Safe-haven flows pick up as Mid-East tensions continue to simmer

Notes/observations

- De-stabilizing Middle East situation triggers volatility in FX and fixed income market, as fears of widening conflict are realized with Israel now fighting Hezbollah from Lebanon in the north. Events have unfolded despite US warnings from US Pres Biden over other countries trying to gain advantage and US considering sending a 2nd aircraft carrier.

- US treasury yields fall markedly on safe-haven flows, with 10-year at 4.57%, down ~10bps.

- Overnight, Fed’s Daly and Bostic (both non-voters) indicated that the Fed policy rate may not need to be tightened further. Bowman (hawk) countered this morning by suggesting rates may need to rise further. US Sept PPI at 08:30 ET, unusually being released ahead of CPI.

- On corporate front, Samsung Electronics shares closed higher following quarterly pre-announcement; Shares of LVMH which at almost all divisions missed consensus expectations weigh on European luxury retail sector.

- Asia closed higher with KOSPI out-performing at +2.0%. EU indices are -0.6% to +2.5%. US futures are +0.2%. Gold +0.6%, DXY -0.1%; Commodity: Brent -0.3%, WTI -0.4%, TTF -4.5%; Crypto: BTC -2.0%, ETH -1.6%.

Asia

- RBA Asst Gov Kent (Financial Markets) reiterated Board stance that some further policy tightening mighty be required. Rate hikes were cooling price though lags remained.

Mid-East

- US might send a 2nd aircraft carrier towards Israel.

- President Biden pledged to restock Israel’s Iron Dome missile system.

- US Sec of State Blinken to visit Israel to meet with officials in show of support after Hamas attack.

Europe

- More reports circulated that Germany Economy Ministry said to plan to cut 2023 GDP forecast from +0.4% to -0.4%; Govt to have €5.0B extra budget leeway in 202.

Americas

- Fed's Kashkari (voter) stated that inflation was headed down; Possible that higher bond yields could leave the Fed with 'less to do'.

- Fed's Daly (non-voter): Maybe the Fed doesn't need to do as much as if the market tightened.

- WSJ Timiraos: Higher bond yields likely to extend Fed rate pause.

- House Speaker candidate Jordan pitches a 1% cut to the Nov 17th Stopgap funding (** Reminder on Oct 1st: Pres Biden signed into law the 45-day stopgap funding measure until Nov 17th).

- Atlanta Fed GDPNow raised its Q3 GDP forecast from 4.9% to 5.1%.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.11% at 452.98, FTSE +0.15% at 7,639.38, DAX -0.09% at 15,409.65, CAC-40 -0.56% at 7,122.26, IBEX-35 +0.07% at 9,359.03, FTSE MIB +0.22% at 28,381.00, SMI +0.36% at 11,041.20, S&P 500 Futures +0.16%].

Market Focal Points/Key Themes: European indices open lower across the board, but later turned around to trade mixed; sectors holding on to gains include energy and utilities; sectors leading the way lower include consumer discretionary and materials; luxury subsector under pressure following disappointing results from LVMH yesterday; reportedly Apollo plans to raise bid for Applus; focus on release of FOMC minutes later in the day; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: LVMH [MC.FR] -6.5%, Burberry [BRBY.UK] -3.5%, Richemont [CFR.CH] -4.0%, Rémy Cointreau [RCO.FR] -0.5% (LVMH Q3 Organic Rev at all divisions miss consensus expectations, except for selective retailing - post close), PageGroup [PAGE.UK] -3.5% (Q3 trading update - cuts FY23 outlook), Dustin Group [DUST.SE] -18.5% (earnings; rights issue), FirstGroup [FGP.UK] +5.0% (trading update - ahead of expectations), Safestyle UK [SFE.UK] +23.5% (confirms exploring sale), XXL ASA [XXL.NO] +51.0% (sells stake).

