• European bourses are on the backfoot but off the worst levels seen at the cash open despite a lack of fresh fundamental headlines, with the UK's FTSE outperforming on a weaker GBP.
• US futures are pressured amid a generally negative risk tone across the market and a lack of any fresh catalysts.
• DXY has trimmed earlier upside after initially gaining more ground against the majority of its currency rivals amidst the ongoing rout in debt, and in the run-up to month end.
• Bonds regained some composure with some aid from Germany’s Q4 issuance remit, which saw the expected reduction confirmed.
• Looking ahead, highlights include US Building Permits & New Home Sales, NBH Policy Announcement & Fed's Bowman, Supply from US.

26th September 2023

• Click here for the Newsquawk Week Ahead summary.

EUROPEAN TRADE

EQUITIES

• European bourses are on the backfoot but off the worst levels seen at the cash open despite a lack of fresh fundamental headlines, with the UK's FTSE outperforming on a weaker GBP.
• Sectors in Europe are mostly lower with a slightly more defensive bias vs the cash open, with Healthcare and Utilities towards the top of the bunch while Tech remains the laggard.
• US futures are pressured amid a generally negative risk tone across the market and a lack of any fresh catalysts.
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FX

• DXY has trimmed earlier upside after initially gaining more ground against the majority of its currency rivals amidst the ongoing rout in debt, and in the run-up to month end in which Citi and Barclays models both point to Dollar buying.
• USD/JPY temporarily rose above 149.00 to a 149.19 high before reversing lower in conjunction with jawboning from Japanese Finance Minister Suzuki.
• GBP/USD is among the laggards under 1.2200 against its US peer against the backdrop of softer UK short-end rates and yields.
• EUR/USD bounced from 1.0570 to test 1.0600 to the upside where EUR 1.7bln option expiries are due to roll off at the NY cut.
• PBoC set USD/CNY mid-point at 7.1727 vs exp. 7.3174 (prev. 7.1727).
• Credit Agricole FX Month-End Rebalancing: month-end portfolio-rebalancing flows are likely to be mild USD buying across the board with the strongest buy signal in the case of the USD vs the CAD.
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• Click here for the Option Expires for the NY Cut.

NOTABLE FX OPEX

• EUR/USD: 1.0520 (1.2BN), 1.0575 (514M), 1.0600 (1.7BN), 1.0645-55 (1.4BN), 1.0700 (1.8BN)
• AUD/USD: 0.6450-60 (1BN)
• USD/CAD: 1.3500 (1.3BN)

FIXED INCOME

• Bonds regained some composure with some aid from Germany’s Q4 issuance remit, which saw the expected reduction confirmed and was overall a positive development, but the bulk of the cut was at the short end.
• Bunds are holding above 129.00 and BTPs defended 110.00 in wake of reasonable German and Italian auctions in relief more than positive response to the results.
• Gilts plunged to 94.82 before rebounding to 95.64, while T-note fell to the edge of 108-00 at 108-05 before trimming losses to trade back towards 108-12+.
• UK sold GBP 3bln 0.875% 2033 Green Gilt: b/c 2.56x (prev. 3.02x), average yield 4.315% (prev. 4.239%) and tail 1.3bps (prev. 0.2bps).
• Germany sold EUR 3.25bln vs exp. EUR 4bln 2.40% 2028 Bobl: b/c 2.0x (prev. 2.1x), average yield 2.76% (prev. 2.56%) & retention 18.75% (prev. 15.15%)
• Italy sold EUR 3bln vs exp. EUR 2.5-3.0bln 3.60% 2025 BTP & EUR 1.75bln vs. Exp. EUR 1.25-1.75bln 1.50% 2029, 2.55% 2041 BTPei.
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COMMODITIES

• Crude futures are softer intraday following the choppy price action seen yesterday, while the European morning has seen continued downside across the complex as a result of the risk aversion seen across the broader markets.
• Dutch TTF prices are lower by some 7% at the time of writing following the recent surge, which desks believe is due to the upcoming heating seasons, whilst Norway’s Troll field reportedly saw a delayed startup.
• Spot gold and silver are subdued as the Dollar surged in early European trade, while copper prices are off worst levels and iron ore futures saw another session of losses in the East.
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NOTABLE US HEADLINES

• Fed's Kashkari (voter) said there is still more work to do on services inflation but added that they can definitely get back to 2% inflation, while he also stated that they may need higher rates for longer if the economy is too strong but added that they may need to cut rates if real rates are tightening. Furthermore, Kashkari said falling inflation next year could justify backing off the federal funds rate to stop it from getting tighter and noted he is one of the Fed policymakers who see one more rate hike this year.
• US Senate Republican and Democrat negotiators are nearing a deal on a short-term spending measure intended to keep the government open after October 1st, according to Blomberg.
• UAW union called Ford's decision to pause the Michigan battery plant construction a shameful, barely-veiled threat by Ford to cut jobs.
• Apple supplier Pegatron's (4938 TT) India factory to remain shut for a third day on Wednesday following the weekend fire, according to Reuters sources.
• European Commission VP Dombrovskis said Tesla (TSLA) and European carmakers that export from China to the EU will be part of the bloc’s probe into Chinese EV subsidies, via FT.

