Lower yields aiding risk appetite

Notes/Observations

- Risk on appetite continues its momentum following US rally overnight, as Asia and Europe indices push strongly higher.

- Geopolitical tensions at the forefront as Russia officially to announce the entry of annexed regions into Russian Federation later. Overnight North Korea fired a missile over Japan into the ocean, sparking sirens across the country.

- Bond yields move lower on questions whether central banks were about to step down the aggression of their tightening policy; Markets pricing in greater comfort that the Fed was moving closer to the end of its rate hike cycle.

- Economic data is light while FX volatility remains very high as GBP/USD recovers losses and returns to 1.14. European bond yields retain trading focus as large declines were seen following recent meteoric rise.

- Looking ahead, many speakers expected throughout the rest of the session. An EcoFin meeting with various European Fin Mins is underway. Separately, comments from ECB's Lagarde and Centeno, Fed's Logan, Williams, Mester, Jefferson and Daly..

- Asia closed higher with ASX200 outperforming at 3.8%. EU indices are 1.7-3.1% higher, with bond yields significantly lower. US futures are higher. Gold +0.9%, DXY -0.5%; Commodity: Brent +0.7%, WTI +0.5%, UK Nat Gas -2.5%; Crypto: BTC +3.7%, ETH +4.4%.

Asia

- RBA raises Cash Rate Target by 25bps to 2.60% (less-than-expected).

- Japan Sept Tokyo CPI Y/Y: 2.8% v 2.8%e; Tokyo CPI (ex-fresh food) Y/Y: 2.8% v 2.8%e.

- North Korea fired a missile eastward which went over Japan into the Pacific Ocean. Japan did not use missile destruction measures after concluding that there was no danger to the country.

Europe

- Bank of England (BOE) confirmed plans to carry out bond purchases until Oct 14th; Stood ready to buy up to £5B of gilts at each reverse auction.

- BOE’s Mann (hawkish) stated that inflation expectations remained anchored; had concern about drift in inflation expectations. Frontloading monetary policy had lower costs. Believed it was premature to assess the budget impact on rates.

- Chancellor of the Exchequer (Fin Min) Kwarteng reportedly to accelerate release of fiscal statement to later this month in attempt to reassure markets (**Note: mid-term budget was scheduled for Nov 23rd). Five-year plan to put debt on 'downward path' and will include 'tight squeeze' on public spending.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +2.10% at 399.04, FTSE +1.55% at 7,016.10, DAX +2.27% at 12,486.14, CAC-40 +2.80% at 5,956.48, IBEX-35 +1.83% at 7,598.50, FTSE MIB +2.25% at 21,444.00, SMI +1.58% at 10,453.80, S&P 500 Futures +1.40%].

Market Focal Points/Key Themes: European indices open higher across the board and advanced into the green as the session progressed (largely following trend from US and Asia); all sectors start the day in the green; sectors among those leading to the upside are materials and energy; lagging sectors include consumer discretionary and financials; Mowi suspends acquisition of MAB; reportedly Delta to take 10-15% stake in ITA Airways; Vodafone reportedly looking to sell network in Spain; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Greggs [GRG.UK] +9% (trading update), Made.com [MADE.UK] +18% (sale process), Watkin Jones [WJG.UK] -32% (trading update).

- Financials: Credit Suisse [CSGN.CH] +4% (new internal memo).

- Healthcare: Allergy Therapeutics [AGY.UK] -16% (manufacturing pause).

- Industrials: Sika AG [SIKA.CH] +1.5% (raises outlook), Atlantia [ATL.IT] +0.5% (tender offer launch), Rheinmetall [RHM.DE] -5% (potential contract delay).

- Telecom: Vodafone [VOD.UK] +3% (potential divestment).

Speakers

- ECB’s de Cos (Spain) stated that he expected less growth in coming quarters. Noted that Spanish banks would have to increase provisions to cover potential losses given current economic slowdown, energy shock.

- EU Economic Commissioner Gentiloni (Italy) commented that was not blaming individual countries on fragmentation and had to avoid such risks. Not blaming countries who inevitably support their own economy.

- UK PM Truss made the media rounds and ruled out any more mini-budget U-turns; Absolutely determined to press ahead with this growth plan; No decision made on raising benefits yet; Govt focused on helping more people get into work.

- UK PM Truss said to hold emergency talks with fiscal watchdog OBR.

- France Fin Min Le Maire: commented on the need for global European inflation action plan and stressed that must not underestimate political impact of inflation.

- Spain govt coalition said to reach agreement on 2023 budget.

- Germany Fin Min Lindner stated that was open for joint EU steps on international energy markets and prepared to discuss measures to contain gas prices.

- Debt Management Office (DMO) Chief Stheeman stated that Gilts and other sovereign bond markets are all having to undergo some major repricing.

- Russia's upper house (Federation Council) approves entry of annexed territories as new subjects of Russian Federation (as expected).

- Kuwait Oil Min Khaled al-Fadhel: OPEC + is studying the current situation of the global oil market and will take the appropriate decision to ensure the security of supplies.

- Saudi Aramco CEO: Oil market was not focusing on tight supply fundamentals.

- US Treasury official Harris stated that a Geneva conference that there were three Russian price cap sanctions planned. Dec 5th sanctions would target Russian crude; later ones on diesel and then lower value products.

Currencies/fixed income

- Risk-on appetite helping the USD give back more of its recent gains as bond yields move lower. Dealers said to express greater comfort that the Fed was moving closer to the end of its rate hike cycle.

