Gold smashes through $4,000/oz

EU mid-market update: Gold smashes through $4,000/oz as US govt shutdown and geopolitical tensions keep fueling safe haven flows.

Notes/Observations

- European equities opened modestly higher, with attention on France’s political turmoil as rivals press Macron for new elections and a PM. Risk grows of missing the Oct 13th budget deadline. ECB officials noted the crisis and warned of downside inflation risks. Financial press reports that EU officials see new US demands for trade concessions as well as other measures as potentially undercutting a recent trade deal.

- More weak economic data out of Germany. Industrial Production missed heavily for both MoM and YoY. Follows misses in factory orders yesterday and retail sales last week. DAX mostly ignoring data as broad risk on is overbearing sentiment. Bunds following safe haven patterns amid French instability.

- Couple of surprise rate decisions overnight. New Zealand cut by 50bps, more than expected, saying reason was due to prolonged spare capacity and the associated downside risk to medium-term activity and inflation. Thailand shocked in other direction, holding policy steady when a 25bps cut was expected, however vote was not unanimous with 2 out of 7 dissenting.

- AI-bubble debate intensifies as OpenAI’s $1T in 2025 deals sparks concerns over funding and productivity; AI boom increasingly runs on circular revenue loops where the same few players are customer, creditor, supplier, and landlord, with supplier equity, backstops, and take-or-pay commits turning financing architecture into what looks like demand and flattering utilization optics. This loop is brittle: a hiccup in HBM yield or substrate supply, water and heat constraints, or a reset in collateral values can cascade through “GPU rehypothecation” and contract guarantees to hit multiple balance sheets at once, so underwrite by tracking cash conversion per watt to unaffiliated customers, and by separating committed vs metered use while monitoring fleet age and memory ratios.

- On US front: we are nearing Oct 10th - the first US govt workers' official pay date under current shutdown.

- Notable EU Corp News: BMW on track for worst day since Sept 2024 after cutting FY25 pretax earnings citing weak China volumes; Auto lenders Lloyds and Close Brothers Group trading >2% higher after UK FCA updated estimates for the compensation that lenders will need to pay regarding the car loan mis-selling scandal from 2007 to 2021. FCA now sees lower amount of £8.2B compared to £9-18B previously. ABB is divesting robotics unit to Softbank for ~$5.4B, after originally planning on spinning out unit.

- Asia closed mixed with Hang Seng underperforming -0.5%. EU indices +0.4-0.7%. US futures +0.1-0.2%. Gold +1.4%, DXY +0.3%; Commodity: Brent +1.0%, WTI +1.1%; Crypto: BTC -1.2%, ETH -4.2%.

Asia

- Japan Aug Labor Cash Earnings Y/Y: 1.5% v 2.7%e; Real Cash Earnings Y/Y:-1.4% v -0.4%e (8th consecutive monthly decline).

- Japan Aug Current Account Balance: ¥3.776T v ¥3.513Te; Trade Balance (BoP Basis): +¥105.9B v -¥111.5Be.

- New Zealand Central Bank (RBNZ) cut Official Cash Rate (OCR) by 50bps to 2.50% (more-than-expected). Committee reached consensus on policy decision; also discussed reducing OCR by 25 bps. Open to further rate reductions as required. The case for reducing the OCR by 50 basis points emphasized prolonged spare capacity and the associated downside risk to medium-term activity and inflation.

- Tourism during China's Golden Week said to show 'little sign of spending splurge'.

Americas

- Aug Consumer Credit: $0.4B v $14.0Be.

- US said to prepare $12-13B in farmer aid package; No final decision has been made.

- Fed's Miran noted that monetary policy needed to ease to get ahead of the shift down in neutral rate; The neutral rate had been buffeted by huge and unusual population shocks.

Trade

Pres Trump commented that Canada PM Carney and him to talk about trade and Gaza; We'll talk about lowering tariffs on Canadian sectors; We'll have tariffs with Canada; We could renegotiate the USMCA.

