Putin ups rhetoric on Ukraine and announces partial mobilization of troops – Focus on FOMC

Notes/Observations

- Risk aversion briefly switched on following Russian Pres Putin's escalatory remarks about partial military mobilization and nuclear threats to the West. Oil moved substantially higher on the back of his speech with US futures dipping and USD taking on a bid, but futures have since reversed losses back to flat.

- Both Russia Pres Putin and Russia Defense Min Shoigu in their speeches still used the term 'special military operation' and did not openly declare a war to Ukraine or announced a martial law or wartime which would imply closed borders.

- UK Govt unveiled a cap on electricity and gas prices for businesses at £211/Mwh and £75/Mwh respectively. Cap to run between Oct 1st 22 and Mar 31st 23 with 3-month reviewal of scheme. Discounts to apply to contracts signed since Apr 1st this year.

- Geopolitical themes to step aside ahead of FOMC rate decision today where expectations are for 75bps hike with Central Banks globally front-loading their rate decisions. CME futures see odds at 84% 75bps and 16% 100bps.

- Fortum officially confirmed full divestiture of Uniper stake to the German State for €0.5B. Agreement replaces initial stabilization agreement signed in July. Uniper [UN01.DE] >30% lower while Fortum [FORTUM.FI] >15% higher..

- Asia closed lower with ASX200 underperforming at -1.6%. EU indices are mixed between -0.7% and +0.7%, with bond yields mostly lower. US futures are flat. Gold +0.5%, DXY +0.5%; Commodity: Brent +1.6%, WTI +1.7%, UK Nat Gas +9.4%; Crypto: BTC -2.2%, ETH -2.1%.

Asia

- RBA Dep Gov Bullock confirmed of a substantial accounting loss for 2021-2022 on holdings due to yield increases of ~A$40B- "Review of the Bond Purchase Program".

- BOJ announced ¥250B in special bond buying operations (unscheduled) in 5-10-year JGBs and 10-25-year JGBs.

Ukraine conflict

- US Senior State Dept Official: US made it clear of increased consequences if Russia tries pans to annex parts of Ukraine.

- Nat Sec Adviser Sullivan stated that was aware of reports that Pres Putin might be preparing to enact 'mobilization measures'; This action reflected Russia's struggle in Ukraine.

Europe

- ECB chief Lagarde reiterated stance that inflation was much higher and persistent than anticipated, ECB has front-loaded rate increases and expected to raise rate further over next meetings.

- UK PM Truss to announce plans to cut stamp duties in order to stimulate economic growth as part of mini-budget release this week.

- UK PM Truss stated that would have to look at all tax rates and go beyond that of reversing the rise in National Insurance and cancelling planned increases in corporation tax, with potential cuts to income tax and VAT to promote economic growth.

- Germany Fin Min Lindner stated that only an unforeseeable shock would provide an exception to the debt brake.

Americas

Bank of Canada (BOC) Dep Gov Beaudry stated that the Aug inflation was 'still too high', although data showed it was moving in the right direction.

Energy

- Weekly API Crude Oil Inventories: +1.0M v +6.0M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.28% at 404.58, FTSE +0.51% at 7,229.30, DAX -0.22% at 12,642.88, CAC-40 -0.01% at 5,978.76, IBEX-35 +0.11% at 7,881.71, FTSE MIB +0.73% at 21,933.00, SMI -0.58% at 10,415.30, S&P 500 Futures +0.09%].

Market Focal Points/Key Themes: European indices open lower across the board and remained under pressure through the early part of the session; better performing sectors include energy and real estate; sectors among those leading to the downside are consumer discretionary and technology; UK real estate sector supported on rumors of a stamp duty cut; oil & gas subsector supported on higher crude prices following Russian announcement of partial mobilization; Fortum confirms to divest Uniper to German government; Schneider Electric confirms acquisition of Aveva; focus on upcoming FOMC meeting later in the day; corporate events expected during the upcoming US session include earnings from General Mills, Lennar, KB Homes and Salesforce’s investor day.

Equities

- Consumer discretionary: Games Workshop [GAW.UK] -12% (trading update).

