Yields Continue To Rise, UK 30-Year Auction Disappoints

Notes/Observations

• Yields kept climbing pulled up by a hawkish shift at the Fed.
• EU confidence rises as data defied concerns over supply-side constraints and a new surge in Covid-19 cases (Note: Both German and French reading beat consensus).
• Senate fails to advance debt ceiling, government funding measure.
• China Aug industrial profit growth slows for sixth month.
• Oil extends rally into 6th day on tight supply, Brent hitting 3-year high.

Asia

• China PBOC Open Market Operation (OMO) again injected CNY100B in 14-day reverse repos (Note: 8th straight session of PBoC net liquidity injection).
• BOJ July Meeting Minutes (two decisions ago) reiterates its overall assessment that domestic economy had picked up as a trend, although it remained in a severe situation due to the impact of COVID.
• Japan Fin Min Aso stated that he did not believe pent up demand would emerge too easily and would take time for demand to return after state of emergency ends.
• Australia Aug Preliminary Retail Sales M/M: -1.7% v -2.5%e.
• China Aug Industrial Profits slow for the 6th consecutive month (Y/Y: 10.1% v 16.4% prior).
• North Korea fires unidentified projectile into East Sea.

Europe

• ECB’s de Cos (Spain) stated that reduction of ECB monetary support must be done with caution.
• UK govt said to place the army on standby to help ease fuel supply issues with up to 150 military drivers preparing to deliver fuel to station forecourts.

Americas

• Fed Chair Powell Senate testimony stated that Fed would act against ‘sustained’ high inflation; Bottleneck effects were larger and more persistent than expected.
• Fed’s Bostic (FOMC voter, hawk) stated that was not convinced were facing a lengthy bout with troublesome inflation; Without clear data demonstrating inflation had arrived and was likely to last, we would allow labor markets to run their course.
• Fed’s Williams (FOMC voter): Tapering bond buying might soon be warranted; Conditions to support a rate hike still well off.
• Fed’s Brainard noted that economy could reform to pre-pandemic equilibrium of low unemployment and mild inflation. Expected inflation to return to pre-virus dynamics, did not take any signal on liftoff from taper timing.
• Fed’s Kashkari (dove, non-voter) stated that our highest priority was to put people back to work.
• Dallas Fed’s Kaplan to retire on Oct 8th (Reminder: Fed’s Rosengren (non-voter) said to retire on Sept 30th).
• Senate Republicans blocked a measure to fund the government and suspend the debt ceiling Monday evening.
• Democrats said to be hinting that they could be willing to drop the debt ceiling from their government funding package this week in order to avoid a government shutdown – Politico.

Energy

• WTI Crude continues to rise, Brent trades above $80/bbl.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -1.03% at 457.64, FTSE -0.28% at 7,043.31, DAX -0.70% at 15,464.75, CAC-40 -1.14% at 6,575.28, IBEX-35 -0.97% at 8,915.50, FTSE MIB -0.63% at 25,967.00, SMI -1.16% at 11,556.00, S&P 500 Futures -0.65%].
• Market Focal Points/Key Themes: European indices open mixed with a downward bias, then fell into the red later in the session; better performing sectors include energy and financials; consumer discretionary and technology sectors among those leading to the downside; oil and gas subsector supported by rise in crude prices; Castellum divests property portfolio; Blue Prism to be acquired by Vista; reportedly SocGen looking to acquire ING’s retail bank unit; Maerks sells it’s reefer construction unit; Wolters Kluwer sells its US legal ed business; focus on upcoming testimony from Fed’s Powell before Congress; earnings expected later in the US session include IHS Markit, Micron Technologies and Synnex.

Equities

• Consumer discretionary: Ferguson [FERG.UK] +1% (earnings; buyback), Smiths Group [SMIN.UK] +3% (earnings; confirms divestment), Go-Ahead [GOG.UK] -18%.
• (CFO resigns; Updates on Southern Contract), Card Factory [CARD.UK] -1% (earnings), EasyJet [EZJ,UK] -3% (results of rights issue).
• Technology: ASM International [ASM.NL] -4% (investor day), Blue Prism Group [PRSM.UK] -2.5% (to be acquired).

