, which has led to clear outperformance in Gilts.
- Crude is modestly lower, XAU/base metals both gain.
- Looking ahead, US Import/Export Prices, Comments from ECB’s Lagarde. Earnings from Citizens Financial Group, US Bancorp, Abbott Laboratories, Morgan Stanley.
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EUROPEAN TRADE
EQUITIES
- European bourses, Stoxx 600 (-0.3%) are mostly trading in negative territory, with sentiment hit after poor earnings from heavyweights ASML and LVMH. The FTSE 100 (+0.6%) is the European outperformer, assisted by the cooler-than-expected UK inflation report.
- European sectors hold a strong negative bias; Energy is towards the top of the pile, attempting to recoup some of the hefty losses seen in the prior session. Consumer Products is found at the foot of the pile, dragged down by post-earning losses in LVMH (-3.60%), whilst ASML (-3.8%) acts as a drag on Tech.
- US Equity Futures (ES U/C NQ +0.1% RTY +0.2%) are trading mixed, with the ES and NQ flat, taking a breather from the losses seen in the prior session, whilst the RTY sees very modest gains.
- China's Cyberspace regulator has called for a systematic examination of the risks of Intel (INTC) products. Intel -4% pre-market.
- Google (GOOGL) says multiple Google Cloud products are impacted in the US-West2 Region, US-West2-A Zone.
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FX
- USD is mixed vs. peers. DXY has traded near the upper-end of today's 103.17-39 range, but in recent trade has pulled back from best levels to reside towards the mid-point of today's confines. Docket ahead includes US import and export prices.
- EUR is ever so slightly firmer vs. the USD but with EUR/USD attempting to climb back above 1.09 in recent trade. Fresh macro drivers for the EZ remain light in the run up to Thursday's ECB policy announcement. For now, EUR/USD is managing to hold above its 200DMA at 1.0872.
- GBP is the worst performer across the majors in the wake of soft UK inflation data which saw headline Y/Y CPI slip further below target and services inflation decline to 4.9% vs. the MPC forecast of 5.5%. Cable has slipped onto a 1.29 handle for the first time since August 20th; technicians flag the 100DMA at 1.2952.
- Despite an attempted recovery vs. the USD yesterday, JPY is once again struggling against the greenback. USD/JPY has ventured as high as 149.48.
- Antipodeans are both softer vs. the USD by similar magnitudes. NZD/USD was in focus overnight and saw some weakness following CPI metrics which saw a softer-than-expected outturn for Q/Q CPI.
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FIXED INCOME
- Bunds are firmer in a continuation of the upside seen in Tuesday’s session. Initial upside stemmed from cooler-than-expected UK CPI and has since extended to a 134.12 peak.
- Gilts gapped higher by 68 ticks and then extended further to a 97.76 multi-week peak after softer-than-expected UK inflation. A release which has all but cemented a November cut and makes one in December very likely as well.
- USTs are holding in the green, taking the lead from the above but yet to extend much further with US specifics light. USTs are just off a 112-20 peak, resistance at 112-21 from last week and thereafter 112-24 and 112-28+.
- UK sells GBP 3.5bln 4.0% 2031 Gilt: b/c 3.42x (prev. 2.98x), average yield 3.988% (prev. 3.814%), tail 0.2bps (prev. 1.6bps)
- Germany sells EUR 0.822bln vs exp. EUR 1bln 2.50% 2054 and EUR 0.854bln vs. exp. EUR 1bln 0.0% 2050 Bund.
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COMMODITIES
- Crude began the European session on a firmer footing as the complex took a breather from recent pronounced pressure. However, as the morning progressed oil prices edged lower, with Brent'Dec now residing near session lows at USD 74/bbl.
- Spot gold is bid, holding around a USD 2677/oz peak with support coming from the generally tentative risk tone (influenced by earnings), soft yields and ongoing geopolitical concern.
- Base metals are firmer paring back some of the pressure seen in yesterday’s session which was driven by the performance of China and continued assessment of recent stimulus efforts.
- Indian Gold imports (Sep) USD 4.39bln vs. USD 10.06bln in August, according to the Trade Ministry.
- Qatar has set the December term price for Al-Shaheen oil at USD 1.93bbl above Dubai quotes which is down vs. November, according to Reuters sources
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NOTABLE DATA RECAP
- UK CPI YY (Sep) 1.7% vs. Exp. 1.9% (Prev. 2.2%); MM 0.0% vs. Exp. 0.1% (Prev. 0.3%)
- UK Core CPI YY (Sep) 3.2% vs. Exp. 3.4% (Prev. 3.6%); MM 0.1% vs. Exp. 0.3% (Prev. 0.4%)
- UK CPI Services YY (Sep) 4.9% vs. Exp. 5.2% (Prev. 5.6%); MM -0.3% (Prev. 0.4%)
- UK ONS House Prices (Aug): 2.8% Y/Y (prev. 1.8%)
- Italian Consumer Prices Final YY (Sep) 0.7% vs. Exp. 0.7% (Prev. 0.7%); Consumer Prices Final MM (Sep) -0.2% vs. Exp. -0.2% (Prev. -0.2%)
NOTABLE EUROPEAN HEADLINES
- Italy's Economy Minister Giorgetti says the government has reached a deal with the EU over a seven year adjustment path for deficit and debt
NOTABLE US HEADLINES
- Fed's Bostic (2024 voter) said the US economy is performing quite well and he is confident inflation will get back to the 2% target, while he doesn't have a recession in his outlook but expects inflation to be choppy and employment to stay robust. Bostic also noted his dot was for 25bps more in 2024 beyond the 50bps September cut and is keeping his options open.
