Bond sell off continues to push yields to highs not seen since GFC, weighing on equities

EU mid-market update: Bond sell off continues to push yields to highs not seen since GFC, weighing on equities; Japan officials tight-lipped on JPY move.

Notes/observations

- Rising global bond yields continues to be the focal point, weighing on equities. Broadly speaking, yields are now passing GFC highs and on way to dot-com bubble highs.

- European Services PMI were mixed with notable big upward revision in UK final reading, but still in contraction.

- On monetary policy, New Zealand and Iceland central banks left rates unchanged. Iceland marking the 1st pause in its tightening cycle, which was the steepest in Europe.

- Yesterday’s US Jolts job openings smashed estimates with ADP expected later today.

- Asia closed lower with KOSPI under-performing at -2.4%. EU indices are mixed -1.6% to +0.1%. US futures are -0.1% to -0.3%. Gold +0.1%, DXY -0.1%; Commodity: Brent -0.4%, WTI -0.5%, TTF +2.3%; Crypto: BTC -0.3%, ETH -0.8%.

Asia

- Reserve Bank of New Zealand (RBNZ) left Official Cash Rate (OCR) unchanged at 5.50%; as expected.

- China Commerce Ministry (MOFCOM): China strongly opposes to EU probe into EV subsidies; China to pay close attention to EU probe into EV subsidies and safeguard the rights and interests of Chinese firms - statement.

- Japan top FX diplomat Kanda declines to confirm if conducted intervention; One-sided, big moves would be considered an excessive move.

- Japan Fin Min Suzuki: No comment on whether Japan intervened in yen; Have been instructed to build an asset management plan by year-end - Tokyo.

- Japan Chief Cabinet Sec Matsuno: Will continue to take appropriate steps on FX.

- Japan LDP Motegi said direct tax cuts are possible - Japanese press.

- BOJ to conduct 5-year fund-supply operations against pooled collateral on Fri, Oct 6th; Amount to be notified when conducting ops.

- Bank of Korea (BOK) says it is closely monitoring markets, capital flows; Will take market stabilising measures if required.

- South Korea said to lift limits on commercial banks' bond issuance; the limits were announced in 2022 - Korea press.

- Thailand Central Bank (BOT) Gov Sethaput: Investment remains a weak point for the economy; Ready to manage Baht if irregular movements not inline with fundamentals or too volatile.

- Thailand PM Srettha: Economic drivers like agriculture are moving slowly.

- Indonesia Dep Central Bank Gov: Market volatility is due to external factors.

- Reportedly India Central Bank (RBI) likely to be selling USD near ~83.25 to prevent INR (rupee) depreciation - press.

- Sri Lanka Fin Min: To introduce new legislation to reform loss-making commercial public companies before year-end.

Taiwan

- Taiwan Central Bank (CBC) Gov Chin-Long: Will intervene if dramatic fluctuations in USD/TWD; global interest rate hike cycle is nearing an end and Taiwan is no exception.

Conflict/tensions

- EU is prepared to approve Ukraine accession talks by end of the year - press.

- UK Defense Sec Shapps: Will work with NATO allies on Ukraine aid.

- North Korea to counter provocations by the US with a 'massive response' - N. Korea State Media.

- Philippines: 3 fishermen died after boat sinks following ramming incident by unidentified vessel in South China Sea.

Europe

- Iceland Central Bank (Sedibanki) maintained 7-Day Term Deposit Rate at 9.25% (1st pause in cycle).

- EU Commission formally commences probe into Chinese EVs -press.

- ECB Chief Lagarde: Reiterates stance that rates are sufficiently.

- UK Trade Sec Badenoch: There is zero chance of anything resembling a free trade agreement with the current US President's Administration.

- UK PM Sunak reiterated to G7 and NATO will support Ukraine for as long as it takes.

- Bank of England (BoE) Gov Bailey: Oppose changing BOE's 2% inflation target; Labor market explains part of UK inflation; Most central banks thought inflation was temporary - interview.

- Italy revises Q2 GDP Y/Y lower from 0.4% to 0.3%.

Americas

- US House votes to remove McCarthy as Speaker; House Speaker's office is 'declared vacant'; Final vote was 216-210; Ousted House Speaker McCarthy (R-CA) will not run for Speaker again - according to GOP lawmakers.

