Mixed trade seen across Europe but positive sentiment overnight due to a breather in US treasuries

Notes/observations

- European major bourses mixed as overnight risk on flows were seen from a reversal/pause in US treasuries yields and a fall in oil after OPEC meeting, giving better hope on the energy inflation front.

- Although second-round inflationary effects are a concern (mainly due to wage growth), as highlighted by many central banks, macro focus in recent weeks/months has heavily rotated to the state of economic growth and more towards a when, not if, a recession comes, as well as how deep it would be. Rising yields and parallels to previous market collapses is spiking fear. US job data earlier this week and upcoming weekly claims and Fri’s Nonfarm payrolls are in focus.

- Shares of French industrial giant Alstom traded down over 35% following FCF warning; It cited contracts delays and tight supply chain conditions, resulted in a significant increase in the level of inventories to avoid production disruption and delivery delays during the first half of the year, particularly in Americas and in Europe.

- Asia closed higher with Nikkei225 out-performing at +1.7%. EU indices are mixed. US futures are -0.3%. Gold -0.1%, DXY 0.0%; Commodity: Brent -1.2%, WTI -1.2%, TTF -3.5%; Crypto: BTC +0.5%, ETH -0.9%.

Asia

- China Foreign Minister Wang Yi: China seeks to boost ties with Trans-Himalaya nations.

- Japan PM Kishida: To make sure of wage rises being sustainable - comments at labour union meeting; Upcoming economic measures must create environment for small and mid-sized companies to be able to respond to labor crunch.

- Japan releases weekly flows data [period ended Sept 29th]: Japan buying of foreign bonds: +¥297.1B v -¥541.6B prior: Foreign buying of Japan stocks: +¥71.0B v -¥3.03T prior.

- An earthquake with prelim magnitude of 6.6 strikes off Japan [the magnitude is 6.1 on the USGS scale].

- New Zealand 2022-23 Budget Deficit NZ$9.45B, the deficit is NZ$2.5B wider than forecast.

- New Zealand Local Government Funding Agency (LGFA) raises 2023-24 bond issuance by NZ$300M to NZ$4.5B.

- Westpac bank now sees New Zealand's RBNZ cash rate at 5.75% until early 2025 [current OCR is 5.50%].

- Bank of Korea (BOK): Sept inflation was higher than projected path.

- Sri Lanka Central Bank (CBSL) cuts Key Rates by 100bps; as expected.

- Indonesia President Jokowi: Need to modernize military hardware, but wary of the limited state budget - financial press.

- Indonesia to establish tourism fund with initial target of IDR1.0T - Tourism Minister Uno.

- Malaysia PM Ibrahim: Expects subsidy spending to exceed MYR81.0B (~$17.2B) in 2023.

- Vietnam Gov't extends 30% cut in land rent to 2023 payments - press.

- Philippines Central Bank (BSP): Reiterates prepared to resume monetary tightening as necessary.

- Philippines Gov't: Uptrend in inflation was primarily due to increase in food and transport prices.

- Philippines Economic Planning Min: Closely monitoring both local and global markets in terms of price movements.

- Vietnam sees delays to gas projects from Exxon and Gazprom - draft govt document.

Conflict/Tensions

- 20 US senators send letter to Pres Biden, supporting potential normalization between Israel and Saudi Arabia, but expressing concerns about offer US security guarantees or nuclear aid to Saudi Arabia - press.

Europe

- UK OFCOM refers UK cloud market to CMA regulator investigation; Particularly concerned about the position of the market leaders Amazon and Microsoft; CMA will conclude its investigation by Apr 2025.

- Hungary's OTP sees need for national budget tweak to meet revised 2023 deficit goal - press.

-ECB’s Kazimir (Slovakia, hawk): Euro zone Core CPI confirms our expectations; Believe our latest rate hike was the last one; Dec rate hike triggered by something is not not a scenario I would like.

Energy

- Russia Pres Putin orders to consider introduction of regulated fuel oil prices during heating season in some Russian regions - Russian press.

- Turkey Energy Min Bayraktar: Confirms Iraq-Turkey oil pipeline [~500Kbpd] was ready to operate as of Wed, Oct 4th; No obstacle to shipping oil to global markets; Turkey stands ready to ship incoming oil, but that is something that depends on the Iraqi side.

Americas

- US SAG-AFTRA [Screen Actors Guild], AMPTP [Hollywood studios] will continue with talks on Fri, Oct 6th and Mon, Oct 9th - US press.

- Reportedly UAW negotiators and Ford have narrowed their differences on pay increases after a new offer earlier this week which resulted in "really active" talks; UAW talks with Stellantis also reportedly have been active in recent days - press.

