Inaction in Middle East allows US Dollar and Crude to drop

EU mid-market update: Inaction in Middle East allows US dollar and crude to drop but fears remain over downside risks to equity market, causing continued sell off.

Notes/observations

- Equity sell off continued during EU morning, following US Friday session and Asia overnight. Fear sentiment increasing as Fed futures now price a 5% chance of 25bps cut at Nov 1st meeting.

- Crude Oil and Nat Gas pulls back as lack of escalation in Middle East over the weekend allows a break in concerns over supply.

- This week is light on speaker front as we enter ECB and Fed blackout periods, while earnings season goes up a gear.

- Amid rising global yields, Fed futures started to price very small (5%) chance for 25bps rate CUT at upcoming Nov 1st's meeting.

- EU Earnings Recap: Volkswagen (post close Fri) prelim Q3 rev beat but focus was on weak FY23 operating profit guidance, seen as below expectations; Philips Q3 beat top line, raised guidance and reported strong order book with better-than-expected margins. However, orders fell 9%, weighing on the stock.

- Asia closed lower with Shanghai under-performing at -1.5%. EU indices are -0.1% to -0.6%. US futures are -0.2%. Gold +0.1%, DXY -0.1%; Commodity: Brent +0.2%, WTI +0.1%, TTF -4.7%; Crypto: BTC +2.7%, ETH +3.2%.

Asia

- BOJ might review its Yield Control (YCC) at its upcoming Oct 31st policy meeting amid the rise in long-term rates. Some BOJ officials were said to be cautious about the idea of tweaking YCC as they continued to monitor wage trends.

- Japan PM Kishida said not thinking about dissolving Lower House currently; will take special election results seriously; Said to return some tax revenues to the public; confirms to extend gasoline and energy subsidies to the Spring.

- US official confirmed that govt was considering measures to restrict China's access to cloud computing services provided by US companies.

- China PBOC Gov Pan Gongsheng stated that prudent monetary policy would be more precise and forceful. To maintain appropriate money supply and credit with a steady pace and prevent the risk of contagion in stock, bond and FX markets.

- China reportedly to end home price curbs to lift market - Chinese press.

- China to hold National Work Conference next week [the meeting is held twice every 10 years], to focus on resolving risks [includes LGFVs] - US financial press.

- China Foreign Ministry Daily Briefing: China to keep anti-dumping duties over South Korea POM Copolymer.

- Philippines National Security Council Spokesperson said continued blocking by China vessels may lead to 'disastrous' results.

- India Fin Min Sitharaman: Cautious on spike in yields and may take 'remedial action' if yields rise unexpectedly; Core inflation is declining steadily, while food inflation has eased; There are still significant headwinds.

- Japan FSA reportedly to inspect major bank's internal audits - Nikkei.

Europe

- Swiss Federal Election saw the Conservative Swiss Peoples’ party (SVP) projected to secure 29.1% of the vote. Results viewed as “clear slide to the right” and less green.

- Moody’s revised UK sovereign outlook to Stable from Negative; Affirmed Aa3 ratingh.

- S&P affirmed UK sovereign rating at AA; Outlook Stable.

- S&P raised Greece sovereign rating from BB+ to BBB- (investment grade); Outlook stable.

- S&P affirmed Italy sovereign rating at BBB; Outlook Stable.

- Swiss Peoples’ (SVP) right-wing party wins national elections with 29% of votes; Switzerland’s two green parties' share of the vote dropped to 16% from 21% in 2019 - press.

Americas

- Federal Reserve Semi Annual Monetary policy report: noted that persistent inflation was seen as possible financial risk; Deposit outflows had largely stabilized since March.

- Fed's Mester (non-voter): noted that Fed was likely at or near holding point for funds rate; Inflation was cooling but still too high.

- Fed's Harker (Voter) reiterated stance that favored holding rates steady. Reiterated that could not t allow inflation to re-accelerate.

- US House Republicans to reconvene on Mon, Oct 23rd to begin the process of nominating a third candidate for the speakership after acting speaker Republican Representative Patrick McHenry said he is not seeking this job.