- US Treasury Sec Yellen: US is on path to fiscal sustainability; Very optimistic about US economic outlook.

- US Pres Biden to announce $9B more in student debt relief for 125K borrowers later on Wed, Oct 4th at 1:00 PM ET.

- US Pres Biden and UK PM Sunak said to be preparing a “foundational” US-UK trade agreement in 2024 to cover issues including agriculture, but not market access - Politico.

- Fed’s Bostic (non-voter): See the next rate move as a 25bps cut sometime toward the end of 2024 - Q&A.

- Fed's Mester (non-voter): Expect to hit 2% inflation target by end of 2025; If the economy holds steady, I would support a rate hike in Nov.

- US govt announces action against Chinese fentanyl suppliers - press.

- Fitch comments on US commercial real estate: Expects office mortgages to continue to deteriorate into 2024.

- IMF raises Mexico GDP forecast for 2023 and 2024.

- Chile cuts 2023 GDP forecast to 0% from 0.2% prior.

Energy

- Saudi Energy Ministry: Affirms Saudi Arabia to continue its voluntary cut of 1Mbpd until end-2023.

- Russia Deputy PM Novak: Also affirms to extend production and export cuts until end-2023; Next month, a market analysis will be carried out in order to make a decision on whether to deepen the reduction or increase oil production.

- Russia may allow partial diesel exports within days - Russia press.

- Russia Energy Min: Partial permission for fuel export is under discussion at all levels.

- Germany to reactivate mothballed coal plants during winter 2023/2024 season - press.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.13% at 440.12, FTSE +0.01% at 7,470.95, DAX -0.21% at 15,053.25, CAC-40 +0.11% at 7,004.89, IBEX-35 -0.21% at 9,146.52, FTSE MIB -0.32% at 27,394.00, SMI -0.02% at 10,761.00, S&P 500 Futures -0.17%].

Market focal points/Key themes: European indices open lower across the board; better performing sectors include communication services and utilities; sectors leading the trend lower include industrials and real estate; Novartis completes Sandoz spin-off; SAS reaches recapitalization plan agreement that would lead to delisting; UK CMA approves Hitachi Rail - Thales merger following sale of mainline signalling business; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: SAS [SAS.SE] -80.5% (to be taken private after restructuring), Kering [KER.FR] -1.0% (analyst action).

- Consumer staples: Tesco [TSCO.UK] +3.0% (earnings; raises outlook).

- Financials: UBS Group [UBSG.CH] -1.0% (said to be offering higher rates on deposits to boost inflows; rising global yields).

- Healthcare: Sanofi [SAN.FR] +1.0% (collaboration with Teva), Novartis [NOVN.CH] -4.0% (Sandoz unit starts trading; affirms outlook).

- Industrials: Thales [HO.FR] -0.5% (UK CMA regulator approves deal with Hitachi Rail), Brenntag [BNR.DE] -1.0% (analyst action).

- Telecom: Spirent Communications [SPT.UK] -32.5% (trading update).

Speakers

- ECB Chief Lagarde: Reiterates stance that rates are sufficiently.

- Fed's Mester (non-voter): Expect to hit 2% inflation target by end of 2025; If the economy holds steady, I would support a rate hike in Nov.

- Fed’s Bostic (non-voter): See the next rate move as a 25bps cut sometime toward the end of 2024 - Q&A.

-Thailand Central Bank (BOT) Gov Sethaput: Investment remains a weak point for the economy; Ready to manage Baht if irregular movements not inline with fundamentals or too volatile.

- Japan top FX diplomat Kanda declines to confirm if conducted intervention; One-sided, big moves would be considered an excessive move.

- Japan Fin Min Suzuki: No comment on whether Japan intervened in yen; Have been instructed to build an asset management plan by year-end - Tokyo.

- Japan Chief Cabinet Sec Matsuno: Will continue to take appropriate steps on FX.

- Bank of England (BoE) Gov Bailey: Oppose changing BOE's 2% inflation target; Labor market explains part of UK inflation; Most central banks thought inflation was temporary - interview.

- Malaysia Central Bank (BNM) Chief: Rules out interest rate cut for now.

- Indonesia Dep Central Bank Gov: Market volatility is due to external factors.

