• 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. 
• US equity 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. 
• DXY retains an underlying bid and also benefits from a retreat in the Yuan on the back of Evergrande woes plus ongoing weakness in the Yen and Franc on policy divergence dynamics. 
• House Republicans are said to consider a stopgap measure that would range from 14 to 60 days; US lawmakers warned that a government shutdown was increasingly certain as hopes of a last-ditch compromise dwindle, according to FT.
• Looking ahead, highlights include US National Activity Index (Aug), ECB's Schnabel, Lagarde & Fed's Goolsbee

25th September 2023

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EUROPEAN TRADE

EQUITIES

• 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.
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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.
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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%.
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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.
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NOTABLE US HEADLINES

• US lawmakers warned that a government shutdown was increasingly certain as hopes of a last-ditch compromise dwindle, according to FT.
• US GOP Rep. Graves said Republicans are considering a stopgap government funding measure that would range from 14 to 60 days and warned that letting funding lapse would be a mistake. Furthermore, Graves said House Republicans are moving forward on four appropriations bills in the week ahead but with 7 days left until government funding runs out, lawmakers will need to pass a short-term measure to avoid a shutdown.
• UAW expanded its strikes against General Motors (GM) and Stellantis (STLA) but kept its industrial action against Ford (F) to one plant due to progress being made in talks, according to Reuters.
• Hollywood studios and writers reached a tentative deal to end a strike, according to CNBC.
• Apple (AAPL) is reportedly planning to scale up production in India by over five-fold to USD 40bln during the next 4-5 years.
• Amazon (AMZN) to invest as much as USD 4bln in AI startup Anthropic, according to Reuters.

NOTABLE EUROPEAN HEADLINES

• 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.

DATA RECAP

• German Ifo Current Conditions New (Sep) 88.7 vs. Exp. 88.0 (Prev. 89.0)
• German Ifo Business Climate New (Sep) 85.7 vs. Exp. 85.2 (Prev. 85.7, Rev. 85.8)
• German Ifo Expectations New (Sep) 82.9 vs. Exp. 82.9 (Prev. 82.6, Rev. 82.7)

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.

CRYPTO

• 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.

APAC TRADE

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.

NOTABLE ASIA-PAC HEADLINES

• 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.