: S&P 500 exits correction territory. Thank retreating bond yields.

Global Stock Rout Reverses As Yields Dip After 30Y Treasury Tags 5% Global stocks and US futures were in freefall earlier this session, with spoos tumbling to a four month low of 4,235 and tracking the relentless drop in Treasuries tick for tick which briefly sent 30Y yields above 5.00% - the highest since Sept 2007 - around the time Europe opened... ... before a bout of buying kicked in and yields dropped sharply while futures reversed all losses and as of 7:45am, S&P futures were up 0.2% to 4,273 while Nasdaq futures were up 0.1% after slumping sharply earlier. Europe was mixed as German 10-year yields reached the highest level since 2011 too as the Treasury moves rippled across markets. Investors are now focuing on term-premium and demanding greater compensation to hold onto long-dated debt with rates set to remain higher for longer, while concerns about the ridiculous pace of Treasury issuance - US debt rose by a whopping $275 billion on the first day of October - to address rising budget deficits are also weighing. Elsewhere, the dollar also dropped, as did oil, with WTI slipping further below the $90-per-barrel mark as an OPEC+ meeting is set to announce no changes to its policy. In premarket trading, Apple fell 1%, after the stock was downgraded at KeyBanc Capital Markets, which said shares of the iPhone maker are trading near all-time high valuation levels, though its sales growth is likely to slow, while CEO Tim Cook sold $41 million in stock after taxes, his biggest sale in more than two years. Brooge Energy rose 21% after the company confirmed receipt of an acquisition offer from Gulf Navigation Holdings in a filing. Palantir gained 2% as the data analysis firm has emerges as the top pick for a contract to overhaul the UK’s National Health Service. The latest leg of the bond selloff was fueled by Tuesday’s grotesquely manipulated and better-than-expected US job data, one which even Goldman mocked as being ridiculously adjusted, as well as a slew of hawkish comments from Federal Reserve officials. Data on U.S. private payrolls due later from the ADP Research Institute could fan more volatility, coming on the heels of Tuesday’s JOLTS survey. Job openings based on private sector data are over 1 million LOWER than the latest government numbers (from Goldman). pic.twitter.com/MPptXIq3w4 — zerohedge (@zerohedge) October 3, 2023 “It’s fair to say there’s going to be a volatile environment until we have more clarity” on the direction of rates, Virginie Maisonneuve, global chief investment officer for equites at Allianz Global Investors, said in an interview with Bloomberg Television. “If you have a long-term time horizon find those stocks that have very strong structural backing for growth and have quality balance sheets.” Meanwhile, there are signs that buyers are already emerging to take advantage of the stock swoon. The S&P 500 is officially in oversold territory based on its relative strength index of below 30. Francisco Simón, European head of strategy at Santander AM, is among those eyeing cheapened assets. “The current weakness of equities would be an opportunity to enter those sectors and companies with high sensitivity to rates,” he said. “We hope they will do a catch-up again once rates stabilize. Current yields are already at very high levels for the expected inflation and growth in the medium and long term.” European stocks managed to squeeze out marginal gains with the Stoxx 600 adding 0.2%. In individual stock moves Wednesday, airline SAS AB fell as much as 96% after the bankrupt Scandinavian flag carrier announced plans to be taken private. Tesco shares gain as much as 3.2%, the most since March 29, after the UK grocer increased its guidance for retail adjusted operating profit for the year. Here are the most notable European movers: Sanofi shares rise as much as 0.9%, outperforming the Stoxx 600 Health Care Index, after the company agreed to pay Teva Pharmaceutical as much as $1.5 billion to help develop and sell a medicine for inflammatory bowel disease Orange rose as much as 2.5%, outperforming declining European markets, after BofA upgraded its rating by two notches and said the investment case for the French group ticked all the boxes Fresenius Medical falls as much as 5.4%, the most since mid-August, after attorneys general in New York, New Jersey and Georgia filed a complaint against Fresenius Vascular Care, Inc. alleging unnecessary kidney disease surgeries Cellnex drops as much as 3.9%, to the lowest in almost a year, after Barclays downgrades the tower operator to equal-weight, flagging overhang risks from sector M&A and some tailwinds turning into headwinds BW LPG shares fall as much as 14% in Oslo, the most intraday since August 2022, after an offering of 8.4m shares by holders via DNB Markets Spirent shares plummeted 40%, most since 2002, after the UK network testing firm said a slow summer and disappointing September meant it fell short of expectations for the third quarter Airline SAS falls as much as 96% after announcing plans to be taken private late on Tuesday as part of a restructuring process as it emerges from Chapter 11 bankruptcy proceeding in the US. Earlier in the session, Asian stocks tumbled, with several local benchmarks tracking the key regional gauge toward a correction, as the risk-off mood intensified after strong US jobs data amplified concerns of higher-for-longer interest rates. The MSCI Asia Pacific Index fell 1.7%, pushing it down more than 10% from a July high. Tech stocks were the biggest drag as the 10-year Treasury yield climbed to a fresh 16-year high. South Korea’s Kospi and Japan’s Nikkei 225 were among the region’s worst performers Wednesday, also flirting with technical-correction territory. Markets had become complacent about macro concerns in recent months as excitement over artificial intelligence helped drive stocks higher globally. That rally has now all but faded in the wake of strong economic data that’s backed the case for the Federal Reserve to keep interest rates elevated. Hang Seng conformed to the downbeat mood amid the continued absence of mainland participants and with pressure on tech, energy and casino stocks. ASX 200 was dragged lower by underperformance in tech, real estate and the top-weighted financial sector with headwinds amid the continued upside in yields. Nikkei 225 extended on losses beneath the 31,000 level amid wide speculation of FX intervention and with Japanese officials out in force but refusing to confirm or deny whether they intervened. KOSPI underperformed on return from the extended holiday despite encouraging Industrial Production data which showed a surprise expansion. India stocks declined for a second consecutive session, tracking losses in regional peers as investors shun riskier assets on worries over interest rates staying higher for longer. The S&P BSE Sensex fell 0.4% to 65,226.04 as of 03:45 p.m. in Mumbai, the lowest since Aug. 31. The NSE Nifty 50 Index declined 0.5% to 19,436.10, the lowest since Sept. 1. BSE’s small- and mid-cap gauges also fell by more than 1% each.  Foreign investors have turned sellers of Indian shares, taking out $2.3b in September, their first selloff after six straight months of purchases.       In FX, the Bloomberg Dollar Spot Index falls 0.1%. The kiwi underperforms after the RBNZ left rates on hold, falling 0.2% versus the greenback. USDJPY is down to 148.88 after Japanese officials declined to comment on speculation they intervened in the currency market on Tuesday when the pair briefly rose above 150. In rates, Treasury yields reversed an earlier spike which extended Tuesday’s bond market rout during London trading. 10-year reached 4.76% and keeping pace with bunds, gilts in the sector,while 30-year yields briefly exceeded 5% but were down to 4.88% last. As conviction grew that US interest rates could rise further from current 22-year highs, 30-year yields touched 5% for the first time since 2007. Markets are pricing a one-in-three chance of a November. US yields from belly to long-end are little changed with front-end yields marginally richer on the day; 2s5s10s fly cheaper by ~3bp on the day as belly underperforms. Recent activity in Treasury options sees traders positioning for 10-year yield above 5%. The Dollar IG issuance slate includes Kommuninvest 2Y; all companies considering deals Tuesday stood down Tuesday In commodities, crude futures decline, with WTI falling almost 2% to trade around $88, at the lowest level in three weeks. Looking to the day ahead now, the US session has heavy economic data slate, starting with ADP employment change at 8:15am New York time; it will also include the ISM services index along with factory orders for August. Elsewhere, there’s the final services and composite PMIs for September from around the world, and in the Euro Area there’s retail sales and PPI for August. Central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Centeno and Panetta, along with the Fed’s Bowman and Goolsbee. Market Snapshot S&P 500 futures down 0.1% to 4,259.25 STOXX Europe 600 little changed at 440.75 MXAP down 1.6% to 152.35 MXAPJ down 1.1% to 479.26 Nikkei down 2.3% to 30,526.88 Topix down 2.5% to 2,218.89 Hang Seng Index down 0.8% to 17,195.84 Shanghai Composite up 0.1% to 3,110.48 Sensex down 0.8% to 64,971.11 Australia S&P/ASX 200 down 0.8% to 6,890.25 Kospi down 2.4% to 2,405.69 Brent Futures down 0.7% to $90.32/bbl Gold spot down 0.1% to $1,821.18 U.S. Dollar Index little changed at 106.93 German 10Y yield little changed at 2.98% Euro up 0.2% to $1.0484 Top Overnight News 1) Japan’s central bank made unscheduled purchases of government debt on Wednesday as yields on benchmark bonds hit their highest mark in a decade, while a global market sell-off also continued to drive US Treasury yields to 16-year highs. FT 2) Softbank’s Son says AI will surpass human intelligence within the next decade as he spent an hour at the annual Softbank World event extolling the benefits of the technology. WSJ 3) Oil edged lower ahead of an OPEC+ market review. The group may not suggest any change in its policy, with Saudi Arabia reaffirming plans to stick with its current curbs. In the US, crude inventories fell 4.21 million barrels last week, API data is said to show. That would lower total stockpiles to the least since March 2022 if confirmed by the EIA. BBG 4) ECB’s Lagarde reiterates that policy rates have likely hit their peak for the cycle (but will stay elevated for an extended period). ECB 5) US companies probably added 150,000 jobs in September, ADP data is expected to show. That's the lowest since March, adding to signs of moderating labor demand before Friday's payrolls data. Jeffrey Gundlach warned that even a small tick up in unemployment should put markets on "recession alert." BBG 6) The House has voted to remove Rep. McCarthy as speaker. This has no immediate policy consequence, nor does it impact government funding, which was recently extended to Nov. 17. That said, a leadership vacuum in the House raises the odds of a government shutdown when the current funding extension expires. We continue to view a shutdown in Q4 as the base case, likely when funding expires Nov. 17. GIR 7) Bond slump threatens to undercut the potential for an economic soft landing while the velocity of the move could stoke disruptions in financial markets. WSJ 8) More than 75,000 workers are preparing for the largest health care strike in US history today after talks between Kaiser Permanente and a coalition of unions so far failed to produce a resolution. The three-day walkout may interrupt services for almost 13 million people, primarily in western states as well as the Mid-Atlantic and Washington, D.C., area. BBG 9) Ford offered striking workers a more than 20% wage increase and said it would halve the time it takes new employees to reach top pay. BBG 10) Large landlords bought 0.4% of U.S. homes in the second quarter, down from a peak of 2.4% at the end of 2021, as higher debt costs and moderating rent growth ate into investment returns... A more detailed look at global markets courtesy of Newsquawk APAC stocks declined following the losses on Wall Street where stocks and bonds resumed their slide. ASX 200 was dragged lower by underperformance in tech, real estate and the top-weighted financial sector with headwinds amid the continued upside in yields. Nikkei 225 extended on losses beneath the 31,000 level amid wide speculation of FX intervention and with Japanese officials out in force but refusing to confirm or deny whether they intervened. KOSPI underperformed on return from the extended holiday despite encouraging Industrial Production data which showed a surprise expansion. Hang Seng conformed to the downbeat mood amid the continued absence of mainland participants and with pressure on tech, energy and casino stocks. Top Asian News Japan's top currency diplomat Kanda reiterated 'no comment' on FX intervention and wouldn't comment on whether he discussed a weak yen with PM Kishida, while he said it is normal for authorities not to comment on whether they intervened or not. Japanese Finance Minister Suzuki said currency rates should be set by the market and rapid FX moves are undesirable. Suzuki added that FX stability is important and won't rule out any options against excessive moves, while he responded 'no comment' when asked if Japan intervened. Japanese Chief Cabinet Secretary Matsuno said 'no comment' on whether Japan intervened in the FX market and said it is important for currencies to move stably reflecting fundamentals. Matsuno also reiterated that they will continue to take appropriate steps on FX. BoJ Governor Ueda said "no comment" when asked about FX, according to Reuters. BoJ to conduct funds-supplying operations against pooled collateral on October 6th 2023; duration of loans will be from October 10, 2023 through October 10, 2028; amount of loans to be notified when conducting the operations. BoJ data suggest that there was likely no forex intervention on Tuesday, as the current account balance that was projected to be within market estimates, according to Reuters. RBNZ kept the OCR unchanged at 5.50% as expected, while it noted that the Committee agreed the OCR needs to remain at a restrictive level and that interest rates are constraining economic activity and reducing inflationary pressure as required. RBNZ said demand growth in the economy continues to ease and that GDP growth in the June quarter was stronger than anticipated but the growth outlook remains subdued. Furthermore, it stated that with monetary conditions remaining restrictive, spending growth is expected to decline further. European bourses are now mostly but modestly firmer after trimming the losses seen at the cash open. Futures were initially pressured alongside yet another pick-up in yields which saw the German 10yr hit 3% for the first time since 2011, however, equities were able to claw back some lost ground as moves in the fixed income space began to stabilise. Sectors in Europe are now mostly firmer with Utilities, Optimised Personal Care Drug & Groceries, Real Estate, and Media as the current top performers, while Energy, Travel & Leisure, Autos & Parts, and Retail sit as the laggards at time of writing. US futures scaled back earlier losses to hover around neutral levels, with the ES back above 4,250. Top European News Germany is seeking a "grand bargain" with France to resolve the stalemate regarding nuclear power and help pave the way for a sweeping reform of the bloc's electricity market, according to FT. Italy risks garnering "near zero" proceeds from a one-off bank tax, according to Reuters sources. Italian banks would find it hard to justify shareholders paying the tax. The opt-out option in the latest version of the tax would have no impact on distribution policies. ECB's President Lagarde reiterated her stance that rates are sufficiently restrictive, according to Reuters. BoE Governor Bailey said the labour market explains part of UK inflation, in an interview with Prospect Magazine. He added the job is not done on fighting inflation, and is likely to fall this year, in an interview with Orcadian. FX DXY gravitates as Treasury yields slip, risk sentiment improves and various institutions step up intervention - with the index retreating from 107.240 to 106.760 awaiting US ADP, ISM and more Fed speakers Yen straddles 149.00 vs Dollar after jolt through 150.00 irrespective of no confirmed Japanese buying. Euro probes 1.0500 against Buck and Sterling regains 1.2100+ status post-decent UK PMI upgrades. Kiwi lags after a less hawkish than anticipated RBNZ hold as NZD/USD hovers just under 0.5900. Fixed Income Debt complex feels reprieve following a deeper downturn in futures and an extension in yields. Bunds bounce within the 126.62-127.23 range as the 10-year benchmark probed 3% and pared back. Gilts recovered from 91.50 to 92.02 after a solid 2025 DMO auction. T-note nearer 106-22+ top than 106-03+ bottom ahead of ADP, services ISM and more Fed speakers. UK sold GBP 4.25bln vs exp. GBP 4.25bln 3.50% 2025 Gilt: b/c 2.61x (prev. 2.67x), average yield 4.964% (prev. 5.272%) & tail 1.1bps (prev. 0.9bps). Germany sells EUR 2.392bln vs exp. EUR 3bln 2.40% 2030 Bund: b/c 2.67x (prev. 2.40x), average yield 2.89% (prev. 2.53%) & retention 20.27% (prev. 18.97%). Total orders for the new 5yr BTP Valore have now reached EUR 10bln since the beginning of the offering, according to Reuters. Commodities Crude is softer intraday and fails to benefit from the improvement in risk tone as the OPEC+ JMMC is expected to recommend no change to current policy while Russia and Saudi are to maintain voluntary curbs at current levels. Spot gold is flat and confined to a narrow USD 1,816.90-1,824.89/oz range but remains within yesterday’s parameters awaiting the next catalyst. Base metals are now flat after trimming deeper APAC losses, with the broader market move more constructive than it was overnight. Saudi Energy Ministry reaffirmed it will continue its voluntary cut of 1mln BPD starting in November until the end of December 2023, as expected, via Reuters. Russia's PM Novak said Russia is to continue additional voluntary supply cut of oil exports by 300k BPD until the end of December 2023; the decision will be reviewed next month to consider deepening the cut or increasing oil production, according to Reuters. OPEC+ unlikely to tweak policy as Saudi and Russia keep voluntary oil cuts, according to Reuters citing sources. Russian government is ready to partially lift its ban on diesel exports in the coming days, via Kommersant citing sources. The ban would only be lifted only on pipeline exports of diesel and volumes may be subject to quotas to avoid surges in wholesale prices. The ban on gasoline exports will remain in force for now. Russia's Energy Minister said partial permission for fuel export is under discussion at all levels, via Tass - further decisions on regulating the fuel market will be published soon. UAE's ADNOC sets October Murban Crude OSP at USD 93.92/bbl (prev. USD 87.28/bbl in October), according to Reuters. Geopolitics North Korea criticised the US for describing China and Russia as a threat in a new WMD strategy, while North Korea will counter US provocations with a massive response, according to KCNA. European Commission has formally started the probe into Chinese EV subsidies (as expected), according to Bloomberg. China said European Commission requested China to hold consultations within a very short period of time for EV subsidy probe and did not provide effective material; this severely damaged China's rights, according to Reuters. US Event Calendar 07:00: Sept. MBA Mortgage Applications -6.0%, prior -1.3% 08:15: Sept. ADP Employment Change, est. 150,000, prior 177,000 09:45: Sept. S&P Global US Services PMI, est. 50.2, prior 50.2 09:45: Sept. S&P Global US Composite PMI, est. 50.1, prior 50.1 10:00: Aug. Durable Goods Orders, est. 0.2%, prior 0.2% Durables Less Transportation, est. 0.4%, prior 0.4% Cap Goods Ship Nondef Ex Air, prior 0.7% Cap Goods Orders Nondef Ex Air, est. 0.9%, prior 0.9% 10:00: Aug. Factory Orders, est. 0.3%, prior -2.1% Factory Orders Ex Trans, est. 0.2%, prior 0.8% 10:00: Sept. ISM Services Index, est. 53.5, prior 54.5 Central Bank speakers 10:25: Fed’s Bowman Speaks at Community Banking Research Conference 10:30: Fed’s Goolsbee Speaks at Chicago Payments Symposium 15:00: Fed’s Goolsbee Moderates Discussion With Raghuram Rajan DB's Jim Reid concludes the overnight wrap We’re at risk of repeating ourselves on a daily basis now, but the last 24 hours saw the relentless bond sell-off continue, with yields rising to fresh multi-year highs on both sides of the Atlantic.That included the 10yr Treasury yield (+11.7bps), which closed at a post-2007 high of 4.80% (4.838% this morning), whilst the 10yr real yield (+10.9bps) also hit a post-GFC high of 2.44%. But unlike some previous days, the sell-off was evident across several asset classes, with sizeable losses across equities and credit as well. In fact, the S&P 500 (-1.37%) closed at a 4-month low, and the index has now lost nearly 8% since its recent peak in late-July. That makes this now the biggest sell-off so far this year, having now surpassed the scale of the losses in February and March at the time of SVB’s collapse. Meanwhile, the Stoxx 600 is back to levels it first breached in 2023 on January 6th. US CDX HY widened +20bps to the widest since May and now wider than where we started 2023. So this is starting to be a significant correction. I struggle to see how the recent yield moves don't increase the risk of an accident somewhere in the financial system given the relatively abrupt end over recent quarters of a near decade and a half where the authorities did everything they could to control yields. So risky times. If all that wasn't enough, the US House speaker Kevin McCarthy was ousted late last night leaving a leadership vacuum with large uncertainty as to how this will be filled ahead of the next government shutdown deadline of November 17th . We dig deeper into some of these issues below but first the main factor behind yesterday’s declines was the JOLTS report of job openings for August, which showed the US labour market was proving more resilient than expected. The big headline was that job openings unexpectedly rose to 9.610m (vs. 8.815m expected), taking them up from their two-year low in July. So that made a big change from the narrative in the last report, when job openings hit a two-year low and there was a growing sense that the tight labour market was beginning to ease. And it comes on top of some strong readings in other data recently, including the ISM manufacturing print on Monday, as well as the last couple of weekly jobless claims. There were maybe parts of the JOLTS report that weren't as buoyant as the headline number (e.g., a stable quits rate and the hiring rate at its lowest since the first Covid wave) but that was not a nuance that was relevant yesterday. For markets, it meant another rate hike from the Fed was kept firmly on the table. Indeed, futures suggested that the likelihood of another hike by December was up to 52%, having reached 57%, its highest since August, intra-day. And in turn, yields on 6-month T-bills hit a post-2001 high of 5.58%. Moreover, the sense that rates would remain higher for longer was cemented by Atlanta Fed President Bostic, who said the Fed should “hold for a long time ”. Later on, Cleveland Fed President Mester then said she would support a November hike if the economy “looks the way it did at the next meeting similar to the way it looked at our recent meeting”. All that meant the bond sell-off continued apace, with lots of new milestones around the world. As discussed at the top, for the 10yr Treasury yield, there was another +11.7bps jump up to 4.80%. Furthermore, the 30yr yield (+13.5bps) moved above its intraday peak from 2010, reaching levels last seen in 2007. From a financial conditions perspective, it was notable how real yields led the sell-off once again, with the 10yr real yield (+10.9bps) up to a post-2008 high of 2.44%. This dramatic rise in long-dated borrowing costs has also led to a major curve steepening in recent weeks, with the 2s10s curve steepening another +6.9bps yesterday to -35.9bps (-31.9bps overnight). Given its role as a leading indicator of recessions, there has been some excitement about a soft landing because of those moves. But as Henry pointed out yesterday (here) most cycles normally see a curve steepening in the months just before the recession begins. So we’re some way from sounding the all clear just yet. Over in Europe, there was also a sharp sell-off for sovereign bonds. Among others, we saw yields on 10yr bunds (+4.5bps) hit a post-2011 high of 2.96%, yields on 10yr OATs (+5.6bps) at a post-2011 high of 3.53%, and yields on 10yr BTPs (+13.3bps) at a post-2012 high of 4.93%. The 10yr BTP-Bund spread thus reached its highest level since March at +197bps. As in the US, there was a sharp rise in European real yields, with the German 10yr real yield up +4.9bps to 0.62%. And here in the UK, the 30yr gilt yield (+3.8bps) reached its highest closing level since 2002, at 5.05%. With nominal and real rates rising around the world, it was a very bad day for risk assets, with the S&P 500 slumping -1.37% to a 4-month low. That leaves its YTD advance at just +10.16%, and on an equal-weighted basis the index is now -2.06% lower since the start of the year. Indeed, 273 of its constituents are now down YTD, with only 230 stocks higher. In a reversal of the past few days, tech stocks underperformed with the Nasdaq down -1.87% and the Magnificent Seven mega caps down -2.12%. The VIX volatility index traded above 20 for the first time since May, before closing up +2.17pts at 19.78. Over in Europe, the STOXX 600 (-1.10%) fell to a 6-month low, having now shed -6.58% since its peak in late-July. It’s true that the index is still up +3.72% YTD, but that’s mainly because the index had such a strong January, and we actually passed these current levels as soon as January 6th. So we've effectively gone sideways since. Overnight in Asia, the sell-off continues. As I type, the Nikkei is down -2.03%, the Hang Seng -1.04% and the Kospi -2.30% after returning from 2 days of holidays. Markets in China are closed all week. Taking a quick look at Japan, the global fixed income sell-off saw yields on Japan’s five-year government bonds rise to their highest level since 2013. The yen weakened to 149.21 against the dollar after speculation that price action in Tuesday’s session was driven by official intervention. Officials remained quiet this morning, as the top currency official Masato Kanda declined to comment whether any intervention had been conducted but did state that they “will respond as always to excessive FX moves”. In other news, the Reserve Bank of New Zealand decided to keep rates on hold at 5.5%. We continue to think the central bank has now reached its terminal rate. See our economist’s reaction here. In US political news, after the US closed, the House of Representatives voted to remove Speaker Kevin McCarthy, the first time in US history the Speaker has been ousted from their post. The move was led by a small group of conservative Republicans with Democrats joining in on a 216-210 vote. Votes on a new Speaker might begin on October 11th, according to reports, but uncertainty may linger (it took 15 rounds of voting for McCarthy to get the job back in January). From a market perspective, this brings extra uncertainty on the ability of Congress to pass a new spending bill after the latest stopgap measure expires on November 17th. With conservative Republicans having opposed McCarthy’s deal last weekend, his ouster may raise the risk that we will get a government shutdown in November, or that the Senate is forced to accept spending cuts demanded by House Republicans to avoid a shutdown. So a fiscal risk to keep in mind for later in Q4. Taking the temperature of the day ahead, S&P 500 and NASDAQ futures are slightly lower this morning (both around -0.2%) but off their overnight lows. To the day ahead now, and data releases from the US will include the ISM services index and the ADP’s report of private payrolls for September, along with factory orders for August. Elsewhere, there’s the final services and composite PMIs for September from around the world, and in the Euro Area there’s retail sales and PPI for August. Central bank speakers include ECB President Lagarde, Vice President de Guindos, and the ECB’s Centeno and Panetta, along with the Fed’s Bowman and Goolsbee. Tyler Durden Wed, 10/04/2023 - 08:14.....»»

Futures, Global Stocks Rise As Yields, Dollar Drop Ahead Of Core PCE Print US equity futures and global stocks rose on the last trading day of the week, month and quarter and global bonds rebounded after dovish comments from Fed officials and signs that European inflation is finally slowing when EU consumer prices rose just 4.3%, down from 5.2% in August, and the lowest since Oct 2021. Ahead of today's closely watched "Fed's favorite inflation gauge", the core PCE due out at 8:30am ET, S&P and Nasdaq 100 futures were up 0.4% as longer-dated bond yields were 2-3bps lower while supportive inflation data in Europe drove European bond yields lower this morning. 30-year TSY yields are down 3bps at 4.68% but still on course for their largest quarterly gain since 2009. The US Dollar dropped and crude oil rebounded. Commodities are mostly higher led by base metals (Aluminum +1.8%; Copper +1.3%), with Brent back over $96 and approaching the 2023 high of $97. Today’s macro focus is on PCE, Personal Income/Spending, Chicago PMI, and U of Mich. survey data. For PCE, consensus sees the PCE deflator printing at 0.5% vs. 0.2% prior and Core PCE deflator rising 0.2%, unchanged from 0.2% prior. In premarket trading, mega cap tech stocks were broadly higher; Nike rose 8% after the sportswear giant reported earnings per share for the first quarter that beat the average analyst estimate and kept its outlook unchanged for the year. The report was a positive surprise, with the outlook “better than buyside fears,” said Morgan Stanley. OPKO Health rose 8% after its ModeX Therapeutics won a contract from the US to develop antibodies to battle viral infectious disease threats. Wall Street closed higher on Thursday after comments from Fed rate-setters including Richmond Fed chief Thomas Barkin, who said the US would likely skirt a severe downturn. Meanwhile, his Chicago Fed counterpart Austan Goolsbee said policymakers were at risk of overshooting on interest rates. Adding to positive sentiment, the WSJ reported China’s Vice Premier He Lifeng and Foreign Minister Wang Yi are discussing possible visits to the US to prepare for a potential summit between Xi Jinping and Joe Biden. Today's stock rebound signals relief after a quarter that’s put 30-year borrowing costs on track for their steepest increase since 2009. Here are some of the superlatives we've seen this quarter: US 2s10s inversion dropped to May’s lows 5y US yield highest since 2007 10y US yield highest since 2007 30y US yield highest since 2010 10y German yield highest since 2011 Japan 10y highest since 2013 Japan 20y highest since 2014 Japan 30y highest since 2013 Not surprisingly, amid soaring rates, the July-September quarter has been the worst for MSCI’s all-country index since September 2022, as surging oil prices fanned fears over inflation and economic growth. “We have had a lot of smallish pieces of better news all coming together at the same time,” said Stuart Cole, head macro economist at brokerage Equity Capital, forgotten to add that we have also had a lot of pieces of bad news alongside, which however markets have generally ignored. While the Fed officials’ comments soothed fears of further US rate rises, sentiment received a further boost from Friday’s softer inflation prints, he said. “Taken in conjunction with the softer German numbers yesterday, that has raised hopes that the ECB is done with tightening,” said Cole.   Investors are now awaiting the core personal consumption expenditures price index, which economists expect will have slowed in August on an annualized basis to 3.9% from 4.2%. Europe’s Stoxx 600 equity index rose more than 1%, as data showing euro-area inflation at a two-year low boosted expectations that the ECB's hiking cycle was over and that rates in the EU could stay on hold if not drop. Rate-sensitive sectors, such as real estate and luxury led the gains, with the latter also boosted by a bullish strategy note from Bank of America. The data “increases our conviction that the ECB hiking cycle is done,” said Samuel Zief, head of global FX strategy at JPMorgan Private Bank. Here are the top European movers: Luxury stocks including LVMH, Hermes and Richemont all rise at least 2.5% after Bank of America strategists raised their view on the luxury sector to overweight, saying recent underperformance now fully reflects an expected slowdown in global business activity. Among other luxury names, Brunello Cucinelli shares rise as much as 8.7% after Goldman double-upgrades the Italian firm to buy from sell, saying it offers underappreciated defensive qualities. Commerzbank shares gain as much as 12% after the German lender pre-announced planned capital returns that analysts say suggest significant upside to current consensus numbers. Adidas, Puma, JD Sports shares rise after Nike reported a drop in its stockpile of inventory, a sign it’s making progress in moving out older merchandise for newer, more-profitable items. Aston Martin shares surge as much as 13% after the carmaker said Executive Chairman Lawrence Stroll’s Yew Tree Consortium agreed to boost its stake in the firm to 26.2%. OCI shares rise as much as 8.6% after Jefferies says it offers a “rare corner” of positive earnings momentum within the European chemicals sector and upgrades to buy. Future shares rise as much as 21% after a full-year trading update that led Shore Capital to reiterate that the media company is well placed to deliver “attractive growth.” Analysts highlighted the stock’s low valuation. Ascential shares rise as much as 7.6% in London after Sky News reports that Apax Partners has entered advanced discussions to buy the company’s consumer trend-spotting unit, WGSN. Cellnex shares gain as much as 4.5% after Stonepeak buys 49% stake in Cellnex’s Swedish, Danish units for €730 million, according to a Spanish regulatory filing. Fevertree shares rise 4.7% after Nordflint Capital Partners disclosed a 5% stake in the maker of tonics and mixers. Alpha Group shares fall as much as 4.6%, to the lowest since March, after holder Morgan Tillbrook sold about 1.8% of its stake in the institutional broker at a price of £19.00 per share. Earlier in the session, Asian equities also advanced, bolstered by a rally in Hong Kong stocks amid optimism over Golden Week holiday spending. The MSCI Asia Pacific Index climbed as much as 0.4% on Friday, helping trim losses for the quarter to less than 4%. Chinese tech stocks trading in Hong Kong including Tencent and Alibaba offered the largest support. Benchmarks in Hong Kong jumped more than 2%, outperforming in the region following further supportive measures by Chinese authorities, while the index was unfazed by the absence of mainland participants and Stock Connect flows due to the Mid-Autumn Festival and next week’s National Day holidays.  Traders cited positive outlook for Chinese consumption during the peak travel season and dip buying as reasons for the rebound. The oil rally taking a breather also supported sentiment. “The bounce in China follows the US tech overnight and may be driven by some easing in the dollar and oil, both of which have been leaving markets anxious,” Marvin Chen, a strategist at Bloomberg Intelligence said. “It looks like a broad relief rally across the region after a week of declines,” Chen said. Japan's Nikkei 225 failed to sustain early gains and pulled back from resistance around the 32,000 level despite several encouraging data releases. Hang Seng outperformed as property and tech surged after the recent easing of yields and Shares in Australia and New Zealand also gained; the ASX 200 was kept afloat by outperformance in the mining and materials sectors but with trade constricted amid quasi-holiday conditions with Victoria state on a public holiday. Indian stocks advanced Friday along with most Asian peers as expectations of higher spending during the upcoming Golden Week holiday in China boosted sentiment. The S&P BSE Sensex ended 0.5% higher at 65,828.41 as of 3:45 p.m. in Mumbai, while the NSE Nifty 50 Index advanced 0.6% to 19,638.30. India’s main benchmarks were up by a percent for the day before a late session selloff saw them come off their highs, as investors lightened positions due to the upcoming long weekend. Stocks closed lower on the week. Sentiment was also boosted by a slide in the dollar and some softness in Brent crude prices that are showing a struggle just under the psychological $100 a barrel mark. In FX, the kiwi and Norwegian krone are the best performers among the G-10 currencies while the dollar fell for a second day and underperformed all G-10 peers amid quarter-end flows, with the Bloomberg Dollar Spot Index about 0.4% lower; still, the gauge is up about 2.3% this quarter, the most in a year.  “The dollar is trading lower as a much-needed correction takes hold,” said Win Thin, global head of currency strategy at Brown Brothers Harriman. “The fundamental story remains in favor of the greenback as the US economy is in a much stronger position.” EURUSD rose 0.4% to 1.0604 and held its advance after euro area inflation came in below expectations. The yen briefly dipped after the central bank announced an unscheduled bond-buying operation, but later reversed losses to trade as much as 0.5% higher on the day. Meanwhile, Japan’s government bonds are poised for the worst quarterly selloff since 1998 In rates, global bond yields eased after the previous day’s selloff, with 10-year US Treasuries down about 3 basis points and Japanese 10-year yields sliding from decade-highs after an unscheduled bond-buying operation by the central bank. British and euro-area borrowing costs slid more than 5 basis points. French bonds were among the biggest gainers after data showed price growth unexpectedly slowing, a day after Germany reported inflation at the lowest in two years.  Treasuries pushed higher following wider gains seen across core European rates, with yields down by 3bp to 4bp across the curve. US 10-year yields were around 4.55%, down by by 3bp on the day, with bunds and gilts outperforming by 4.5bp and 1bp in the sector, respectively; front-end lags rest of the curve slightly, flattening 2s10s spread by around 1bp on the day, sitting back around 50bp inverted. That said, the session could still see some quarter-end rebalancing flow, while highlights also include packed data slate headed by PCE deflator. Quarter and month-end re-balancing flows may still be in play for the session; Bloomberg indicies project a 0.07y October extension. In commodities, crude prices reversed much of yesterday's losses, trading higher in lockstep with broader risk sentiment on month and quarter end, but the range of price action this morning is narrow. Spot gold is modestly firmer amid the pullback in the Dollar after tumbling to a low of USD 1,857.79/oz this week – the lowest since early March – largely due to this week's rise of the Greenback. Bitcoin prices trade flat intraday around the USD 27,000 mark following yesterday's risk-induced rally. US economic data slate includes August wholesale inventories, personal income/spending, PCE deflator (8:30am), September MNI Chicago PMI (9:45am), University of Michigan sentiment (10am) and Kansas City Fed services activity (11am). Scheduled Fed speakers include Williams at 12:45pm Market Snapshot S&P 500 futures up 0.5% to 4,357.50 STOXX Europe 600 up 1.0% to 452.79 MXAP up 0.6% to 157.66 MXAPJ up 1.3% to 493.22 Nikkei little changed at 31,857.62 Topix down 0.9% to 2,323.39 Hang Seng Index up 2.5% to 17,809.66 Shanghai Composite up 0.1% to 3,110.48 Sensex up 0.9% to 66,087.90 Australia S&P/ASX 200 up 0.3% to 7,048.64 Kospi little changed at 2,465.07 German 10Y yield little changed at 2.86% Euro up 0.4% to $1.0606 Brent Futures down 0.3% to $95.10/bbl Gold spot up 0.4% to $1,872.18 U.S. Dollar Index down 0.43% to 105.77 Top Overnight News The BOJ announced an unscheduled bond-purchase operation after yields on long and super-long debt climbed to decade highs. The operation is small and probably not strong enough to bring a big reduction in yields, according to Sumitomo Mitsui, but a larger one may weaken the yen toward 150 versus the dollar. BBG Japan’s Tokyo CPI ex-food/energy for Sept comes in at +3.8%, down from +4% in Aug and below the Street’s +3.9% forecast (headline was +2.8%, down from +2.9% in Aug but ahead of the Street’s +2.7% forecast). BBG A senior executive at American risk advisory firm Kroll has been barred from leaving mainland China, the latest example of Chinese authorities imposing exit bans on the employees of foreign firms. Michael Chan, a Hong Kong-based managing director who specializes in corporate restructuring, is assisting an investigation into a case that dates back a few years, according to people familiar with the matter. Neither Chan nor Kroll is the target of the investigation, the people said. WSJ China has proposed relaxing its strict rules on data flows abroad, in its latest move to allay foreign business concerns and revive faltering growth in the world’s second-largest economy. The Cyberspace Administration of China has drafted a set of exemptions to its requirement for approval to send personal data overseas, which applied to cross-border purchases, money transfers and air and hotel reservations. BBG Saudi Arabia is determined to secure a military pact requiring the United States to defend the kingdom in return for opening ties with Israel and will not hold up a deal even if Israel does not offer major concessions to Palestinians in their bid for statehood, three regional sources familiar with the talks said. RTRS Europe’s CPI sinks to +4.3% on the headline (down from +5.2% in Aug and below the Street’s +4.5% forecast) while core falls to +4.5% (down from +5.3% in Aug and below the Street’s +4.8% forecast). France’s CPI for Sept cools to +5.6%, down from +5.7% in Aug and below the Street’s +5.9% forecast. BBG Credit Suisse flagged potential losses of as much as $2.2 billion in the third quarter as it exits more businesses. The losses from loan portfolios won't affect UBS results as the impact was previously taken into account, said Vontobel analyst Andreas Venditti. UBS shares ticked up. BBG The world’s financial stability watchdog is launching a probe of the build-up of debt outside traditional banks, as it seeks to limit hedge funds’ borrowing and boost transparency. Klaas Knot, chair of the Financial Stability Board, told the Financial Times the review was intended to address rising risks from so-called non-banks, which include hedge funds and private capital. FT US income and spending data for August may complicate the Fed's soft-landing optimism, Bloomberg Economics said. Revised data is expected to show prices running hotter than previously thought. Still, core PCE inflation and Jerome Powell's preferred "supercore" gauge probably came in soft for a third straight month, while spending and income grew at a solid pace. BBG A more detailed look at global market courtesy of newquawk APAC stocks mostly took impetus from Wall St’s positive lead after risk appetite was spurred as yields and oil prices declined from recent peaks but with some of the gains in the region capped heading into quarter-end and amid several holiday closures. ASX 200 was kept afloat by outperformance in the mining and materials sectors but with trade constricted amid quasi-holiday conditions with Victoria state on a public holiday. Nikkei 225 failed to sustain early gains and pulled back from resistance around the 32,000 level despite several encouraging data releases. Hang Seng outperformed as property and tech surged after the recent easing of yields and following further supportive  measures by Chinese authorities, while the index was unfazed by the absence of mainland participants and Stock Connect flows due to the Mid-Autumn Festival and next week’s National Day holidays. Top Asian News Japanese Finance Minister Suzuki said don't have a defence line in dealing with FX moves and that current FX moves suggest the Yen's weakness has progressed, according to Reuters. European bourses are trading higher across the board with the Stoxx 600 now virtually flat week-to-date after yesterday’s positive session helped erase losses earlier in the week, while EZ inflation metrics this morning printed below expectations. Sectors in Europe are mostly firmer with Consumer Products & Services top of the leaderboard as luxury names benefit from broker action. Other gainers include Tech, Real Estate and Basic Resources, whilst Insurance and Energy are the only sectors in the red. US futures are trading firmer as they continue to advance on yesterday's gains, owing to a generally more positive risk tone and as yields see some downside over the past couple of sessions. Top European News LVMH (MC FP) CEO Bernard Arnault and Russian oligarch Nikolai Sarkisov are under investigation for alleged money laundering, via Yahoo Finance. ECB's Vasle said headline inflation is on a declining trend; growth is slowing but the labour market remains strong; transmission of ECB policy to the banking sector is strong, according to Bloomberg. ECB's Vujcic said he is confident that inflation will slow in the coming months, according to Bloomberg. FX DXY succumbs to more intense selling pressure and retreats to 105.660 amid softer US Treasury yields and renewed risk appetite. Euro bounced from around 1.0559 to 1.0616 irrespective of weaker than consensus German retail sales, French and pan-Eurozone inflation metrics that exacerbated the revival in EGBs. Pound secured a firmer grip of the 1.2200 handle against the Dollar, even before better-than-expected BoE consumer credit, mortgage approvals and lending, but stalled just ahead of the 10 DMA that came in at 1.2259. Antipodeans sit as the top G10 performers amid the constructive risk tone while the Yen benefits from the pullback in yields. Fixed Income EGBs were already clawing back some of their heavy losses before below-forecast German retail sales provided a bit more impetus, but weaker than expected French CPI offered more incentive and the ensuing softer-than-consensus pan-Eurozone readings further bolstered the benchmarks. Bunds extended their rebound to exactly 100 ticks from Eurex low to 128.46 high, OATs probed 123.00 at 123.05 from 121.98 at worst and even BTPs got close to 110.00 from sub-109.00 irrespective of mixed Italian inflation metrics. Gilts reached 94.18 compared to their early 93.62 Liffe base and the T-note is hovering close to the top of a 108-8+/107-26 range. Commodities Crude prices have been relatively flat throughout the European morning, but the contracts have been tilting higher in lockstep with broader risk sentiment on month and quarter end, but the range of price action this morning is narrow. Spot gold is modestly firmer amid the pullback in the Dollar after tumbling to a low of USD 1,857.79/oz this week – the lowest since early March – largely due to this week's rise of the Greenback. Base metals are also on a firmer footing amid the Dollar pull-back and the broader constructive risk profile. UK treasury minister Penn said the efficacy of the Russian oil price cap must be kept under review. US President Biden administration's 5-year offshore oil plan will be released on Friday but does not include any sales for 2024 and will have no more than 1 auction in each of the final four years, according to Reuters sources. Russia may introduce quotas on overseas fuel exports if the complete export ban (imposed last week) does not bring down high domestic gasoline and diesel prices, according to Russian Deputy PM Novak cited by Reuters. Geopolitics Saudi Arabia is reportedly determined to secure a military pact requiring the US to defend the kingdom in return for opening ties with Israel, and will not hold up a deal even if Israel does not offer major concessions to Palestinians, via Reuters citing sources A pact might fall short of the NATO-style defence guarantees the kingdom initially sought when the issue was first discussed between MBS and US President Biden during the Biden's visit to Saudi Arabia in July 2022. Washington could also sweeten any deal by designating Saudi Arabia a Major Non-NATO Ally, a status already given to Israel, according to the source. US Assistant Secretary of State Kritenbrink met with China's Vice Foreign Minister in Washington and the two sides held candid, in-depth and constructive consultations on regional issues. Furthermore, Kritenbrink reaffirmed the importance of maintaining peace and stability across the Taiwan Strait and the sides discussed regional issues including Myanmar, North Korea and maritime matters. US Treasury Secretary Yellen is to use improved communications with China to discuss contentious issues and gain new insights into China's economy, via Axios. US Event Calendar 08:30: Aug. Personal Income, est. 0.4%, prior 0.2% 08:30: Aug. Personal Spending, est. 0.5%, prior 0.8% 08:30: Aug. Real Personal Spending, est. 0%, prior 0.6% 08:30: Aug. PCE Core Deflator YoY, est. 3.9%, prior 4.2% 08:30: Aug. PCE Core Deflator MoM, est. 0.2%, prior 0.2% 08:30: Aug. PCE Deflator YoY, est. 3.5%, prior 3.3% 08:30: Aug. PCE Deflator MoM, est. 0.5%, prior 0.2% 08:30: Aug. Advance Goods Trade Balance, est. -$91.4b, prior -$91.2b, revised -$90.9b 08:30: Aug. Wholesale Inventories MoM, est. -0.2%, prior -0.2% 09:45: Sept. MNI Chicago PMI, est. 47.6, prior 48.7 10:00: Sept. U. of Mich. Sentiment, est. 67.7, prior 67.7 10:00: Sept. U. of Mich. Current Conditions, est. 69.8, prior 69.8 10:00: Sept. U. of Mich. Expectations, est. 66.4, prior 66.3 10:00: Sept. U. of Mich. 1 Yr Inflation, est. 3.2%, prior 3.1% 10:00: Sept. U. of Mich. 5-10 Yr Inflation, est. 2.8%, prior 2.7% 11:00: Sept. Kansas City Fed Services Activ, prior -1 DB's Jim Reid concludes the overnight wrap As we arrive at the last business day of the month, it’s fair to say that September has lived up to its reputation as the worst month of the year for markets. The sour mood dominated the early part of yesterday, with yields hitting new highs for the cycle on both sides of the Atlantic. For instance, 10yr bund yields rose +9.1bps to a post-2011 high of 2.93%, whilst 10yr Treasury yields hit an intraday high of 4.69%, before a sharp turn that took them down over 10bps intraday to 4.57% by the close. We’ve pointed out recently that a 10yr Treasury yield at 4.5% is actually in line with the long-term historical average, but as markets got increasingly used to a decade-and-a-half of historically low rates since the GFC, this is coming as a big adjustment to lots of investors. Indeed, it was only three-and-a-half years ago that the 10yr Treasury yield hit an all-time intraday low of 0.31%. But since then we’ve seen an astonishing turnaround, and it’s worth remembering that the annual rise in the 10yr yield of 236bps over 2022 was already the biggest annual increase since 1788. So even though yesterday saw a breather by the end of the session, it’s no exaggeration to say we’re in the midst of a historic sell-off. That rates sell-off dominated in Europe, with the UK seeing the biggest declines. At one point intraday, the 1 0yr gilt yield was even on track to close more than +20bps higher, which would have been the biggest daily increase since the aftermath of the mini-budget last year. But it then pared back those moves to “only” close up by +12.9bps. It was the same story elsewhere in Europe, with yields on 10yr bunds (+9.1bps), OATs (+8.8bps) and BTPs (+7.7bps) all rising significantly. What was also striking was that higher real yields drove those moves, and the German 10yr real yield closed at a post-2011 high of 0.50%. Those bond losses occurred despite some downside surprises in the latest inflation data. For instance, the September flash CPI release for Germany fell to a two-year low of +4.3% on the EU-harmonised measure (vs. +4.5% expected). Meanwhile in Spain, we did see CPI move up by eight-tenths to +3.2%, but that was still beneath the +3.3% reading expected by the consensus. So both were less than expected. All eyes will now be on the CPI release for the entire Euro Area today, which is out at 10am London time. We also got several data releases from the US yesterday, but for now the biggest question surrounds the potential government shutdown, which could happen over the weekend. As it stands, there’s still no sign that the House and Senate will be able to agree on a new funding package, with current funding set to expire this Sunday, October 1. For the economy, the main issue is that federal employees would be furloughed, which would act as a drag on growth. And for markets, there’s the added point that we could miss out on some upcoming data releases, including the jobs report next Friday. So if a shutdown does happen, markets may well have to rely more on alternative survey indicators that will still come out like the ISM manufacturing and service prints. See Brett Ryan’s piece here on how previous shutdowns have impacted the economy and data releases. Another ongoing issue for the US economy is the autoworkers strike, and several outlets including CNN have reported that the United Auto Workers union could announce an expansion of strikes today if progress isn’t made. On that topic, Olga Cotaga and Luke Templeman on our team have published a report which argues that, regardless of inflation, this is just the beginning of greater labour demands. Large corporates stand to have their margins squeezed as a result. Their report can be found here. As we await developments on a potential shutdown and the strikes, the US labour market still appeared resilient, with the weekly jobless claims coming in at 204k (vs. 215k expected) over the week ending September 23. That takes the 4-week moving average down to 211k, which is the lowest it’s been since February. Separately, we got the latest benchmark GDP revisions from the US, which showed the economy growing a bit faster than previously thought. For example, over 2017-22, it showed GDP grew by 2.2% on average, a tenth higher than before. For Q1 2023, growth was revi sed up to 2.2% on an annualised basis (vs. 2.0% before), and Q2 2023 was left unchanged at an annualised +2.1%. There was some less encouraging news on the housing front, however, with monthly pending home sales for August showing their sharpest fall in 11 months, down -7.1% . The claims and GDP revisions data initially gave more steam to the Treasuries sell-off, with 10yr Treasury yields reaching a high 4.69% shortly after. But yields saw a steady turn lower during the rest of the session, with 10yr closing -3.3bps lower at 4.57% and the 2yr down -7.8bps to 5.06%. So once again, there was a big steepening in the yield curve, with the 2s10s curve up +4.6bps to -48.5bps, which is the least inverted it’s been since May. And despite yesterday’s reversal, 10yr yields have since moved up +1.9bps overnight to 4.59%, are still up +16.0bps since last Friday – which means they’re on course for the biggest rise in yields since early July. Despite a volatile rates backdrop, equities rebounded yesterday and the S&P 500 (+0.59%) posted its strongest day in two weeks. The advance was fairly broad-based, and tech stocks were an outperformer with the NASDAQ (+0.83%) and the FANG+ index (+1.18%) both seeing even bigger gains. Nevertheless, even with yesterday’s recovery, the S&P 500 remains on track for its worst monthly performance of 2023 so far, having shed -4.61% since the start of the month. Furthermore, it’s on course for a 4th consecutive weekly loss for the first time since December. Over in Europe, both the STOXX 600 (+0.36%) and the DAX (+0.70%) ended a run of 5 consecutive declines . Overnight in Asia, there’s been a pretty mixed performance from the major indices. On the one hand, the Hang Seng (+2.71%) is currently on course for its best day since July, whereas the Nikkei (-0.12%) has posted a modest decline this morning. Otherwise, markets in mainland China are closed today and into next week, and they’re also closed in South Korea. Looking forward, European and US equity futures are trading modestly higher, with those on the DAX (+0.30%) and the S&P 500 (+0.06%) in positive territory. Otherwise overnight, the Bank of Japan announced an unscheduled bond-purchase operation, which came as the 10yr yield has hit its highest level in a decade overnight, at 0.77%. They’ve since fallen back to 0.76%, although that would still be their highest closing level in the last decade. At the same time, we’ve had several data releases from Japan overnight. That included the unemployment rate for August, which held at 2.7% (vs. 2.6% expected), as well as the Tokyo CPI reading for September, where core-core inflation slowed to +3.8% (vs. +3.9% expected) . To the day ahead, and the main data highlight will be the Euro Area flash CPI release for September. Alongside that we’ll get German unemployment for September, UK mortgage approvals for August. Over in the US, we’ll get PCE inflation for August, along with personal income and spending data, as well as the University of Michigan’s final consumer sentiment index for September, and the MNI Chicago PMI for September. Central bank speakers include ECB President Lagarde, the ECB’s Kazaks and Visco, and the Fed’s Williams. Tyler Durden Fri, 09/29/2023 - 08:18.....»»

