Yen weakens as BoJ Ueda shows no rush to hike rates

EU mid-market update: Yen weakens as BOJ Ueda shows no rush to hike rates; UK retail sales warms up.

Notes/observations

- BOJ left policy unchanged, strengthening JPY currency (yen) as removal of ‘continuing to raise the policy interest rate and adjust the degree of monetary accommodation’ phrasing with addition of ‘uncertainty’. Yen reversed course as Gov Ueda conference began, indicating BOJ is not in a hurry to hike rates, paring recent USD/JPY losses back up to 143.70.

- UK retail sales beat expectations, attributed to warmer weather in Aug. Cable pushed back to 2.5-year highs as policy divergence between BOE and Fed playing main part. BOE member Mann suggests similar oversized Fed rate cut down the road with “can cut aggressively later once inflation risk is contained”.

- Fed futures now price slightly higher chance of 50bps rate cut by Fed at its Nov’s meeting following FedEx outlook cut. Markets see 40% possibility for 50bps cut and 60% for 25bps on the day after US elections. Note: Fed Chair Powell set to speak twice until end of Sept.

- Mercedes Benz joined BMW and Volkswagen in bearish developments for the German car industry, cutting FY guidance due to weaker China market. Automobiles sector in Europe woeful, down 3%.

- Asia closed higher with Nikkei 225 outperforming +1.7%. EU indices are -0.9% to -0.1%. US futures are -0.3%. Gold +0.9%, DXY +0.1%; Commodity: Brent -0.2%, WTI -0.2%; Crypto: BTC +1.8%, ETH +4.7%.

Asia

- Bank of Japan (BOJ) left its Target Rate unchanged at 0.25% (as expected) to resume the pause under its current tightening cycle. Statement noted that the decision to keep policy steady was unanimous vote (9-0). Overall assessment noted that domestic economy was likely to keep growing above potential growth rate. Must be vigilant to impact of financial, FX market moves on economy and prices; high uncertainties remained.

- Japan Aug National CPI Y/Y: 3.0% v 3.0%e; CPI Ex Fresh Food (core) Y/Y: 2.8% v 2.8%e.

- China PBOC Monthly Loan Prime Rate Setting left both 1-year and 5-year LPR unchanged at 3.35% and 3.85% respectively (as expected).

- China said to consider removing 'major' home-buying curb.

Global conflict/tensions

- Russia Foreign Min Lavrov stated that the country was fully ready to defend its interests in military, political and military-technical terms.

Europe

- UK Sept GfK Consumer Confidence: -20 v -13%e.

- UK Chancellor of the Exchequer (Fin Min) Reeves said to be given a £10B budget boost by BOE following QT announcement, increasing pressure on her to ease spending cuts and tax rises.

- Germany Finance Ministry Monthly Report: Federal and state tax revenue +5.3% y/y.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.68% at 518.10, FTSE -0.43% at 8,293.02, DAX -0.89% at 18,830.75, CAC-40 -0.82% at 7,553.09, IBEX-35 -0.01% at 11,776.95, FTSE MIB -0.48% at 33,882.00, SMI -0.20% at 12,040.20, S&P 500 Futures -0.22%].

Market Focal Points/Key Themes: European indices open lower across the board and remained under pressure through the early part of the session; underperformance in European equities attributed to expectation of stickier interest rates; among sectors managing gains are financials and utilities; sectors leading the way lower include industrials and consumer discretionary; Esker and Bridgepoint team up to buy Esker; Volution acquires Fantech in Australia; automotive subsector weighed by Mercedes Benz; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Dr. Martens [DOCS.UK] -15.0% (invest sells stake at discount), Burberry [BRBY.UK] -4.0% (Jefferies cuts to underperform), Swatch Group [UHR.CH] -2.5% (Jefferies cuts to underperform), OVS [OVS.IT] -4.0% (H1 results - post close).

- Energy: Uniper [UN01.DE] +1.5% (extends long-term gas supply partnership with ConocoPhillips in NW Europe), Italgas [IG.IT] +1.5% (Blackrock said to be looking into 48% stake of Medea unit).

- Healthcare: Bavarian Nordic [BAVA.DK] +2.5% (EMA recommends extending indication of Imvanex mpox vaccine to adolescents from 12 to 17 years of age), AstraZeneca [AZN.UK] +0.5% (to launch respiratory drug Palivizumab (Synagis) in India in Oct) - Industrials: Mercedes-Benz [MBG.DE] -6.5% (cuts FY24 guidance citing weakness in Chinese market; China vehicles recall), Volkswagen [VOW3.DE] -2.5% (audit of Xinjiang plant showed it failed to meet international standards) - Technology: ASML [ASML.NL] -1.5% (Morgan Stanley cuts to equal weight), Nordic Semiconductor [NOD.NO] +1.0% (Artic Securities raised to buy).

