• European bourses are entirely in negative territory, with initial outperformance in the DAX 40 (due to strong SAP results) now entirely erased; US futures are also lower.
• Dollar is flat, Antipodeans outperform attempting to recoup some of its recent losses.
• Bonds remain on the backfoot in a continuation of the pressure seen in the prior session
• Crude was initially subdued, giving back some of the prior day’s gains; however, following two key geopolitical updates, the complex soared to session highs.
• 1) Israeli PM Netanyahu will hold consultations tonight with various cabinet ministers, 2) Iranian embassy officials were reportedly involved in the drone attempt on Netanyahu
• Looking ahead, ECB's Centeno, Knot, Lagarde & Lane, BoE's Greene, Bailey & Breeden, Fed's Harker, NBH Policy Announcement. Earnings from L'Oreal; Danaher, General Electric, Raytheon Technologies, 3M, General Motors, Philip Morris International, Sherwin-Williams, Fiserv, Verizon Communications, Lockheed Martin, Freeport-McMoRan & Texas Instruments.

EUROPEAN TRADE

EQUITIES

• European bourses, Stoxx 600 (-0.2%) began the session mostly, but modestly on the backfoot, (ex-DAX 40 & Euro Stoxx 50; benefiting from post-earning strength in SAP) and have traded in a busy range throughout the morning; in recent trade, indicies are now broadly in the red, due to geopolitical updates out of Israel.
• European sectors hold a strong negative bias; Tech is by far and away the clear outperformer, lifted by post-earning strength in SAP (+5.4%). Real Estate is towards the foot of the pile, given the relatively higher yield environment.
• US Equity Futures (ES -0.1%, NQ -0.2%, RTY -0.4%) are modestly in the red to varying degrees and with slight underperformance in the RTY, which was subject to hefty selling pressure in the prior session.
• ASML (ASML NA) CEO says 2025 will be a growth year, the long term will still see growth. "Not everyone is surfing the AI wave". "What we have seen in the last few months is people beginning to push the breaks". "China demand is for mainstream chips, older generations of technology". "Normal Chinese demand is for 20-25% of ASML's sales, expect it to return to those levels". "China may be able to produce some 5 or 3 nanometre chips, but few, using older tech". It is clear the US will push for more export restrictions to China. "The Netherlands and Europe will start to discuss with China export restrictions make sense"
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FX

• USD is broadly slightly softer vs. peers and to varying degrees. That being said, DXY remains in close proximity to Monday's 104.01 peak and above its 200DMA at 103.72.
• EUR is marginally firmer vs. the USD but unable to scale back much of the downside from yesterday which saw the pair match last week's multi-month low at 1.0810. Docket ahead sees a slew of ECB speakers.
• Cable is continuing to pivot around the 1.30 mark within a 1.2980-1.3014 range. Focus today will be on today's trio of BoE speakers with Governor Bailey being the obvious highlight, with focus on if he echoes his recent dovish rhetoric.
• JPY is unable to claw back any of the losses vs. the USD seen during yesterday's session which brought the pair above its 100DMA at 150.73 and breifly onto a 151 handle. If upside resumes, technicians flag the 200DMA at 151.34.
• Antipodeans are both firmer vs. the USD and attempting to atone for recent losses. Overnight, AUD/USD printed a fresh low for the month at 0.6652 before paring losses (no clear fundamental driver was behind the move). NZD/USD has endured similar price action after recovering from a 0.6022 base overnight.
• Goldman Sachs says the EUR could drop as much as 10% under Trump tariff and domestic tax cuts.
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FIXED INCOME

• Bunds are under pressure in a continuation of the action seen on Monday which was primarily a function of supply and energy upside. Bunds are around a 132.69 trough, having faded from Monday’s 133.06 low. The complex was fairly unreactive to a new German 2026 auction.
• USTs are in-fitting with the above, and in a continuation of the "Trump trade" seen in the prior session. Region awaits its own supply which comes on Wednesday with a 20yr tap, but before that, Fed's Harker.
• Gilts are pressured in-fitting with the above and roughly in-line with peers. Docket ahead sees a Bank of England trio of Governor Bailey, Breeden and Greene. Currently just off a 96.67 base and erring back towards opening levels of 96.88.
• Orders for Italy's new seven-year over EUR 70bln (spread at 7bps) whilst 30-year BTP tap demand is in excess of EUR 80bln (spread at 9bps), according to Reuters.
• UK sells GBP 900mln 0.625% 2045 I/L Gilt: b/c 3.57x (prev. 3.44x) & real yield 1.328% (prev. 1.20%).
• Germany sells EUR 4.162bln vs exp. EUR 5.0bln 2.00% 2026 Schatz: b/c 2.61x, average yield 2.16%, and retention 16.76%.
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COMMODITIES

• Crude oil is subdued following a firmer session on Monday despite a lack of fresh drivers but as markets still await Israel's attack on Iran. The complex then lifted off worst levels amid reports that Israeli PM Netanyahu will hold consultations tonight with a specific number of his cabinet ministers at the headquarters of the Ministry of Defense in Tel Aviv, via Al Jazeera. Thereafer, reports that Iran was involved in the assassination attempt on Netanyahu, crude soared to session highs of USD 75.06/bbl.
• Spot gold is firmer intraday with the complex buoyed by the aforementioned geopolitics, ahead of US elections, and with extra momentum after notching fresh all-time highs. XAU resides in a current USD 2,719-2,738.50/oz range.
• Base metals are mostly firmer trade in the complex with gains in most industrial metals pinned on hopes of Chinese stimulus, although iron ore prices retreated with desks citing concerns of softening steel demand.
• US is reportedly in talks with Southeast Asian nations to deploy small modular nuclear reactors, according to Bloomberg.
• China crude steel output -6.1% Y/Y to 77.1mln tonnes in September 2024; global steel output -4.7% Y/Y to 143.6mln tonnes, according to worldsteel.
• Click for a detailed summary