Futures Rebound After Worst Week Of 2023 US index futures jumped after suffering their worst weekly drop of 2023, as traders looked for fresh opportunities to buy stocks while assessing the outlook for growth. S&P 500 futures rose 0.5%, rising just shy of 4,000 by 7:45 a.m. ET after the underlying benchmark fell 1.1% in the last trading session. Nasdaq 100 futures rose by about 0.6% after the tech-heavy gauge tumbled 1.7% at the end of last week. European and Asian stocks also rose; the Bloomberg Dollar Spot Index turned red after retreating from the day’s highs, lifting most Group-of-10 currencies. Treasuries edged lower, mirroring moves in global bond markets. Gold was little changed, oil fell and bitcoin resumed losses after gains overnight In premarket trading, cancer drugmaker Seagen soared after the Wall Street Journal reported that Pfizer is in early-stage talks to acquire the cancer therapy developer worth around $30BN. Pfizer shares slipped. Here are some other notable premarket movers: Best Buy (BBY) shares drop 1.8% after Telsey downgraded the electronics retailer, saying the company’s business is likely to experience a further decline in the near term. Fisker (FSR) climbs 7.8% after the carmaker  posted 4Q results and forecast 8% to 12% annual gross margin and potentially positive Ebitda for 2023. FuboTV (FUBO) rises 8.2% after posting 4Q revenue that beat the average analyst estimate. Focus Financial Partners (FOCS) shares are halted after the company agreed to be acquired by affiliates of CD&R for $53 per share. Enphase Energy Inc. (ENPH) shares are up 1.9% after Janney Montgomery upgraded the company to buy, citing attractive valuation. Li-Cycle shares (LICY) rise 8% after the firm announced that one of its US subsidiaries had been granted a $375 million loan offer from the Biden administration. Lucira Health (LHDX) shares surge 240% after the FDA issued an emergency use authorization for the company’s Covid-19 and flu test. Payoneer Global (PAYO) gains 5% after Jefferies initiated coverage with a buy recommendation, saying the payments firm suffered from a “complexity discount.” Pulmonx Corp. (LUNG) rises 3.8% as Wells Fargo upgrades to overweight, saying the company’s fourth-quarter results “represent a turning point for the company.” Range Resources (RRC) shares slump 7.5% after Pioneer Natural Resources said it was not “contemplating a significant business combination or other acquisition transaction” in a statement Friday evening. Seagen (SGEN) shares soar 14% after the Wall Street Journal reported that Pfizer is in early-stage talks to acquire the cancer therapy developer. Tegna (TGNA) shares slump 22% after the Federal Communications Commission shelved Standard General’s proposed $5.4 billion buyout of the broadcaster. Union Pacific (UNP) shares climb 10% after the rail freight company said it was looking for a new CEO following pressure from a hedge fund. Universal Insurance Holdings (UVE) rises 1.8% after Piper Sandler upgraded the insurer to overweight, anticipating strong earnings in 2023 on higher prices and potential tort reform via a bill that seeks to reduce unnecessary litigation XPeng (XPEV) shares gain 5% after the Chinese electric-vehicle maker is included in the Hang Seng China Enterprises Index The S&P 500 has fallen over the past three weeks amid concerns that renewed price pressures will prompt more (and bigger) rate hikes from the US central bank. An unexpected acceleration in the personal consumption expenditures price index boosted expectations for policy tightening, while solid income and spending growth data further allayed fears of an imminent recession. Traders await durable goods data due later on Monday. Monday’s advance may signal traders are looking “towards the end of the potential bearish correction brought by last week’s decreased appetite for riskier assets, after investors digested the prospect of longer hawkish monetary stances from central banks,” said Pierre Veyret, a technical analyst at ActivTrades. Others - such as MS permabear Mike Wilson - remained bearish: Wilson said March will see stronger bear-market headwinds for stocks in a note on Monday. Fresh earnings downgrades will weigh on markets, with the S&P 500 potentially sliding as much as 24% to 3,000 points. Wilson also said that those treading into this market risk falling into a “bull trap”, a view echoed by Torsten Slok, chief economist at Apollo Global Management. “A generation of investors has since 2008 been taught that they should buy on dips, but today is different because of high inflation, and credit markets and equity markets are underestimating the Fed’s commitment to getting inflation down to 2%,” Slok wrote in a note. Stock markets that had mostly shrugged off forecasts for higher interest rates are finally giving way to a swift repricing of yields. Traders are now pricing US rates to peak at 5.4% this year, compared with about 5% just a month ago, as an acceleration in the Federal Reserve’s preferred inflation gauge dashes hopes for an imminent pause in policy tightening. Meanwhile, JPMorgan strategists led by Mislav Matejka said last year’s strong outperformance in cheaper, so-called value stocks over growth peers is likely to reverse soon as the economic recovery slows. The next move for investors in the following month or two might be to go “outright underweight value versus growth,” they wrote in a note. Ironically, that comes as JPM initiated coverage of two big US online real estate firms, Zillow Group at overweight and Redfin at neutral, as it forecasts a recovery in the property market. European stocks also rose as investors are tempted by lower prices following the largest weekly selloff since December. The Stoxx 600 is up 1.2% with tech, retail and consumer products the best-performing sectors. The bounce ignores the surge in German benchmark yields which hit 2.58%, the highest since 2011, on bets the European Central Bank will extend its tightening cycle beyond this year. Here are some of the biggest movers on Monday: Shell rises as much as 2.4% after Goldman Sachs upgrades the oil and gas company to buy from neutral, following a strong earnings season for oil majors Associated British Foods shares rise as much as 2.7% after the food processing and retailing company said it sees total sales for the first half more than 20% ahead of last year Michelin gains as much as 3.1% after Goldman Sachs upgraded the French tiremaker to buy from neutral, noting “underappreciated tailwinds” including lower raw material and logistics costs Hennes & Mauritz shares jump as much as 4.2% after Bank of America upgraded the clothing retailer to buy from underperform, citing prospects for a profit recovery this year Bunzl shares gain as much as 4.2%, hitting the highest intraday since August, after the distribution group’s results were marginally better than expected across the board, showing business model resilience Haleon shares rise as much as 1% after Bloomberg News reported the consumer health business, spun out of GSK last year, is exploring a divestiture of its ChapStick lip balm brand PostNL shares tumble as much as 12%, the most since October, after the Dutch delivery firm’s new FY23 Ebit guidance came in 43% below consensus Dechra Pharmaceuticals tumbles as much as 18% after the British animal health-care company posted a profit decline in the first half and forecast FY guidance that disappointed Earlier in the session, Asian stocks declined as traders worry about the prospect of further interest rate increases by the Federal Reserve after an unexpected acceleration of US inflation. Investors were also cautious ahead of a key political meeting in China.  The MSCI Asia Pacific Index dropped as much as 0.8%, led by technology and materials shares. Australia and South Korea were among the worst-performing markets, while Japan bucked the region’s trend following a pledge from the Bank of Japan governor nominee to maintain ultra-loose monetary policy. Chinese and Hong Kong benchmarks edged lower as investors eyed the National People’s Congress meeting starting this weekend. They are showing a preference for onshore stocks over Hong Kong peers amid expectations that more pro-growth policies will be announced. A strong rally in Asian stocks has hit a wall this month amid renewed worries of US policy tightening and a lack of positive catalysts for Chinese shares. A hotter-than-expected set of data in the Fed’s preferred inflation gauge Friday spurred a hawkish recalibration of expectations for rate hikes, pressuring risk assets. Asian emerging markets will “certainly not be immune” from “spillover risks” of the rebound in US inflation, said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank. Prospects of tighter policy for a longer period “will hold feet to fire for valuations.” Japanese equities closed mixed, as investors mulled the unexpected acceleration of US inflation data that suggested potential further interest rate hikes by the Federal Reserve. The Topix rose 0.2% to close at 1,992.78, while the Nikkei declined 0.1% to 27,423.96. The yen strengthened about 0.1% after tumbling 1.3% Friday to 136.48 per dollar. Fanuc contributed the most to the Topix gain, increasing 2.9% after it was upgraded at Nomura. Out of 2,160 stocks in the index, 1,478 rose and 591 fell, while 91 were unchanged. “Japanese equities were mainly influenced by the higher than expected US PCE data, and the rising US interest rates would make the environment tougher for growth stocks,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities. “However, compared to US stocks, Japanese stocks are still supported by a weaker yen and this is likely to continue for some time.” Australian stocks declined; the S&P/ASX 200 index fell 1.1% to close at 7,224.80, dragged by losses in mining shares. The materials sub-gauge dropped the most since Oct. 28, continuing a four-day losing streak, after iron ore slumped.  In New Zealand, the S&P/NZX 50 index fell 0.9% to 11,793.33 In FX, the Bloomberg Dollar Spot Index was steady and the greenback traded mixed against its Group-of-10 peers. Sweden’s krona and the pound were the best performers while the New Zealand and Australian dollars were the worst. The euro was steady at $1.0550. Bund yields followed Treasury yields higher after an early drop. the 10-year yield rose to the highest since 2011 as traders are betting the ECB will extend its tightening cycle beyond this year, pushing back expectations for a peak in interest rates into 2024 for the first time. Focus is on speeches by policymakers The pound rose 0.2% against the dollar, snapping a three-day decline, to trade around 1.1966 amid speculation of an imminent deal on the Northern Ireland protocol. Gilts yields rose as bets on BOE rates pricing turned higher. The yen steadied near a two-month low as currency traders weighed remarks from BOJ governor nominee Kazuo Ueda at his second parliamentary hearing. Ueda said monetary easing should continue in support of the economy’s recovery, a comment that suggests he won’t seek an immediate change in policy if he is approved to helm the central bank The New Zealand dollar underperformed its G-10 peers. RBNZ chief economist Paul Conway said inflation is “far too high,” labor market is “incredibly tight”. The Australian dollar also tacked lower. RBA chief Philip Lowe’s expectation of further interest-rate rises prompted economists and money markets to narrow the odds of a recession In rates, Treasury yields reversed a drop to inch up, led by the front end following a wider drop across German bonds, as traders wagered that the European Central Bank will extend its rate-hiking cycle further into 2024. US yields were cheaper by up to 1.7bp in front-end of the curve with 2s10s flatter by almost 1bp; 10-year yields around 3.95%, less than 1bp cheaper vs. Friday session close with Germany 10-year lagging by 3bp vs. Treasuries.  Bund futures are lower as traders push back bets on when ECB rates will peak until 2024 for the first time. German 10-year yields are up 4bps. In commodities, oil fell as concerns that the Fed will keep on raising rates eclipsed the latest disruption to supplies in Europe and optimism over a demand recovery in China; WTI hovered around $76.30. Spot gold is flat at around $1,810. Bitcoin is modestly firmer on the session, +1.0%, but off initial best levels and well below 24k. RBI Governor Das said at the G20 that there is now wide recognition of major risk with crypto. Looking at today's calendar, we get the February Dallas Fed manufacturing activity, January durable goods orders, and pending home sales; elsewhere we also get Japan January retail sales, industrial production, Italy February manufacturing confidence, economic sentiment and consumer confidence index, Eurozone February services, industrial and economic confidence, January M3, Canada Q4 current account balance. Fed speaker slate includes Jefferson at 10:30am; Goolsbee, Kashkari, Waller, Logan, Bostic and Bowman are scheduled later this week. On the earnings front, Occidental Petroleum, Workday, and Zoom report. Market Snapshot S&P 500 futures up 0.5% to 3,994.25 STOXX Europe 600 up 1.0% to 462.49 MXAP down 0.5% to 157.92 MXAPJ down 0.8% to 511.47 Nikkei down 0.1% to 27,423.96 Topix up 0.2% to 1,992.78 Hang Seng Index down 0.3% to 19,943.51 Shanghai Composite down 0.3% to 3,258.03 Sensex down 0.4% to 59,220.58 Australia S&P/ASX 200 down 1.1% to 7,224.81 Kospi down 0.9% to 2,402.64 German 10Y yield little changed at 2.56% Euro little changed at $1.0555 Brent Futures up 0.4% to $83.48/bbl Gold spot down 0.1% to $1,809.86 U.S. Dollar Index little changed at 105.15 Top Overnight News from Bloomberg Three quarters of the 1,500 UK business leaders polled by BCG’s Centre for Growth believe the economy will shrink in 2023 but only 20% plan to shed staff, fewer than the 29% who plan to increase headcount: BBG Rishi Sunak and Ursula von der Leyen will meet in the UK in the early afternoon on Monday for final talks ahead of an expected announcement of a post-Brexit settlement for Northern Ireland: BBG The ECB is very likely to go ahead with its intention to raise interest rates by a half-point when it meets next month, President Christine Lagarde told India’s Economic Times: BBG Bloomberg’s aggregate index of eight early indicators suggests China’s economy rebounded in February after the long holiday, although it points to an uneven recovery with strong consumption following the scrapping of Covid rules but lagging industrial activity: BBG Macron announced he will visit China in April and hopes to encourage Beijing to pressure Moscow into reaching a settlement of the Ukraine war. SCMP New home sales by floor area in 16 selected Chinese cities rose 31.9% month-on-month in February, compared with a fall of 34.3% in January, according to China Index Academy, one of the country’s largest independent real estate research firms. RTRS    American companies, including McDonald’s, Starbucks, Ralph Lauren, Tapestry, and others, are expanding in China in anticipation of a consumer-led rebound in the economy as the post-reopening recovery continues. WSJ China Renaissance confirmed Chairman Bao Fan has been assisting in a Chinese probe since he disappeared abruptly earlier this month. The investigation is being run by authorities, and Renaissance will "cooperate and assist with any lawful request." It was reported last week that Cong Lin, the firm's former president, has been involved in a probe since September. BBG BOJ policy – incoming governor Kazuo Ueda says it’s premature to discuss normalization as “big improvements” must be achieved in the country’s inflation trajectory before changes can happen (Ueda says the benefits of monetary easing exceed the costs). RTRS Russia has halted supplies of oil to Poland via the Druzhba pipeline, a move that comes one day after Poland sent its first Leopard tanks to Ukraine. RTRS US insurance regulators on Monday will meet to consider boosting capital charges on complex corporate loan instruments that some in the industry warn are creating excessive risk. The issue pits insurers backed by large private equity firms such as Blackstone, Apollo Global and KKR — who are increasingly investing in the loans — against traditional life insurers such as MetLife and Prudential Financial, who warn of growing risks. FT Pfizer is in early-stage talks to acquire biotech Seagen, valued at about $30 billion, and its pioneering targeted cancer therapies. WSJ Hedge fund Soroban Capital Partners is pushing Union Pacific Corp.  to replace Chief Executive Lance Fritz, arguing the railroad has underperformed on his watch, according to people familiar with the matter. WSJ A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded cautiously heading into month-end and a slew of upcoming releases including Chinese PMI data, with headwinds also from the US where firmer-than-expected Core PCE data spurred hawkish terminal rate bets. ASX 200 was negative as participants digested a deluge of earnings and with the mining industry leading the retreat seen across nearly all sectors aside from energy which benefitted from a jump in Woodside Energy’s profits. Nikkei 225 price action was contained by a lack of pertinent macro drivers and with BoJ Governor nominee Ueda’s largely reiterated prior comments at the upper house confirmation hearing. Hang Seng and Shanghai Comp. were choppy with initial pressure amid geopolitical frictions after the G20 finance ministers meeting failed to agree on a communique due to opposition from Russia and China, while National Security Adviser Sullivan also warned there will be a real cost if China provides military assistance to Russia for the Ukraine war. However, Chinese stocks gradually recovered from the early weakness and briefly turned positive with sentiment helped by a continued liquidity injection and after China drafted guidelines to regulate financial support in the housing rental market, although the gains proved to be short-lived. Top Asian News China drafted guidelines to regulate financial support in the housing rental market and began to solicit public opinion, according to China.org.cn. Macau dropped COVID-19 mask mandates for most locations aside from public transportation, hospitals and some other areas, according to Reuters. BoJ Governor Kuroda commented that he is resolved to keep ultra-loose policy and that the BoJ expects core consumer inflation to slow beyond 2% in both fiscal 2023 and 2024, according to Reuters. BoJ Governor nominee Ueda says CPI growth will slow below 2% in fiscal 2023 and that it takes time for CPI to meet the 2% target stably and sustainably, while he added that the BoJ's current monetary easing is appropriate and that it is appropriate to continue monetary easing from now on as well. Adds, changing the 2% inflation target into a 1% target would strengthen the JPY in the short-term, weaken it long-term. Overshooting commitment is aimed at exerting powerful announcement effects on policy, need to be mindful of risk of inflation overshooting too much. Targeting shorter-dated JGBs than current 10yr yield is one idea if BoJ were to tweak YCC in the future, but there are many other options. Does not think Japan has reached the reversal rate, in which financial transmission channels are hurt so much that the demerits of easing exceed benefits. European bourses are firmer across the board, Euro Stoxx 50 +1.8%, after a cautious APAC handover following Friday's selling pressure. Sectors are all in the green with Energy names at the top of the pile, given benchmark pricing and Shell's upgrade at GS. Stateside, futures are currently posting more modest upside of around 0.5% with Fed's Jefferson (voter) the session's main event. Tesla's (TSLA) German plant has hit a production level of 4,000 per week, three weeks ahead of schedule, according to Reuters. Top European News UK PM Sunak and European Commission President von der Leyen will meet at 12:00GMT/07:00EST in Windsor, according to BBC; if there is a deal, a press conference could be around 15:30GMT. Earlier, UK PM Sunak's office said UK PM Sunak will meet with EU's von der Leyen for talks on Northern Ireland Brexit deal late lunchtime on Monday and will hold a Cabinet meeting later on Monday. Furthermore, PM Sunak and von der Leyen will hold a news conference if a deal is reached, while Sunak will also address parliament if there is a deal. UK ministers are unlikely to quit re. the Brexit deal, with the likes of Steve Baker and others liking what they are hearing but waiting to see the full text, according to Times' Swinford; ERG say they would love to back the deal but if the DUP does not back the deal it cannot and won't support it. UK PM Sunak said they are giving it everything they’ve got regarding talks for a post-Brexit deal for Northern Ireland and he will try to resolve the concerns the DUP Party have regarding a new Brexit deal for Northern Ireland. It was later reported that PM Sunak said he won big concessions from the EU, according to The Sunday Times and The Times. UK Deputy PM Raab said there is real progress on a trade deal and he is hopeful for good news on the Brexit deal within days, not weeks, and also noted that Northern Ireland’s DUP does not have a de-facto veto over the Brexit deal. In other news, Raab said he will resign if an allegation of bullying against him is upheld, according to Reuters. ECB’s Lagarde said headline inflation is still unacceptably high and core CPI is at a record level, while she added that they want to bring inflation back to the 2% target and noted that rate decisions are to be data dependent. Magnitude 5.7 earthquake that struck the Eastern Turkey region has been revised to 5.2, according to the EMSC. FX DXY retained a bid between Fib and psychological level within 105.360-070 range; though has erred towards the lower-end of these parameters going into the US session. Sterling 'outperforms' after a dip through 200 DMA vs Buck on UK-EU NI trade deal optimism, with EUR/GBP within 10 pips of 0.8800 at worst. Kiwi flags as NZ Q4 retail sales fall and Aussie feels more contagion from Yuan weakness; antipodeans near 0.6150 and 0.6710 respectively. Euro pivots 1.0550 vs the Dollar and Yen pares back from sub-136.50 amidst Fib support nearby. PBoC set USD/CNY mid-point at 6.9572 vs exp. 6.9586 (prev. 6.8942) Commodities WTI and Brent are a touch softer though have lifted off overnight USD 75.58/bbl and USD 82.38/bbl lows given the improvement in risk sentiment throughout the European morning. Though, the benchmarks are shy of USD 76.82/bbl and USD 83.60/bbl peaks with numerous geopolitical updates factoring into the overall indecisive price action. Russia halted supplies of oil to Poland via the Druzhba pipeline, according to PKN Orlen's CEO. Subsequently, Russia's Transneft says payment orders for oil shipments to Poland were not issued in the second half of February, no oil flows to Poland currently, via Tass; paperwork for oil supplies to Poland has not been completed. Crude oil deliveries via the Druzhba pipeline to the Czech Republic are running as planned, according to Mero. Spot gold is little changed with the yellow metal in a tight sub-10/oz range above the USD 1800/oz handle, taking its cue from the similarly cagey USD. Base metals are, broadly speaking, firmer following overnight weakness but remain in proximity to the troughs from Friday's session. Fixed Income Bonds remain in bear clutches after another failed recovery rally. Bunds probe new cycle low at 133.61 (session high 134.36) have fallen just shy of key resistance area, associated 10yr at a YTD peak of 2.57%. Gilts wane just two ticks below 101.00 and test bids/support into 100.00 and T-note hugs base of 111-07/16 range ahead of US data, Central Bank speakers and crunch UK-EU Brexit talks. Geopolitics Russia's Kremlin, on China's peace plan, says no conditions for peace 'at the moment' in Ukraine, according to AFP. G20 Finance Ministers meeting concluded without a joint communique as China and Russia opposed the draft with the two countries said to be upset by the use of a G20 platform to discuss political matters, according to sources cited by Reuters. India’s chair statement noted that there was a discussion about the war in Ukraine and it reiterated the G20 position on deploring in the strongest terms aggression by Russia, as well as reiterated the G20 position demanding Russia’s complete and unconditional withdrawal from Ukrainian territory. Russian President Putin said Russia has taken into account NATO’s nuclear potential and claimed that the west wants to liquidate Russia, according to TASS. Russian Wagner Group boss Prigozhin said his fighters captured the village of Yahinde which is north of Bakhmut, according to Reuters. US President Biden said on Friday that he is ruling out Ukraine’s request for F-16 aircraft for now but added they have to put Ukrainians in a position where they can make advances this spring and summer. Biden also said he doesn’t anticipate a major initiative on the part of China to provide weapons to Russia and that he hasn’t seen anything in the Chinese peace plan that would be beneficial for anyone but Russia, while he also suggested it is possible that Chinese President Xi did not know about the Chinese spy balloon, according to an ABC News interview. US National Security Adviser Sullivan said China has made the final decision regarding providing aid to Russia and has not taken the possibility of providing lethal aid to Russia off the table, while he noted the consequences have been made clear to China and warned there will be a real cost if China provides military assistance to Russia for the Ukraine war, according to an interview with ABC News. There were also comments from Republican lawmaker McCaul that China is thinking of sending drones and other lethal weapons. Belarus President Lukashenko will pay a state visit to China from February 28 to March 2. "The visit will serve as an opportunity for the two sides to further promote comprehensive cooperation", according to Global Times. Germany, France, and the UK are considering making concrete security guarantees to Ukraine as an incentive for Ukrainian President Zelensky to engage in peace talks with Russia, according to the WSJ. German Defence Minister Pistorius commented regarding the Chinese peace plan and stated that they will judge China by its actions, not its words, according to Reuters. US Event Calendar 08:30: Jan. Durable Goods Orders, est. -4.0%, prior 5.6% Jan. -Less Transportation, est. 0.1%, prior -0.2% Jan. Cap Goods Ship Nondef Ex Air, est. 0%, prior -0.6% Jan. Cap Goods Orders Nondef Ex Air, est. -0.1%, prior -0.1% 10:00: Jan. Pending Home Sales (MoM), est. 1.0%, prior 2.5% Jan. Pending Home Sales YoY, prior -34.3% 10:30: Feb. Dallas Fed Manf. Activity, est. -9.2, prior -8.4 Central Bank Speakers 10:30: Fed’s Jefferson Discusses Inflation and the Dual Mandate DB's Jim Reid concludes the overnight wrap As we close out a tougher second month of the year than the first tomorrow night, Henry pointed out an interesting stat to me on Friday. January was the best January for the Global Bond Ag index this century whereas February so far is on course to be the worst February over the same period. The very strong financial market performance between mid-October and end-January was in our opinion based mostly around US terminal pricing being remarkably stable between 4.75-5.1%. In the previous 9-10 months it was constantly being repriced from around 1% to 5% causing chaos in the financial world. On Friday, US terminal closed at 5.4%, catching up to DB's street leading 5.6% forecast. Clearly this has been bubbling up since payrolls (Feb 3), the CPI revisions (Feb 10), CPI beat (Feb 14), retail sales beat (Feb 15), and even things like Manheim used prices spiking higher again in January and February. Last Friday's core PCE was another important piece of evidence with the 0.6% mom print above expectations of 0.4%. Even though the concern was that it would beat, this added fuel to the fire and markets still struggled to deal with the ramifications with 2yr, 10yr and terminal up +11.6bps, +6.8bps and +5.3bps to 4.814%, 3.943% and 5.40% respectively. 2yr yields are the highest since July 2007 and terminal the highest this cycle. For core US PCE, the 3m, 6m and 12m annualised numbers are now 4.8%, 5.1% and 4.7% and thus strongly hint at inflation stickiness. With this data it’s tough to rule out a return to 50bps hikes even if that’s not yet the base case. While that uncertainty is there, markets will stay on edge. In credit we downgraded our tactical bullishness in our "Credit: Rally ends soon" (Jan 30) note (link here) and suggested reducing exposure to dollar credit immediately. The biggest challenge though is when to officially run for the preverbal hills given we've had a long standing YE 23 target for HY of +860bps linked into our US recession call by year end. In the near-term we’re a little more relaxed on European credit. Indeed our credit team published a €HY update this morning looking at tight spreads in the face of growing fundamental vulnerabilities and the highest share of bonds rated B or worse in the last 10 years. However with supply unlikely to pick up materially, favourable technicals should keep spreads supported for now. Still, we think concerns about deteriorating credit metrics will eventually prevail and see €HY selling off in H2’23 alongside the US market when signs of a growth slowdown become even more tangible (see here for the full text). Linked into this view, the recent US data probably makes us more confident of a hard landing given the boom-and-bust nature of this cycle that has been increasingly clear step-by-step over the last 2-3 years. This trend first emerged with the extraordinarily excessive covid stimulus, which in turn led to an enormous spike in the money supply, which brought structural inflation, and was always going to require an immense amount of tightening to control. An immaculate disinflation and soft landing from here would defy all historical precedent. Time will tell if we're wrong and history needs to be rewritten but this feels a fairly straight forward US cycle to predict. For this week, with the current sensitivities over prices, all eyes will be on the flash February European CPI releases (France Tues, Germany Weds, Italy and EA Thurs) and labour market data released throughout the week. The CPI numbers follow Friday's upward revisions for the January report in the Euro Area, where core inflation was revised up a tenth to a new record of +5.3%. We also have the global PMIs (and US ISMs) with manufacturing on the first day of the month (Wednesday) and services (Friday). ECB speakers will have plenty of opportunity to reflect on the data with at least 8 appearances already scheduled for next week. For a more backward-looking assessment, markets will also have the ECB's account of the February meeting due Thursday to read through. Our own European economists upgraded their ECB call last week and now see two +50bps hikes in March/May followed by a final +25bps hike in June, which would imply a terminal of 3.75%, up from 3.25% previously (see full note here). Fed speakers are also prevalent as you'll see in the day-by-day week ahead. There are six FOMC voters and there is a lot for them to chew over at the moment, especially after Friday's PCE data. Outside of the ISMs, US data will revolve around consumer and manufacturing activity. That will include the Conference Board's consumer confidence index tomorrow, Chicago PMI (also tomorrow) and a host of regional central bank indices. Other notable indicators due include durable goods orders today and the advance goods trade balance tomorrow. Asian equity markets are trading lower this morning with the KOSPI (-1.19%) leading losses across the region while the Hang Seng (-0.75%), the CSI, (-0.21%) the Shanghai Composite (-0.12%) and the Nikkei (-0.19%) all trading in the red. In overnight trading, US stock futures are fairly flat alongside US yields. Earlier this morning, the government’s nominee for the Bank of Japan (BOJ) Governor, Kazuo Ueda in his speech to the parliament stressed the need to maintain the central bank’s ultra-loose policy to support the Japanese economy despite various market side-effects. Meanwhile, candidates for the BoJ deputy governor (Uchida and Himino) will appear for hearings in the Upper House tomorrow, following this week's Lower House hearings. Looking back on last week now, both equities and fixed income retreated as markets priced in further central bank hikes following mounting evidence that inflation was continuing to prove persistent. The selloff gathered pace on Friday, following the aforementioned US PCE inflation data surprising firmly to the upside, with headline PCE at +0.6% (vs +0.5% expected) month-on-month, and +4.7% (vs +4.3% expected) year-on-year. Further adding to the view that inflation is durable, core PCE inflation also came in above consensus, with the month-on-month print at +0.6% (vs +0.4% expected) whilst year-on-year came in at +4.7% (vs +4.3% expected). This data led markets to swiftly priced in a more aggressive price of rate hikes from the Fed. In particular, there was growing speculation that the Fed might step up their hikes to 50bps again, with a +30.3bps move priced into the next meeting in March, up from +27.5bps at the start of the week. US terminal rate timing is starting to be evenly balanced between July (5.400%) and September (5.401%), rather than the July peak we've had for several weeks. It's also at the highest level of the cycle. The pricing for the July meeting climbed up +11.8bps last week (+5.3bps on Friday), while the September meeting pricing rose +14.6bps last week (+6.9bps on Friday). Expectations also increased for rates remaining higher for longer, with the December meeting now implying a 5.28% rate. This was up +11.0bps on Friday and +21.6bps on the week – marking a fifth consecutive weekly increase. Renewed expectations of additional hikes by central banks triggered a sell-off in both US and European equities on Friday. The S&P 500 fell back -1.05% on Friday, finishing off the week down -2.67% and marking its worst weekly performance so far this year. The Nasdaq similarly retreated, down -3.33% last week (-1.69% on Friday), its largest weekly down move since mid-December. European equities fell back too, with the STOXX 600 retreating -1.42% last week (-1.04% on Friday). This sell-off was echoed across fixed income markets, with 10yr Treasury yields up +6.6bps on Friday and +12.8bps over the course of last week. 2yr Treasuries significantly underperformed, as yields rose +11.6bps on Friday and +19.7bps over the week, reaching their highest level since July 2007. It was a similar story in Europe, with the 2yr German yield up +11.7bps on Friday in their largest up move since December and hitting their highest level since October 2008. Over the course of the week, that left them up +15.3bps at 3.03%. In the meantime, 10yr bund yields rose +9.7bps last week (+5.9bps on Friday) to 2.54%, and the German 2s10s curve inverted to -50bps after it fell -5.6bps on Friday, which made up nearly the entirety of the -5.8bps flattening last week. Finally, commodity markets fell back most of last week before a rally in oil on Friday (WTI +1.23% & Brent +1.16% Friday) left WTI crude down just -0.03% on the week at $76.32/bbl and Brent crude up +0.19% at $82.16/bbl. On the other hand, metals saw continued selling on Friday, with copper futures falling back -3.81% overall (-2.64% on Friday), and nickel down -4.93% last week (-3.33% on Friday). Looking at the market more broadly, the Bloomberg Industrial Metals Index fell back -3.17% over the course of last week (-2.44% on Friday). All this likely down to some concerns that the Chinese reopening isn't quite as smooth and bouyant as hoped. Tyler Durden Mon, 02/27/2023 - 08:05.....»»