- Energy: BP [BP.UK] +3%, Shell [SHEL.UK] +3% (oil names are up following Putin's declaration of partial mobilization), Fortum [FORTUM.FI] +14%, Uniper [UN01.DE] -21% (German govt nationalization plan on Uniper).

- Financials: Crest Nicholson [CRST.UK] +2.5% (UK plan to cap business energy prices for 6 months), UniCredit [UCG.IT] +2% (buyback).

- Industrials: Rheinmetall [RHM.DE] +8.5% (defense names are up following Putin's declaration of partial mobilization), Taylor Wimpey [TW.UK] +3.5% (UK plan to cap business energy prices for 6 months).

- Technology: Aveva Group [AVV.UK] +2% (to be acquired).

Speakers

- German Econ Min Habeck confirmed govt to take over 99% of Uniper.

- UK Business Sec Rees-Mogg provided an announcement on energy packages with business electricity prices to be capped at £211 per MwH and business gas prices to be capped at £75 per MwH. Discount to apply to contracts signed since April 1st this year.

- Russia President Putin reiterated that the aim was to liberate whole territory of Donbas and the operation goals remained the same; Talking about defending territories and Russia and take necessary steps to defend its sovereignty. Russia to support proposed referendums. Added that the West had engaged in a nuclear blackmail. Told - Russia President Putin announced partial military mobilization.

- Russian Defense Min Shoigu stated that was fighting the collective West in Ukraine.

- Russia Federation Council Vice speaker stated that after the referendums, an attack on the liberated territories would become an attack on Russia with all the consequences.

- Ukraine advisor and negotiator Podolyak stated that Putin’s speech was rhetoric and meant to shift blame for the country's worsening economy onto the West.

- Taiwan Central Bank (CBC) to allow insurers to remit income to slow depreciation of the TWD currency.

- Thailand Fin Min Arkhom reiterated stance that central bank was closely monitoring the THB currency (Baht). To ensure that Baht currency weakness would not affect the economy. MOF and BOT to discuss factors and measures on FX.

Currencies/fixed income

- USD was firmer in the session ahead of the FOMC interest rate decision and at fresh 20-year highs against a basket of currencies.

- Greenback had been aided by the aggressive Fed stance with todays on consensus calling for another 75 bps hike with risk of 100 bps still lingering given the solid US inflation readings. Dealers noted that hawkish hike today by the Fed would keep front-end rates supported and a very inverted yield curve should continue to endorse the dollar's good momentum. The USD received an additional boost from safe-haven flows after Russia President Putin upped his rhetoric on the Ukraine conflict and announced a partial military mobilization.

- GBP/USD approached the lower end of the 1.13 handle for its lowest level since Mar 1985 on prospects of a large interest-rate rise from the U.S. Federal Reserve later Wednesday and concerns about upcoming fiscal spending announcements by new PM Truss.

- EUR/USD tested below the 0.99 level and within earshot of fresh multi-year lows.

Economic data

- (NL) Netherlands Sept Consumer Confidence: -59 v -54 prior.

- (NL) Netherlands July Consumer Spending Y/Y6.2 v 5.1% prior.

- (UK) Aug Public Finances (PSNCR): +£5.3B v -£5.1B prior; PSNB (Ex-Banking Groups): £11.8B v £8.0Be; Net Borrowing: £11.1B v £8.1Be; Central Government NCR: +£4.9B v -£1.7B prior.

- (SE) Sweden Aug Unemployment Rate: 6.6% v 6.4% prior; Unemployment Rate (seasonally adj): 6.9% v 7.0%e; Trend Unemployment Rate: 7.2% v 7.3% prior.

- (ES) Spain July House transactions Y/Y: 8.0% v 18.8% prior.

- (CH) Swiss Aug M3 Money Supply Y/Y: -0.1% v -0.3% prior.

- (ZA) South Africa Aug CPI M/M: 0.2% v 0.1%e; Y/Y: 7.6% v 7.6%e (4th month above target range but moves off recent 13-year highs).

- (ZA) South Africa Aug CPI Core M/M: 0.2% v 0.3%; Y/Y: 4.4% v 4.6%e.

