UK fiscal chill and global tech slide weigh on Europe

EU Mid-Market Update: UK fiscal chill and global tech slide weigh on Europe; US Supreme Court will hear arguments over Trump’s use of the IEEPA to impose tariffs.

Notes/observations

- European markets opened lower following weakness in Asia and US futures, with technology stocks leading declines as valuations come under pressure.

- Sterling fell 0.3% after UK Chancellor Reeves hinted at potential income tax increases to address a £22B fiscal gap ahead of the Nov 26th budget. Her remarks signaled fiscal discipline, which pushed gilt yields lower as markets priced in reduced pressure on the Bank of England to keep rates elevated.

- Tomorrow, US Supreme Court will start to oral arguments in the landmark case testing whether Donald Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs was lawful. Justices are expected to probe whether the 1977 law’s authority to “regulate imports” truly includes imposing tariffs, a question that could redefine the balance of power between Congress and the presidency on trade. A ruling against Trump could invalidate hundreds of billions in duties and shake global trade deals, while upholding it would vastly expand executive power to reshape commerce under the guise of national emergencies. Court could rule anytime before July 2026, though several lawyers expect a decision by year-end 2025 given the tariffs’ global economic impact. If the Supreme Court upholds that decision, it is likely to trigger massive refund claims from businesses and create serious uncertainty for US trade relations and markets. Even so, the Trump administration has backup legal paths, such as the Trade Act of 1974 (Sections 122 and 301) or the Trade Expansion Act of 1962 (Section 232) to impose tariffs via different authorities.

- Overnight, RBA kept rates at 3.6% but raised inflation forecasts, signaling flexibility for future moves. Aussie 3-year yield rose 5 bps, while the currency eased from early lows.

- Gold dropped couple tenths as the dollar strengthened and traders questioned prospects for a December Fed rate cut. The decline followed comments from several Fed officials warning against assuming continued monetary easing.

- Notable Corp News: Palantir Q3 showed strong metrics and earnings beats but stock is down >5% amid overall tech selloff; Tesla shares slipped >2% premarket after Norway’s sovereign wealth fund opposed Elon Musk’s $1T compensation plan ahead of Thursday’s shareholder vote.; Associated British Foods reversed early gains after posting weak results and announcing a review that could separate its Primark and Food businesses. The Sugar unit reported a £40M loss versus an expected £75M profit; Fresenius Medical Care fell over 5% despite beating Q3 earnings expectations, as slow US treatment growth remained a concern; Oerlikon and Geberit both reported better-than-expected Q3 results and raised guidance, while Ørsted agreed to sell 50% of its Hornsea 3 project to Apollo. TPG acquired 70% of Kinetic Group through its Rise Climate Fund, with Foresight retaining 30%.

-Asia closed lower with KOSPI underperforming -2.4%. EU indices -1.3% to -1.8%. US futures -1.0% to -1.7%. Gold -0.3%, DXY +0.1%; Commodity: Brent -1.6%, WTI -1.7%; Crypto: BTC -3.0%, ETH -4.9%.

Asia

- Reserve Bank of Australia (RBA) left the Cash Rate Target unchanged at 3.60% (as expected) to resume its pause under the current phase of its easing cycle. Decision to keep policy steady was unanimous. Statement noted that Inflation has increased and is back above our 2–3 per cent target range, where we expect it to stay for a while. Domestic economic activity is recovering but the outlook remains uncertain (**Note: rhetoric leant slightly hawkish).

- South Korea Oct CPI M/M: 0.3% v 0.0%e; Y/Y: 2.4% v 2.2%e; CPI (ex-food/energy) Y/Y: 2.2% v 2.0%.

- Japan Oct Final PMI Manufacturing: 48.2 v 48.3 prelim (confirmed 4th month of contraction).

- North Korea said to likely to pursue summit with the US in Mar 2026.

Europe

- UK PM Starmer said to have told Labour MPs at a private Westminster meeting that the Budget would be based on “tough but fair decisions”.

- UK Chancellor Reeves said to be paving the way for tax rises in her budget by saying she will make the “necessary” choices to secure Britain’s economic security.

