Original insights into market moving news

[PODCAST] European Open Rundown 8th October 2021

  • APAC bourses were mostly higher on the broader upbeat-tone; Mainland China was bolstered on its return from Golden week
  • China's Caixin Services PMI beat expectations and the Composite measure climbed into expansionary territory
  • In FX, the DXY remains above 94.00 and safe-havens lag, while USTs are modestly subdued heading into NFP
  • US National Security Adviser Sullivan said talks with China's Yang Jiechi were productive and noted there were tough and direct exchanges on Taiwan Strait
  • US Senate voted 50-48 to pass the debt limit bill which sends it to the House, while House Majority Leader Hoyer later said they will convene on October 12th to address the bill
  • Looking ahead highlights include the US and Canadian labour market reports, ECB's Panetta & BoE's Tenreyro


Japan's Health Ministry finalised a deal with Pfizer (PFE) for 120mln additional COVID-19 vaccines from January 2022. (Newswires)


Asia-Pac stocks traded mostly higher as the region conformed to the global upbeat mood after the agreement in Washington to raise the debt ceiling which the Senate approved, with the overnight bourses also invigorated by the return of China and strong Caixin PMI data. The ASX 200 (+0.8%) was led higher by strength in mining names with underlying commodity prices boosted as Chinese buyers flocked back to market which helped the ASX disregard a record increase in daily COVID-19 cases in Victoria state. Nikkei 225 (+1.8%) was the biggest gainer and reclaimed the 28k level as exporters benefitted from a softer currency, while attention turns to PM Kishida who will outline his policy program today and is reportedly planning to present an additional budget after the election. Furthermore, there were recent comments from an ally of the new PM who suggested that capital gains tax could be raised to 25% from the current 20% without affecting stock prices, although this failed to dent the mood in Tokyo and weaker than expected Household Spending was also brushed aside. The gains for the KOSPI (-0.2%) were later reversed alongside the tentative price action in index heavyweight Samsung Electronics after its Q3 prelim. results showed oper. profit likely rose to its highest in three years but missed analysts’ forecasts. Hang Seng (-0.4%) and Shanghai Comp. (+0.3%) were mixed with the latter jubilant on reopen from the Golden Week holiday after improved Caixin Services and Composite PMI data which both returned to expansionary territory. This helped mainland stocks overlook the recent developer default fears and largest daily liquidity drain by the PBoC since October last year, although Hong Kong lagged amid heavy Northbound Stock Connect trade. Finally, 10yr JGBs declined on spillover selling from T-notes and with havens shunned amid the gains across riskier assets, although downside in JGBs was limited given the BoJ’s presence in the market for nearly JPY 1.5tln of JGBs with up to 10yr maturities.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a CNY 330bln net drain. (Newswires) PBoC set USD/CNY mid-point at 6.4604 vs exp. 6.4617 (prev. 6.4854)

US National Security Adviser Sullivan said talks with China's Yang Jiechi were productive and noted there were tough and direct exchanges on Taiwan Strait, while Sullivan added that more talks are needed and they must ensure US-China competition is managed responsibly. (Newswires)

PBoC Vice Governor said they will improve market-based interest rate formation and transmission mechanism, while they will improve interest rate corridor mechanism, deepen Loan Prime Rate reforms and will gradually make deposit rates market driven. (Newswires)

Chinese Caixin Services PMI (Sep) 53.4 vs. Exp. 50.7 (Prev. 46.7); Caixin Composite PMI (Sep) 51.4 (Prev. 47.2)

  • Japanese All Household Spending MM (Aug) -3.9% vs. Exp. -2.0% (Prev. -0.9%); YY (Aug) -3.0% vs. Exp. -1.5% (Prev. 0.7%)


ECB's Chief Economist Lane said there will be headwinds from fiscal policy and energy shock, while he added they still have inflation in the medium term well below the inflation target and that inflation is very far from becoming permanent at a level moderately above target. Furthermore, he said it is important to make sure inflation stabilises at 2% not below and they can endogenously respond to spillover from US policy via bond yields or FX rate but won't be trigger happy with response to forecasts. (Newswires)

