• European equities are mixed/flat, US equity futures edge slightly higher, though the RTY +0.8% outperforms
• Dollar continues to edge lower as markets weigh up the magnitude of the looming Fed cut, G10s gain vs the Dollar, USD/JPY slips below 140
• After last week's late dovish Fed repricing, odds of a 50bps cut sit at 59% vs. 41% chance of a 25bps reduction.
• Bonds are incrementally firmer but with trade rangebound awaiting speak from ECB’s Lane
• Crude is slightly firmer benefiting from the softer Dollar, XAU and base metals gain
• Looking ahead, NY Fed Manufacturing, Canadian Manufacturing Sales, Comments from ECB’s Lane

EUROPEAN TRADE

EQUITIES

• European bourses, Stoxx 600 (U/C) began the session almost entirely in the red, albeit modestly so. As the morning progressed, sentiment gradually improved and now displays more of a mixed picture.
• European sectors hold a negative bias; Retail takes the top spot alongside Consumer Products whilst Basic Resources lags, largely a factor of the poor Chinese data over the weekend.
• US Equity Futures (ES +0.1%, NQ U/C, RTY +0.1%) are indicative of a flat/slightly firmer open, ahead of the FOMC Policy Announcement on Wednesday.
• Intel (+3.5%) gains after the Co. reached a deal to make chips for the US military; a deal worth as much as USD 3.5bln.
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FX

• DXY has extended the slump seen since last Thursday with the dovish Fed repricing the main catalyst. Markets now assign a circa 59% chance of a 50bps reduction this week compared to 15% post-CPI last week. The next target for DXY comes via the YTD trough at 100.51.
• EUR/USD is back above 1.11 thanks to the softer USD. EUR/USD is now eyeing the post-payrolls peak from September 6th at 1.1155 with the YTD high at 1.1201.
• GBP is firmer vs. the USD but flat against the EUR heading into the BoE on Thursday. Expectations are for an unchanged rate with a 7-2 vote split (dovish dissent expected from Dhingra and most likely Ramsden). Attention for Cable is on a test of 1.32; not breached since 6th September.
• JPY is the best performer across the majors as further dovish Fed repricing stands in contrast to a hawkish BoJ. USD/JPY has slipped below 140 for the first time since July 2023.
• Both antipodes are firmer vs. the USD and able to overlook the soft Chinese trade data overnight. AUD/USD has been able to undo much of the downside seen late last week with the current session high of 0.6736.
• CAD is a touch firmer vs. the USD but less so than peers following an interview in the FT with BoC Governor Macklem who signalled that the Bank could increase the size of rate cuts from 25bps to 50bps on account of softening labour market data and weakening crude prices.
• CNH is marginally firmer vs. the USD as the broadly softer dollar overshadows the negative follow-through from further soft Chinese metrics over the weekend.
• Bank of Canada Governor Macklem opened the door to increasing the pace of rate cuts as growth fears mount, according to FT.
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FIXED INCOME

• USTs are relatively contained as markets count down to this week’s FOMC policy announcement, as it stands market pricing has the odds of a 50bps cut at around 60% and a 25bps move at 40%. Despite the shift in pricing, USTs themselves are essentially unchanged at 115-15 in a thin five tick range.
• Bunds are incrementally firmer and towards the midpoint of 134.71-97 parameters. Holding within Friday’s 134.62-135.19 range. The main focus point for the bloc is a speech from ECB's Lane at 13:00BST / 08:00 EDT, a text is expected.
• Gilts are also slightly higher and holding around 20 ticks above the 101.00 mark and just off a 101.30 session peak. For the UK, the week’s focus point is the BoE on Thursday (exp. to hold, 7-2 split possible).
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COMMODITIES

