• European bourses have trimmed the losses seen at the open; US equity futures meander around the flat mark.
• DXY maintains bullish momentum but remained under 110.50 throughout most of the European session.
• Debt futures are hovering just below best levels having extended rebounds to fresh intraday highs.
• WTI and Brent futures have been bouncing off worst levels after printing multi-month lows; Base metals are mostly lower with upside hampered by disappointing Chinese trade data overnight. 
• Looking ahead, highlights include BoC Rate Decision, Fed Beige Book, EIA STEO, and Speeches from Fed's Barkin, Mester, Brainard & Barr.

7th September 2022

LOOKING AHEAD

• BoC Rate Decision, Fed Beige Book, EIA STEO, Speeches from Fed's Barkin, Mester, Brainard & Barr
• Click here for the Week Ahead preview.

GEOPOLITICS

RUSSIA-UKRAINE

• Russian President Putin said trust in the USD, EUR, and GBP has been undermined; Russia has cut usage of the currencies. Putin said Gazprom and China have moved to RUB and CNY settlements for gas in a 50/50 proportion. Putin said will have to think of changing routes for Ukrainian grain; says problems with food will intensify.
• Russian President Putin said demand for Russian energy in China is rising, according to Reuters.

EUROPEAN TRADE

EQUITIES

• European bourses have trimmed the losses seen at the open, but still trade mostly lower.
• European sectors are mostly lower after opening with a mild defensive bias – that bias has since eased somewhat, with some cyclicals making their way up the ranks.
• Stateside, US equity futures were softer in early trade, but to a lesser extent than peers across the pond, and have since mostly moved into the green as yields ease
• Click here for more detail.

FX

• DXY maintains bullish momentum but remained under 110.50 throughout most of the European session in a 110.17-69 range (at the time of writing).
• JPY underperforms with USD/JPY extending above 144.00 despite a slew of verbal intervention by Japanese officials, whilst the Yuan shrugged off another firm CNY fixing by the PBoC.
• EUR, and CHF are all trading mid-range vs the USD whilst the NZD, AUD, and CAD track risk sentiment.
• Click here for more detail.

Notable FX Expiries, NY Cut:

• EUR/GBP: 0.8575 (1.21BN)
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FIXED INCOME

• Debt futures are hovering just below best levels having extended rebounds to fresh intraday highs in the run up to UK and German auctions that saw solid demand.
• Bunds sit under their 145.24 peak (+44 ticks vs -33 ticks at one stage), Gilts skirt 106.00 from 106.11 (+38 ticks vs -59 ticks at the Liffe low).
• 10yr T-note holds closer to 115-27 than 115-13+ following some hefty block purchases (two 10k clips in particular)
• Click here for more detail.

COMMODITIES

• WTI and Brent futures have been bouncing off worst levels after printing multi-month lows.
• Spot gold fluctuates on either side of USD 1,700/oz, driven largely by bond yields.
• Base metals are mostly lower with upside hampered by disappointing Chinese trade data overnight.
• Indian PM Modi said keen to boost ties with Russia; said Russia and India can work closely on coking coal supply.
• Click here for more detail.

PRICE CAPS

• Czech Industrial Minister said Russian gas price cap should be taken off the table at the EU Energy Minister meeting, according to CTK cited by Reuters.
• EU is planning a EUR 200/MWh electricity price cap by non-gas power producers (wind, nuclear, coal), according to a draft proposal cited by FT; the document suggests a target of reducing consumption by 5% during peak pricing hours. Proposal is to be discussed today ahead of Friday's energy meeting.
• Russian President Putin reiterated that Russia will not stick to oil and gas contracts if prices are capped.

CRYPTO

• Bitcoin prices slipped overnight to under USD 19,000 whilst Ethereum tested 1,500 to the downside.

