Auto sector breaks down after Porsche/VW guidance cut

EU mid-market update: Auto sector breaks down after Porsche/VW guidance cut; European airports still recovering from major cyber attack; Narrative shifting to potential US Govt shutdown.

Notes/observations

- Airline stocks have dipped after a cyberattack targeted Collins Aerospace, disrupting check-in and boarding systems at five major European airports on weekend. Affected airports include Heathrow (London), Berlin, Brussels, and Dublin, leading to widespread delays, manual check-ins, and cancellations - such as Brussels canceling half of Monday's departures and a total of 38 departures/33 arrivals across sites. The issue stems from RTX's MUSE software; No perpetrators have been identified, and recovery efforts continue.

- European automotive sector underperforms after Porsche and VW cut guidance due to Porsche delaying new EV launches amid weak EV demand, China slowdown, and US tariffs. Porsche expects a €1.8B hit to operating profit, slashing its sales return outlook to ≤2% (from 5-7%), its fourth cut this year. VW forecasts a €5.1B total impact, lowering group return on sales to 2-3% (from 4-5%).

- On macro front, NATO convenes emergency meetings on Russian airspace violation. UK focus on Reeves’ Nov 26th budget, complicated by BOE reduction in QT from last Thursday’s rate decision. Friday’s Trump-Xi call seen as non-event, leaders to meet at APEC in South Korea next month. Talks touched on TikTok, fentanyl, and trade.

- US govt shutdown looms on Oct 1st, if Congress fails to pass funding legislation by midnight on Sept 30th. This deadline marks the end of the current fiscal year funding via a continuing resolution from March 2025. Recent partisan disputes over health care subsidies and spending levels have heightened risks, with House Republicans advancing a stopgap bill through November 21st, but Senate Democrats blocking it without concessions.

- Remaining on US, Trump signed a proclamation imposing a $100K fee on new H-1B petitions (increase from $1K currently). Existing visa holders and renewals are exempt. Hits multinationals like Google, Siemens, or BNP Paribas and others. Analysts see the move delaying cross-border transfers, causing shortages in AI, finance, and engineering; Firms are scrambling for workarounds like EU relocations. Risks offshoring innovation; Tech sector warns of competitiveness loss.

- On trade, US-India trade talks resume ahead of India Trade Min Goyal’s Washington visit, Russian crude likely on agenda. US-South Korea talks stalled over FX swap demands. UK, Canada, Australia, and Portugal recognized Palestine amid Gaza war.

- Asia closed mixed with Nikkei225 outperforming +1.0%. EU indices +0.1% to -1.1%. US futures -0.3%. Gold +1.0%, DXY -0.1%; Commodity: Brent +0.2%, WTI +0.2%; Crypto: BTC -2.7%, ETH -6.2%.

Asia

- South Korea Sept Exports 20 Days Y/Y: 13.5% v 7.6% prior; Imports 20 Days Y/Y: 9.9% v 0.4% prior.

- China PBOC Monthly Loan Prime Rate (LPR) Setting left 1-year and 5-year LPR Rate unchanged at 3.00% and 3.50% respectively (as expected).

- RBA Gov Bulloc noted that since Aug meeting, domestic data had been broadly in line with our expectations or if anything slightly stronger; Board would discuss this and other developments at our meeting next week.

- South Korea President Lee said country would face 'financial crisis' if it accepted US investment demands without safeguards.

- China's Fujian province said to launch first Arctic shipping route to Europe.

- China PBOC Open Market Operation (OMO) sold CNY300B in 14-day Reverse Repos: Net injection CNY261B (**Note: 1st use of facility since Jan).

- LDP leadership candidates comment as campaigning officially began (5 candidates in total).

Europe

- Morningstar DBRS cut France sovereign rating to AA from AA high (**Reminder: Fitch cut it to AA- back on Sept 12th).

- Fitch raise Italy sovereign rating from BBB to BBB+ (one notch); outlook stable.