• Crude is modestly firmer intraday amid the softer Dollar but despite the downbeat Chinese data over the weekend which reinforced the theme of an ailing Chinese economy following the Chinese inflation and trade balance figures in the week prior. Brent November trades within 71.52-72.39/bbl.
• Precious metals are firmer across the board amid the softer Dollar and with added optimism for precious metals as spot gold continues printing fresh all-time highs, with today's parameter between USD 2,577.59-2,589.72/oz.
• Mixed trade across base metals with copper on a softer footing following the sub-par Chinese data. 3M LME copper resides in the middle of a 9,219.50-9,291.50/t range.
• UBS cuts Q4 2024 Brent price forecast to USD 75/bbl from USD 83/bbl; Cuts 2024 Brent forecast by USD 4/bbl to USD 80/bbl
• Almost a fifth of US Gulf of Mexico crude oil production remained offline and nearly 28% of natural gas production was shut-in in the aftermath of Francine on Sunday, according to the US offshore energy regulator cited by Reuters.
• BP (BP/ LN) is restarting operations at its Castrol lubricants facility in Port Allen, Louisiana after determining conditions are safe to return and Shell (SHEL LN) is ramping up production at Perdido following the resolution of downstream issues, according to Reuters.
• Chevron (CVX) said its US Gulf of Mexico Jack/St Malo and Big Foot platforms are producing at reduced rates due to onshore gas plant disruption, while it continues to return workers and restore oil production at the US Gulf of Mexico Anchor and Tahiti platforms shut-in by Francine with initial assessments showed that neither the Anchor nor Tahiti platforms suffered significant damage, according to Reuters.
• ANZ expects gold to reach USD 2,900/oz by end of 2025 (current spot price USD 2,587.50/oz).
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NOTABLE DATA RECAP

• EU Labour Costs YY (Q2) 4.7% (Prev. 5.1%, Rev. 5.0%); Wages In Euro Zone (Q2) 4.5% (Prev. 5.3%, Rev. 5.2%); Eurostat Trade NSA, Eur (Jul) 21.2B EU (Prev. 22.3B EU)
• UK Rightmove House Price Index MM (Sep) 0.8% (Prev. -1.5%); YY (Sep) 1.2% (Prev. 0.8%)
• Italian Consumer Prices Final MM (Aug) 0.2% vs. Exp. 0.2% (Prev. 0.2%); CPI (EU Norm) Final YY (Aug) 1.2% vs. Exp. 1.3% (Prev. 1.3%); CPI (EU Norm) Final MM (Aug) -0.2% vs. Exp. -0.1% (Prev. -0.1%); Consumer Prices Final YY (Aug) 1.1% vs. Exp. 1.1% (Prev. 1.1%)
• Italian Trade Balance EU (Jul) 0.642B EU (Prev. -1.045B EU); Global Trade Balance (Jul) 6.743B EU (Prev. 5.065B EU)

NOTABLE EUROPEAN HEADLINES

• ECB's de Guindos says ECB projections show that inflation by 2025-end will hover around 2% target. Inflation in services is still resisting, this remains the ECB's main concern. ECB expects a significant slowdown in growth of labour costs next year. ECB wants to keep all options open when it comes to interest rate decisions. The ECB's balance sheet is expected to decrease by around EUR 40bln per month.
• ECB's Kazimir says the ECB will almost surely have to wait until December for the next rate cut; it would take a significant shift in outlook for ECB to cut in October; very little new info in the pipeline before October meeting. There is no rush to cut rates, safest to wait for the outlook to become clearer.
• UK Chancellor Reeves was advised by a group of leading economists that cutting public investment in the UK would damage the foundations of the economy, according to FT.

NOTABLE US HEADLINES

• Multiple shots were fired near former President Trump’s golf course in West Palm Beach and the Secret Service reportedly opened fire at a suspected person with a weapon while Trump was golfing, according to law enforcement sources cited by AP. Trump’s campaign said the former President is safe following a shooting in his vicinity, while Trump said he will never give up and nothing will stop him. Furthermore, the FBI said it is investigating what appears to be an assassination attempt and a Palm Beach law enforcement official said the suspect was arrested and that they found an AK-47 type weapon.
• WSJ opinion piece by Greg Ip noted that the Fed's rate decision this week looks more difficult than it should be and the real question isn’t how much to cut, but where rates ought to be, while it added that the answer is much lower which argues for a half-point cut.

