Higher bond yields weighing upon risk appetite in session, safe haven flows dominate

Notes/Observations

- Safe haven flows dominated the session as higher bond yields pushed European indices lower. Corporate earnings season continues to be in focus.

- Increased rhetoric seen from emerging European officials on EU energy market intervention and new sanctions on Russia and Iran.

- German Parliament approves suspending their debt brake for longer.

- UK retail sales weaker than expected with Govt public finance spending and debt widening substantially.

- UK political speculation ripe in the aftermath of PM Truss' resignation as Johnson, Sunak and Mourdant among leading candidates.

- USD/JPY edged higher towards the 151 neighborhood as Japan officials continue to decline comment on FX levels or intervention. 155/160 seen as next bull target.

- Asia closed mixed with ASX200 under-performing at -0.8%. EU indices are firmly lower by -1.6%. US futures are -0.5% to -1.0%. Gold -0.6%, DXY +0.4%; Commodity: Brent -1.1%, WTI -1.2%, UK Nat Gas -8.0%; Crypto: BTC -1.1%, ETH -1.0%.

Asia

- Japan Sept National CPI data above target level with Highest core annual pace since Sept 2014, ex-sales tax reading highest since Aug 1991) (CPI Y/Y: 3.0% v 2.9%e; CPI Ex-Fresh Food (Core) Y/Y: 3.0% v 3.0%e).

- New Zealand Sept Trade Balance (NZ$): -1.6B v -2.4B prior.

- Japan Fin Min Suzuki: Aims to maximize positive aspects of weak JPY currency. Reiterates stance that cannot tolerate excess FX volatility from speculative trading, closely watching FX with strong sense of urgency

- BOJ increased its amount at regular bond buying operation in 3-5year and 5-10year ranges as JGB bond yield registered 7-year highs for 5-year through 20year maturities.

Europe

- UK Conservative Party leadership contenders need 100 backers by Monday if they are to progress in the race for prime minister; vote between Tuesday and Friday for a new leader.

- UK October GfK consumer confidence -47 vs -52 expected and prior reading at -49.

- Italy’s Right Wing Meloni Bloc said to hold talks today with President Mattarella on forming a government. Coalition could be sworn in over the weekend if an agreement is reached.

Americas

- Fed's Cook (voter) stated that inflation remained stubbornly, unacceptably high; Risks to inflation were skewed to the upside.

- Fed’s Harker (non-voter) noted that Fed funds rate would likely to be well above 4% by year end. Fed to keep raising rates for a while and could pause sometime next year to assess; Policy would be restrictive for a while; disappointed with our progress so far at lowering inflation.

Energy

- EU leaders said to have agreed to endorse further effort towards achieving a cap that immediately limit episodes of excessive gas prices, albeit with heavy German caveats on supply and usage (Germany said to have dropped opposition to an EU gas price cap).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -1.47% at 392.90, FTSE -0.89% at 6,888.81, DAX -1.56% at 12,568.29, CAC-40 -1.58% at 5,990.74, IBEX-35 -2.04% at 7,488.50, FTSE MIB -1.63% at 21,348.00, SMI -1.00% at 10,369.10, S&P 500 Futures -0.65%].

Market Focal Points/Key Themes: European indices open lower across the board and fell further as the session wore on; all sectors start the day in the red; least negative sectors include real estate and health care; sectors among those leading to the downside are consumer discretionary and materials; athleisure firms under pressure following guidance cut by Adidas; logistics firms under pressure following profit warning from PostNL; earnings expected in the upcoming US session include Autoliv, Regions Financial and Schlumberger.

Equities

- Consumer discretionary: Adidas [ADS.DE] -7%, Puma [PUM.DE] -5% (Adidas results), Metro [B4B.DE] +1% (earnings), PostNL [PNL.NL] -11% (prelim results; withdraws outlook).

- Financials: London Stock Exchange [LSEG.UK] -2.5% (trading update).

- Industrials: Renault [RNO.FR] -2% (earnings), FORVIA [EO.FR] -4.5% (earnings).

- Technology: Deliveroo [ROO.UK] +3% (trading update).

Speakers

- UK Chancellor of the Exchequer (Fin Min) Hunt stated that would do whatever was necessary to drive down debt in medium-term to ensure tax-payers money was well spent.

- Hungary PM Orban stated that an agreement had been reached that even if EU imposed gas price cap that long term supply agreements would be exempted.

- Turkey President Erdogan stated there were no obstacles to extend grains transportation deal after talking with Putin and Zelenskiy.

- BOJ Gov Kuroda reiterated stance to continue monetary policy to achieve BOJ target; Expected CPI to slow down after peaking at year-end.

- Japan govt said to be planning to end COVID employment subsidy program at the end-Jan 2023.

