Market perception of wider risk from Mid-East conflict eases amid dovish US Fed comments

Asia market update: Market perception of wider risk from Mid-East conflict eases amid dovish US Fed comments; Asian stocks surge as global Sovereign yields fall; Currencies regain ground v USD.

General trend

- Risk appetite returned on Tuesday as the perceived threat of a widening of the Israel-Hamas conflict was kept at bay, for now. WTI crude oil at $86/bbl was off its highs and global Sovereign yields fell with US 10-yrs -12bps, at one point as low as 4.626% during Asian trading.

- Fed speakers Logan and Jefferson said respectively; "There may be less need to raise the fed funds rate" and that the Fed should "proceed carefully".

- Japan and South Korea returned from holidays and added to the positive equities opening in Australia.

- The Nikkei at one point +2.7% with mining stocks up +8.0%, with the Kospi +1.6% and the ASX +1.2% at the mornings highs.

- The Hang Seng ran to a 3-week high amid mainland inflows, +1.0%.

- Only the Shanghai Composite was in negative territory, -0.5% amid further Country Garden woes as the company issued a filing that ‘liquidity is very tight’ and that it cannot meet a due payment of HK$470M debt. Down by -3.7% to the lowest levels since Aug 29th.

- The onshore Yuan rallied to a one-month high on continued strong fixes by the PBOC and betting on a more dovish Fed.

- Commodity currencies Kiwi and Aussie also regained lost ground yesterday to be at one-week highs, along with a stronger Yen and Euro & Sterling holding steady.

- Australia Business & Consumer Confidence readings in aggregate were positive, assisting both the AUD and ASX 200.

Looking ahead (Asian time zone)

- Wed night China New Yuan Loans, US PPI & FOMC Minutes.

- Thu night US CPI.

- Fri CN CPI, PPI & Trade Balance, Singapore Advance GDP (q/q, y/y.

Holidays in Asia this week

- Tue Oct 10: Taiwan.

- Fri Oct 13: Thailand.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens flat at 6,970.

- Australia Oct Westpac Consumer Confidence: 82.0 v 79.7 prior.

- Australia Sept NAB Business Confidence: 1 v 1 prior.

- Origin Energy (ORG.AU) ACCC (Australia regulator) authorizes Brookfield/MidOcean A$15.4B acquisition of Co.

- Australia Sept Foreign Reserves (A$): 90.4B v 94.9B prior [overnight update].

- Rio Tinto (RIO.AU) Reports Q3 Pilbara iron ore production 83.5Mt v 84.3Mt y/y, iron ore shipments 83.9Mt v 82.9Mt y/y [overnight update].

- Australia sells A$100M v A$100M indicated in 2035 Indexed Bonds; Avg Yield: 1.9234% v 1.8557% prior; bid-to-cover: 3.31x v 3.02x prior.

China/Hong Kong

- Hang Seng opens +1.2% at 17,726.

- Shanghai Composite opens +0.2% at 3,104.

- Country Garden (2007.HK) Co says 'liquidity is very tight' and it has not made due payment in HK$470M of debt; Does not expect able to meet all offshore payments when due - exchange filing.

- Country Garden (2007.HK) Reports Sept Contract Sales CNY6.17B, -80.7% y/y.

- China Finance Ministry tells listed firms to improve risk assessment mechanism and enhance auditing.

- China Commerce Ministry (MOFCOM): Min Wang Wentao met with visiting US Senators.

- Senate Majority Leader Schumer: Requested China Pres Xi strengthen statement on Middle East; China then revised their comments [overnight update].

- China Pres Xi: How China and US get along will determine the future (Follows meeting with US Senator Majority Leader Schumer in Beijing) [overnight update].

- China Premier Li: Necessary to speed up construction of network computing power application infrastructure [overnight update].

- China PBOC reportedly plans to set an industry standard on risk management for AI applications in the financial industry [overnight update].

- China Foreign Ministry official: The right way forward is to implement two-state solution in Israel crisis [overnight update].

- China PBOC sets Yuan reference rate: 7.1781 v 7.1789 prior.

- China PBOC Open Market Operation (OMO): Sells CNY67B in 7-day reverse repos v CNY20B prior; Net drains CNY311B v Net drains CNY299B prior.

Japan

- Nikkei 225 opens +1.0% at 31,314.

- Japan Aug Current Account: ¥2.28T v ¥2.97e.