- ECB Chief Lagarde: Reiterates stance that rates are sufficiently.

Currencies/fixed income

- USD pulls back in morning trade, repeating similar moves earlier this week. USD/JPY fell as traders digest sharp move seen yesterday, with speculated intervention once it broke 150. Since pared some of the loses overnight, while Japan officials remain quiet and decline to comment. Traders speculate more sharp moves to come with yesterday's move potentially seen as rate check only, due to its modest size.

- GBP/USD advances higher above 1.210 amid US dollar weakness and upwards Sept Final Services PMI revision.

- Similar story for EUR/USD, testing 1.050 level.

Economic data

- (AU) Australia Sept Final PMI Services: 51.8 v 50.5 prelim (confirms 1st expansion in 3 months).

- (KR) South Korea Aug Industrial Production M/M: 5.5% v 0.2%e; Y/Y: -0.5% v -5.8%e (fastest growth since Jun 2020).

- (IE) Ireland Sept PMI Services: 54.5 v 55.0 prior.

- (JP) Japan Sept Final PMI Services: 53.8 v 53.3 prelim (confirms 12th month of expansion).

- (KR) South Korea Sept PMI Manufacturing: 49.9 v 48.9 prior (15th straight contraction).

- (SG) Singapore Sept PMI (whole economy): 54.2 v 53.6 prior [7th straight expansion].

- (PH) Philippines Aug Bank Lending Y/Y: 7.9% v 8.3% prior.

- (US) Sept Total Vehicle Sales seasonally adj rate (SAAR): 15.67M v 15.40Me, v 15.04M m/m - Wards.

- (RU) Russia Sept Services PMI: 55.4 v 57.6 prior (8th straight expansion); Composite PMI: 54.7 v 55.9 prior.

- (HU) Hungary Aug Retail Sales Y/Y: -7.1% v -5.7%e.

- (ES) Spain Sept Services PMI: 50.5 v 49.8e (returns to expansion); Composite PMI: 50.1 v 49.2e.

- (ZA) South Africa Sept PMI (whole economy): 49.9 v 51.0 prior (returns to contraction).

- (IT) Italy Sept Services PMI: 49.9 v 50.2e (2nd straight contraction); Composite PMI: 49.2 v 48.7e (4th straight contraction).

- (FR) France Sept Final Services PMI: 44.4 v 43.9e (confirms 4th straight contraction and lowest print since Nov 2020); Composite PMI: 44.1 v 43.5e.

-(DE) Germany Setp Final Services PMI: 50.3 v 49.8e (returns to expansion); Composite PMI: 46.4 v 46.2e.

- (EU) Euro Zone Sept Final Services PMI: 48.7 v 48.4e (confirms 2nd straight contraction); Composite PMI: 47.2 v 47.1e.

- (IT) Italy Q2 YTD Budget Deficit to GDP Ratio: 8.3% v 11.3% prior.

- (TR) Turkey Sept Preliminary Trade Balance: -$5.0B v -$8.7B prior.

- (UK) UK Sept Final Services PMI: 49.3 v 47.2e (confirms 2nd straight contraction and lowest print since Jan 2023); Composite PMI: 48.1 v 46.8e (confirms 3rd straight contraction).

- (UK) Sept Official Reserves Changes: -$1.8B v -$1.5B prior.

- (EU) Euro Zone Aug Retail Sales M/M: -1.2% v -0.5%e; Y/Y: -2.1% v -1.0%e.

- (EU) Euro Zone Aug PPI M/M: 0.6% v 0.6%e; Y/Y: -11.5% v -11.6%e.

- (NO) Norway Sept House Price Index M/M: -1.9% v +0.4% prior; Y/Y: -1.3% v -1.6% prior.

Fixed income issuance

- Australia sells A$800M v A$800M indicated in 2.75% Jun 2035 bonds; Avg Yield: 4.6718% v 4.2628% prior; bid-to-cover: 3.21x v 3.34x prior.

- Vietnam Finance Ministry sells VNM0.5T vs. VNM4.0T indicated in 5-year, 10-year and 15-year bonds.

- (India sells total INR240B vs. INR240B indicated in 3-month, 6-month and 12-month bills.

