• European bourses have mostly kicked the week off on the backfoot as geopolitical concerns grip the market narrative following a surprise multi-front attack by Hamas on Israel.
• Crude futures overnight saw intraday gains of more than 5% after Hamas' attack on Israel which Iranian officials reportedly helped to plan.
• DXY grinds higher along with other safe havens after the onset of war between Israel and Hamas; ILS sees heavy losses despite intervention by the Bank of Israel.
• Shanghai Comp. was pressured as participants returned from the Mid-Autumn Festival and National Day Golden Week holidays; Chinese President Xi met with US Senate Majority Leader Schumer and US senators in Beijing on Monday.
• Looking ahead, highlights include US Employment Trends, Fed’s Logan, Barr, Jefferson, ECB’s Knot.

9th October 2023

SNAPSHOT

• Click here for the Newsquawk Week Ahead summary.
• Click here for the Newsquawk Israel-Palestine analysis piece.

EUROPEAN TRADE

EQUITIES

• European bourses have mostly kicked the week off on the backfoot as geopolitical concerns grip the market narrative following a surprise multi-front attack by Hamas on Israel.
• Sectors in Europe are mostly softer with Energy names the clear outperformer to the upside amid the geopolitically-inspired upside in crude prices, which subsequently weighs on airliners alongside the scrapping of routes via Israel. Given the use of military forces in the Israel-Palestine conflict, European Defence names are also firmer intraday.
• US futures are trading lower as global geopolitical tensions keep traders in a risk-off mood, while participants also gear up for the start of Q3 earnings season later this week.
• Click here for more details.

FX

• DXY grinds higher along with other safe havens after the onset of war between Israel and Hamas - DXY trades towards the top of a 106.600-140 range.
• Yen and Gold outperform on geopolitical factors - USD/JPY tests 149.00 to the downside.
• Shekel slumped through 3.9000 vs Dollar on the conflict before the Bank of Israel intervention to curb depreciation and provide liquidity.
• Sterling and Euro retreat as Buck bounces with EUR/USD sub-1.0550 option strike and Cable losing 1.2200+ status.
• Bank of Israel has announced a programme to sell up to USD 30bln in FX, and will provide liquidity to the market via a swap mechanism of up to USD 15bln as necessary, according to Bloomberg and Reuters.
• Click here for more details.
• Click here for the Option Expires for the NY Cut.

FIXED INCOME

• Bonds boosted by flight to quality amidst the outbreak of war between Israel and Hamas.
• Bunds rebound from 127.93 to 128.69 at best, Gilts extend to 92.98 from 92.65 early Liffe low.
• T-note back on the 107-00 handle between 107-02+/20+ parameters in the absence of cash trade due to Columbus Day.
• Click here for more details.

COMMODITIES

• Crude front-month futures are firmer intraday but off worst levels, after gapping higher at the resumption of electronic trade on the back of the geopolitical flare-up in the Middle East coupled with China’s return to the market from the long holiday.
• Dutch TTF Nov rises 7.5% intraday to levels above EUR 41/MWh, while over in Australia, Chevron said it continues to work with all parties to draft a final agreement based on the recommendation of the Australian Fair Work Commission in response to new strike threats.
• Spot gold saw a surge of over USD 20/oz overnight as traders flocked to the haven after Israel declared war following the surprise attack by Hamas over the weekend.
• Base metals are firmer across the board as China returns from its Golden Week holiday.
• Saudi Arabia, Iraq, Kuwait, UAE, Oman and Bahrain reaffirmed commitment to collective and individual voluntary adjustments to oil production, according to Saudi state news agency.
• Iraq set the November 2023 Basrah medium crude price to Asia at +USD 2.10/bbl vs Oman/Dubai and to Europe at -USD 1.15/bbl vs Dated Brent, while it set the price to North and South America at -USD 0.25/bbl vs ASCI, according to SOMO.
• Iraq’s Oil Minister said demand for oil would increase by around 2mln bpd next year and that the world still needs fossil fuels, while its Deputy PM for Energy Affairs said Baghdad shifted its focus to using natural gas for power generation. Furthermore, Iraq said it had not received formal notification from Turkey that the oil pipeline bringing crude from Iraq is operational, according to two senior officials cited by Reuters.
• Chevron (CVX) continues to work with all parties to draft a final agreement based on the recommendation of the Australian Fair Work Commission in response to new strike threats.
• China released the 4th batch of 2023 crude oil import quota totalling 9.54mln tons.
• OPEC WORLD OIL OUTLOOK (2023): Global 5-year ahead oil demand forecast increased from the 2022 report, in fitting with recent sources.
• Finland’s Gasgrid said it is preparing an operation to investigate the cause of a suspected gas pipeline leak and locate the possible leak point, while pipeline repair work may take at least several months depending on the nature of the damage, according to Reuters.
• Russia resumes its seaborne diesel exports, via Interfax.
• Copper producers warned of a lack of mines to meet the demand for the metal, according to FT.
• Click here for more details.

NOTABLE EUROPEAN HEADLINES

• ECB President Lagarde said they are not seeing a wage-price spiral for the moment but are monitoring it closely, while she reiterated the stance that rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target, according to an interview published by La Tribune Dimanche on Sunday which was conducted on October 2nd.
• ECB's Kazaks said the rapid rise in rates is already behind us and can currently also count on the fact that the ECB may pause, any future rate hike would be relatively small, according to Bloomberg.
• ECB's De Guindos sees inflation falling in coming months but urges caution due to the evolution of oil prices. He added economic growth in H2 is likely close to zero. He expects current levels of rates to contribute to the stabilisation of prices. ECB must be prudent and watch oil prices and labour costs, according to Reuters.

