• APAC stocks were subdued with price action indecisive as the region took its cue from the choppy performance and late selling stateside.
• BoE Governor Bailey appeared to reject industry calls for an extension to Gilt purchases. However, an FT report later suggested that purchases could be prolonged.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 future -0.2% after the cash market closed with losses of 0.5% yesterday.
• DXY pulled back as GBP strengthened post-hints of a Gilt purchase extension, JPY lags G10 FX.
• Looking ahead, highlights include UK GDP, EZ IP, US PPI Final Demand, FOMC Minutes, G20 Finance Ministers' meeting, Astana Summit, Speeches from BoE's Haskel, Pill & Mann, ECB's Lagarde, Fed's Kashkari, Barr & Bowman Supply from UK, US & Germany.

US TRADE

• US stocks finished mostly subdued after late-session selling in indices and bonds with risk-off conditions in the wake of BoE Governor Bailey's ultimatum for pension funds that the Gilt buybacks will end Friday.
• SPX -0.65% at 3,589, NDX -1.24% at 10,791, DJIA +0.12% at 29,239, RUT +0.06% at 1,692.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Mester (2022 voter) said the Fed has yet to make any progress on lowering inflation and policy needs to be moved to restrictive levels, while she noted the biggest policy risk is that the Fed does not hike enough and does not expect Fed to cut rates in 2023. Mester added that inflation is way too high which is running the risk of becoming embedded in the economy and noted that Fed hikes are not aggressive relative to where inflation stands.
• US President Biden said a recession in the US is possible but any downturn would be “very slight” and that the US economy is resilient enough to ride out the turbulence.
• US Treasury Secretary Yellen said they are beginning to see some signs of easing pressures in the labour market and noted that inflation is too high although there is a path to lower inflation while maintaining a healthy labour market. Furthermore, Yellen said they haven't really seen signs of financial stability in markets and also stated that she doesn't plan to leave, according to Reuters.
• Intel (INTC) is said to plan thousands of job cuts due to the PC slowdown, while its sales and marketing could see a 20% reduction in staff.

APAC TRADE

EQUITIES

• APAC stocks were subdued with price action indecisive as the region took its cue from the choppy performance and late selling stateside after BoE Governor Bailey rejected industry calls for an extension to Gilt purchases, although a report from FT overnight suggested the contrary.
• ASX 200 was rangebound with strength in the real estate and the top-weighted financials sector offsetting the losses in tech, utilities and mining-related stocks, while there were also comments from RBA’s Assistant Governor Ellis who suggested nominal rates have already passed neutral and that policy was no longer expansionary.
• Nikkei 225 lacked conviction following the disappointing Machinery Orders data although the downside was contained with Japan reportedly to draw up economic measures before month-end.
• Hang Seng and Shanghai Comp. were the worst hit despite the jump in loans and financing data in China with markets constrained by lockdown concerns after China's Xi'an announced to suspend onsite classes for some students and shut other venues, while the Shenzhen Metro suspended three stations due to coronavirus.
• US equity futures eked marginal gains (e-mini S&P +0.5%) with some late support after an FT report later suggested that BoE signalled privately that it was prepared to extend its bond market intervention if needed.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 future -0.2% after the cash market closed with losses of 0.5% yesterday.

FX

• DXY was initially firmer and traded around the 113.50 level as it benefitted from weakness in its major counterparts, although the greenback later retreated as news of the BoE's willingness to extend its bond market intervention provided some relief for the dollar's transatlantic counterparts.
• EUR/USD eventually reclaimed the 0.9700 level with price action at the whim of the conflicting BoE headlines.
• GBP/USD was initially dragged beneath the 1.1000 handle after BoE Governor Bailey disappointed those hoping for an extension of Gilt purchases to quell financial instability, but then partially recouped losses after an FT report suggested the central bank signalled a willingness to extend Gilt buying if needed.
• USD/JPY surpassed September intervention territory and advanced north of 146.00 for the first time since 1998 as Japanese markets got underway with the yen not helped by the disappointing machinery orders data.
• Antipodeans were subdued amid the cautious risk tone and commodity weakness.
• PBoC sets USD/CNY mid-point at 7.1103 vs exp. 7.1236 (prev. 7.1075)

FIXED INCOME

• 10yr UST futures were initially subdued after the prior day’s late pullback owing to comments from BoE Governor Bailey who affirmed ending Gilt purchases on Friday to the disappointment of pension funds hoping for an extension, although prices were later supported after a report that the BoE privately signalled it is prepared to prolong purchases.
• Bund futures remained subdued after slipping beneath the 136.00 level amid the BoE-induced volatility.
• 10yr JGB futures were unfazed by the weaker results at the 30yr auction and further currency depreciation, while news of the BoE's willingness to extend bond purchases later provided a tailwind for prices.