Futures Slide As OPEC+ Cut Sparks Gas Inflation Fears And "Tighter For Longer" Fed Two days ago, when stocks were melting up even as oil was storming higher and threatened to rerate inflation expectations sharply higher, we mused that algos were clearly ignoring this potentially ominously convergence. Stock algos still haven't noticed what oil is doing. impressive — zerohedge (@zerohedge) October 4, 2022 And while yesterday we saw the first cracks developing in the meltup narrative as oil extended gains following OPEC's stark slap on the face of the dementia patient in the White House, it was only today that the "oil is about to push inflation sharply higher" discussion entered the broader financial sphere, with JPM writing this morning that "OPEC+ presents inflation risk", Bloomberg echoing JPM that "OPEC+ alliance’s plan to cut oil supply stoked inflation fears and as traders awaited labor-market data to gauge the risk of recession" and Saxo Bank also jumping on the bandwagon, warning that OPEC+ supply cut will worsen global inflation which "raises the risk of inflation staying higher for longer” and “sends the wrong signal to the US Federal Reserve... It could send a signal that they have to keep on their foot on the brake for longer.” And sure enough, with oil rising above its 50DMA for the first time since Aug 30, futures have slumped overnight as oil kept its gains, with S&P and Nasdaq 100 futures both sliding 0.5% as of 730am, while Europe’s Stoxx 600 erased an advance and traded near session lows. US crude futures held on to weekly gains of about 11% after the oil cartel said it would cut daily output by 2 million barrels. Treasuries were steady, the 10Y trading around 3.77%, with the 2Y rate hovering about the 4.15% level. In pre-market trading, Credit Suisse jumped as much as 5.2% after JPMorgan upgraded to neutral from underweight, saying it sees $15bn as a minimum value for the lender, in-line with the estimated value of the Swiss legal entity. Shares were 2% higher by 13:20pm CET in Zurich, after Bloomberg News reported that the lender is trying to bring in an outside investor to inject money into a spinoff of its advisory and investment banking businesses, citing people with knowledge of the deliberations. Other banks did not do as well, and slumped in premarket trading Thursday, putting them on track to fall for a second straight day. Twitter shares fell as much as 1.1% to $50.75, trading nearly 7% below Elon Musk’s offer price of $54.20 as investors await progress in the revived deal. Here are the other notable premarket movers: Pinterest (PINS US) shares jump as much as 5.8% in US premarket trading after Goldman Sachs upgraded the social networking site to buy from neutral on improving user growth and better engagement trends, even as the backdrop for digital advertising remains uncertain. Biohaven Ltd. (BHVN US) shares rise 9.7% in US premarket trading, set to extend a 75% gain over the past two days as regular trading in the newly constituted drug developer began following an unusual deal with Pfizer Inc. SurgePays (SURG US) shares soar as much as 11% in premarket trading after the company gave an update on subscriber numbers for its subsidiary SurgePhone Wireless. Flutter (FLTR LN) gained 3.3% in premarket trading as it was initiated at outperform at Exane as the best-placed online gambling name, while Entain also at outperform and DraftKings started at underperform. Richardson Electronics (RELL US) rose 8.2% in extended trading after reporting year-over-year growth in net sales and earnings per share for the fiscal first quarter. While higher energy prices could stoke inflation, some have speculated that this will also divert discretionary income from core items thus pushing core inflation lower and hit company earnings -- potentially encouraging the Federal Reserve to slow monetary tightening. All else equal, as economy slows and oil/gas prices rise due to OPEC/supply constraints, there will be less disposable income for "core" purchases, pushing core PCE lower faster — zerohedge (@zerohedge) October 6, 2022 While such expectations fueled equity gains this week, several money managers are cautioning that the economic path to a less aggressive Fed could be painful: “If you want to preempt the Fed, you are playing a very high-stakes game,” said Kenneth Broux, a strategist at Societe Generale SA. “The Fed do not want financial conditions to loosen; they don’t want equity markets to take off and get too comfortable.” That said, investors are wary of placing large-scale equity bets as they await a report on US initial jobless claims later Thursday and the official nonfarm payrolls data Friday. A Bloomberg survey shows the US economy will have added 260,000 jobs last month; a higher-than-anticipated number may spook markets. In Europe, the Stoxx 50 dropped -0.3% to session lows. Stoxx 600 outperforms peers, adding 0.2%, FTSE MIB lags, dropping 0.5%. Energy and insurance underperform while real estate and travel lead gains. Here are all the notable European movers: Imperial Brands shares rise as much as 4.7% after the tobacco company said it will buy back up to £1b worth of stock. The move was welcomed by analysts, with RBC calling it a “big deal” and Citigroup saying the announcement was earlier than expected. Home24 SE gains as much as 126% to EU7.53 after XXXLutz offered to buy all outstanding shares in the German online furniture retailer for EU7.50 apiece. The bid is generous and the deal is straightforward from a regulatory perspective, according to Tradition. Credit Suisse jumps as much as 5.2% after JPMorgan upgraded to neutral from underweight, saying it sees $15b as a minimum value for the lender, in-line with the estimated value of the Swiss legal entity. CMC Markets climbs as much as 6.5% after the online trading firm said it sees first- half net operating income up 21% y/y, with market volatility in August and September boosting the results. Numis upgraded the stock to add from hold following the report. Shell drops as much as 5% as analysts say the oil and gas major’s trading update looks “weak” and may mean that FY consensus proves too ambitious. Kloeckner falls as much as 12% as the company faces a “high likelihood” of an imminent profit warning, Bankhaus Metzler says, double-downgrading the stock to sell from buy. Swiss Re is among the weakest members of the Stoxx 600 insurance index on Thursday, declining as much as 4.0%, as Morgan Stanley lowers its price target ahead of third-quarter earnings. Accor drops as much as 2.5% after the hotel chain owner was downgraded to underweight from equal-weight at Barclays, which sees short-term risks as bigger for the company compared with peers and feels investors are looking more at potential negative factors heading into FY23 than 2022 upgrades. Earlier in the session, Asian stocks rose for a third day as hardware technology stocks in South Korea and Japan advanced on views they may have reached a bottom. The MSCI Asia Pacific Index climbed as much as 0.9%, lifted by TSMC, SoftBank and Sony. The benchmark trimmed gains later in the day, but remains on track to advance for the week, following a seven-week losing streak that was the longest since 2015.Korea’s Kospi Index was the region’s best-performing major benchmark, jumping about 1%. The advance was helped by chipmakers extending their gains amid Morgan Stanley’s bullish view on the sector. Hong Kong stocks retreated after Wednesday’s catch-up rally. Trading volume in the region was light as mainland China remains closed for the Golden Week holiday. The MSCI’s Asian benchmark has rebounded this week from its lowest in more than two years. The move tracked a nascent revival in global equities on bets that the Federal Reserve may turn less aggressive in its tightening. In a potential harbinger of shifting market views, Morgan Stanley strategists upgraded emerging-market and Asia ex-Japan stocks to overweight from equal-weight.   Investors are also optimistic that monetary policies in China and Japan, which have bucked the global wave of tightening to remain loose, could provide further support to the nations’ equities.  “While the rest of the world is tightening, Japan and China are still easing, especially China where we are going to see more easing policies going forward,” Chi Lo, senior investment strategist for Asia Pacific at BNP Paribas Asset Management, said in an interview with Bloomberg TV. “That makes us more positive on EM Asia.” Japanese equities gained for a fourth day as investors awaited domestic corporate earnings coming out later this month.  The Topix rose 0.5% to 1,922.47 as of the market close in Tokyo, while the Nikkei 225 advanced 0.7% to 27,311.30. Sony Group contributed the most to the Topix’s gain, increasing 1.7%. Out of 2,168 stocks in the index, 1,564 rose and 490 fell, while 114 were unchanged. “There is relatively little concern about corporate earnings for Japanese stocks with the economy restarting and the yen weakening,” said Shogo Maekawa, a strategist at JPMorgan Asset Management. In FX, the Bloomberg Dollar Spot Index consolidated within the recent day’s ranges, while Britain’s pound slipped 0.4% and gilt yields rose after Fitch Ratings lowered its outlook on the nation to negative. The greenback advanced against most of its G-10 peers. The euro steadied just below $0.99. Euro hedging costs are on the rise again as traders position ahead of Friday’s payrolls print and next week’s US inflation report. Commodity currencies were the worst performers along with the pound. Australian and New Zealand dollars gave up an Asia-session advance. The yen traded in a narrow range. In rates, Treasuries were slightly cheaper across the curve after paring declines led by gilts in London trading after a Bank of England survey found expectations for higher prices. Focal points of US session include several Fed speakers and potential for risk-reduction ahead of Friday’s September jobs report Friday. US yields cheaper by less than 2bp across the curve in bear- flattening move, 10-year by 2bp vs 17bp for UK 10-year, the downside leader in developed market sovereign bonds.  German and Italian bond curves flattened modestly as yields on shorter-dated notes rose, while those further out fell. In commodities, West Texas Intermediate futures traded near $88 a barrel, while Brent crude held near $93.30. The output-cut plan drew a warning from the White House about negative effects on the global economy. Goldman Sachs Group Inc. increased its fourth-quarter price target for Brent to $110 a barrel. To the day ahead now, and data releases include German factory orders for August, the German and UK construction PMIs for September, Euro Area retail sales for August, and the weekly initial jobless claims from the US. Meanwhile from central banks, we’ll get the ECB’s account of their September meeting, as well as remarks from the Fed’s Evans, Cook, Kashkari, Waller and Mester, and the BoE’s Haskel. Market Snapshot S&P 500 futures down 0.3% to 3,783.50 STOXX Europe 600 up 0.3% to 400.25 MXAP up 0.4% to 145.05 MXAPJ up 0.3% to 471.37 Nikkei up 0.7% to 27,311.30 Topix up 0.5% to 1,922.47 Hang Seng Index down 0.4% to 18,012.15 Shanghai Composite down 0.6% to 3,024.39 Sensex up 0.6% to 58,403.02 Australia S&P/ASX 200 little changed at 6,817.52 Kospi up 1.0% to 2,237.86 German 10Y yield little changed at 2.05% Euro little changed at $0.9886 Brent Futures up 0.3% to $93.62/bbl Gold spot up 0.0% to $1,716.69 U.S. Dollar Index little changed at 111.24 Top Overnight News from Bloomberg UK bond markets face a potential “cliff edge” when the Bank of England exits the market at the end of next week, leaving traders to navigate a turbulent backdrop without the support of a buyer of last resort Millions more Britons will be dragged into higher rates of income tax over the next three years, costing twice as much as Prime Minister Liz Truss’s personal tax cuts, according to calculations by the Institute for Fiscal Studies Britain’s construction industry turned more pessimistic in September after rising interest rates and the risk of recession held back new orders The European Union plans to examine whether Germany’s massive plan to shelter companies and households from surging energy costs respects the bloc’s rules on public subsidies, EU Commissioner Thierry Breton said German factory orders dropped in August after the previous month was revised to show an increase, hinting at a lack of momentum as the economy stands on the brink of a recession Societe Generale SA cut its exposure to counterparties on trades in China by about $80 million in the past few weeks as global banks seek to guard against any potential fallout from rising geopolitical risks in the world’s second-largest economy A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mixed as the region partially shrugged off the lacklustre lead from the US where the major indices snapped a firm two-day rally and finished the somewhat choppy session with mild losses amid higher yields and as Fed rhetoric essentially pushed back against a policy pivot. ASX 200 lacked direction amid underperformance in the Real Estate and the Consumer sectors, although the downside was also limited by strength in energy after oil prices were lifted by the OPEC+ output cut. Nikkei 225 was positive with notable gains in exporter names and with Rakuten leading the advances as Mizuho looks to acquire a 20% stake in Rakuten Securities for USD 555mln. Hang Seng was lacklustre and took a breather after the prior day’s more than 5% jump with the mood also not helped after Hong Kong PMI slipped into contraction territory for the first time in 6 months. Top Asian News Haikou city in China's Hainan imposed a COVID lockdown for Thursday, according to Bloomberg. Malaysia PM May Propose Parliament Dissolution, Bernama Reports Why Polio, Once Nearly Eradicated, Is Rebounding: QuickTake Legoland Korea’s Default Flags Risks for Nation’s Developers Paris Club Seeks China Collaboration in Sri Lanka Debt Talks Yen Rout Is Over on Peak US Rate Hike Bets, Says Top Forecaster European bourses are under modest pressure as sentiment broadly takes a slight turn for the worst amid limited newsflow as participants look to Friday's NFP. Currently, European benchmarks are lower by 0.1-0.3% while US futures are posting slightly larger losses of circa 0.7 ahead of Fed speak. Top European News Fitch affirmed the UK at AA-; Outlook revised to Negative from Stable, while it stated that the fiscal package announced as part of the new UK government's growth plan could lead to a significant increase in deficits over the medium-term, according to Reuters. The UK Treasury is set to impose GBP 21bln of additional income taxes despite the "tax-cutting mini-budget", according to a study by the Institute for Fiscal Studies. (Times) BoE Monthly Decision Maker Panel data - September 2022; looking ahead, DMP members expected CPI inflation to be 9.5% one-year ahead, up from 8.4% in the August survey, and 4.8% in three years’ time. BoE's Cunliffe says the FPC will publish its next financial policy statement and record on October 12th, liquidity conditions in the run up to the BoE gilt intervention were "very poor", MPC will make a full assessment of recent developments at its November 3rd meeting. UK government has proposed easing the fee cap for illiquid assets in pensions, according to a rule consultation publication by the government. Swedish Economy Shrinks More Than Estimated on Weak Industry UK Tech M&A Spree Pauses as Buyers Pull Out Amid Chaotic Markets FX USD benefits from the mentioned risk tone, with the DXY extending to a 111.35 peak to the modest detriment of peers. However, EUR is relatively resilient and holding around 0.99 vs the USD as we await the ECB Minutes account for near-term guidance. Cable faded sub-1.1400 and reversed through 1.1300 again amid the USD's move and prior to a letter exchange from the BoE to Treasury re. the Gilt Intervention. Antipodeans under pressure given the USD move and associated action in metals, while the Yuan initially lent a helping hand but this has since dissipated. Given the broader tone, the traditional havens are holding near unchanged levels though yield dynamics are a hinderance. Fixed Income Gilts are once again the standout laggard following rating agency action and the BoE DMP showing inflation pressures were already elevated MM before the fiscal update. As such, the UK yield has extended back above 4.10%; in the US, yields are also bid though to a much lesser extent before Fed speak and Friday's jobs. Back to Europe, Bunds are pressured though only modestly so vs UK counterparts awaiting the ECB's September account Commodities Crude benchmarks are modestly firmer at present, extending marginally above yesterday’s best levels with fresh newsflow limited as participants digest yesterday’s OPEC+ action. WTI and Brent are towards the mid-point of circa. USD 1/bbl ranges, though Brent Dec’22 briefly surpassed the 200-DMA at USD 94.11/bbl before moving back below the figure. Acting Kuwaiti Oil Minister said the OPEC+ decision to cut output will have positive ramifications for oil markets, while they understand consumers' concerns about prices increasing but added that the main motive in OPEC+ is balancing supply and demand, according to Reuters. US National Security official stated the US sanctions policy on Venezuela remains unchanged and there are no plans to change the sanctions policy without constructive steps from Maduro, according to Reuters. Norway's Budget proposes changing the temporary tax rules for the petroleum sector, entails that the uplift is reduced to 12.40% (prev. 17.69%), via Reuters. Saudi sets the November Arab Light OSP to N.W Europe at Ice Brent +USD 0.90/bbl; to the US at ASCI +USD 6.35/bbl, via Reuters citing a document; to Asia at Oman/Dubai +USD 5.85 (Unch.), via Reuters sources. Geopolitics North Korea launched two short-range ballistic missiles which were fired from Pyongyang and landed outside of Japan's exclusive economic zone, according to the South Korean military cited by Yonhap. Furthermore, North Korea said that its missile launches are counteraction measures against the US and South Korean military drills. North Korean jets and bombers have been seen flying in an exercise, according to Yonhap; South Korean jets take off in response, via Reuters. US State Department condemned North Korea's ballistic missile launch and said North Korea's missile launches pose a threat to regional neighbours and the international community, while it added that the US remains committed to a diplomatic approach to North Korea and called on North Korea to engage in dialogue, according to Reuters. The EU has approved the 8th round of Russian sanctions; as expected. US Event Calendar 08:30: Sept. Continuing Claims, est. 1.35m, prior 1.35m 08:30: Oct. Initial Jobless Claims, est. 204,000, prior 193,000 Central bank Speakers 08:50: Fed’s Mester Makes Opening Remarks 09:15: Fed’s Kashkari Takes Part in Moderated Q&A 13:00: Fed’s Evans Takes Part in Moderated Q&A 13:00: Fed’s Cook Speaks on the Economic Outlook 13:00: Fed’s Kashkari Discusses Cyber Risk and Financial Stability 17:00: Fed’s Waller Discusses the Economic Outlook 18:30: Fed’s Mester Discusses the Economic Outlook DB's Henry Allen concludes the overnight wrap After an astonishing rally at the beginning of Q4, markets reversed course yesterday as investors became much more sceptical that we’ll actually get a dovish pivot from central banks after all. The idea of a pivot has been a prominent theme over recent days, particularly after the financial turmoil during the last couple of weeks, thus sparking the biggest 2-day rally in the S&P 500 since April 2020 as the week began. But over the last 24 hours, solid US data releases have created a pushback against that narrative, since they were seen as giving the Fed more space to keep hiking rates over the coming months. And if markets had any further doubt about the Fed’s intentions, San Francisco Fed President Daly explicitly said yesterday that she didn’t expect there to be rate cuts next year, in direct contrast to futures that are still pricing in rate cuts from Q2. Indeed for a sense of just how volatile the reaction has been, 10yr bund yields were up by +16.3bps yesterday, which is their largest daily rise since March 2020 during the initial wave of the pandemic. Looking at the details of those releases, it was evident that markets are still treating good news as bad news at the minute, since they sold off even as data pointed to a more resilient performance from the US economy than had been thought. For example, the ISM services index came in above expectations at 56.7 (vs. 56.0 expected), and the employment component moved up to a 6-month high of 53.0. So that’s a noticeably different picture to the manufacturing print on Monday, when there was a surprise contraction in the employment component. Furthermore, there was another sign of labour market strength from the ADP’s report of private payrolls, which came in at +208k in September (vs. +200k expected), and the previous month’s reading was also revised upwards. We’ll see if that picture is echoed in the US jobs report tomorrow, but there was a clear reaction to the ISM print in markets, as investors moved to upgrade the amount of Fed hikes they were expecting whilst the equity selloff accelerated. Those expectations of a more hawkish Fed were given significant support by comments from Fed officials themselves. The most obvious came from San Francisco Fed President Daly, who was asked about the fact that futures were pricing in rate cuts, and said “I don’t see that happening at all”. In fact when it came to rates, she not only said that they were raising them into restrictive territory, but that they would be “holding it there” until inflation fell. Atlanta Fed President Bostic struck a similar tone, emphasising rate cuts in 2023 were not likely and that “I am not advocating a quick turn toward accommodation. On the contrary.” He said he wanted fed funds rates between 4% and 4.5% by the end of this year, “and then hold at that level and see how the economy and prices react.” That backdrop led to a sizeable cross-asset selloff yesterday on both sides of the Atlantic. The effects on the rates side were particularly prominent, with 10yr US Treasury yields bouncing back +12.0bps to 3.75%. And that move was entirely driven by real yields, which rose +15.1bps as investors moved to price in a more hawkish Fed over the months ahead. You could see that taking place in Fed funds futures too, with the rate priced in for December 2023 up by +8.9bps to 4.19%, thus partially reversing the -22.2bps move lower over the previous two sessions. This morning, 10yr yields are only down -1.0 bps, so far from unwinding those moves. The hawkish tones also proved bad news for equities, with the S&P 500 taking a breather following its blistering start to the week, retreating -0.20% after being as low as -1.80% in the New York morning. European equities did not enjoy the benefits of a New York afternoon rally, leading to a transatlantic divergence, and the STOXX 600 was down -1.02% on a broad-based decline. The energy sector outperformed in both the S&P 500 and STOXX 600 following a rally in crude oil which saw both Brent crude (+2.81%) and WTI (+2.53%) oil prices hit a 3-week high. That followed a decision from the OPEC+ group, who cut output by 2 million barrels per day. Those gains have continued in overnight trading as well, with Brent Crude now at $93.48/bbl. In Europe, the performance of sovereign bonds echoed that for US Treasuries, as yields on 10yr bunds (+16.3bps), OATs (+17.6bps) and BTPs (+29.0bps) all saw their largest daily increases since March 2020. As in the US, that reflected growing scepticism about a dovish pivot from the ECB, but another factor not helping matters was the rebound in energy prices, with natural gas futures up +7.25% on the day to close at €174 per megawatt-hour, alongside the oil rebound mentioned above. That’s been reflected in inflation expectations too, with the 10yr German breakeven up another +8.0bps yesterday to 2.15%, after having closed beneath 2% on Monday for the first time since Russia’s invasion of Ukraine began. Here in the UK, we also saw several key assets lose ground once again following their rally over the last week. For instance, sterling ended a run of 6 consecutive daily gains against the US Dollar to close -1.31% lower, closing back at $1.13. And that wasn’t simply a story of dollar strength, as the pound weakened against every other G10 currency as well. Gilts were another asset to struggle, with real yields in particular seeing significant daily rises of at least +30bps across most of the yield curve, including a +33.0bps rise for the 10yr real yield, and a +36.7bps rise for the 30yr real yield. That came as the Bank of England said they didn’t buy any gilts under their emergency operation for a second day running. In the meantime, there were fresh signs that the turmoil after the fiscal announcement was impacting the mortgage market, with Moneyfacts saying that the average 2yr fixed-rate mortgage had risen to 6.07%, which is the highest since November 2008. Last night that was then followed up by the news that Fitch had downgraded the UK’s outlook from stable to negative. Overnight in Asia there’s been a mixed performance from the major equity indices. Both the Nikkei (+0.94%) and the Kospi (+1.25%) have recorded solid advances, which continues their run of having risen every day this week. In addition, futures in the US and Europe are both pointing higher, with those on the S&P 500 up +0.49%. However, the Hang Seng is down -0.43% and Australia’s S&P/ASX 200 is down -0.05%, whilst markets in mainland China remain closed for a holiday. The dollar index has also lost ground overnight, falling -0.25%, which comes in spite of those hawkish comments from Fed officials pushing back against rate cuts next year. Looking at yesterday’s other data, the final services and composite PMIs mostly echoed the data from the flash readings. The composite PMI for the Euro Area was revised down a tenth to 48.1, and the US composite PMI was revised up two-tenths to 49.5. There was a bigger rise in the UK however, where the composite PMI was revised up seven-tenths to 49.1. To the day ahead now, and data releases include German factory orders for August, the German and UK construction PMIs for September, Euro Area retail sales for August, and the weekly initial jobless claims from the US. Meanwhile from central banks, we’ll get the ECB’s account of their September meeting, as well as remarks from the Fed’s Evans, Cook, Kashkari, Waller and Mester, and the BoE’s Haskel. Tyler Durden Thu, 10/06/2022 - 08:02.....»»

Futures Tumble As Market Braces For Jackson Hole Hawk-ano The staggering "most hated rally" melt-up, which we warned back in June would steamroll shorts, and which ended up being one of the biggest summery rallies on record, is officially over... ... with BofA superstar strategist Michael Hartnett proven correct again this morning, as stocks retreated further from the bear market peak he called at 4,328 last week, with US equity futures sliding more than 1% on Monday along with stocks in Europe as a risk-off mood took hold at the start of a critical week for global markets when central bankers gather at their annual Jackson Hole symposium starting on Thursday.  Both S&P and Nasdaq futures slumped more than 1.1%, with spoos down 50 points to 4,180, as 10-year Treasury yields are little changed after briefly kissing 3.0%, while two-year yields rose about six basis points, deepening the yield-curve inversion that’s seen as a harbinger of a recession. The dollar spot index climbed to a five-week high, while gold and bitcoin slumped. In China, banks lowered the one-year and five-year loan prime rates on Monday in the aftermath of a decision by the nation’s central bank last week to cut a key policy rate. The Chinese demand outlook has weighed on oil, which briefly sank below $90 a barrel in New York before rebounding and turning green. Traders are monitoring Iran nuclear talks that could lead to more supplies. In premarket trading, GameStop and Bed Bath & Beyond led the declines in meme stocks as the latest frenzy in the cohort loses steam. GameStop -5.6%, Bed Bath & Beyond -8.6%; Fellow retail trading favorite AMC Entertainment Holdings was also down as the cinema theater operator’s preferred stock will start trading on the New York Stock Exchange under the ticker “APE” on Monday. Here are some of the biggest U.S. movers today: Signify Health (SGFY US) jumps 35% in premarket trading after reports of UnitedHealth (UNH US), Amazon.com (AMZN US), CVS (CVS US) and Option Care Health (OPCH US) vying to buy the health- care technology provider. Tesla (TSLA US) and fellow electric-vehicle makers fall amid worries over a hawkish Fed ahead of Jackson Hole symposium this week, and following data showing China EV registrations declined in July. Tesla drops as much as 2.7%; Rivian (RIVN US) -2.3%, Nikola (NKLA US) -2.8%. CFRA cut its recommendation on Netflix (NFLX US) to sell from hold, saying the stock may underperform the S&P 500 Index for the rest of the year after rallying 40% from mid-July lows. Netflix falls 2.2% amid a decline for Nasdaq futures. GigaCloud (GCT US) shares rally as much as 40%, before paring gains to trade around 12% higher. The Chinese e-commerce firm is on course for its third session of straight gains following its Nasdaq debut last week. A huge squeeze in global shares from June’s bear-market lows, stoked by the market’s expectations for a pivot to slower rate hikes, is rapidly fizzling after repeated Fed policy makers warned that interest rates are going higher. This weekend's Jackson Hole symposium gives Jerome Powell a platform to reset those bets, which are vulnerable to the possibility of persistently elevated price pressures even as economic growth stumbles. Investors are also waking up to the looming acceleration of the Fed’s balance-sheet reduction: quantitative tightening kicks into top gear next month, and will add to pressure on riskier assets which have benefited from ample liquidity. “It is likely central bankers, including Fed Chair Powell, will remain hawkish in dealing with inflation albeit with a bit of caution creeping in given the emerging economic downturn,” Shane Oliver, head of investment strategy at AMP Services Ltd., wrote in a note. Of course, the irony would be if markets melt up again next week just as hedge funds aggressively reset shorts: “The expectation is still that Powell will reaffirm what he and his colleagues have been saying in public recently,” said Craig Erlam, a senior market analyst at Oanda. “The risk is that he says something dovish -- intentionally or otherwise -- after investors position for the opposite and triggers another risk-on rally in the markets.” The selling also accelerate in Europe, where the Stoxx 600 index dropped to its lowest level in more than three weeks, with autos, chemicals and tech the worst-performing industries as all sectors fall.  The DAX lags, dropping 2%. S&P futures slide 1.3%, Nasdaq contracts tumble 1.6%. Here are some of the biggest European movers today: Fresenius SE shares rose as much as 7.1% after the company said Fresenius Kabi CEO Michael Sen will replace CEO Stephan Sturm. Berenberg says the choice is sensible and expected EVS Broadcast Equipment shares jumped as much as 4% after the company announced a 10-year, $50m contract with a US-based broadcast and media production company on Friday Scandinavian Tobacco Group shares fell as much as 19% after the Danish cigar and pipe tobacco manufacturer published its preliminary 2Q numbers and lowered its FY22 guidance Deliveroo shares dropped as much as 6.8% amid a broader decline among European food delivery stocks. FY23 growth expectations for Deliveroo seem “stretched,” according to Morgan Stanley B&S Group shares slid as much as 13%, dropping to the lowest since April 2020, after the company reported interim results ING described as a “weak set” of numbers Intrum shares fell as much as 7.5%, their biggest decline since early May, after the board of the credit management firm replaced CEO Anders Engdahl with immediate effect Covestro fell as much as 5.9%, hitting lowest since May 2020, after Stifel slashed its price target to EU34 from EU53,  citing “shaky prospects” for the company Dassault Aviation shares were down as much as 4.7% after French Transport Minister Clement Beaune said he wanted to regulate private jet use, according to an interview with Le Parisien newspaper Earlier in the session, Asian stocks fell to more than a two week low as investors braced for a hawkish stance by US officials at the upcoming Jackson Hole symposium. The MSCI Asia Pacific Index declined as much as 0.7%, with the region’s tech giants TSMC and Tencent Holdings dragging down the measure the most. MSCI Inc.’s Asia-Pacific share index fell for a third day with losses evident in most major markets except for some gains in China, where a move by banks to trimlending rates aided property developers. Philippine stocks were the region’s biggest losers, sinking more than 2% as the central bank there signaled more hikes. Chinese equities advanced.  Jerome Powell’s Friday speech at the central bankers’ gathering will be the highlight of the week, with markets expecting the Fed chair to reaffirm his determination to get inflation under control. Traders have already been paring back risky bets after Richmond Fed President Thomas Barkin said Friday that the central bank was resolved to curb red-hot inflation even at the risk of a recession. “The bear market rally seems to be fading ahead of the Jackson Hole symposium this week, which may see the Fed pushing back further on easing expectations for next year,” said Charu Chanana, a senior strategist at Saxo Capital Markets.   Equities in mainland China posted rare gains in the region after the nation’s banks lowered their borrowing costs in a bid to stabilize the property market. That gave a positive boost, said Banny Lam, head of research at Ceb International Inv Corp. But markets are still on a bumpy ride as the dollar’s rise extends the outflow of liquidity from Asian assets, he added.  Other key issues on the radar include corporate earnings results. More than 340 members of the MSCI Asia Pacific Index, including battery heavyweight Contemporary Amperex Technology and e-commerce giant JD.com, are expected to release their financial results this week. Japanese stocks fell as hawkish comments from a Federal Reserve official put investors on edge ahead of the Jackson Hole symposium later this week.  The Topix Index fell 0.1% to 1,992.59 in Tokyo on Monday, while the Nikkei declined 0.5% to 28,794.50. Keyence Corp. contributed the most to the Topix’s decline, as the producer of sensors and scanners decreased 1.3%. Out of 2,170 stocks in the index, 1,123 fell, 924 rose and 123 were unchanged. “There is a bit of hawkishness coming out from the Fed as its seen trying to correct the direction of the market,” said Naoki Fujiwara, a chief fund manager at Shinkin Asset Management. “In the end, it’s profit taking as the market has gone up so far.”  Indian stocks fell for a second session on concerns the US Federal Reserve may remain committed to tightening monetary policy, which could impact foreign inflows to local equities. The S&P BSE Sensex declined 1.5%, its biggest drop since June 16, to 58,773.87 in Mumbai. The NSE Nifty 50 Index fell by a similar magnitude. Of the 30 member stocks of the Sensex, all but two declined. ICICI Bank Ltd. slipped 2.1% and was the biggest drag on the index. All 19 sectoral sub-indexes compiled by BSE Ltd. dropped, with a gauge of metal companies the worst performer. “While a correction was overdue for sometime after the recent upsurge, fresh concerns of a likely hawkish stance by the US Fed in its September meet and strengthening dollar index turned investors jittery and triggered a massive fall in banking, IT, metal & realty stocks,” Shrikant Chouhan, head of equity research at Kotak Securities Ltd., wrote in a note.   Overseas investment into local stocks totaled $6.3 billion from end-June through Aug. 18, after record outflows since October. The Fed’s symposium at Jackson Hole, Wyoming this week will be key for markets for clues on how the central bank plans to tackle price pressures.  In Australia, the S&P/ASX 200 index fell 1% to close at 7,046.90, tracking Friday’s losses on Wall Street as investors weighed the Fed’s next steps. The benchmark posted its worst session since July 11 as all sectors declined in Australia. Adbri was the biggest laggard after reporting a drop in 1H underlying Npat and trimming its interim dividend. EML Payments gained after announcing a buyback. In New Zealand, the S&P/NZX 50 index rose 0.7% to 11,763.95. In FX, the Bloomberg Dollar Spot Index advanced for a fourth consecutive day, to the highest level since July 18, while the greenback advanced versus most of its Group-of-10 peers. The euro fell to a seven-year low against the Swiss franc, extending losses as concerns about a global economic slowdown prompted demand for the safe-haven Swiss currency.  Australia’s dollar gained for the first time in six days after Chinese banks cut their loan prime rates in an effort to bolster the struggling property sector. Aussie bonds extended opening declines. The yen slipped to its lowest level in nearly a month as higher US yields amid growing bets for a hawkish Federal Reserve stance weighed on sentiment. Bonds fell, tracking US Treasuries. In rates, Treasuries were cheaper, the 10- year US yield rising as much as three basis points to 2.9997%, adding to Friday’s climb, before falling back. 2-year yields rose by around 5bps, inverting the curve further with losses led by front-end of the curve where two-year yields trade 6bp higher versus Friday’s close. Further out the curve, bunds and gilts both lag with notable bear steepening move seen across UK curve. US yields cheaper by 6bp to 1bp across the curve in bear flattening move which sees 2s10s, 5s30s spreads trade tighter by 6bp and 1.5bp on the day; 10-year yields around 2.98% after peaking at 2.9997% in early Asia session. Focus this week is on US auctions which kick-off Tuesday with $44b two-year note sale, followed by $45b five-year Wednesday and $37b seven-year Thursday. IG dollar issuance slate empty so far; issuance expectations are low for the week and dependent on market conditions with the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, due to commence Thursday. Bunds and Italian bonds snapped four- day sliding streaks, with German debt gains led by the belly and Italy’s yield curve bull flattening as stock futures drop. Belgium sells five- and 10-year notes. In commodities, WTI trades within Friday’s range, first falling as much as 1% before spiking and recovering all losses, with Brent jumping from a session low of $94.50 to a high of $96.90. Most base metals are in the red; LME copper falls 1%, underperforming peers. Spot gold falls roughly $15 to trade near $1,732/oz. It's a busy week for the calendar, but we kick off on a day quiet note, with the day at hand featuring the Chicago Fed’s national activity index and earnings from Zoom and Palo Alto Networks. Market Snapshot S&P 500 futures down 1.1% to 4,183.75 STOXX Europe 600 down 1.1% to 432.35 MXAP down 0.6% to 159.83 MXAPJ down 0.9% to 518.65 Nikkei down 0.5% to 28,794.50 Topix little changed at 1,992.59 Hang Seng Index down 0.6% to 19,656.98 Shanghai Composite up 0.6% to 3,277.79 Sensex down 1.2% to 58,934.14 Australia S&P/ASX 200 down 0.9% to 7,046.88 Kospi down 1.2% to 2,462.50 Gold spot down 0.7% to $1,735.45 U.S. Dollar Index up 0.18% to 108.36 German 10Y yield little changed at 1.20% Euro down 0.3% to $1.0006 Top Overnight News from Bloomberg European gas prices surged after Moscow’s move to shut a major pipeline ramped up fears of a prolonged supply halt, leaving Germany once again guessing as to how much Russian fuel it can count on this winter About 2,000 dockers at the Port of Felixstowe began an eight-day walkout on Sunday, halting the flow of goods through the UK’s largest gateway for containerized imports and exports Federal Reserve Chair Jerome Powell will have a chance -- if he wants to take it -- to reset expectations in financial markets when central bankers gather this week at their annual Jackson Hole retreat A sober warning for Wall Street and beyond: The Federal Reserve is still on a collision course with financial markets. Stocks and bonds are set to tumble once more even though inflation has likely peaked, according to the latest MLIV Pulse survey, as rate hikes reawaken the great 2022 selloff New Zealand’s central bank is open to the possibility of raising its benchmark rate as high as 4.25% amid uncertainty over the amount of tightening needed to regain control of inflation, Deputy Governor Christian Hawkesby said Swedish kronor bonds tied to environmental, social and governance goals are helping keep the country’s waning issuance market afloat this year A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks were mostly lower after last Friday’s declines in stocks and bonds across global markets in the aftermath of red-hot PPI data from Germany which rose by a new record high and stoked inflationary concerns, while the region also digests the PBoC’s latest actions on its benchmark lending rates. ASX 200 was pressured with all sectors subdued and as the influx of earnings continued. Nikkei 225 declined at the open as it took its cue from global peers and following reports that PM Kishida tested positive for COVID-19, although the index clawed back around half of the losses with help from a weak currency. Hang Seng and Shanghai Comp were mixed with early indecision as participants reflected on the PBoC’s rate actions in which it cut the 1-Year LPR by 5bps to 3.65% and reduced the 5-Year LPR by 15bps to 4.30% vs expectations for a 10bps cut to both, while the reduction in the 5-Year LPR which is the reference for mortgages, also followed recent measures to support the construction and delivery of unfinished residential projects through special loan schemes from policy banks. This provided some early support for developers although the broader sentiment was restricted amid the extension of factory power cuts in Sichuan. Top Asian News China’s Sichuan extended its factory power cuts to August 25th, according to Caixin. Japanese PM Kishida tested positive for COVID-19 and is recuperating at his official residence, according to NHK. Singapore PM Lee announced to reduce mask requirements as the COVID-19 situation stabilises with masks to only be required for public transport and healthcare settings with everywhere else optional. PM Lee also confirmed that Deputy PM Wong has been chosen to be the next leader and said authorities will soon announce new initiatives to attract talent, according to Reuters Aluminum Up as China’s Worsening Power Shortages Tighten Supply Debt Audit, Constitution Change on Angolan Opposition’s Agenda Shanghai United Imaging Jumps 65% in Debut Post $1.6 Billion IPO China Province Extends Power Cuts on Worst Drought Since ‘61 European bourses are under pressure, Euro Stoxx 50 -1.8%, amid Nord Stream 1 maintenance. Updates that sparked a continuation of Friday's downbeat price action and has caused particular downside for the likes of Uniper (-10%) while defenisve sectors outperform slightly. S futures are in-fitting both in terms of direction and magnitude, ES -1.3%, amid global recession and inflation fears. Panasonic (6752 JT) is to increase prices on 17 products from September 1st due to increasing material and manufacturing costs, hike will range between 2-33%. Top European News Cineworld Says It Considers Filing for Bankruptcy in the US Vodafone Agrees to Sell Hungary Unit for 1.8 Billion Euros (1) Borealis Curbs Fertilizer Output for Economic Reasons UK Trial Lawyers Vote to Strike Indefinitely Over Fees Biggest Rate Hike in Decades Is in Play in Israel: Day Guide FX DXY sees a firm start to the week as the index extends gains above 108.00, topping Friday’s peak. EUR/USD has again dipped under parity amid jitters over a potential supply disruption as Russia is to shut the Nord Stream 1 pipeline. The Antipodeans are the relative outperformers but have waned off best levels amid the broader deterioration in sentiment. The JPY has climbed its way up the ranks having experienced mild losses in APAC trade owing to widening yield differentials alongside losses in broad APAC FX. Turkey’s Central Bank revised rules for Lira government bond collateral for FX deposits in which it raised the RRR for credit from 20% to 30% for bond collateral, according to Reuters. Fixed Income A session of pronounced two-way action for fixed benchmarks as energy and inflation vie for the limelight. Initial upside (Bunds tested 152.85 Fib of Friday) occurred as sentiment deteriorate on Nord Stream 1's unscheduled maintenance announcement. However, this then swiftly retraced with core benchmarks modestly negative at worst, perhaps as attention pivoted to the associated inflation implications. Stateside, USTs have been moving in tandem though the move lower was somewhat more contained as participants look to Jackson Hole at the tail-end of the week. Commodities WTI and Brent October contracts have continued trending downwards in a resumption of Friday’s action. The main focus of this morning has been on European gas prices surging on news that Russia’s Gazprom will shut down the Nord Stream 1 pipeline for three days. Dutch TTF October surged over 18% whilst European coal for the next year rose over 5% to a new record. Metals markets are hit by the firmer Dollar with spot gold losing further ground under USD 1,750/oz while LME copper eyes USD 8,000/t to the downside Libya’s NOC said oil production was running at 1.211mln bpd, while the Waha Oil Co said gas output from the Faragh field increased to 149mcfd on Sunday from 95mcfd on Saturday, according to Reuters. Caspian Pipeline Consortium suspended oil loadings from two of three single mooring points at its Black Sea terminal for inspection, while CPC exports continue from the third mooring point and August loadings are currently unaffected, according to Reuters sources. Subsequently confirmed Turkey has increased its imports of Russian oil to over 200k BPD so far this year (vs 98k BPD in the same period last year), according to Refinitiv data. Norway Prelim. July production: Oil 1.646mln BPD (vs 1.298mln BPD in June); gas 10.9bcm (vs 10.0bcm in June), according to the Norway Oil Directorate. US Event Calendar 08:30: July Chicago Fed Nat Activity Index, est. -0.25, prior -0.19 DB's Tim Wessel concludes the overnight wrap The annual plenary of the global central bank cognoscenti kicks off in Jackson Hole this week. The main macro dish of the deep dog days of summer – where this year’s theme is “Reassessing Constraints on the Economy and Policy” – will be highlighted by Chair Powell’s remarks due on Friday morning. Global production data will serve as suitable hors d’oeuvres throughout the week, while US PCE data on Friday will be a side dish commanding ample attention. Elsewhere, we receive the second estimate of 2Q US GDP; will the poor aftertaste of two consecutive quarterly retractions continue to overwhelm the otherwise supportive ingredients that comprise near-term growth? Back to Jackson Hole, as the market looks for direction on the uncertain economic outlook and Fed reaction function, Chair Powell’s remarks are one of the key events that can jolt US policy expectations from their recent range, along with inflation and employment data preceding the September FOMC. Indeed, since the day of the July CPI print, 2yr Treasury yields are on net less than a basis point lower, while pricing of the September rate hike has oscillated in a narrow range that effectively has placed equal probabilities on a 50 or 75bp hike, as conviction around the terminal rate and intervening path of policy is low until the market can assess which way inflation (and the Fed) is breaking. The Chair will likely strike an imposing tone against the inflationary scourge, all the more given his remarks last year noted the bout of inflationary pressure was likely to be a transitory phenomenon (important to keep in mind how much the policy outlook can evolve over a 12-month time frame, let alone when uncertainty is this high here). While the Fed has taken to emphasizing two-way risks around the tightening cycle, most visibly in the minutes at the July meeting, the easing of financial conditions since the July meeting may force the Chair to re-orient expectations away from the balance of risks back toward the primary objective of bringing inflation lower. Executive Board member Schnabel will be the highest profile ECB speaker at the gathering, where focus is on calibrating the ECB’s next policy action, which our team takes careful measure of, here, preserving another 50bp hike as their base case. Before Schnabel, due on a panel Saturday, the ECB’s account of the July meeting’s 50bp hike will provide yet more detail into the super-sized kickoff to the ECB’s tightening cycle. Elsewhere in Europe, the looming energy crisis will remain top of mind. German Chancellor Scholz and Vice Chancellor Habeck are in Canada to try and plug the energy gap left by dwindling Russian gas supplies. Along with alternative imports, the government is still weighing whether to extend the life of heretofore condemned nuclear facilities if sufficient supplies cannot be secured. Asian equity markets are trading in negative territory at the start of the week amid a broad strength in the US dollar coupled with a potentially tighter Fed policy path. The Kospi (-0.78%) is the biggest underperformer across the region followed by the Nikkei (-0.46%) and the Hang Seng (-0.45%). Over in mainland China, markets are reclaiming earlier losses, with the Shanghai Composite (+0.43%) and CSI (+0.60%) both in the green after the People’s Bank of China (PBOC) surprisingly slashed its benchmark lending rates yet again to shore up an economy battered by a worsening property slump and a resurgence of Covid-19 cases. The PBOC slashed the one-year loan prime rate (LPR) by -5bps to 3.65%, the first reduction since January while the five-year LPR (a reference for mortgages) was cut by -15 bps to 4.3% at the central bank’s monthly fixing. This move comes after a raft of data released last week indicated that the world’s second largest economy slowed in July. US stock futures point to continued losses after ending last week on the downbeat, with the S&P 500 (-0.38%) and NASDAQ 100 (-0.51%) edging lower. Elsewhere, crude oil prices are trading lower in Asia trading hours with Brent futures -0.98% down at $95.77/bbl. Turning to a brief wrap of last week, the S&P 500 retreated -1.29% on Friday to bring the index -1.21% lower on the week, its first weekly decline in a month. The sharp decline Friday came absent any material data or policy developments; instead, it appeared programmatic selling and large options expiries concocted headwinds that were too hard for the index to overcome, where health care (+0.27%) and energy (+0.02%) were the only sectors to escape the day in the green, and only just. The STOXX 600 also fell over the week, retreating -0.80% (-0.77% Friday). In rates, 10yr Treasuries gained +14.1bps over the week, +9.0bps of which came on Friday, though, as mentioned, the net move in 2yr Treasury yields was smaller, having fallen -0.08bps over the week (+3.6bps Friday) as we await further direction from the Fed or from the data. 10yr bund yields increased each of the last four days of the week to end +24.3bps higher (+12.8bps Friday), as the inflationary impact of the energy crisis gripped markets. For their part, OATs climbed +26.1bps (+12.8bps Friday) and BTPs were +43.0bps higher (+17.1bps Friday). Of course, European energy prices from natural gas (+18.65%, +1.47% Friday) to German power (+21.42%, +4.02% Friday) rose to record highs as crisis binds the continent. The week kicks off on a day quiet note, with the day at hand featuring the Chicago Fed’s national activity index and earnings from Zoom and Palo Alto Networks. Tyler Durden Mon, 08/22/2022 - 08:01.....»»

These ETFs deserve special thanks and attention going into the New Year too. It’s time for Thanksgiving and Americans are ready for a plate stuffed with food and carts full of shopping. The celebration of bounty and gratitude is in full swing in the investment world as well. Let’s explore it by screening ETFs that have rewarded investors this year.A few corners have crushed the broader market in the year-to-date period. ETFs — Invesco Alerian Galaxy Crypto Economy ETF SATO, MicroSectors FANG+ ETN FNGS, Sprott Uranium Miners ETF URNM, Fidelity Blue Chip Growth ETF FBCG and Communication Services Select Sector SPDR Fund XLC — from different zones have been the star performers so far this year and could be better plays in the coming months. These ETFs deserve special thanks and attention going into the New Year too (see: all the Categories ETF here).How is the Stock Market Faring?2023 was full of twists and turns for the U.S. stock market. This is especially true as the stock market wrapped up the first half with big gains, followed by the first quarterly decline in the third quarter in a year. The S&P 500 and the tech-heavy Nasdaq Composite Index slipped into correction territory at the end of October on fears of higher rates for a longer-than-expected period, which pushed up yields to multi-year highs, leading to risk-off trade (read: 5 Inverse Tech ETFs That Rose on Nasdaq Entry Into Correction).However, the stocks made a solid comeback in November with the S&P 500 Index and the Nasdaq just shy of its record high. The Nasdaq-100 Index has also been enjoying a huge rally from the start of November and has now hit levels not seen in nearly two years.In fact, November is on track to become the strongest month of the year. The retreat in bond yields, on continued hopes that the Fed’s aggressive interest rate hiking campaign might be nearing an end, has been a significant contributor to the stock rally. Investors are betting that the central bank may be done with hiking. The latest round of data points has also strengthened the idea that the Fed is done with rate hikes.The so-called “Magnificent Seven” stocks — a collective term for tech giants Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG, GOOGL), Amazon (AMZN), Nvidia (NVDA), Tesla (TSLA) and Meta Platforms (META) — emerged as the big winners in the stock market for 2023. These seven companies not only dominated but also significantly influenced market trends throughout the year. These make up a record 29% of the S&P 500's market cap and outperformed the rest of the index, with 71% gain compared to just 6% for the other 493 stocks. Their strength lifted the S&P 500 by about 19% this year. The artificial intelligence boom and optimism that the Fed will steer the economy to a soft landing led the astounding rally in these stocks (read: Guide to the Magnificent Seven Stocks & ETFs Investing).Bitcoin is also among the biggest winners. The world's largest cryptocurrency hit $38,000 for the first time since May 2022, amid anticipation of approval for spot Bitcoin ETF.Let’s discuss the abovementioned ETFs in detail that have rewarded investors this year:Invesco Alerian Galaxy Crypto Economy ETF (SATO) – Up 125.9%Invesco Alerian Galaxy Crypto Economy ETF provides exposure to the companies that are materially engaged in cryptocurrency, cryptocurrency mining, cryptocurrency buying, or enabling technologies and exchange-traded products (“ETPs”) and private investment trusts traded over-the-counter that are linked to cryptocurrencies. It follows the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index, holding 37 stocks in its basket with a higher concentration on the top firm.Invesco Alerian Galaxy Crypto Economy ETF has accumulated $4.6 million shares and charges 61 bps in annual fees. It trades in a volume of 3,000 shares a day on average.  MicroSectors FANG+ ETN (FNGS) – Up 85.5%MicroSectors FANG+ ETN is linked to the performance of the NYSE FANG+ Index, which is an equal-dollar weighted index designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. It holds 10 equal-weighted stocks in its basket (read: Tech Turns Hot, ETFs Touch New 52-Week Highs).MicroSectors FANG+ ETN has accumulated $159.6 million in its asset base and charges 58 bps in annual fees. FNGS trades in an average daily volume of 173,000 shares and has a Zacks ETF Rank #3 (Hold).Sprott Uranium Miners ETF (URNM) – Up 55.6%Sprott Uranium Miners ETF provides exposure to companies involved in the mining, exploration, development and production of uranium, as well as companies that hold physical uranium or other non-mining assets. It follows the North Shore Global Uranium Mining Index and charges investors 83 bps in annual fee.Sprott Uranium Miners ETF holds 37 stocks in its basket and has AUM of $1.6 billion in its asset base. It trades in a good volume of 1 million shares per day on average.Fidelity Blue Chip Growth ETF (FBCG) – Up 49.5%Fidelity Blue Chip Growth ETF invests in blue-chip companies (well-known, well-established and well-capitalized), which generally have large or medium market capitalizations. These companies have above-average growth potential (stocks of these companies are often called "growth" stocks). Fidelity Blue Chip Growth ETF holds 162 securities in its basket with double-digit concentration on the top four firms.Fidelity Blue Chip Growth ETF charges 59 bps in annual fees and trades in an average daily volume of 176,000 shares. It has AUM of $897.7 million.Communication Services Select Sector SPDR Fund (XLC) – Up 48.2%Communication Services Select Sector SPDR Fund offers exposure to companies from telecommunication services, media, entertainment and interactive media & services, and has accumulated $14.6 billion in its asset base. It follows the Communication Services Select Sector Index and holds 22 stocks in its basket. About 50% of the portfolio is allocated to interactive media & services, while entertainment and media round off the next two.Communication Services Select Sector SPDR Fund charges 10 bps in annual fees and trades in an average daily volume of 6.6 million shares. It has a Zacks ETF Rank #2. Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Communication Services Select Sector SPDR ETF (XLC): ETF Research Reports MicroSectors FANG+ ETN (FNGS): ETF Research Reports Sprott Uranium Miners ETF (URNM): ETF Research Reports Fidelity Blue Chip Growth ETF (FBCG): ETF Research Reports Invesco Alerian Galaxy Crypto Economy ETF (SATO): ETF Research ReportsTo read this article on Zacks.com click here.Zacks Investment Research.....»»

