Weaker German PMI weighs on the Euro

EU Market Update: Peripheral bonds continue to gain amid speculation related to the ECB's ABS program; Weaker German PMI weighs on the Euro

Notes/Observations

- Broad US dollar strength continues ahead of US data (ADP, ISM Manufacturing); USD/JPY trades above ¥110; Weaker German PMI weighs on Euro

- European equity markets open lower following negative leads from the US amid mixed PMI data (Italy above ests, Germany below ests); Equities in China and Hong Kong closed for holiday amid ongoing protests

- Russia MICEX in focus amid capital control rumors; RUB continues to weaken

- (RU) Russia Central Bank's Yudaeva: No basis for news on capital controls - Russian press

- Peripheral bonds extend gains seen during prior session (spreads tighten), as the focus is on Thursday's ECB meeting and ABS program details (Greek and Portuguese bonds outperform); France's 2015 budget generally in line, little initial impact on Oats (spread over Bunds slightly wider); US Treasury yields slightly higher ahead of ADP and ISM data. Bunds yields are slightly lower amid weaker German PMI data and ahead of 10-yr auction. Gilt yields move off of session highs after weaker UK PMI data and ahead of 2020 auction.

- Daily borrowing from the ECB hits the highest level since early July

- Italy's Sept manufacturing PMI moves into expansion territory amid recent reduction in the government's growth forecasts. The other euro zone PMIs generally declined m/m (German index contracts for the first time in 15-months). UK PMI below ests

- (ES) Bank fo Spain says most recent data indicates 2% GDP growth by year end

Key Economic Data in session

- (DE) GERMANY SEPT FINAL MANUFACTURING PMI: 49.9 V 50.3 PRELIM (first contraction in 15 months)

- (IT) ITALY SEPT MANUFACTURING PMI: 50.7 V 49.5E (returns to expansion after one month of contraction)

- (UK) SEPT PMI MANUFACTURING: 51.6 V 52.7E (lowest since Apr 2013)

- (ES) SPAIN SEPT MANUFACTURING PMI: 52.6 V 52.6E (10th straight month of expansion)

- (FR) FRANCE SEPT FINAL MANUFACTURING PMI: 48.8 V 48.8 PRELIM (fifth month on contraction despite holding five month high)

- (SE) SWEDEN SEPT PMI MANUFACTURING PMI: 53.4 V 51.4E

- (FR) France releases 2015 budget: Sees 2017 deficit at 2.8% (confirms plan to delay deficit target to 2017)

Fixed Income

- Greece 10-year yields are about 35bps lower after press reports yesterday that the ECB may loosen standards to buy riskier Cyprus and Greek assets in their ABS buying program

- (UR) Holders of Ukraine's Naftogaz $1.6B bonds have not received payment on sovereign guaranteed issue which matured on Sept 30th - press

Equities

Indices [Stoxx50 +0.1%, FTSE 100 -0.2% at 6,606, CAC-40 +0.2% at 4,410, IBEX-35 +0.4% at 10,866, FTSE MIB flat at 20,893, SMI flat at 8,839, S&P 500 Futures flat at 1,965]

Market Focal Points/Key Themes: Equity markets open lower following negative leads from the US and amid mixed PMI data, Adidas announces buyback following pressure from shareholders, German Online retailer Zalando gains over 10% in first day of trading

By Sector

Telecom [Orange ORA.FR -2% (placement)

Industrials [BMW BMW.DE +1.5% (broker commentary)

Consumer Staples [Sainsbury SBRY.UK -2% (concerns related to dividend), Tesco TSCO.UK -2% (regulatory probe)]

Consumer Discretionary [Adidas ADS.DE +3% (buyback)]

Technology [Blinkx BLNX.UK -10% (H1 guidance), Nexans NEXS.FR -7% (profit warning)]

Stoxx50 sectors [Energy -0.7%, Telecom -0.5%, Basic Materials -0.5%, Consumer Non-Cyclical -0.2%; Industrials +0.4%, Consumer Cyclical +0.3%, Financials +0.3%, Utilities +0.2%, Technology +0.1%]

FIXED INCOME/FX/COMMODITIES

Currencies/Fixed Income:

- EUR/USD Fell about 25 pips after Sept Final German PMI entered contraction territory (49.9 v 50.3 prelim) for the first time in 15-months. Euro Zone Sept Final Manufacturing PMI was similarly disappointing recording its lowest level of growth since July 2013

- GBP/USD Traded 35-40 pips lower (3 week lows) after UK Sept Manufacturing PMI disappointed the market with the lowest growth since Apr 2013

- USD/SEK Traded from 7.22 to 7.19 after stronger than expected Sweden Sept Manufacturing PMI

- USD/RUB Traded higher in a range of approx 39.60-39.80 with lower oil prices and currency control rumors weighing on the Ruble. In addition the Ruble's level against the Dollar-Euro basket opened at 44.43 beyond the 44.40 at which the Central bank is set to defend the currency

Looking Ahead

-06:00 (IE) Ireland Sept Register Level

-06:00 (IE) Ireland Sept Unemployment Rate

- 06:45 (US) Daily Libor Fixing

- 07:00 (US) MBA Mortgage Applications w/e Sept 26th: No est v % prior -07:00 BoE's Fisher

- 07:00 (RU) Russia to sell OFZ Bonds (if not cancelled on Tuesday)

- 08:15 (US) Baltic Dry Bulk Index

- 08:15 (US) ADP Sept Employment Change: No est v +204K prior

- 08:15 (DE) German Chancellor Merkel speaks at BGA Foreign Trade Lobby Conference, Berlin

- 09:00 (BR) Brazil Sept Manufacturing PMI: No est v 50.2 prior

- 09:30 (SG) Singapore Sept Purchasing Managers Index: No est v 49.7 prior; Electronics Sector Index: No est v 50.7 prior

- 09:30 (CA) Canada Sept RBC Manufacturing PMI: No est v 54.8 prior

- 09:45 (US) Sept Final Markit Manufacturing PMI: No est v ## prelim

- 09:45 (UK) BOE reverse auction; to purchase £1.6B in 7-15 year Gilts (residual)

- 10:00 (US) Sept ISM Manufacturing: No est v 59.0 prior; ISM Prices Paid: No est v 58.0 prior

- 10:00 (MX) Mexico Aug Total Remittances: No est v $2.0B prior

- 10:00 (US) Aug Construction Spending M/M: No est v 1.8% prior

- 10:30 (US) DOE weekly Oil Inventories

- 10:30 (MX) Mexico Sept Manufacturing PMI: No est v 52.1 prior

- 11:30 (BR) Brazil weekly Currency Flows

- 12:00 (IT) Italy Sept New Car Registrations Y/Y: No est v -0.2% prior

- 13:00 (MX) Mexico IMEF Manufacturing Index: No est v 51.6 prior; Non-Manufacturing Index: No est v 52.7 prior

- 14:00 (BR) Brazil Sept Trade Balance: No est v $1.2B prior; Total Exports: No est v $20.5B prior; Total Imports: No est v $19.3B prior

- 21:30 (AU) Australia Aug Trade Balance: No est v -1.4B prior