- (PL) Poland Aug Real Retail Sales M/M: 1.0% v 0.0%e; Y/Y: 4.2% v 3.3%e; Retail Sales Y/Y: 21.5% v 20.0%e.

- (PL) Poland Sept Consumer Confidence: -44.2 v -45.0e.

- (PL) Poland Aug Construction Output Y/Y: 6.1% v 4.1%e.

Fixed income issuance

- (AT) Austria Debt Agency (AFFA) opened its book to sell July 2026 RAGB bond via syndicate; guidance seen -58bps to mid-swaps.

- (IN) India sold total INR210B vs. INR210B indicated in 3-month, 6-month and 12-month bills.

- (VN) Vietnam sold total VND5.07T in bonds.

- (DK) Denmark sold total DKK200M in 3-month and 6-month Bills.

- (SE) Sweden sold SEK2.0B vs. SEK2.0B indicated in 0.75% May 2028 bond; Avg Yield: 2.1880% v 0.2019% prior; Bid-to-cover: 5.33x v 3.76x prior.

Looking ahead

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

- 05:30 (DE) Germany to sell €4.0B in 1.7% Aug 2032 Bunds.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €0.5-0.75B in 6-month and 12-month bills.

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

- 06:00 (UK) Sept CBI Industrial Trends Total Orders: -13e v -7 prior; Selling Prices: 52e v 57 prior.

- 06:00 (IL) Israel July Manufacturing Production M/M: No est v 1.2% prior.

- 06:00 (EU) EU Commission to sell €2.0B in 3-month and 6-month bills.

- 06:00 (RU) Russia OFZ Bond auction (if any).

- 06:45 (US) Daily Libor Fixing.

- 07:00 (US) MBA Mortgage Applications w/e Sept 16th: No est v -1.2% prior.

- 07:00 (MX) Mexico July Retail Sales M/M: +0.3%e v -0.3% prior; Y/Y: 4.8%e v 4.0% prior.

- 07:00 (MX) Mexico Q2 Aggregate Supply and Demand: 3.7%e v 2.9% prior.

- 07:00 (UK) Weekly PM Question time in House.

- 07:00 (CZ) Czech Republic to sell 2028, 2030 and 2035 Bonds.

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

- 10:00 (US) Aug Existing Home Sales: 4.70Me v 4.81M prior.

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

- 12:00 (RU) Russia Aug PPI M/M: -1.0%e v -2.2% prior; Y/Y: 4.4%e v 6.9% prior (revised from 6.1%).

- 12:00 (RU) Russia Q3 Consumer Confidence: No est v -31 prior.

- 14:00 (US) FOMC Interest Rate Decision: Expected to raise Target Range by 75bps to 3.00-3.25%.

- 14:30 (US) Fed Chair Powell post rate decision press conference.

- 15:00 (AR) Argentina Aug Trade Balance: No est v -$0.4B prior.

- (AR) Argentina Aug Leading Indicator: No est v -2.4% prior.

- (AR) Argentina Aug Budget Balance (ARS): No est v 2.0B prior.

- (CO) Colombia Aug Retail Confidence: No est v 30.7 prior; Industrial Confidence: 9.7 prior.

- 17:30 (BZ) Brazil Central Bank (BCB) Interest Rate Decision: Expected to leave Selic Target Rate unchanged at 13.75%.

- 18:00 (NL) Netherlands Aug House Price Index M/M: No est v 0.5% prior; Y/Y: No est v 14.5% prior.

- 18:45 (NZ) New Zealand Aug Trade Balance (NZ$): No est v -1.1B prior; Exports: No est v 6.7B prior; Imports: No est v 7.8B prior.

- 19:00 (NZ) RBNZ member Hawkesby.

- 21:00 (CN) China Aug Swift Global Payments (CNY): No est v 2.20% prior.

- 23:30 (TH) Thailand Aug Customs Trade Balance: -$3.0Be v -$3.7B prior; Exports Y/Y: 7.7%e v 4.3% prior; Imports Y/Y: 18.0%e v 23.9% prior.

09/21- 09/22 (JP) Bank of Japan (BOJ) Interest Rate Decision: Expected to leave Interest Rate on Excess Reserves unchanged at -0.10% and 10-year JGB yield target at 0.00%.