US Futures End Six-Day Winning Streak As Fed Speakers Dampen Rate Cut Hopes US stocks were set to snap a six-day rally on Tuesday as traders reassessed expectations of Fed interest-rate policy after hawkish comments Monday by Minneapolis Fed President Neel Kashkari dampened hopes of speedy interest rate cuts from the US central bank. Kashkari is back today for round two; Indeed, traders appear to be awaiting more from Fed officials on the rate path outlook following Kashkari’s comments, with Fed Chair Jerome Powell also set to speak later in the week, but first we have to get through today's calendar: 07:30: Kashkari 08:00: Goolsbee 09:15: Barr 09:50: Schmid 10:00: Waller 12:00: Williams 13:25: Logan As of 7:50am, S&P 500 futures are down 0.3% to 4372 with Nasdaq futures dropping by the same amount, while Europe’s Stoxx 600 index posted a similar loss. Commodities ex-base metals/natgas are weaker while WTI slides under $80 for the first time in 2 months despite a war raging in the middle east. Today's Macro data is primarily focused on consumer credit, the 7 Fed speakers, and the 3Y auction at 1pm. MegaCap Tech names are weaker premarket; here are some of the most notable premarket movers: Alteryx shares rise 17% after the software company reported better-than-expected results, providing relief following last quarter’s disappointing revenue forecast. Analysts said that the firm’s execution improved, showing some resilience against a tough backdrop and prompting some price target hikes. Coherus Bio shares tumble 18% as the biotech company cut its net product revenue and combined R&D and SG&A expenses forecast for the full year. DigitalOcean Holdings shares gain 8.2% as Goldman Sachs double-upgrades its rating on the cloud computing firm to buy, saying in note that cyclical risks appear to be priced in. Hims & Hers Health shares jump 7.0% after reporting third-quarter revenue that beat estimates and boosting its adjusted Ebitda guidance for the full year ahead of expectations. Analysts saw the results as strong, highlighting the execution of management. RingCentral shares rise 9.7% after the communications software provider narrowed its software subscription revenue guidance for the full year and reported what analysts said was a strong set of results, boosting hopes of further growth. TransMedics Group shares climb 37% after the organ transplant company boosted its sales forecast for the full year. The health-care firm also reported third-quarter revenue that exceeded the average analyst estimates. TripAdvisor shares jump 11% after the online travel company reported third-quarter adjusted earnings per share and revenue that came ahead of estimates. Analysts said the results were better than expected, highlighting the performance of TripAdvisor Core and Viator. Ventyx Biosciences shares drop 73%, set for a record fall, after the biotech said it’s terminating its Phase 2 trial of VTX958 in plaque psoriasis and psoriatic arthritis as efficacy results did not meet the internal target to support further development. The update prompted a downgrade from Wells Fargo, with the broker saying that its thesis on the stock is “busted.” Vimeo shares rise as much as 14% in premarket trading after the video software company reported better-than-expected 3Q revenue and boosted its adjusted Ebitda guidance for the full year Clover Health shares fall as much as 19% in premarket trading on Tuesday after reporting third quarter revenue that missed the average analyst estimate. Kashkari, speaking in an interview on Fox News on Monday, said it’s too soon to declare victory over inflation. He added that while there have been three months of promising data on inflation, it isn’t enough. “The Kashkari comment has injected a sense of reality back into the market, which had got carried away thinking that policy easing was just around the corner,” said Stuart Cole, head macro economist at brokerage Equiti Capital. Meanwhile, bond markets rallied, led by the UK, as Bank of England Chief Economist Huw Pill hinted rate cuts may be on the table by the middle of 2024 and German industrial output figures suggested that recession isn’t far off. Two-year gilt yields fell 10 basis points to 4.6% and the rate on 10-year Treasuries slid five basis points to 4.59%. European stocks are lower, with the Stoxx 600 falling 0.2%. Among individual stock movers, oil producers dragged down European equity benchmarks, with Shell Plc and BP Plc sliding more than 1%. UBS gained as much as 5%, most in two months, as the Swiss bank’s third-quarter results were “messy” yet better than expected as expenses were lower, according to analysts. Here are some of the other notable European movers: Engie shares gain as much as 2.4% after the French utility company raised its full-year guidance and reaffirmed its dividend policy. Morgan Stanley sees 7% upside to current consensus estimates for 2023 net income Associated British Foods shares rise as much as 7%, reaching the highest since July 2021, after reporting full-year adjusted operating profit that beat estimates and announcing an additional £500 million buyback NatWest Group rises as much as 2.3% and is among the biggest gainers on the Stoxx 600 banks index on Tuesday after BNP Paribas Exane double-upgrades its rating on the UK lender to outperform from underperform Nexi shares jump as much as 4.4% on Tuesday after newspaper MF reported the Canada Pension Plan and Francisco Partners are among firms that may be interested in the payments company. It didn’t say where it obtained the information Watches of Switzerland shares jump as much as 15%, the biggest intraday gain since Sept. 25, after the luxury watch retailer reported second-quarter results that analysts said showed resilience in a tough macroeconomic environment Poste Italiane shares gain as much as 2.3%, the most intraday since Oct. 10, after the company boosted its full-year Ebit guidance and released what Morgan Stanley called a strong set of third-quarter results Daimler Truck shares fall as much as 4.8% to their lowest intraday since June after the German commercial vehicle maker’s third-quarter Ebit showed the impact of supply-chain bottlenecks and missed estimates, says Citi Demant shares drop as much as 8.7%, the most in a year and dragging peer GN Store Nord lower, after the Danish hearing-aid maker reported third-quarter sales that missed expectations and narrowed its organic revenue forecast for the year RS Group shares fall as much as 19% after a tough first half as weakness in electronics weighs on the industrial and electronic products distributor sales, according to analysts OCI slumps as much as 5.8% after the Dutch fertilizer maker’s third-quarter results saw a big miss on adjusted Ebitda. There could be double-digit downgrades to full-year Ebitda numbers, Morgan Stanley says The Restaurant Group shares fall as much as 3.3% after Wheel Topco, the owner of Pizza Express, said it won’t make an offer for the owner of Wagamama due to “market conditions” Earlier in the session, Asian equities declined, halting their best four-day advance since November 2022, with Chinese and Korean stocks leading the selloff in the region: South Korea’s Kospi Index lost 2.3% after Monday’s rally that was triggered by a short-selling ban, while Australia resumed policy tightening and raised its inflation forecast, a sign that central banks are not necessarily done hiking interest rates. The MSCI Asia Pacific Index fell as much as 1.3%, its biggest drop since Oct. 26, with POSCO, Alibaba and AIA Group among the top laggards. Korean stocks were headed for their worst day in more than a year on profit-taking after a ban on short-selling triggered their biggest rally since March 2020 on Monday. Chinese shares also declined after data showed that exports unexpectedly deepened in October, underscoring the country’s fragile economic recovery. A gauge of technology stocks in Hong Kong fell the most in a week. Hang Seng and Shanghai Comp opened lower amid the broader market mood. Muted price action was seen after the narrower-than-expected October Chinese Trade Balance, although imports saw surprise growth, while China Vanke’s shares firmed after state shareholders showed signs of providing liquidity support. Australia's ASX 200 saw its downside led by Financials, Energy, and Materials, although the index clambered off worst levels following the RBA's dovish hike. Japan's Nikkei 225 fell back under 32,500 as the index conforms to the losses across the region. Indian stocks ended a three-day rally to end flat amid declines in Asia and European markets. The S&P BSE Sensex settled at 64,942.40, erasing an intraday loss off 0.5%. The NSE Nifty 50 Index also ended flat at 19,406.70. The MSCI Asia Pacific Index slid as much as 1.4%, ending a four-day winning run that was the longest since October 12. Asian equities started November with gains after three successive months of decline over hopes that the higher-for-longer interest rates narrative may be fading. Still, sentiment has slightly soured amid fresh doubts over the Fed’s policy path and as Australia resumed its interest rate hikes after stronger than expected inflation data. “Following the stellar rallies across the region yesterday, indexes are giving back some of their gains, with a recovery in bond yields and a firmer US dollar to start the week,” said Jun Rong Yeap, market analyst at IG Asia Pte. In FX the Bloomberg Dollar Spot Index is up 0.2%. The Aussie is the weakest of the G-10 currencies, falling 1% versus the greenback after the RBA signaled a higher hurdle to further policy tightening. In rates, Treasuries rose along with the dollar, ahead of a flurry of Fed speakers later on Tuesday and following wider gains across European rates. 10Y TSY are trading at 4.625% down 2bps from yesterday's close. Gilts in particular underwent a sharp bull-steepening after Bank of England chief economist Huw Pill said there will be a “sharp further fall” in inflation for October and hinted that interest rates could be cut by the middle of next year.  Adding to the upward pressure on UK bonds, market research firm Kantar reported UK grocery price inflation slowed to single digits for the first time in 16 months. UK two-year yields fall 10bps to 4.62%. The US session includes at least seven Fed officials scheduled to speak and $48b 3-year note sale at 1pm New York time. US are yields richer by less than 2bp across the curve with gains led by belly, steepening 5s30s spread by around 1bp on the day; gilts lead gains across core European rates with 2-year sector richer by 10bp on the day into early US session, while in 10-year sector gilts outperform Treasuries by 4.5bp. In commodities, West Texas Intermediate crude dropped below $80 a barrel for the first time in more than two months. WTI fell 2% to trade near $79.20. Spot gold falls 0.5%. Looking to the day ahead now, data releases include German industrial production, Euro Area PPI, and the US trade balance for September. From central banks, we’ll hear from the Fed’s Barr, Schmid, Waller, Williams and Logan, along with the ECB’s Nagel. Finally in the political sphere, the King’s speech is taking place in the UK, where the government outlines its legislative agenda for the next parliamentary session. In the US, there are also 2 gubernatorial elections taking place today in Kentucky and Mississippi. Market Snapshot S&P 500 futures down 0.3% to 4,373.00 MXAP down 1.3% to 157.64 MXAPJ down 1.2% to 493.63 Nikkei down 1.3% to 32,271.82 Topix down 1.2% to 2,332.91 Hang Seng Index down 1.6% to 17,670.16 Shanghai Composite little changed at 3,057.27 Sensex little changed at 64,907.46 Australia S&P/ASX 200 down 0.3% to 6,977.07 Kospi down 2.3% to 2,443.96 STOXX Europe 600 down 0.2% to 442.82 German 10Y yield little changed at 2.71% Euro down 0.2% to $1.0694 Brent Futures down 2.1% to $83.38/bbl Gold spot down 0.5% to $1,967.78 U.S. Dollar Index up 0.29% to 105.52 Top Overnight News RBA hiked rates by 25bp to 4.35% (market expectations were close to 50/50 about whether they would move at this meeting) although the accompanying language evolved in a dovish fashion. RTRS   China’s exports fall short of expectations in Oct, coming in -6.4% Y/Y (vs. the Street estimate of -3.5%), although imports were a bit better (+3% vs. the Street -5%). RTRS Tumbling pork prices could push China back into deflation this week, as the largest listed hog farmers flood the domestic market and complicate Beijing’s efforts to bolster confidence in the world’s second-largest economy. FT China steps in to provide support to stressed developer Vanke, with Shenzhen Metro, a state-owned enterprise, vowing to provide full support to the company. WSJ German industrial production for Sept comes in cooler than anticipated (-1.4% M/M vs. the Street’s -0.1% forecast). BBG The BOE might wait until the middle of next year before cutting interest rates from their current 15-year high, the BoE's Chief Economist Huw Pill said on Monday. Pill said pricing in financial markets - that currently points to a first rate cut to Bank Rate in August 2024 - "doesn't seem totally unreasonable, at least to me." RTRS UBS shares climbed as stronger-than-expected client inflows and progress in cost savings overshadowed its first quarterly loss in six years. Sergio Ermotti said Credit Suisse has stabilized though remains structurally unprofitable, while demand for UBS debt is strong. BBG The UN reported the reopening of the crossing between Gaza and Egypt. Benjamin Netanyahu said he sees his country having security control over Gaza for an “indefinite period.” BBG James Gorman signaled he plans to step down as Morgan Stanley’s chairman by the end of 2024 as he prepares to vacate his CEO post this year. He pushed back on the notion of entering politics, saying, “I don’t like sharks.” BBG A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were softer across the board following the prior day’s gains and the choppy/mixed lead from Wall Street. South Korea’s KOSPI is the notable underperformer - slumping over 2.8% - after surging yesterday on the back of the stock short-selling ban. ASX 200 saw its downside led by Financials, Energy, and Materials, although the index clambered off worst levels following the RBA's dovish hike. Nikkei 225 fell back under 32,500 as the index conforms to the losses across the region. Hang Seng and Shanghai Comp opened lower amid the broader market mood. Muted price action was seen after the narrower-than-expected October Chinese Trade Balance, although imports saw surprise growth, while China Vanke’s shares firmed after state shareholders showed signs of providing liquidity support. Top Asian News RBA hikes its Cash Rate by 25bps as expected to 4.35% from 4.10%, and tweaked its forward guidance to say "Whether further tightening of monetary policy is required...will depend upon the data" (prev. "Some further tightening of monetary policy may be required"). The RBA also noted inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago. China's Commerce Ministry has issued new rules to strengthen management of rare earth exports, effective Oct 31 2023 to Oct 31, 2025; issued new rules to strengthen import management of crude oil, iron ore, copper concentrate, potash, according to Reuters. PBoC Deputy Governor said he is not too worried about the Chinese economy, and added the overall debt level of the Chinese government is in the mid to lower range by international standards, according to Reuters. PBoC injected CNY 353bln via 7-day reverse repos with the rate at 1.80% for a CNY 259bln net daily drain. Japan ruling ally Kometo tax chief says should not pre-decide to limit income tax cuts to just a year, according to Reuters. South Korean Vice Finance Minister says FX authorities will continue to monitor currency markets as done now even after rule changes in licenses, according to Reuters. IMF upgrades China's GDP Growth forecasts: 2023 5.4% (prev. 5%), 2024 4.6% (prev. 4.2%); follows strong Q3 and growth policies. European bourses are in the red, Euro Stoxx 50 -0.2%, but have been fairly contained throughout the morning with specific catalysts light and the tone thus far largely emanating from APAC pressure. Sectors are mixed with outperformance in Retail names post-AB Foods while Banks derive support from UBS despite yield pressure; in M&A Telefonica's offer to purchase the remainder of Telefonica Deutschland has led to gains of circa. 40% for the German telecom name. Stateside, futures are in the red printing broad-based losses in a continuation of Monday's/APAC risk tone, ES -0.2%, docket today features notable data incl. Manheim and numerous Fed speakers before a handful of earnings. Top European News ECB's de Guindos says low growth or economic standstill is expected to carry on into Q4 for the Eurozone. Telefonica Seeks 28% in German Unit for About €2 Billion UBS Seeks to Get Rid of $5 Billion in Rich Clients’ Assets Sunak Aims to Trap Labour With Election-Geared King’s Speech Aldi and Lidl Are Now Just as Middle Class as Other UK Grocers FX Aussie retreats as risk aversion and less hawkish RBA guidance outweigh the widely anticipated 25bp hike, AUD/USD closer to 0.6400 than 0.6500, AUD/NZD cross sub-1.0850 from just under 1.0900. Buck maintains recovery momentum almost across the board as DXY climbs to 105.63 from a 105.25 low awaiting US trade data and a slew of Fed speakers. Euro losing grip of 1.0700 handle, Pound probes 1.2300 and Yen back below 150.00 all over again. Loonie undermined by a slide in oil ahead of Canadian trade with USD/CAD closer towards the top of 1.3755-1.3691 range. PBoC set USD/CNY mid-point at 7.1776 vs exp. 7.2854 (prev. 7.1780) BCB Minutes: It was decided to maintain the recent communication, which already includes the appropriate conditionality in an uncertain environment; rate cuts of 50bps are appropriate to keep the necessary contractionary monetary policy for the disinflationary process. Fixed Income Debt futures resurgent after further retracement and curves revert to a flatter trajectory ahead of US refunding. Bunds bounce from 129.35 to 130.20 and Gilts from 94.47 to 95.42 in the wake of solid demand for 2034 UK issuance. T-note back on 108-00 handle within 107-19+/108-03+ range. Commodities Crude benchmarks remain under pressure after slipping during APAC trade in-fitting with the broader risk tone and have been unable to stage any form of recovery this morning, despite equity performance being much more contained in comparison. WTI Dec’23 and Brent Jan’23 lose the USD 80/bbl and USD 84/bbl handles respectively, an action which pushes the benchmarks to multi-month lows with support seen around USD 78/bbl mark in WTI from late-August. Metals feature marked pressure in spot gold with the stronger USD offsetting any potential haven demand that may typically have been expected from the current tone, a tone which is weighing on base metal peers. US DoE announced a supplemental solicitation for up to 3mln barrels of oil for delivery in January 2024 for US Strategic Reserve. OPEC Secretary General says oil demand continues to rise significantly; Oil demand to grow more than 2mln BPD in 2024. Geopolitics Israeli PM Netanyahu says Israel is open to "short pauses" in Gaza, but ruled out a ceasefire, according to Bloomberg. The Biden administration is reportedly planning a USD 320mln transfer of precision bombs for Israel, according to WSJ. Russian Defence Ministry says Russia destroyed 17 Ukraine-launched drones over Russian territory, according to RIA. US Event Calendar 08:30: Sept. Trade Balance, est. -$59.8b, prior -$58.3b 15:00: Sept. Consumer Credit, est. $9.5b, prior -$15.6b Central Banks 07:30: Fed’s Kashkari Speaks on Bloomberg Television 08:00: Fed’s Goolsbee Speaks on CNBC 09:15: Fed’s Barr Speaks on Financial Technology 09:50: Fed’s Schmid Speaks at Dallas/Kansas City Energy Conference 10:00: Fed’s Waller Speaks at St. Louis Fed Conference 12:00: Fed’s Williams Moderates Discussion in New York 13:25: Fed’s Logan Participates in Moderated Discussion DB's Jim Reid concludes the overnight wrap Just when you thought it was safe to go back into the water and hoover up every bond in sight, yesterday saw yields do yet another 180 degree turn, something we've been used to seeing in recent weeks, even if last three days of last week was one way traffic. 2yr US yields led the way (+9.6bps). T he S&P 500 managed to eke out a narrow gain (+0.18%) but US small caps (Russell 2000 -1.29%) suffered again with higher rates. Diving in, the bond selloff perhaps came as investors began to wonder if last week’s narrative about rate cuts was overdone. For instance, market pricing for the Fed now implies a 16% chance of another rate hike, up from 11% on Friday. Moreover, the rate priced in by the December 2024 meeting was up +12.4bps to 4.47%. So there was a clear, albeit partial unwinding of last week’s moves. After the market close, we heard from Minneapolis Fed Kashkari, one of the more hawkish FOMC voices, who said that “we need to let the data keep coming to us to see if we really have got the inflation genie back in the bottle”. So some pushback against declaring victory over inflation. For markets, this is hardly the first time we’ve seen expectations of a dovish pivot, and Henry pointed out yesterday (link here) that this is at least the 7th time this cycle where markets have reacted notably in response to dovish speculation. Clearly rates aren’t going to keep going up forever, but on the previous 6 occasions we saw hopes for near-term rate cuts dashed every time. Note that we’ve still got above-target inflation in every G7 country. With that in mind, next week’s US CPI release will be an important factor on that front, and our US economists expect core CPI to remain at +0.3% for a third consecutive month . In the latter half of the US session, we got the latest Senior Loan Officer Opinion Survey (SLOOS) from the Fed, which looks at bank lending standards and has traditionally been a strong leading indicator for the economy more broadly. This showed some improvement in banks’ willingness to lend compared to the previous quarter’s lows, with the net balance of banks reporting tighter lending standards falling from 50.8 to 33.9 for commercial & industrial loans and from 71.7 to 64.9 for CRE loans. However, more banks reported tightening standards for mortgages, up from 13.8 to 16.0. So the general SLOOS improvement is welcome but most measures are still at levels usually associated with recessions. Can the SLOOS improve quickly enough over the next 2-3 quarters before the current tight lending standards cause an accident or a serious growth slowdown. We likely have a race against time. In terms of the actual moves for bonds, 10yr Treasury yields ended the day up +7.1bps to 4.64%. Real yields drove the increase, with the 10yr real yield up +5.2bps to 2.23%, following its biggest weekly decline of 2023 so far last week. The sell-off was stronger at the front-end, with 2yr yields up +9.6bps to 4.94%. $24bn worth of corporate bond deals getting priced on Monday may have added upward pressure on yields. It’s worth highlighting that although the QRA was more positive last week, supply and QT is a regular part of life now and today kicks off a 3-day Treasury auction schedule with 3yr notes today, 10yr tomorrow and 30yr bonds on Thursday. So markets will still have to price these to sell over the coming months. Meanwhile in Europe, the rises in yields were also significant, with those on 10yr bunds (+9.3bps), OATs (+10.2bps) and BTPs (+13.3bps) all moving higher. Indeed, for BTPs it was the joint largest daily rise in yields since July 6. However the front end rise was more contained with German, French and Italian 2yr yields up +3.9 bps, +3.2bps and +9.1bps respectively . The bond moves were an obvious headwind to equities, but the S&P 500 (+0.18%) still managed to build on last week’s advance, with a 6th consecutive gain for the first time since June. However, this advance was a narrow one with only 31% of the S&P constituents up on the day. The biggest driver were tech mega caps, with the Magnificent Seven index up +0.87%, and the NASDAQ (+0.30%) rising for a 7th consecutive session for the first time since January. On the other hand, small-caps put in a very weak performance, with the Russell 2000 (-1.29%) losing ground after recording its strongest week since February 2021. As with bonds, the picture was a bit weaker in Europe, with losses for the STOXX 600 (-0.16%), the DAX (-0.35%) and the CAC 40 (-0.48%). Asian equity markets have turned negative this morning following the softer markets yesterday. As I check my screens, the KOSPI (-3.07%) is sliding hard after posting its best session yesterday (+6.43%) since late March 2020 following the renewed ban on short selling over the weekend. Elsewhere, the Hang Seng (-1.50%), the Nikkei (-1.12%), the CSI (-0.68%) and the Shanghai Composite (-0.35%) are also retreating. Meanwhile, the S&P/ASX 200 (-0.15%) is also trading lower after the RBA increased its key interest rate by 25bps as expected (more on this below). S&P 500 (-0.21%) and NASDAQ 100 (-0.15%) futures are ticking lower. Treasury yields have fallen 0 to -1.5bps across the curve, led by the front end. The latest trade data from China showed that exports declined for a 6th consecutive month, dropping -6.4% y/y, worse than Bloomberg’s estimate of a -3.5% drop and against a -6.2% drop in September. Imports surprisingly rebounded +3.0% y/y in October (v/s -5.0% expected) after a revised -6.3% drop the previous month. The resulting trade surplus amounted to $56.53 billion (v/s $82.0 billion expected). Elsewhere, the RBA lifted its cash rate for the first time in five months (+25bps) to a 12-year high of 4.35% citing a slower-than-expected decline in inflation while still indicating that inflation would return to its target range of 2% to 3% in a reasonable timeframe. The Aussie dollar (-0.79%) dropped against the US dollar in response to the rate hike as the central bank’s statement failed to confirm the possibility of another hike in this cycle. Policy sensitive 3yr government bond yields fell -3.1 bps to 4.24% before slightly recovering, standing at 4.25% as I type. Looking at yesterday’s data, there wasn’t too much but we did get some of the final PMI readings from Europe, where the main headlines were in line with the flash prints from a couple of weeks ago. For instance, the final Euro Area composite PMI was exactly in line with the flash reading at 47.8, and in Germany it was revised by only -0.1pts to 45.8. One source of concern was Italy, where the composite PMI fell -2.0pts to 47.0, its lowest in 12 months. Otherwise, the latest reading on German factory orders for September showed a +0.2% expansion (vs. -1.5% expected), but with this upside offset by a major downward revision to the previous month (+1.9% vs +3.9% previously). This still leaves German factory orders down -4.3% year-on-year. To the day ahead now, and data releases include German industrial production, Euro Area PPI, and the US trade balance for September. From central banks, we’ll hear from the Fed’s Barr, Schmid, Waller, Williams and Logan, along with the ECB’s Nagel. Finally in the political sphere, the King’s speech is taking place in the UK, where the government outlines its legislative agenda for the next parliamentary session. In the US, there are also 2 gubernatorial elections taking place today in Kentucky and Mississippi. Tyler Durden Tue, 11/07/2023 - 08:13.....»»

US Futures End Six-Day Winning Streak As Fed Speakers Dampen Hopes Of Rate Cuts US stocks were set to snap a six-day rally on Tuesday as traders reassessed expectations of Fed interest-rate policy after hawkish comments Monday by Minneapolis Fed President Neel Kashkari dampened hopes of speedy interest rate cuts from the US central bank. Kashkari is back today for round two; Indeed, traders appear to be awaiting more from Fed officials on the rate path outlook following Kashkari’s comments, with Fed Chair Jerome Powell also set to speak later in the week, but first we have to get through today's calendar: 07:30: Kashkari 08:00: Goolsbee 09:15: Barr 09:50: Schmid 10:00: Waller 12:00: Williams 13:25: Logan As of 7:50am, S&P 500 futures are down 0.3% to 4372 with Nasdaq futures dropping by the same amount, while Europe’s Stoxx 600 index posted a similar loss. Commodities ex-base metals/natgas are weaker while WTI slides under $80 for the first time in 2 months despite a war raging in the middle east. Today's Macro data is primarily focused on consumer credit, the 7 Fed speakers, and the 3Y auction at 1pm. MegaCap Tech names are weaker premarket; here are some of the most notable premarket movers: Alteryx shares rise 17% after the software company reported better-than-expected results, providing relief following last quarter’s disappointing revenue forecast. Analysts said that the firm’s execution improved, showing some resilience against a tough backdrop and prompting some price target hikes. Coherus Bio shares tumble 18% as the biotech company cut its net product revenue and combined R&D and SG&A expenses forecast for the full year. DigitalOcean Holdings shares gain 8.2% as Goldman Sachs double-upgrades its rating on the cloud computing firm to buy, saying in note that cyclical risks appear to be priced in. Hims & Hers Health shares jump 7.0% after reporting third-quarter revenue that beat estimates and boosting its adjusted Ebitda guidance for the full year ahead of expectations. Analysts saw the results as strong, highlighting the execution of management. RingCentral shares rise 9.7% after the communications software provider narrowed its software subscription revenue guidance for the full year and reported what analysts said was a strong set of results, boosting hopes of further growth. TransMedics Group shares climb 37% after the organ transplant company boosted its sales forecast for the full year. The health-care firm also reported third-quarter revenue that exceeded the average analyst estimates. TripAdvisor shares jump 11% after the online travel company reported third-quarter adjusted earnings per share and revenue that came ahead of estimates. Analysts said the results were better than expected, highlighting the performance of TripAdvisor Core and Viator. Ventyx Biosciences shares drop 73%, set for a record fall, after the biotech said it’s terminating its Phase 2 trial of VTX958 in plaque psoriasis and psoriatic arthritis as efficacy results did not meet the internal target to support further development. The update prompted a downgrade from Wells Fargo, with the broker saying that its thesis on the stock is “busted.” Vimeo shares rise as much as 14% in premarket trading after the video software company reported better-than-expected 3Q revenue and boosted its adjusted Ebitda guidance for the full year Clover Health shares fall as much as 19% in premarket trading on Tuesday after reporting third quarter revenue that missed the average analyst estimate. Kashkari, speaking in an interview on Fox News on Monday, said it’s too soon to declare victory over inflation. He added that while there have been three months of promising data on inflation, it isn’t enough. “The Kashkari comment has injected a sense of reality back into the market, which had got carried away thinking that policy easing was just around the corner,” said Stuart Cole, head macro economist at brokerage Equiti Capital. Meanwhile, bond markets rallied, led by the UK, as Bank of England Chief Economist Huw Pill hinted rate cuts may be on the table by the middle of 2024 and German industrial output figures suggested that recession isn’t far off. Two-year gilt yields fell 10 basis points to 4.6% and the rate on 10-year Treasuries slid five basis points to 4.59%. European stocks are lower, with the Stoxx 600 falling 0.2%. Among individual stock movers, oil producers dragged down European equity benchmarks, with Shell Plc and BP Plc sliding more than 1%. UBS gained as much as 5%, most in two months, as the Swiss bank’s third-quarter results were “messy” yet better than expected as expenses were lower, according to analysts. Here are some of the other notable European movers: Engie shares gain as much as 2.4% after the French utility company raised its full-year guidance and reaffirmed its dividend policy. Morgan Stanley sees 7% upside to current consensus estimates for 2023 net income Associated British Foods shares rise as much as 7%, reaching the highest since July 2021, after reporting full-year adjusted operating profit that beat estimates and announcing an additional £500 million buyback NatWest Group rises as much as 2.3% and is among the biggest gainers on the Stoxx 600 banks index on Tuesday after BNP Paribas Exane double-upgrades its rating on the UK lender to outperform from underperform Nexi shares jump as much as 4.4% on Tuesday after newspaper MF reported the Canada Pension Plan and Francisco Partners are among firms that may be interested in the payments company. It didn’t say where it obtained the information Watches of Switzerland shares jump as much as 15%, the biggest intraday gain since Sept. 25, after the luxury watch retailer reported second-quarter results that analysts said showed resilience in a tough macroeconomic environment Poste Italiane shares gain as much as 2.3%, the most intraday since Oct. 10, after the company boosted its full-year Ebit guidance and released what Morgan Stanley called a strong set of third-quarter results Daimler Truck shares fall as much as 4.8% to their lowest intraday since June after the German commercial vehicle maker’s third-quarter Ebit showed the impact of supply-chain bottlenecks and missed estimates, says Citi Demant shares drop as much as 8.7%, the most in a year and dragging peer GN Store Nord lower, after the Danish hearing-aid maker reported third-quarter sales that missed expectations and narrowed its organic revenue forecast for the year RS Group shares fall as much as 19% after a tough first half as weakness in electronics weighs on the industrial and electronic products distributor sales, according to analysts OCI slumps as much as 5.8% after the Dutch fertilizer maker’s third-quarter results saw a big miss on adjusted Ebitda. There could be double-digit downgrades to full-year Ebitda numbers, Morgan Stanley says The Restaurant Group shares fall as much as 3.3% after Wheel Topco, the owner of Pizza Express, said it won’t make an offer for the owner of Wagamama due to “market conditions” Earlier in the session, Asian equities declined, halting their best four-day advance since November 2022, with Chinese and Korean stocks leading the selloff in the region: South Korea’s Kospi Index lost 2.3% after Monday’s rally that was triggered by a short-selling ban, while Australia resumed policy tightening and raised its inflation forecast, a sign that central banks are not necessarily done hiking interest rates. The MSCI Asia Pacific Index fell as much as 1.3%, its biggest drop since Oct. 26, with POSCO, Alibaba and AIA Group among the top laggards. Korean stocks were headed for their worst day in more than a year on profit-taking after a ban on short-selling triggered their biggest rally since March 2020 on Monday. Chinese shares also declined after data showed that exports unexpectedly deepened in October, underscoring the country’s fragile economic recovery. A gauge of technology stocks in Hong Kong fell the most in a week. Hang Seng and Shanghai Comp opened lower amid the broader market mood. Muted price action was seen after the narrower-than-expected October Chinese Trade Balance, although imports saw surprise growth, while China Vanke’s shares firmed after state shareholders showed signs of providing liquidity support. Australia's ASX 200 saw its downside led by Financials, Energy, and Materials, although the index clambered off worst levels following the RBA's dovish hike. Japan's Nikkei 225 fell back under 32,500 as the index conforms to the losses across the region. Indian stocks ended a three-day rally to end flat amid declines in Asia and European markets. The S&P BSE Sensex settled at 64,942.40, erasing an intraday loss off 0.5%. The NSE Nifty 50 Index also ended flat at 19,406.70. The MSCI Asia Pacific Index slid as much as 1.4%, ending a four-day winning run that was the longest since October 12. Asian equities started November with gains after three successive months of decline over hopes that the higher-for-longer interest rates narrative may be fading. Still, sentiment has slightly soured amid fresh doubts over the Fed’s policy path and as Australia resumed its interest rate hikes after stronger than expected inflation data. “Following the stellar rallies across the region yesterday, indexes are giving back some of their gains, with a recovery in bond yields and a firmer US dollar to start the week,” said Jun Rong Yeap, market analyst at IG Asia Pte. In FX the Bloomberg Dollar Spot Index is up 0.2%. The Aussie is the weakest of the G-10 currencies, falling 1% versus the greenback after the RBA signaled a higher hurdle to further policy tightening. In rates, Treasuries rose along with the dollar, ahead of a flurry of Fed speakers later on Tuesday and following wider gains across European rates. 10Y TSY are trading at 4.625% down 2bps from yesterday's close. Gilts in particular underwent a sharp bull-steepening after Bank of England chief economist Huw Pill said there will be a “sharp further fall” in inflation for October and hinted that interest rates could be cut by the middle of next year.  Adding to the upward pressure on UK bonds, market research firm Kantar reported UK grocery price inflation slowed to single digits for the first time in 16 months. UK two-year yields fall 10bps to 4.62%. The US session includes at least seven Fed officials scheduled to speak and $48b 3-year note sale at 1pm New York time. US are yields richer by less than 2bp across the curve with gains led by belly, steepening 5s30s spread by around 1bp on the day; gilts lead gains across core European rates with 2-year sector richer by 10bp on the day into early US session, while in 10-year sector gilts outperform Treasuries by 4.5bp. In commodities, West Texas Intermediate crude dropped below $80 a barrel for the first time in more than two months. WTI fell 2% to trade near $79.20. Spot gold falls 0.5%. Looking to the day ahead now, data releases include German industrial production, Euro Area PPI, and the US trade balance for September. From central banks, we’ll hear from the Fed’s Barr, Schmid, Waller, Williams and Logan, along with the ECB’s Nagel. Finally in the political sphere, the King’s speech is taking place in the UK, where the government outlines its legislative agenda for the next parliamentary session. In the US, there are also 2 gubernatorial elections taking place today in Kentucky and Mississippi. Market Snapshot S&P 500 futures down 0.3% to 4,373.00 MXAP down 1.3% to 157.64 MXAPJ down 1.2% to 493.63 Nikkei down 1.3% to 32,271.82 Topix down 1.2% to 2,332.91 Hang Seng Index down 1.6% to 17,670.16 Shanghai Composite little changed at 3,057.27 Sensex little changed at 64,907.46 Australia S&P/ASX 200 down 0.3% to 6,977.07 Kospi down 2.3% to 2,443.96 STOXX Europe 600 down 0.2% to 442.82 German 10Y yield little changed at 2.71% Euro down 0.2% to $1.0694 Brent Futures down 2.1% to $83.38/bbl Gold spot down 0.5% to $1,967.78 U.S. Dollar Index up 0.29% to 105.52 Top Overnight News RBA hiked rates by 25bp to 4.35% (market expectations were close to 50/50 about whether they would move at this meeting) although the accompanying language evolved in a dovish fashion. RTRS   China’s exports fall short of expectations in Oct, coming in -6.4% Y/Y (vs. the Street estimate of -3.5%), although imports were a bit better (+3% vs. the Street -5%). RTRS Tumbling pork prices could push China back into deflation this week, as the largest listed hog farmers flood the domestic market and complicate Beijing’s efforts to bolster confidence in the world’s second-largest economy. FT China steps in to provide support to stressed developer Vanke, with Shenzhen Metro, a state-owned enterprise, vowing to provide full support to the company. WSJ German industrial production for Sept comes in cooler than anticipated (-1.4% M/M vs. the Street’s -0.1% forecast). BBG The BOE might wait until the middle of next year before cutting interest rates from their current 15-year high, the BoE's Chief Economist Huw Pill said on Monday. Pill said pricing in financial markets - that currently points to a first rate cut to Bank Rate in August 2024 - "doesn't seem totally unreasonable, at least to me." RTRS UBS shares climbed as stronger-than-expected client inflows and progress in cost savings overshadowed its first quarterly loss in six years. Sergio Ermotti said Credit Suisse has stabilized though remains structurally unprofitable, while demand for UBS debt is strong. BBG The UN reported the reopening of the crossing between Gaza and Egypt. Benjamin Netanyahu said he sees his country having security control over Gaza for an “indefinite period.” BBG James Gorman signaled he plans to step down as Morgan Stanley’s chairman by the end of 2024 as he prepares to vacate his CEO post this year. He pushed back on the notion of entering politics, saying, “I don’t like sharks.” BBG A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were softer across the board following the prior day’s gains and the choppy/mixed lead from Wall Street. South Korea’s KOSPI is the notable underperformer - slumping over 2.8% - after surging yesterday on the back of the stock short-selling ban. ASX 200 saw its downside led by Financials, Energy, and Materials, although the index clambered off worst levels following the RBA's dovish hike. Nikkei 225 fell back under 32,500 as the index conforms to the losses across the region. Hang Seng and Shanghai Comp opened lower amid the broader market mood. Muted price action was seen after the narrower-than-expected October Chinese Trade Balance, although imports saw surprise growth, while China Vanke’s shares firmed after state shareholders showed signs of providing liquidity support. Top Asian News RBA hikes its Cash Rate by 25bps as expected to 4.35% from 4.10%, and tweaked its forward guidance to say "Whether further tightening of monetary policy is required...will depend upon the data" (prev. "Some further tightening of monetary policy may be required"). The RBA also noted inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago. China's Commerce Ministry has issued new rules to strengthen management of rare earth exports, effective Oct 31 2023 to Oct 31, 2025; issued new rules to strengthen import management of crude oil, iron ore, copper concentrate, potash, according to Reuters. PBoC Deputy Governor said he is not too worried about the Chinese economy, and added the overall debt level of the Chinese government is in the mid to lower range by international standards, according to Reuters. PBoC injected CNY 353bln via 7-day reverse repos with the rate at 1.80% for a CNY 259bln net daily drain. Japan ruling ally Kometo tax chief says should not pre-decide to limit income tax cuts to just a year, according to Reuters. South Korean Vice Finance Minister says FX authorities will continue to monitor currency markets as done now even after rule changes in licenses, according to Reuters. IMF upgrades China's GDP Growth forecasts: 2023 5.4% (prev. 5%), 2024 4.6% (prev. 4.2%); follows strong Q3 and growth policies. European bourses are in the red, Euro Stoxx 50 -0.2%, but have been fairly contained throughout the morning with specific catalysts light and the tone thus far largely emanating from APAC pressure. Sectors are mixed with outperformance in Retail names post-AB Foods while Banks derive support from UBS despite yield pressure; in M&A Telefonica's offer to purchase the remainder of Telefonica Deutschland has led to gains of circa. 40% for the German telecom name. Stateside, futures are in the red printing broad-based losses in a continuation of Monday's/APAC risk tone, ES -0.2%, docket today features notable data incl. Manheim and numerous Fed speakers before a handful of earnings. Top European News ECB's de Guindos says low growth or economic standstill is expected to carry on into Q4 for the Eurozone. Telefonica Seeks 28% in German Unit for About €2 Billion UBS Seeks to Get Rid of $5 Billion in Rich Clients’ Assets Sunak Aims to Trap Labour With Election-Geared King’s Speech Aldi and Lidl Are Now Just as Middle Class as Other UK Grocers FX Aussie retreats as risk aversion and less hawkish RBA guidance outweigh the widely anticipated 25bp hike, AUD/USD closer to 0.6400 than 0.6500, AUD/NZD cross sub-1.0850 from just under 1.0900. Buck maintains recovery momentum almost across the board as DXY climbs to 105.63 from a 105.25 low awaiting US trade data and a slew of Fed speakers. Euro losing grip of 1.0700 handle, Pound probes 1.2300 and Yen back below 150.00 all over again. Loonie undermined by a slide in oil ahead of Canadian trade with USD/CAD closer towards the top of 1.3755-1.3691 range. PBoC set USD/CNY mid-point at 7.1776 vs exp. 7.2854 (prev. 7.1780) BCB Minutes: It was decided to maintain the recent communication, which already includes the appropriate conditionality in an uncertain environment; rate cuts of 50bps are appropriate to keep the necessary contractionary monetary policy for the disinflationary process. Fixed Income Debt futures resurgent after further retracement and curves revert to a flatter trajectory ahead of US refunding. Bunds bounce from 129.35 to 130.20 and Gilts from 94.47 to 95.42 in the wake of solid demand for 2034 UK issuance. T-note back on 108-00 handle within 107-19+/108-03+ range. Commodities Crude benchmarks remain under pressure after slipping during APAC trade in-fitting with the broader risk tone and have been unable to stage any form of recovery this morning, despite equity performance being much more contained in comparison. WTI Dec’23 and Brent Jan’23 lose the USD 80/bbl and USD 84/bbl handles respectively, an action which pushes the benchmarks to multi-month lows with support seen around USD 78/bbl mark in WTI from late-August. Metals feature marked pressure in spot gold with the stronger USD offsetting any potential haven demand that may typically have been expected from the current tone, a tone which is weighing on base metal peers. US DoE announced a supplemental solicitation for up to 3mln barrels of oil for delivery in January 2024 for US Strategic Reserve. OPEC Secretary General says oil demand continues to rise significantly; Oil demand to grow more than 2mln BPD in 2024. Geopolitics Israeli PM Netanyahu says Israel is open to "short pauses" in Gaza, but ruled out a ceasefire, according to Bloomberg. The Biden administration is reportedly planning a USD 320mln transfer of precision bombs for Israel, according to WSJ. Russian Defence Ministry says Russia destroyed 17 Ukraine-launched drones over Russian territory, according to RIA. US Event Calendar 08:30: Sept. Trade Balance, est. -$59.8b, prior -$58.3b 15:00: Sept. Consumer Credit, est. $9.5b, prior -$15.6b Central Banks 07:30: Fed’s Kashkari Speaks on Bloomberg Television 08:00: Fed’s Goolsbee Speaks on CNBC 09:15: Fed’s Barr Speaks on Financial Technology 09:50: Fed’s Schmid Speaks at Dallas/Kansas City Energy Conference 10:00: Fed’s Waller Speaks at St. Louis Fed Conference 12:00: Fed’s Williams Moderates Discussion in New York 13:25: Fed’s Logan Participates in Moderated Discussion DB's Jim Reid concludes the overnight wrap Just when you thought it was safe to go back into the water and hoover up every bond in sight, yesterday saw yields do yet another 180 degree turn, something we've been used to seeing in recent weeks, even if last three days of last week was one way traffic. 2yr US yields led the way (+9.6bps). T he S&P 500 managed to eke out a narrow gain (+0.18%) but US small caps (Russell 2000 -1.29%) suffered again with higher rates. Diving in, the bond selloff perhaps came as investors began to wonder if last week’s narrative about rate cuts was overdone. For instance, market pricing for the Fed now implies a 16% chance of another rate hike, up from 11% on Friday. Moreover, the rate priced in by the December 2024 meeting was up +12.4bps to 4.47%. So there was a clear, albeit partial unwinding of last week’s moves. After the market close, we heard from Minneapolis Fed Kashkari, one of the more hawkish FOMC voices, who said that “we need to let the data keep coming to us to see if we really have got the inflation genie back in the bottle”. So some pushback against declaring victory over inflation. For markets, this is hardly the first time we’ve seen expectations of a dovish pivot, and Henry pointed out yesterday (link here) that this is at least the 7th time this cycle where markets have reacted notably in response to dovish speculation. Clearly rates aren’t going to keep going up forever, but on the previous 6 occasions we saw hopes for near-term rate cuts dashed every time. Note that we’ve still got above-target inflation in every G7 country. With that in mind, next week’s US CPI release will be an important factor on that front, and our US economists expect core CPI to remain at +0.3% for a third consecutive month . In the latter half of the US session, we got the latest Senior Loan Officer Opinion Survey (SLOOS) from the Fed, which looks at bank lending standards and has traditionally been a strong leading indicator for the economy more broadly. This showed some improvement in banks’ willingness to lend compared to the previous quarter’s lows, with the net balance of banks reporting tighter lending standards falling from 50.8 to 33.9 for commercial & industrial loans and from 71.7 to 64.9 for CRE loans. However, more banks reported tightening standards for mortgages, up from 13.8 to 16.0. So the general SLOOS improvement is welcome but most measures are still at levels usually associated with recessions. Can the SLOOS improve quickly enough over the next 2-3 quarters before the current tight lending standards cause an accident or a serious growth slowdown. We likely have a race against time. In terms of the actual moves for bonds, 10yr Treasury yields ended the day up +7.1bps to 4.64%. Real yields drove the increase, with the 10yr real yield up +5.2bps to 2.23%, following its biggest weekly decline of 2023 so far last week. The sell-off was stronger at the front-end, with 2yr yields up +9.6bps to 4.94%. $24bn worth of corporate bond deals getting priced on Monday may have added upward pressure on yields. It’s worth highlighting that although the QRA was more positive last week, supply and QT is a regular part of life now and today kicks off a 3-day Treasury auction schedule with 3yr notes today, 10yr tomorrow and 30yr bonds on Thursday. So markets will still have to price these to sell over the coming months. Meanwhile in Europe, the rises in yields were also significant, with those on 10yr bunds (+9.3bps), OATs (+10.2bps) and BTPs (+13.3bps) all moving higher. Indeed, for BTPs it was the joint largest daily rise in yields since July 6. However the front end rise was more contained with German, French and Italian 2yr yields up +3.9 bps, +3.2bps and +9.1bps respectively . The bond moves were an obvious headwind to equities, but the S&P 500 (+0.18%) still managed to build on last week’s advance, with a 6th consecutive gain for the first time since June. However, this advance was a narrow one with only 31% of the S&P constituents up on the day. The biggest driver were tech mega caps, with the Magnificent Seven index up +0.87%, and the NASDAQ (+0.30%) rising for a 7th consecutive session for the first time since January. On the other hand, small-caps put in a very weak performance, with the Russell 2000 (-1.29%) losing ground after recording its strongest week since February 2021. As with bonds, the picture was a bit weaker in Europe, with losses for the STOXX 600 (-0.16%), the DAX (-0.35%) and the CAC 40 (-0.48%). Asian equity markets have turned negative this morning following the softer markets yesterday. As I check my screens, the KOSPI (-3.07%) is sliding hard after posting its best session yesterday (+6.43%) since late March 2020 following the renewed ban on short selling over the weekend. Elsewhere, the Hang Seng (-1.50%), the Nikkei (-1.12%), the CSI (-0.68%) and the Shanghai Composite (-0.35%) are also retreating. Meanwhile, the S&P/ASX 200 (-0.15%) is also trading lower after the RBA increased its key interest rate by 25bps as expected (more on this below). S&P 500 (-0.21%) and NASDAQ 100 (-0.15%) futures are ticking lower. Treasury yields have fallen 0 to -1.5bps across the curve, led by the front end. The latest trade data from China showed that exports declined for a 6th consecutive month, dropping -6.4% y/y, worse than Bloomberg’s estimate of a -3.5% drop and against a -6.2% drop in September. Imports surprisingly rebounded +3.0% y/y in October (v/s -5.0% expected) after a revised -6.3% drop the previous month. The resulting trade surplus amounted to $56.53 billion (v/s $82.0 billion expected). Elsewhere, the RBA lifted its cash rate for the first time in five months (+25bps) to a 12-year high of 4.35% citing a slower-than-expected decline in inflation while still indicating that inflation would return to its target range of 2% to 3% in a reasonable timeframe. The Aussie dollar (-0.79%) dropped against the US dollar in response to the rate hike as the central bank’s statement failed to confirm the possibility of another hike in this cycle. Policy sensitive 3yr government bond yields fell -3.1 bps to 4.24% before slightly recovering, standing at 4.25% as I type. Looking at yesterday’s data, there wasn’t too much but we did get some of the final PMI readings from Europe, where the main headlines were in line with the flash prints from a couple of weeks ago. For instance, the final Euro Area composite PMI was exactly in line with the flash reading at 47.8, and in Germany it was revised by only -0.1pts to 45.8. One source of concern was Italy, where the composite PMI fell -2.0pts to 47.0, its lowest in 12 months. Otherwise, the latest reading on German factory orders for September showed a +0.2% expansion (vs. -1.5% expected), but with this upside offset by a major downward revision to the previous month (+1.9% vs +3.9% previously). This still leaves German factory orders down -4.3% year-on-year. To the day ahead now, and data releases include German industrial production, Euro Area PPI, and the US trade balance for September. From central banks, we’ll hear from the Fed’s Barr, Schmid, Waller, Williams and Logan, along with the ECB’s Nagel. Finally in the political sphere, the King’s speech is taking place in the UK, where the government outlines its legislative agenda for the next parliamentary session. In the US, there are also 2 gubernatorial elections taking place today in Kentucky and Mississippi. Tyler Durden Tue, 11/07/2023 - 08:13.....»»

All three benchmark indexes notched weekly losses, with the S&P 500 sliding into correction territory on Friday. AP US stocks traded mixed on Friday as investors took in fresh inflation data and corporate earnings. The Fed's preferred inflation measure was in line with economists' expectations. All three benchmark indexes notched weekly losses, with the S&P 500 sliding into correction territory. US stocks traded mixed on Friday as investors took in fresh inflation data and more corporate earnings reports.The Dow Jones Industrial Average slid over 300 points, while the S&P 500 entered correction territory after slipping 10% from its recent peak. All three benchmark indexes notched weekly losses.The PCE price index, the Fed's preferred inflation measure, rose 0.3% last month and 3.7% year over year, the Commerce Department reported on Friday. Meanwhile, real consumer spending jumped 0.4% last month, hinting at consumer strength that could stoke inflation further."Consumers are spending more than they are earning. Adjusted for inflation, consumers increased spending in each of the last three months while real disposable income fell over the same period. Clearly, this can't last much longer," LPL Financial chief economist Jeffrey Roach said in a statement.Investors also digested the latest wave of corporate earnings this week, with Amazon jumping 6% after a stellar third-quarter earnings report. Other mega-cap tech firms, though, like Alphabet and Meta slid this week.Here's where US indexes stood at the 4:00 p.m. closing bell on Friday: S&P 500: 4,117.37, down 0.48%Dow Jones Industrial Average: 32,417.59, down 1.12% (366.71 points)Nasdaq Composite: 12,643.01, up 0.38%Here's what else happened today: The S&P 500 will rocket 18% by year-end as the economy stays strong and the Fed ends interest rate hikes, according to Oppenheimer's investment chief.The S&P 500 could fall another 5% and test a critical support level, Bank of America warned.Treasury Secretary Janet Yellen said surging bond yields are due to the strong economy, not the growing deficit.Treasury bonds are yielding the same as the highest dividends paid by S&P 500 firms, Goldman Sachs said.JPMorgan CEO Jamie Dimon just trimmed his stake in the lender for the first time.Hedge fund billionaire Steve Cohen expects a recession to come and go quickly before a stock market rally.In commodities, bonds, and crypto: West Texas Intermediate crude oil rose 2.08% to $84.94 a barrel. Brent crude, the international benchmark, slipped 0.62% to $88.65 a barrel. Gold climbed 1.08% to $2,006.69 per ounce. The 10-year Treasury yield traded flat around 4.841%.Bitcoin slipped 0.87% to $33,657. Read the original article on Business Insider.....»»

The US economy saw strong growth in the third quarter, though the Nasdaq pushed further into correction territory on Thursday. Traders work on the floor of the NYSEThomson Reuters US stocks closed in the red on Thursday, with the Nasdaq shedding more than 1%.  US GDP data for the third quarter showed the economy grew at 4.9%, more than expected. Meta stock fell after management warned on ad sales.  US stocks declined on Thursday as traders took in hotter-than-expected US economic growth as well as more tech earnings.Gross domestic product in the third quarter grew at a 4.9% annualized rate, above forecasts and the roughly 2% pace seen in the prior two quarters. Consumer spending jumped 4%, the most since 2021. "Investors should not be surprised that the consumer was spending in the final months of the summer," said Jeffrey Roach, chief economist for LPL Financial. "The real question is if the trend can continue in the coming quarters and we think not."Meanwhile, the Nasdaq slumped deeper into correction territory as tech giants Alphabet and Meta Platforms have failed to impress Wall Street this reporting season. Like Alphabet, Meta beat on revenue and earnings, but management at the social-media leader warned on ad sales.Here's where US indexes stood as the market closed at 4:00 p.m. on Thursday: S&P 500: 4,137.23, down 1.18%Dow Jones Industrial Average: 32,784.30, down 0.76% (251.63 points)Nasdaq Composite: 12,595.61, down 1.76%Here's what else is going on: The bond market is acting like it's 1969, when rising yields preceded a recession, according to JPMorgan.A portfolio manager said the no-recession trade is to buy high-yield bonds.The Fed is crushing small businesses across the US. Investing pioneer Rob Arnott warned that recessions always start with a booming economy.A veteran investor said stocks will rally when Israel's ground invasion of Gaza begins.Here's how Wall Street is reacting to Meta's third-quarter earnings.The stock market is riskier and more volatile than it was in past decades. In commodities, bonds, and crypto: Oil prices dropped, with West Texas Intermediate down 2.3% to $83.40 a barrel. Brent crude, the international benchmark, moved lower 2.3% to $88.08 a barrel.Gold was flat at $1,994.50 per ounce.The 10-year yield tumbled 10.6 basis points to 4.847%.Bitcoin slipped 1.6% to $34,113.Read the original article on Business Insider.....»»