- Former PIMCO Chief El-Erian: US may no longer avoid a recession; notes the impact of high oil prices and the stronger US dollar, less confident about the 2024 outlook - FT.

- Colombia Central Bank Sept Minutes: Concerned about inflationary pressures.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.01% at 440.02, FTSE +0.04% at 7,415.45, DAX -0.02% at 15,096.25, CAC-40 -0.11% at 6,988.98, IBEX-35 +0.21% at 9,122.12, FTSE MIB 0.00% at 27,436.00, SMI -0.01% at 10,755.20, S&P 500 Futures -0.36%].

Market focal points/Key themes: European indices open generally higher and advanced into the green through the early part of the session; among sectors leading the trend upwards are consumer discretionary and real estate; lagging sectors include energy and industrials; oil & gas subsector under pressure following Brent dropping below $86/bbl yesterday; On the corporate front, shares of French industrial giant Alstom trade down over 30% following FCF warning; Metro Bank shares in London also fell sharply after confirmed chatter that it is considering capital raise and asset sales; Smoove to be acquired by Pexa; focus on release of US trade data later in the day; earnings expected in the upcoming Americas session include Conagra Brands, Constellation Brands and Lamb Weston Holdings.

Equities

- Consumer discretionary: Pandora [PNDORA,DK] +9.0% (new targets).

- Consumer staples: Imperial Brands [IMB.UK] +1.5% (trading update; buyback).

- Energy: SMA Solar Technology [S92.DE] +14.5% (prelim results).

- Financials: Metro Bank [MTRO.UK] -23.0% (confirms it mulls capital raise and asset sales).

- Healthcare: MaxCyte [MXCT.UK] -25.0% (prelim results).

- Industrials: Stellantis [STLA.NL] +0.5% (UAW talks with Stellantis reportedly have been active in recent days), Alstom [ALO.FR] -36.5% (prelim H1; cuts FCF outlook sharply citing delayed orders and steep rise in inventories), Maire Tecnimont [MT.IT] +8.0% (large order), Gerresheimer AG [GXI.DE] -2.0% (earnings), Volution Group [FAN.UK] +9.5% (earnings).

Speakers

- ECB’s Kazimir (Slovakia, hawk): Eurozone Core CPI confirms our expectations; Believe our latest rate hike was the last one; Dec rate hike triggered by something is not not a scenario I would like.

- South Korea Fin Min Choo: Will take measures to stabilise FX market if needed.

- Will actively consider extending tax breaks on oil products until end-Dec.

- Japan PM Kishida: To make sure of wage rises being sustainable - comments at labour union meeting; Upcoming economic measures must create environment for small and mid-sized companies to be able to respond to labor crunch.

- South Africa Central Bank (SARB) Gov Kganyago: Want to see CPI sustainably close to 4.5% target.

- Bank of Korea Gov: High possibility interest rates will stay higher for longer.

Currencies/fixed income

- USD fell overnight but reversed to session highs during London session. USD/JPY continues to sit below 150 at 149 handle, traders still speculating on the move seen 2 days ago and any future intervention. EUR/USD is trading sideways at 1.051. GBP/USD is weak, not helped by miss in construction PMI reading, last seen at 1.213.

Economic data

- (KR) South Korea Sept CPI M/M: 0.6% v0.4%e; Y/Y: 3.7% v 3.5%e; CPI Core Y/Y: 3.3% v 3.3%e.

- (NZ) New Zealand Sept ANZ Commodity Price M/M: +1.3% v -2.9% prior [first rise since May].

- (AU) Australia Aug Trade Balance (A$): 9.6B v 8.7Be; Exports M/M: +4.0% v -2.0% prior; Imports M/M: 0% v +3.0% prior.

- (HK) Hong Kong Sept PMI (whole economy): 49.6 v 49.8 prior (3rd straight contraction).

- (PH) Philippines Sept CPI M/M: 1.1% v 0.4%e; Y/Y: 6.1% v 5.3%e; Core CPI Y/Y: 5.9% v 6.1% prior.

- (TH) Thailand Sept CPI M/M: -0.4% v -0.2%e; Y/Y: 0.3% v 0.6%e; CPI Core Y/Y: 0.6% v 0.7%e.

- (IN) India Sept PMI Services: 61.0 v 60.1 prior (26th straight expansion); PMI Composite: 61.0 v 60.9 prior.

- (SG) Singapore Aug Retail Sales M/M: 1.7% v 0.8% prior; Y/Y: 4.0% v 0.9%e; Retail Sales (ex-auto) Y/Y: 3.7% v 0.6% prior.

- (DE) Germany Aug Trade Balance: €16.6B v €15.0Be; Exports M/M: -1.2% v -0.6%e; Imports M/M: -0.4% v 0.5%e.

