Weak PMI data and geopolitical concerns weigh on risk assets

EU Market Update: Weak PMI data and geopolitical concerns weigh on risk assets; Core bonds and Yen supported

Notes/Observations

- European equities open broadly lower amid negative leads from the US, profit warnings, concerns about US tax inversion rules, geopolitical concerns and weak German manufacturing PMI (lowest since June 2013, IFO data tomorrow)

- Asian tech shares under pressure amid declines in Alibaba.

- Core bonds gain in early trade; Bund yield below 1% for first time since Sept 9th

- Spain sells bills at lower bid to covers and again at higher yields

- (EU) ECB bond buying challenge to be heard by European Court of Justice on Oct 14th

- European Sept PMIs mostly weaker; German manufacturing lowest since June 2013, French services sector moves back into contraction

- Major Asian government bond yields continue to decline led by Australia

- Yen firmer amid equity weakness and geopolitical concerns;

- Aussie sees slight gains after China PMI data

- EUR supported by gains vs. GBP and AUD

- GBP underperforms amid concerns about US tax inversion rules

- Commodities, commodity currencies see slight rebound after China PMI data

- Germany Debt Agency reduces Q4 debt issuance plans to €43B from €47B; confirms prelim plans for €39B capital market issuance

- Bosch CEO Denner: Sees 2014 Rev growth at upper end of +3-5% y/y as long as H2 growth continues - German press

- Yara International confirms early talks with CF Industries on potential merger of equals

- Danish Central Bank sees 2014 GDP growth of 0.8% v 1.5% prior

Key Economic Data in session

- (DE) GERMANY SEPT PRELIMINARY MANUFACTURING PMI: 50.3 (lowest since June 2013) V 51.2E; SERVICES PMI: 55.4 V 54.6E

- (FR) FRANCE SEPT PRELIMINARY MANUFACTURING PMI: 48.8 V 47.0E (4-month high); SERVICES PMI: 49.4 V 50.1E (3-month low, first time below 50 since June)

- (EU) EURO ZONE SEPT PRELIMINARY MANUFACTURING PMI: 50.5 V 50.6E; SERVICES PMI: 52.8 V 53.0E

- (FR) FRANCE Q2 FINAL GDP Q/Q: 0.0% V 0.0% PRELIM; Y/Y: %V 0.1% PRELIM

- (FR) FRANCE SEPT BUSINESS CONFIDENCE: 91 V 91E; MANUFACTURING CONFIDENCE: 96 V 96E

- (UK) AUG PUBLIC FINANCES (PSNCR): £1.6B V +£6.0BE; PSNB EX INTERVENTIONS: £11.6B V +£11.8BE; PUBLIC SECTOR NET BORROWING: £10.9B V +£10.2BE

- (UK) AUG BBA LOANS FOR HOUSE PURCHASE: 41.6K V 42.9KE

Fixed Income

- Spain Debt Agency (Tesoro) sells combined €4.09B v €3-4B indicated in 3-Month and 9-Month Bills

- (EU) ECB ALLOTS €90.3B IN 7-DAY MAIN REFINANCING TENDER AT FIXED 0.05% VS. €100BE

Equities

Indices [Stoxx50 -1.1%, FTSE 100 -1.1% 6,694, CAC-40 -1.6% at 4,373, IBEX-35 -1% at 10,833, FTSE MIB -0.8% 20,518, SMI -0.5% at 8,775, S&P 500 Futures -0.3% at 1,980]

Market Focal Points/Key Themes: European equity markets open lower following negative leads from the US and weak German manufacturing PMI, Profit warnings (Tate & Lyle, Philips, Raiffeisen), US tax inversion rules weigh on various companies (Astrazeneca -5%, Shire -6%, Smith & Nephew -3%), M&A (Yara/CF Industries)

By Sector

Industrials [Michelin ML.FR -1.5% (cautious outlook commentary)]
Financials [Raiffeisen RBI.AT -10% (profit warning)]
Consumer Staples [Tate & Lyle TATE.UK -15% (profit warning)]
Consumer Discretionary [Cupid CUP.UK -6% (rights offering), Tesco TSCO.UK -2% (follow through selling)]
Technology [Philips PHIA.NL +3% (reaffirmed 2016 targets, strategic plan)]
Basic Materials [Yara International YAR.NO +8% (merger talks)]
Stoxx50 sectors [Energy -1.9%, Consumer Cyclical -1.4%, Industrials -0.9%, Basic Materials -0.8%,
Technology -0.8%, Financials -0.7%, Consumer Non-Cyclical -0.6%, Telecom -0.3%, Utilities -0.2%]

FIXED INCOME/FX/COMMODITIES

Currencies/Fixed Income:

- EURUSD - Traded about 10 pips higher after better than expected France Manu PMI and continue higher throughout the session

- USDJPY Trades over 40 pips lower near 108.40 in a risk off move after European equity markets sold off

- GBP Currency was slightly lower on news the US govt may stall tax inversion deals

Looking Ahead

- 06:00 (IE) Ireland Aug PPI

- 06:00 (TR) Turkey to sell 2016 and 2024 bonds

- 07:00 (RU) Russia Finance Ministry decides whether to hold weekly OFZ Bond auction (held Wed if planned)

- 07:45 (US) Weekly ICSC Chain Store Sales

- 08:00 (HU) Hungary Central Bank (NBH) Interest Rate decision: Expected to leave Base Rate unchanged at 2.10%

- 08:15 Baltic Dry Bulk Index

- 08:30 (CA) Canada July Retail Sales M/M: No est v 1.1% prior; Retail Sales Ex Auto M/M: No est v 1.5% prior

- 08:55 (US) Weekly Redbook Sales

- 09:00 (US) July FHFA House Price Index M/M: No est v 0.4% prior

- 09:00 (MX) Mexico July Retail Sales Y/Y: No est v 1.1% prior

- 09:00 (EU) Weekly ECB Forex Reserves: € v € prior

- 09:00 (US) Fed's Bullard gives welcome at Community Bank Conference

- 09:30 (US) Fed's George speaks at Community Bank Conference in St. Louis

- 09:45 (US) Sept Preliminary Markit US Manufacturing PMI: No est v 57.9 prior

- 09:45 (UK) BOE reverse auction; to purchase £1.6B in 15+ year gilts (residual)

- 10:00 (MX) Mexico Weekly International Reserves

- 10:00 (US) Sept Richmond Fed Manufacturing Index: No est v 12 prior

- 11:00 (US) Fed to purchase $1.60-1.90B in Notes

- 11:15 (BR) Brazil to sell I/L 2019, 2023, 2030, 2040 and 2050 Bonds

- 11:30 (US) Treasury to sell 4-Week Bills

- 13:00 (US) (US) Treasury to sell 2-Year Notes

- 15:00 (AR) Argentina Aug Trade Balance: No est v $803M prior

- 21:15 (US) Fed's George speaks on the Economy in Cheyenne, Wyoming

- 21:35 (JP) Japan Sept Preliminary Manufacturing PMI: No est v 52.2 prior