- Canada Trade Min noted that the trade talks were positive/substantial; saw steel, aluminum, energy as main focus areas for potential trade agreement.

Energy

- Weekly API Crude Oil Inventories: +2.8M v -3.7M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.53% at 572.30, FTSE +0.44% at 9,525.43, DAX +0.40% at 24,489.14, CAC-40 +0.66% at 8,027.49, IBEX-35 +0.60% at 15,623.70, FTSE MIB +0.69% at 43,366.00, SMI +0.82% at 12,634.77, S&P 500 Futures +0.08%].

Market focal points/key themes: European indices opened generally higher and remained upbeat through the early part of the session; dovish commentary from ECB official seen supporting risk appetite; among sectors leading the way higher are energy and materials; lagging sectors include industrials and consumer discretionary; automotive sector under pressure after BMW cut guidance yesterday; ABB to sell its Robotics unit to Softbank; focus on release of FOMC minutes later in the day; no major earnings expected in the upcoming US session.

Equities

- Energy: Nordex [NDX1.DE] +2.5% (order).

- Financials: Lloyds Banking Group [LLOY.UK] +2.5% (FCA: Now expects some of UK biggest auto lenders will spend £8.2B to compensate customers who were missold car loans).

- Healthcare: Sanofi [SAN.FR] -0.5% (trial data).

- Industrials: BMW [BMW.DE] -8.0% (cut outlook), ABB Ltd [ABBN.CH] +1.5% (divests Robotics unit).

- Materials: Umicore [UMI.BE] +5.0% (sale and subsequent lease in of permanent gold inventories).

Speakers

- EU said to see new US trade demands as hollowing out the agreement struck by President Trump.

- ECB’s Nagel (Germany) reiterated Council stance that current ECB monetary policy stance was in a good place and is right way forward. Inflation close to 2% target, seen there in next years.

- ECB's Rehn (Finland) reiterated that was roughly at inflation target. Cautioned that downward inflation risks in sight over next couple of years.

- ECB's Escriva (Spain): Inflation risks are balanced.

- France Outgoing PM Lecornu stressed that France must get a budget by end-2025; To present his findings to Macron later this evening.

- UK ONS Stats office noted of an error in public finances data from Jan-Aug in VAT receipts. Reduced PSNB by £2B for financial year to date.

- Iceland Central Bank Policy Statement noted that recent quarters had seen a clear slowing of economic activity. Demand pressures hadeased with tight monetary policy. Conditions that would enable an easing of the real interest rate had not emerged.

- Thailand Central Bank Policy Statement noted that the prevailing policy to keep prices stable and support growth. To adopt an accommodative policy stance. Reiterated it stood ready to adjust policy in response to evolving economic and inflation outlook.

Currencies/fixed income

- USD at 2-month highs during the session as political events continued to shape price action.

- EUR/USD at 1.1630 with focus on France political malaise and budget plans. Dealers noted that French President Macron should appoint a new prime minister to urgently pass a budget and shortly thereafter organize early presidential elections. Pair remained locked within the 1.15-1.20 range.

- USD/JPY at 152.50 near 6-month lows as soft Japanese labor earnings data back the case for a pause at the upcoming Oct BOJ meeting. Some analysts saw the soft wage data as an extra reason for PM-elect Takaichi to attempt to delay BOJ rate hikes for now.

- Spot gold tops $4,000/oz.

- 10-year German Bund yield at 2.69%, France 10-year Oat at 3.53% and 10-year Gilt yield at 4.71% 10-year Treasury yield: 4.11%.

Economic data

- (DE) Germany Aug Industrial Production M/M: -4.3% v -1.0%e; Y/Y: -3.9% v -0.9%e.

- (SE) Sweden Sept Preliminary CPI M/M: 0.0% v 0.1%e; Y/Y: 0.9% v 1.0%e.

