Cautious trading ahead of ECB's ABS commentary

Notes/Observations

- US Treasury yields rose slightly following the sharp declines seen on Wednesday's session, but core bonds have been supported by equity weakness and caution ahead of the ECB meeting; Peripheral euro zone bond yields are mixed ahead of the ECB meeting, Bund yields little changed; Spanish yields pare gains as Spain sold above the indicated range in 2020 and 2024 bonds, paid record low yields.

- USD/JPY trades lower amid recent decline in equities and Treasury yields; Japan Vice Fin Min comments on impact of weak yen on importers and small companies; Commodity currencies outperform

- Equity markets trade cautiously into ECB meeting amid negative leads from the US markets; Weakness led by peripheral markets; Russia's MICEX trades lower

- Hong Kong protests continue as markets in China and Hong Kong remain closed

- Commodities trade broadly weaker led by decline in oil prices; NYMEX crude trades below $90/bbl for the first time since April 2013

- (EU) ECB's Draghi: ECB to discuss inflation strategy later today - Italy Press

- (UK) BoE's Broadbent: UK not yet ready for rate increase - press; UK almost robust enough to return to normal

- (UK) BOE's Forbes: Recent GBP appreciation is still dampening inflation, expecting dampening to fade through 2014; Figures indicate CPI has been lower by 0.8% as a result of GBP appreciation; could be 1% lower by the end of 2014

- (UK) BoE Financial Policy Committee (FPC): Gives support to Help-to-buy scheme; has not materially driven house price increases or led to looser lending standards

- (RU) Russia Central Bank Chairman Nabiullina: Plans 7-day and 28-day fx repos; plans for longer Fx repos in coming weeks; Central bank sold slightly over $4M in Fx intervention on Wed Oct 1st

- (EU) EU Commissioner Moscovici (formerly French Fin Min): Will support plan for financial transaction tax - comments from confirmation hearing

- (FR) France Pres Hollande: EUR now at a more realistic level

Key Economic Data in session

- (UK) SEPT CONSTRUCTION PMI: 64.2 V 63.5E (17th consecutive month of expansion, highest since February)

- (EU) EURO ZONE AUG PPI M/M: -0.1% V -0.1%E; Y/Y: -1.4% V -1.2%E

- (ES) SPAIN SEPT NET UNEMPLOYMENT M/M: +19.7K V +18.5KE

Fixed Income

- (ES) Spain Debt Agency (Tesoro) sells total €3.55B vs. €2.5-3.5B indicated range in 2020 and 2024 bonds

- (FR) France Debt Agency (AFT) sells total €7.99B vs. €7.0-8.0B indicated range in 2023, 2024 and 2027 OATs

Equities

Indices [Stoxx50 -0.6%, FTSE 100 -0.5% at 6,526, DAX -0.4% at 9,346, CAC-40 -0.5% at 4,345, IBEX-35 -0.8% at 10,669, FTSE MIB -1.3% at 20,448, SMI -0.7% at 8,730, S&P 500 Futures -0.2% at 1,937]

Market Focal Points/Key Themes: Equity markets open generally lower amid caution ahead of the ECB meeting, Weakness in the European IPO market ( IPO Rocket Internet trades lower in first day of trading, Recent IPO Zalando declines over 5%), Daimler now sees FY14 global passenger car demand +3% vs +4-5% seen earlier in 2014

By Sector

Technology [Xaar XAR.UK -30% (cut sales forecast), United Internet UTDI.DE -3% (tracking declines in Rocket Internet)]

Consumer Discretionary [Bang & Olufsen BO.DK -12% (Q1 loss widened); Stockmann STCBV.FI +4% (planned asset sale), TomTom TOM2.NL +2.5% (collaboration agreements)]

Energy [BP BP.UK -0.5% (US court ruling)]

Stoxx50 Sectors [Consumer Non-Cyclical -0.7%, Energy -0.7%, Basic Materials -0.6%, Utilities -0.5%, Technology -0.5%, Financials -0.4%, Telecom -0.4%, Industrials -0.3%; Consumer Cyclical +0.4%]

FIXED INCOME/FX/COMMODITIES

Currencies/Fixed Income:

- The US dollar sold off sharply just after 3:00 GMT on no news with commodity related currencies (NZD, AUD, ZAR) seeing the biggest gains against the greenback. Dealers attributed the move to short-covering and stops being triggered ahead of today's ECB meeting and the recent outsized gains for USD against other currencies and commodities

- USD/JPY: The Yen was bid throughout the session on flight to safety as the Nikkei closed down 2.6% on the session

Looking Ahead

- 06:00 (ZA) South Africa Q3 BER Consumer Confidence: No est v 4 prior

- 06:45 (US) Daily Libor Fixing

- 07:00 (RU) Russia Gold and Forex Reserve w/e Sept 26th: No est v $ prior

- 07:00 (PL) Poland to sell Bonds

- 07:30 (US) Sept Challenger Job Cuts: No est v +40.0K prior; Y/Y: No est v -20.7% prior

- 07:30 (US) Oct RBC Consumer Outlook Index: No est v 52.4 prior

- 07:45 (EU) ECB Interest Rate Decision: Expected to leave Key Rates unchanged: Expected to leave Main Refinancing Rate unchanged at 0.05%; Expected to leave Deposit Facility Rate unchanged at -0.20%; ECB Marginal Lending Facility unchanged at 0.30%

- 08:00 (BR) Brazil Aug Industrial Production M/M: No est v 0.7% prior; Y/Y: No est v -3.6% prior

- 08:15 (US) Baltic Dry Bulk Index

- 08:30 (EU) ECB'S Draghi post rate decision press conference

- 08:30 (US) Initial Jobless Claims: No est v K prior; Continuing Claims: No est v M prior

- 08:30 (US) Weekly USDA Net Export Sales

- 09:45 (US) Sept ISM New York: No est v 57.1prior

- 10:00 (DK) Denmark Sept Foreign Reserves (DKK): No est v 441.6B prior

- 10:00 (US) Aug Factory Orders: No est v 10.5% prior

- 10:0 (US) Potential revisions to Aug Durable Goods data

- 10:30 (US) Weekly EIA Natural Gas Inventories -11:00 IMF Managing Director Lagarde World Bank Meetings Preview Speech

- 18:00 (DE) German Chancellor Merkel speaks at Day of German Unity in Hannover

- 21:00 (CN) China Sept Non-manufacturing PMI: No est v 54.4 prior