Continued Spike In Energy Prices Weighing Upon Risk Appetite

Notes/Observations

• German Aug Factory Orders fall more than expected weighed down by auto sector.
• Safe haven flows aid USD as energy surge drives inflation concerns.
• More central banks hike rates to combat inflation (RBNZ overnight, Iceland during EU session; awaiting any surprise out of Poland).

Asia

• Reserve Bank of New Zealand (RBNZ) raised its Official Cash Rate (OCR) by 25bps to 0.50% (as expected) for its 1st rate hike since July 2014.
• South Korea Sept CPI data registered its 6th straight month above target (Y/Y: 2.5% v 2.3%e) with core rate being the fasted in 4 years; keeps rate hike pressures on BOK.
• US President Biden stated he spoke with China President Xi on Taiwan and agreed to abide by Taiwan agreement.

Europe

• ECB chief Lagarde stated that would pay close attention to wage developments and inflation expectations.
• UK PM Johnson said to be planning to announce a ‘significant’ boost to minimum wage within next few weeks to £9.42/hr (currently £8.91/hr for workers 23 and over).
• Spain, Czech Republic, France, Romania and Greece call on EU investigation into the gas market. Asking European Union to develop a toolkit to immediately react to dramatic price surges.

Americas

• President Biden stated that carving out for Filibuster on debt ceiling was a possibility.
• White House Press Sec Jean-Pierre stated that President Biden held constructive meeting with Democratic lawmakers. Biden had confidence in Fed Chair Powell (following renewed criticism of Powell from Sen Warren).
• Senate Banking Chair Crapo (R-ID) said he would vote to confirm Powell if President Biden were to nominate him for another.
• Rep. Pramila Jayapal (D-WA): President Biden’s $1.5T for economic bill was ‘too small’ and ‘not going to happen. Saw number going to be somewhere between 1.5- 3.5T (Note: Biden said to have recently suggested a package in the range of $1.9-$2.2T).

Energy

• Weekly API Crude Oil Inventories: +1.0M v +4.1M prior (2nd straight build).

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -1.75% at 448.02, FTSE -1.43% at 6,976.24, DAX -2.13% at 14,870.95, CAC-40 -1.85% at 6,454.85, IBEX-35 -1.63% at 8,781.50, FTSE MIB -1.92% at 25,458.00, SMI -1.13% at 11,433.00, S&P 500 Futures -1.14%].
• Market Focal Points/Key Themes: European indices open lower across the board and slipped further into the red as the session wore on; generalized lack of risk appetite attributed to concerns over energy and supply chains; less negative sectors include financials and health care; while leaders to the downside include telecom and consumer discretionary; Wienerberger acquires Struxura; EutelSat raises stake in OneWeb; GN Store Nord acquires SteelSeries; corporate events later in the session include Dow Investor Day.

Equities

• Consumer discretionary: Tesco [TSCO.UK] +4% (earnings; raises outlook; buyback), PageGroup [PAGE.UK] +7% (trading update; raises outlook), TUI [TUI1.DE] -1% (trading update; capital increase).
• Consumer staples: Imperial Brands [IMB.UK] -2% (trading update).
• Healthcare: Bayer [BAYN.DE] -1% (Jury verdict).
• Industrials: GN Store Nord [GN.DK] +5% (acquisition; pauses buyback).
• Telecom: Deutsche Telekom [DTE.DE] -4% (share sale).

Speakers

• ECB’s Centeno (Portugal) stated that saw signals of easing in growth momentum.
• France Fin Min Le Maire stated that a consensus was emerging on minimum tax rate of 15%. Debate now on the base for minimum rate.
• EU Energy Commissioner Simon stated that the spike in gas prices was due to a combination of factors; level lower than 10-year average but adequate to cover winter season needs. Russia did not any excess gas capacity to region. Analyzing member States proposals including gas reserves. To act at this time the EU govts could provide targeted support to customers, direct payments to those most at risk, cut energy taxes and shift charges to general taxation.
• EU leaders to discuss energy crisis in detail at the Oct 21-22nd summit.
• Ireland Foreign Min Coveney reiterated view that hopeful Ireland could be a part of new tax rate measure. UK govt was not likely to trigger Article 16 soon. Northern Ireland Protocol document would not change and added he did not read too much into the rhetoric at the UK conservative conference.
• Sweden Central Bank (Riksbank) Dep Gov Skingsley stated that the outlook for inflation was on the weak side but not time to change monetary policy plan at this time. Watchful but not worried by price and wage developments.
• Iceland Central Bank (Sedibanki) Policy Statement noted it would apply the tools at its disposal to ensure inflation moved back to target within an acceptable time frame (noted that Sept CPI was at 4.4%). Underlying inflation had eased but remains at a significant level. H1 GDP growth was weaker compared to Aug forecasts but indicators implied a strong Q3 recovery. It maintained its 2021 GDP growth forecast at 4.0%.
• Russia Central Bank official Tremasov noted that CBR was expected to raise its CPI outlook at next meeting.
• EU court advisor stated that Nord Stream 2 could challenge EU rules and the court’s ruling was non-binding; Final ruling was expected in a few months.

Currencies/Fixed income

• USD maintained its firm tone against the major pairs as concerns about soaring energy prices prompted some safe-haven flows. Dealers were looking ahead to Friday’s US Non-farm payroll report to gauge whether the Fed remained on course to start tapering asset purchases in November.
• EUR/USD approaching 1.1550 as EU data was showing more headwinds on the growth front.
• GBP/USD was softer to hold below the key 1.36 resistance area. Brexit concerns over Irish Protocol and fishing rights weighing on Cable.
• USD/JPY staying below the pivotal 112 level for the time being.

