Risk Appetite Finds Some Hope On Possible US Debt Ceiling Deal , Relief In Energy Prices

Notes/Observations

• Germany Aug Industrial Production data missing expectations and adds to the string of disappointing indicators showing region’s conditions have worsened.
• Risk appetite finding some fresh legs as Senate Democrats seem poised to accept a Republican proposal to defer the showdown over the debt ceiling until later this year.
• Focus remains on Fri Non-farm payroll report to gauge whether the Fed would signal a withdraw of monetary stimulus.

Asia

• BOJ quarterly Regional Economic Report (Sakura): Downgrades assessments of 5 of 9 regions. Cited summer surge in infection cases and production cuts from supply shortages.
• China President Xi will speak on Taiwan Policy on Oct 9th speech – Taiwan press.
• Senior White House official: Pres Biden and Pres Xi will hold a virtual meeting before the end of 2021.

Coronavirus

• South Korea said to begin transition away from coronavirus rules starting Nov 9th – Korea Daily.

Europe

• ECB said to be studying new bond buying plan for when PEPP ended, plan to prevent widening of spreads. New program would complement older asset purchase plan.

Americas

• Senate Democrats signaled they would accept GOP Leader McConnell short-term debt ceiling raise offer for two months.
• Senior White House official stated that President Biden and China President Xi to hold a virtual meeting before the end of 2021.

Energy

• White House Press Sec Psaki stated that the Administration would take more steps as needed on oil prices; Declined to comment on potential release of crude from Strategic Petroleum Reserve (SPR).
• Energy Sec Granholm nted in an interview that release of crude oil from Strategic Petroleum Reserve was a ‘tool that’s under consideration’ to tame fuel price rises; Did not rule out a ban on crude oil exports.
• Goldman Sachs analyst: US SPR oil release might total 60M barrels and likely pose a $3 downside risk.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 +1.10% at 455.86, FTSE +0.78% at 7,051.30, DAX +1.14% at 15,142.35, CAC-40 +1.17% at 6,568.75 , IBEX-35 +1.60% at 8,915.50, FTSE MIB +0.95% at 25,848.00, SMI +1.19% at 11,706.97, S&P 500 Futures +0.58%].
• Market Focal Points/Key Themes: European indices open higher across the board and remained firmly in the green as the session progressed; sectors leading to the upside include utilities and technology; while consumer discretionary and energy sectors among the laggards; oil and gas subsector under pressure following lower crude prices, Shell update; Spanish utilities supported after government looks to modify price caps; Vonovia gets majory of voting rights in Deutsche Wohnen takeover; earnings expected in the upcoming US session include Conagra and Lamb Weston Holdings.

Equities

• Consumer discretionary: Motorpoint [MOTR.UK] +5% (trading update), Robert Walters [RWA.UK] +2.5% (trading update).
• Energy: National Grid [NG.UK] +1% (comments on UK gas/electricity outlook), Royal Dutch Shell [RDSA.NL] -1.5% (Q3 update),
• Financials: CMC Markets [CMCX.UK] -1% (trading update), Morses [MCL.UK] -6% (earnings).

Speakers

• ECB’s Stournaras (Greece) reiterated stance that ECB to discuss policy options in Dec and stress it would look to continue to aim to avoid fragmentation. No need to change monetary policy stance at this time as inflation was far below the 2% target in the medium-term. Saw no reason for Greece to be excluded from QE (**Note: ECB does buy Greek bonds in PEPP program but not in conventional QE (APP program). The market rate hike views did not reflect ECB guidance.
• ECB’s Elderson (Netherlands, SSM member): Climate change is squarely part of mandate.
• BOE’s Pill (chief economist): inflation concerns are growing in UK with inflation looking more long lasting.
• Sweden Central Bank (Riksbank) member Jansson reiterated view that uptick in inflation seen as temporary. Inflation needed support to remain at target. Expansionary policy needed to support labor market; high long-term unemployment was a concern.
• Turkey Central Bank (CBRT) Gov Kavcioglu reiterated stance that transitory inflation factors to taper off. Reiterated view that policy stance based on core inflation and demand factors. Policy to be tight enough for disinflation.
• EU’s Sefcovic commented that implementation of Northern Ireland Protocol will require compromise from both sides. Reiterated there will be no renegotiation of the Protocol. Recent rhetoric by UK official on triggering Article 16 have not been helpful. To finalize measures on Northern Ireland Protocol by middle of next week and would be very far reaching.
• Japan Fin Min Suzuki reiterated that must keep target of balancing budget by FY25; fiscal discipline needed to keep market’s trust. Closely watching FX movements; stability in currency markets was vital.

