• European bourses are now mostly but modestly firmer after trimming the losses seen at the cash open; US futures scaled back earlier losses to hover around neutral levels.
• DXY gravitates as Treasury yields slip, risk sentiment improves and various institutions step up intervention - with the index retreating from 107.240.
• Debt complex feels reprieve following a deeper downturn in futures and an extension in yields.
• 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
• Looking ahead highlights include US MBA, ADP, ISM, Durable Goods, NBP Policy Announcement, OPEC+ JMMC, Speeches, ECB’s de Guindos & Panetta, Fed’s Schmid, Bowman & Goolsbee. 

4th October 2023

EUROPEAN TRADE

EQUITIES

• 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.
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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.
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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.
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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.
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NOTABLE EUROPEAN HEADLINES

• 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.

DATA RECAP

• EZ HCOB Composite Final PMI (Sep) 47.2 vs. Exp. 47.1 (Prev. 47.1)
• EZ HCOB Services Final PMI (Sep) 48.7 vs. Exp. 48.4 (Prev. 48.4)
• EU Retail Sales MM* (Aug 2023) -1.2% vs. Exp. -0.3% (Prev. -0.2%, Rev. -0.1%)
• EU Retail Sales YY* (Aug 2023) -2.1% vs. Exp. -1.2% (Prev. -1.0%)
• EU Producer Prices MM (Aug 2023) 0.6% vs. Exp. 0.6% (Prev. -0.5%)
• EU Producer Prices YY (Aug 2023) -11.5% vs. Exp. -11.6% (Prev. -7.6%)
• UK S&P Global/CIPS Services PMI Final (Sep) 49.3 vs. Exp. 47.2 (Prev. 47.2)
• UK Composite PMI Final (Sep) 48.5 vs. Exp. 46.8 (Prev. 46.8)

NOTABLE US HEADLINES

• US House voted 216-210 to remove Kevin McCarthy as House Speaker and the House Speaker's office was declared vacant, while US House Republican McHenry will serve as interim Speaker.
• Former House Speaker McCarthy confirmed he will not be in the running for Speaker again. Furthermore, GOP Rep. Garcia said there will be a closed forum next Tuesday to discuss candidates for House Speaker and GOP Rep. Jordan said House Republicans will meet next Wednesday to vote on a new House Speaker.
• US President Biden announces an additional USD 9bln in Student Debt Relief for 125,000 Americans, according to the White House.
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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.

CRYPTO

• Bitcoin traded flat with prices capped by resistance at the USD 27,500 level.
• Ripple secured a major payments institution licence from the Monetary Authority of Singapore.

APAC TRADE

• 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.

NOTABLE ASIA-PAC HEADLINES

• 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.

DATA RECAP

• Japanese Services PMI (Sep F) 53.8 (Prelim. 53.3)
• Japanese Composite PMI (Sep F) 52.1 (Prelim. 51.8)
• Australian Services PMI (Sep F) 51.8 (Prelim. 50.5)
• Australian Composite PMI (Sep F) 51.5 (Prelim. 50.2)