- Japan Sept Eco Watchers Current Survey: 49.9 v 53.2e; Outlook Survey: 49.5 v 51.3e.

- Japan ruling party LDP senior member Seko: Lowering income tax would be effective against rising inflation.

- Japan Fin Min Suzuki: Current yen weakening is caused in part by interest rate differentials; Will hold G-7 Finance Ministers meeting on Oct 12 with BOJ Gov Ueda;

- Bank of Japan (BOJ) announcement related to daily outright bond buying operation.

- Bank of Japan (BOJ) offers to buy 5-10 year JGBs at fixed rate of 100bps; Opens window to buy unlimited amount of 10-year JGBs at 1.00%.

South Korea

- Kospi opens +1.2% at 2,436.

- LG Electronics (066570.KR) Reports prelim Q3 (KRW) Op 996.7B v 839Be, Rev 20.7T v 20.6Te.

- South Korea Financial Services Commission: To closely monitor Israel-Hamas war impact on markets - statement.

- South Korea Pres Yoon: Middle East conflicts could increase uncertainty - Cabinet meeting.

Other Asia

- Philippines Aug Trade Balance: -$4.1B v -$4.4Be.

- (PH) China Coast Guard: Philippines Navy boat illegally intruded into waters around Scarborough Shoal.

- Taiwan President Tsai: It is my duty as President to safeguard our national sovereignty and the democratic and free way of life and the 23M people of Taiwan – National Day speech.

- Malaysia PM Ibrahim: Ringgit's weakness due to US Fed hiking rates; Believes interest rates to remain unchanged on low inflation.

- Thailand Dep Fin Min: Govt to maintain fiscal discipline; domestic economy growing slower compared to regional peers [overnight update].

- Singapore Sept Foreign Reserves: $337.4B v $337.3B prior [overnight update].

North America

- General Motors (GM) Canada's UNIFOR union: Canada workers walk out of three Canadian GM facilities as contract talks fail and deadline passes.

- US reportedly expected to update its export curbs to limit China's access to AI chips ahead of planned Biden-XI summit in nov; New US rules said to counter re-export of advanced chips to China to better align with rules in Netherlands and Japan - financial press.

- US Reportedly top Biden administration officials warned senators that they should prepare their constituents for the likelihood of a long war in Israel and the Gaza Strip, indicating that American support will be necessary in the coming weeks and months - Punchbowl.

- US Treasury Sec Yellen: US is likely to take steps to enforce $60/bbl price cap on Russian oil; Sees no market ‘dysfunction’ from US bond rout - FT.

- US Fed's Logan (voter): Far too soon to think about rate cuts; Output and spending have been surprisingly strong.

- US Fed Vice Chair for Supervision Barr: Proposed higher capital requirements could increase bank funding costs but enable them to absorb more losses.

- US Fed's Jefferson (voter): May be too soon to confidently say we have tightened enough.

Europe

- EU reportedly plans anti-subsidy probe into Chinese steel makers - FT [**Note: 3rd planned EU's probe against China in recent weeks].

- UK Sept BRC LFL Sales Y/Y: 2.8% v 4.3% prior.

- (IL) Israeli military official: Reestablished control over Gaza border; No infiltrations in last 24 hours.

- (IL) Israel Defense Minister: Ordered a complete blockade on Gaza. No electricity, food or fuel allowed; 'We are fighting human animals and we act accordingly'.

- (EU) ECB’s Knot (hawk, Netherlands): Comfortable with current level of interest rate levels (**Note: Depo Rate at 4.00%).

- (EU) ECB policymakers said not to be considering activating Transmission Protection Instrument (TPI) due to rising bond yield spreads - sources.

- (EU) ECB's De Cos (Spain, dove): Significant part of transmission is still coming.

- (IL) Sources say Israel PM Netayahu told Biden on Sunday that Israel has no choice but to launch a ground operation in Gaza - Axios.

Levels as of 01:20 ET

- Nikkei 225 +2.6%; ASX 200 +1.0%; Hang Seng +0.9%; Shanghai Composite -0.6%; Kospi +0.3%.

- Equity S&P500 Futures +0.1%; Nasdaq100 +0.2%; Dax +0.3%; FTSE100 +0.3%.

- EUR 1.0558-1.0584; JPY 148.16-148.79; AUD 0.6408-0.6433; NZD 0.6008-0.6042.

- Gold +0.6% at $1,874/oz; Crude Oil -0.5% at $85.94/brl; Copper -0.6% at $3.6353/lb.