German coalition talks might take until Christmas to form govt

Notes/Observationsf

- German Federal elections results setting in motion what could be months of complex coalition talks (Note: no prospect of a hard-left coalition).

- House Speaker Pelosi sets Thursday vote on infrastructure vote.

Asia

- PBOC again injected net liquidity of CNY100B into market via 14-day Reverse repo.

- Two local governments in China have taken control of sales revenue from Evergrande properties so that homebuyers interest can be protected and project construction continues.

- Election of the next PM of Japan likely go to a run-off as neither of the two main candidates (Kono and Kishida) look able to secure an outright majority in the first round of voting (taking place on Wed).

Coronavirus

- Japan govt said to be planning to lift emergency measures in all areas at the end of the month.

Europe

- Germany Election Final Results saw the Social Democrats (SPD) narrowly defeat Merkel CDU/CSU coalition (25.7% v 24.1%); Green Party register’s its best results ever at 14.8%; Coalition talks will take time (might take until Christmas).

- BP provided updates on shortage of deliver drivers in UK: 30% of UK fuel stations have nearly no gas to supply, 1.2K locations were running out of the 2 main fuel types.

- UK army was expected to provide personnel to drive petrol tankers to forecourts within days after it was estimated that between 50-90% of Britain’s petrol stations had run out of fuel.

- UK Govt approved to issue temporary visas for 5,000 foreign truck drivers, also temporarily suspended competition rules to allow companies to coordinate fuel supplies to the most affected regions.

Americas

- House Speaker Pelosi sets Thursday (Sept 30th) to vote on $1.0T infrastructure bill. Noted that President Biden’s $3.5T reconciliation bill may be smaller than expected.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.32% at 464.78, FTSE +0.32% at 7,074.06, DAX +0.90% at 15,671.85, CAC-40 +0.62% at 6,679.37, IBEX-35 +1.00% at 8,961.50, FTSE MIB +0.45% at 26,086.00, SMI -0.18% at 11,796.14, S&P 500 Futures +0.33%].

Market Focal Points/Key Themes: European indices open higher across the board and remained in the green as the session progressed; sectors among those leading to the upside are real estate and industrails; underperforming sectors include telecom; German housing firms supported following German non-binding referendum; Faurecia confirms to acquire Hella; Hikma acquires Custopharm; EQT launches takeover of zooplus; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: zooplus [ZO1.DE] +4% (new offer), International Workplace Group [IWG.UK] +6% (speculation on company's break-up), Plastic Omnium [POM.FR] -1% (cuts outlook).

- Consumer staples: La Doria [LD.IT] -13% (stake offer).

- Financials: Bank of Ireland [BIRG.IE] -2% (CFO steps down).

- Industrials: Rolls-Royce Holdings [RR.UK] +6% (selected for CERP program).

Speakers

- German Social Democrats (SPD) leader Scholz stated that his SPD party had the mandate to lead German govt. Saw a possible coalition between SPD, Greens and FDP (**Note: referred to as Traffic Light coalition). He added that the vote suggested that the Merkel coalition CDU/CSU should go into opposition.

- Hungary Debt Agency (AKK) chief: Kurali expected a soft landing for the local bond market from the central bank’s tapering of its asset-purchase program.

- UK Road Haulage Association official stated that UK govt driver visa plan was designed to fail (**Note: refers to UK Govt approved to issue temporary visas for 5,000 foreign truck drivers).

- BOJ Gov Kuroda reiterated stance that would not hesitate to add easing if necessary; watching impact of coronavirus closely. Needed to continue with easing persistently. Reiterated that inflation to gradually rise toward the end of the current projection period in FY23 but would not reach the 2% price stability target.

- China govt stated thatLi Bo was no longer a PBoC Dep Gov.

Currencies/Fixed Income

- USD began the week under favorable conditions since the Fed noted that the taper process could begin soon.

- EUR/USD was probing below 1.1700 level following the Germany election results. Dealers noted that the next German government coalition hung in a limbo but a 3-way coalition was expected. Possible changes to Germany's fiscal stance and to its approach to European/foreign policy and climate action are at stake.

