EU Mid-Market Update: UK Gilt yields continue to rise; talk of pound parity; German IFO survey deteriorates.

Notes/Observations

- German IFO Survey misses consensus across the board.

- Bond markets doing the central banks job at this time.

- UK govt move to implement deeper tax cuts risk adding to its fiscal burdens just as the central bank drives up borrowing costs; Gilt yields continue to soar higher; GBP currency weaker.

- Italian election results broadly matched expectations with a right-wing coalition of Brothers of Italy, League and Forza Italia securing a clear victory.

Asia

- China PBOC has imposed a 20% risk reserve requirement (RRR) for FX forwards from 0% starting Wed, Sept 28th.

- BOK Gov Rhee reiterated that rate hikes were inevitable but the pace of rate hike required board discussion. Would not discuss KRW currency (Won) weakness was amplifying inflation. Would take action to boost stability if needed.

- Japan Fin Min Suzuki: stated that he believed there was an impact from FX intervention last week; Reiterated various factors to decide FX market moves; Rate difference alone did not decide the FX market. Both govt and BOJ share concerns over a weak JPY currency (Yen).

- Japan Sept Preliminary PMI Manufacturing registered its 20th month of expansion (51.0 v 51.5 prior.

Ukraine conflict

- US National Sec Adviser Sullivan: US privately and at a very high level informed Russia that any use of nuclear weapons would lead to catastrophic consequences for Russia, because the US and its allies will give a decisive response.

- Bills related to the accession of liberated Areas to Russia might be submitted to the Russia State Duma on Sept 28th.

Europe

- UK Chancellor of the Exchequer (Fin Min) Kwarteng reiterated not focused on short-term market moves. Stressed that the Govt was focused on growth. Signaled there was “more to come” and that Friday’s announcement of £45B in tax cuts was just the start.

- UK PM Truss said to be looking into expanding her tax-cutting spree in a new year Budget that will include further reductions in income tax, and discounts for savers and child benefit claimants. Truss planning a change to visa rules to allow immigrants to work in the UK.

- Italian elections: Right-wing coalition won election and set for clear majority. Brothers of Italy leader Giorgia Meloni poised to become first female Italy PM (**Insight: Right Wing Meloni Bloc expected to win 105-125 seats over the 104 required for a majority).

- S&P affirmed Germany sovereign rating at AAA; Outlook Stable.

Americas

- Fed's Bostic (non-voter) stated that did know that some bottlenecks were staring to ease, but inflation was too high; There would likely be some job losses and to do everything we can to avoid deep, deep pain.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.16% at 389.76, FTSE +0.11% at 7,026.35, DAX +0.22% at 12,311.76, CAC-40 +0.21% at 5,795.73, IBEX-35 -0.37% at 7,555.76, FTSE MIB +1.00% at 21,277.00, SMI -0.55% at 10,082.50, S&P 500 Futures -0.19%].

Market Focal Points/Key Themes: European indices open mixed with a downward bias and generally traded sideways through the early part of the session; sectors trending to the upside include consumer discretionary and health care; sectors among those trending to the downside include real estate and financials; Atari to be taken private by Chairman; Ratos offers increased price for Semcon, outbidding Etteplan; Eurofins divests divest digital testing unit; Frasers makes mandatory offer for remaining MySale shares; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Flughafen Wien [FLU.AT] +1% (offer raised), Semcon AB [SEMC.SE] +6% (offer), Pendragon [PDG.UK] +20% (offer).

- Consumer staples: Unilever [UNA.NL] -2.5% (CEO to retire).

- Financials: Intrum [INTRUM.SE] -15% (adjustments).

- Healthcare: Valneva [VLA.FR] +4% (update on activities).

- Industrials: Babcock [BAB.UK] +1% (AGM update).

- Telecom: Telenet Group [TNET.BE] -3.5% (CMD).

- Materials: Umicore [UMI.BE] +1% (JV with Volkswagen).

Speakers

- ECB De Guindos (Spain) stated that H2 GDP growth to slow significantly and look to be close to flat for both Q3 and Q4. Inflation was increasing and affecting more sectors.

- ECB's De Cos (Spain) noted that tourism mades intense contribution to Spainish inflation; Wage rise had moderate and below inflation.

- ECB's Stournaras (Greece) reiterated view that ECB must maintain gradualism and flexibility.

- ECB's Simkus (Lithuania): Inflation trends were intensifying and saw 50bps is the minimum hike for Oct. Should not delay talks on quantitative tightening (QT).

- BOE to publish stress test results in summer 2023.

- South Africa President Ramaphosa noted that power cuts would not end in the short-term; various interventions to ease the severity.

- German IFO Economists noted that the domestic economy was facing a recession. Energy intensive companies were particularly pessimistic about the winter.