U.S. stock futures fell as shares in Meta pulled back following results and bond yields hovered near recent highs......»»

Futures Slide As Oil And Gold Jump, Treasuries Find Tentative Buyers With Yields At 2007 Highs Global stock dipped and US equity futures traded lower as crude oil extended the weekly advance for a 4th day, rising above $90 on concerns Israel and Hamas war could widen into a regional conflict and as the DOE announced plans to refill the largely drained SPR with another $6 million barrels (good luck doing that with the proposed purchase price of "$79 or below"). As of 8:00am, S&P and Nasdaq 100 futures were down 0.3%; Europe's Stoxx 600 was down 0.7% to a seven month low and on course for a fourth day of declines. Meanwhile, Treasuries rose, led by gains in 10-year debt which briefly topped 5% yesterday for the first time since 2007, after Fed chair Jerome Powell suggested the US central bank is likely to hold interest rates steady at its next meeting. Asian equities also fell, on course for their worst week since August; China Evergrande Group is revising the terms of its proposed restructuring plan and Country Garden’s default on dollar bond interest payment still looms. A burst of buying among cryptocurrencies sent bitcoin above $30K, the highest since August. In premarket trading, American Express gained in premarket trading after third-quarter revenue and profit soared to records. SolarEdge Technologies Inc. slumped 27% after cutting its sales forecast because of canceled orders. The declines spread across the sector, with German photovoltaic systems maker SMA Solar Technology AG down 16%. Stocks exposed to cryptocurrencies, including Cleanspark and Coinbase Global, rise, tracking the Bitcoin price as the digital asset inches closer toward the closely watched $30,000 level. Intuitive Surgical shares fall 7.8% in premarket trading after the maker of surgical tools reported third-quarter revenue that missed estimates. Analysts flagged the systems segment for the miss, noting that it had a higher mix of operating leases. Here are some other notable premarket movers: HP Enterprise hares fell as much as 4.3% after the computing-services provider forecast adjusted earnings per share for 2024 that missed the average analyst estimate. Analysts note that investments in AI and other projects are pressuring the company’s operating profit and free cash flow. Jazz Pharmaceuticals rose as much as 6.4% after Bloomberg News reports the company is exploring strategic options including a potential sale. Regions Financial shares slide 6% after the firm’s third-quarter adjusted earnings per share missed estimates and its net interest margin was lower than consensus. Riot Platforms and stocks exposed to cryptocurrencies rise in US premarket trading on Friday, tracking the Bitcoin price as the digital asset inches closer toward the closely watched $30,000 level. Riot rises 6%. Union Pacific is raised to buy at Deutsche Bank, which notes the US railway company is benefiting from the recent positive volume inflection. A turbulent week in markets has seen Middle East events drive volatility in oil prices and push investors out of riskier assets into havens like gold. At the same time, 10-year Treasury yields have soared 30 points as traders position for higher-for-longer interest rates from the Federal Reserve to cool inflation. Chair Jerome Powell suggested Thursday the Fed is inclined to hold rates steady again at its next meeting, while it watches key growth data. “This week we had several things weighing on sentiment: the war, poor corporate results, plus strong September US data supporting Powell’s comments yesterday,” said Liberum strategist Susana Cruz, referring to Federal Reserve Chair Jerome Powell. “If things stay like this with oil and gas, we might end up in a stagflation situation, making it less likely for a rebound in 2024.” In terms of the latest geopolitical updates, the main rise in concerns came later in the US session after the Pentagon reported that a US military base in Southern Syria was targeted with a drone attack and a US Navy warship intercepted missiles near Yemen. Brent Crude prices had traded below $90 early in the day, but ended the day +0.96% higher at $92.38/bl. Overnight, oil prices are continuing to climb for the fourth consecutive day with Brent Crude up +0.93% trading above $93bbl as we go to press. Other markets also reacted to the geopolitical risks, with gold prices (+1.38%) hovering around a 21-week high and Israel’s TA-35 Index (-1.85%) seeing a noticeable underperformance . “The risk premium in crude has shot up again,” said Vandana Hari, founder of consultancy Vanda Insights. “As long as the Israel-Hamas tensions run high, crude will remain susceptible to further spikes on signs of an escalation.” European equities extended their drop to a seven-month low and on course for a fourth day of declines. The Stoxx Europe 600 fell 0.7% to the lowest since March 20. Miners lagged, along with travel and leisure stocks.  L’Oreal SA pared losses as traders weighed disappointing North Asia sales against better than expected performance in North America and Europe. Here are the biggest movers on Friday: Sika gains as much as 3.6%, the most since August, after the Swiss construction chemicals group reported strong third-quarter figures. Baader says the figures could be overshadowed by antitrust concerns in the sector Brunello Cucinelli gains as much 5.4%, the most intraday since Sept. 29, after the luxury company increased its full-year sales growth guidance as results showed double-digit growth across all regions in the third quarter L’Oreal shares fall as much as 3.7% in Paris, the biggest intraday decline since February 10, after the beauty company reported an unexpected decline in North Asia comparable sales, offsetting a better than expected performance in North America and Europe Yara shares fall as much as 7.2% to their lowest intraday since Dec. 2020 after 3Q Ebitda from the Norwegian fertilizer company missed analyst estimates. Norne Securities calls the release “disappointing,” Boliden falls as much as 8% to its lowest intraday level since Nov. 2020 after the miner reported 3Q earnings. Analysts note weak cash flow in the quarter due to working capital build Husqvarna falls as much as 10%, the most since May 2022, after the Swedish gardening and outdoor group reported a weak set of third-quarter figures, with analysts noting the soft end-user demand continuing throughout 3Q and 4Q InterContinental Hotels shares drop as much as 3.3%, as analysts look past the hotel operator’s forecast-beating revenue-per-available room in 3Q to highlight macroeconomic and financing issues impacting the development of new hotels Rexel shares drop as much as 6.7% to their lowest level in nearly 10 months, after the French electrical supplies distributor’s same-day sales for the third quarter missed analyst estimates given a tough backdrop Forvia shares fall as much as 2.5% after the auto-parts company’s third-quarter revenue beat consensus and announced an “encouraging” new disposal program, but analysts remain cautious given high financial costs Duerr shares fall as much as 22%, the most on record, to the lowest intraday since May 2020, as the machine maker cut its adjusted Ebit margin on a strong decline in its wood-processing arm HOMAG’s order intake Salvatore Ferragamo shares fall as much as 6.5% to the lowest intraday level since November 2020 after the Italian luxury group reported weak third-quarter results as expected, with double-digit sales declines across geographies Earlier in the session, Asian equities fell, on course for their worst week since August, as investors fretted over escalation in the Middle East crisis in addition to Federal Reserve policy and China’s uneven recovery.  The MSCI Asia Pacific Index fell as much as 0.9% before paring its decline, with Samsung, Tencent and BHP Group among the biggest drags. A record injection of extra cash by China may offer support after the nation’s stocks erased all gains seen during their massive reopening rally that took off late last year. The economy has been challenged this year by a lack of demand and a downturn in the property market. Still, Morgan Stanley advises against buying the dip in Chinese equities as market sentiment is likely to stay fragile while foreign fund outflow could persist near-term. Meanwhile, concerns around property sector lingered on with Country Garden Holdings missing a dollar bond interest payment, effectively triggering the largest property sector default since Evergrande. China’s mainland stock benchmark trimmed losses but remained on course for its worst week since March, even as the central bank injected the most cash on record into the financial system in an effort to keep funding costs low.  “Investor sentiment is likely to stay fragile, while foreign fund outflow could persist near term, if without meaningful macro improvement,” Morgan Stanley China strategists including Laura Wang wrote in a note Thursday, adding that there is need for stimulus and additional market liquidity support. Japan's Nikkei 225 retreated at the open but then gradually pared its losses amid reports of potential temporary income tax cuts and with participants also digesting the latest Japanese CPI data which printed mostly firmer than expected but softened from the previous month’s pace. Australia's ASX 200 was dragged lower with broad weakness seen across all sectors aside from energy which is kept afloat by the geopolitical risk premium uplift in oil prices. India stocks extended losses to a third day, as concerns that the Israel- Hamas conflict may escalate gripped global markets. The S&P BSE Sensex fell 0.4% to 65,397.62 in Mumbai on Friday, taking the weekly fall to 1.3%. The NSE Nifty 50 Index also declined by a similar measure. All of the 18 sectoral gauges maintained by BSE recorded losses for the day. In FX, the Bloomberg Dollar Spot Index steadied as investors weighed comments from Federal Reserve Chair Jerome Powell on the likelihood of rates being held steady. USD/JPY was in focus after briefly dumping when USD/JPY inched to 149.99 before retracing slightly lower. The New Zealand dollar, Australian dollar and Norwegian krone underperformed on risk-aversion as markets braced for a potential escalation in Middle East conflict over the weekend GBP/USD dropped as much as 0.4% to 1.2093 after UK retail sales fell more than expected; money markets pared wagers on further BOE hikes to a 60% chance of a final 25 basis point hike, from 90% earlier this week The Canadian dollar is the outperformer among the G-10’s, rising 0.1% versus the greenback. The Israeli shekel weakened for a 10th day amid concerns over the potential for a broadening conflict. In rates, treasuries rose across the curve as yields at multi-year highs drew buyer interest and as rising tensions in the Middle East push investors towards perceived safe haven assets. The curve bull-flattened, unwinding a portion of Thursday’s aggressive steepening that pushed 2s10s spread to least inverted level in more than a year. 10-year Treasury yields are around 4.94% after re-opening in Asia session at 4.992%, new multiyear high; bunds and gilts underperform by 4.5bp and 6bp in the sector. The US 2s10s spread sits around -21bp after topping at -16.9bp Thursday, least inverted level since September 2022. US yields richer by 1bp to 5bp across the curve with long-end-led gains flattening 2s10s, 5s30s spreads by 4..2bp and 0.3bp on the day; In commodities, spot gold added 0.5% to around $1,984. Oil prices also gain, with Brent futures rising 1.2% to trade near $93.50. Bitcoin convincingly broke above the $29k mark and has continued to climb to within relative proximity of the $30k handle, though the move has currently stalled/paused for breath around the $29.85k current session high. Action which takes BTC to a fresh WTD peak and to levels not seen since early August. Coinbase's legal officer Grewal said he is confident that the US SEC will approve a US Bitcoin ETF, via CNBC; adding, it is likely the approval will be "soon". Looking to the day ahead now, and data releases include UK retail sales and German PPI for September. Central bank speakers include the Fed’s Harker and Mester. Lastly, earnings releases include American Express. Market Snapshot S&P 500 futures little changed at 4,300.25 MXAP down 0.5% to 152.82 MXAPJ down 0.6% to 478.71 Nikkei down 0.5% to 31,259.36 Topix down 0.4% to 2,255.65 Hang Seng Index down 0.7% to 17,172.13 Shanghai Composite down 0.7% to 2,983.06 Sensex down 0.3% to 65,416.08 Australia S&P/ASX 200 down 1.2% to 6,900.72 Kospi down 1.7% to 2,375.00 STOXX Europe 600 down 0.5% to 437.52 German 10Y yield little changed at 2.93% Euro little changed at $1.0586 Brent Futures up 1.0% to $93.30/bbl Gold spot up 0.4% to $1,981.64 U.S. Dollar Index little changed at 106.27 Top Overnight News Middle East tensions escalated as the Pentagon said it’s experiencing an increase in drone attacks on military bases in Iraq and Syria. A US destroyer shot down cruise missiles and drones launched by Iran-backed Houthi militants in Yemen that were fired toward Israel. BBG China took a fresh step to ensure funding costs in its financial markets are sufficiently low so a tentative pickup in the nation’s economy can take hold. The PBOC handed lenders a record sum of cash via a short-term liquidity tool on Friday, as an indicator for funding costs surged to the highest since April. BBG China has imposed export controls on graphite, a material used in electric vehicle batteries, as Beijing hits back at US-led restrictions on technology sales to Chinese companies. FT In a war with the U.S. over Taiwan, China would need to create a global network of companies under U.S. sanctions, seize American assets within its borders, and issue gold-denominated bonds, according to Chinese government-affiliated researchers studying the Western response to Russia after its invasion of Ukraine. RTRS BOJ Governor Kazuo Ueda said on Friday the central bank will "patiently" maintain ultra-loose monetary policy to achieve its 2% inflation target in a stable manner. RTRS Jim Jordan is weighing his next move in the campaign for House speaker ahead of a planned third vote at 10 a.m. The Ohio Republican has lost two ballots this week. Jordan is scheduled to hold a press conference at 8 a.m. BBG The long-awaited delivery of aid to the besieged Gaza Strip has been delayed by disagreements over how to ensure the supplies cannot be used by Hamas, according to three people familiar with the matter. FT UBS’ next round of job cuts at Credit Suisse — targeting about 10% of support staff — is set to begin Nov. 6, Financial News reported. Compliance, risk and marketing roles may be impacted. BBG OpenAI is in talks with investors about selling shares at a valuation of $86bn, roughly three times what it was worth six months ago, as advances in artificial intelligence transform the market’s appetite for the industry’s leading companies. FT A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks mostly declined after the losses on Wall St where the curve steepened as markets digested various comments from Fed Chair Powell and with sentiment pressured by the escalating geopolitical situation. ASX 200 was dragged lower with broad weakness seen across all sectors aside from energy which is kept afloat by the  geopolitical risk premium uplift in oil prices. Nikkei 225 retreated at the open but then gradually pared its losses amid reports of potential temporary income tax cuts and with participants also digesting the latest Japanese CPI data which printed mostly firmer than expected but softened from the previous month’s pace. Hang Seng and Shanghai Comp. were subdued albeit with the downside cushioned after the PBoC’s actions in which it unsurprisingly maintained its benchmark lending rates but boosted liquidity in the interbank market with its largest-ever open market operation net daily injection. Top Asian News PBoC 1-Year Loan Prime Rate (Oct) 3.45% vs. Exp. 3.45% (Prev. 3.45%) PBoC 5-Year Loan Prime Rate (Oct) 4.20% vs. Exp. 4.20% (Prev. 4.20%) PBoC injected CNY 828bln via 7-day reverse repos with the rate kept at 1.80% for a CNY 733bln net daily injection. BoJ Financial Stability Report: Financial system has been maintaining stability on the whole; Japanese banks have sufficient capital bases even amid global tightening of financial conditions; vigilance against tail risks continues to be warranted. BoJ's Ueda says the economy is recovering moderately, exports and output are moving sideways. Aim at stably and sustainably achieving 2% inflation target, by patiently maintaining current easy policy. Inflation likely to narrow the pace of its rise, then re-accelerate, reflecting changes in corporate wages and price-setting behaviour. Uncertainty surrounding the domestic economy is very high. Need to manage interest rate risk increasing, given very high uncertainty on the domestic economic/price outlook. European bourses are in the red, Euro Stoxx 50 -1.0%, in a continuation of APAC pressure with fresh catalysts comparably light and the region on track for a week of marked downside. Sectors feature pressure in Basic Resources closely followed by Travel/Leisure given IHG after earnings, while Healthcare is bucking the trend given its defensive status and after pronounced losses on Thursday following Roche. Stateside, futures reside in the red but are yet to deviate significantly from the unchanged mark, ES -0.3%, and holding just below the 4300 figure post-Powell and ahead of Fed's Harker & Mester alongside a handful of pre-market earnings. Top European News UK PM Sunak's Conservatives lost the by-elections in Tamworth and Mid-Bedfordshire to the Labour Party where the Conservatives previously had a large majority. BoE's Bailey expected a "marked fall" in inflation next month, via Belfast Telegraph; September inflation figures were not far from what the BoE had expected. Core inflation fell slightly from what we had expected, this is "quite encouraging", pay growth as measured is still well above anything consistent with the inflation target. Riksbank sold USD 1.34bln (between October 6-13th) vs. prev. 390mln, sold EUR 80mln vs. prev. EUR 0 in its currency FX reserve hedging. FX Buck betwixt and between as USTs bull-flatten amidst heightened geopolitical risk heading into the weekend, DXY underpinned within a 106.170-420 range. Loonie firmer pre-Canadian retail sales in contrast to Pound-post weak UK consumption data, consumer sentiment and dovish BoE commentary, USD/CAD and Cable towards base of 1.3683-1.3734 and 1.2093-1.2145 respective parameters. Euro firm vs Dollar and flanked by decent option expiry interest either side of 1.0565-95 band. Yen on the brink of 150.00 against the Greenback after dovish BoJ rhetoric and relying on barriers, export offers and expiries to keep afloat. Aussie and Kiwi hang on 0.6300 and 0.5800 handles vs US peer in face of rising Middle East conflict tension. PBoC set USD/CNY mid-point at 7.1793 vs exp. 7.3055 (prev. 7.1795). Fixed Income Debt futures decouple and diverge in volatile pre-weekend trade. Bunds hold just above par within 127.90-52 bounds, Gilts reverse from 91.90 to 91.28 and into negative territory awaiting UK rating reviews and T-note firm between 105-28/135 parameters ahead of Fed's Harker and Mester. Commodities Crude futures are on a firmer footing in a continuation of the geopolitically induced gains seen after the benchmarks settled higher by USD 1.10/bbl and USD 0.88/bbl respectively. Currently, WTI Dec'23 hovers around USD 85.50/bbl (in a USD 88.88-89.60/bbl range) and Brent edges towards USD 93.50/bbl (in a USD 92.78-93.46/bbl range.) Spot gold/silver remain firmer going into a weekend with geopolitical tensions/risk high, XAU at highs of USD 1985/oz. Conversely, the downbeat risk tone and poor APAC performance have dented base metals with LME Copper near lows just above USD 7.9k/T. US and EU reportedly stalled on a steel accord although both sides are seeking a deal to avoid the return of Trump-era levies, according to Bloomberg. Geopolitics US President Biden said they are facing an inflection point in history and the US is pursuing every avenue to bring hostages home, while he added the assault on Israel echoes the brutality inflicted on Ukraine and that Hamas and Putin share a want to annihilate neighbouring democracies. Furthermore, Biden said making sure Israel and Ukraine succeed is vital for US national security and they will continue to hold Iran accountable, while he confirmed he is sending an urgent budget request to Congress today. US President Biden's supplemental spending request to Congress will include USD 60bln for Ukraine, USD 14bln for Israel, USD 10bln for humanitarian aid, USD 14bln for border security and USD 7bln for the Indo-Pacific, according to sources cited by Reuters. EU Commission President von der Leyen said 93% of Hamas's equipment comes from Iran and it is important to step up sanctions on Iran and crackdown on evasion, while she added that Western sanctions on Russia are crippling the economy but ongoing pressure is necessary. China's Middle East envoy met with the Russian President's Special Representative for Middle East and African Countries on Thursday and said China is saddened by the large number of civilian casualties from the Israeli-Palestinian conflict. China's envoy added that China and Russia share the same position on the Palestinian issue and China is ready to maintain communication and coordination with Russia in order to cool down the situation. North Korean leader Kim met with Russian Foreign Minister Lavrov and expressed resolve to fulfil commitments made at the summit with Russian President Putin, while they discussed expanding cooperation to actively respond to regional and global issues. It was also reported that North Korea said it has already enacted action plans to be triggered when signs of an imminent nuclear attack are detected, according to KCNA. US Event Calendar 04:00: Bloomberg Oct. United States Economic Survey Oct. 20-Oct. 23: Sept. Monthly Budget Statement, est. -$166b, prior -$429.8b Fed speakers 09:00: Fed’s Harker Speaks on Economic Outlook 12:15: Fed’s Mester Speaks at Manhattan Institute for Policy Research DB's Jim Reid concludes the overnight wrap Not long after I send this I'm off to a Center Parcs for an activity weekend with the family. The kids are incredibly excited. My wife is pretty excited. I am considerably less so and will have to tolerate doing things such as climbing up high above the ground to the tree canopies on dodgy rope bridges with the risk of having to do a zip wire across a lake to get back down to earth. Markets have been sliding down a zip wire of their own over the last 24 hours, as the confluence of uncertain forces currently impacting markets continued to linger. 10yr US yields closed around a basis point off 5%, a level we haven't breached since 2007 and were up +7.5bps on the day. The big story was a significant steepening encouraged by Fed Chair Powell’s remarks at the Economic Club of New York. 30yr US yields rose +11.5bps on the day (+12bps after Powell) and 2yr yields fell -6.3bps (-7bps after Powell), leading to the sharpest 2s30s steepening since the March banking stress. And the 2s10s slope rose +13.7ps to -17.2bps, its highest since September 2022 and a long way from the -46bps we were last Thursday. There has been a bit of a correction this morning in Asia as 2, 10 and 30yr US yields are down -1.2bps, -5.1bps and -4.8bps, respectively. So volatile markets. In the speech on the economic outlook, Powell said that they were “proceeding carefully”, and explicitly nodded to the fact that financial conditions “have tightened significantly in recent months” which you could interpret as lessoning the need for the Fed to act. This led to an initial dovish rates reaction across the board, though there were also some more hawkish comments, including that “ Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy .” Powell then added a notable comment during the Q&A, saying “I think the evidence is not that policy is too tight right now”. Overall given the huge steepening, markets must have concluded that the hints that near-term rates didn't need to go up much more, but that policy wasn't overly tight, perhaps suggested a "reasonably high for longer" interpretation rather than a "lets make sure we crush inflation before we do anything else" one. Or maybe I'm clutching at straws as to explaining why curves steepened so much on one relatively "to form" speech. The reaction at the front end was clear though and market pricing for the chance of a Fed hike this year fell back to 25%, from 40% the previous day. US equities seesawed as Powell spoke, with the S&P 500 trading nearly +0.5% up on the day around the end of this speech. But renewed geopolitical concerns contributed to a pronounced weakening during the rest of the session and left it closing down -0.85% on the day. The VIX volatility index rose +2.2pts to 21.4, its highest since March. The equity decline was broad-based with the NASDAQ down -0.96%. Tech megacaps saw a contrasting performance as Netflix, the 42nd biggest company in the S&P 500 was +16.05% and Tesla, the 7th biggest was -9.30% after Wednesday evenings' results. This morning, the S&P 500 (-0.16%) and NASDAQ 100 (-0.30%) futures continue to drift lower. In terms of the geopolitical situation, the main rise in concerns came later in the US session amid news that a US military base in Southern Syria was targeted with a drone attack and a US Navy warship intercepted missiles near Yemen. Brent Crude prices had traded below $90 early in the day, but ended the day +0.96% higher at $92.38/bl. Overnight, oil prices are continuing to climb for the fourth consecutive day with Brent Crude up +0.93% trading above $93bbl as we go to press. Other markets also reacted to the geopolitical risks, with gold prices (+1.38%) hovering around a 21-week high and Israel’s TA-35 Index (-1.85%) seeing a noticeable underperformance . The day's action followed a fairly divergent set of US data yesterday. On the plus side, the weekly initial jobless claims fell beneath 200k for the first time since January, coming in at 198k (vs. 210k expected). That’s not just a blip either, as it pushed the smoother 4-week moving average down to 205.75k, which is the lowest it's been since early February. But there were also several more negative reports. For instance, the continuing claims ticked up to 1.734m (vs. 1.706m expected), which is their highest since early July. Then we got more negative news from the housing market, as the number of existing home sales fell to a 13-year low in September, at an annualised rate of 3.96m (albeit a bit above the 3.89m expected). And lastly, the Conference Board’s Leading Index fell for an 18th consecutive month with a -0.7% decline (vs. -0.4% expected). Ahead of Powell’s speech, European markets had lost a decent amount of ground yesterday, with the STOXX 600 (-1.19%) posting a third consecutive decline and falling to a 7-month low. That was echoed across the major indices, with losses for the FTSE 100 (-1.17%), the CAC 40 (-0.64%) and the DAX (-0.33%), whilst the Swiss Market Index (-2.13%) had its worst daily performance of 2023 so far. European sovereign bonds saw a mixed performance, with yields on 10yr bunds (+0.5bps) inching up but OATs (-0.6bps) and BTPs (-3.8bps) moving lower. Gilts underperformed, with the 10yr yield up +1.6bps and the 30yr yield (+3.5bps) closing at its highest level since 2002, at 5.07%. Asian equity markets are extending losses this morning with the Nikkei (-0.52%), the Hang Seng (-0.34%), the CSI (-0.30%) and the Shanghai Composite (-0.27%) all lower. Early morning data showed that Japan’s core inflation dropped below 3% for the first time in over a year on the back of easing gas and electricity prices. National core consumer prices grew +2.8% y/y in September (v/s +2.7% expected so a touch above) from +3.1% in August. At the same time, the national CPI rose +3.0% y/y in September as expected but down from +3.2%. Core ex-food and energy was a tenth higher than expected at 4.2%. Overall this data suggests the BoJ remains on course to tighten policy in the months ahead. See our Japan economists upgraded CPI forecasts after the number here. In the US House of Representatives, there’s still no sign that any Speaker candidate can get a majority, with Republican Jim Jordan having fallen short in two votes thanks to opposition from fellow Republicans. Earlier yesterday, reporting from several outlets including the Washington Post suggested that Jordan would instead endorse a plan to temporarily empower Patrick McHenry until January 3. However, this plan appeared to be abandoned after a lengthy meeting of House Republicans. On the next steps ahead, Jordan would push for another vote (a third vote) on his candidacy to become speaker. McHenry is currently the Speaker pro tempore of the House, which is a member who acts in the Speaker’s absence when the office becomes vacant. But they don’t have the powers of a normal speaker, meaning the House is still unable to pass legislation, and there’s still an upcoming government shutdown deadline on November 17 if new funding isn’t passed. To the day ahead now, and data releases include UK retail sales and German PPI for September. Central bank speakers include the Fed’s Harker and Mester. Lastly, earnings releases include American Express. Tyler Durden Fri, 10/20/2023 - 08:19.....»»

Futures, Yields Rise Amid Hopes For Diplomatic Solution To Israeli War US index futures are European bourses reversed earlier losses and traded higher, led by small-caps, as Treasuries resumed their slide after Friday's gains while oil dropped on hopes that a diplomatic solution may emerge to the Israel-Hamas conflict: Secretary of State Blinken has returned to Israel and Joe Biden could follow on Wednesday or Thursday according to unconfirmed reports, as they seek to avoid an escalation. As of 7:45am, S&P futures were 0.3% higher while Nasdaq 100 futs gained 0.1% after declines on Wall Street at the end of last week. The US Dollar started the session lower and commodities came for sale across all three complexes.  Brent crude oil held near $91 a barrel, after surging almost 6% on Friday. Gold fell but bitcoin surged. In premarket trading, Pfizer dropped more than 3% after the pharmaceutical giant slashed its revenue and earnings forecasts. Apple dropped as much as 1.7% after a study suggested the iPhone 15 is selling far worse in China than its predecessor. Market tracker Counterpoint Research estimated sales of the company’s new iPhone are down 4.5% compared with the iPhone 14 over their first 17 days after release. European energy stocks were boosted by recent gains in oil prices, with Shell hitting a record high. Semiconductor stocks in Europe and US underperformed after Bloomberg reported that the US plans to close the loopholes in rules restricting China’s access to advanced semiconductors and chipmaking gear. Meanwhile, crypto-exposed stocks rose tracking the Bitcoin price as the digital asset rose toward the $28,000 level. Here are some other notable premarket movers: Instacart shares advance 1.8% after a slew of brokers initiated coverage on the online grocery delivery firm with buy-equivalent recommendations. Lululemon shares rose 4.7%, putting the athletic-apparel brand on track for a seventh-straight day of gains, after S&P Dow Jones Indices announced on Friday that the company would replace Activision Blizzard on the S&P 500. Manchester United fell 9.9% amid ongoing speculation over a possible deal for the Premier League team. Bloomberg News reported that the Qatari group led by Sheikh Jassim Bin Hamad J.J. Al Thani has withdrawn its bid. Trade Desk dropped 4.1% as CEO Jeffrey Terry Green reported a series of insider stock transactions amounting to $14.9 million. Pfizer fell 2.6% after the pharmaceutical giant slashed its revenue and earnings forecasts for the year after agreeing to take Paxlovid doses back from the US government amid fading demand. Chip equipment stocks including Applied Materials, KLA and Lam Research slipped after Bloomberg News reported that the US plans to close the loopholes in rules restricting China’s access to advanced semiconductors and chipmaking gear. Stocks exposed to cryptocurrencies rise in US premarket trading on Monday, tracking the Bitcoin price as the digital asset rose toward the $28,000 level. Bitcoin gains 2.3% to trade at $27,832 as of 4:53 a.m. New York time, a one-week high. Crypto stocks gaining in US premarket trading include: Riot Platforms +5.2%, Marathon Digital +5.6%, Hut 8 Mining +8.5%, Coinbase Global +2.2%, Cleanspark +6.3%, Hive Digital Technologies +6.6%, crypto miner Bitdeer Technologies +16% Markets were calmer Monday after last week’s rush into haven assets, as investors await further developments in the Middle East. As BBG notes, the war is an additional concern for traders already busy interpreting the outlook for the economy and interest rates, just as the latest earnings reporting season gets into full swing. As the earnings season ramps up, Wall Street strategists warned that the outlook for corporate profits is weakening and could remain subdued. Morgan Stanley’s Michael Wilson said earnings revisions breadth — referring to the number of stocks seeing upgrades versus downgrades — for the S&P 500 has fallen sharply over the past couple of weeks. Citigroup’s index of earnings revisions shows downgrades have outpaced upgrades for four straight weeks ahead of the reporting season. JPMorgan strategist Mislav Matejka expects this to continue. Citigroup Inc.’s index of earnings revisions shows downgrades have outpaced upgrades for four straight weeks ahead of the reporting season. JPMorgan strategist Mislav Matejka expects this to continue. That said, Geopolitics remains front and center: weekend reports that Biden is considering an Israel trip boosting hopes for a diplomatic solution as the US backchannels with Iran; meanwhile Bloomberg reported that the US continues to reduce/restrict China’s access to chips pushing Chinese stocks lower. The House is set to vote on the next speaker is tomorrow. Over the weekend US officials rushed to speak with Middle Eastern nations — including back-channel talks with Iran — to contain the conflict. President Joe Biden is weighing visiting Israel himself and German Chancellor Olaf Scholz is expected to arrive Tuesday, according to Bild Zeitung. Jordan’s King Abdullah II is in Rome, where he’s expected to meet Prime Minister Giorgia Meloni as part of an effort to ease tensions. Elsewhere on the political front, Polish equities jumped the most since May 2022 and the zloty rallied as a bloc of pro-European opposition parties appeared on track to unseat the nationalist government. Meanwhile, the yield rollercoaster is back with big swings returning to Treasuries, where 10-year yields jumped and clawed back much of last week’s 19 basis-point drop, while those on the 30-year climbed 10 basis points. “The geopolitical tension in the Middle East remains the key focus of the market,” said Luke Hickmore, investment director at Abrdn Investment Management. “It might seem calmer now, but if the war widens to include other parts of the area then that means more pressure on oil and more uncertainty for the market to cope with. It’s going to be a big driver here.” European stocks are slightly lower with the Stoxx 600 down 0.1%. Mining and energy names are outperforming. Major markets are mostly lower with only the UK and SXXP in the green. Regional bond yields are higher helping banks outperform with energy and GLP themes also acting well. Energy prices remain the key to UK/EU recession outcomes; BOE seen on hold. In individual stock moves Monday, Manchester United Plc slumped 18% after Bloomberg News reported that a Qatari group of investors had withdrawn its bid to buy the English football club. Here are some of the most notable European movers: Salzgitter rises as much as 7.2% and SSAB advance 5.2% as JPMorgan upgrades the steel products makers, saying their relatively large exposure to European spot prices could accelerate near-term earnings momentum in an upturn Kion rises as much as 3.6% and is the biggest gainer on the Stoxx 600 industrial index after the German warehouse-equipment firm upgraded its full-year Ebit guidance, citing supply chain and pricing improvements Synthomer gains as much as 4.8% after Peel Hunt upgrades to buy to reflect potential opportunity into the recovery SoftwareOne shares rise as much as 6.9% to CHF19.29 after Reuters reported the Swiss software provider received non-binding bids last week from private equity firms Bain Capital and Apax Partners Oriola shares rise as much as 8.3% on Monday, reacting to the Finnish health-care company’s late-Friday announcement that it had agreed to offload its shares in Swedish pharmacy chain Svensk dos Warsaw’s WIG20 equity index surges as much as 4.9%, as exit polls show Poland’s pro-EU opposition is on track to win a majority in Sunday’s election Tupras fall as much as 2.3% after UBS downgrades the Turkish oil refiner to sell from neutral, citing the lack of further share-price catalysts after the upcoming 3Q results MTU Aero shares open as much as 1.5% higher before falling, after Hauck & Aufhaeuser upgrades the engine manufacturer to buy from hold, predicting “material upside” for the shares Telecom Italia shares fall after advancing as much as 3.3% in early trading after the phone company said it received a binding offer from KKR for its fixed network unit Atos shares fall after soaring as much as 22%, the most since 2007, after the French tech firm said Chairman Bertrand Meunier is stepping down amid a shareholder revolt over his turnaround plan for the company Earlier in the session, Asian stocks fell in the start of the week as a selloff in the region’s semiconductor stocks and ongoing tensions in the Middle East sap risk appetite. The MSCI Asia Pacific Index fell as much as 0.9%, extending losses from Friday, with Taiwan Semiconductor, and Samsung among the biggest drags. A gauge of the region’s chipmakers fell 1.9% after Bloomberg reported that the US is considering further restrictions to curb China’s access to advance semiconductors. Meanwhile, Indonesia’s Gojek Tokopedia tumbles to a fresh low after its co-founder sold shares. Chinese stocks in mainland and Hong Kong declined despite fresh liquidity injection by the central bank, underscoring concerns that Beijing’s efforts may not be sufficient to revive confidence in the country’s economy. China’s property stocks are also trading close to their lowest level since 2009 while participants digested several recent developments including the PBoC’s decision to maintain the 1-year MLF rate, as expected, with the operation the largest MLF net injection since December 2020. Furthermore, it was confirmed that the US is to take steps to prevent American chipmakers from selling AI chips to China that circumvent government restrictions and that China’s securities regulator will restrict securities lending which local press suggested could help support markets as it would tighten rules for short selling. Australia's ASX 200 was subdued amid underperformance in tech, telecoms and industrials but with losses stemmed by resilience in commodity-related industries. Japan's Nikkei 225 underperformed and gapped below the 32,000 level despite the lack of fresh pertinent catalysts. Stocks in India dropped for a third straight session following global risk-off sentiment amid the Israel-Hamas war and a slump in Asia chip stocks. The S&P BSE Sensex fell 0.2% to 66,166.93 in Mumbai, while the NSE Nifty 50 Index was little changed at 19,731.75. Of the 18 sectoral indexes tracked by BSE, eight fell and 10 gained. Stocks across Asia declined. In rates, treasuries are in the red with US 10-year yields rising 9bps to 4.70% as bunds and gilts follow suit.  Treasuries were cheaper across the curve in a bear-steepening move with 30-year yields cheaper by 10bp on the day. Similar losses seen across core European rates as flight-to-quality bid from Friday is faded following diplomatic efforts to contain the Israel-Hamas conflict. Beyond Middle East conflict, focal points this week include a packed Fed speaker slate headed by Chair Powell at the Economic Club of New York on Thursday. US yields cheaper by 1.5bp-10bp across the curve with long-end-led losses steepening 2s10s, 5s30s spreads by ~7bp and ~5bp on the day; 10-year yields around 4.69% with bunds and gilts outperforming by 3bp and 1bp in the sector.  US auctions this week include $13b 20-year bond reopening Wednesday and $22b 5-year TIPS new issue Thursday In FX, the Bloomberg Dollar Spot Index falls 0.1%. The Swiss franc is the weakest of the G-10 currencies, falling 0.1% versus the greenback. The kiwi rose 0.6%, leading Group-of-10 gains against the dollar climbing as much as 0.8% to an intra-day high of 0.5929 after the New Zealand center-right opposition party won Saturday’s election. EUR/CHF slipped 0.37% to 0.9513 as safe-haven flows sees the Swiss Franc inch closer to revisiting its all-time high on a trade-weighted basis; EUR/CHF one week implied volatility hit the highest since March as geopolitical risk boosted demand for tail-risk hedges EUR/PLN dropped as much as 1.8% to 4.4541, after the Polish election result saw the Polish Zloty climb the most in 18 months; investors piled cash into Poland as markets braced for a pro-EU party win In commodities, Brent futures drop 0.3% to trade near $90.60. Spot gold loses 1% to around $1,914. Bitcoin jumped but failed to breach the USD 28k mark in European hours and as such remains just shy of the early-October best around the figure. Action which follows gains in APAC trade which have been attributed by some to the SEC's decision not to appeal the Grayscale ruling. US economic data slate includes October Empire manufacturing at 8:30am the Budget Statement; data this week includes retail sales, industrial production, housing starts/building permits and existing home sales. Scheduled Fed speakers include Harker (10:30am and 4:30pm); this week includes Williams, Bowman, Barkin, Kashkari, Waller, Harker, Cook, Jefferson, Powell, Goolsbee, Barr, Bostic, Logan and Mester Market Snapshot S&P 500 futures up 0.1% to 4,362.75 MXAP down 0.9% to 155.62 MXAPJ down 0.7% to 488.82 Nikkei down 2.0% to 31,659.03 Topix down 1.5% to 2,273.54 Hang Seng Index down 1.0% to 17,640.36 Shanghai Composite down 0.5% to 3,073.81 Sensex little changed at 66,278.75 Australia S&P/ASX 200 down 0.3% to 7,026.55 Kospi down 0.8% to 2,436.24 STOXX Europe 600 little changed at 448.79 German 10Y yield little changed at 2.78% Euro up 0.2% to $1.0533 Brent Futures down 0.5% to $90.40/bbl Gold spot down 1.1% to $1,912.24 U.S. Dollar Index down 0.16% to 106.48 Top Overnight News China’s central bank stepped up efforts to support the nation’s economic recovery and debt sales by delivering the largest cash injection since 2020 with one-year policy loans. The PBOC added a net 289 billion yuan ($39.6 billion) into the financial system via the so-called medium-term lending facility, the largest monthly injection since December 2020. At the same time, it drained a net 134 billion yuan of short-term liquidity through open-market operations. BBG China is tightening curbs on short-selling activities as authorities step up efforts to shore up a struggling stock market. The Securities Regulatory Commission said with effect from Oct. 30, hedge funds wishing to short sell a stock must hold 100% of the value of the transaction in their account while other investors need to have at least 80%. BBG President Biden is weighing a trip to Israel, adding to the US diplomatic push after Antony Blinken held a round of talks with Arab leaders to discuss the Israel-Hamas war. Blinken returns to Israel today. The US said it held back-channel talks with Iran, warning it not to escalate the conflict. BBG The Israeli military is preparing to invade the Gaza Strip soon with tens of thousands of soldiers ordered to capture Gaza City and destroy the enclave’s current leadership, according to three senior Israeli military officers who outlined unclassified details about the plan. NYT A surge in global borrowing costs, triggered by a sell-off in US Treasuries, means eurozone rate-setters have probably done enough to tame inflation, the governor of Spain’s central bank has said. FT Italy’s cabinet will approve a new budget on Mon that increases the deficit to 4.3% of GDP from 3.6% at a time when markets are pushing back against elevated sovereign issuance. RTRS A changing of the guard among the biggest buyers of US Treasuries has Wall Street veterans bracing for further pain in the world’s largest bond market. Increasingly absent are steady-handed investors including foreign governments, US commercial banks and the Federal Reserve. In their place, hedge funds, mutual funds, insurers and pensions are piling in. Market watchers are quick to note that unlike their more price-agnostic predecessors, the new buyer base is likely to demand a heavy premium to finance Washington’s spendthrift ways, especially with debt sales set to surge as deficits swell. BBG Individual investors are dialing back how much risk they are taking across markets. Some are accumulating cash or stashing it in funds tracking bonds or money markets to take advantage of yields that have soared to 16-year highs. Others are backing away from turbocharged bets on stocks, borrowing less to amplify their positions. Many have pulled money out of U.S. stocks, putting equity exchange-traded and mutual funds on track for the first year of outflows since 2020. WSJ Economists are increasingly upbeat on the prospects of US growth – the odds of a recession within the next year have fallen to 48% vs. 54% in the last WSJ poll from July. WSJ Last week HFs sold Staples at the fastest pace in 11 weeks amid the sector’s price underperformance. Last week’s short selling in Staples was the largest in 3 months and ranks in the 98th percentile vs. the past five years. The Prime book is now U/W Consumer Staples by -3.8% vs. the S&P 500 Index (versus -3.4% last week), which is in the 89th percentile vs. the past year and in the 95th percentile vs. the past five years. A more detailed look at global markets courtesy of Newsquawk Asia Pacific stocks were mostly lower amid ongoing geopolitical concerns with the Israel-Hamas conflict threatening to spill over to neighbours in the region. ASX 200 was subdued amid underperformance in tech, telecoms and industrials but with losses stemmed by resilience in commodity-related industries. Nikkei 225 underperformed and gapped below the 32,000 level despite the lack of fresh pertinent catalysts. Hang Seng and Shanghai Comp. saw somewhat varied price action with the Hong Kong benchmark choppy and the mainland ultimately pressured as participants digested several recent developments including the PBoC’s decision to maintain the 1-year MLF rate, as expected, with the operation the largest MLF net injection since December 2020. Furthermore, it was confirmed that the US is to take steps to prevent American chipmakers from selling AI chips to China that circumvent government restrictions and that China’s securities regulator will restrict securities lending which local press suggested could help support markets as it would tighten rules for short selling. Top Asian News PBoC conducted CNY 789bln in 1-year MLF with the rate kept unchanged at 2.50% vs CNY 500bln maturing. PBoC said the number of bright spots in China’s economy is increasing and China will pay more attention to the balance between economic growth and sustainability, while China will focus on expanding domestic demand, boosting confidence and accelerating the virtuous circle of the economy, according to Reuters. PBoC Governor Pan met with IMF MD Georgieva and said China is looking forward to the timely conclusion of the 16th IMF quota review increase and realignment with the quota realignment fundamental to IMF’s governance form. PBoC’s Pan also stated the IMF’s quota realignment should reflect members’ relative weights in the global economy and strengthen the voice and representations of emerging markets and developing countries. US is to take steps to prevent American chipmakers from selling AI chips to China that circumvent government restrictions with the US efforts part of upcoming restrictions on AI chip exports to China to be announced this week. China’s securities regulator said will restrict securities lending and appropriately curb securities lending by strategic investors and senior management of listed firms, according to Reuters. Furthermore, Chinese press suggested the latest securities rule is to help support markets and cited efforts to tighten rules for short selling. EU foreign policy chief Borrell said the EU has ties with China that are independent of other nations, while it was also reported that EU’s Mora is to visit China for follow-up talks. New Zealand shifted to the right in a rejection of the Labour Party and PM Hipkins conceded defeat, while National Party leader Luxon is set to become the next PM. Japanese top currency diplomat Kanda says interest rates is merely one factor in FX; intervention is one option when excessive FX moves are seen; JPY is still perceived as a safe asset, alongside the CHF and USD. European bourses are under modest pressure as the weekend's deluge of geopolitical developments keeps tensions elevated and the tone tentative, Euro Stoxx 50 -0.2%. As such, sectors are tilting into the red overall despite an initially firmer start to European trade with the morning's main movers driven by individual updates around stocks including Telecom Italia, Atos and Ocado. Stateside, futures are slightly firmer on the session awaiting fresh catalysts with the aforementioned tentative tone capping and real action, ES +0.1%. Apple (AAPL) iPhone 15 sales -4.5% in the China debut YY, via Counterpoint. Top European News BoE Governor Bailey said he is puzzled by stubborn pay growth in the UK but added that they have had some good news on inflation recently, while he also commented that workforce dropouts hit the UK growth and stoke prices. BoE's Pill says we must not declare premature victory after mechanical fall in headline inflation; if we look at market inflation expectations, we cannot be complacent. Thinks more of BoE rate rise has been transmitted than 20-25% but not dramatically so. ECB President Lagarde said the labour market shows no real sign of weakening. ECB’s Nagel reiterated that inflation remains too high and policy is to remain restrictive for the foreseeable future. ECB's de Cos said higher borrowing costs underline governments’ need to reduce deficits next year, while the surge in global borrowing costs, triggered by a sell-off in US Treasuries means eurozone rate-setters may have done enough to tame inflation, according to FT. ECB's Wunsch (Hawkish) says that discussing PEPP is not a pressing issue, a matter of consistency. Fine with it being discussed in October or a bit later, via Econostream. On whether they are at terminal rate "maybe, maybe not". Chances of hiking after pausing are far from marginal. Polish PM Morawiecki said the ruling nationalists PiS will try to form a government if the president gives them this task after exit polls showed the ruling nationalists with 36.8% of votes and the largest opposition group Civic Coalition received 31.6% of votes, according to Reuters. Italian PM Meloni says 2024 budget contains measures worth circa EUR 24bln in tax cuts and higher spending. German Finance Minister Lindner said to the UK "If you want to intensify your trade relationship with the EU - call us!", via BBC UK government is reportedly "quietly drawing up plans to hold key trade talks with China for the first time in five years", via Politico citing officials, adding that the government is considering a range of options for strengthening ties. Fixed Income Greenback gravitates ahead of NY Fed manufacturing survey and Fed's Harker, while keeping tabs on geopolitical news, DXY towards base of narrow 106.400-610 range. Franc sags after pre-weekend safe haven advance, USD/CHF back above 0.9000. Yen pivots 149.50 vs Dollar eyeing yields and latest verbal intervention from Japan's top FX diplomate Kanda. Kiwi back on 0.5900 handle vs Buck and Zloty above 4.5000 against Euro after NZ and Polish elections. Euro flanked by decent option expiries vs Dollar at 1.0500 and between 1.0540-50. Cable straddles 1.2150 as Pound digests hawkish-leaning comments from BoE's Pill on inflation. Loonie tethered to 1.3650 against its US rival pre-Canadian data and BoC outlook survey. PBoC set USD/CNY mid-point at 7.1798 vs exp. 7.3121 (prev. 7.1775). Fixed Income More momentum fading in debt as Bunds test 129.00 after topping 130.00 last week, Gilts lose grip of 94.00 handle compared to 95.50+ m-t-d peak and T-note touches 107-09+ vs 108-16 pre-US CPI. BTPs also underwater within 109.76-31 range and digesting Italy's EUR 24bln budget of tax cuts and spending. Commodities WTI Nov and Brent Dec futures were subdued intraday settling higher by almost USD 5/bbl each on Friday amid the growing Middle Eastern tensions heading into the weekend; however, benchmarks have lifted incrementally off of lows with WTI edging into positive territory most recently. WTI Nov resides around USD 87.75/bbl (in a USD 87.07-87.98/bbl range) while Brent Dec sits around USD 90.75/bbl (in a USD 90.18-91.20/bbl parameter). Dutch TTF prices are softer intraday to the tune of around 2.5% at the time of writing, but prices remain around EUR 52/MWh as LNG workers in Australia are poised to resume strike action. Spot gold has reversed some of its marked upside from Friday, as we await the next set of updates on the geopolitical front; though, the yellow metal remains above the USD 1915/oz mark but has lost the 100-DMA at USD 1922/oz. Russian Deputy PM Novak says Russia and Venezuela have agreed to seek ways of boosting cooperation in oil and increasing oil output. US Event Calendar 08:30: Oct. Empire Manufacturing, est. -6.0, prior 1.9 14:00: Oct. 16-Oct. 20: Sept. Monthly Budget Statement, est. -$150b, prior -$429.8b Central bank speakers 10:30: Fed’s Harker Speaks on the Economic Outlook 16:30: Fed’s Harker Speaks About the Economic Outlook DB's Jim Reid concludes the overnight wrap Morning from New York. I say morning but it’s only just gone midnight here after a late and delayed landing. That left plenty of time to write this on the plane after a busy weekend celebrating my wife’s 50th birthday. It ended with her going to see Madonna live last night while I travelled. I’m not entirely sure who got the short straw. In the overnight session there has been some relief that a ground offensive hasn't begun yet in Gaza and that diplomatic channels seems to be open for now. President Biden is considering a trip to Israel in the next week which will be an important event. For now we are retracing some of Friday's flight to quality bid as markets feared a weekend of escalation. Yields on 10yr USTs (+5.18 bps) are at 4.66% as we go to print. S&P 500 (+0.20%) and NASDAQ 100 (+0.26%) futures have edged higher with Oil stable for now after a spike on Friday. Most Asian equity markets are retreating this morning though as Friday's sentiment spills over with additional news that the US plans new tighter curbs on China's access to advanced semiconductor chips. As I check my screens, the Nikkei (-1.64%) is the biggest underperformer across the region with the KOSPI (-1.06%), the CSI (-0.80%), the Shanghai Composite (-0.56%) and the Hang Seng (-0.39%) also dropping in early trade. Outside of events in the Middle East it looks a busy week but without an obvious focal point. There is a barrage of Fed speak before their media black-out at the weekend but Powell’s speech at the Economic Club of New York on Thursday will be the highlight. We detail who is speaking in our day-by-day calendar at the end but DB’s Brett Ryan’s week ahead gives a bit more detail of their various biases here. The key data point will likely be US retail sales (tomorrow) which we expect to decline (-0.1%) after two strong months, but we also have a lot of US housing data with the NAHB (tomorrow), starts/permits (Wednesday) and existing home sales (Thursday). US weekly jobless claims (Thursday) corresponds to payrolls survey week so will be used to fine tune estimates. Staying with the US, earnings season will start to get into gear with the highlights being Bank of America, Goldman Sachs and Johnson and Johnson (tomorrow), Morgan Stanley, Tesla, Netflix, ASML, and Procter & Gamble (Wednesday), TSMC (Thursday) and American Express (Friday). Tesla and Netflix probably have the most ability to move macro markets given their size. China sees its monthly activity dump on Wednesday where signs of a turnaround will be scrutinised. This is the same day as UK inflation comes out (preview here). The UK labour market data tomorrow is interesting as unemployment is now 0.8pp above the lows at 4.3% and has increased more than anywhere else in the DM world. UK retail sales is out on Friday. In Europe we have the ZEW survey in Germany (tomorrow) and the PPI report on Friday, with retail sales for France also due that day. With regards to German PPI it's expected to hit -14.2% YoY from -12.6% the previous month so crazy numbers historically after peaking at an even more crazy +45.8% YoY just over a year ago. In Japan the national CPI on Friday will be the last before the October 31st BoJ meeting where YCC is likely in our opinion to be abandoned. So an important print. Now, looking back on last week. We closed out the week with an air of nervousness surrounding events in the Middle East after it was reported on Friday that the Israeli army announced a 24-hour evacuation order for over one million civilians in north Gaza. On Friday, we also had the University of Michigan’s consumer sentiment preliminary survey results for October. The headline result surprised significantly to the downside at 63.0 (vs 67.0 expected), down from 68.1 in September. 5-to-10-year inflation expectations rose to 3.0% (vs 2.8% expected), and 1-year inflation expectations jumped from 3.2% to 3.8% (vs 3.2% expected). A few months of higher energy prices seems to now be filtering through to short-run expectations and thus complicating central banks’ policy choices. Fortunately for now long-run expectations remain under some control. Ultimately, these inflation numbers were secondary to news of the Israeli army’s evacuation order. US 10yr Treasury yields fell -8.6bps on Friday and -19.0bps on the week as investors fled to quality, the largest weekly decline in yields since mid-July. 30yr yields also fell, down -21.4bps week-on-week (and -10.1bps on Friday), the largest weekly decline for 30yr yields since the first week of 2023. Interesting we had one of the largest rises in 30yr yields in the last decade on Thursday with a poor auction so there is an element that Treasuries are a bit of a reluctant flight to quality flow recipient. German 10yr bund yields followed the global picture, falling -14.8bps week-on-week (and -4.9bps on Friday) . With risk-off sentiment dominating, equities struggled at the end of the week. The S&P 500 dipped -0.50% on Friday, although it was still up +0.45% week-on-week. Technology was buffeted on Friday, as the tech-heavy NASDAQ dropped -1.23% (-0.18% on the week). Weak performance was most evident for the mega caps as the Magnificent Seven index fell -2.05% (-0.39% on the week), led by the likes of Tesla (-2.99%) and Nvidia (-3.16%). In Europe, the STOXX 600 slipped -0.98% on Friday but was up +0.96% week-on-week. Oil spiked sharply on Friday on the news in Israel, as concerns over risks to oil supply from the Middle East rose. It was also boosted by news of the US sanctioning two shipping companies for violating the price cap on Russian oil. Brent broke through the $90/bbl level, rising +5.69% to $90.89/bbl. The +7.46% weekly increase, is its largest since February. WTI crude climbed +5.77% to $87.69/bbl, and +5.92% in weekly terms. With the geopolitical backdrop increasingly fragile, the haven of gold also rose +3.28% on Friday to $1933/ounce (and +5.45% week-on-week), its greatest daily increase since the banking stress in March. However, European gas futures took the prize for the week, after prices rose +51.0% week-on-week to EUR 55.35/MWh (and +3.87% on Friday), its greatest percentage increase since March 2022 just after Russia’s invasion of Ukraine. Tyler Durden Mon, 10/16/2023 - 08:20.....»»