NOTABLE EUROPEAN HEADLINES

• ECB's Simkus said policy is currently on track for 2% inflation in 2025. He would not rush with an answer when it comes to the timing of rate cuts, according to Bloomberg.
• ECB's Muller said he is not expecting additional rate hikes as things stand, according to Bloomberg.
• UK will sign a trade pact with Washington state aimed at facilitating aerospace deals with the US, according to Bloomberg.
• Germany cut its planned Q4 Federal debt issuance by EUR 31bln. The announced borrowing on the capital market will be reduced by EUR 8bln in Q4 and EUR 23bln less will be raised on the money market, according to the press release.
• Chip-name ASM International (ASM NA) raised its 2025 revenue target and provided 2027 guidance at its Investor Day. Co. sees FY25 Revenue between EUR 3.0-3.6bln (prev. 2.8-3.4bln) while Q3 2023 was guidance reiterated, according to a press release.

GEOPOLITICS

• South Korean President Yoon warned if North Korea uses nuclear weapons, the overwhelming response by South Korea and the US is to bring its regime to an end, while he added that only a strong military can ensure peace, according to Reuters.
• Chinese Foreign Minister Wang said China opposes 'wanton' expansion of military alliances and squeezing the security space of other countries, according to Reuters.
• China MOFCOM said China firmly opposes the US inclusion of some Chinese companies and individuals in the Iran list, according to Reuters.
• Philippines Coast Guard said four Chinese Coast Guard vessels were nearby prior to the Philippines cutting the barrier at the South China Sea shoal and China removed the remnants of the barrier, while China's Coast Guard was not that aggressive and saw media on board the Philippines vessel, according to Reuters.

CRYPTO

• Bitcoin sees price action kept within a tight range above USD 26,000.

APAC TRADE

• APAC stocks were mostly lower with headwinds from the rising global yield environment.
• ASX 200 was subdued by underperformance in real estate and tech as domestic yields climbed.
• Nikkei 225 was pressured following the acceleration in Services PPI data and as recent currency moves keep participants on their toes regarding FX intervention.
• Hang Seng and Shanghai Comp declined with sentiment not helped by trade frictions after the US imposed restrictions on additional Chinese and Russian companies related to supplying Russia with components to make drones, although losses in the mainland were stemmed by another substantial liquidity operation and hope that the approaching Mid-Autumn Festival and National Day Golden Week holidays would provide a boost to consumption and economic activity.

NOTABLE ASIA-PAC HEADLINES

• China's MOFCOM said China and the EU reached agreements on supply chain cooperation in which the agreements also include WTO reform and financial opening, while China urged the EU to exercise prudence in trade remedy.
• Alibaba (BABA), on the proposed spin-off and listing of Cainiao, said HKEX has confirmed that the Co. may proceed with the spin-off, while details have not yet been finalised, and added there is no assurance that the proposed spin-off will take place or when, according to Reuters.
• Some Evergrande (3333 HK) offshore creditors are planning to join the winding-up petition in the event that no new debt restructuring plan is submitted by October 30th, according to Reuters sources.
• China's Auto Industry body CAAM said it hopes the EU will use trade remedy measures prudently, cautiously, and launch countervailing investigation with regards to measures against China's EV products, according to Reuters.
• Japan maintains its overall view on the economy for September, and said "it is recovering moderately"; raises its view on corporate profits in September for the first time since March 2022, suggesting it is "improving as a whole", according to Reuters.
• Japanese Finance Minister Suzuki said they are closely watching FX moves with a great sense of urgency, according to Reuters.
• Japan is reportedly mulling tapping budget reserves that were originally set aside for COVID inflation countermeasures for upcoming economic package and extra budget, according to Reuters.
• Japanese Cabinet Official said BoJ Governor Ueda told a top economic council meeting that it was important to nurture positive signs of change in corporate behaviour, according to Reuters.
• Ex-BoJ board member Sakurai said the BoJ may hold off on ending negative rates until April, according to Reuters.
• Hyundai Motor (005380 KS) and Kia (000270 KS) are to cut EV prices in South Korea until the end of the year. The Cos plan discounts as government expands subsidies for EV purchases. Cos sees EV sales remaining sluggish in South Korea, according to Bloomberg.

DATA RECAP

• Japanese Services PPI (Aug) 2.10% vs. Exp. 1.80% (Prev. 1.70%)

Source: Newsquawk