NOTABLE DATA RECAP

• UK PSNB Ex Banks GBP (Sep) 16.613B GB vs. Exp. 17.5B GB (Prev. 13.734B GB, Rev. 13.022B GB)
• UK PSNCR, GBP (Sep) -20.484B GB (Prev. 4.875B GB, Rev. 4.985B GB)
• UK Net Debt as a % of GDP (Sep) 98.5% vs OBR Exp. 99% (prev. 100%, rev. 98.8%)

NOTABLE EUROPEAN HEADLINES

• UK Shadow Chancellor Hunt warned Chancellor Reeves against hiking business taxes ahead of next week's Budget, according to FT.
• Italy's budget deficit seen at 3.9% of GDP in 2024 (exp. 3.8%); GDP expected to grow 0.8% in 2024 (exp. 0.9%) and 0.9% in 2025 (est. 1.1%)

NOTABLE US HEADLINES

• Fed's Daly (2024 voter) said the Fed will continue to adjust policy and a 50bps cut was to right-size policy, while she expects additional cuts going forward. Daly said the recent Fed rate cut was a close call and she came down strongly in favour of a 50bps cut, as well as noted that a 50bps cut was needed and they didn’t want to find out they had overtightened and taken jobs from people. Furthermore, she said they will be data-dependent for the Fed's November meeting and haven't seen anything so far that would suggest they would not continue to cut rates, while she noted policy is absolutely still tight and would want to be open-minded to continue to ease policy if inflation is falling, even if the economy is strong.
• Fed's Schmid (2025 voter) called for a cautious, gradual and deliberate approach to rate cuts, while he prefers to avoid outsized rate cuts and noted that they are seeing a normalisation of the labour market, not a deterioration. Furthermore, Schmid said current policy is restrictive, but not very restrictive, as well as noted the balance sheet is probably influencing longer-term rates and that they should be normalising the Fed's balance sheet on both size and duration.

GEOPOLITICS

MIDDLE EAST

• Israeli PM Netanyahu will hold consultations tonight with a specific number of his cabinet ministers at the headquarters of the Ministry of Defense in Tel Aviv, via Al Jazeera citing Israeli media.
• "Officials at the Iranian embassy in Beirut are involved in the assassination attempt on PM Netanyahu. The Israeli investigation shows Iranian involvement in launching the drone towards Netanyahu's house", via Kans' Kai on X citing Saudi Al-Hadath channel
• "Al-Arabiya correspondent: Netanyahu meets today with security leaders in Tel Aviv after meeting with Blinken", according to Al Arabiya
• Israeli Home Front said sirens sounded in Haifa, its Gulf and dozens of cities and sites in northern Israel, while it was later reported that Israeli media and military announced sirens sounded in central Israel's Samaria area, West Bank settlements, Acre and areas in upper Galilee.
• Israel's Channel 14 reported that the homes of senior officials in Iran were added as possible targets for Israeli attack and the Air Force will know the exact target of the attack shortly before implementation, according to Al Jazeera. Furthermore, Israel's Channel 14 cited Israeli sources that stated plans for the strike against Iran were presented by the military leadership and the Mossad to the Prime Minister and Minister of Defence, according to Sky News Arabia.
• US Secretary of State Blinken said he is heading to Israel and other stations in the region to discuss ending the war in Gaza, returning the hostages and alleviating the suffering of the Palestinians, according to Al Jazeera.

OTHER

• UK is to lend Ukraine an additional GBP 2.26bln for weapons to fight Russia with the loans to be repaid using interest generated from USD 300bln of Russian frozen assets, according to The Guardian.

CRYPTO

• Bitcoin gives back some of its recent advances and slips below USD 69k.

APAC TRADE

• APAC stocks traded mixed with participants somewhat cautious following the mostly negative bias stateside amid a lack of major catalysts, ongoing geopolitical tensions in the Middle East and a higher yield environment.
• ASX 200 retreated from the open with Real Estate and Healthcare leading the broad downturn seen across sectors.
• Nikkei 225 was pressured following its recent failure to hold on to the 39,000 level despite a weaker currency.
• Hang Seng and Shanghai Comp shrugged off early weakness to trade in the green albeit with price action choppy as the attention turned to earnings updates, while the PBoC conducted its first swap operation involving securities brokerages, funds and insurance companies worth CNY 50bln on Monday.

NOTABLE ASIA-PAC HEADLINES

• Chow Tai Fook Jewellery (1929 HK) reports same store sales down 24.3%; HY revenue decreases by 18%; HY Net profit decreases by 42%.
• China's FX regulator said the Yuan exchange is basically stable at reasonable and balanced levels, while it added that cross-border capital turned to inflows in the first three quarters of this year and cross-border capital flow has been balanced since the start of 2024. Furthermore, it stated the FX market shows relatively strong resilience and market expectations and trading are in order overall.
• FT article suggests that there is no sign yet of determined Chinese reforms or spending to spur more household consumption, despite many agreeing that President Xi's thinking on stimulus has changed. Focus is reportedly still largely on repairing local governments' and banks' balance sheets.
• China State Planner say China will continue to issue ultra long term special government bonds in 2025; and further optimise their allocation next year.

DATA RECAP

• New Zealand Trade Balance (NZD) (Sep) -2.1B (Prev. -2.2B, Rev. -2.3B); Imports (Sep) 7.1B (Prev. 7.2B, Rev. 7.2B)