Sale of Evergrande's property management unit failed

Market movers today

Today, we keep an eye on euro area consumer confidence data for any signs that rising energy prices are denting consumers' willingness to spend in Q4.

The Central Bank of Turkey will announce their rate decision at 13:00 CET. We expect a 100bp rate cut to 17.0% in line with market consensus. Turkish lira has fallen to record lows after President Erdogan's move last week to fire three top central bank officials who have been opposing rate cuts in the context of rising inflation.

In the US, we pay attention to weekly jobless claims, Philly Fed manufacturing index and existing home sales for any signs that the economy could be losing steam.

SCB unemployment data will be released from Sweden but we think it should be ignored due to serious distortions. Data from PES are of better quality.

The 60 second overview

Evergrande: The deal for Evergrande to sell a 51% stake of its property management unit to Hopson collapsed overnight, and trading in Evergrande's shares resumed after a 17-day halt with a double-digit decline. Broader Chinese equity markets were mixed. The proposed USD 2.6bn deal would have brought some short-term relief to Evergrande ahead of the end of the grace period for several missed coupon payments. While Evergrande could officially default as soon as next Saturday, we think that Beijing is soon likely to take more concrete action to support the broader credit markets, and as such we might be near peak stress for now, read our take in Strategy - China closer to 'peak stress', 15 October.

ECB: In a surprise move German Bundesbank President Jens Weidmann resigned his post after 10 years at the helm of the German central bank. Citing personal reasons, Weidmann will leave office by the end of this year, but in his parting letter to employees he also stressed that ECB should not neglect rising inflation concerns and warned about threats to central bank independence from too close ties to fiscal policies or markets. Investors will now start speculating about Weidmann's successor, who is to be appointed by the German government. As possible candidates current ECB board member Isabel Schnabel, Bundesbank Vice-President Claudia Buch or Finance Ministry Chief Economist Jakob von Weiszäcker have been mentioned, all of which would likely stand for more moderate monetary policy views than Weidmann's hawkish line.

Fedspeak: Cleveland Fed's Mester (non-voter) stuck with the dovish narrative yesterday, expecting inflationary pressures to moderate towards next year. Quarles (voter) also saw rate hikes as premature, given that demand growth is declining and supply challenges are likely to eventually prove transitory. Despite 5y5y inflation expectations remaining elevated near 2.6%, growth prospects moderating and market continuing to price in the first Fed hike by September next year, risk sentiment has remained positive with equities and reflation-sensitive currencies continuing to perform relatively well. Read more about our rates view in Yield Outlook: Central banks becoming increasingly hawkish, 20 October.

Equities: Wednesday saw relatively minor moves, but enough to take S&P500 just shy of a fresh all-time high. Defensives generally outperformed cyclicals, with real estate and utilities among the best performing sectors. S&P500 0.4%, Dow 0.4%, Nasdaq -0.1% and Russell 2000 0.6%. Implied volatility has drifted lower continuously this week, with VIX now at year-lows. Asian markets have dipped into negative this morning though. Similarly, US futures point to an opening in red.

FI: There was a modest relief in the European bond markets as bond yields declined and the market began pricing out the early ECB hike as reflected in the decline of the 1y1y Eonia forward rate. The curves steepened modestly from the front end as the 2Y German yield fell 3bp while 10Y fell 2bp- the US yield was range bound trading around the 1.65%-level.

FX: Reflation-sensitive currencies continue to perform. In the Scandies this is most prominent with EUR/NOK having broken below the 9.70-threshold late in the US session yesterday. EUR/SEK remains close to the 10.00-threshold while EUR/USD hovers around close to 1.1640. EUR/GBP has hit new post COVID-19 lows.

Credit: CDS indices tightened further yesterday, with iTraxx Xover and Main closing 1bp and 0.2bp tighter, respectively. HY bonds widened 2.5bp and IG was unchanged.