- GBP/USD tested the 1.14 level in the aftermath of the recent UK govt reversed plans to scrap the top rate of income tax. Dealers also noted the small take in recent BOE AFT bond purchase operation suggested that central bank sensed the market stress was easing. Dealers noted that the 10-year/30-year Gilts spread become uninverted for the 1st time since BOE announced bond buying intervention last week.

- AUD/USD initially moved lower following the smaller-than-expected rate hike from the RBA before recovering and catching onto the broad recovery in risk sentiment.

Economic data

- (ES) Spain Sept Net Unemployment Change: +17.7K v +40.2K prior.

- (BR) Brazil Sept FIPE CPI (Sao Paulo) M/M: 0.1% v 0.1%e.

- (NG) Nigeria PMI Manufacturing: 53.7 v 52.3 prior.

- (EU) Euro Zone Aug PPI M/M: 5.0% v 5.0%e; Y/Y: 43.3% v 43.2%e.

Fixed income issuance

- (EU) EFSF opened its book to sell EUR-denominated 5-year bond; guidance seen at -17bps to mid-swaps.

- (IN) India sold total INR220B vs. INR220B indicated in 3-month, 6-month and 12-month bills.

- (ID) Indonesia sold total IDR755B vs. IDR5.0T target in Islamic bills and bonds (sukuk).

- (ES) Spain Debt Agency (Tesoro) sold total €4.281B vs. €4.0-5.0B indicated range in 6-month and 12-month bills.

- (UK) DMO sold £2.5B in 0.50% Oct 2061 Gilts; Avg Yield: 3.371% v 1.127% prior; bid-to-cover: 1.97x v 2.39x prior; Tail: 4.0bps v 0.2bps prior.

- (AT) Austria Debt Agency (AFFA) sold total €1.725B vs. €1.725B indicated in 2032 and 2051 RAGB bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:15 (CH) Switzerland to sell 3-month Bills.

- 05:30 (DE) Germany to sell €400M in 0.1% Apr 2033 I/L bonds Bonds (Bundei).

- 05:30 (BE) Belgium Debt Agency (BDA) to sell 3-month bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2030, 2032 and 2037 bonds.

- 06:30 (EU) ESM to sell €1.5B in 3-month Bills.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (MX) Mexico Aug Leading Indicators M/M: No est v -0.21 prior.

- 07:00 (MX) Mexico Sept Vehicle Domestic Sales: No est v 91.1K prior.

- 07:30 (TR) Turkey Sept Real Effective Exchange Rate (REER): No est v 52.84 prior.

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (PT) ECB’s Centeno (Portugal).

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (US) Fed’s Logan gives welcoming remarks at event on Technology.

- 09:00 (US) Fed’s Williams at Event.

- 09:15 (US) Fed’s Mester at Conference on Payment System.

- 09:45 (UK) BOE buyback operation.

- 10:00 (MX) Mexico Weekly International Reserves data.

- 10:00 (US) Aug Factory Orders: +0.2%e v -1.0% prior; Factory Orders (ex-transportation): +0.2%e v -1.1% prior.

- 10:00 (US) Aug Final Durable Goods Orders: -0.2%e v -0.2% prelim; Durables (Ex-Transportation): 0.2%e v 0.2% prelim; Capital Goods Orders (non-defense/ex-aircraft): No est v 1.2% prelim; Capital Goods Shipments (non-defense/ex-aircraft): No est v 0.3% prelim.

- 10:00 (US) Aug JOLTS Job Openings: 11.075Me v 11.239M prior.

- 11:00 (DK) Denmark Sept Foreign Reserves (DKK): No est v 531.7B prior.

- 11:00 (EU) ECB chief Lagarde.

- 11:30 (US) Treasury to sell 52-Week Bills.

- 11:45 (US) Fed’s Jefferson.

- 12:00 (NZ) New Zealand Sept CoreLogic House Prices Y/Y: No est v 5.8% prior.

- 13:00 (US) Fed’s Daly.

- 16:30 (US) Weekly API Oil Inventories.

- 18:00 (AU) Australia Sept Final PMI Services: No est v 50.4 prelim; PMI Composite: No est v 50.8 prelim.

- 18:00 (CO) Colombia Central Bank Sept Minutes.

- 19:00 (KR) South Korea Sept CPI M/M: +0.4%e v -0.1% prior; Y/Y: 5.7%e v 5.7% prior; CPI Core Y/Y: 4.4%e v 4.4% prior.

- 20:00 (NZ) New Zealand Government Financial Statements for June Year.

- 20:01 (IE) Ireland Sept PMI Services: No est v54.7 prior; PMI Composite: No est v 51.0 prior.

- 20:30 (JP) Japan Sept Final PMI Services: No est v 51.9 prelim; PMI Composite: No est v 50.9 prelim.

- 20:30 (SG) Singapore PMI (overall economy): No est v 56.0 prior.

- 21:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to raise Official Cash Rate (OBR) by 50bps to 3.50%.

- 21:00 (PH) Philippines Sept CPI Y/Y: 6.9%e v 6.3% prior.

- 21:10 (JP) BOJ bond purchase operation.

- 23:30 (TH) Thailand Sept CPI M/M: 0.4%e v 0.1% prior; Y/Y: 6.6%e v 7.9% prior; CPI Core Y/Y: 3.2%e v 3.2% prior.