- (FR) France Aug Industrial Production M/M: -0.3% v -0.4%e; Y/Y: -0.5% v-0.5%e; Manufacturing Production M/M: -0.4% v +0.4% prior; Y/Y: -1.1% v +2.6% prior.

- (ES) Spain Aug Industrial Production M/M: -0.8% v -0.3%e; Y/Y: -3.4% v -1.8%e; Industrial Output NSA (unadj) Y/Y: -3.6% v -2.4%e.

- (DE) Germany Sept Construction PMI: 39.3 v 41.5 prior (lowest since Apr 2020).

- (UK) Sept New Car Registrations Y/Y: 21.0% v 24.4% prior.

- (TW) Taiwan Sept CPI Y/Y: 2.9% v 2.5%e; CPI Core Y/Y: 2.5% v 2.6% prior; PPI Y/Y: 0.0% v -0.1% prior.

- (UK) Sept Construction PMI: 45.0 v 50.0e (below all analysts' estimates, lowest since May 2020).

Fixed income issuance

-New Zealand sells total NZ$500M vs. NZ$500M indicated in 2028, 2033 and 2041 bonds.

-Thailand Central Bank sells THB30B in 6-month bills; Avg Yield: 2.53478%; bid-to-cover: 1.81x.

-Japan sells ¥4.0T v ¥4.0T indicated in 6-Month Bills; Avg Yield: -0.1674% v -0.1618% prior, bid-to-cover: 3.64x v 3.56x prior.

-Japan sells ¥900B v ¥900B indicated in 30-year JGB bonds; Avg Yield: 1.6910% v 1.6400% prior; Bid-to-cover: 3.06x v 3.46x prior.

-Malaysia sells 2024 Bonds; Avge yield 4.487%; bid-to-cover 1.77x.

-Spain Debt Agency (Tesoro) sells total €6.44B v €5.5-6.5B indicated in 2029, 2033 and 2042 bonds.

-France Debt Agency (AFT) sells total €9.942B vs. €9.0-10.5B indicated range in 2033, 2043 and 2054 bonds.

- Sweden sells total SEK500M vs. SEK500M indicated in I/L 2030 and 2039 Bonds.

Looking ahead

- 05:30 (HU) Hungary Debt Agency (AKK) to sell HUF30B in 2026, 2028 and 2032 bonds (3 tranches).

- 05:45 (UK) BOE’s Broadbent.

- 05:45 (EU) ECB’s Lane.

- 07:00 (ZA) South Africa Aug Electricity Consumption Y/Y: No est v -3.1% prior; Electricity Production Y/Y: No est v -3.4% prior.

- 07:30 (US) Sept Challenger Job Cuts: No est v 75.2K prior; Y/Y: No est v 266.9% prior.

- 08:00 (CL) Chile Aug Nominal Wage Y/Y: No est v 9.4% prior.

- 08:00 (MX) Mexico Sept Consumer Confidence: 46.8e v 46.7 prior.

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

- 08:30 (US) Initial Jobless Claims: +210Ke v +204K prior; Continuing Claims: 1.671Me v 1.670M prior.

- 08:30 (US) Aug Trade Balance: -$59.8Be v -$65.0B prior.

- 08:30 (CA) Canada Aug Int’l Merchandise Trade (CAD): -1.41Be v -1.0B prior.

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

- 09:00 (EU) ECB’s Nagel.

- 09:00 (US) Fed's Mester.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 29th: No est v $576.0B prior.

- 09:45 (EU) ECB’s De Guindos.

- 10:00 (CA) Canada Sept Ivey Purchasing Managers Index (seasonally adj): No est v 53.5 prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 10:30 (EU) ECB’s Villeroy.

- 10:40 (US) Fed's Kashkari.

- 11:00 (EU) ECB’s Nagel.

- 11:30 (US) Fed's Barkin.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (US) Fed's Daly.

- 12:15 (US) Fed's Barr.

- 15:00 (AR) Argentina Aug Industrial Production Y/Y: No est v -3.9% prior; Construction Activity Y/Y: No est v -5.8% prior.

- 17:00 (KR) South Korea Sept Foreign Reserves: $B v $418.3B prior.

- 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to cut Reference Rate by 25bps to 7.25%.

- 19:30 (JP) Japan Aug Household Spending Y/Y: -3.9%e v -5.0% prior.

- 19:30 (JP) Japan Aug Labor Cash Earnings Y/Y: +1.5%e v 1.3% prior; Real Cash Earnings Y/Y: -2.1%e v -2.5% prior.

- 21:00 (PH) Philippines Aug Unemployment Rate: No est v 4.8% prior.

- 23:00 (ID) Indonesia Sept Foreign Reserves: No est v $137.1B prior.

- 23:30 (JP) Japan to sell 3-Month Bills.