Currencies/Fixed Income

• USD was slightly weaker as risk appetite tried to find some legs. Sentiment aided by hopes on a US debt ceiling deal, Russia pledging to help stabilize the global energy market.
• EUR/USD was slightly higher in a quiet session after testing 14-month lows recently. Dealers noted that ECB potential new program of bond buying to avoid even a hint of taper turmoil was a headwind for the pair. Germany Aug Industrial Production data missed expectations and added to the string of disappointing indicators showing region’s conditions have worsened. Focus on release of the ECB Sept Minutes for clues on the central bank’s pain threshold on inflation.

Economic data

• (NL) Netherlands Sept CPI M/M: 0.1% v 0.4% prior; Y/Y: 2.7% v 2.4% prior.
• (NL) Netherlands Sept CPI EU Harmonized M/M: -0.2% v +0.5% prior; Y/Y: 3.0% v 2.9%e.
• (CH) Swiss Sept Unemployment Rate: 2.6% v 2.7%e; Unemployment Rate (seasonally adj): 2.8% v 2.8%e.
• (DE) Germany Aug Industrial Production M/M: -4.0% v -0.5%e; Y/Y: 1.7% v 5.0%e.
• (UK) Sept Halifax House Price Index: M/M: 1.7% v 0.7% prior; Y/Y: 7.4% v 7.1% prior.
• (NO) Norway Aug Industrial Production M/M: 2.7% v 0.0% prior; Y/Y: 2.7% v 1.3% prior.
• (NO) Norway Aug Manufacturing Production M/M: 0.0% v -0.6% prior; Y/Y: 2.2% v 5.5% prior.
• (DK) Denmark Aug Industrial Production M/M: 5.1% v 5.3% prior.
• (ZA) South Africa Sept Gross Reserves: $57.1B v $58.1Be; Net Reserves: $55.0B v $55.3Be.
• (FR) France Aug Trade Balance: -€6.7B v -€7.1B prior; Current Account Balance: -€1.3B v -€3.4B prior.
• (CH) Swiss Sept Foreign Currency Reserves (CHF): 939.8B v 929.4B prior.
• (AT) Austria Sept Wholesale Price Index M/M: 0.8% v 0.0% prior; Y/Y: 13.5% v 12.0% prior.
• (CZ) Czech Aug National Trade Balance (CZK): -28.1B v -5.9Be.
• (CZ) Czech Aug Industrial Output Y/Y: 1.4% v 5.1%e; Construction Output Y/Y: 1.2% v 0.5% prior.
• (MY) Malaysia end-Sept Foreign Reserves: $115.2B v $116.2B prior mid-month reading.
• (UR) Ukraine Sept Official Reserve Assets: $28.7B v $28.7Be.
• (CN) China Sept Foreign Reserves: $3.201B v $3.220Te.
• (HK) Hong Kong Sept Foreign Reserves: $495.0B v $497.0B.
• (SE) Sweden Sept Budget Balance (SEK): 11.5B v 43.4B prior.
• (IT) Italy Aug Retail Sales M/M: 0.4% v 0.3%e; Y/Y: 1.9% v 2.0%e.
• (CZ) Czech Sept International Reserves: $170.4B v $171.2prior.
• (UK) Q2 Final Output Per Hour Y/Y: 4.3% v 3.1% prelim; Unit Labor Costs Y/Y: -3.8% v +5.9% prior.
• (CY) Cyprus Sept CPI M/M: % v 1.6% prior; Y/Y: % v 5.0% prior.
• (IS) Iceland Sept Preliminary Trade Balance (ISK): B v -36.3B prior.
• (SG) Singapore Sept Foreign Reserves: $B v $418.2B prior.

Fixed income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €4.42B vs. €4.-5.0B indicated range in 2028, 2031 and 2048 bonds.
• Sold €1.59B in 0.00% Jan 2028 SPGB bonds; Avg yield: -0.025% v -0.133% prior; Bid-to-cover: 1.99x v 2.10x prior.
• Sold €1.69B in 0.50% Oct 2031 SPGB bonds; Avg Yield: 0.466% v 0.326%prior; bid-to-cover: 1.43x v 1.41x prior.
• Sold €1.14B in 2.70% Oct 2048 SPGB bonds; Avg Yield: 1.256% v 1.270% prior; Bid-to-cover: 1.59x v 1.49x prior.
• (ES) Spain Debt Agency (Tesoro) sold €510M vs. €250-750M indicated range in 0.70% Nov 2033 inflation-linked bonds (SPGBi); Real Yield: -1.074% v -1.025% prior; Bid-to-cover: 1.41x v 1.88x prior.
• (FR) France Debt Agency (AFT) sold total €10.999B vs. €10.0-11.0B indicated range in 2030, 2031, 2053 and 2066 Bonds.
• Sold €2.956B in 2.50% May 2030 Oat; Avg Yield: -0.05% v -0.27% prior; Bid-to-cover: 2.47x v 2.15x prior.
• Sold €4.93B in 0.0% Nov 2031 Oat; Avg Yield: +0.15% v -0.05% prior; Bid-to-cover: 2.12x v 1.81x prior.
• Sold €2.03BB in 0.75% May 2053 Oat; Avg Yield: 0.96% v 0.918% syndicate; bid-to-cover: 2.14x.
• Sold €1.078B in 1.75% May 2066 Oat; Avg Yield: % v 0.83% prior, Bid-to-cover: 2.78x v 1.68x prior.