Conflicts

- Israel Defense Forces spokesperson: Israel will 'probably' invade Gaza unless Hamas surrenders unconditionally; If they won't, we will 'probably have to go in' and get it done.

- Israel Defense Min Gallant: Reiterates Israel aims to destroy Hamas.

- Peace Summit in Egypt on Gaza conflict ended without a joint statement; Diplomats attending the talks had not been optimistic of a breakthrough – press.

- Pres Biden: In meeting with EU leaders will talk about trade, steel and aluminum imports; Will discuss situation on the ground in Israel and Ukraine.

- Hamas spokesperson: Have released two American hostages for humanitarian reasons in response to Qatari efforts.

- Iraq Military Spokesman: PM ordered security forces to pursue elements carrying out attacks on military bases.

- Israel Defense Forces spokesperson: Israel will probably invade Gaza unless Hamas surrenders unconditionally; If they won't, we will 'probably have to go in' and get it done.

Energy

- EU was said to consider extending an emergency gas price cap introduced in Feb 2023 amid Middle East conflict and sabotage of a Baltic pipeline.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.23% at 432.74, FTSE -0.44% at 7,369.56, DAX -0.45% at 14,729.95, CAC-40 -0.09% at 6,809.84, IBEX-35 -0.63% at 8,971.90, FTSE MIB +0.08% at 27,378.00, SMI -0.56% at 10,290.80, S&P 500 Futures -0.29%].

Market focal points/Key themes: European indices open mixed but took on a decidedly negative tone as the session wore on; better performing sectors include consumer discretionary and financials; underperforming sectors lead by real estate and materials; automotive subsector under pressure following a disappointing preannouncement of Volkswagen earnings; Roche acquires Telavant from Roivant and Pfizer; Unicredit and Alpha Bank agreed to merge Romanian units; EC clears Georg Fischer’s takeover of Uponr; reportedly Blackstone reconsidering its interest in Adevinta; earnings expected in the upcoming US session include Crown Holdings and Cleveland-Cliffs.

Equities

- Energy: Tullow Oil [TLW.UK] -2.0% (analyst action - raised to Hold at Jefferies).

- Financials: UniCredit [UCG.IT] +1.0% (Romania unit deal).

- Healthcare: Roche [ROG.CH] +0.5% (acquires Roivant- and Pfizer-owned Telavant including rights to novel TL1A directed antibody (RVT-3101) for the treatment of inflammatory bowel disease for $7.1B upfront).

- Industrials: Volkswagen [VOW3.DE] -3.0% (prelim Q3 rev beat, cuts FY23 operating profit but affirms rev), Philips [PHIA.NL] -5.0% (Q3 beat, raised guidance, but orders fell), Varta [VAR1.DE] +7.5% (executive interview), Duerr [DUE.DE] -4.5% (analyst actions, cuts at Oddo and Deutsche).

- Technology: ams OSRAM [AMS.CH] -1.5% (China's probe of Foxconn; iPhone 15 lead times said to be tracking lower y/y), Atoss Software [AOF.DE] +7.0% (earnings), Keller Group [KLR.UK] +13.5% (trading update - ahead of expectations).

Speakers

-Indonesia Central Bank Dep Gov reiterated interest rate hike was taken last Thurs to strengthen FX stabilization measure.

-Malaysia Central Bank (BNM) Gov said current Ringgit (MYR) movement heavily influenced by global events; MYR movement does not reflect economic fundamentals.

-Czech Central Bank (CNB) Prochazka: said the market sees two cuts this year with rates at 3.5% by end-2024 which I think is way too fast.

Currencies/fixed income

-USDJPY continues to falter below 150 handle, while weakness in US dollar index lifts EUR and GBP pairs. EUR/USD at 1.0607. GBP/USD (cable) at 1.2165.

-Focus will revolve around ECB decision on Thurs and Fed decision next week.

Economic data

-(KR) South Korea Oct 1-20th Day Exports Y/Y: +4.6% v +9.8% prior; Imports Y/Y: +0.6% v -1.5% prior.

-(NL) Netherlands Oct Consumer Confidence: -38 v -39 prior.

-(DK) Denmark Oct Consumer Confidence: -11.8 v -13.0 prior.

