Some risk composure reasserted

EU Mid-Market Update: Some risk composure reasserted; market still ponder whether Evergrande is China’s ‘Lehman Moment’???

Notes/Observations

- Riksbank steered clear of signaling any post-pandemic tightening.

- Indonesia keep key rate at record low to continue to support economy after the recent Covid outbreak.

- Number of different clouds of concern and risk factors over the past few sessions (impending collapse of the Chinese real estate giant Evergrande, a rising battle over US self-imposed Federal debt ceiling; uncertainty over Fed's signaling in new forecasts).

- Some calm returning to market on hopes of a road out of the Evergrande corporate crisis (aka having authorities to step in to conduct a managed restructuring of the company's debt to prevent disorderly debt-recovery efforts).

Asia

- RBA Sept Minutes reiterated its forward guidance that that conditions to raise rates would not be met before 2024 at the earliest. considerable uncertainty about the timing and pace of the recovery, which was likely to be slower than experienced earlier in 2021.

- RBNZ Assistant Gov Hawkesby stated that did not regret to reduce stimulus back in Aug. MPs noted more confidence in meeting goals, given uncertainty central banks move in 25bps increments.

- Evergrande Chairman noted he was confident the firm would walk out of its darkest moment and deliver property projects, Must fulfil responsibilities to property buyers, investors , partners and financial institutions.

- S&P stated it did not expect China Govt to provide support for Evergrande. Believed China banking sector could digest Evergrande default with no significant disruption but would be mindful of potential knock on effects.

- S&P downgraded another Chinese property developer (Sinic Holdings).

Coronavirus

- White House Covid adviser Zients confirmed US to reopen travel to fully vaccinated foreign nationals, CDC to determine what would be deemed fully vaccinated.

Europe

- ECB's Villeroy (France): No doubt that inflation rate will fall below 2% by 2023 but ECB would need to keep policy accommodative.

- ECB's Kazaks (Latvia) stated that Inflation rise is hump shaped and transitory.

- Business Min Kwarteng and Regulator OFGEM joint statement noted that If an energy supplier failed were committed that consumers would face least amount of disruption as possible. Central to any next steps was our clear and agreed position that energy price cap would remain in place.

- UK PM Johnson stated while en route to US that would prefer a great free trade agreement (FTA) over a quick trade deal.

Americas

- House Speaker Pelosi and Sen. Schumer (D-NY) confirmed continuing resolution to deal with debt limit; Seeking debt limit suspension through Dec 2022.

- GOP Senate Minority Leader McConnell reiterated stance that Democrats would not get GOP help on debt limit.

- House Speaker Pelosi might need votes from the Republicans if she hoped to pass the infrastructure Bill by next Monday (Sept 27th).

- Canada PM Trudeau projected to win 3rd term; Liberal party to form Govt (minority).

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 -1.67% at 454.14, FTSE -1.27% at 6,875.05, DAX -1.96% at 15,186.95, CAC-40 -1.91% at 6,444.91, IBEX-35 -1.84% at 8,599.50, FTSE MIB -2.07% at 25,178.00, SMI -1.40% at 11,768.70, S&P 500 Futures -1.08%].

Market focal points/Key themes: European indices open higher across the board and pushed higher as the session progressed; sectors leading towards the upside include financials; industrials and materials among the underperforming sectors; Universal Music debuts on market; National Express in talks to take over Stagecoach; Shell to sell it's Permian assets to ConocoPhilips; earnings expected in the upcoming US session include Adobe, AutoZone and FedEx.

Equities

- Consumer discretionary: Universal Music Group [UMG.NL] +40% (1st day of trading), Vivendi [VIV.FR] -14% (distribution related to UMG's IPO), International Consolidated Airlines Group [IAG.UK] +7% (EasyJet CEO comments).

- Consumer staples: National Express Group [NEX.UK] +4% (merger talks).

- Energy: Royal Dutch Shell [RDSA.UK] +4% (divestment).

- Industrials: Stagecoach [SGC.UK] +17% (confirms merger talks with National Express), Kingfisher [KGF.UK] -5% (earnings).

Speakers

- ECB’s De Guindos (Spain reiterated view that EU Q3 GDP growth to be strong. Saw CPI possibly peaking between 3.4-3.5% in Nov. Needed to remain vigilant for upside surprises on inflation but saw no indications that wages were on the rise.

- ECB's Stournaras (Greece): ECB may need to recalibrate APP. Expect ECB to buy Greek debt in QE when PEPP program ends. Council has accepted that inflation has an upside risk.

- Sweden Central Bank (Riksbank) Polist Statement reiterated its forward guidance that Repo rate expected to remain at zero for entire forecast period, at least until Q3 2024. To continue purchasing securities in Q4, in line with earlier plan; Riksbank holdings would be more or less unchanged in 2022. Announced it would cose lending facilities launched in pandemic.

- Sweden Central Bank (Riksbank) Gov Ingves post rate decision press conference noted that the uptick in inflation was welcomed but move seen as temporary.

- Russia Central Bank 1st Dep Gov Shvetsov: To maintain CPI target close to 4.0% in 2022.

- Czech Central Bank's Holub (chief economist) stated that was likely to support a 50bps hike at Sept 30's meeting. Monetary tightening expected to continue into 2022 at a moderate pace.