- Healthcare: Novo Nordisk [NOVOB.DK] +3.5%, Fresenius Medical Care [FME.DE] -17.5% (rival Novo Nordisk stops Ozempic kidney trial early due to signs of success), GSK [GSK.UK] +2.5% (reaches settlement with Cantlay/Harper case).

- Industrials: Travis Perkins [TPK.UK] -8.5% (Q3 trading update - cuts FY23 outlook).

- Technology: Siltronic [WAF.DE] +6.0% (analyst action - raised to Buy at CitiGroup).

- Real Estate: Leg Immobilien [LEG.DE] -1.5% (analyst action - cut to sell at Goldman).

Speakers

- ECB’s Knot (hawk, Netherlands) noted that policy was in a good place now. Reiterated view that inflation was still too high; upward inflation pressures now driven by internal factors. Prepared to adjust rates further id disinflation stall.

- Spain Econ Min Calvino noted that a ECB rate pause would be quite wise.

- Israel Military stated that it had received anti-tank fire at northern position from Lebanon military post; Instructed to prepare for imminent "Wall Guard 2" scenario* (attack on Gaza).

- South Africa Central Bank (SARB) Gov Kganyago noted that MPC policy decisions had been appropriate.

- BOK Gov Rhee reiterated that its primary policy focus remained on inflation; Saw inflation slowing to low 3% range by year-end.

- Treasury Sec Yellen reiterated that the oil price cap on Russia had significantly reduced its revenues over the past 10 months. US backed the EU windfall tax on frozen Russian assets. US stood firmly behind Israel. Saw a soft landing for the US economy and monitoring potential economic impacts of crisis. Not seeing attacks on Israel as major impact on economy. To remain vigilant on Iran sanctions. Had not in any way relaxed sanctions on Iranian oil.

- Fed’s Bowman (hawk) reiterated that US policy rate mighty need to rise further and stay high to curb inflation.

Currencies/fixed income

- USD was holding steady by mid-session. The greenback overcame a bit of softness against the major pairs as some safe-haven flows re-emerged. Focus turns to the upcoming FOMC minutes later today. USD rally has hit some headwinds after some Fed official noted that higher bond yields could extend its recent pause trend in the tightening cycle.

- EUR/USD managed to stay above the 1.06 level as an ECB survey showed an uptick in inflationary expectations

- US treasury yields were lower in the session on safe-haven flows, with 10-year at 4.57%, down ~10bps. Israel confirmed it was striking inside Lebanon amid Hezbollah attack.

Economic data

- (DE) Germany Sept Final CPI M/M: 0.3% v 0.3 % prelim; Y/Y: 4.5% v 4.5% prelim.

- (DE) Germany Sept Final CPI Harmonized M/M: 0.2% v 0.2% prelim; Y/Y: 4.3% v 4.3% prelim.

- (JP) Japan Sept Preliminary Machine Tool Orders Y/Y: -11.2% v -17.6% prior.

- (TR) Turkey Aug Current Account Balance: -$0.6B v -$0.6Be.

- (TR) Turkey Aug Retail Sales Y/Y: 17.2% v 31.6% prior.

- (TW) Taiwan Sept Trade Balance: $10.2B v $8.4Be; Exports Y/Y: +3.4% v -2.5%e; Imports Y/Y: -12.2% v -13.8%e.

- (EU) ECB Aug 1-year CPI Expectations: 3.5% v 3.4% prior; 3-year CPI Expectations: 2.5% v 2.5%e.

Fixed income issuance

- (IN) India sold total INR240B vs. INR240B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK1.8B in 3-month and 6-month bills.

- (UK) DMO sold £3.75B in new 4.625% Jan 2034 Gilts; Avg Yield: 4.444% v 4.402% prior; bid-to-cover: 3.12x v 2.38x prior; Tail: 0.5bps vs. 1.2bps prior.

- (SE) Sweden sold total SEK vs. SEK2.5B indicated in 1.75% Nov 2033 bonds; Avg Yield: 2.894% v 2.940% prior, bid-to-cover: 3.08x v 2.68x prior.