EUROPEAN DATA RECAP

• EU Sentix Index* (Oct 2023) -21.9 vs. Exp. -22.8 (Prev. -21.5)

NOTABLE US HEADLINES

• Fed’s Bowman (voter) said it is likely appropriate to raise interest rates further and hold them restrictive for some time, while she added the frequency and scope of recent data revisions complicate economic projections. Furthermore, Bowman said the most recent US employment data showed a labour market with solid gains and she also stated that inflation progress is likely to be slow which suggests further policy tightening will be needed.
• US Treasury official said giving more value to callable capital in balance sheets could unlock significantly more financing power for multilateral development banks, while the US Treasury is driving the World Bank and others to finalise plans for callable capital by April.
• Click here for the US Early Morning Note.

GEOPOLITICS

ISRAEL - PALESTINE

• Palestinian militant group Hamas launched a surprise multi-front attack on Israel in which militants stormed Israeli towns and claimed to have launched up to 5,000 rockets, while Israeli news reports stated that at least 700 Israelis were killed with more than 2,000 wounded and dozens taken captive. It was separately reported that 232 Palestinians were killed in Israeli air strikes in Gaza, while Israel’s Foreign Ministry said two Israeli tourists and their Egyptian guide were killed in a shooting attack in Alexandria, Egypt.
• Israeli PM Netanyahu said Israel is now at war with Hamas and that their enemy will pay a price it has never known before. It was separately reported that US President Biden said the US stands with Israel and will never fail to have their back. Furthermore, Biden added that Israel has the right to defend itself and its people, while he directed additional support for Israel, according to the White House.
• Negotiations begin between Israeli PM Netanyahu and opposition Gantz on forming an emergency government, according to Al Arabiya.
• Sirens in Jerusalem warning of possible incoming rockets, via Reuters witnesses; some reporting of explosions heard in the area, according to Reuters.
• US Defense Secretary Austin said they have directed the movement of the USS Gerald R. Ford carrier strike group to the eastern Mediterranean and the US will be providing Israel's defence forces with additional equipment and resources including munitions, according to Reuters.
• Iranian President Raisi said Iran supports the legitimate defence of the Palestinian nation and that the Zionist regime and its supporters are responsible for instability in the region, according to Tasnim.
• Iranian security officials reportedly helped plan Hamas’s surprise attack on Israel and gave the green light for the assault at a meeting in Beirut last Monday, according to senior Hamas and Hezbollah members cited by WSJ. However, CNN reported the US is still seeking to determine Iran's connection to the attack.
• Iranian Foreign Ministry spokesperson said Tehran has called for an emergency meeting of the Organisation of Islamic Cooperation amid regional developments, according to Reuters.
• Iran rejects accusations of involvement in the Hamas operation against Israel, according to Sky News Arabia
• Click here for the Newsquawk Israel-Palestine analysis piece.

US-CHINA

• US Senate Majority Leader Schumer led a bipartisan US Senate delegation to China which arrived in Shanghai on Saturday. It was separately reported that Chinese Foreign Minister Wang Yi called on the US to 'manage existing differences more rationally' in a meeting with US Senate Majority Leader Schumer, according to AFP News Agency.
• Chinese President Xi met with US Senate Majority Leader Schumer and US senators in Beijing on Monday, via Chinese State Media, cited by Bloomberg.

OTHER

• Turkish military conducted air strikes against Kurdish militant targets in northern Syria and destroyed targets including an oil facility, shelters and depots with many militants neutralised, according to the Defence Ministry cited by Reuters.
• Ukraine said it expects a record number of drone attacks this winter, according to its air force cited by Reuters.

CRYPTO

• Bitcoin is subdued under USD 28,000 as prices gradually waned from highs throughout the European morning before seeing another leg lower.

APAC TRADE

• APAC stocks were mostly lower in holiday-quietened conditions and US equity futures were pressured amid geopolitical concerns after a surprise multi-front attack by Hamas on Israel which resulted in at least 700 Israeli deaths and prompted Israel to declare war on Hamas with air strikes conducted on Gaza where 400 have been killed. This spurred a flight to safety which underpinned T-note futures and gold although the biggest moves were seen in oil prices which jumped amid the heightened geopolitical risk as a report also claimed that Iranian security officials helped Hamas plan the attack.
• ASX 200 kept afloat with gains led by strength in the energy and mining-related sectors as underlying commodity prices were lifted owing to the conflict in the Middle East and the return of Chinese buyers to the market.
• Shanghai Comp. was pressured as participants returned from the Mid-Autumn Festival and National Day Golden Week holidays, while Hong Kong trade was delayed for most of the day due to a typhoon no. 8 signal and black rainstorm warning which further added to the already thinned markets caused by holiday closures in Japan, South Korea and Taiwan.

NOTABLE ASIA-PAC HEADLINES

• China's MOFCOM extended the investigation of Taiwan's trade barriers against China by 3 months.
• PBoC set USD/CNY mid-point at 7.1789 vs exp. 7.2945 (prev. 7.1798)
• Country Garden (2007 HK) says it is considering to announce a restructure plan of its overseas debt in the near future, according to Reuters.

DATA RECAP

• Chinese Foreign Reserves (USD)(Sep) 3.115T (Prev. 3.160T)