- GBP/USD was back above 1.37 by mid-session as more analysts brought forward their calls for a BOE rate hike by Feb 2022.

Economic data

- (FI) Finland Sept Consumer Confidence: 6.0 v 4.0 prior; Business Confidence: 21 v 22 prior..

- (DK) Denmark Aug Retail Sales M/M: -0.4% v -0.1% prior; Y/Y: 4.0% v 4.98% prior.

- (ES) Spain Aug PPI M/M: 1.9% v 2.0% prior; Y/Y: 18.0% v 15.6% prior.

- (SE) Sweden Aug Household Lending Y/Y: 6.4% v 6.3% prior.

- (EU) Euro Zone Aug M3 Money Supply Y/Y: 7.9% v 7.7%e.

- (CH) Swiss weekly Total Sight Deposits (CHF): 714.5B v 714.7B prior; Domestic Sight Deposits: 636.0B v 636.0B prior.

- (TW) Taiwan Aug Industrial Production Y/Y: 13.7% v 12.7%e.

- (TW) Taiwan Aug Monitoring Indicator: 39 v 38 prior.

Fixed income Issuance

- (NO) Norway sold NOK vs. NOK2.0B indicated in 3-month Bills; Avg Yield: 0.18% v 0.07% prior; Bid-to-cover: 2.44x v 2.55x prior.

Looking Ahead

- (EU) European Union to sell €2.0-2.5B in NextGeneration (INGEU) 2026 bonds.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 ((DE) Germany to sell €4.0B in 12-month BuBills.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (BE) Belgium Debt Agency (BDA) to sell €3.0-3.5B in 2031, 2037 and 2050 OLO Bonds.

- 06:00 (IL) Israel to sell bonds.

- 06:00 (RO) Romania to sell RON400M in 2.5% Oct 2027 Bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (MX) Mexico Aug Trade Balance: -$1.1Be v -$4.1B prior.

- 07:00 (MX) Mexico July IGAE Economic Activity Index (Monthly GDP) M/M: +0.8%e v -0.9% prior; Y/Y: 8.5%e v 13.3% prior.

- 07:00 (BR) Brazil Sept FGV Construction Costs M/M: 0.4%e v 0.6% prior.

- 07:00 (BR) Brazil Sept FGV Consumer Confidence: No est v 81.8 prior.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

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

- 08:00 (US) Fed’s Evans at NABE Conference.

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:30 (US) Aug Preliminary Durable Goods Orders: +0.6%e v -0.1% prior; Durables (ex-transportation): 0.5%e v 0.8% prior; Capital Goods Orders (non-defense/ex-aircraft): 0.4%e v 0.1% prior; Capital Goods Shipments (non-defense/ex-aircraft): 0.5%e v 0.9% prior.

- 08:30 (BR) Brazil Aug Total Outstanding Loans (BRL): 4.302Te v 4.266T prior; M/M: 1.2%e v 1.2% prior; Personal Loan Default Rate: No est v 4.1% prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €5.7-6.9B in 3-month, 6-month and 12-month bills.

- 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (3-7 years).

- 10:30 (US) Sept Dallas Fed Manufacturing Activity Index: 11.0e v 9.0 prior.

- 12:15 (US) Fed’s Brainard at NABE Conference

- 15:00 (AR) Argentina July Supermarket Sales Y/Y: No est v 1.0% prior; Shop Center Sales Y/Y: No est v 241.5% prior..

- 16:00 (US) Weekly Crop Progress Report.

- 17:00 (KR) South Korea Sept Consumer Confidence: No est v 102.5 prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 103.3 prior.

- 21:30 (CN) China Aug Industrial Profits Y/Y: No est v 16.4% prior.

- 21:30 (AU) Australia Final Aug Retail Sales M/M: -2.2% v -2.7% prelim.

- 22:30 (KR) South Korea to sell KRW500B in 20-year Bonds.

- 23:00 (TH) Thailand Central Bank to sell THB55B in 3-month bills.

- 23:30 (HK) Hong Kong to sell 3-month, 6-month and 12-month Bills.

- 23:35 (JP) Japan to sell 40-year JGB Bonds.