- Indonesia Central Bank Policy Statement reiterated stance that decision to keep policy steady in-line with need to keep IDR currency (Rupiah) steady amid low inflation outlook and support growth. Policy stance remains accommodative.

- Indonesia Central Bank (BI) Gov Warjiyo pre-rate decision comment saw global 2021 GDP growth at 5.8% and aided by trade and commodities. Indonesia trade surplus to help the current account balance. Reiterated stance to stabilize the IDR currency (rupiah) to be in-line with fundamental.

- OPEC Sec Gen Barkindo stated that gas crisis shows more oil and gas investment needed. OPEC is not concerned about supply surplus in 2022.

- Russia budget said to raise 2021 oil production to 516.8M tons.

Currencies/Fixed income

- USD was slightly lower during the EU session as markets steady after Monday's turbulence. Unwinding of some safe-haven flows.

- Some analysts noted that the potential debt crisis in China appears to have Chinese government not want to be seen as engineering a bailout but could still see a road out of the crisis (aka having authorities to step in to conduct a managed restructuring of the company's debt to prevent disorderly debt-recovery efforts).

- EUR/USD at 1.1730 by mid-session.

- USD/JPY at 109.65 by mid-session.

Economic data

- (FI) Finland Aug Unemployment Rate: 6.5% v 7.1% prior.

- (UK) Aug Public Finances (PSNCR): +£5.8B v -£2.3B prior; Public Sector Net Borrowing: £19.8B£14.6Be; Central Government NCR: £8.5B v £1.8B prior; PSNB (ex-banking groups): £20.5B v £15.6Be.

- (CH) Swiss Aug Trade Balance (CHF): 5.1B v 5.3B prior; Real Exports M/M: -0.4% v +1.1% prior; Real Imports M/M: 0.2% v 1.0% prior; Watch Exports Y/Y: 11.5% v 29.1% prior.

- (JP) Japan Aug Final Machine Tool Orders Y/Y: 85.2% v 86.2 prelim.

- (CH) Swiss Aug M3 Money Supply Y/Y: 3.1% v 3.3% prior.

- (ZA) South Africa July Leading Indicator: 122.0 v 125.1 prior.

- (ID) Indonesia Central Bank (BI) left the 7-Day Reverse Repo Rate unchanged at 3.50% (as expected).

- (SE) Sweden Central Bank (Riksbank) left the Repo Rate unchanged at 0.00% (as expected).

- (SE) Sweden Aug Unemployment Rate: 8.5% v 8.0% prior; Unemployment Rate (seasonally adj): 8.8% v 8.4% prior; Trend Unemployment Rate: 8.9% v 9.00% prior.

- (PL) Poland Aug Real Retail Sales M/M: -1.0% v -0.7%e; Y/Y: 5.4% v 5.5%e; Retail Sales Y/Y: 10.7% v 10.5%e.

- (PL) Poland Aug Construction Output Y/Y: 10.2% v 8.0%e.

- (BE) Belgium Sept Consumer Confidence: 8 v 5 prior.

Fixed income issuance

- (ID) Indonesia sold total IDR6.1T vs. IDR10.0T target in Islamic bills and bonds (sukuk).

- UK DMO opened its book to sell new 0.875% July 2033 green Gilts via syndicate; spread set at +7.5bps to UK Treasuries; order book above £65B.

Looking ahead

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (DE) Germany to sell€3.0B in 0.25% Nov 2028 Bunds.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2030, 2044 and 2048 bonds.

- 06:00 (UK) Sept CBI Industrial Trends Total Orders: 16e v 18 prior; Selling Prices: 43e v 43 prior.

- 06:00 (FI) Finland to sell €1.0B in 2.625% Apr 2042 RFGB bonds.

- 06:30 (EU) ESM to sell €1.5B in 6-month Bills.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (TR) Turkey to sell Bonds (2 tranches).

- 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: expected to raise Base rate by 25bps to 1.75%.

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

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:30 (US) Aug Housing Starts: 1.555Me v 1.534M prior; Building Permits: 1.600Me v 1.630M prior (revised from 1.635M).

- 08:30 (US) Q2 Current Account Balance: -$191.0Be v -$195.7B prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (EU) Weekly ECB Forex Reserves.

- 09:00 (HU) Hungary Central Bank (MNB) Gov Matolcsy post rate decision statement.

- 09:45 (EU) ECB weekly QE bond buying update.

- 09:45 (UK) BOE to buy £1.47B in APF Gilt purchase operation (20+ years).

- 10:00 (MX) Mexico Weekly International Reserve data.

- 15:00 (AR) Argentina Q2 GDP Q/Q: No est v 2.6% prior; Y/Y: No est v 2.5% prior.

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

- 18:01 (NL) Netherlands Aug House Price Index M/M: No est v 2.4% prior; Y/Y: No est v 16.3% prior.

- 20:30 (AU) Australia Aug Leading Index M/M: No est v -0.1% prior.

- 21:00 (AU) RBA's Bullock speech.

- 21:30 (CN) China PBoC Monthly Loan Prime Rate Setting; Expected to leave 1-year LPR and 5-year LPR unchanged at 3.85% and 4.65% respectively.

- (JP) Bank of Japan (BOJ) interest Rate Decision: expected to leave Interest rate on Excess Reserves (IOER) unchanged at -0.10% and maintain 10-year Yield Target (YCC) at 0.00%.