Speakers

- ECB's Rehn (Finland) noted that its easing pace to depend on fresh data and its analysis. Policy direction was clear as ECB had progressed well towards inflation target.

- ECB’s De Guindos (Spain) stated that would have more data points at the Dec meeting compared to Oct; left the door for easing totally open. Reiterated stance that ECB was data dependent.

- BOE’s Mann stated that inflation was not vanquished; agreed with markets that inflation could stay above target for an extended period. Could cut aggressively later once inflation risk was contained; Judged that there were upside risks to demand via market sector output and public sector wage agreements.

- Philippines Central Bank (BSP) cut its reserve requirements (RRR) by 250bps.

- BOJ Gov Ueda post rate decision press conference reiterated its overall assessment that domestic economy was recovering moderately although some weakness had been seen. To continue adjusting the degree of easing (aka raise rates) if outlook was realized. Important to check overseas economic trends including US when making policy decisions. Uncertainties remained high that surround both economy and price and must pay close attention. Risk of inflation overshooting had diminished while upside risk to prices from JPY (yen) weakness was fading.

Currencies/fixed income

- USD remained on the defensive in the post-Fed decision environment. ECB speak continued to suggest that they will could its pause at the upcoming Oct meeting in its current easing cycle.

- GBP/USD hit fresh 2-year highs after UK retail sales data beat consensus. Pair tested 1.3340. BOE member Mann fluttered her hawkish wings believing that inflation was not yet vanquished.

- EUR/USD drifted higher to test 1.1180 before mid-session.

- USD/JPY continued to exhibit volatility. Yen weakened during BOJ Gov Ueda post rate decision press conference as he noted uncertainties remained high that surround both economy and price; must pay close attention.

Economic data

- (NL) Netherlands Sept Consumer Confidence: -21 v -24 prior.

- (DE) Germany Aug PPI M/M: -0.2% v 0.0%e; Y/Y: -0.8% v -1.0%e.

- (UK) Aug Retail Sales (Ex-Auto/Fuel) M/M: 1.1% v 0.5%e v 0.7% prior; Y/Y:2.3 % v 1.1%e.

- (UK) Aug Retail Sales (including auto/fuel) M/M: 1.0% v 0.3%e; Y/Y: 2.5% v 1.3%e.

- (UK) Aug Public Finances (PSNCR): £4.9B v £16.9B prior; PSNB (ex-banking groups): £13.7B v £12.6Be; Net Borrowing: £13.7B v £12.2Be; Central Govt NCR: £11.0B v £29.6B prior.

- (DK) Denmark Sept Consumer Confidence: -6.8 v -7.4 prior.

- (FR) France Sept Business Confidence: 98 v 98e; Manufacturing Confidence: 99 v 99e; Production Outlook Indicator: -11 v -11e; Own-Company Production Outlook: 6 v 7e.

- (TR) Turkey Sept Consumer Confidence: 78.6 v 76.4 prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 164.9K v 185.5K tons prior.

- (TH) Thailand May Foreign Reserves w/e Sept 13th: $238.9B v $236.9B prior.

- (ES) Spain July Trade Balance: -€3.2B v -€0.7B prior.

- (RU) Russia Narrow Money Supply w/e Sept 13th (RUB): 18.37T v 18.33T prior.

- (FR) France Retail Aug Sales Y/Y: +0.2% v -0.8% prior.

- (HK) Hong Kong Q2 Current Account: $101.0B v $98.1B prior; Balance of Payments (BoP): -$62.7B v -$35.5B prior.

- (HK) Hong Kong Aug CPI Composite Y/Y: 2.5% v 2.6%e.

- (BE) Belgium Sept Consumer Confidence: -7 v -3 prior.

Fixed income issuance

- (IN) India sold total INR310B vs. INR310B indicated in 2034 and 2064 bonds.

Looking ahead

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2031, 2038 and 2046 Bonds.

- 06:00 (UK) DMO to sell £4.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.5B and £2.5B respectively).

- 07:30 (IN) India Forex Reserve w/e Sept 13th: No est v $689.2B prior.

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

- 08:30 (CA) Canada July Retail Sales M/M: +0.6%e v -0.3% prior; Retail Sales (ex-auto) M/M: 0.3%e v 0.3% prior.

- 08:30 (CA) Canada Aug Industrial Product Price M/M: -0.2%e v 0.0% prior; Raw Materials Price Index M/M: -2.2%e v +0.7% prior.

- 10:00 (EU) Euro Zone Sept Advance Consumer Confidence: -13.2e v -13.5 prior.

- 11:00 (EU) Potential sovereign ratings after European close (S&P on Germany; Fitch on Portugal, UK; Moody’s on Poland).

- 11:00 (EU) ECB Chief Lagarde in Washington.

- 13:00 (US) Weekly Baker Hughes Rig Count.