COMMODITIES

• Crude was lacklustre amid the indecisive risk tone and with participants waiting an extra day for the holiday-delayed inventory data, while US President Biden also vowed consequences for Saudi Arabia due to the OPEC+ output cut.
• US President Biden said the Saudis face consequences after the OPEC+ production cut, according to Bloomberg.
• Saudi Foreign Minister said OPEC+ members acted responsibly and took the appropriate decision with the decision purely economic and taken unanimously, according to Al-Arabiya.
• Saudi Arabia reportedly defied US warnings ahead of the OPEC+ production cut whereby the US called their counterparts in Saudi Arabia with an appeal to delay the decision by a month although "Riyadh dismissed American officials who said the output reduction would be perceived as siding with Russia, in a new blow to relations", according to WSJ citing sources.
• EU looks to enforce mandatory cooperation on gas purchases and Brussels believes requiring member states to make joint purchases would cut prices, but companies are sceptical, according to FT.
• Mexico hedge locked in oil prices at around USD 75/bbl and Mexico has begun an annual oil hedge to lock in prices for 2023.
• Spot gold was contained.
• Copper was lower with early pressure seen post-Bailey, although prices later rebounded off lows.

GEOPOLITICS

RUSSIA-UKRAINE

• US President Biden told CNN that he doesn't think Russian President Putin will use a tactical nuclear weapon.
• US State Department said the US wants to continue to do everything it can to build up further Ukraine's air defence capacity. It was also reported that a White House Defence Department spokesman said the US cannot confirm any movement of Russian troops to Belarus.
• White House said there is no timeline for the US policy review on Saudi Arabia and they believe the OPEC+ decision shows Saudi is aligning with Russia, while the State Department said the US will not take eyes off the threat posed by Iran when reviewing the Saudi relationship.
• Russian Defence Minister Shoigu discussed Ukraine, a grain deal and Syria in a phone call with the Turkish Defence Minister, according to TASS.
• Office of the French Defence Minister said France is to step up its military presence in Eastern Europe.

CHINA-TAIWAN

• Taiwan's Economy Minister is keen to see further cooperation between Taiwan and the US, while it was stated that the priority is to work with the US to form resilient supply chains.

CRYPTO

• Bitcoin was choppy amid the indecisive mood across risk assets and oscillated around 19,100.

ASIA

NOTABLE APAC HEADLINES

• US permitted at least two non-Chinese chipmakers in China to receive goods and support that are restricted under new US export rules, according to industry sources. It was later reported that SK Hynix (000660 KS) received authorisation from the US Commerce Department to receive equipment for a chip production facility in China for a year without seeking a separate permit from the US, according to Reuters.
• China will be declared an official threat in a new strategic review of Britain's enemies, according to The Sun.
• RBA Assistant Governor Ellis said the neutral rate is a guide rail for policy not a destination and that the real neutral rate is uncertain but should be positive even if low which implies a nominal neutral rate of at least 2.5% for Australia, while Ellis added that policy is no longer in an expansionary place, according to Reuters.
• BoK hiked the base rate by 50bps to 3.00%, as expected and said inflation will remain high in the 5%-6% range for a considerable time. BoK Governor Rhee said board members Joo Sang-Yong and Shin Sung-Hwan dissented at Wednesday's rate decision, while he added that the board's views on the rate hike pace in November differ but added that a majority of board members see the BoK's terminal rate at 3.5%.

DATA RECAP

• Japanese Machinery Orders MM (Aug) -5.8% vs. Exp. -2.3% (Prev. 5.3%)
• Japanese Machinery Orders YY (Aug) 9.7% vs. Exp. 12.6% (Prev. 12.8%)

EU/UK

NOTABLE EU/UK HEADLINES

• BoE Governor Bailey said they saw quite a serious crystallisation of risk and that remains a live issue, while he added that there is unprecedented volatility in the long end of the Gilt market and that the message to pension funds involved is that they have three days left. It was then later reported that the BoE signalled to lenders that it is prepared to prolong bond purchases with officials privately indicating a flexible approach if market volatility flares up, according to FT.
• Pensions and Lifetime Savings Association said the announcement by the BoE to purchase index-linked Gilts is a positive additional intervention, while it noted that the concern of pension funds has been that the period of purchasing should not be ended too soon, according to Reuters.
• UK's trade deal with India is reportedly on the verge of collapse after Indian ministers reacted "furiously" to comments by Home Secretary Braverman, according to The Times.
• ECB's Villeroy said fears of a recession must not derail ECB normalisation and that the current level of inflation requires ECB determination, while he also noted that a short recession is less detrimental than stagflation and said discussion about a 50bps or 75bps hike in October is premature amid volatile markets. Furthermore, Villeroy said the ECB may move more slowly after reaching a neutral rate and the APP unwind could begin earlier than 2024 with partial reinvestments.