Futures Jump To Highs After Solid Bank Earnings As Gold, Treasuries Soar On Imminent Gaza Invasion US equity futures reverased earlier losses, thanks to solid results from JPM and Citi... ... while treasuries rallied with 10Y yields tumbling more than 10 basis point to session lows below 4.59% and paring almost all of Thursday’s sharp rise in the wake of hotter-than-expected US consumer price data. ... and while the dollar was largely flat... ... oil soared, with Brent about to rise above $90 again... ... and gold surged... ... as investors scramed to safe havens amid warnings that Israel is preparing for an imminent ground invasion of Gaza. Helping nudge futures to session highs, JPMorgan, Citigroup and Wells Fargo all gained in premarket trading after earnings beats. Data showing that import prices rose less than expected in September also lifted the mood. Among other US premarket movers, Boeing fell after Ryanair Holdings Plc said delivery delays of 737 Max aircraft have worsened as the aircraft maker grapples with supplier quality-control issues. BlackRock declined after clients pulled a net $13 billion from long-term investment funds, the first outflows since the onset of the pandemic in 2020. European bonds also gained, with the German 10-year yield falling seven basis points. Crude oil climbed more than 4% in New York, rising above $86 a barrel on fears the Israel-Hamas war could destabilize the Middle East and crimp global supply.  “Bonds are rallying ahead of the weekend as traders likely want to hedge geopolitical risk,” said Christophe Barraud, chief economist and strategist at Market Securities LLP. The Stoxx Europe 600 dropped about 0.8%, led by travel and leisure shares. The energy sector was the only one ini the green as oil majors gained. Among individual movers, Tryg A/S jumped after the Danish insurer reported an earnings beat. Ubisoft Entertainment advanced after the UK approved Microsoft Corp.’s deal to buy Activision Blizzard Inc., which will see the sale of some gaming rights to the French video-game maker. Here are the most notable European movers: Tryg gains as much as 6.7%, the most since March 2021, after the Danish insurance company reported 3Q earnings that beat estimates. Analysts notes that its DKK1 billion share buyback was larger and earlier than expected. Dufry shares climb as much as 2.1% after JPMorgan lifted its price target for the Swiss manager of airport duty-free shops to a new street high of CHF62, saying recent weakness in sentiment now presents a buy opportunity. Porsche rises as much as 1.8% after the luxury carmaker reported its global deliveries for the last nine months rose 10% year-on-year. Sabadell rises rise as much as 1.9% after loan management servicer doValue announced that the bank was among Spanish majors that it had secured €689 of new contracts from. CD Projekt climbs as much as 2.4% after the Polish video game developer said it used AI technology in its latest release to recreate the voice of an actor who passed away. BPER Banca shares advance as much as 4.3% to the highest since August after it was upgraded to overweight from equal-weight at Barclays, with the broker saying it’s getting more constructive on Italian banks. St James’s Place shares tumble 16% to the lowest since March 2020 as the UK wealth manager said it’s reviewing its fees and charges. Sartorius shares slide as much as 15% to the lowest since June 2020, while its French-listed subsidiary Sartorius Stedim Biotech drops as much as 19% after both cut guidance for the full year, with the companies citing lower volume expectations and product mix effects. Morgan Stanley says the magnitude of the profit warning is more significant than expected. Spirax drops as much as 4% to the lowest since May 2020 after Sartorius’s reduced sales forecast put pressure on the UK pumps manufacturer. Orsted drops as much as 8.3% as the stock is hit by New York State Public Service Commission’s unwillingness to support price increases for projects being developed alongside the state. The immediate implication for the Danish power generator is a greater likelihood of further write-down of Sunrise Wind, Citigroup says. Exor falls as much as 2.4%, the most since July, after the Agnelli family said a tender offer, part of its €1 billion buyback plan, went oversubscribed in a statement. British American Tobacco shares dip as much as 2.8% after the US Food and Drug Administration said it was prohibiting the marketing and distribution of some of its Vuse vape products. Earlier in the session, Asian stocks fell for the first time in more than a week after brisk US inflation data bolstered rate-hike bets and weakness in China’s economy further soured sentiment.  The MSCI Asia Pacific Index slid as much as 1.1%, with Chinese tech giants Tencent, Alibaba and JD.com among the biggest drags. Most markets were in the red as stronger-than-expected US inflation reading reinforced jitters about higher-for-longer rates. Gauges in Hong Kong were the worst performers after China’s consumer and producer prices came in below estimates, underscoring weak demand. Mainland shares only briefly pared losses following a report that China is considering forming a state-backed stabilization fund to shore up confidence in the stock market. The CSI 300 Index was back down more than 1%. Hang Seng and Shanghai Comp. were lower with tech the worst hit in Hong Kong amid broker downgrades and as the US reportedly eyes closing a loophole that gives Chinese companies access to American AI chips via units located overseas. Furthermore, Chinese inflation data underwhelmed with consumer inflation flat and factory gate prices at a deeper-than-forecast decline, while participants digested mixed trade data in which exports beat expectations but remained in contractionary territory. Australia's ASX 200 was pressured with underperformance in real estate and tech alongside rising yields and as markets reflected on the latest gauges into the economic health of Australia’s largest trading partner. Japan's Nikkei 225 traded negatively but with price action choppy and downside stemmed as Japan plans to release an economy security plan to protect vital industries like semiconductors and with index heavyweight Fast Retailing boosted by earnings. India stocks closed lower, trimming their weekly gains, as bank stocks saw selling after UBS warned of rising default risks for unsecured retail loans. Index major Infosys slumped. The S&P BSE Sensex fell 0.2% to 66,282.74 in Mumbai, while the NSE Nifty 50 Index declined by a similar magnitude. The MSCI Asia Pacific Index was down 1.3%. Stock benchmarks eked out gains for the second week running as consumer-facing companies rallied on optimism “Asia markets are facing a double whammy that casts significant doubt on the optimism-driven rally of the past few days,” said Hebe Chen, an analyst at IG Markets. “The earlier optimism, built on the assumption of a dovish turn by the Fed, now seems much vulnerable. Additionally, China’s disappointing zero CPI figures signal a yellow-light alarm.” In FX, the Bloomberg Dollar Index falls 0.1%. The Swedish krona is the best performer among the G-10’s, rising 0.4% versus the greenback after CPI topped estimates. In rates, treasuries held gains across the curve, unwinding a portion of Thursday’s sharp bear-steepening move, with yields richer by 4bp-8bp as US session begins. Intermediates lead, flattening 2s10s back to middle of Thursday’s range. US 10-year yields down more than 8bp at 4.60%, at session lows, outperforming gilts and bunds by ~3bp and ~1bp in the sector; front-end lags, with 2-year yields richer by ~4bp on the day. Haven demand is among the catalysts a ground invasion of Gaza by Israel appears likely. US session includes University of Michigan sentiment data, while 3Q earnings season starts with reports from JPMorgan, Citigroup and Wells Fargo. Meanwhile, the prospect of higher-for-longer US interest rates also weighed on risk appetite. Swap contracts pushed the odds of another quarter-point Federal Reserve hike to about 40% — from closer to 30% Wednesday. US economic data slate includes September import/export price index (8:30am) and October preliminary University of Michigan sentiment (10am). In commodities, crude futures jumped over 4%  to trade above $86. The risk-off tone has also benefited spot gold which adds 1%. An escalation of Israel’s war with Hamas, drawing in Iran, could send crude oil to $150 a barrel and cut about $1 trillion off world economic output, according to Bloomberg Economics. Looking to the day ahead now, and data releases include Euro Area industrial production for August, whilst in the US we’ll get the University of Michigan’s preliminary consumer sentiment index for October. From central banks, we’ll hear from ECB President Lagarde, Bundesbank President Nagel, BoE Governor Bailey, Deputy Governor Cunliffe, and the Fed’s Harker. Finally, today’s earnings releases include JPMorgan, Citigroup, Wells Fargo and BlackRock. Market Snapshot S&P 500 futures little changed at 4,384.50 MXAP down 1.2% to 157.23 MXAPJ down 1.2% to 492.87 Nikkei down 0.5% to 32,315.99 Topix down 1.4% to 2,308.75 Hang Seng Index down 2.3% to 17,813.45 Shanghai Composite down 0.6% to 3,088.10 Sensex down 0.2% to 66,272.36 Australia S&P/ASX 200 down 0.6% to 7,051.03 Kospi down 1.0% to 2,456.15 STOXX Europe 600 down 0.4% to 451.95 German 10Y yield little changed at 2.75% Euro up 0.3% to $1.0557 Brent Futures up 2.6% to $88.24/bbl Gold spot up 0.8% to $1,884.33 U.S. Dollar Index down 0.28% to 106.31 Top Overnight News China’s CPI for September was 0.0%, down from +0.1% in Aug and below the Street’s +0.2% forecast, while PPI deflation improved modestly to -2.5% (vs. -3% in Aug and vs. the Street forecast of -2.4%). FT China is considering forming a state-backed stabilization fund to shore up confidence in its $9.5 trillion stock market. After at least two rounds of consultation with industry participants over a period of months, financial regulators including the China Securities Regulatory Commission recently submitted a preliminary plan to the nation’s top leadership. BBG The Biden administration is considering closing a loophole that gives Chinese companies access to American artificial intelligence (AI) chips through units located overseas, according to four people familiar with the matter. RTRS Israel’s military warned more than 1mn Palestinians to leave Gaza City and its outskirts, in a move the UN said would cause a “calamitous” mass civilian displacement. FT Microsoft’s acquisition of videogame company Activision Blizzard won approval from U.K. competition authorities, clearing a path for the companies to close the $75 billion deal after a lengthy struggle with regulators. WSJ Americans didn’t pay an estimated $688 billion in taxes due on their 2021 returns—the largest shortfall ever. Audits and other enforcement will be stepped up to reduce the gap, the Internal Revenue Service said Thursday. WSJ Majority Leader Steve Scalise (R-La.) dropped out of the race for House speaker Thursday night, further throwing the House into chaos as Republicans openly ponder whether their fractured conference is capable of electing anyone as speaker. WaPo House Republicans are considering plans to give McHenry formal powers for a limited period so he can help pass a budget bill before the 11/17 deadline and deal with emergency spending requests. The Hill The biggest US banks face the worst write-offs in three years as JPMorgan, Citi and Wells Fargo kick off earnings today. They’re set to post combined net charge-offs almost twice last year’s levels. As well as deteriorating credit quality, analysts will be watching NII and investment banking revenue. BBG A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks were mostly lower amid headwinds from the US where headline CPI data topped forecasts, while the region also digested softer-than-expected inflation and mixed trade data from China. ASX 200 was pressured with underperformance in real estate and tech alongside rising yields and as markets reflected on the latest gauges into the economic health of Australia’s largest trading partner. Nikkei 225 traded negatively but with price action choppy and downside stemmed as Japan plans to release an economy security plan to protect vital industries like semiconductors and with index heavyweight Fast Retailing boosted by earnings. Hang Seng and Shanghai Comp. were lower with tech the worst hit in Hong Kong amid broker downgrades and as the US reportedly eyes closing a loophole that gives Chinese companies access to American AI chips via units located overseas. Furthermore, Chinese inflation data underwhelmed with consumer inflation flat and factory gate prices at a deeper-than-forecast decline, while participants digested mixed trade data in which exports beat expectations but remained in contractionary territory. Top Asian News PBoC set the USD/CNY mid-point at 7.1775 vs exp. 7.3179 (prev. 7.1776). PBoC Governor Pan met with Fed Chair Powell in Morocco on October 12th and exchanged views on cooperation, according to Reuters citing the PBoC. PBoC official said stable CNY has a solid foundation; and will resolutely prevent the risk of CNY overshooting; China will maintain a current account surplus, according to Reuters. PBoC said it will implement monetary policy in a precise and forceful manner. The official said the central bank still has ample room to support the economy. PBoC said recent interest rate reductions for the property sector have achieved significant results, and expects total social finance and credit to maintain steady growth in Q4, according to Reuters. China's NPC Standing Committee is to hold a meeting between Oct 20-24th; to discuss offer for new local government debt quota, according to Xinhua. Chinese Vice Premier Zhang called for efforts to vigorously develop advanced manufacturing and accelerate new industrialisation, according to Chinese press. China is said to weigh a new stabilisation fund to prop up the stock market with the plan calling for the fund to have access to up to hundreds of billions of yuan in capital, according to Bloomberg. US eyes closing loophole that gives Chinese companies access to American AI chips via units located overseas, according to Reuters sources China's Customs said China's trade still faces many difficulties and challenges, while it added that China's trade also faces a complex and severe external environment. Monetary Authority of Singapore maintained the width, centre and slope of the SGD NEER policy band, as expected, while it announced to shift to a quarterly schedule of policy reviews. MAS said it will closely monitor global and domestic economic developments amid uncertainty on inflation and growth, as well as noted that prospects for the Singapore economy are muted in the near term but should improve gradually in H2 2024. S&P said Japan is robust enough for rising JPY rates, expects a gradual increase in Japan's interest rates, and added that rates will rise from 2024, according to Reuters. IMF said BoJ's YCC tweak led to spillover in global bond market; could become larger in event of more substantial policy normalisation, according to Reuters. European bourses have been tilting lower since the cash open despite a lack of major headlines during the European morning, with traders cognizant of geopolitical risks heading into the weekend. Sectors in Europe are mostly in the red with clear outperformance in energy as crude prices continue marching higher, while Banks, Financials and Healthcare lag. US futures have tilted lower alongside the European equity markets as broader sentiment deteriorates, albeit losses across US futures are modest. Top European News German Chancellor Scholz reportedly faces renewed pressure to stem the property rout in a standoff with the industry, according to Reuters sources. Germany's building industry will present the chancellor with a new set of proposed measures this month to cushion the downside in the property sector. European Foreign Policy Commissioner Borrell says European investments in China have seen a sharp downturn and today they are at the lowest level since 2018, according to Reuters. Italian Economy Minister, when asked about a potential rating downgrade, said they have had discussions with rating agencies and cannot rule anything out, according to Reuters. ECB's Kazaks said he is quite happy with where rates currently are, via CNBC; would not close the door on further rate increases. ECB's Nagel said inflation has peaked in Germany, the labour market remains strong, and expects consumer demand to increase, according to Reuters. ECB's Visco said there are no signs that Italian spreads will be reaching levels for the ECB to take action, according to Bloomberg. BoE Governor Bailey said he is seeing progress that inflation is being tackled but there is work left to do, and added policy is restrictive and it needs to be, according to Reuters. UK Chancellor Hunt said the Autumn Budget statement will be "balanced with caution about the international situation"; needs to show in the statement that there is a path to lower taxation. He added the Autumn statement will lay out a plan to get out of the low growth trap, according to Reuters. FX Dollar loses some inflation momentum as DXY slips from a double top into a softer 106.510-280 range. The Pound rebounds around the 1.2200 pivot vs Buck and the Euro steadies on the 1.0500 handle amidst massive EUR/USD option expiries. Franc holds above 0.9100 as yields retreat and the Loonie is over 1.3700 as oil recovers. Yen still defending 150.00 and the Kiwi in danger of losing 0.5900 on the eve of New Zealand election. Fixed Income Bonds futures have extended their recovery from post-US CPI lows in what could be described as a risk revival given a marked downturn in equities. Bunds have reclaimed more than half of yesterday’s heavy losses to suggest more than a technical correction. Gilts have overcome a few wobbles to track their Eurozone counterpart. T-note is nudging new peaks amidst a return to bull-flattening regardless of a poor long bond auction to continue the run of weak sales this week. Commodities Crude futures are on the grind higher on Friday despite a lack of fresh fundamentals, with traders likely wary to bet against crude heading into the weekend as geopolitical risk remains at the forefront for the complex. Dutch TTF is firmer intraday as prices for the Nov contract eye USD 54/MWh to the upside, potentially partially buoyed by action in the crude complex. Spot gold edged higher to eventually top yesterday’s USD 1,884.79/oz high, while the 50 DMA today coincides with the USD 1,900/oz psychological mark. Spot silver also benefits and is back on a USD 22/oz handle. Base metals are mixed with little reaction seen to the release of Chinese inflation and trade data overnight, with the data showing iron ore and copper imports fell in September. Australia union official said progress has been made with Chevron (CVX) in LNG labour talks, but there is no deal yet; further talks are planned for Monday, according to Reuters. Russian Deputy PM Novak says there are no discussions about an OPEC-like cartel for natural gas; says settlements in USD and EUR for Russian oil trade remain but have declined significantly. Discount to Russian oil on the global market to international benchmarks stabilised at USD 11-12/bbl from USD 35-38/bbl in early 2023, according to Reuters. Novak added that there is limited potential for further narrowing of the Urals prices discount. Geopolitics Israel's ground military is building up on the Gaza Strip border, Sky News Arabia reports. The Israeli military called for an evacuation of all civilians in Gaza City from their homes southwards and said Gaza City is an area where military operations take place, while it will operate significantly in Gaza City in the coming days, according to Reuters. Israeli military informed the UN that all Palestinians north of Wadi Gaza should relocate to southern Gaza in the next 24 hours which amounts to approximately 1.1mln people, while the UN strongly appealed for any such order to be rescinded to avoid a calamitous situation, according to a UN spokesman. Furthermore, a Hamas official said the Gaza relocation warning is fake propaganda and it urged its citizens not to fall for it, according to Reuters. Iran's Foreign Minister said the continuation of war crimes will receive a response from the rest of the axes and 'the Zionist entity' will be responsible for that, while he added that the displacement of tens of thousands of Palestinians and cutting off water and electricity is considered a war crime. US, Japanese and South Korean officials are to discuss North Korean matters on October 17th in Jakarta, Indonesia, while it was separately reported that North Korea warned of the consequences of US drills in South Korea, according to KCNA. Indian Trade Secretary said a Free Trade Agreement with the UK is in an advanced stage of negotiations, according to Reuters. Russian President Putin proposes hosting peace talks between Azerbaijan and Armenia in Moscow, according to Reuters. US Event Calendar 08:30: Sept. Import Price Index MoM, est. 0.5%, prior 0.5% Sept. Import Price Index YoY, est. -1.4%, prior -3.0% Sept. Export Price Index YoY, est. -4.0%, prior -5.5% Sept. Export Price Index MoM, est. 0.5%, prior 1.3% 10:00: Oct. U. of Mich. Sentiment, est. 67.0, prior 68.1 Oct. U. of Mich. Current Conditions, est. 70.3, prior 71.4 Oct. U. of Mich. Expectations, est. 65.7, prior 66.0 Oct. U. of Mich. 1 Yr Inflation, est. 3.2%, prior 3.2% Oct. U. of Mich. 5-10 Yr Inflation, est. 2.8%, prior 2.8% DB's Jim concludes the overnight wrap After a big rally for sovereign bonds at the start of the week, the sell-off resumed once again yesterday, thanks to an upside surprise in the latest US CPI print. The release showed that core CPI was at a 5-month high, and offered a fresh reminder that the road back to target is unlikely to be a smooth one. In turn, investors grew more confident that the Fed might raise rates again this year, and we even saw the 30yr Treasury yield experience its biggest daily rise since the Covid turmoil of March 2020, with a +16.0bps increase to 4.85%. That adjustment in rates meant that equities lost ground as well, with the S&P 500 ending its run of 4 consecutive gains to fall -0.62% . Looking at the details of that CPI print, it was mostly bad news from a market perspective. The main story was that headline CPI came in at +0.40%, which was above the consensus of economists at 0.3%, along with market pricing via inflation swaps, which were expecting +0.25%. It wasn’t just the headline number that came in strong however, as the core CPI measure was running at +0.32%, with decent increases in some of the stickier categories as well. It was also a broad-based move, as the Cleveland Fed’s trimmed mean CPI measure that excludes the biggest outliers rose to +0.40%. So the data cemented the picture that inflation has been ticking up in recent months, and if you just look at the last 3 months, the annualised rate of CPI is now at +4.9%, which is the highest it’s been since August 2022. That’s offering some pushback against the more positive inflation narrative from a couple of months ago, and on the back of the release, our US economists have upgraded their near-term expectations for inflation, largely because of a stronger trajectory in rental inflation. See their reaction note here for details. When it comes to the Fed, there’s still pretty strong scepticism about a hike in November, which is only priced as a 10% chance. But when it comes to December, futures raised the chance of a hike to 39% by that meeting, up from 30% the day before. That was also supported by the latest jobless claims data, which came in at 209k (vs. 210k expected) over the week ending October 7, in line with the lower levels of more recent weeks. We didn’t hear much from Fed officials themselves, apart from Boston Fed President Collins, who echoed other recent Fedspeak in saying that if the recent rise in yields persists, it “likely reduces the need for further tightening”. But she wouldn’t take further tightening off the table and said that “today’s CPI release is a reminder that restoring price stability will take time”. Chair Powell is due to speak on Thursday next week, just before the pre-meeting blackout period begins, so that’ll be an important event on the calendar. For sovereign bonds, the CPI proved to be a tough backdrop, and the 10yr yield was up +14.0bps by the close to 4.70%. That was its biggest daily increase since early May, back when the 10yr yield was still below 3.5%, and the move was led predominantly by higher real yields, which rose +10.8bps on the day. For the 30yr yield the move was even more dramatic, with a +16.0ps rise to 4.85%, which was the biggest daily rise since March 2020 at the height of the financial turmoil around the Covid-19 pandemic. That wasn’t helped by a 30yr auction, which was awarded at a post-2007 high of 4.837%, as weak end-investor demand led to the largest primarily dealer take up of a 30-year auction since December 2021. 30yr yields spiked by around 5bps following the auction results. Over in Europe, the sell-off also had a clear impact, with yields on 10yr bunds (+6.8bps), OATs (+7.5bps) and BTPs (+9.8bps) all moving higher. That wasn’t helped by the latest rise in natural gas prices, which were up another +15.05% to €53.00 per megawatt-hour, which is the highest they’ve closed at since February. The latest moves follow several concerns about global supply over recent days, as well as forecasts showing much cooler weather in Europe over next week. Fortunately, gas prices are still some way beneath their levels from this time last year, and European gas storage is also fuller than at this point in 2021 and 2022, but this is still a concerning trend at a time when recent CPI prints have already been returning the focus back to inflationary pressures. Whilst equities had initially been resilient, they took a tumble in the US after the 30yr auction, and the S&P 500 ended the day -0.62% lower. T he declines were fairly broad-based, but small-caps took a particular hit and the Russell 2000 ended the day -2.20% lower, which is its worst daily decline since April. By contrast, the FANG+ index of megacap tech stocks still lost ground, but was only down -0.28%, whilst European markets closed before the worst of the US losses, meaning the STOXX 600 ended the day up +0.10%. Today will see earnings season begin to get going, so plenty to keep an eye out for, including releases from several US financials. That downbeat mood has continued overnight in Asia, where the major equity indices have all lost ground. The Hang Seng (-2.11%) is the biggest underperformer, but other indices including the CSI 300 (-1.11%), the KOSPI (-0.98%), the Shanghai Comp (-0.64%) and the Nikkei (-0.42%) have also declined. The moves come as China’s inflation data was weaker than expected, with CPI at 0.0% in September on a year-on-year basis (vs. +0.2% expected). Looking forward however, US equity futures have stabilised overnight, with those on the S&P 500 up +0.11%. In the political sphere, the US House of Representatives remains without a speaker for the time being, and the latest news is that House Majority Leader Steve Scalise has withdrawn his name. He’d previously won the GOP nomination for speaker by a 113-99 vote, but there was clear opposition to his candidacy from some other Republicans, and to become Speaker, they would need to win a majority of the entire House of Representatives, meaning they could only lose a very small number of Republicans given their narrow majority. Currently, the House is unable to conduct business until a new speaker is elected. Looking at yesterday’s other data, UK GDP grew by +0.2% in August, in line with expectations. Later on, we also heard from BoE chief economist Pill, who said that interest rate decisions were becoming “finely balanced”. To the day ahead now, and data releases include Euro Area industrial production for August, whilst in the US we’ll get the University of Michigan’s preliminary consumer sentiment index for October. From central banks, we’ll hear from ECB President Lagarde, Bundesbank President Nagel, BoE Governor Bailey, Deputy Governor Cunliffe, and the Fed’s Harker. Finally, today’s earnings releases include JPMorgan, Citigroup, Wells Fargo and BlackRock. Tyler Durden Fri, 10/13/2023 - 09:11.....»»

A September To Forget: Here Are The Best And Worst Performing Assets In September, Q3 And 2023 Both September and Q3 saw poor performance for markets across the board: as DB's Henry Allen writes in the bank's quarterly performance review, over Q3, or just 11 of the 38 non-currency assets the German bank tracks, were in positive territory, and in September, only 7 were positive making it the worst month of 2023 so far. broad The declines had several causes, but the most important one was the sense that central banks were likely to keep interest rates higher for longer - until something breaks -  alongside a $20/bbl rise in oil prices over the quarter. The losses also added to September’s reputation as the worst month for financial markets over recent years. Indeed, it was the 4th year in a row that the S&P 500 and the STOXX 600 were down for September, as well as the 7th year in a row that Bloomberg’s global bond aggregate was down for the month. Here are some of the key highlights from the report, with full details below. September was the 4th year in a row that the S&P 500 (-4.8%) and the STOXX 600 (-2.0%) were down for September, as well as the 7th year in a row that Bloomberg’s global bond aggregate was down for the month. US 30yr Treasury yields saw their biggest quarterly climb (+83.9bps) since Q1 2009. 10yr JGBs nearly doubled (+36.5bps) to 0.76% in Q3, to the highest level since 2013. Brent Crude oil prices were up +27.2% in Q3 to $95.31/bbl, which is their biggest quarterly rise since Q1 2022 when Russia’s invasion of Ukraine began. The dollar index strengthened by +3.2% in Q3, aided by a sharp rise in US real yields. Conversely, other major currencies weakened against the dollar, including the Euro (-3.1%), the Japanese Yen (-3.4%) and the British Pound (-4.0%). On a YTD basis, the NASDAQ still leads the way (+27.1%) with the S&P (+13.1%) strong even with the September/Q3 sell-off. However, the equal-weight S&P 500 is “only” +1.8% in 2023, which highlights the narrowness of the rally. On a YTD basis, the Nikkei (+9.1%) and Stoxx 600 (+7.9%) remain buoyant even with a -6.6% and -5.0% correction in Q3 respectively. However the Hang Seng is -7.2% YTD following a -4.1% decline in Q3. Even with a bad year for fixed income, US HY (+5.3%), EU HY (+5.0%) and EM bonds (+4.1%) has shown that carry has ultimately won out in 2023, even if their returns are broadly in line with short-end cash rates. Quarter in Review - The high-level macro overview When it came to financial assets, the biggest story of Q3 was the massive bond sell-off, which sent yields up to multi-year highs around the world. For instance, the 10yr Treasury yield ended the quarter up +73.5bps at 4.57%, and at the intraday peak on September 28 it was as high as 4.686%, which we haven’t seen since 2007. Yields moved higher across the curve but there was also a clear steepening. That left yields on 2yr Treasuries up +14.8bps to 5.04%, whilst those on 30yr Treasuries saw their biggest quarterly increase since Q1 2009, with a rise of +83.9bps to 4.70%. It was much the same story elsewhere too, with the 10yr German bund yield up +44.8bps to 2.84%, which hasn’t been seen since 2011.  Meanwhile in Japan, the  10yr yield was up +36.5bps to 0.76%, which is the highest since 2013. Central banks played a role in that sell-off, as investors moved to push out the likely timing of any rate cuts. For  instance, at the Fed’s September meeting, the FOMC raised their median dot for the fed funds rate in 2024 by 50bps, suggesting that there would be fewer cuts next year than previously thought. That’s been reflected in market pricing too, with the timing of a first 25bp rate cut from the Fed pushed out from Q2 2024 to Q3 2024. Meanwhile, the ECB hiked their deposit rate to an all-time high of 4% in September. Concerns about inflation remained in the background as well, partly thanks to a fresh surge in oil prices over Q3. In fact, Brent Crude oil prices were up +27.2% to $95.31/bbl, which is their biggest quarterly rise since Q1 2022 when Russia’s invasion of Ukraine began. In part, that followed the news that Saudi Arabia and Russia were extending their production cuts to the end of the year. In the meantime, there was also a growing focus on persistent budget deficits and the impact that would have on rates, not least after Fitch Ratings downgraded the US credit rating in August from AAA to AA+. Another theme of the quarter has been growing indications that global economic data is softening. In the US, the 3-month average growth of nonfarm payrolls now stands at just +150k, which is the weakest that’s been since the initial wave of the pandemic in 2020. And in the Euro Area, the composite PMI has been in contractionary territory throughout Q3, with readings below 50 in July, August and September. This backdrop meant that equities had a weak performance, with the S&P 500 down -4.8% in total return terms over September. That’s the worst month of the year so far for the index, and leaves it down -3.3% over Q3 as a whole. It is still positive on a YTD basis, however, with a +13.1% gain, although those gains have been driven by a relatively narrow group of stocks, with the equal-weighted S&P 500 only up +1.8% YTD. It's also been a weak quarter for equities elsewhere, with the STOXX 600 (-2.0%) and the Nikkei (-3.4%) also losing ground. Which assets saw the biggest gains in Q3? Energy commodities: Oil prices saw a strong rebound in Q3, which followed a run of 4 consecutive quarterly declines. Brent crude was up +27.2% to $95.31/bbl, and WTI rose +28.5% to $90.79/bbl. Natural gas prices also moved higher, with those in Europe up +12.8% to €41.86/MWh, after a run of 3 consecutive quarterly declines. US Dollar: The dollar index strengthened by +3.2% in Q3, aided by a sharp rise in US real yields. Conversely, other major currencies weakened against the dollar, including the Euro (-3.1%), the Japanese Yen (-3.4%) and the British Pound (-4.0%). Which assets saw the biggest losses in Q3? Sovereign bonds: It was the worst quarterly performance for sovereign bonds in a year, with losses for US Treasuries (-3.4%) and Euro sovereigns (-2.5%). The moves mean that both are negative on a YTD basis again. Equities: Equities were down across the board in Q3, with declines for the S&P 500 (-3.3%), the STOXX 600 (-2.0%) and the Nikkei (-3.4%). The main exception to this pattern were energy stocks, with those in the S&P 500 up +12.2% over the quarter. Finally, here is a summary of performance by assets class denominated in local FX as well as USD, for the month of September... .... for Q3... ... and for 2023 YTD. More in the full note available to pro subs. Tyler Durden Mon, 10/02/2023 - 14:00.....»»