- BOJ Gov Kuroda reiterated stance to maintain accomadative monetary policy. Aiming to achieve positive economic cycle where wages, corporate profits rose, and inflation accelerated moderately. Reiterated overall assessment that economy was picking u and likely to continue recovering. Saw inflation peaking in early 2023 and to slow back to 2% from 2023. Reiterated to carefully watch FX rates and that excessive moves in forex rates were not desirable. Japan MOF's intervention was appropriate and was taken to address excess FX volatility. Any change to forward guidance on interest rates to depend on economic and price development. Believed that monetary easing to continue into 2023 and 2024.

- BOJ Dep Gov Amamiya reiterated stance that look to achieve price target sustainably through monetary easing. Hoped to see price gains on the back of higher wages. Domestic economy was picking up while uncertainty remained very high. Needed to watch the FX and financial markets closely.

- Japan Fin Min Suzuki stated that new capitalism strategy was key for growth.

- US official noted that the proposed Russian oil price cap to include oil products.

Currencies/fixed income

- The USD exhibited strength on the Asian open but saw its best level evaporate as the EU session progressed.

- Sterling slumped to a record low below 1.0350 prompting speculation of an emergency response from the Bank of England, as confidence evaporated in Britain's plan to borrow its way out of trouble. Dealers noted that fiscal policy support measures announced Friday by Chancellor of the Exchequer (Fin Min) Kwarteng would fuel inflation and send government debt soaring. Parity against the dollar had a 60% change of occurring at some future point..

- EUR/USD hit fresh 20-year lows on the Asian open at 0.9551 before stabilizing. Dealers noted that the Italian elections results will look to see if far-right Italian government would deviate from reforms.

- UK 10-year Gilt yield surged higher by over 30bps to test above 4.13%.

Economic data

- (FI) Finland Aug PPI M/M: -0.1% v -0.5% prior; Y/Y: 27.0% v 28.9% prior.

- (ES) Spain Aug PPI M/M: No est v 0.0% prior; Y/Y: No est v 40.4% prior.

- (CZ) Czech Sept Business Confidence: 5.2 v 9.8 prior; Consumer Confidence: -33.8 v -29.8 prior; Composite Index (Consumer & Business Confidence): -2.6 v +1.7 prior.

- (TR) Turkey Sept Real Sector (Manufacturing) Confidence (seasonally adj): 100.2 v 101.4 prior; Real Sector Confidence NSA (unadj): 99.9 v 102.1 prior.

- (TR) Turkey Sept Capacity Utilization: 77.4% v 76.7% prior.

- (DE) Germany Sept IFO Business Climate Survey: 84.3 v 87.0e; Current Assessment Survey: 94.5 v 96.0e; Expectations Survey: 75.279.0e.

- (CH) Swiss weekly Total Sight Deposits (CHF): 747.1 v 754.5B prior; Domestic Sight Deposits: 626.6 v 638.9B prior.

- (HK) Hong Kong Aug Trade Balance (HKD): -13.3B v -21.8Be; Exports Y/Y: -14.3% v -9.7%e r; Imports Y/Y: -10.2%e v -9.9% prior.

Fixed income issuance

- None seen.

Looking ahead

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

- 05:30 ((DE) Germany to sell combined €6.0B in 6-monthand 12-month BuBills.

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 05:30 (EU) European Union to sell €4.0B in 2025 and 2032 NGEU bonds.

- 06:00 (IL) Israel to sell bonds.

- 06:45 (US) Daily Libor Fixing.

- 07:00 (BR) Brazil Sept FGV Consumer Confidence: No est v 83.6 prior.

- 07:00 (MX) Mexico July IGAE Economic Activity Index (Monthly GDP) M/M: +0.3%e v -0.3% prior; Y/Y: 1.6%e v 1.6% prior.

- 07:00 (IS) Iceland to sell 3-month and 6-month Bills.

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

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

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

- 08:30 (US) Aug Chicago Fed National Activity Index: 0.23e v 0.27 prior.

- 08:30 (BR) Brazil Aug Current Account: -$3.3Be v -$3.5B prior; Foreign Direct Investment (FDI): $4.9Be v $4.5B prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €4.8-6.0B in 3-month, 6-month and 12-month bills.

- 09:00 (BE) Belgium Sept Business Confidence: -8.6e v -5.8 prior.

- 10:30 (US) Sept Dallas Fed Manufacturing Activity Index: -10.0e v -12.9 prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 13:00 (US) Treasury to sell 2-year notes.

- 15:00 (AR) Argentina July Economic Activity Index (Monthly GDP) M/M: -0.8%e v +1.1% v prior; Y/Y: 5.0%e v 6.4% prior.

- 16:00 (US) Weekly Crop Progress Report.

- 17:00 (KR) South Korea Sept Consumer Confidence: No est v 88.8 prior.

- 19:50 (JP) Japan Sept PPI Services Y/Y: 2.45e v 2.1% prior.

- 21:30 (CN) China Aug YTD Industrial Profits Y/Y: No est v -1.1% prior; July Industrial Profits Y/Y: No est v % prior.

- 23:35 (JP) Japan to sell 40-Year JGB Bonds.

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