Economic data

• (DE) Germany Aug Factory Orders M/M: -7.7% v -2.2%e; Y/Y: 11.7% v 16.4%e.
• (ES) Spain Aug Industrial Production M/M: -0.3% v +0.9%e; Y/Y: 1.8% v 3.5%e; Industrial Output NSA (unadj) Y/Y: 3.6% v 0.4% prior.
• (HU) Hungary Aug Retail Sales Y/Y: 4.1% v 2.8%e.
• (HU) Hungary Aug Industrial Production M/M: -2.7% v -0.5% prior; Y/Y: 0.6% v 3.9%e.
• (DE) Germany Sept Construction PMI: 47.1 v 44.6 prior.
• (SE) Sweden Aug GDP Indicator M/M: -3.8% v -0.5%e; Y/Y: 2.4% v 8.0% prior.
• (SE) Sweden Aug Private Sector Production M/M: -4.7% v +2.9% prior; Y/Y: 3.4% v 10.7% prior.
• (SE) Sweden Aug Industrial Orders M/M: -2.4% v -1.5% prior; Y/Y: 2.3% v 13.0% prior.
• (SE) Sweden Aug Industry Production Value Y/Y: 0.8% v 13.3% prior; Service Production Value Y/Y: 5.3% v 10.0% prior.
• (SE) Sweden Aug Household Consumption M/M: -1.1% v +0.8% prior; Y/Y: 4.6% v 6.6% prior.
• (TW) Taiwan Sept CPI Y/Y: 2.6% v 2.3%e; CPI Core Y/Y: 1.7% v 1.5%e; WPI Y/Y: 12.0% v 12.0% prior.
• (UK) Sept Construction PMI: 52.6 v 54.0e.
• (IS) Iceland Central Bank (Sedibanki) raised its 7-Day Term Deposit Rate by 25bps to 1.50%.
• (EU) Euro Zone Aug Retail Sales M/M: 0.3% v 0.8%e; Y/Y: 0.0% v 0.4%e.

Fixed income issuance

• (SK) Slovakia Debt Agency (Ardal) opened it book to sell EUR-denominated 30-year bond; guidance seen +55bps to mid-swaps.
• (IN) India sold total INR200B vs. INR200B indicated in 3-month, 6-month and 12-month bills.
• (DK) Denmark sold total DKK3.395B in 2024, 2030 and 2031 DGB Bonds.
• (SE) Sweden sold total SEK3.5B vs. SEL3.5B indicated in 2026 and 2032 Bonds.
• (UK) DMO sold £2.25B in 0.50% Jan 2029 Gilts; Avg Yield: 0.948% v 0.575% prior; bid-to-cover: 2.21x v 2.30x prior; Tail: 0.3bps v 0.3bps prior.

Looking ahead

• (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%.
• (IL) Israel Aug Leading “S” Indicator M/M: No est v 0.2% prior.
• (RU) Russia Sept Light Vehicle Car Sales Y/Y: No est v -17.0% prior.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (DE) Germany to sell €4.0B in 0% Oct 2026 BOBL.
• 05:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 13-week Bills.
• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).
• 06:00 (IE) Ireland Sept Unemployment Rate: No est v 6.4% prior.
• 06:00 (EU) EU Commission to sell 3-month and 6-month bills.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (RU) Russia to sell RUB10B in Mar 2032 inflation-linked OFZ bonds.
• 07:00 (US) MBA Mortgage Applications w/e Oct 1st: No est v -1.1% prior.
• 07:00 (BR) Brazil Sept FGV Inflation IGP-DI M/M: -0.6%e v -0.1% prior; Y/Y: 23.4%e v 28.2% prior.
• 07:00 (MX) Mexico July Gross Fixed Investment: 15.1%e v 17.1% prior.
• 07:00 (MX) Mexico Sept Vehicle Production: No est v 237.0K prior; Vehicle Exports: No est v 212.7K prior.
• 07:00 (UK) Weekly PM Question time in House.
• 08:00 (HU) Hungary Central Bank (MNB) Sept Minutes.
• 08:00 (BR) Brazil Aug Retail Sales M/M: 0.7%e v 1.2% prior; Y/Y: 2.1%e v 5.7% prior.
• 08:00 (BR) Brazil Aug Broad Retail Sales M/M: -0.5%e v +1.1% prior; Y/Y: 3.1%e v 7.1% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:15 (US) Sept ADP Employment Change: +430Ke v +374K prior.
• 09:00 (BR) Brazil Sept Vehicle Production: No est v 164.0K prior; Vehicle Sales: No est v 172.8K prior; Vehicle Exports: No est v 29.4K prior.
• 09:00 (EU) ECB weekly QE bond buying update.
• 09:45 (UK) BOE to buy £1.147B in APF Gilt purchase operation (7-20 years).
• 10:30 (US) Weekly DOE Oil Inventories.
• 12:00 (RU) Russia Sept CPI M/M: 0.5%e v 0.2% prior; Y/Y: 7.3%e v 6.7% prior.
• 12:00 (RU) Russia Sept Core CPI M/M: 0.5%e v 0.6% prior; Y/Y: 7.3%e v 7.1% prior.
• 12:00 (CA) Canada to sell 2-year Notes.
• 19:00 (KR) South Korea Aug Current Account Balance: No est v $8.2B prior; Balance of Goods (BOP): No est v $5.7B prior.
• 22:00 (JP) Japan Sept Tokyo Avg Office vacancies: no est v 6.3 prior.
• 23:00 (TH) Thailand Sept Consumer Confidence: No est v 39.6 prior; Economic Confidence: No est v 33.8 prior.
• 23:00 (ID) Indonesia Sept Foreign Reserves: No est v $144.8B prior.