Macleod: The End Of The Road For The Dollar Authored by Alasdair Macleod, With the Asian hegemons undoubtedly able to introduce gold standards, where does that leave the dollar? This article describes just how precarious the fiat dollar’s position has become. For now, the dollar appears to be buoyed up by rising bond yields. However, as they rise further portfolio losses for foreign investors are likely to increase, leading to dollar liquidation. It is not generally realised how many dollars and dollar securities are owned by foreigners, the bulk of them being held outside the US banking system. And the quantity of foreign currency owned by Americans to absorb this selling is very small in comparison. Higher interest rates and bond yields also threaten to destabilise the banking system, a problem equally faced by the Eurozone, the UK, and Japan. But how can the US Government protect itself from this danger? The only answer is to admit to the end of the fiat era and put the dollar back onto a gold standard. However, the US Government does not have the mandate to take the required actions and officially at least is still in denial over the need to stabilise the currency. The legal position referring to the constitution is briefly touched upon, because laws will have to be considered to secure the dollar’s future. Unfortunately, the US Treasury’s gold holdings are almost certainly compromised. Furthermore, since the Asian hegemons have accumulated substantial holdings of bullion in addition to their official reserves, there is bound to be a strong reluctance to hand economic power to Russia and China by endorsing a return to gold standards. My conclusion is that the era of the fiat dollar based global currency system is rapidly ending, and for America and the dollar there can be no Plan B. It will almost certainly lead to  the end of the fiat dollar, and the end of the US hegemony. Introduction It is dawning on increasing numbers of analysts that the era of the fiat dollar might be drawing to a close. Very few investment professionals know what to expect. Being thoroughly Keynesian in outlook, most still believe that by the Fed managing interest rates consumer price inflation can be contained and that recessions can also be avoided by expanding fiscal deficits. But the contradictions arising from a deteriorating economic outlook and CPI inflation continually rising completely scuppers these macroeconomic theories. Blaming it on Russia and OPEC+ is tempting, but not a good enough argument. It is becoming clear that fiat currencies have become increasingly unstable. The only solution for the dollar is to fix the value of credit: but to what? It has been gold or silver throughout the history of national economies. But a denial of returning to exchanging the dollar for a fixed quantity of gold is so systemically embedded in the administration that it is difficult to see this solution even as a last resort. In this article I look at the background to what is sure to become a dollar crisis. The urgency of this matter has been brought forward by America’s declining global influence compared with that of the Asian hegemons, and the US Government’s profligacy. Almost certainly, exposure to the dollar will be unwound by foreign actors, and that exposure, which must include dollar credit originated outside the US banking system is colossal. The table below illustrates the approximate position. To summarise the evidence, foreigners own or are exposed to a massive $137 trillion dollars. As a cohort, if they decide to begin reducing their exposure US residents have less than a trillion equivalent in foreign currencies to sell in exchange. In the jargon of the markets, the dollar will become “offered only”. This is the true danger from rising interest rates. As they rise, the declining value of foreign-owned long-term securities totalling $37 trillion will simply accelerate generating widespread investment and dollar liquidation. This will not be offset by US holders of foreign investments liquidating their positions for a simple reason. US holders of foreign securities hold almost all of them in ADR form, being listed and priced in dollars. In a rising interest rate environment, they will also be declining in value and so we can expect US investors to sell them as well. The sale of an ADR does not lead to a sale of an underlying foreign currency, whereas a sale of a dollar security by a foreign holder will almost certainly do so – unless the foreign investor cohort overall is content to add to its holdings of short-term dollar securities. Foreign liquidation of dollar investments is a largely unseen danger to the dollar by US-centric commentators who are stuck with the belief that foreigners need to accumulate them. A further rise in interest rates or bond yields, which appears to be underway, far from protecting the dollar will almost certainly lead to portfolio liquidation, dollar liquidation, and therefore its collapse, there being almost no foreign currency in US residents’ hands to absorb it. And finally, in the run up to a presidential election year it is becoming clear that the US’s proxy war against Russia is turning into a political and military disaster. Ukraine is running out of men, and Russia is reaping the benefit of western-imposed sanctions. Disagreements between NATO members are beginning to surface. What will that do to the dollar’s credibility? It all feels like a fin de siècle, the end of the fiat era and the beginning of a new currency regime. The background to a new dollar crisis It is never wise to pursue political and economic policies to the end of the road. But that is what the US Government appears to be doing. In 1971, having embarked on a policy of replacing gold with the dollar as everyone’s currency and valuation standard, there is every reason to fear that for the US Government to return its fiat dollar to sound money is politically impossible. The reasons this might now matter are twofold: the dollar is losing its grip as the world’s reserve currency, and interest rates are rising into a recession which could turn into a slump, destabilising the mountain of debt which is the other side of too much unproductive credit intermediated by over-leveraged banks. In previous articles, I have shown the importance of anchoring the value of credit to gold to ensure its stability, particularly at a time when credit’s instability becomes beyond the state’s control. Such a time has clearly arrived. I have described the practicalities of how to do it, which is to simply ensure that a currency is freely convertible into gold coin and bullion. A modern version of this has been proved to work time and again in the form of currency boards recommended and implemented for a number of governments by Professor Steve Hanke, tying collapsing currencies to a relatively stable dollar. But the dollar itself is now becoming highly unstable. For the US Government, the urgency of considering a gold standard for the dollar is now upon it, because the Asian hegemons — Russia and China — are in a position to put their roubles and yuan on rock-solid gold standards. The ease with which Russia can do this was demonstrated in my recent article, here. Furthermore, it is increasingly in Russia’s interest to take this step. But if Russia does so, it is bound to fatally undermine the fiat dollar’s position. And it is not widely realised that China is again encouraging its citizens to buy gold. This is from the Jerusalem Post on 7 June: “Last week an event occurred which was completely missed by the mainstream media. The People’s Bank of China (PBOC) took the next important step to encourage a wider and less wealthy section of Chinese citizens to purchase gold and silver bullion. The PBOC opened the facility for citizens to convert renminbi cash savings held in the public’s own bank accounts to be converted into physical gold at the click of a button.” Does that indicate that China feels the time has come to protect even her poorer citizens and the yuan from global currency instability? Perhaps the hegemons are positioning themselves. While putting the rouble onto a gold standard would be seen as an act of extreme monetary aggression against the fiat dollar, Russia urgently needs to stabilise her currency. In a dollar-centric world suffused with anti-Russian propaganda, any weakness in the dollar is simply multiplied in the rouble exchange rate. This the flaw in Putin’s agreement with Saudi Arabia to drive up energy prices. As I put it in the article referenced above, if they shiver in Germany, they will freeze in Russia: that is without massive energy subsidies for the Russian people. Feedback from readers exposes an erroneous belief that it is the trade balance which matters. They correctly say that higher energy prices improve Russia’s balance of trade. So why should the rouble’s exchange rate not benefit? The answer is that the purchasing power of a fiat currency depends totally in the belief in its validity as a medium of exchange. And while it is true that Russia’s exports benefit from higher oil and gas prices, in a global inflation crisis such as we now face, the rouble’s credibility is unlikely to improve, particularly when it is off-limits for western speculators and the Russians are demonised in capital markets. Therefore, we should assume that Russia will be forced to take meaningful steps to stabilise the rouble, which can only be done by returning the rouble to a gold standard. Furthermore, Russia’s economy has the low tax environment that would benefit hugely from interest rates that reflect gold as money as opposed to fiat roubles. From an interest rate on one-year rouble credit currently at 16% we can expect this to decline towards 3% over not very much time with enormous economic benefits. There is evidence that senior Russians, including Putin, understand this point. If only the US could achieve similar benefits from sound money! Unfortunately, it requires a totally different political, strategic, and economic mindset to those currently operating in Washington and Langley. Instead, the Keynesian playbook is for the state to increase its fiscal and monetary support for the economy to prevent it running into a recession. And policy makers are more informed in their policies by the recent price stability at lower interest rates than the instability of the 1970s when the fiat dollar was bedding in. They believe that the consumer price inflation problem is exogenous and not the consequence of earlier monetary policies. And they aver that a period of current interest rates, or at least levels not much higher, will be sufficient to return CPI inflation towards the 2% mandated target. America is trapped in a political and economic version of Stockholm syndrome. But there are some influential analysts who are beginning to see this as wishful thinking, and that energy prices in particular are not only going higher but will continue to do so. This creeping suspicion is likely to permeate official thinking over time and in the light of developments. As part of this enlightenment, JPMorgan’s Global Equity Research unit is now forecasting $150 prices for Brent. The consequences for heating oil and diesel prices are particularly pernicious. These values are already rising, as the snapshot of energy and commodity price moves over the last three months indicates. Other prices rising ahead of the US winter include some basic foodstuffs, indicating that any move towards CPI normality is a long way off. And then there is the widespread ignorance that surrounds the consequences of the bank credit cycle which is entering its contractionary phase. The effects are to wrest control over interest rates from central bankers, as desperate borrowers with deteriorating cash flows scramble for scarce credit: they will simply have to pay up to remain in business. The consequences of the credit cycle It is too simplistic an argument to blame depressions, slumps, and recessions on the failings of the private sector. The cause is always a contraction of credit. But that is created by a previous overexpansion of bank credit and by its nature is a correction of a previous condition. The greater and the longer the expansion is prolonged, the more destructive the contraction that follows. Ignoring this reality, Keynes and others invested in a role for governments to intervene in economic affairs. It required the eventual abandonment of sound money. The original idea was for governments to take up the recessionary slack, stimulating the economy by deliberately running a budget deficit, and recovering public finances subsequently through increased tax revenues when the economy recovers. By these means, it was believed that recessions would be minimised, and government finances would be balanced over the economic cycle. It was an argument which was applied with apparent success in the post-war years until the end of the Bretton Woods Agreement, when the inflation of the dollar’s M3 had doubled from $27bn in July 1950 to $59bn in August 1971, without the inflationary consequences that followed the suspension of Bretton Woods. When the Bretton Woods Agreement began to fall apart following the failure of the London gold pool in the late sixties, for America’s high priests of macroeconomics the strictures of a gold standard straitjacket were the problem, not the failures of their economic and monetary theories. Bretton Woods was abandoned, and ever since government-inspired economic theory has doubled down on failure. The FRED chart of the US’s budget position illustrates the consequences of every time things go wrong, blame free markets and just double down on a policy of government stimulation by fiscal deficits. To put these deficits into context, in fiscal 2021, Federal Government outlays were $6.822 trillion, and revenues were $4.047 trillion. In other words, the deficit on expenditure was 31.4% of revenue. After a brief recovery in fiscal 2022, the current fiscal year which is ending shortly will see a further deterioration in the deficit to $2 trillion. But with the prospect of a now widely expected recession and interest rates higher for longer, fiscal 2024’s deficit will likely be significantly worse. Clearly, with recession expected and despite record government deficits, the Keynesian stimulation theory has run its course and has failed completely. But that is not all. Lower interest rates are meant to rouse an economy, and in that they have also failed. Macroeconomic theories become so far removed from economic reality that the whole establishment of the economic profession needs to reset its approach to free markets. The cyclical problem of bank credit One of the extraordinary failures of modern thinking concerns an almost total blindness to the cyclicality of bank lending. And what is nominal GDP, which is used to measure economic performance? It is no more nor no less than the deployment of credit for qualifying transactions making up GDP. Yet no one appears to understand the consequences of this important fact. GDP rises and falls, not driven by consumers but by changes in the availability of bank credit. Consumer behaviour is not the source of recessions in consumer activity; it is the availability of the credit that drives it. Those who do not understand the cycle of bank credit and its implications are the large majority of economic actors, both in the financial and non-financial sectors. And the most stubborn cohort of deniers is to be found in governments and their bureaucrats. From the major central banks to banking regulators, a group-thinking blindness to the causes of regular booms and busts is the source of an evolving cyclical credit crisis. Unfortunately, if a government and its agents continue with wrong policies for long enough, instead of being derided public belief in them grows. It is a particular problem in capital markets which have now bought into central bank group thinking policies without reservation. Bank executives are not immune to this trend. Consequently, instead of sticking to their business objectives properly, they are beholden to central banks and government regulators. Their true business is to be dealers in credit, not to bear responsibility for those who claim to be stakeholders and regulators, but to achieve returns for their shareholders. Few bankers seem to realise that they are trapped in a cycle of bank credit of their own creation. That is why the cycle has existed for as long as credit statistics have been available. But combine a lack of understanding of the cause of the cycle with the absence of shareholder responsibility, and we can expect the management of large banks to think that with regulatory support they can trade their way out of economic downturns by simply adhering to the regulations. The few banks that have failed this time have been dealt with by the regulators, restoring faith in the regulatory regime for the others. But when bankers have the wake-up call, that their balance sheets are over-leveraged and producer input prices are rising, unless they urgently reduce their lending exposure they will risk bankruptcy from bad debts and falling collateral values. That is why bank lending is contracting, and why in real terms GDP will decline. And the contraction of GDP feeds into yet more credit contraction, driving up borrowing costs. The pressure on banks to liquidate both on-balance sheet investments and collateral against loans is bound to intensify. The pressure on the dollar from foreign holders selling down their exposure will naturally follow. As seen in the table in the introduction to this article, the pressure on the dollar from these combined events threaten its continuing existence. Other than accepting the reintroduction of a credible gold standard, what fiscal measures will be required to make a gold standard sustainable? Cutting out excess spending The current fiscal year, which ends on 30 September will see a deficit on US Government spending of $2 trillion. $Nearly one trillion of that is debt interest: The way that debt interest has soared indicates that the US Government is already in a debt trap. Furthermore, in its last estimates of debt interest costs (May 2023), the Congressional Budget Office assumed that the average interest rate on debt held by the public in this fiscal year would be only 2.7%, and in 2024 2.9%. With 3-month T-bills already yielding 4.8% and 10-year Treasury notes over 4.5%, these forecasts are already out of date. And with a recession now more certain than at the time of the CBO’s forecast, on current spending plans plus the fall in tax revenues the budget deficit for 2024 is headed for over $2.5 trillion, even assuming no further rises to borrowing costs. But they are likely to rise to over $1.5 trillion, taking the likely deficit into covid lockdown territory. In the fiscal year just ending, the average rate of interest paid works out at 2.9%, which compares with a current rate in excess of 4.5%. The consequences of deteriorating tax revenues, increasing welfare costs, rising price inflation, yet higher bond yields, a credit squeeze, and the refinancing of $7.6 trillion of existing debt make the current position unsustainable. The best solution is to radically cut spending. But given the scale of the problem as part of the solution taxes might have to be increased as well, though the emphasis must be on spending cuts. If there was time to implement these cuts, they could be spread over a few years, but time is of the essence. Otherwise, the US Government will merely fall deeper and deeper into its debt trap. This will be the minimum required for the US Government to put its finances in order and to implement and maintain a gold standard for the dollar. Contrary to Keynesian theory, the economic benefits of balancing the budget would be substantial. This was proved in the UK when 364 Keynesian economists signed a letter to London’s The Times criticising the 1981 budget. In that case, at a time of rising unemployment, high inflation and recession, Chancellor Geoffrey Howe raised taxes to close the budget gap. This represented 2% of GDP, which compares with a prospective US deficit of over 9% of GDP. The Keynesian economists opined that tightening monetary policy at a time of recession was wrong. But no sooner was the letter published, than the economy began to improve. Admittedly, the British deficit as a proportion of the total economy was far less than that faced by the US Government today. But the disproving of Keynesian theories of deficit stimulation, and the benefit to the economy of a balanced budget cannot be denied. Furthermore, if in balancing the budget expenditure is cut allowing taxpayers to keep more of their earnings, the economic benefits are even more obvious. Hence, the recommendation that as much as possible the reduction in government spending is the best way to balance the budget and achieve a better economic outlook. Not only will balanced budgets have to be run thereafter but spending must be firmly capped in nominal terms. A free market, non-interventionist philosophy must replace state intervention and management of the economy. Central bank credit must be contained, and commercial bank credit allowed to respond to demand for productive credit. Business must be permitted to dance to the tune of consumers, and not the regulators. Bad businesses hide behind regulation, which through licencing disadvantages competition. Regulators are not motivated by what the consumer wants and is often ignorant of his trade. They produce unnecessary bureaucracy. Where they exist to deter fraudulent and unfair practices, they rarely succeed. Not only should consumers be free to choose the products that they want, but they must be responsible for their actions. The idea that the state can replace the principle of caveat emptor is ridiculous. The same goes for trade. Traditionally, trade tariffs have been a source of government revenue, but they have evolved into politically driven means of penalising nations which are successful exporters in favour of protecting uncompetitive domestic production. This disadvantages the domestic consumer and manufacturers sourcing raw materials and machinery from abroad. The setting of interest rates must be to regulate the balance of gold reserves, and not, repeat not to regulate the economy. The source of investment capital in the form of savings should be permitted to return, encouraged by removing all taxation from savings and trading profits. Consumer debt, other than mortgage finance, will wither under these conditions. A savings driven economy, such as Japan’s and China’s, is less prone to consumer price inflation and interest rate volatility. And if savings are not taxed, they become encouraged. And lastly, government statistics should be banned, because they only serve to encourage state intervention. If there is demand for any particular run of statistics, then private sector actors can provide them. The US faces problems with a gold standard As a matter of fact, gold as money is written into the US constitution as well as in the definition of the dollar. It will surprise readers to know that what commonly circulates as dollars are not dollars at all, being Federal Reserve Notes (FRNs). Under constitutional law, United States money is expressed in dollars, while FRNs are redeemable in dollars which is the lawful money. Therefore, the FRN dollar bills in circulation are not lawful money. It might seem a pedantic point perhaps, but it should be respected and addressed in any future legislation. And the dollar itself was defined in gold. Article 1 Sec. 10, Clause 1 of the Constitution states: No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts… There is much to unpack in this clause, but it is money that concerns us. In 1785, Congress unanimously resolved that the money unit of the United States was to be the dollar and that the dollar would contain 375.64 grains of fine silver. The same resolution determined that there shall be two gold coins, one equal to 10 dollars and one equal to 5 dollars. And subsequently under the Coinage Act of 1792, the coinage of gold Eagles was mandated, “each to the value of $10 containing 247.5 grains of pure gold”. Dollars and dollar-substitutes such as the FRN were the medium for payment because they specifically represented gold and silver coin in the prescribed weights. In 1834, gold became the de facto standard, confirmed in the Coinage Act of 1900 at 23.22 grains of fine gold, the equivalent of $20.67 to the ounce, a standard that operated for nearly a century until 1933. It would appear to be a simple matter to return to convertibility in accordance with the law, but instead of the earlier fixed weight, a new relationship would have to be determined for the constitutional dollar and the FRNs if they be permitted to continue to exist: the future of the Federal Reserve system must be called into question, having presided over a failed fiat currency of its own issuance. Either way, the Treasury’s promise to pay the equivalent in its gold reserves to the Fed at $42.22 to the ounce, must be addressed. Some commentators posit that to define the dollar by weight of gold and to make it fully exchangeable requires a substantial devaluation of the dollar, perhaps to $5,000 or $10,000 per ounce of gold. And that in order to do so, it would be declared over a weekend. Presumably, it is thought that this new rate would ensure that gold would be redeemed for dollars, allowing a new gold exchange rate to operate without undermining the Treasury’s bullion reserves. This appears to be a muddled Keynesian way of thinking, in the belief that devaluation is necessary to ensure a favourable exchange rate with other currencies, whether exchangeable for gold or not, and to ensure there is sufficient economic stimulus to support the mountains of debt in the private sector. But it would also be a default on the US Government’s debt by devaluing it in terms of legal money, which is still gold despite current denials by the US authorities. Such a substantial devaluation is clearly intended to allow headroom for the US Government to continue with its current fiscal and monetary policies. But without the fundamental reforms outlined in the previous section, it would probably be only a very short time before a devaluing dollar forces yet another reset. In short, it would fool no one for long. Then there is the problem of verifying US official reserves, which at 8,134 tonnes have been almost unchanged since 1980. Rumours about their condition and the extent to which they actually exist makes them uncredible. To what extent have they been swapped and leased over the decades, if indeed they exist in bars of LBMA deliverable standards? The experience of Germany seeking repatriation of some of its gold reserves stored as earmarked at the Federal Reserve Bank of New York rings alarm bells over the entire situation. And as long ago as 2002, Frank Veneroso, who was a highly respected analyst at the time concluded that between 10,000—14,000 tonnes of central bank gold reserves had been either swapped or leased and sold into the market. The latter figure was half the declared official reserves of the entire world. Since then, the leasing game and price suppression of gold has certainly continued. But there is a difference today, with increasing numbers of central banks accumulating bullion reserves, currently recorded at 35,731 tonnes. Much of this increase has to do with China, Russia, and their rapidly expanding spheres of influence, who do not lease or swap their gold reserves. Germany’s experience of the US idea of property ownership of gold, and the Bank of England refusing to deliver Venezuela’s gold when demanded plus the leasing shell game amounts to strong circumstantial evidence that the US Treasury and the New York Fed vaults do not have the gold they say they have. This in itself suggests that there really is almost nothing backing the fiat dollar when the fall-back position becomes a return to gold as the money-anchor for credit. Furthermore, there is the geopolitics of gold to consider. Not only has Russia been accumulating bullion reserves, but informed sources believe that there is further bullion in state funds, bringing Russia’s holdings to about 12,000 tonnes. And China has had a policy of accumulating gold “off balance sheet” since 1983, accelerating mine output, importing large quantities of bullion, and not permitting any bullion to leave the country. Overnight, China could probably increase her official reserves to a level in excess of 30,000 tonnes. We can be sure that the US’s intelligence services have an idea of this situation, and the geopolitical disadvantages to the US and its dollar of a return to gold as the monetary standard. In London, where the bullion banks offer unallocated gold accounts, a substantial rise in the gold price such as that recommended by some US analysts would lead to bankruptcies among the LBMA member banks with extremely serious consequences. And on Comex, it would be likely to lead to implementation of force majeure clauses. The consequences for commodity prices from a de facto devaluation of the dollar would also be to drive them significantly higher. On all practical grounds, a substantial gold revaluation/devaluation of the dollar can be ruled out. Conclusion The hurdles in the way of the fiat dollar’s survival are steadily mounting, and the US Government does not know how to secure its future. The state theory of money is turning into a total failure. Interest rates, which more correctly are the time preference required to ensure foreign holders of dollars continue to hold them are rising. This tells us that markets expect the purchasing power of dollar credit to continue to decline, so if the monetary authorities attempt to stop them rising, the currency will fall, and foreigners will sell. Equally, as bond yields rise the value of all financial assets will decline, portfolios will be sold, and presumably the currency raised will be as well. Either way, the days of the fiat dollar are numbered. The politicians have no mandate to protect it by balancing the budget, returning to a gold standard, and taking the economic measures necessary to make it stick. Furthermore, America’s existing bullion holdings appear to be badly compromised – the cupboard is bare. Not only is it the end of the fiat federal dollar note, but it is the end of empire, which the administration is reluctant to accept. We must hope that some strategic sense prevails, and the Doctor Strangeloves at Langley do not have their way. Tyler Durden Fri, 09/29/2023 - 22:05.....»»

Futures Extend Slide As Yields, Dollar Blow Out Global markets started the new week on the back foot with US equity futures, European bourses and Asian markets all sliding as Treasury yields resumed their grind higher, with 10Y yields rising above 4.50% and 30Y TSYs rising 6bps to 4.59% - both new cycle highs - as traders speculated central banks will keep interest rates elevated to quell inflation. The dollar hit its highest level since March as investors sought the "safety" of the "strong" US economy amid hopes the US can somehow decouple from the recession in Europe and China for the foreseeable future. The mood was depressed following the worst weekly selloff on Wall Street since March, and as of 7:45am, S&P 500 and Nasdaq 100 futures edged 0.2% lower while rates climbed across the board, mirroring moves in European and UK bond markets. WTI traded unchanged around $90/barrel, while gold and Bitcoin fell. In premarket trading, Warner Bros Discovery climbed about 4%, Disney was up 1%, and Netflix up 1.3%, leading film and TV producers higher, after striking Hollywood screenwriters reached a tentative new labor agreement. By contrast, Foot Locker and Nike were poised for a lower open as Jefferies analysts downgraded the stocks over looming consumer headwinds. Alector delined 3.6% after Goldman gives the clinical stage biopharmaceutical company its only sell rating in an initiation note, citing “significant clinical risk.” After the barrage of central bank decisions last week, traders are increasingly concerned that rising oil prices will further fan inflation, which will make it difficult for policymakers to reduce rates anytime soon. Oil resumed a rally as hedge funds piled on bets tightening supplies will stoke demand. Bloomberg’s Dollar Spot Index rose to the highest since March. “All central banks need to stick to this higher-for-longer rhetoric as inflation is nowhere close to their mandate,” said Pooja Kumra, senior European rates strategist at Toronto-Dominion Bank. Which is great, the only problem is that it means that US housing market is now effectively frozen for the middle class where nobody can afford to pay the current insane mortgages, and so it is only a matter of time before this becomes a major political issue. The monthly mortgage payment for purchasers of existing homes, using the 30-year average mortgage rate, stands at $2,309. This is a substantial increase from $977 in March 2020. pic.twitter.com/JQHIJGQp9u — Michael McDonough (@M_McDonough) September 25, 2023 Two Fed officials said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its 2% target. While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required. Meanwhile, the "shocking" surge in oil prices - which apparently nobody could have anticipated even though the senile occupant of the White House intentionally drained half the SPR just to lower gas for a few months and oil is now back above the average price at which SPR oil was sold - and a massive fiscal deficit are spurring losses in government debt, sending Treasury yields across the maturity curve the highest levels in more than a decade. The Treasury 10-year yield may rise to 4.75% before softer risk sentiment and tighter financial conditions push it lower into year-end, according to BofA strategists. European stocks were broadly lower, sending the Stoxx 600 down 0.8%; dragged by mining shares as China’s property problems weighed on the outlook for natural resources. Travel, mining and consumer products were the worst performing sectors in Europe after the German IFO business climate topped expectations. Here are the biggest European movers: SBB shares surge as much as 40%, most since June 2 after selling a stake in subsidiary EduCo to Brookfield for SEK242m and being repaid an inter-company loan. Bpost shares rise as much as 14% after the postal company finalized three compliance reviews and took a provision of €75m, which is well below KBC (hold) initial assumption of between €112 and €375m. Italian lenders outperformed after Bloomberg reported that they will be allowed to avoid paying a controversial windfall tax introduced last month if they set aside additional capital reserves, citing a government amendment. Ubisoft shares gain as much as 7.3% after BNP Paribas upgraded the shares to outperform, saying the market underestimates upside from new game releases. Anima shares rise as much as 4.9% in Milan trading - highest since March, after newspaper La Stampa reported on Sunday Amundi may raise its stake in the Italian asset manager and could consider a full takeover. Close Brothers shares gain as much as 2.8% as JPMorgan upgrades to neutral from underweight, noting the lender has materially lagged other UK banks over the past year. European miners and steelmakers shares fall after iron ore slumped as China’s persistently weak property market causes construction companies to hold back restocking of steel before the National Day holiday period. Aperam shares plunge as much as 12% after the steelmaker cut its outlook for third-quarter volumes, citing two “unforeseen” events. Degroof Petercam says co. faces a tough quarter after warning 3Q will “significantly” miss expectations and previous guidance. Victoria shares drop as much as 13%, to the lowest in about four months, after FT Alphaville noted the flooring company’s recent delay of audited results and statements made by auditor Grant Thornton relating to Victoria’s Hanover subsidiary. Alphawave IP shares drop as much as 11% after the semiconductor-intellectual-property firm gave a forecast that was no better than market expectations. Entain shares fall as much as 11% after the gambling company said net gaming revenue was “softer than anticipated” after the summer, and noted a simplification of group structures to reduce costs. Salzgitter shares drop as much as 3.9% after JPMorgan lowered its price target on the steel producer to a new Street low, citing downside risk to 2023 consensus and 2024 estimates after the company recently cut its guidance. Earlier in the session, Asian stocks also fell, extending last week’s loss, as Chinese stocks slid on renewed property-related concerns while investors also weighed the prospects of US interest rates remaining higher for longer.  The MSCI Asia Pacific Index declined as much as 0.4%, with Tencent and AIA Group among the biggest drags.  Asian equities have fallen below key support levels this month as worries over China’s economic woes in addition to high US rates and surging global crude prices weaken the case for region’s risk assets. The regional benchmark is on track for a second-straight monthly loss. Benchmarks fell in Hong Kong and mainland China, with property stocks sliding after distressed developer Evergrande scrapped a key creditor meeting added to fears about its debt pile. That’s compounding concern that global growth will stall as the economic engine of China sputters. Furthermore, China Aouyuan shares dropped by over 70% on the resumption of trade following a 17-month hiatus. Nikkei 225 outperformed amid stimulus hopes with the government considering 5yr-10yr tax benefits for firms producing semiconductors and storage batteries, as well as providing support in areas where firms face high entry risk and will reportedly boost take-home pay for part-time workers. Australia's ASX 200 was marginally lower with losses in mining stocks and financials overshadowing the resilience in the consumer and tech sectors. Key stock gauges in India ended flat on Monday dragged by information technology firms amid cautious sentiment across the region. Reliance Industries fell for a fifth consecutive session to its lowest level in almost three months, also dragging the the country’s most valuable firm to a level seen as oversold based on its 14-day RSI. In FX, the Bloomberg Dollar Spot Index reversed modest losses to gain 0.2%, up a fourth day. Investors mulled the week ahead that includes plenty of Fed speakers, jobless claims and PCE deflator data, with increasing concern about potential for a US government shutdown. The euro traded off the lows after German IFO beat expectations, although the single currency is still down 0.2% versus the greenback. The Swiss franc and Aussie dollar were the worst performers in G-10, falling 0.4%; the franc was the worst-performer in G-10 as it remains under pressure after SNB kept rates unchanged last week. USDJPY extended through 148.50, adding to cheapening pressure on Treasury yields. In rates, treasuries bear-steepened with long-end yields cheaper by up to 7bp on the day and 2s10s, 5s30s spreads near session wides heading into early US session. 10-year TSY yields were around 4.49% (after touching a fresh 2007 high of 4.50%) and more than 5bp higher on the day, near top of Friday session range and 30-year yields rose 6bps to 4.59% - a new cycle high; the German benchmark jumped six basis points to 2.80%, the highest since 2011. Long-end-led losses prolong curve-steepening trend, leaving US 2s10s, 5s30s spreads wider by 5.5bp and 3bp on the day; 2s10s reached -62bp, least inverted since May 24. Treasuries led by price action in core European rates, where German 30-year yields are cheaper by almost 9bp on the day. Into the move, German 10-year yields rise to highest since 2011 as central banks remain in higher for longer mode.  Dollar IG issuance slate contains three names so far; weekly volume is expected to total $15b-$20b. Treasury sells 2-, 5- and 7-year notes this week with auctions starting Tuesday. In commodities, oil prices pared an earlier gain. Spot gold fell 0.2%. Bitcoin prices remain subdued around the USD 26k mark. Mixin Network suspended services after a hack involving USD 200mln in funds, according to The Block. Today's calendar is relatively sparse: we get the Dallas Fed manufacturing activity at 10:30am. At 6pm Minneapolis Fed President Kashkari speaks Market Snapshot S&P 500 futures little changed at 4,360.25 STOXX Europe 600 down 0.4% to 451.27 MXAP down 0.5% to 159.33 MXAPJ down 0.7% to 493.69 Nikkei up 0.9% to 32,678.62 Topix up 0.4% to 2,385.50 Hang Seng Index down 1.8% to 17,729.29 Shanghai Composite down 0.5% to 3,115.61 Sensex little changed at 66,042.86 Australia S&P/ASX 200 up 0.1% to 7,076.53 Kospi down 0.5% to 2,495.76 German 10Y yield little changed at 2.78% Euro down 0.2% to $1.0632 Brent Futures up 0.7% to $93.92/bbl Gold spot down 0.2% to $1,922.02 U.S. Dollar Index up 0.12% to 105.71 Top Overnight News China central bank advisor says the country should pursue structural reforms instead of further monetary easing to bolster growth. RTRS Chinese property stocks tumble after China Evergrande Group suffered another setback in its restructuring and may be forced to liquidate. BBG China prevents a senior Nomura banker from leaving the mainland as part of an investigation, a move likely to further undermine global business community confidence in the country. FT Japan is considering a series of tax breaks to lower production costs in critical industries such as semiconductors, batteries, and biotechnology. Also, Japan is likely to come under growing pressure to intervene and stabilize the yen, w/the 150 level considered a potential trigger point. Nikkei ECB’s Villeroy says the recent rise in energy prices won’t derail the Eurozone’s underlying disinflation, as the goal is still to achieve 2% inflation in 2025. BBG Italy will allow banks to avoid a controversial windfall tax if they put 2.5x the tax amount toward strengthening their common equity tier 1 ratio. BBG Trump has a 10-point lead over Biden in a new Washington Post-ABC poll, and 3 in 5 Dems/Dem-leaning independents say they would prefer someone other than Biden on the ticket. WaPo Screenwriters reached a tentative deal with Hollywood studios, settling one of two walkouts that have shut down production. The writers gained concessions on key points, including higher wages, people familiar said. Initial votes on the pact by union boards may come as soon as tomorrow. The focus will then shift to reaching a deal with striking actors. Netflix and Disney gained premarket. BBG The US economy faces a slew of headwinds during the final months of the year, including the lagged effect of monetary tightening, the UAW strike, a potential gov’t shutdown, elevated oil/gas prices, and the resumption of student loan payments. WSJ Per GS’s PB book US equities were heavily net sold last week, driven almost entirely by short selling, which in notional terms was the largest since Sep ’22, driven by Macro Products and Single Stocks (~70/30 split). HFs have been pressing US shorts for 3 straight weeks (5 of the past 6). In cumulative notional terms over any 6-week period, the amount of shorting in US equities since mid-August is the largest in six months and ranks in the 98th percentile vs. the past decade. GSPB A more detailed look at global markets courtesy of Newsquawk APAC stocks traded mixed albeit with a mostly negative bias following the lack of major catalysts from over the weekend and amid Chinese developer woes, while attention this week turns to data releases and the US government shutdown deadline. ASX 200 was marginally lower with losses in mining stocks and financials overshadowing the resilience in the consumer and tech sectors. Nikkei 225 outperformed amid stimulus hopes with the government considering 5yr-10yr tax benefits for firms producing semiconductors and storage batteries, as well as providing support in areas where firms face high entry risk and will reportedly boost take-home pay for part-time workers. Hang Seng and Shanghai Comp were pressured amid developer-related concerns with Evergrande shares down more than 20% after it cancelled its creditor meeting and is scrapping its USD 35bln debt restructuring plan, while the Co. said it is unable to issue new debt under the present circumstances citing an investigation into its subsidiary Hengda Real Estate. Furthermore, China Aouyuan shares dropped by over 70% on the resumption of trade following a 17-month hiatus. Top Asian News PBoC adviser said China has limited room for further monetary policy easing and should pursue structural reforms such as encouraging entrepreneurs instead of relying on macroeconomic policies to revive growth, according to Reuters. Chinese state asset manager, China Reform Holdings is to set up a strategic emerging industry fund worth at least CNY 100bln, according to Bloomberg. Evergrande (3333 HK) cancelled its creditor meeting set for early this week and is scrapping its USD 35bln debt restructuring plan, while it noted that it is necessary to re-assess the terms of the proposed restructuring. Co. also stated that it is unable to issue new debt under the present circumstances citing an investigation into its subsidiary Hengda Real Estate. Chinese President Xi said in a meeting with South Korea’s PM that he welcomes a summit between China, South Korea and Japan at an opportune time and will seriously consider visiting South Korea, according to Reuters. US Department of Defense said the US and China will hold a working-level meeting on cyber issues and strategy, according to Reuters. EU’s Dombrovskis said the EU has no intention to decouple from China but needs to protect itself when its openness is abused. Dombrovskis also said that cooperation with Europe and China remains essential and if they talk candidly, they can make paths converge and re-energise engagement. Furthermore, he said that de-risking is a strategy to maintain openness not undermine it and that the strongest headwind is Russia's aggression against Ukraine and how China positions itself on the issue. Japan’s government is considering 5yr-10yr tax benefits for firms producing semiconductors and storage batteries as part of an upcoming economic stimulus package, while the government is considering providing support in areas where private-sector firms face high entry risks. Japan is to boost take-home pay for part-time workers, according to Yomiuri. BoJ Governor Ueda reiterated that BoJ must patiently maintain monetary easing; Japan's economy is recovering moderately. He added the policy framework has a big simulative effect on the economy but at times could have big side effects. Ueda noted stable and sustainable achievement of 2% inflation is not yet in sight, and Japan's economy is at a critical stage on whether it can achieve positive wage-inflation cycle. Japanese firms are changing prices more frequently than in the past, which is an important sign suggesting wages and inflation could move in tandem. Ueda said it is important for FX to move stably reflecting fundamentals; BoJ hopes to work closely with the government and scrutinise the impact of FX moves on the economy and prices. BoJ Governor Ueda said the BoJ will not directly target FX in guiding monetary policy. European bourses extended on losses since the cash open, despite no obvious catalyst to drive price action, and with no initial move seen in response to the German Ifo metrics - a release which on balance was better-than-expected. Sectors in Europe are lower across the board with Travel & Leisure and Basic Resources, and Consumer Products as the biggest laggards, while Healthcare, Energy, and Banks see their losses cushioned in comparison. US futures reversed their earlier gains and saw an acceleration in losses at one point despite a lack of fresh drivers at the time. The futures have since stabilised around flat levels intraday. Top European News UK PM Sunak is facing a renewed backlash from within the Tory party and opposition Labour politicians, as well as business executives and university leaders after the government refused to rule out scrapping the northern leg of the HS2 rail project, according to FT. BoE is reportedly set to delay the implementation of some Basel III reforms for a further 6 months but will disappoint banks by reducing the phase-in period, according to FT. ECB’s Villeroy said the recent increase in oil prices won’t derail the ECB’s fight to tame inflation and stated that patience is more important than raising rates further, according to Bloomberg citing an interview with France Inter ECB's Villeroy said maintaining the current level of interest rates will lower inflation, and sees a risk that the ECB could do too much in the future. He said they should focus on the persistence of rates rather than pushing rates up, and markets should not expect rate cuts before a sufficiently long time. ECB's De Cos said must avoid insufficient and excessive tightening; and if rates are kept at the current 4.0% long enough, we should reach the 2% goal, according to Bloomberg. Bundesbank faces hundreds of job reductions under a modernisation plan by Boston Consulting Group which was hired in an effort to make the central bank more agile and efficient, according to FT. Italy revisited the windfall tax on banks to give lenders the option to boost reserves instead of paying a levy, according to Reuters. Germany is to scrap stricter building insulation standards to help prop up the struggling property sector and Chancellor Scholz is to meet property industry leaders today. FX DXY retains an underlying bid in the wake of recent Fed rhetoric underlining that inflation remains too high, while the USD also benefits from a retreat in the Yuan on the back of Evergrande woe plus ongoing weakness in the Yen and Franc on policy divergence dynamics. AUD is among the laggards amid contagion from the Yuan and the decline in base metal prices, particularly iron and copper, while the CAD is underpinned by resilient crude prices. Sterling slipped to a new multi-month low against the USD, whilst the Euro faded above 1.0650 against its US counterpart even though German Ifo survey metrics either beat or matched expectations. Instead, EUR/USD seemed more inclined to remarks from ECB’s Villeroy and de Cos backing the rates have peaked scenario. Barclays on month-end rebalancing: model suggests strong USD buying vs. all majors as US equities have trimmed gains alongside a hawkish hold from the FOMC. Fixed Income Bears remain in control of proceedings as alluded to earlier, and momentum is building with little sign of underlying buyers turning the tide as more technical and psychological support levels are breached Bunds have now been down to 128.87 from a peak at 129.56 that matched their previous Eurex close. Gilts are now probing 95.50 to the downside after failing to retain 96.00+ status very early on Liffe, and T-note is rooted to the base of its 108-11/25+ range. Yields are extending to fresh peaks, and there may be some respite for bonds if the 10-year German benchmark holds around 2.80% and its US equivalent is capped at circa 4.50%. Commodities Crude November futures are firmer intraday despite the firmer Dollar, downbeat mood across stocks, and the Chinese property woes overnight, underpinned by bullish fundamentals. Dutch TTF prices are on the rise this morning despite bearish fundamentals at face value, with the Australian LNG strikes averted and Norway also ramping up gas output. There is no obvious reason for the surge in TTF prices which has also been gradual in nature. Spot gold briefly topped its 200 DMA (1,925.93/oz) but remains within Friday’s USD 1,918.95-28.89/oz range, while spot silver briefly rose above its 50 DMA at USD 23.63/oz before reversing back to session lows. Base metals are lower across the board, with the initial downside emanating from the losses across Chinese property names overnight, while the deterioration in sentiment in the European morning keeps industrial metals under pressure. Saudi Foreign Minister said the kingdom is keen to maintain stability, reliability, sustainability and security of oil markets, according to Reuters. EU energy official said Europe will have to rely on US fossil fuels for decades, according to FT. Russia mulls tweaks to exempt some oil productions from the export ban; Exemptions on bunker fuel and gasoils from its fuel ban, via Bloomberg. Geopolitics Ukrainian President Zelensky said he met with Mike Bloomberg and other top US financiers during his US visit to discuss reconstruction and investment, according to Reuters. Russian Foreign Minister Lavrov said the Ukraine peace formula is not feasible, while he stated regarding the latest proposals by the UN Secretary-General to revive the Black Grain deal that they do not reject them but noted the proposals are simply not realistic, according to Reuters. Iranian President Raisi told CNN that Iran has not said it does not want IAEA nuclear inspectors in the country, while he added that Israeli normalisation with Gulf Arab states will see no success. Iran’s intelligence ministry said 30 simultaneous explosives were neutralised in Tehran and 28 terrorists were arrested. French President Macron announced that France is to end its military cooperation with Niger in the months ahead following the military coup and decided to recall its ambassador from the African country, according to Reuters. US President Biden’s administration is reportedly in talks for a major arms transfer to Vietnam that may include fighter jets. Philippines strongly condemned the Chinese Coast Guard’s installation of a 300-metre floating barrier preventing Filipino boats from entering the Scarborough Shoal in the South China Sea. US Event Calendar 08:30: Aug. Chicago Fed Nat Activity Index, est. 0.05, prior 0.12 10:30: Sept. Dallas Fed Manf. Activity, est. -13.0, prior -17.2 Central Bank speakers 18:00: Fed’s Kashkari Speaks DB's Jim Reid concludes the overnight wrap It's nice to get back to the free form creativity of research after an highly scheduled weekend in sole charge of the kids as my wife went on a reverse hen do (2yrs after a covid wedding!). I was given a 3-page itinerary and instructions that included meal plans, 3 lots of swimming lessons, 2 separate golf lessons, violin and piano practise, Maths and English homework, a friend’s 8th birthday party and helping to design 2 fireworks posters. Oh and I had to lend the tooth fairy some money. I’m dropping them off to school this morning and then straight to the peace and quiet of a 7-hour flight to New York. Bliss. This week one of the main highlights will take markets through a full on Back to the Future and Quantum Leap (my favourite show as a teenager) moment as the-every-5-years US GDP revisions take place on Thursday alongside the final Q2 2023 revisions (unch at 2.4% expected). DB's Brett Ryan talks about the revisions here but he discusses how GDP will be revised from Q1 2005 through Q1 2023, although revisions prior to the first quarter of 2013 will be offsetting across industries within each period. Gross domestic income (GDI) and select income components will be revised from Q1 1979 through Q1 2023. You'll see our CoTD from a couple of weeks ago here that discussed how the current big gap between US GDI and GDP could possibly be explained by erroneous recent data showing that net interest payments have been going down in the US as rates and yields have been soaring in the last 2 years. It's possible that revisions could make GDI look more healthy (interest payments add income to parts of the economy) but also make interest costs in the economy look more realistic and hurt fundamental models of interest cover for those indebted. This is just an educated guess at this stage. Anyway, the revisions are potentially an important event and could make us think differently about the US economy in the recent past and therefore the future. It's also possible not much changes of course. That would make a boring time travel movie though. Outside of this the core PCE deflator on Friday is as important. Our economists point out that the data from the August CPI and PPI releases point to a slightly softer reading (+0.20% vs. +0.22% last month), which would have the effect of lowering the year-over-year growth rate by a little over 30bps (to 3.9%). As they highlight, the Fed's latest SEP forecast for Q4/Q4 core PCE inflation last week was 3.7%, which implies a modest re-acceleration in the monthly prints. This is one reason why our economists believe the bar is relatively high for the Fed to hike again before year-end. Staying with inflation, over in Europe, the flash September CPIs kick off with prints from Germany on Thursday. The numbers for the Eurozone, France and Italy will be out on Friday. Friday also sees Tokyo CPI which is an important economy wide lead indicator as the BoJ considers more radical changes to its monetary policy soon. Elsewhere in the US we have new home sales and consumer confidence tomorrow, durable goods on Thursday with trade numbers and personal income and consumption numbers on Friday. In Europe, Germany sees the Ifo survey today, consumer confidence on Wednesday and labour market data on Friday. In France, consumer confidence will be out on Wednesday and consumer spending data is due Friday. Sentiment gauges will also be out in Italy and the Eurozone on Thursday. Asian equity markets are mostly retreating this morning with Chinese stocks leading losses amid persistent concerns over the property market after embattled real estate developer Evergrande Group indicated that it will be unable to issue new debt due to an ongoing government investigation into its unit Hengda Real Estate Group. In terms of specific index moves, the Hang Seng (-1.43%) is emerging as the biggest underperformer while the CSI (-0.62%) and the Shanghai Composite (-0.42%) are also trading in negative territory. Elsewhere, the KOSPI (-0.57%) is also weak in early trade while the Nikkei (+0.58%) is bucking the regional trend. US stock futures are indicating a rebound though with those on the S&P 500 (+0.27%) and NASDAQ 100 (+0.34%) moving higher. 10yr US yields are back up +2.4bps to 4.458% as I type . This morning, Marion Laboure and Cassidy Ainsworth-Grace in my team have published the first instalment of their new series on the Future of Money – Cryptocurrencies: The return of faith, trust and, fairy dust. Focusing on the hot topic of cryptocurrencies, followed by a deep dive on stablecoins, they argue that despite the bankruptcies and negative news over the last 18 months, the crypto ecosystem has edged closer to the established financial sector. As a result, digital assets are here to stay. You can find their report here. Looking back on last week now, we had a run of flash PMI data on Friday. Starting with the US, the flash composite PMI for September surprised to the downside at 50.1 (vs 50.4 expected), with services weaker at 50.2 (vs 50.7 expected) and at its lowest level since January. Manufacturing on the other hand was stronger than forecast, at 48.9 (vs 48.2 expected). Digging deeper, in the services PMI, the employment component bounced to 52.6, the highest level in a year, pointing to a still robust US labour market. All other details were on the softer side, with backlogs in particular at its lowest level since the pandemic, at 44.5. The moderating activity signal of the PMIs on Friday helped US fixed income recoup some of its losses earlier in the week. US 10yr Treasury yields fell -6.1bps, and 2yr yields fell -3.4bps. However, 10yr yields still rose +10.1bps week-on-week to 4.435%, their highest weekly close since 2007. This followed on from the hawkish Fed meeting on Wednesday, and a strong weekly jobless claims print on Thursday that affirmed a higher-for-longer approach by the Fed. As such, the expected rate for December 2024 rose by +13.0bps week-on-week to 4.67% (-3.6bps Friday) . The European PMIs were a bit more of a whirlwind relative to the US. The composite PMI surprised to the upside, rising +0.3pts to 47.1 (vs 46.5 expected). The increase was driven by a +0.5pts increase in services (48.4 vs 47.6 expected), while manufacturing was mostly unchanged at 43.4 (vs 44.0 expected). However, the interesting tidbit came with the divergence between France and Germany. For the former, the composite PMI surprised to the downside, falling to 43.5 (vs 46.0 expected), whereas German PMI rose to 46.2 (vs 44.7 expected). Off the back of this, German 10yr bund yields traded largely flat on the day (+0.3bps). In weekly terms, the 10yr bund yield followed the US, up +6.4bps. Equities struggled last week against the backdrop of rising yields, as the S&P 500 fell -2.93% week-on-week (-0.23% Friday) in its largest down move since March (and its lowest level since early June). Tech stocks saw a modest outperformance on Friday, with the NASDAQ down a marginal -0.09%. However, the tech-heavy index slipped -3.82% in weekly terms, its third consecutive week of losses, and a c.8% decline from its July peak. In Europe, the STOXX 600 laboured last week, falling back -1.88% (and -0.31% on Friday). Finally, in commodities, the oil price rally ran out of steam last week.Brent was down -0.70% to $93.27/bbl (-0.03% Friday) after rising by over +11% over the previous three weeks. WTI saw a similar down move of -0.82% to $90.03 (+0.45% Friday). Nonetheless, energy supply risks remained in focus last week. For instance, on Thursday Russia temporarily banned most gasoline and diesel exports with immediate effect . We’ll see how we go this week as we hit the business month-end on Friday. Tyler Durden Mon, 09/25/2023 - 08:28.....»»