- ECB's Stournaras (Greece): Easing cycle likely over unless there is a meaningful deterioration in inflation or growth.

Americas

- Fed's Miran (FOMC voter, dovish dissenter) noted that he saw a number of disinflationary forces in the works that were coming into play that would be bringing inflation down in the near term.
President Trump predicted a shutdown was likely and suggested he saw little room for Democrats to make demands after their 2024 election defeat.

Trade

- China Pres Xi: China position on TikTok was clear; Talks with US Pres Trump were pragmatic, positive and constructive; China-US relations were very important.

- Pres. Trump: Had a very productive call with President Xi of China; We made progress on many very important issues including Trade; "appreciated the TikTok approval".

- European Union proposed sanctions against Chinese and other foreign companies buying Russian oil, as part of a package of measures intended to show President Trump the bloc was ramping up economic pressure on Russia and its backers.

- Switzerland Govt said to be in a 'fresh push' to 'woo' Trump on tariffs.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 0.0% at 554, FTSE +0.1% at 9219, DAX -0.6% at 23488, CAC-40 -0.2% at 7835, IBEX-35 -1.1% at 15151, FTSE MIB -0.2% at 4130, SMI +0.3% at 12155, S&P 500 Futures -0.2%].

Market focal points/Key themes: European indices opened generally lower and remained under pressure through the early part of the session; lack of progress in trade talks after uneventful call between Trump and Xi seen weighing on risk appetite; among sectors managing gains are technology and materials; sectors leading the way lower include industrials and financials; automotive subsector weighed after Porsche, Volkswagen cut outlook; airline stocks impacted by cyberattack affecting check-in systems in Europe; Canal+ to acquire Multichoice; BBVA raises offer for Sabadell; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Volkswagen [VOW.DE] -5.5% (Cuts FY25 return on sales and automotive net clean net cash flow); Porsche [P911.DE] -7.0% (Cuts FY25 return on sales and automotive margins).

- Financials: Banco de Sabadell [SAB.ES] +1.0-2.0% (BBVA raises bid offer by 10%).

- Healthcare: Ipsen [IPN.FR] +2.5-3.0% (initiates Phase III of LANTIC trial of IPN10200); Idorsia [IDIA.CH] +3.0% (launches Simcere in China).

- Industrials: EasyJet [EZJ.UK] -1.5%, Ryanair [RYA.IE] -1.5%, Lufthansa [LHA.DE] -1.5%, IAG [IAG.UK] -1.5% (Cyber-attack on weekend across several major European airlines).

Speakers

- BOE Prudential Regulation Authority (PRA) said to have proposed to reduce reporting requirements for banking sector.

- Finland Finance Ministry updated its economic outlook which maintained 2025 GDP growth forecast at 1.0% while cutting 2026 GDP growth forecast from 1.5% to 1.4%.

- China PBOC Dep Gov Pan Gongsheng noted that had ensured there are no systemic financial risks. Financial institutions are healthy and markets stable.

- China FX Regulator (SAFE) Head Zhu Hexin stated to build more open forex management mechanisms. FX market was stableand cross-border capital flows were in equilibrium.

Currencies/fixed income

- Quiet start to the trading week with liitle in terms of market-moving data. Dealers talking about the looming deadline to avert a shutdown of the federal government.

- EUR/USD steady at 1.0760 with focus on upcoming ECB speak later in the session.

- USD/JPY just below the 148 area as the 5 LDP candidate provided their respective platforms for the upcoming leadership vote. Sanae Takaichi is currently the poll favorite.

- Spot gold above $3,700/oz for fresh record high aided by the prospects of two more Fed rate cuts in 2025.

Economic data

- (NL) Netherlands Sept Consumer Confidence Index: -32 v -32 prior.

- (NL) Netherlands Aug House Price Index M/M: 0.5% v 0.7% prior; Y/Y: 7.9% v 8.6% prior.

- (DK) Denmark Sept Consumer Confidence Indicator: -18.7 v -17.2 prior.