- JPMorgan sees good chances of a US economy soft landing; expects caution to Chinese stocks to continue; Fed is facing challenges managing the impact of supply chain and inflation from geopolitics.
GEOPOLITICS
MIDDLE EAST
- Israel’s plan to respond to Iran’s attack is ready, according to CNN sources.
- "An Israeli official says a letter received from senior US officials on Gaza and is being carefully reviewed by Israeli security officials", via Sky News Arabia
- Israel's army presented PM Netanyahu and Defence Minister Gallant with a list of targets for a possible attack on Iran, according to Israel's Channel 12 cited by Al Jazeera.
- Israeli PM Netanyahu's government began disabling GPS in Tel Aviv in anticipation of the Iranian response to a possible Israeli attack, according to Al Arabiya.
- IDF said it killed a large number of Hezbollah members in raids and exchanges of fire in southern Lebanon during the last day, while it added that it hit more than 140 targets in more than 50 locations including weapons stores.
- Israel targeted a site in the southern suburbs of Beirut for the first time since Friday.
- Israel's army said about 50 rockets were detected from Lebanon towards the Upper Galilee, and a number of them were intercepted, according to Sky News Arabia.
- Iranian Foreign Minister Araqchi is to visit Jordan, Egypt and Turkey as part of a diplomatic reach out to countries in the region 'to end genocide, atrocity and aggression', according to Iran's Foreign Ministry.
- Iran has told the UN that it is prepared for a decisive response if Israel attacks it, via journalist Elster.
CRYPTO
- Bitcoin climbs above USD 67k, as sentiment in the space continues to improve.
APAC TRADE
- APAC stocks were ultimately mixed with early declines seen as the risk-off mood rolled over into the region after Wall St pulled back from record levels with global sentiment sapped by disappointing earnings updates from ASML and LVMH.
- ASX 200 was restrained as weakness in tech and consumer stocks overshadowed the gains in financials and real estate, while miners were also lacklustre with Rio Tinto shares pressured following its quarterly update.
- Nikkei 225 underperformed after slipping beneath the 40k level and amid disappointing Machinery Orders.
- Hang Seng and Shanghai Comp clawed back opening losses following the PBoC's firm liquidity efforts and with China to hold a press briefing tomorrow on promoting the steady and healthy development of the property sector.
NOTABLE ASIA-PAC HEADLINES
- BoJ announces the continuation of relaxation of terms and conditions for securities lending facility for cheapest-to-deliver issues
- BoJ Governor Ueda to visit China from Oct 17-18; attending meeting of central bank governors from Japan, China, South Korea
- Chinese President Xi said China is willing to be a partner and friend with the US, while he added the success of China and the US is an opportunity for each other and both countries should boost each other's development rather than be an obstacle, according to state media.
- Hong Kong Chief Executive Lee said in his annual policy address that they plan to reduce wait times for public housing and will streamline procedures for companies seeking to list in Hong Kong as they seek to attract international enterprises listings. Lee also announced to cut duties on liquor with an import price of more than HKD 200 to 10% from 100% for the amount above HKD 200, while it was later reported that Hong Kong is to relax mortgage rules for some homes.
- BoJ's Adachi says the risk of upward pressure heightening from the bigger-than-expected JPY fall has reduced significantly. Markets have stabilised when compared to when there was huge volatility in August.
- BoJ Board Member Adachi said conditions are already in place for the BoJ to start normalising monetary policy and it must take rate hikes in several stages, but added they must avoid drastic policy change that could stoke fear of a return to deflation. Adachi said the BoJ will raise rates at a very moderate pace and maintain an accommodative financial environment until underlying inflation stably and sustainably hits 2%, while he also stated that hiking rates at a rapid pace after the inflation target is met could cause a big shock to economy and the BoJ should raise rates in several stages to achieve smooth policy normalisation. Furthermore, he said the BoJ must avoid a premature rate hike, which means it should use conservative estimates in gauging Japan's natural rate of interest.
DATA RECAP
- Japanese Machinery Orders MM (Aug) -1.9% vs. Exp. -0.1% (Prev. -0.1%)
- Japanese Machinery Orders YY (Aug) -3.4% vs. Exp. 3.6% (Prev. 8.7%)
- New Zealand CPI QQ (Q3) 0.6% vs. Exp. 0.7% (Prev. 0.4%)
- New Zealand CPI YY (Q3) 2.2% vs. Exp. 2.2% (Prev. 3.3%)
- RBNZ Sectoral Factor Model Inflation (Q3) 3.4% (Prev. 3.6%)