Futures Rebound After Three Day Rout As Rates Ease From 2007 High US equity futures rebounded from a furious three-day selloff at the end of a bruising week for investors which sent markets to the lowest level in over a month as investors are forced to accept the idea of higher-for-longer interest rates (at least until the Fed once again breaks something, which it will). As of 7:45am ET, S&P 500 added 0.3%, a modest rebound after the index fell the most since March on Thursday; the tech-heavy Nasdaq 100 climbed 0.5%.European stocks pared their losses while Asian markets closed week well in the green, except for Japan where not even continued BOJ dovishness and a collapsing yen is enough to support risk. Treasury yields retreated across the curve, after 10-year rates briefly climbed above 4.5% in early trading in Asia. The Bloomberg Dollar Spot Index was little changed, with the Japanese yen and British pound leading declines among Group-of-10 currencies. Brent crude climbed 0.5% to $93.80 after a three-day drop. Gold and Bitcoin rose. In premarket trading, megacap tech stocks rose, set to rebound slightly after Thursday’s losses as US 10-year yields dipped slightly from highest since 2007. Apple, Amazon.com, Alphabet, Meta Platforms, Tesla, Nvidia were all in the green. Activision Blizzard gained 1.8% as Microsoft’s $69 billion acquisition of the gaming company looked set to clear its final regulatory hurdle. Here are some other notable premarket movers: Alibaba Group and other US-listed Chinese stocks are rallying, a day after the Nasdaq Golden Dragon China Index fell to the lowest level since July. BABA is up 3.9%. Coeur Mining is up 5.2% after RBC upgrades to outperform from sector perform. Ralph Lauren shares are up 1.2%, after Raymond James started coverage on the apparel company with an outperform rating and $135 price target, writing that “expectations are relatively low for RL,” while the “below-average valuation creates an attractive entry point.” Roku shares are up 1.4% in premarket trading, after CFRA upgraded the streaming-video platform company to hold from sell. Scholastic shares fall 18% in US premarket trading after the children’s publishing company reported a larger-than-expected adjusted loss per share for the first quarter as the company spent on other areas of its business for growth, and flagged the seasonality of sales in its Education Solutions unit. Sales also declined. Wayfair gains 2.4% in premarket trading after Bernstein raises the online home-furnishings retailer to market perform from underperform, citing improving revenue growth and management’s positive messaging on margins. Global central banks this week stressed that they remain vigilant about the risks of inflation and warned investors against premature expectations of rate cuts. The increasing possibility that monetary policy will lead to recession is prompting investors to dump stocks at the fastest pace since December, BofA's Michael Hartnett said, who noted that equity funds had outflows of $16.9 billion in the week through Sept. 20. Hartnett warned that persistently high rates could lead to a hard economic landing in 2024, and result in “pops and busts” in financial markets. “What matters more than Fed hikes themselves is whether a recession occurs or not,” said Wolf von Rotberg, an equity strategist at Bank J Safra Sarasin Ltd. “It would be a remarkable accomplishment if it were avoided, yet that seems unlikely. If a recession were to happen, the equity market is not prepared for it.” The latest evidence of resilience in the US labor market reinforced the case for the Fed’s stance of holding interest rates higher for longer. Applications for US unemployment benefits fell to the lowest level since January last week, figures out Thursday showed. “The prospect of interest rates staying higher for longer has given investors a lingering headache and sentiment has worsened as the week progressed,” said Russ Mould, investment director at AJ Bell. “Many investors had hoped we would approach the end of 2023 with a clearer picture on when interest rates will start to be cut. That scenario has now been muddied by comments from the Fed that it is prepared to raise rates further if necessary and keep a restrictive policy until there are clear signs that inflation is moving back to target levels.” Always an outlier, amid a hawkish barrage of central bank announcements, overnight the yen weakened after the Bank of Japan held interest rates, its 10-year yield target and forward guidance unchanged. The central bank reiterated its expectation that inflation is decelerating. European stocks were lower, with the Stoxx 600 down 0.2% and almost all sectors in the red. Construction, retail and real estate are the worst performers.  In individual moves in Europe, Adevinta ASA soared after the classifieds company said it received a takeover proposal from private equity investors including Blackstone Inc. and Permira. Meanwhile there were fresh signs of frailty in the euro-area economy Friday as figures showed private-sector activity in France and Germany continued to shrink in September. Here are the most notable European movers: Adevinta shares surge as much as 24% after the European classifieds company confirms it received a takeover offer from Permira and Blackstone, with analysts saying any deal is likely to be at a price well above where the stock is trading. The move also lifts peers including Rightmove and Auto Trader. Ascential shares jump as much as 12%, most since Jan. 25, after earnings that showed a strong performance in the UK firm’s events business, according to Citigroup. Ubisoft shares gain as much as 4.2% on Friday after the UK’s antitrust regulator said a revised proposal from Microsoft to sell some gaming rights to the French video-game maker opens the door for its Activision acquisition to be cleared. BioGaia shares rise as much as 8.6%, the most since April, after Handelsbanken raised its recommendation for the Swedish probiotics firm to buy, saying share price now reflects warranted concerns over customer demand and tough comparables in its 3Q report. Jungheinrich shares gain as much as 3.2% after Barclays initiated coverage of the warehouse machinery company with an ‘overweight’ rating, citing an attractive valuation. Dutch lenders ABN Amro -4.3% and ING Groep -5.2% slide after the parliament’s lower house approved a proposal to increase bank tax to support lower-income households. Alten shares fall as much as 7.8%, the most since January, after the engineering and technology consulting firm reported a bigger-than-expected drop in profitability due to lower activity levels and higher operating expenses. Var Energi shares drop as much as 7.6% as the co’s offering of 157.3m shares by holder prices via Barclays Bank Ireland, DNB Bank, Morgan Stanley & Co. International, SpareBank 1 Markets. Italgas shares decline as much as 2.8%, touching its lowest level since late October, after a placement of about 14.5m shares offered on behalf of buyers of exchangeable bonds who wish to sell shares to hedge market risk, according to terms of the deal seen by Bloomberg. Solutions 30 shares drop as much as 21% after the French technology-services company reported a wider first-half loss and a narrower profit margin. Earlier in the session, Asian stock retraced early declines and closed in the green. Chinese shares rallied, a move that likely reflects “short covering on expectations of more policy support measures over the weekend, just like the government’s moves in every weekend this month,” said Steven Leung, an executive director at Uob Kay Hian Hong Kong Limited. Hang Seng and Shanghai Comp shrugged off early jitters amid supportive measures including Beijing’s draft rules to promote a high level of opening up and encourage foreign investments, while China's market regulator also issued measures to promote the private economy. Japan's Nikkei 225 was pressured following the mostly firmer-than-expected Japanese CPI data but then pared some of the losses following the lack of hawkish surprises from the BoJ. Australia's ASX 200 was dragged lower with real estate and tech among the worst performers after the Australian 10yr yield touched its highest level since 2014, while the flash PMI data was mixed and showed a deeper contraction in manufacturing. In FX, the Japanese yen and British pound are rooted to the bottom of the G-10 rankings today. The yen added to its post-BOJ fall as Governor Ueda tempered expectations they were close to raising interest rates - USD/JPY rises 0.4% to trade near 148.20. Sterling slipped 0.4% after UK retail sales and composite PMI both fell short of estimates. The Bloomberg Dollar Spot Index rises 0.1%. EURUSD dropped 0.4% to 1.0615, lowest since March 17, after French manufacturing and services PMIs came in below estimates; currency pared losses after German PMI data came stronger-than-expected In rates, 10-year yields fall 2bps to 4.47% after touching a new cycle high above 4.5% for the first time since 2007 during Asian trading hours. The US session includes the first Fed speakers since Wednesday’s policy decision. Yields are lower by 1bp-2bp with curve spreads little changed on the day; in 10-year sector bunds trade cheaper by ~2.5bp vs Treasuries while gilts keep pace. Futures block trade of 5-year contracts at 6:35am New York time appeared consistent with a seller. Dollar IG issuance slate empty so far and expected to be muted; weekly volume stands at around $16b, in line with estimates for $15b to $20b. US economic data slate includes September S&P manufacturing and services PMIs at 9:45am. In commodities, oil rose, in part supported by news that Russia would ban exports of diesel-type fuel and gasoline; crude futures advanced, with WTI rising 1% to trade near $90.50. European natural gas prices fell as Chevron and labor unions in Australia agreed to end strikes at major export plants that roiled the market for more than a month. Spot gold adds 0.3%. At 8:50 a.m., Federal Reserve Governor Lisa Cook will give a keynote address at a National Bureau of Economic Research event. At 9:45 a.m., we’ll get the latest reading on S&P Global’s manufacturing and services gauges. San Francisco Fed Mary Daly will speak in a fireside chat at 1 p.m., and Minneapolis Fed President Neel Kashkari will appear in a separate event at the same time. Market Snapshot S&P 500 futures up 0.2% to 4,378.75 STOXX Europe 600 down 0.3% to 453.29 Nikkei down 0.5% to 32,402.41 Topix down 0.3% to 2,376.27 Hang Seng Index up 2.3% to 18,057.45 Shanghai Composite up 1.5% to 3,132.43 Sensex down 0.1% to 66,136.23 Australia S&P/ASX 200 little changed at 7,068.84 Kospi down 0.3% to 2,508.13 German 10Y yield little changed at 2.72% Euro down 0.2% to $1.0642 Brent Futures up 0.4% to $93.64/bbl Gold spot up 0.3% to $1,926.57 U.S. Dollar Index up 0.23% to 105.60 MXAP up 0.3% to 159.89 MXAPJ up 0.9% to 496.80 Top Overnight News The BOJ left its monetary policy unchanged, capping a week of central bank decisions that have roiled financial markets. Kazuo Ueda said the distance toward ending the YCC program and negative rate regime hasn't changed much. Market watchers expect the yen to drop toward 150 per dollar, with intervention possible as it nears that level. BBG China is considering relaxing foreign ownership caps in listed local companies to lure global funds back to its stock market, people familiar said. The country currently caps it at 30%, and subjects a single foreign shareholder to a 10% limit. BBG JPM will include Indian gov’t bonds in its emerging market index, a move that could trigger billions of inflows to the market. Nikkei Euro-area private sector activity shrank for the fourth consecutive month, suggesting the economy contracted in the current quarter. The composite PMI hit 47.1 in September, an improvement on August but still in contraction. While Germany's downturn eased, it deepened in France. UK figures showed the sharpest decline since January 2021. BBG European gas prices dropped after Chevron and labor unions resolved a dispute at key LNG facilities in Australia that began Sept. 8th. The agreement brings an end to strikes at the Gorgon and Wheatstone plants, which accounted for about 7% of the world's LNG supply last year. BBG Euro zone companies are finally absorbing wage pressures and the labor market has started to soften, European Central Bank chief economist Philip Lane said on Thursday, suggesting inflation pressures from employee pay rises are finally subsiding. RTRS AAPL cools the pace of compensation increases for retail employees, the latest sign of the labor market easing. BBG Hollywood studios will continue negotiations w/the WGA on Friday amid hopes for a breakthrough that settles the strike relatively soon. WaPo AMZN confirmed recent media reports with a plan to begin running advertisements inside its Prime Video content. The company will sell an ad-free upgrade option for Prime members who pay an additional $2.99/month (given that Prime cost $14.99 per month, this is effectively a ~20% price hike in the US for people who want to keep ads out of their content). WSJ A more detailed look at global markets courtesy of Newsquawk APAC stocks traded mixed amid a higher yield environment and after this week’s central bank frenzy culminated with a lack of surprises from the BoJ. ASX 200 was dragged lower with real estate and tech among the worst performers after the Australian 10yr yield touched its highest level since 2014, while the flash PMI data was mixed and showed a deeper contraction in manufacturing. Nikkei 225 was pressured following the mostly firmer-than-expected Japanese CPI data but then pared some of the losses following the lack of hawkish surprises from the BoJ. Hang Seng and Shanghai Comp shrugged off early jitters amid supportive measures including Beijing’s draft rules to  promote a high level of opening up and encourage foreign investments, while China's market regulator also issued measures to promote the private economy. Top Asian News China mulls easing foreign stake limits to lure global funds, via Bloomberg. PBoC releases list for systemic important banks; will promote stable operations and healthy development of systemically important banks, according to Reuters. Chinese Vice President Han Zheng said China remains committed to opening itself up to the wider world and to an independent foreign policy, while it stays committed to safeguarding sovereignty and territorial integrity, according to Reuters. China's market regulator issued measures to promote the private economy and China will continue to break down market access barriers for the private economy, according to state media. Japanese PM Kishida said he will reform the asset management sector and will introduce a new programme to assist new entrants to the asset management sector. Furthermore, Kishida said it is important for FX to move stably, reflecting economic fundamentals. European bourses are mostly lower, but have trimmed the losses seen at the cash open. The main macro story for the region thus far has been the flash PMI prints for September. Sectors in Europe are mostly lower with the exception of Basic Resources which is in marginally positive territory thanks to underlying metals prices. On the downside, the Construction & Materials sector lags. US futures are trading slightly firmer following the biggest US stock drop since March, in yesterday's session. Top European News UK Recession Risk Grows as Companies Cut Staff at a Sharp Pace Dutch Lenders Slide After Parliament Approves Bank Tax Increase European Stocks Slide on Interest Rate Woes; Dutch Banks Slide Dutch Lenders Slide as Parliament Approves Share Buyback Tax Grim Euro-Area Private Sector Suggests Quarterly Contraction Alten Falls as Profit Dragged by Expenses, Lower Activity Level Vodafone in Negotiations to Sell Spanish Business to Zegona FX DXY is on a firmer footing following the uneventful BoJ decision overnight coupled with weakness from the EUR post-PMI. EUR and GBP both declined following overall downbeat PMI data in which the overarching theme was growth concerns. USD/JPY hit a high of 148.42 after the BoJ announcement overnight which offered no hawkish surprises whilst Governor Ueda repeated that the central bank will not hesitate to take additional easing measures if necessary. Antipodeans outperform in tandem with optimism surrounding China which has also propped up commodities. PBoC set USD/CNY mid-point at 7.1729 vs exp. 7.3009 (prev. 7.1730) Fixed Income Debt futures faded from post-French PMI peaks and never really threatened best levels again. Bunds returned to flat on the day within a 130.19-129.50 range and OATs recently dipped below par between 124.87-124.21 parameters, while Gilts are holding above 96.00 having reached 96.37 from their 95.65 early Liffe low. T-note is closer to 108-19+ overnight high than 108-09 base awaiting the fate of preliminary US PMIs and Fed rhetoric from Daly, Cook and Kashkari with an element of pre-weekend short covering probably in mind. Commodities WTI and Brent November futures are choppy in the European morning, with the complex swayed by mixed flash PMI data from France and Germany, with price action within yesterday’s range but underpinned by Russia’s gasoline and diesel export ban which came into effect yesterday. Dutch TTF is on a firmer footing despite Chevron’s Australia LNG workers suspending industrial action after reaching a deal. The upside for the complex could emanate from the Russian gasoline/diesel export ban, whilst recent reports also suggested firmer Chinese LNG demand. Metals are resilient to the firmer Dollar with spot gold rising from a 1,919.12/oz low, above its 200 DMA (1,925.29/oz) to a high just shy of its 50 DMA (1,929.58/oz). Base metals meanwhile have rebounded and trimmed a bulk of yesterday’s losses, with some citing optimism of a Chinese economic rebound amid recent stimulus measures, with desks also pointing to restocking ahead of China’s 8-day long holiday commencing next Friday. Australian unions agreed to endorse recommendations made by the industrial umpire to end the dispute with Chevron (CVX) and agreed to call off strikes at Chevron facilities. Chevron (CVX) Australia spokesperson says unions have advised the Co. and the Fair Work Commission that industrial action has been suspended. Russian Kremlin said the fuel export ban will last for as long as necessary to ensure stability of the fuel market, according to Reuters. Russia's Kremlin said there has been no progress on the Black Sea grain deal issue, with no talks between the Russian and Turkish presidents scheduled, according to Reuters. Geopolitics Belarus Defence Ministry announces that Belarus and Russia are to commence joint military drills, according to Reuters. US President Biden said in a meeting with Ukrainian President Zelensky that Russia alone stands in the way of peace and Russia is seeking more weapons from Iran and North Korea, while he added that Russia hopes to use winter as a weapon against the Ukrainian people. Biden announced USD 325mln of security aid for Ukraine and that the first US Abrams tanks would be delivered to Ukraine next week. Ukrainian President Zelensky said that they reached an agreement to strengthen Ukraine's defence capabilities and that the US will help Ukraine boost air defence during the winter, while they agreed on steps to expand exports of grain from Ukraine, according to Reuters. Chinese Vice President Han Zheng said China supports all efforts that are conducive to the peaceful resolution of the Ukraine crisis and stands ready to continue playing a constructive role for an early attainment of peace, according to Reuters. US Event Calendar 09:45: Sept. S&P Global US Services PMI, est. 50.7, prior 50.5 09:45: Sept. S&P Global US Manufacturing PM, est. 48.2, prior 47.9 09:45: Sept. S&P Global US Composite PMI, est. 50.4, prior 50.2 Central Bank Speakers 08:50: Fed’s Cook Speaks at NBER AI Conference 13:00: Fed’s Daly to Discuss Monetary Policy, Economy 13:00: Fed’s Kashkari Speaks DB's Jim Reid concludes the overnight wrap Markets experienced another big sell-off yesterday, with longer-dated yields hitting new highs for the cycle across several countries. In fact, the US 10yr Treasury yield has surpassed the 4.5% mark in trading overnight, which is the first time that’s happened since 2007. And the moves haven’t just been confined to Treasuries, since Bloomberg’s global aggregate bond index closed at its lowest level of 2023 so far yesterday. Meanwhile for equities, the losses gathered pace towards the end of the session, and the S&P 500 (-1.64%) experienced its worst day since March. In large part, those moves have been driven by the prospect that central banks are likely to keep policy rates in restrictive territory for longer than previously thought. That was prompted initially by the Fed’s hawkish dot plot on Wednesday. But the sell-off then got fresh momentum yesterday from theUS weekly jobless claims, which came in at their lowest since January at 201k. That pushed the 4-week moving average to its lowest level since March, offering further evidence that this strength doesn’t just look like a blip. That backdrop led to an intense bond sell-off, since the strong labour market data suggested that any rate cuts were still some way off. By the close yesterday, the 10yr Treasury yield (+8.7bps) was at a post-2007 high of 4.494%, and it remains there overnight after coming down slightly from the 4.5% mark. At the same time, the 10yr real yield (+6.6bps) also hit a post-2009 high of 2.11%. Yesterday’s rise was even stronger at the long-end, with the 30yr yield seeing its sharpest rise since April, up +12.8bps to 4.57%. That said, front-end yields actually fell on the day, with the 2yr yield ending the day -3.1bps lower at 5.15%. As a result, the 2s10s slope saw its most significant steepening since the March banking stress (to -65.4bps), and overnight it’s steepened a bit further to -63.9bps. Over in Europe it was much the same story, with yields on 10yr bunds (+3.5bps) hitting their highest intraday level since 2011 at one point, although they then pared back those gains somewhat to close at 2.73%. This rise in nominal and real yields meant that equities continued to struggle, and the S&P 500 (-1.64%) seeing its worst day since March and closing at its lowest level in nearly 3 months. It also means that we’ve now had a 5% sell-off in the index since its recent peak at end-July, which is the first time since the SVB sell-off in March that we’ve experienced a decline of that magnitude. At the same time, the VIX index of volatility rose for a 5th consecutive day, up a further +2.4pts to 17.5pts, which is its highest level in a month. The NASDAQ saw an even sharper loss (-1.82%). Meanwhile, the small-cap Russell 2000 (-1.56%) is now in technical correction territory, having shed more than -10% since its peak in end-July. And over in Europe there were losses across the continent, with the STOXX 600 down -1.37%. Overnight in Asia, the main story is that the Bank of Japan has left policy unchanged at their latest meeting, in line with expectations. We’ll have to see what Governor Ueda says in the press conference, but so far the Japanese Yen has weakened -0.30% against the dollar overnight, since the ongoing stimulus has put further pressure on the Yen. Ahead of the decision, the latest CPI numbers for August were also stronger than expected, with headline CPI at +3.2% (vs. +3.0% expected). Following the decision, Japanese equities have pared back some of their earlier losses, but the Nikkei is still down -0.38%. But outside of Japan the picture has been more mixed, with losses for the KOSPI (-0.41%), but gains for the Hang Seng (+1.21%), the CSI 300 (+1.03%) and the Shanghai Comp (+0.77%). Looking forward, there’s also been a stabilisation in US equity futures, with those on the S&P 500 up +0.17% overnight . The other important news overnight has been from the September flash PMIs. In Japan, they’ve weakened relative to August, with the composite PMI down to 51.8, which is its lowest level since February. But in Australia, there’s been a recovery in the composite PMI, which has risen to a 3-month high of 50.2. So all eyes will be on the US and European numbers later to see the direction of travel as we come to the end of Q3. Elsewhere yesterday, t he Bank of England kept their policy rate on hold at 5.25%, which ended a run of 14 successive hikes. It was a narrow 5-4 vote among the committee, with 4 of the members preferring a 25bp hike, and their statement still signalled the potential for more hikes. For instance, it said that “Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.” The other important development came with regards to quantitative tightening, where they voted to reduce the gilt portfolio by £100bn over the year from October, taking the total down to £658bn . For markets, the decision to leave rates unchanged came as something of a surprise, since swaps had been pricing in a 63% likelihood of a hike immediately prior to the decision. As a result, sterling fell against both the US dollar (-0.37%) and the Euro (-0.39%). However, gilt yields followed a pattern similar to the rest of Europe, with a noticeable steepening amidst rises in both the 2yr (+2.5bps) and the 10yr yield (+9.0bps). Looking forward, our UK economist thinks it’s more likely than not that rates have peaked. See his full recap here. Central banks were in the spotlight elsewhere yesterday, with decisions in several other European countries. In Sweden, the Riksbank raised their policy rate to 4%, in line with expectations. Likewise in Norway, the Norges Bank hiked by 25bps to 4.25%, and Governor Bache said “There will likely be one additional policy rate hike, most probably in December”. However, in Switzerland, the SNB left rates unchanged at 1.75%, contrary to the consensus of economists who expected a 25bp hike. As a result, the Swiss Franc was the worst-performing G10 currency yesterday, weakening by -0.66% against the US Dollar . Looking at yesterday’s other data, US existing home sales fell to an annualised rate of 4.04m in August (vs. 4.10m expected), leaving them at a 7-month low. Meanwhile, the Conference Board’s Leading Index fell by -0.4%, marking its 17th consecutive monthly decline. To the day ahead now, and data highlights include the September flash PMIs from Europe and the US, along with UK retail sales for August. Central bank speakers include ECB Vice President de Guindos, along with the Fed’s Cook, Daly and Kashkari. Tyler Durden Fri, 09/22/2023 - 08:20.....»»

Futures Rise, Dollar And Yields Slide Ahead Of Fed Decision US equity futures rose, alongside European markets, as traders awaited the Fed's rate decision that will be scrutinized for the policy outlook and "dots" rather than the widely expected pause in hikes. As of 7:45am ET, contracts on the S&P 500 and the Nasdaq 100 both added about 0.2%, with spoos trading up to 4,500. Treasury yields fell across the board, taking their cue from sliding UK rates after inflation unexpectedly slowed and printed far below expectations (CPI core 6.2%, Exp. 6.8%, CPI MoM 0.3%, Exp. 0.7%). The Bloomberg Dollar Spot Index traded near the lows of the day, lifting most Group-of-10 currencies. Brent crude reversed earlier losses after it retreated from $95. Gold was little changed, while Bitcoin declined for the first time in three days. In premarket trading, major technology and internet stocks were mostly higher. Instacart slipped as much as 5%, one day after surging following one of the year’s biggest US initial public offerings but closing at session lows. Intel shares pared an earlier decline as analysts said that the chipmaker showed some progress in its Innovation conference. However, there was disappointment that the event lacked a new customer announcement for the firm’s 18A semiconductor manufacturing process. Here are some other notable premarket movers: ARS Pharmaceuticals shares drop as much as 47% in US premarket trading, set for their biggest fall on record if the move holds, after the biotech said that the FDA has issued a letter requesting additional study for neffy — an epinephrine nasal spray to treat allergic reactions — in order to support drug approval, according to a statement. Pinterest shares rise 3.4%. Analysts were impressed by Tuesday’s investor day, saying that the social networking company was upbeat and that the long-term targets look achievable. Taysha Gene Therapies shares drop as much as 5.8%, after the biotech scrapped the development of its TSHA-120 gene therapy program to treat a rare neurodegenerative disorder following feedback from the FDA. Analysts cut their price targets on the stock, saying that while the update was disappointing, investors were focused on the company’s development of a treatment for Rett syndrome. As previewed overnight, today all eyes will be on the Fed's 2pm decision (and Powell's presser) which is expected to hold for the second time this year following a slowing in inflation, while leaving the door open for another increase as early as November. Wall Street will be focused on whether Fed officials’ forecasts for interest rates, the so-called dot plot, show whether they seem determined to hike again. More here “While rates should remain steady, a question mark remains over the longer-term outlook,” said Richard Flynn, UK Managing Director at Charles Schwab. “Now that inflation has peaked, we are likely to see the Fed shift to a more surgical approach. There continues to be a possibility of a hike later this year as central bankers target remaining sticky areas, but one more boost is unlikely to trouble the market.” Britain’s CPI rose 6.7% from a year earlier in August, the slowest pace in 18 months, and less than the 7% expected by economists. The probability of a quarter-point rate increase by the BOE at its meeting on Thursday — almost guaranteed earlier this week — fell to less than 50%, according to swap pricing. Gilt yields tumbled, and US Treasury yields dipped in sympathy after rates on both the five- and 10-year notes hit the highest levels since 2007 on Tuesday. In Europe, stocks rose and the pound weakened after British inflation slowed unexpectedly. The Stoxx 600 rose 0.6%, with retail and real estate leading gains. Sterling fell as much as 0.5% against the dollar to its lowest level since May as traders bet that the Bank of England is nearing the end of its hiking cycle. UK bonds soared. Here are Europe's top movers Delivery Hero shares gain as much as 8.2% as Hauck & Aufhaeuser starts coverage of the food-delivery company with a buy rating, while two other analysts reiterated their bullish stance after the stock dropped to the lowest since May following first-half earnings last month. UK stocks outperform, with midcaps leading the charge, after data showed that inflation fell unexpectedly to the lowest level in 18 months, easing pressure for further interest-rate increases from the Bank of England. Ypsomed shares rise as much as 5.3% to a record high after the Swiss pharmaceutical company announced a long-term supply agreement with Novo Nordisk for large quantities of auto injectors. The pact has “very significant” earnings potential for Ypsomed, according to ZKB. M&G shares gain as much as 4.6% after the UK fund manager reports forecast-beating operating profits for the first half-year of 2023. Clariant shares rise as much as 3.6% after Jefferies raised the recommendation on the stock to buy from hold, saying the Swiss specialty chemical company’s increased urgency to resolve the performance of its Sunliquid biofuel unit is a “key positive.” Self Storage shares soar as much as 66% to NOK39.9, as T-C Storage HoldCo, an indirect subsidiary of Teachers Insurance and Annuity Association, agrees to launch a recommended voluntary cash tender offer for 100% of the company at NOK40 per share. Finsbury Food shares rise as much as 23% to 109.5p after Dbay agrees to buy the UK specialty bakery company in a deal valuing the company’s share capital at about £143.4 million. Baloise shares drop as much as 9.9% after the Swiss insurer’s profit figures came in somewhat below expectations, according to analysts, and Vontobel says higher claims in non-life will hit earnings in 2H. Talanx shares fall as much as 7.6% after an offering of 4.88m shares by the German reinsurance company priced at €61.50 apiece, representing about a 6.5% discount to Tuesday’s close. Air Liquide shares decline as much as 3.4% after Stifel cites comments from CEO, CFO in a London sell-side meeting late Tuesday, saying trading might be more difficult in second half than 1H, especially in Electronics and Industrial Merchant units. Earlier in the session, Asian stocks fell for a third day as caution prevailed ahead of the Federal Reserve’s policy decision, with surging oil prices driving inflation and raising the possibility of higher-for-longer interest rates. The MSCI Asia Pacific Index dropped as much as 0.6% on Wednesday, led by health-care and energy shares. Japanese and Australian stocks slipped. Brent held close to $94 per barrel, setting the stage for another interest-rate hike by the Fed this year. Chinese equities dipped after the nation’s lenders kept their benchmark lending rates unchanged, following the central bank’s move last week to hold policy rates steady as officials assess the economic impact of existing stimulus. The CSI 300 Index is edging closer to the lowest level this year. Japan's Nikkei 225 gradually weakened after the latest trade data showed Japanese exports and imports remained in contraction territory, albeit not as bad as feared. Indian stocks declined the most in two months and were the worst performers in the region led by a selloff in index majors including HDFC Bank and Reliance Industries.  The S&P BSE Sensex fell 1.2% to 66,800.88 on Wednesday, while the NSE Nifty 50 Index declined by the same magnitude. The MSCI Asia Pacific Index was down 0.7%. HDFC Bank contributed the most to the Sensex’s decline, decreasing 4%, following a downgrade by Nomura on rising concerns over private sector lender’s margins post merger with parent HDFC. All but one sectoral index on the BSE closed with losses amid a broad selloff in the market as traders exercised caution ahead of Federal Reserve’s rate-setting meeting. Out of 30 shares in the Sensex index, seven rose and 23 fell. Australia's ASX 200 was dragged lower by the commodity-related sectors including energy after oil prices eased back from YTD highs although losses were cushioned by resilience in consumer stocks. In FX, the Bloomberg Dollar Spot Index is flat ahead of the Fed decision later on Wednesday. the yen touched the psychological level of 148 per dollar, the lowest in more than 10 months. The pound traded as much as 0.5% lower to $1.2334 after UK inflation report; money markets price a 52% chance of a quarter-point hike on Thursday, compared with about 90% yesterday. In commodities, crude futures decline, with WTI falling 1.4% to trade near $89.90. Spot gold drops 0.1%. Goldman analysts raised their forecast for crude back to triple digits as worldwide demand hits unprecedented levels and OPEC+ supply curbs continue to tighten the market. The Wall Street bank pushed up its 12-month forecast for Brent to $100 a barrel from $93. However, most of the rally “is behind us,” the bank said in a note. Bitcoin is under modest pressure but resides in particularly narrow parameters and is yet to meaningfully deviate away from the USD 27k handle pre-FOMC. In rates, treasuries were underpinned by gilts, with futures paring portion of Tuesday’s losses led by belly of the curve. US yields are lower by as much as 3bp in belly of the curve with 5s30s steeper and 2s5s30s fly richer by ~2bp on the day; 10-year yields near 4.34% trail gilts by ~7bp in the sector. UK 2s richer by 14.5bp on the day, lowest yield since July. FOMC expected to keep rates unchanged at the 2pm announcement; the dot-plot update is expected to indicate another hike before year-end in a close call. Gilts outperform in an aggressive bull-steepening move after an unexpected drop in UK inflation opened the door for Bank of England to pause rate hikes in Thursday’s decision. US session includes Fed rate decision at 2pm New York time, released with latest staff projections. Looking to the day ahead now, and the main highlight will be the Fed’s latest policy decision and Chair Powell’s press conference. Other central bank speakers include the ECB’s Elderson. Data releases include the UK CPI and German PPI for August. Lastly, today’s earnings releases include FedEx. Market snapshot S&P 500 futures up 0.1% to 4,496.25 STOXX Europe 600 up 0.6% to 459.08 MXAP down 0.8% to 161.48 MXAPJ down 0.6% to 500.28 Nikkei down 0.7% to 33,023.78 Topix down 1.0% to 2,406.00 Hang Seng Index down 0.6% to 17,885.60 Shanghai Composite down 0.5% to 3,108.57 Sensex down 1.2% to 66,775.50 Australia S&P/ASX 200 down 0.5% to 7,163.33 Kospi little changed at 2,559.74 Brent Futures down 1.2% to $93.21/bbl Gold spot down 0.1% to $1,929.80 U.S. Dollar Index little changed at 105.09 German 10Y yield little changed at 2.74% Euro up 0.1% to $1.0695 Top Overnight News from Bloomberg The PBOC said it has sufficient policy space to support the Chinese economy, adding to expectations there may be more easing to come, including rate cuts, after this month's pause. The comments came shortly after Chinese banks left their benchmark loan rates unchanged. BBG The European Union is “very far” from imposing new tariffs on Chinese electric cars, a top official told CNBC, just days after the bloc launched an investigation into subsidies given by Beijing. CNBC UK inflation undershoots the Street by a wide margin, w/headline coming in at +6.7% (down from +6.8% in Jul and below the Street’s +7% forecast) and core at +6.2% (down from +6.9% in Jul and below the Street’s +6.8% forecast). BBG   The UAW weighed an expansion of its strikes against Detroit’s automakers on, after union President Shawn Fain said more plants faced walkouts if carmakers didn’t sweeten their offers. The union will have a Facebook Live event today at 10 a.m. local time in Detroit, where it will likely discuss whether more plants will join the strike. BBG The United States is discussing terms of a mutual defense treaty with Saudi Arabia that would resemble military pacts with Japan and South Korea, according to American officials. The move is at the center of President Biden’s high-stakes diplomacy to get the kingdom to normalize relations with Israel. NYT Republicans are working on Plan Bs to avoid to a shutdown after days of chaos (some of those Plan Bs involve asking Democrats for help), but time is of the essence and there is still enormous division within the caucus. The Hill At today's meeting Fed officials are likely to make fairly straightforward revisions to their economic projections. For 2023, we expect a substantial upward revision to GDP growth (+1.1pp to +2.1%) and moderate downward revisions to the unemployment rate (-0.2pp to 3.9%) and core inflation (-0.4pp to 3.5%).  For November, we think that further labor market rebalancing, better news on inflation, and the likely upcoming Q4 growth pothole will convince more participants that the FOMC can forgo a final hike this year, as we think it ultimately will. On neutral, we expect the median longer run rate dot to finally rise a bit to 2.75%. GIR Pimco warned markets may be underestimating the risks of both one more Fed hike and a US recession, making haven assets a preferred play. Money manager Geraldine Sundstrom recommends sticking to assets that offer a pickup in yields, including US agency mortgages and some financial credits. BBG US stockpiles fell by 5.25 million barrels last week, the API is said to have reported. That would bring holdings to the lowest in more than nine months if confirmed by the EIA today. Inventories at Cushing also slid. BBG We have nudged up our 12-month ahead Brent forecast from $93/bbl to $100/bbl as we now expect modestly sharper inventory draws. The key reason is that significantly lower OPEC supply and higher demand more than offset significantly higher US supply. Overall, we believe that OPEC will be able to sustain Brent in an $80-$105 range in 2024 by leveraging robust Asia-centric global demand growth (1.8mb/d) and by exercising its pricing power assertively. GIR A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly lower with risk appetite dampened ahead of the incoming deluge of central bank policy announcements including the latest FOMC rate decision and dot plot projections. ASX 200 was dragged lower by the commodity-related sectors including energy after oil prices eased back from YTD highs although losses were cushioned by resilience in consumer stocks. Nikkei 225 gradually weakened after the latest trade data showed Japanese exports and imports remained in contraction territory, albeit not as bad as feared. Hang Seng and Shanghai Comp conformed to the subdued mood after the PBoC unsurprisingly maintained its benchmark 1-year and 5-year Loan Prime Rates at 3.45% and 4.20%, respectively, while Country Garden’s dollar bondholders have been left in the dark regarding a coupon payment which was due on Monday although the developer still has a 30-day grace period. Top Asian News Chinese Loan Prime Rate 1Y (Sep) 3.45% vs. Exp. 3.45% (Prev. 3.45%); 5Y (Sep) 4.20% vs. Exp. 4.20% (Prev. 4.20%) PBoC official said China's monetary policy still has ample policy room to respond to unexpected challenges and changes, while they will continue to implement prudent monetary policy and step up counter-cyclical adjustments. Furthermore, the PBoC will keep liquidity reasonably ample and enhance the stability of credit growth, according to Reuters. NDRC Vice Chairman Cong Liang said China's macroeconomic policies have been effective and that China's economy faces a lot of difficulties and challenges, while he added that economic positives are increasing and those shorting China will surely be proven wrong. US State Department said Climate Envoy Kerry met with Chinese Vice President Han and emphasised the need for China to raise ambition in efforts to accelerate decarbonisation and reduce emissions of methane, according to Reuters. China exported zero germanium and gallium products in August which are materials key to the semiconductor industry, according to customs data. European bourses are in the green, Euro Stoxx 50 +0.5%, with the FTSE 100 +0.7% outperforming after sub-forecast inflation data and associated GBP softness. Sectors are primarily firmer, Real Estate and Banking names are outperforming on the UK data while Energy and Basic Resources lag with benchmarks mixed/softer. Stateside, futures are essentially flat across the board ahead of the FOMC, ES +0.1%, NQ +0.1%; Top European News ECB's Schnabel says new supply-side shocks may pose upside risks to inflation; Dynamics in wage growth remain strong, while labour shortages persist; Energy shock threatens to leave permanent scars in the euro area. via a slide release The Times' Shadow MPC voted 7-2 in favour of a 25bps hike to the Bank Rate to "ensure inflation is finally under control". Swedish Finance Ministry says new spending in the 2024 budget totals SEK 39bln (exp. ~40bln); prioritising fighting inflation and supporting households/welfare. Swiss Government Forecasts (SECO): downgrades 2023 CPI (2.2%), upgrades 2024 CPI (1.9%); upgrades 2023 GDP, downgrades 2024 GDP; says global economy likely to take longer to recover from challenges assumed in the June forecast. Click here for more detail. UK PM Sunak has reportedly summoned his cabinet, according to Sun reporter Cole; "Looks like we may be hearing the new Net Zero plan today". FX Sterling undermined by softer than forecast UK CPI metrics pre-BoE as casts doubt over 25 bp rate hike, Cable retreats from 1.2397 to 1.2335 before recovering. Yen finally relents in battle to say above 148.00 vs. Dollar regardless of verbal intervention from a top Japanese FX diplomat. DXY regroups, but remains cautious within the 105.00-260 range awaiting Fed guidance. Euro retains sight of 1.0700 against Greenback and is flanked by option expiries. Loonie loses post-Canadian inflation data thrust as crude prices retreat, Usd/Cad straddles 1.3450 ahead of BoC minutes and conscious of 1.1 bn expiry interest nearby. PBoC set USD/CNY mid-point at 7.1732 vs exp. 7.2926 (prev. 7.1733) PBoC official Zou said the global FX market has seen great volatility this year and said more attention will be paid to changes in the yuan exchange rate against a basket of currencies. Zou added there is a solid foundation to keep the yuan exchange rate basically stable and said they will resolutely correct one-sided pro-cyclical behaviour for the yuan exchange rate, while they will resolutely curb disruptions to market order and guard against exchange rate overshooting risks. US Treasury Secretary Yellen said the Treasury generally understands the need to smooth out volatility in exchange rates but not to influence forex levels, while she added that the view on any Japanese yen intervention would depend on the circumstances, according to Reuters. Japan's top FX diplomat Kanda says excessive yen moves are not desirable and watching FX with a high level of urgency, while they will take appropriate steps on FX as needed and are closely communicating with US and overseas FX Fixed Income Gilts front-run debt recovery before Central Bank cavalry arrives as softer than consensus UK inflation data calls 25 bp BoE hike into question. 10-year bond extends to 96.49 from 95.99, Bunds and T-note tag along within 127.74-30 and 109-10/03+ respective ranges awaiting FOMC. Commodities Crude benchmarks pressured after seven consecutive sessions of upside and ahead of multiple days of broader macro risk events, with pressure potentially also emanating from the downbeat APAC tone. Dutch TTF has trimmed initial upside and has reverted back to the sub-37.50/MWh trough, as participants continue to focus on Australian updates. Most recently, downside came alongside Offshore saying negotiations resulted in some concession on both sides. Spot gold is flat with numerous technicals in close proximity, Palladium outperforms potentially on EU auto registration numbers while base peers have managed to lift off of initial lows. US Energy Inventory Data (bbls): Crude -5.3mln (exp. -2.2mln), Gasoline +0.7mln (exp. +0.3mln), Distillate -0.3mln (exp. +0.2mln), Cushing -2.6mln. Goldman Sachs raises its 12-month ahead Brent forecast to USD 100/bbl (prev. USD 93/bbl), expects modestly sharper inventory draws. Click here for more detail. Chevron (CVX) says no agreement has been reached with unions following further consultation sessions held this week with the Fair Work Commission. Ongoing lack of agreement reinforces the view that there is "no reasonable prospect of an agreement between the parties". Engaged in meaningful negotiations to finalise enterprise agreements with market competitive remuneration and conditions. However, unions continue to ask for terms significantly higher than the market. Australia's Offshore Alliance says negotiations before the commissioner were useful and resulted in some concessions on both sides; adds that members remain open to compromise but Chevron must table a viable offer. China's state planner NDRC to increase retail prices of gasoline and diesel by CNY 385/t and CNY 370/t respectively from September 21st. Geopolitics Gulf Cooperation Council Countries and the US called for the completion of the demarcation of Kuwaiti-Iraqi maritime borders and urged Iraq to settle its internal legal status to ensure regulation of maritime in the Khor Abdallah Waterway, while they also urged Iran to fully cooperate with the IAEA, according to a joint statement. Iranian President Raisi said Washington should prove its goodwill and determination for the revival of the 2015 nuclear pact, while he reportedly demanded that the US end its sanctions on Iran. US military official says the joint military exercises with Armenia will begin today on time. Ceasefire has reportedly been announced in Karabakh, according to Sputnik Armenia and Ifax; Karabakh Armenians to meet with Azeri authorities on September 21st, Ifax reports; Armenian Deputy Foreign Minister says Yerevan could theoretically live under Azerbaijan but dialogue is crucial. Russia's Kremlin says Russian President Putin is to meet China's top diplomat Wang Yi. US Event Calendar 07:00: Sept. MBA Mortgage Applications, prior -0.8% 14:00: Sept. Interest on Reserve Balances R, est. 5.40%, prior 5.40% 14:00: Sept. FOMC Rate Decision (Lower Boun, est. 5.25%, prior 5.25% 14:00: Sept. FOMC Rate Decision (Upper Boun, est. 5.50%, prior 5.50% DB's Jim Reid concludes the overnight wrap The long-term study shows how this has been the worst start to a decade for US Treasuries since our data begins in 1800 and yesterday incrementally added to this as 10yr US yields hit 15-plus year highs, with 2yrs at 16-year highs, just as we approach an important trio of central bank meetings. That starts with the Federal Reserve tonight, before we hear from the Bank of England tomorrow, and then the Bank of Japan on Friday morning. But despite all the recent speculation that central banks are near the end of their tightening cycles, the backdrop this week has been a much more hawkish one. For instance, oil prices hit new 10-month highs intra-day though they were marginally lower on the day by the close. We also had an upside surprise from Canada’s CPI, which added to the sense that rate cuts weren’t coming anytime soon. Of course, the main focus today will be on the Federal Reserve’s decision tonight, along with Chair Powell’s subsequent press conference. In terms of the actual decision, they’re widely expected to leave rates unchanged, so the bigger focus is likely to be on their latest Summary of Economic Projections, which includes the dot plot for where officials see rates over the years ahead. At the last quarterly release in June, the dot plot pointed to two further rate hikes by year-end, and we got one of them at the most recent meeting in July. Our US economists still expect the Fed to signal one further hike this year, but they think Powell will leave open the question of when that tightening could occur, and will lean heavily on a message of data dependency. And even though they expect the Fed’s forecasts to show softer inflation, they think that stronger growth and lower unemployment should counterbalance that, meaning that the 2024 dot will show one less rate cut in 2024 as well. See their full preview here. We’ll see where things stand after the Fed’s decision, but a key story for much of yesterday was the continued rise in oil prices. Brent Crude almost reached $96/bl yesterday morning but it retreated to close a touch below Monday’s 10-month high (-0.10% to $94.34/bbl) and this morning is trading at $93.23/bbl as we go to print. So a big correction in the last 15 hours from the peaks. Elsewhere on the energy front, we saw a sizeable spike in European natural gas prices. One month TTF gas futures were up +9.84% to EUR 37.4/MWh, their highest level in three weeks, amid delays to production at Norwegian gas fields. In other inflationary news, we had another upside inflation surprise out of Canada, as CPI hit +4.0% in August (vs. +3.8% expected). That led investors to price in a much higher likelihood that the Bank of Canada would hike rates next month, with the likelihood up from 25% on Monday to 51% after the close yesterday. In turn, Canadian sovereign bonds significantly underperformed, with the 10yr yield up +11.4bps yesterday to a new post-2008 high. Those inflationary developments led investors to price in higher rates for longer. Indeed, the rate priced in for the Fed’s December 2024 meeting hit a new high for the cycle at 4.63%. That means less than three 25bp cuts are now priced in by end-2024. That helped boost yields across the curve, with the 2yr Treasury yield (+3.7bps) closing at a new high for this cycle at 5.09%, and the 10yr yield (+5.6bps) also closed at a new cycle high of 4.36%. It was much the same story in Europe, where yields on 10yr bunds (+3.0bps) and BTPs (+0.7bps) hit a 6-month high, whilst yields on 10yr French OATs (+2.8bps) closed at their highest since 2012. The only exception to this pattern were yields on 10yr gilts (-4.9bps), which fell ahead of this morning’s CPI report for August. That’ll be released shortly after we go to press, and will be the last big data release ahead of the Bank of England’s decision tomorrow. Headline is expected to pick up two tenths to 7% YoY with core down a tenth to 6.8% YoY. The prospect of higher rates provided a tough backdrop for equities, though the S&P 500 crept back up in the last few hours of trading from being down -0.8% at the early session lows to close 'only' -0.22% lower, albeit to a 3-week low. The moderate decline was a broad-based one, with 8 of 10 S&P 500 sector groups down on the day. The other major US indices saw similar declines, including the Dow Jones (-0.31%) and the NASDAQ (-0.23%), whilst the small-cap Russell 2000 (-0.42%) fell to its lowest level since late-June. In Europe the picture was a bit more positive, but the STOXX 600 still fell -0.04%. In Asia, the Nikkei (-0.36%), Hang Seng (-0.58%), CSI (-0.31%), Shanghai Composite (-0.34%) and the KOSPI (-0.05%) are all slightly lower alongside S&P 500 (-0.11%) and NASDAQ 100 (-0.16%) futures. Early morning data showed that Japan’s exports dropped -0.8% y/y in August (v/s -2.1% expected) and against a -0.3% in July, making it the second month of declines (even if better than expected) mainly due to weak exports to China (-11.0% y/y). Meanwhile, imports weakened -17.8% y/y in August less than the expected fall of -20.0% as against a revised decline of -13.6%. In FX, the Japanese yen pared its initial gains against the dollar to trade at 147.81 (+0.03%) after US Treasury Secretary Janet Yellen stated that the US would show understanding over Japan’s intervention to support its currency if the measures are aimed at smoothing out undue volatility. You're unlikely to see anything ahead of the FOMC and BoJ (Friday) but this maybe makes intervention a bit easier going forward. Elsewhere, the People’s Bank of China (PBOC) left its 1-yr and 5-yr loan prime rates unchanged at 3.45% and 4.2%, respectively. When it came to yesterday’s other data, US housing starts fell significantly more than expected in August, with an annualised rate of 1.283m (vs. 1.439m expected). That’s their lowest level since May 2020, when the economy was still affected by the initial wave of Covid-19. However, building permits moved up to an annualised 1.543m (vs. 1.440m expected), which is their highest level since October. Permits tend to be the more reliable data point so the uncertainty around housing continues after Monday's poor NAHB. Separately in the Euro Area, the final August CPI reading was revised down to +5.2%, compared with the initial flash reading at +5.3%. To the day ahead now, and the main highlight will be the Fed’s latest policy decision and Chair Powell’s press conference. Other central bank speakers include the ECB’s Elderson. Data releases include the UK CPI and German PPI for August. Lastly, today’s earnings releases include FedEx. Tyler Durden Wed, 09/20/2023 - 08:14.....»»

The U.S. dollar is on its way to close in the green territory on a weekly basis for the first ... Read more The U.S. dollar is on its way to close in the green territory on a weekly basis for the first time since the first half of July as traders increase their bets that the Fed may keep higher interest rates for longer. EUR/USD was trading higher earlier this week, eventually hitting a two-week high on Wednesday following the release of data showing that U.S. private payrolls increased less than expected in August. Still, the greenback strengthened on Thursday despite some level of optimism that the U.S. central bank is near concluding its tightening cycle. Overall, EUR/USD traded mostly range-bound despite heightened expectations for a November rate hike, triggered by relatively hawkish remarks made by Fed Chairman Jerome Powell during his much-anticipated Jackson Hole speech on Friday. “Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said in prepared remarks. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” The market focus has now shifted toward the upcoming jobs report for August, which is anticipated to provide further confirmation that the labor market's tightness is diminishing amid relatively high interest rates. The NFP report is seen as an important factor that influences the Fed’s decision. “The dollar’s falling on the belief that the Federal Reserve has done enough,” said Adam Button, chief currency analyst at ForexLive in Toronto. “I think nonfarm payrolls will be the final ‘stick the fork in it’ moment if it's soft.” The market expects the U.S. added 170,000 jobs in August, according to economists polled by Reuters. Two days ago, the ADP National Employment report indicated that private payrolls increased by 177,000 jobs in the previous month, while analysts were looking for 195,000 net additions. Amid speculation about the Fed and ECB's actions, some traders are turning to prop trading firms with fast funding to amplify their trading capacity, making the stakes even higher in volatile currency markets like EUR/USD. What the ECB Will Do? On the other hand, the European Central Bank (ECB) is now perceived as more likely to implement a September rate hike, while the Reserve Bank of Australia is expected to hold its rates steady amid slowing inflation. The ECB decision could be more important for the EUR/USD than what the Fed will do after Eurozone inflation came in at 5.3% for the month of August, while economists were looking for a further decline to 5.1%. Core inflation did ease as it was reported at 5.3% from July's 5.5%. This mixed inflation data is unlikely to provide a clear direction for the ongoing debate within the WCB regarding the need for further interest rate hikes. "The upward pressure on underlying prices has thus continued to ease," Commerzbank economist Christoph Weil said. "We still do not expect the Governing Council to raise key rates further at its September meeting. The central bank has faced a challenging economic environment with stagnant growth and weakening sentiment among businesses and households. Hence, the ECB stands undecided in a delicate moment for the Eurozone economy as officials deliberate whether further tightening is needed given the slowing economic growth. According to Reuters, the probability that the ECB will deliver a rate hike in September has decreased from around 50% to 33%. Still, market pricing still indicates the expectation of another hike this year, possibly in October or December. "I have not made up a decision because I don't have all the data, but I would not exclude that I would go for a hike. We are not yet at the highest level (for rates); it could be that we do another hike or two,” Robert Holzmann, Austria's central bank chief, told Reuters. All in all, it looks like the debate around what the ECB will do is likely to extend into the week when the central bank meets (Sep 14). Those advocating for a pause in the tightening of monetary policy emphasize that economic growth is rapidly deteriorating. With few catalysts to drive a rebound, there are concerns that the Eurozone's economy, which has remained stagnant over the past three quarters, could potentially slip into a recession. On the other hand, some policymakers point towards still-high inflation figures, which continue to be well above the ECB’s 2% target. ECB board member Isabel Schnabel commented at the recent event: "Real risk-free rates have declined across the maturity spectrum and are now back to the level observed at the February Governing Council meeting, as investors have revised their expectations for economic growth, inflation and monetary policy.” “This decline could counteract our efforts to bring inflation back to target in a timely manner." According to Bloomberg, ECB officials still see inflation outlook as “highly uncertain.” “Emphasis was put on the merit of sticking to a data-dependent, meeting-by-meeting approach in an uncertain environment,” according to an account of their July policy meeting. Final thoughts The EUR/USD is on its way to closing lower in August after previously recording gains in June and July. The pair is still hovering around the $1.10 mark as investors continue to closely monitor the bond market developments, where U.S. yields rose to a fresh 16-year high in August. Technically, the currency pair has consolidated above the broken 100 weekly moving average, which is a positive technical development. EUR/USD previously surged to test the 200-WMA resistance around $1.12 before correcting lower, which coincided with the correction in the U.S. stock market. On a more negative note for the euro bulls, the current price action is taking place below the key bull/bear line that is located around $1.0950 and which connects the two important swing lows (January 2017 and March 2020). A definite break above this trend line would open the door for a more sustained rally in EUR/USD, especially if the U.S. bond yields also start to move lower from multi-year highs......»»