- Denmark sells total DKK3.54B in 2025 and 2033 DGB Bonds.

- Sweden sells SEK10B vs. SEK10B in 3-month bills; Avg Yield: 3.863% v 3.793% prior; Bid-to-cover: 2.23x v 1.04x prior.

- UK DMO sells £4.25B in 3.50% Oct 2025 Gilts; Avg Yield: 4.964% v 5.272% prior; Bid-to-cover: 2.61x v 2.67x prior; Tail: 1.1bps.

- Greece Debt Agency (PDMA) sells €812.5M vs. €625M indicated in 3-month Bills; Avg Yield: 3.90% v 3.72% prior; Bid to cover: 1.62x v 1.87x prior.

Looking ahead

- 05:30 (DE) Germany to sell €3.0B in 2.4% Nov 2030 Bunds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 06:00 (EU) ECB's Centeno.

- 06:00 (EU) European Commission to sell combined €2.5B in 3-month and 6-month bills.

- 06:00 (RU) Russia to sell OFZ Bonds.

- 06:15 (UK) PM Sunak Conservative Party Conf Speech.

- 07:00 (US) MBA Mortgage Applications w/e Sept 29th: No est v -1.3% prior.

- 07:30 (TR) Turkey Sept Real Effective Exchange Rate (REER): No est v 52.5 prior.

- 07:40 (EU) ECB’s De Guindos.

- 08:00 (MX) Mexico Sept Vehicle Domestic Sales: No est v 113.9K prior.

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

- 08:15 (US) Sept ADP Employment Change: +150Ke v +177K prior.

- 09:00 (BR) Brazil Sept Services PMI: No est v 50.6 prior; Composite PMI: No est v 50.6 prior.

- 09:45 (US) Sept Final S&P Services PMI: 50.2e v 50.2 prelim; PMI Composite: 50.1e v 50.1 prelim.

- 10:00 (EU) ECB’s Panetta.

- 10:00 (US) Aug Factory Orders: 0.3%e v -2.1% prior; Factory Orders (ex-transportation): 0.2%e v 0.8% prior.

- 10:00 (US) Aug Final Durable Goods Orders: 0.2%e v 0.2% prelim; Durables (ex-transportation): 0.4%e v 0.4% prelim; Capital Goods Orders (non-defense/ex-aircraft): No est v 0.9% prelim; Capital Goods Shipments (non-defense/ex-aircraft): No est v 0.7% prelim.

- 10:00 (US) Sept ISM Services Index: 53.5e v 54.5 prior.

- 10:25 (US) Fed's Bowman.

- 10:30 (US) Fed's Goolsbee.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (EU) ECB’s Lagarde.

- 12:00 (RU) Russia Q2 Final GDP (3rd reading) Y/Y: 4.9%e v 4.9% prior.

- 15:00 (US) Fed's Goolsbee.

- 17:00 (KR) South Korea Sept Foreign Reserves: No est v $418.3B prior.

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

- 19:00 (KR) South Korea Sept CPI M/M: 0.4%e v 1.0% prior; Y/Y: 3.5%e v 3.4% prior; CPI Core Y/Y: Sep: 3.3%e v 3.3% prior.

- 20:00 (NZ) New Zealand Sept ANZ Commodity Price M/M: No est v -2.9% prior.

- 20:30 (HK) Hong Kong Sept PMI (whole economy): No est v 49.8 prior.

- 20:30 (AU) Australia Aug Trade Balance (A$): 8.7Be v 8.0B prior; Exports M/M: No est v -2% prior; Imports M/M: No est v +3% prior.

- 21:00 (PH) Philippines Sept CPI M/M: 0.4%e v 1.1% prior; Y/Y: 5.3%e v 5.3% prior; Core CPI Y/Y: No est v 6.1% prior.

- 22:00 (SL) Sri Lanka Central Bank (CBSL) Interest Rate Decision: Expected to cut Key Rates by 100bps.

- 23:30 (TH) Thailand Sept CPI M/M: -0.2%e v 0.6% prior; Y/Y: 0.6%e v 0.9% prior; CPI Core Y/Y: 0.7%e v 0.8% prior.

- 23:30 (JP) Japan to sell 6-Month Bills.

- 23:35 (JP) Japan to sell 30-Year Bonds.