GEOPOLITICS

MIDDLE EAST

• Sirens sounded in Avivim in the Upper Galilee to warn of rocket launches, according to Al Jazeera.
• Yemen’s Houthis claimed responsibility for a missile attack on central Israel and stated that a Yemeni missile reached Israel after 20 missiles failed to intercept it. There were separate reports that Israel’s military announced sirens were set off by a missile which crossed into the country from the east and fell in an open area but caused no casualties.
• Israeli PM Netanyahu said Yemen’s Houthis should know that they will exact a heavy price for every attempt to harm Israel and noted that a missile fired from Yemen most likely fragmented in mid-air, while he also said the current situation in northern Israel will not continue.
• Houthis said they downed a US drone over Dhamar

OTHER

• Russia’s Medvedev said Russia already has formal grounds to use nuclear weapons but has so far chosen not to do so, while their patience has its limits and their response might come in non-nuclear form.
• Russia’s Deputy Foreign Minister said Moscow is aware that the West decided on whether to allow Ukraine to strike deep within Russia and that Moscow should use other means since verbal warnings to the West against escalation are not working, according to TASS.
• G7 Foreign Ministers condemned in the strongest terms Iran’s export and Russia’s procurement of Iranian ballistic missiles, while they called for Iran to immediately cease all support to Russia’s illegal war against Ukraine and halt such transfers of ballistic missiles, according to Reuters.
• Ukrainian President Zelensky said Ukraine brought home 103 POWs from Russia in a second swap in two days and noted the incursion into Kursk helped bring about a prisoner exchange with Russia.
• Ukrainian spy chief Budanov said North Korea’s artillery supplies to Russia are a major problem and have a visible battlefield impact. Budanov said that Russia has ramped up production of Iskander ballistic missiles and guided bombs, as well as commented that Russia expects to face recruitment problems in the summer of 2025.
• US National Security Adviser Sullivan said long-range weapons permission is the subject of intense consultations among allies and that fighting around Ukraine’s Pokrovsk is of unique concern, while the US is preparing to present a substantial Ukraine aid package this month.
• US military member was detained in Venezuela and it was also reported that two additional US citizens were detained, according to a State Department spokesperson cited by Reuters.
• Russian and Chinese warships practiced missile and artillery firing in the Sea of Japan as part of Ocean-2024 drills, according to RIA.
• China’s military said the transit of two German warships in the Taiwan Strait increased security risks and sent a wrong signal. China’s military also stated that Chinese troops are always on high alert and ready to counter all threats and provocations.
• China’s Coast Guard said Philippine vessel 9701 withdrew from the Sabina Shoal on September 14th which ‘illegally’ stayed there for nearly five months, while it added that China took measures against the Philippine vessel in accordance with the law and the Philippines’ repeated attempts to organise supple replenishment to the vessel had all failed. However, the Philippines said it would send another vessel to immediately takeover from the vessel in the disputed Spratlys.

CRYPTO

• Bitcoin slips and holds around USD 58.5k, whilst Ethereum sees losses to a slightly higher magnitude, down to around USD 2.3k.

APAC TRADE

• APAC stocks were mixed amid the holiday-thinned conditions with many key markets in the region closed and as participants braced for this week's central bank announcements including from the FOMC, BoE and BoJ.
• ASX 200 mildly gained as real estate and financials led the advances across most sectors aside from defensives.
• Hang Seng was dragged lower amid the absence of mainland participants and with underperformance seen in property developers after Chinese house prices further deteriorated, while the latest Chinese Industrial Production and Retail Sales also disappointed.

NOTABLE ASIA-PAC HEADLINES

• China is strongly dissatisfied with and firmly opposes the US locking in tariff hikes on Chinese imports. Furthermore, China urges the US to immediately correct its ‘wrongdoings’ and lift all tariffs imposed on Chinese goods, while China will take necessary measures to firmly safeguard the interests of Chinese firms, according to MOFCOM.
• China Stats Bureau spokesperson said China will step up macro policy adjustments, while they expect a mild rebound in the consumer price index and for quickening bond issuance and policy initiatives to support China’s investment growth.

DATA RECAP

• Chinese Industrial Output YY (Aug) 4.5% vs. Exp. 4.8% (Prev. 5.1%)
• Chinese Retail Sales YY (Aug) 2.1% vs. Exp. 2.5% (Prev. 2.7%)
• Chinese Urban Investment YTD YY (Aug) 3.4% vs. Exp. 3.5% (Prev. 3.6%)
• Chinese House Prices YY (Aug) -5.3% (Prev. -5.0%)