Looking Ahead

• (IT) Bank of Italy Report on Balance-Sheet Aggregates.
• (EG) Egypt Sept Net Reserves: No est v $40.7B prior.
• (CO) Colombia Sept Consumer Confidence Index: -6.4e v -8.2 prior.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds.
• 06:00 (IE) Ireland Aug Industrial Production M/M: No est v 7.7% prior; Y/Y: No est v 15.6% prior.
• 06:45 (US) Daily Libor Fixing.
• 07:00 (ZA) South Africa Aug Electricity Production Y/Y: No est v 3.5% prior; Electricity Consumption Y/Y: No est v 2.9% prior.
• 07:00 (MX) Mexico Sept CPI M/M: 0.6%e v 0.2% prior; Y/Y: 6.0%e v 5.6% prior; CPI Core M/M: 0.5%e v 0.4% prior.
• 07:00 (CN) China PBoC Gov Yi Gang at BIS event.
• 07:30 (EU) ECB Account of Sept Rate Decision.
• 07:30 (US) Sept Challenger Job Cuts: No est v -15.7K prior; Y/Y: No est v -86.4% prior.
• 07:30 (CL) Chile Central Bank Traders Survey (bi-monthly).
• 07:30 (CL) Chile Sept Trade Balance: No est v $0.0B prior; Total Exports: No est v $7.8B prior; Total Imports: No est v $7.8B prior; Copper Exports: No est v $4.4B prior.
• 07:30 (CL) Chile Sept International Reserves: No est v $52.0B prior.
• 08:00 (PL) Poland Sept Official Reserves: No est v $169.5B prior.
• 08:00 (CL) Chile Aug Nominal Wage M/M: No est v 1.3% prior; Y/Y: No est v 6.5% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:00 (AT) ECB’s Holzmann (Austria).
• 08:30 (US) Initial Jobless Claims: 349Ke v 362K prior; Continuing Claims: 2.765Me v 2.802M prior.
• 08:30 (US) Weekly USDA Net Export Sales.
• 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%.
• 09:00 (RU) Russia Sept Official Reserve Assets: $619.0Be v $618.2B prior.
• 09:00 (RU) Russia Gold and Forex Reserve w/e Oct 1st: No est v $617.9B prior.
• 09:00 (IE) ECB’s Lane (Ireland, chief economist).
• 09:00 (DE) ECB’s Schnabel (Germany).
• 09:00 (PL) Poland Central Bank (NBP) Gov Glapinski press conference.
• 10:00 (CA) Canada Sept Ivey Purchasing Managers Index (seasonally adj): No est v 66.0 prior; PMI (unadj): No est v 63.8 prior.
• 10:30 (TR) Turkey Sept Cash Budget Balance (TRY): No est v 64.3B prior.
• 10:30 (US) Weekly EIA Natural Gas Inventories.
• 11:45 (US) Fed’s Mester.
• 11:45 (IE) ECB’s Lane (Ireland, chief economist).
• 12:00 (CA) Bank of Canada (BOC) Gov Macklem.
• 15:00 (US) Aug Consumer Credit: $17.5Be v $17.0B prior.
• 15:00 (AR) Argentina Aug Industrial Production Y/Y: No est v 13.0% prior; Construction Activity Y/Y: No est v 19.8% prior.
• 19:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to raise Reference Rate by 50bps to 1.50%.
• 19:30 (JP) Japan Aug Labor Cash Earnings Y/Y: 0.4%e v 0.6% prior (revised from 1.0%); Real Cash Earnings Y/Y: 0.5%e v 0.3% prior (revised from 0.7%).
• 19:30 (JP) Japan Aug Household Spending Y/Y: -1.2%e v +0.7% prior.
• 19:50 (JP) Japan Aug Current Account Balance: ¥1.474Te v ¥1.911T prior; Adjusted Current Account : ¥1.146Te v ¥1.413T prior; Trade Balance (BoP Basis): -¥385.3Be v +¥622.3B prior.
• 20:30 (AU) RBA Financial Stability Review.
• 21:45 (CN) China Sept Caixin PMI Services: 49.2e v 46.7 prior; PMI Composite: No est v 47.2 prior.