Speakers

• ECB’s Villeroy (France) reiterated view that inflation rate will fall below 2% by 2023.
• ECB’s Kazimir (Slovakia): Financing conditions remain favorable.
• Sweden Central Bank (Riksbank) Bremam stated had clearly indicated that would tolerate inflation over target for a while. Having Repo Rate outlook that was on the accommodative side was OK as it was only a forecast.
• Turkey Central Bank Gov Kavcioglu stated that planned to increase FX reserves and saw no reason for further depreciation in currency.
• Romania Central Bank official Popa: Favor faster rate hikes.
• Japan PM Suga to lift the Coronavirus State of Emergency on Sept 30th (as expected).
• China State Grid stated that power supply for Beijing was ample and that cuts made during the week were due to regular checks.
• China PBOC Gov Yi Gang: No need to purchase assets at this time. Saw China’s economy potential growth between 5.0-6.0%.

Currencies/Fixed Income

• Plethora of recent Fed speak reinforces message of tapering and US bond yields continued to climb. The 10-year Treasury yield approached the 1.55% level during the session.
• USD/JPY at 3-month highs and edging to the key resistance area of 112. JPY currency furthered weakened after a weak JGB auction that added to negative sentiment. Focus also on the LDP ruling party election on Wednesday.
• EUR/USD holding below the 1.17 level as US yields kept climbing pulled up by a hawkish shift at the Fed.
• GBP/USD moved back below the 1.37 level as markets reassessed the BOE. Dealers noted the current supply chain crisis could discourage the Bank of England from raising interest rates.

Economic data

• (NL) Netherlands Sept Producer Confidence Index: 11.1 v 9.6 prior.
• (FI) Finland Aug Preliminary Retail Sales Volume Y/Y: 1.2% v 3.4% prior.
• (DE) Germany Oct GfK Consumer Confidence: +0.3 v -1.5e (1st positive reading in 19 months).
• (NO) Norway Aug Retail Sales (includes auto/fuel) M/M: -3.8% v +0.6%e.
• (FR) France Sept Consumer Confidence: 102 v 100e.
• (ES) Spain July Total Mortgage Lending Y/Y: 5.7% v 29.9% prior; House Mortgage Approvals Y/Y: 36.8% v 41.2% prior.
• (HU) Hungary Aug Unemployment Rate: 4.0% v 3.7%e.
• (SE) Sweden Aug Retail Sales M/M: +0.7% v -0.2%e; Y/Y: 6.6% v 5.3%e.
• (SE) Sweden Aug Trade Balance (SEK): -10.3B v 6.6B prior.
• (AT) Austria Sept Manufacturing PMI: 62.8 v 61.8 prior (15th straight expansion).
• (HK) Hong Kong Aug Trade Balance (HKD): -26.3B v -29.2Be; Exports Y/Y: 25.9% v 26.0%e; Imports Y/Y: 28.1% v 28.9%e.
• (IS) Iceland Sept CPI M/M: 0.5% v 0.5% prior; Y/Y: 4.4% v 4.3% prior.

Fixed income Issuance

• (NL) Netherlands Debt Agency (DSTA) sold €4.92B vs. €3.0-5.0B indicated range in new 0.0% Jan 2029 DSL Bonds; Avg Yield: -0.251% v -0.479% prior.
• (ID) Indonesia sold total IDR12.0T vs. IDR12.0T target in bills and bonds.
• (IT) Italy Debt Agency (Tesoro) sold €5.5B vs. €5.5B indicated in 6-month bills; Avg Yield: -0.545% v -0.519% prior; Bid-to-cover: 1.29x v 1.28x prior.
• (UK) DMO sold £2.0B in 1.25% July 2051 Gilts; Avg Yield: 1.332% v 0.972% prior; bid-to-cover: 2.05x v 2.41x prior; Tail: 1.1bps v 0.5bps prior.
• (CH) Switzerland sold CHF637.0M in 6-month Bills; Avg Yield: -0.776% v -0.750% prior.