- (SE) Sweden Sept CPIF M/M: 0.1% v 0.2%e; Y/Y: 3.1% v 3.2%e.

- (HU) Hungary Sept CPI M/M: 0.0% v 0.0%e; Y/Y: 4.3% v 4.4%e.

- (CZ) Czech Aug Retail Sales (ex-auto) Y/Y: 3.5% v 3.1%e.

- (TH) Thailand Central Bank (BOT) left the Benchmark Interest Rate unchanged at 1.50% (not expected).

- (CZ) Czech Sept Unemployment Rate: 4.6% v 4.5%e.

- (CZ) Czech Sept International Reserves: $B169.4 v $166.2B prior.

- (TW) Taiwan Sept CPI Y/Y: 1.3% v 1.6%e; CPI Core Y/Y: 1.5% v 1.7%e; PPI Y/Y: -3.7% v -4.8% prior.

- (IS) Iceland Central Bank (Sedibank) left 7-Day Term Deposit Rate unchanged at 7.50%.

- (HK) Hong Kong Sept Foreign Reserves: $419.2B v $421.6B prior.

- (HU) Hungary Sept YTD Budget Balance (HUF): -3.329T v -3.026T prior.

Fixed income issuance

- (IN) India sold total INR190B vs. INR190B indicated in 3-month, 6-month and 12-month bills.

- (UK) DMO sold £5.0B in new 4.00% May 2029 Gilts; Avg Yield: 4.095%; bid-to-cover: 2.92x; Tail: 0.8bps.

- (SE) Sweden sold total SEK6.0B vs. SEK6.0B indicated in 2035 and 2036 bonds.

- (NO) Norway sold total NOK3.0B vs. NOK3.0B indicated in 2029 and 2039 bonds.

Looking ahead

- (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 4.75%.

- (RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rates unchanged at 6.50%.

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

- 05:15 (CH) Switzerland to sell 2035 and 2058 bonds.

- 05:30 (DE) Germany to sell combined €2.0B in 2041 and 2042 bunds.

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

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

- 06:00 (CZ) Czech Republic to sell combined CZK10.0B in 2034, 2035 and 2038 bonds.

- 06:30 (NL) ECB’s Elderson (Netherlands).

- 07:00 (US) MBA Mortgage Applications w/e Oct 3rd: No est v -12.7% prior.

- 07:00 (CL) Chile Sept CPI M/M: 0.4%e v 0.0% prior; Y/Y: 4.4%e v 4.0% prior.

- 08:00 (HU) Hungary Central Bank (MNB) Sept Minutes.

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

- 09:00 (BR) Brazil Sept Vehicle Production: No est v 247.0K prior; Vehicle Sales: No est v 225.4K prior; Vehicle Exports: No est v 57.1K prior.

- 09:20 (US) Fed’s Musalem.

- 09:30 (US) Fed's Barr keynote at Community Banking Research Conference.

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

- 11:00 (UK) BOE’s Pill (chief economist).

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

- 13:00 (US) Treasury to sell 10-Year Notes Reopening.

- 14:00 (US) FOMC Sept Minutes.

- 14:00 (US) Sept Federal Budget Balance: +$50.0B v -$344.8B prior.

- 15:00 (AR) Argentina Aug Industrial Production Y/Y: No est v -1.1% prior; Construction Activity Y/Y: No est v 1.4% prior.

- 16:30 (US) Fed’s Kashkari.

- 19:01 (UK) Sept RICS House Price Balance: -18e v -19% prior.

- 20:00 (AU) Australia Oct Consumer Inflation Expectation: No est v 4.7% prior.

- 20:00 (NZ) New Zealand Government 12-Month Financial Statements.

- 22:00 (JP) Japan Sept Tokyo Avg Office Vacancies: No est v 2.9% prior.

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

-23:35 (JP) Japan to sell 5-year JGB Bonds.