Americas

- Trump administration said to make funds partially available for food stamps (SNAP).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.53% at 563.53, FTSE -1.30% at 9,574.90, DAX -1.72% at 23,696.50, CAC-40 -1.78% at 7,965.73, IBEX-35 -1.72% at 15,766.75, FTSE MIB -1.57% at 42,543.00, SMI -1.04% at 12,116.11, S&P 500 Futures -1.31%].

Market Focal Points/Key Themes: European indices opened lower across the board and remained under pressure through the early part of the session; all sectors start the day in the red; less negative sectors include real estate and utilities; sectors leading the way lower include consumer discretionary and industrials; Orsted to divest stake into Hornsea; earnings expected in the upcoming US session include AMD, Shopify, Uber and Amgen.

Equities

- Consumer discretionary: AB Foods [ABF.UK] -3.5% (earnings; buyback), Hugo Boss [BOSS.DE] -1.0% (earnings).

- Energy: BP [BP.UK] -1.0% (earnings; buyback).

- Healthcare: Koninklijke Philips [PHIA.NL] +1.0% (earnings).

- Technology: Elmos Semiconductor [SLG.DE] +9.5% (earnings), ASML [ASML.NL] -2.5% (weakness in Asia chip names), dotDigital [DOTD.UK] +5.5% (earnings).

- Telecom: Telefonica [TEF.ES] -10.0% (earnings; dividend cut).

Speakers

- UK Chancellor Reeves pre-budget speech noted that inflation had been too slow to come down; Cost of govt borrowing has increased around the world and that the UK was particularly exposed to rising costs of borrowing. Determined to put the UK on more sustainable footing and stressed that growth was the best way forward out of the challenges that the country faced.

- ECB's Rehn (Finland): Economic uncertainty remains high with risks skewed to the downside.

- ECB's Patsalides (Cyprus): Regional economy has been showing resilience but needed to increase competitiveness.

- SNB Board Member Tschudin stated that interest rates were where they should be; our monetary stability was aimed at ensuring price stability. Keeping Interest rates low so inflation remained in range of price stability. Reiterated stance to only use negative rates when necessary. Impact on inflation was what is important for exchange rate. Reiterated that FX intervention is possible.

Currencies/fixed income

- USD continued a steady tone to hold onto the bulk of recent gains.

- GBP/USD was softer as UK Chancellor provided a pre-budget speech that cautioned the UK was particularly exposed to rising costs of borrowing. She reiterated her commitment to fiscal rules but would not say if she would honor manifesto pledges. Pair testing 1.31 by mid-session.

- EUR/USD continued to hold above the key 1.15 level but thus far had no legs to move higher.

- USD/JPY moved back below the 154 level during late Asia as the Nikkei reversed from an intra-day record high to close 1.7% lower.

- 10-year German Bund yield at 2.65%, France 10-year Oat at 3.43% and 10-year Gilt yield at 4.41% 10-year Treasury yield: 4.09%.

Economic data

- (FR) France Sept YTD Budget Balance: -€155.4B v -€157.5B prior.

- (ES) Spain Oct Unemployment Change: +22.1K v -4.8K prior; Employment Net Change M/M: +64.6K v +56.7K prior.

- (BR) Brazil Oct FIPE CPI (Sao Paulo): 0.3% v 0.4%e.

Fixed income issuance

- (EU) EFSF opened its book to sell EUR-denominated new 5-year and 10-year bonds.

- (ES) Spain Debt Agency (Tesoro) sold total €5.03B vs. €5.5-6.5B indicated range in 6-month and 12-month bills.

- (ZA) South Africa sold total ZAR3.75B vs. ZAR3.75B indicated in 2037, 2040 and 2048 bonds.

- (UK) DMO sold £5.0B in 4.00% May 2029 Gilts; Avg Yield: 3.845% v 4.095% prior; bid-to-cover: 3.06x v 2.92x prior; Tail: 0.4bps v 0.8bps prior.

- (AT) Austria Debt Agency (AFFA) sold €862.5M in 2.95% Feb 2035 RAGB bonds; Avg Yield: 2.891% v 2.997% prior; bid-to-cover: 2.36x v 3.01x prior.