Looking Ahead

• (PL) Poland Central Bank to hold non-monetary policy meeting.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (ZA) South Africa Q2 Non-farm Payrolls Q/Q: +0.1%e v -0.1% prior; Y/Y: -1.0%e v -5.4% prior.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills; Avg Yield: % v 1.11% prior; bid-to-cover: x v 1.70x prior.
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).
• 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2035, 2040 and 2048 bonds.
• 06:00 (IE) Ireland Aug Retail Sales Volume M/M: No est v -1.7% prior; Y/Y: No est v 5.2% prior.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (MX) Mexico Aug Unemployment Rate NSA (unadj): 4.4%e v 4.4% prior.
• 07:00 (BR) Brazil Central Bank (BCB) Sept Minutes.
• 07:00 (SE) Sweden Central Bank (Riksbank) Dep Gov Skingsley.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:00 (EU) ECB chief Lagarde opens ECB forum.
• 08:30 (US) Aug Advance Goods Trade Balance: -$87.3Be v -$86.4B prior.
• 08:30 (US) Aug Preliminary Wholesale Inventories M/M: 0.8%e v 0.6% prior; Retail Inventories M/M: 0.5%e v 0.4% prior.
• 08:30 (ES) ECB’s De Guindos (Spain).
• 08:50 (UK) BOE’s Mann.
• 08:55 (US) Weekly Redbook LFL Sales data.
• 09:00 (US) July FHFA House Price Index M/M: 1.5%e v 1.6% prior.
• 09:00 (US) July S&P Case-Shiller House Price Index (20-City) M/M: 1.70%e v 1.77% prior; Y/Y: 20.00%e v 19.08% prior.
• 09:00 (US) July S&P Case-Shiller House Price Index (Overall) Y/Y: No est v 18.61% prior.
• 09:00 (EU) Weekly ECB Forex Reserves.
• 09:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).
• 09:00 (US) Fed’s Evans.
• 09:45 (IT) ECB’s Panetti (Italy).
• 09:45 (EU) ECB weekly QE bond buying update.
• 09:45 (UK) BOE to buy £1.47B in APF Gilt purchase operation (20+ years).
• 10:00 (US) Sept Consumer Confidence Index: 115.0e v 113.8 prior.
• 10:00 (US) Sept Richmond Fed Manufacturing Index: 10e v 9 prior.
• 10:00 (MX) Mexico Weekly International Reserve data.
• 10:00 (US) Fed chief Powell in Senate.
• 10:00 (SE) Sweden Central Bank (Riksbank) Gov Ingves.
• 11:00 (DE) ECB’s Schnabel (Germany).
• 13:00 (US) Treasury to sell 7-year notes.
• 15:00 (AR) Argentina July Economic Activity Index (Monthly GDP) M/M: No est v 2.5% prior; Y/Y: 8.5%e v 10.8% prior.
• 15:00 (US) Fed’s Bostic.
• 16:30 (US) Weekly API Oil Inventories.
• 19:01 (UK) Sept BRC Shop Price Index Y/Y: No est v -0.8% prior.
• 21:10 (JP) BOJ Outright Bond Purchase Operation for 3~5 Years and 5~10 Years maturities.
• 22:00 (VN) Vietnam Q3 GDP Y/Y: 1.9%e v 6.6% prior.
• 22:00 (VN) Vietnam Sept CPI Y/Y: 3.1%e v 2.8% prior.
• 22:00 (VN) Vietnam Sept Trade Balance: -$1.8Be v -$1.3B prior; Exports Y/Y: +0.5%e v -5.4% prior; Imports Y/Y: 15.0%e v 21.2% prior.
• 22:00 (VN) Vietnam Sept YTD Retail Sales Y/Y: No est v -4.7% prior.
• 22:00 (VN) Vietnam Sept Industrial Production Y/Y: No est v 5.6% prior (revised from -7.4%).
• (JP) Japan Ruling Party (LDP) agreed on leadership.