-(CH) Swiss Sept M3 Money Supply Y/Y: -2.7% v -2.2% prior.

-(TR) Turkey Oct Consumer Confidence: 74.6 v 71.5 prior.

-(RO) Romania Sept M3 Money Supply Y/Y: 10.1% v 8.5% prior.

-(CH) Swiss weekly Total Sight Deposits (CHF): 478.8B v 483.8B prior; Domestic Sight Deposits: 469.7B v 474.9B prior.

-(PL) Poland Sept Construction Output Y/Y: 11.5% v 5.9%e.

-(TW) Taiwan Sept Industrial Production Y/Y: -6.7% v -8.0%e.

-(TW) Taiwan Sept Unemployment Rate: 3.4% v 3.4%e.

-(EU) Euro Zone Final 2022 Govt Debt/GDP Ratio: 91.0% v 91.6% prelim.

-(IS) Iceland Sept Wage Index M/M: 0.9% v 0.3% prior; Y/Y: 10.9% v 10.8% prior.

Fixed income issuance

-Malaysia sells MYR5.0B in 2030 bonds: Yield 4.134%; Bid-to-cover 1.41x.

-Philippines sells total PHP14.26B vs. PHP15.0B indicated in 3-month, 6-month and 12-month bills.

-Norway sells NOK2.0B vs. NOK2.0B indicated in 6-month Bills; Avg Yield: 4.25% v 4.24% prior; bid-to-cover: 2.08x v 2.40x prior.

Looking ahead

- 05:30 (DE) Germany to sell combined €4.0B in 6-month and 12-month BuBills.

- 05:30 (EU) European Union to sell combined €5.0B in 2030 and 2038 Bonds.

- 05:30 (PL) Poland to sell Bonds.

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

- 06:00 (EU) ECB's Centeno.

- 06:00 (BE) Belgium Debt Agency (BDA) to sell combined €2.9B in OLO 2033 and 2054 Bonds (3 tranches).

- 06:00 (RO) Romania to sell RON600M in 8% Apr 2030 Bonds.

- 06:00 (IL) Israel to sell combined ILS1.5B in 2026, 2028, 2029, 2031 and 2051 bonds.

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

- 07:30 (CL) Chile Central Bank Traders Survey.

- 08:00 (PL) Poland Sept M3 Money Supply M/M: 0.9%e v 0.9% prior; Y/Y: 7.3%e v 7.3% prior.

- 08:00 (MX) Mexico Aug IGAE Economic Activity Index (Monthly GDP) M/M: 0.3%e v 0.2% prior; Y/Y: 3.4%e v 3.2% prior.

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

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

- 08:30 (US) Sept Chicago Fed National Activity Index: -0.14e v -0.16 prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €5.1-6.7B in 3-month, 6-month and 12-month bills (4 tranches).

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision.

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 4.75%.

- 10:00 (EU) Euro Zone Oct Advance Consumer Confidence: -18.2e v -17.8 prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

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

- 17:00 (KR) South Korea Sept PPI Y/Y: No est v 1.0% prior.

- 18:00 (AU) Australia Oct Preliminary PMI Manufacturing: No est v 48.7 prior; PMI Services: No est v 51.8 prior; PMI Composite: No est v 51.5 prior.

- 18:00 (HU) Hungary Oct Consumer Confidence Index: No est v -39.6 prior; Business Confidence: No est v -9 prior; Economic Sentiment: No est v -17 prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 76.4 prior.

- 20:30 (JP) Japan Oct Preliminary PMI Manufacturing: No est v 48.5 prior; PMI Services: No est v 53.8 prior; PMI Composite: No est v 52.1 prior.

- 22:30 (KR) South Korea to sell KRW400B indicated in 20-year Bonds.

- 22:35 (CN) China to sell 1-year and 10-year Upsized Bonds.

- 23:00 (TH) Thailand Central Bank to sell THB50B in 3-month bills.

- 23:00 (TH) Thailand Sept Customs Trade Balance: $0.4Be v $0.4B prior; Exports Y/Y: -1.8%e v +2.6% prior; Imports Y/Y: -5.6%e v -12.8% prior.