- (TR) Turkey Sept Consumer Confidence: 83.9 v 84.3 prior.

- (CH) Swiss Aug M3 Money Supply Y/Y: 4.6% v 4.6% prior.

- (TW) Taiwan Aug Unemployment Rate: 3.4% v .3%e.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 472.3 v 468.5B prior; Domestic Sight Deposits: 445.1B v 441.7B prior.

- (PL) Poland Aug Real Retail Sales M/M: -0.4% v -0.6%e; Y/Y: 3.1% v 3.3%e; Retail Sales (current prices) Y/Y: 3.0% v 3.3%e.

- (HK) Hong Kong Aug CPI Composite Y/Y: 1.0%e v 1.0% prior.

- (BE) Belgium Sept Consumer Confidence: -1t v -2 prior.

Fixed income issuance

- None seen.

Looking ahead

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

- 05:30 (DE) Germany to sell combined €5.0B in 3-month and 9-month BuBills.

- 05:30 (EU) European Union to sell combined €6.0B in 2028, 2035 and 2048 NGEU Bonds.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (IE) Ireland Aug PPI M/M: No est v -0.5% prior; Y/Y: No est v -3.5% prior.

- 06:00 (BE) Belgium Debt Agency (BDA) to sell 2030, 2035 and 2039 OLO bonds.

- 06:00 (RO) Romania to sell RON400M in 7.35% July 2031 Bonds.

- 06:00 (NO) Norway announcement on upcoming bond issuance (held on Wed).

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 07:30 (IN) India Aug Eight (Key) Infrastructure Industries: No est v 2.0% prior.

- 08:00 (PL) Poland Aug M3 Money Supply M/M: 0.8%e v 0.8% prior; Y/Y: 11.1%e v 10.8% prior.

- 08:00 (MX) Mexico July Gold Production: No est v 6.0K prior; Silver Production: No est v 322.8K prior; Copper Production: No est v 39.3K prior.

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

- 08:30 (US) Aug Chicago Fed National Activity Index: -0.16e v -0.19 prior.

- 08:30 (CA) Canada Aug Industrial Product Price M/M: 0.1%e v 0.7% prior; Raw Materials Price Index M/M: No est v 0.3% prior.

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 09:00 (FR) France Debt Agency (AFT) to sell €5.8-7.4B in 3-month, 6-month and 12-month bills (4 tranches).

- 08:30 (UK) BOE's Pill (chief economist).

- 09:45 (IE) ECB's Lane (Ireland, chief economist).

- 09:45 (US) Fed's Williams on Monetary Policy Panel.

- 10:00 (EU) Euro Zone Sept Advance Consumer Confidence: -15.0e v -15.5 prior.

- 10:00 (US) Fed's Musalem on Economic Outlook and Monetary Policy.

- 11:00 (CO) Colombia July Trade Balance: -$1.6Be v -$1.1B prior; Total Imports: $6.4Be v $5.3B prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 12:00 (US) Fed's Hammack on Reserve Banks and the Economy.

- 12:00 (US) Fed's Barkin at event.

- 12:00 (US) Fed’s Miran.

- 12:00 (DE) ECB’s Nagel (Germany).

- 13:15 (CA) Bank of Canada (BOC) Dep Gov Rogers.

- 14:00 (UK) BOE Gov Bailey.

- (MX) Mexico Citi Survey of Economists.

- 16:00 (US) Weekly Crop Progress Report.

- 17:00 (KR) South Korea Aug PPI Y/Y: No est v 0.5% prior.

- 19:00 (AU) Australia Sept Preliminary PMI Manufacturing: No est v 53 prior; PMI Services: No est v 55.8 prior; PMI Composite: No est v 55.5 prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence: No est v 85.9 prior.

- 22:30 (HK) Hong Kong to sell 3-month, 6-month and 12-month bills.

- 23:00 (TH) Thailand Central Bank (BOT) to sell THB65B in 3-month bills.