Looking ahead

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

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

- 05:30 (DE) Germany to sell €5.0B in 2.0% Dec 2027 Schatz.

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

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €2.4B in 3-month, 6-month and 12-month bills.

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

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

- 06:30 (TR) Turkey Oct Real Effective Exchange Rate (REER): No est v 70.83 prior.

- 06:35 (US) Fed’s Bowman.

- 06:40 (UK) BOE’s Breeden.

- 07:00 (BR) Brazil Sept Industrial Production M/M: -0.5%e v +0.8% prior; Y/Y: +1.9%e v -0.7% prior.

- 07:00 (MX) Mexico Oct Consumer Confidence: No est v 46.5 prior.

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

- 07:00 (MX) Mexico Oct Vehicle Domestic Sales: No est v 117.2K prior.

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

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

- 08:30 (US) Sept Trade Balance (likely delayed due to govt shutdown).

- 08:30 (CA) Canada Sept Int'l Merchandise Trade (CAD): No est v -6.3B prior (*8Note: (likely delayed due to effects from US govt shutdown).

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

- 10:00 (US) Sept JOLTS Job Openings: No est v 7.23M prior (likely delayed due to govt shutdown).

- 10:00 (US) Sept Factory Orders: (likely delayed due to govt shutdown).

- 10:00 (US) Sept Final Durable Goods Orders: (likely delayed due to govt shutdown).

- 10:00 (CO) Colombia Oct PMI Manufacturing: No est v 52.0 prior.

- 10:00 (CO) Colombia Sept Exports: $4.6Be v $3.8B prior.

- 11:00 (DK) Denmark Oct Foreign Reserves (DKK): No est v 678.6B prior.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 12:00 (DE) ECB’s Nagel (Germany).

- 15:00 (NZ) New Zealand RBNZ Publishes Financial Stability Report.

- 16:00 (KR) South Korea Oct Foreign Reserves: No est v $422.0B prior.

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

- 16:45 (NZ) New Zealand Q3 Unemployment Rate: 5.3%e v 5.2% prior.

- 16:45 (NZ) New Zealand Q3 Employment Change Q/Q: +0.1%e v -0.1% prior; Y/Y: -0.2%e v -0.9% prior; Participation Rate: 70.5%e v 70.5% prior; Private Wages (ex-overtime) Q/Q: 0.5%e v 0.6% prior; Private Wages Q/Q: 0.4%e v 0.6% prior; Average Hourly Earnings Q/Q: No est v 1.9% prior.

- 17:00 (AU) Australia Oct Final PMI Services: No est v 53.1 prelim; PMI Composite: No est v 52.6 prelim.

- 18:50 (JP) BOJ Sept Minutes (2 decisions ago).

- 18:50 (JP) Japan Oct Monetary Base Y/Y: No est v -6.2% prior.

- 19:00 (NZ) New Zealand Oct ANZ Commodity Price M/M: No est v -1.1% prior.

- 19:30 (HK) Hong Kong Oct PMI (whole economy): No est v 50.4 prior.

- 19:30 (SG) Singapore Oct PMI (whole economy): No est v 56.4 prior.

- 20:00 (PH) Philippines Oct CPI M/M: 0.2%e v 0.0% prior; Y/Y: 1.8%e v 1.7% prior.

- 20:01 (IE) Ireland Oct PMI Services: No est v 53.5 prior; PMI Composite: No est v 52 prior.

- 20:45 (CN) China Oct RatingDog PMI Services: 52.7e v 52.9 prior; PMI Composite: No est v 52.5 prior.

- 21:30 (HK) Hong Kong to sell 3-year and 10-year bonds.

- 22:35 (JP) Japan to sell 10-year JGB Bonds.

- 22:30 (TH) Thailand Oct CPI M/M: -0.1%e v -0.0% prior; Y/Y: -0.7%e v -0.7% prior; CPI Core Y/Y: 0.7%e v 0.7% prior.

- 23:00 (ID) Indonesia Q3 GDP Q/Q: 1.4%e v 4.0% prior; Y/Y: 5.0%e v 5.1% prior.