Bond markets under pressure as approaching election puts Trump trade in focus

EU Mid-Market Update: Bond markets under pressure as approaching election puts Trump trade in focus; BRICS summit starts in Russia; ASML CEO admits not everyone is surfing the AI wave.

Notes/observations

- Mixed EU indices being dictated by earnings; German DAX outperforms from SAP beat. EU bond yields move higher, following sell off in treasuries yesterday. Move in treasuries being attributed to variety of reasons, including Fed speak and potentially slower pace of rate cuts, as well as US election two weeks away and belief new govt will go on spending spree, triggering resurgence of inflation; USD/JPY consolidates over 150 as Sterling accepts 1.30.

- No impactful economic data left in session but abundance of Central Bank speakers could provide some volatility, as well as large constituents of SP500 reporting results.

- BRICS summit starts in Russia, with potential announcements could include unveiling of new global financial payments system “BRICS Bridge” aimed at reducing reliance on the US dollar and Western-controlled institutions.

- Notable EU Earnings: SAP higher after raising FY24 cloud guidance; Logitech higher after beating Q3 estimates noting broad based demand improvement; Maersk prelim Q3 above expectations and raises guidance and improving overall container market outlook; Saab higher after Q3 beat amid strong defense demand; HSBC named new CFO (first woman in co. history).

- Upcoming US Premarket Earnings: DHR, GM, PHM, MMM, KMB, DGX, GPC, PM, VZ, GE, SHW, MCO, FI, IPG, LMT, FCX, PCAR, NSC.

- Asia closed mixed with ASX200 underperforming -1.7%. EU indices are -0.7% to +0.2%. US futures are -0.3% to 0.0%. Gold +0.6%, DXY -0.1%; Commodity: Brent -0.3%, WTI -0.2%; Crypto: BTC -2.1%, ETH -3.2%.

Asia

- Australia Govt signed $4.7B deal with US for cutting-edge medium and long-range missiles to arm their naval forces.

- BOJ Exec Dir Kato reiterates govt stance that not targeting FX levels.

Global conflict/tensions

- US Sec of State Blinken will visit Israel and other countries in the region this week to revive ceasefire talks.

Americas

- Fed’s Daly (voter) stated that Fed would continue to adjust policy to fit the economy. Had not seen anything that would suggest we would not continue to cut rates.

- Fed's Schmid (non-voter for 2024; voter for 2025; hawk): Cautious approach will minimize market volatility; Calls for gradual approach to rate cuts; Prefers to avoid outsize rate cuts.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.41% at 519.40, FTSE -0.53% at 8,273.88, DAX +0.27% at 19,508.85, CAC-40 -0.41% at 7,505.50, IBEX-35 -0.61% at 11,768.70, FTSE MIB -0.55% at 34,762.00, SMI -0.71% at 12,166.50, S&P 500 Futures -0.36%].

Market focal points/key themes: European indices open generally lower, but moderated some of the losses through the early part of the session; equities seen struggling as bond yields rise; Israel closed for holiday; among sectors holding on to gains are technology and materials; sectors leading the way lower include real estate and telecom; DAX and tech sector supported following SAP’s earnings overnight; Mulberry rejects another offer from Frasers; Wendel to acquire controlling stake in Monroe Capital; earnings expected in the upcoming US session include 3M, Verizon, GE Aerospace, General Motors, L’Oreal and Deutsche Borse.

Equities

- Consumer discretionary: InterContinental Hotels [IHG.UK] -2.0% (trading update) - Consumer staples: EuroFins [ERF.FR] -10.5% (9-month results, affirms most guidance but cuts revenue).

- Energy: Hunting [HTG.UK] -17.5% (Q3 trading update, cuts FY24 EBITDA guidance).

- Financials: Randstad [RAND.NL] +3.5% (Q3 results), HSBC [HSBC.UK] -0.5% (appoints CFO and to simplify organization into four businesses), DNB [DNB.NO] +5.0% (Q3 results, beats estimates), ING [INGA.NL] -1.5% (Barclays cuts to equal weight).

- Industrials: SAAB [SAABB.BE] +5.5% (Q3 results, beats estimates, affirms FY guidance; call comments), Maersk [MAERSKB.DK] -0.5% (after yesterday close - prelim Q3 results, raises guidance/outlook again).

- Technology: SAP [SAP.DE] +5.5% (after yesterday close - Q3 results, beats estimates, raises FY cloud revenue guidance), ASML [ASML.NL] +2.0% (CEO interview), Logitech [LOGN.CH] -2.5% (after yesterday close - Q2 results, beats estimates, raises FY guidance).

- Telecom: Tele2 [TEL2A.SE] -2.5% (Q3 results, misses estimates, affirms FY guidance, reiterates mid-term targets).

Speakers

- ECB's Escriva (Spain) reiterated Council stance that rate decisions to be data-dependent.

- German Chancellor Scholz stated that needed more growth ; inflation, rising rates, conflicts and strained supply chains have hit Germany harder than others.

- G7 members said to be planning to maintain Russia asset freeze after Ukraine war ends; $50B loan scheme for Ukraine set to be finalized.