NOTABLE EUROPEAN HEADLINES

• UK PM Truss spoke with US President Biden with Truss said to be looking forward to working with Biden to tackle shared challenges, particularly extreme economic problems from Russian President Putin's war, while they discussed domestic issues and agreed on the importance of protecting the Good Friday Agreement, according to Downing Street.
• UK PM Truss will not activate the emergency Article 16 override provision in the Northern Ireland protocol in the coming weeks and pulling away from an early confrontation with the EU over Brexit, according to FT citing the PM's allies.
• BoE Governor Bailey noted that we have had volatile markets in the last six weeks, still seeing extreme volatility in energy markets. On the UK exchange rate, said there are dollar-specific factors in play; said the Fed is more focussed on bringing demand shock under control. Bailey added a review of the Bank's mandate would not be a recognition that the BoE regime is failing.
• BoE Chief Economist Pill said he does not want to comment on fiscal stimulus without seeing the details. He expects headline inflation to decline in the short-term. Pill emphasised the importance of BoE inflation target as an anchor, not considering new regime.
• BoE's Mann said trade, financial flows, and GBP may have heightened role in the next year. Mann added that more forceful bank rate moves open door for policy to be on hold or a reversal later. She added that short-term inflation spikes are getting increasingly embedded in domestic prices.
• BoE's Tenreyro said demand is already weakening, and added when close to equilibrium rate, gradual hikes allow BoE to react before it tightens too far into contractionary territory. "Even without rate increases in August, rates were at a sufficient level to return inflation to target over the medium-term."

NOTABLE EUROPEAN DATA

• EU GDP Revised YY (Q2) 4.1% vs. Exp. 3.9% (Prev. 3.9%)
• EU GDP Revised QQ (Q2) 0.8% vs. Exp. 0.6% (Prev. 0.6%)
• EU Employment Final QQ (Q2) 0.4% vs. Exp. 0.3% (Prev. 0.3%, Rev. 0.7%)
• EU Employment Final YY (Q2) 2.7% vs. Exp. 2.4% (Prev. 2.4%, Rev. 3.1%)

NOTABLE US HEADLINES

• Fed's Barkin (2024 voter) warned that rates must stay high until inflation eases and said the Fed would need to tighten policy further so that real interest rates sit above zero, according to FT.
• Fed Fund Futures imply a 75% chance of a 75bps Fed rate hike this month, according to FedWatch cited by Reuters.

APAC TRADE

• APAC stocks were pressured amid spillover selling from Wall St owing to the higher yield environment and as participants digested the latest Chinese trade data.
• ASX 200 weakened from the open with the index dragged lower by the energy and mining-related sectors and with somewhat mixed GDP data not doing much to spur risk appetite.
• Nikkei 225 declined despite a further weakening in the JPY as the recent rapid currency depreciation raised further questions surrounding the BoJ’s dovish resolve.
• Hang Seng and Shanghai Comp were subdued amid the ongoing COVID woes and following the softer than expected Chinese trade data in which all metrics missed forecasts.

NOTABLE APAC HEADLINES

• PBoC set USD/CNY mid-point at 6.9160 vs exp. 6.9686 (prev. 6.9096)
• Japanese Chief Cabinet Secretary Matsuno believes relaxation of border control measures could be an advantage with the weak JPY, while they are concerned by recent rapid, one-sided currency moves and are ready to take appropriate action on FX market moves if necessary, according to Reuters.
• Japanese Finance Minister Suzuki, when asked about the chance of currency intervention, says will take necessary steps, according to Reuters.
• Japan's former MOF FX head Watanabe said there is no need for Japan to intervene in the currency market to stem the yen's declines and that Japan intervening solo in the FX market would be meaningless as current FX moves are driven by broad dollar gains, while he noted that intervening solo would be a waste of money as markets would know Tokyo has limited to how much reserves it can tap to continue with such actions. Wakatabe also stated that USD/JPY is overshooting somewhat now and may briefly reach 145 later this month but such increases likely won't last long, while he doesn't think the BoJ will raise rates just to stem JPY's declines.

DATA RECAP

• Chinese Trade Balance USD (Aug) 79.39B vs. Exp. 92.7B (Prev. 101.26B)
• Chinese Exports YY* (Aug) 7.1% vs. Exp. 12.8% (Prev. 18.0%)
• Chinese Imports YY* (Aug) 0.3% vs. Exp. 1.1% (Prev. 2.3%)
• Chinese Trade Balance (CNY)(Aug) 535.9B vs Exp. 661.9B (Prev. 682.7B)
• Chinese Exports YY (CNY)(Aug) 11.8% vs Exp. 18.5% (Prev. 23.9%)
• Chinese Imports YY (CNY)(Aug) 4.6% vs Exp. 6.3% (Prev. 7.4%)
• Australian Real GDP QQ SA (Q2) 0.9% vs. Exp. 1.0% (Prev. 0.8%)
• Australian Real GDP YY SA (Q2) 3.6% vs. Exp. 3.5% (Prev. 3.3%)