- (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 3.00% Aug 2033 bonds; Avg Yield: 3.98% v 3.92% prior; bid-to-cover: 3.21x v 2.58x prior.

- (IT) Italy Debt Agency (Tesoro) sold €6.0B vs. €6.0B indicated in 12-month Bills; Avg Yield: 3.942% v 3.873% prior; Bid-to-cover: 1.45x v 1.48x prior.

Looking ahead

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

- 05:30 (DE) Germany to sell combined €2.5B in 2048 and 2052 bunds.

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

- 06:00 (RU) Russia to sell OFZ Bonds (2 tranches).

- 06:00 (SE) Sweden Central Bank (Riksbank) Dep Gov Bunge.

- 07:00 (US) MBA Mortgage Applications w/e Oct 6th: No est v -6.0% prior.

- 07:00 (EU) ECB’s De Cos (dove, Spain).

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

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

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

- 08:00 (BR) Brazil Sept IBGE Inflation IPCA M/M: 0.3%e v 0.2% prior; Y/Y: 5.3%e v 4.6% prior.

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

- 08:30 (US) Sept PPI Final Demand M/M: 0.3%e v 0.7% prior; Y/Y: 1.6%e v 1.6% prior.

- 08:30 (US) Sept PPI (ex-food/energy) M/M: 0.2%e v 0.2% prior; Y/Y: 2.3%e v 2.2% prior.

- 08:30 (US) Sept PPI (ex-food/energy/trade) M/M: 0.2%e v 0.3% prior; Y/Y: 2.9%e v 3.0% prior.

- 08:30 (CA) Canada Aug Building Permits M/M: +1.2%e v -1.5% prior.

- 12:00 (RU) Russia Sept CPI M/M: 0.8%e v 0.3% prior; Y/Y: 5.9%e v 5.2% prior.

- 12:00 (RU) Russia Sept CPI Core M/M: No est v 0.8% prior; Y/Y: No est v 4.0% prior.

- 12:00 (CA) Canada to sell 5-year notes.

- 12:15 (US) Fed’s Bostic (non-voter, dove).

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

- 14:00 (US) FOMC Sept Minutes.

- 15:00 (AR) Argentina Aug Capacity Utilization: No est v 65.0% prior.

- 16:00 (NZ) New Zealand Sept House Sales Y/Y: No est v 9.2% prior.

- 16:30 (US) Weekly API Oil Inventories.

- 16:30 (US) Fed’s Collins (non-voter).

- 17:45 (NZ) New Zealand Sept Food Prices M/M: No est v 0.5% prior.

- 18:15 (AU) Australia Sept CBA Household Spending M/M: No est v 0.0% prior; Y/Y: No est v 1.3% prior.

- 19:01 (UK) Sept RICS House Price Balance: -60%e v -68% prior.

- 19:50 (JP) Japan Sept PPI (CPIG) M/M: 0.1%e v 0.3% prior; Y/Y: 2.4%e v 3.2% prior.

- 19:50 (JP) Japan Aug Core Machine Orders M/M: +0.6%e v -1.1% prior; Y/Y: -6.7%e v -13.0% prior.

- 19:50 (JP) Japan Sept Bank Lending Y/Y: No est v 3.1% prior; Bank Lending (ex-trusts) Y/Y: No est v 3.4% prior.

- 20:00 (AU) Australia Oct Consumer Inflation Expectations: No est v 4.6% prior.

- 21:00 (JP) BOJ’s Noguchi.

- 22:00 (JP) Sept Tokyo Avg Office Vacancies: No est v 6.4% prior.

- 22:00 (NZ) New Zealand to sell combined NZ$500M in 2030, 2032 and 2051 bonds.

- 23:00 (KR) South Korea Sept Total Bank Lending to Household (KRW): No est v 1075.0T prior.