- India Central Bank (RBI) Bhide (external member) stated that the MPC should focus on softening core inflation.

- Philippines Fin Min Diokno stated that was prepared to use additional $10B to defend PHP currency (Peso) against depreciation; Looking at additional 100bps hike by end of year.

Currencies/fixed income

- Hawkish Fed rhetoric continued to aid the USD as interest-rate expectations and higher Treasury yields pointed to further strength in the greenback.

- GBP/USD began the session under the 1.12 level with focus on next week’s Tory party leadership race. UK entered another bout of uncertainty with a truncated leadership contest coming following the resignation of PM Truss. Weaker UK retail sales data was another headwind for the pound.

- EUR/USD initial tested the 0.98 level with focus turning to next week’s ECB rate decision. Overall USD strength pushed the pair to below 0.9760 by mid-day.

- USD/JPY continue to move higher and was approaching the 151 level by mid-session. Japan officials continued to decline comment on FX levels or intervention. Dealers now see 155/160 seen as next bull target.

- Japan JGB bond yield registered 7-year highs for 5-year through 20year maturities.

Economic data

- (UK) Sept Retail Sales (Ex-Auto/Fuel) M/M: -1.5% v -0.4%e; Y/Y: -6.2% v -4.2%e.

- (UK) Sept Retail Sales (including auto/fuel) M/M: -1.4% v -0.5%e; Y/Y: -6.9% v -5.0%e.

- (UK) Sept Public Finances (PSNCR): £10.1B v £5.3B prior; PSNB (Ex-Banking Groups): £20.0B v £17.5Be; Net Borrowing: £19.2B v £15.4Be; Central Government NCR: £13.7B v £4.9B prior.

- (DK) Denmark Oct Consumer Confidence: -37.0 v -32.1 prior.

- (SE) Sweden Sept Unemployment Rate: 6.5% v 6.6% prior; Unemployment Rate (seasonally adj): 7.0% v 7.0% prior; Trend Unemployment Rate: 7.1% v 7.2% prior.

- (CH) Swiss Sept M3 Money Supply Y/Y: +0.1% v -0.3% prior.

- (TR) Turkey Oct Consumer Confidence: 76.2 v 72.4 prior.

- (MY) Malaysia mid-Oct Foreign Reserves: $104.5B v $106.1B prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 89.6K v 63.8K tons prior.

- (RU) Russia Narrow Money Supply w/e Oct 14th (RUB): 15.62T v 15.45T prior.

- (PL) Poland Sept Real Retail Sales M/M: -2.8% v -2.2%e; Y/Y: 4.1% v 4.6%e; Retail Sales Y/Y: 21.9% v 21.5%e.

- (PL) Poland Sept Construction Output Y/Y: 0.3% v 6.5%e.

- (HK) Hong Kong Sept CPI Composite Y/Y: 4.4% v 4.1%e.

- (EU) Euro Zone 2021 Govt Debt to GDP Ratio: 95.4% v 95.6% prior.

- (IS) Iceland Sept Wage Index M/M: 0.8% v 0.2% prior; Y/Y: 8.1% v 8.0% prior.

- (BE) Belgium Oct Consumer Confidence: -27 v -27 prior.

Fixed income issuance

- (IN) India sold total INR280B vs. INR280B indicated in 2027, 2032 and 2052 bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa to sell combined ZAR1.2B in I/L 2029, 2038 and 2050 Bonds.

- 06:00 (IE) Ireland Sept PPI M/M: No est v -2.2% prior; Y/Y: No est v 4.7% prior.

- 06:00 (UK) DMO to sell £4.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.5B and £2.5B respectively).

- 06:45 (US) Daily Libor Fixing.

- 07:00 (MX) Mexico Aug Retail Sales M/M: 0.1%e v 0.9% prior; Y/Y: 5.7%e v 5.0% prior.

- 07:30 (IN) India Weekly Forex Reserve w/e Oct 14th: No est v $532.9B prior.

- 07:30 (IN) India announces upcoming bill issuance (held on Wed).

- 07:30 (IS) Iceland to sell 2024 and 2028 RIKB Bonds.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (CA) Canada Aug Retail Sales M/M: +0.1%e v -2.5% prior; Retail Sales (Ex-Auto) M/M: +0.3%e v -3.1% prior.

- 09:00 (IT) Bank of Italy (BOI) Quarterly Economic Bulletin.

- 09:10 (US) Fed’s Williams.

- 10:00 (EU) Euro Zone Oct Advance Consumer Confidence: -30.0e v -28.8 prior.

- 11:00 (EU) Potential sovereign ratings after European close (Moody’s on Slovenia; S&P on Italy, Greece, Netherlands and UK; Fitch on Germany, Czech Republic).

- 13:00 (US) Weekly Baker Hughes Rig Count.