- Thailand Dep Fin Min Paopoom commented that domestic economy was strong, no risk of sovereign downgrade.

Currencies/fixed income

- USD maintained its recent robust gains among the major pairs. Dealers noted that the greenback was aided by Fed rate cut expectations being wound back after latest Fed speak which favored slower pace of rate cuts.

- GBP/USD hovering around 1.30 area as UK public finance data showed that Fin Min Reeves had little scope to increase spending without raising taxes at next week's budget.

- EUR/USD steady around 10820/30 area during a quiet session.

- USD/JPY tested above 151 overnight as concerns the ruling LDP party in Japan could lose its lower house majority in the upcoming election. Dealers noted concerns that BOJ policy normalization could face complications if the general election resulted in a minority government.

Economic data

- (EU) EU27 Sept New Car Registrations: -6.1% v -18.3% prior.

- (NL) Netherlands Oct Consumer Confidence Index: -22 v -21 prior.

- (NL) Netherlands Sept House Price Index M/M: 0.9% v 1.1% prior; Y/Y: 11.4% v 11.2% prior.

- (FI) Finland Sept Unemployment Rate: 8.1% v 7.5% prior.

- (UK) Sept Public Finances (PSNCR): -£20.5B v +£5.0B prior; PSNB (ex-banking groups): £16.6B v £17.5Be; Net Borrowing: £16.6B v £17.5e; Central Govt NCR: £13.2B v £11.1B prior.

- (HU) Hungary Aug Average Gross Wages Y/Y: 13.1% v 13.7%e.

- (ZA) South Africa Aug Leading Indicator: 112.8 v 113.6 prior.

- (MY) Malaysia Foreign Reserves w/e Oct 15th: $119.6B v $119.7B prior.

- (PL) Poland Sept Real Retail Sales M/M: -5.7% v -1.0%e; Y/Y: -3.0% v 1.9%e; Retail Sales (current prices) Y/Y: -2.2% v 2.8%e.

- (HK) Hong Kong Sept CPI Composite Y/Y: 2.2% v 2.4%e.

- (EU) Euro Zone Final 2023 Govt Debt/GDP Ratio: 87.4% v 88.6% prelim.

- (BE) Belgium Oct Consumer Confidence: -5 v -7 prior.

Fixed income issuance

- (IT) Italy Debt Agency (Tesoro) opened its book to sell 7-year and 30-year BTP via syndicate.

- (ID) Indonesia sold total IDR10.0T vs. IDR8.0T target in Islamic bills and bonds (sukuk).

- (UK) DMO sold £900M in 0.625% Mar 2045 Inflation-linked Gilts (UKTi); Real Yield: 1.328% v 1.200% prior; bid-to-cover: 3.57x v 3.44x prior.

Looking ahead

- (MX) Mexico CitiBanamex Survey of Economists.

- 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 2026 Schatz.

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

- 05:30 (ZA) South Africa to sell combined ZAR3.75B in 2035, 2040 and 2053 bonds.

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

- 06:00 (IE) Ireland Sept PPI M/M: No est v -4.3% prior; Y/Y: No est v -1.7% prior.

- 06:00 (TR) Turkey to sell Bonds.

- 07:00 (EU) ECB chief Lagarde.

- 08:00 (PL) Poland Sept M3 Money Supply M/M: 1.0%e v 0.5% prior; Y/Y: 6.8%e v 7.8% prior.

- 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: Expected to leave Base Rate unchanged at 6.50%.

- 08:00 (MX) Mexico Aug IGAE Economic Activity Index (Monthly GDP) M/M: 0.0%e v 0.6% prior; Y/Y: 0.9%e v 3.8% prior.

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

- 08:30 (US) Oct Philadelphia Fed Non-Manufacturing Activity: +4.1%e v -6.1 prior.

- 08:30 (CA) Canada Sept Industrial Product Price M/M: -0.5%e v -0.8% prior; Raw Materials Price Index M/M: -1.6%e v -3.1% prior.

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

- 09:00 IMF World Economic Outlook (WEO).

- 09:00 (HU) Hungary Central Bank (MNB) post rate decision statement.

- 09:00 (PT) ECB’s Centeno (Portugal).

- 09:00 (NL) ECB’s Knot 9Netherlands).

- 09:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 09:15 (UK) BOE’s Greene.

- 09:25 (UK) BOE Gov Bailey.

- 09:30 (BR) Brazil Sept Tax Collections (BRL): 201.1Be v 201.6B prior.

- 09:45 (AT) ECB’s Holtzmann (Austria).

- 10:00 (US) Oct Richmond Fed Manufacturing Index: -17e v -21 prior.

- 10:00 (US) Fed’s Harker.

- 11:00 (IE) ECB’s Lane (Ireland, chief economist).

- 13:00 (FR) ECB’s Villeroy (France).

- 14:00 (FI) ECB’s Rehn (Finland).

- 15:15 (UK) BOE’s Breeden.

- 16:00 (IE) ECB’s Lane (Ireland, chief economist).

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

- 17:00 (KR) South Korea Oct Consumer Confidence: No est v 100 prior.