German Social Democrats stated they believe they can achieve progress with Greens and FDP on forming a government, while talks with Greens and FPD are to resume on Monday. (Newswires)

Poland's constitutional tribunal has ruled that parts of EU law are not compatible with the Polish constitution; in response, the EU Justice Commissioner Reynders saud that all tools at their disposal will be used and, when questioned about the potential for withholding EU funding, said they will see 'how it is possible to apply pressure'. (FT)


In FX, the DXY was uneventful and remained within a tight range above the 94.00 level amid tentativeness heading into the Non-Farm Payrolls. Furthermore, the latest commentary from the Fed was relatively light with Mester just touching upon inflation, while attention was on the Senate which voted to pass the debt ceiling bill after receiving support from 11 Republicans on the cloture vote and with the bill now going to the House which plans to reconvene early from recess on October 12th. EUR/USD lacked firm direction after the uneventful ECB Minutes and commentary from central bankers Lane and Schnabel that seemingly downplayed high inflation, while GBP/USD was also rangebound with specific catalysts limited after the in-hours commentary from BoE's Pill. USD/JPY and JPY-crosses coat-tailed on the heightened risk appetite in Japan and antipodeans were kept afloat due to the constructive mood and gains in commodities, but with upside capped ahead of the looming US jobs data. Elsewhere, INR weakened in the aftermath of the RBI policy meeting where the central bank maintained its key rates as expected vs. outside calls for a hike to the reverse repo rate, reiterating its accommodative stance.

RBI kept the Repurchase Rate and Reverse Repo Rate unchanged as expected at 4.00% and 3.35% respectively, while it also maintained its accommodative stance. RBI Governor Das stated the economy is gaining traction with the second wave of the virus behind them and vaccinations picking up, as well as noted that India is in a much better place today than at the last meeting. Furthermore, he stated the economy has gained momentum helped by various factors in H2 of FY22 but added that output remain below pre-pandemic levels and although overall aggregate demand is improving, there is still some slack remaining. (Newswires)

RBA Financial Stability Review stated that risks to financial stability from borrower payment difficulties have generally eased but remain, while output is expected to rebound as the economy gradually opens which reduces risks to the financial system. (Newswires)


WTI crude futures extended on the prior day’s advances which were supported by the positive mood in risky assets and after the US Energy Department noted it currently has no plans to release oil from the SPR and was not pursuing a ban on crude exports. This steadily lifted prices above the USD 79/bbl level, while there were also reports that the White House is continuing to monitor global energy supply and will look for ways to relieve families' energy costs, but doesn’t plan to take action at this time on energy costs. Gold was contained by a steady greenback amid tentativeness heading into key US data and copper was underpinned on the return of Chinese participants and the broader risk tone.

White House is continuing to monitor global energy supply and will look for ways to relieve families' energy costs, although the White House has no plan to take action at this time on energy costs. (Newswires) In-fitting with commentary from the US Energy Department during Thursday's European trade

Energy Officials in Inner Mongolia, one of China's largest coal producing regions, have ordered over 70 local minters to expand coal mining capacity by over 100mln/T, FT citing the Securities Times. (FT)


US National Security Adviser Sullivan said Russia has a history of using energy as a tool of coercion and that wants to see sufficient supply to keep up with demand, when asked about gas prices. Separately, UK PM Johnson remarked that although Nord Stream 2's approval will not directly impact the UK's energy security, it could have serious implications for many European nations who are nearly wholly dependent on Russian gas. (Newswires/Times)

A US nuclear-powered submarine hit an unknown object within the South China Sea on October 2nd, 11 sailors suffered injuries; object in question was not another submarine and the US sub remains fully operational. (Newswires)


Treasuries bear-steepen and inflation breakevens widen as oil bounces, while participants position into NFP and refunding auctions. By settlement, 2s +1.2bps at 0.308%, 3s +2.4bps at 0.560%, 5s +3.5bps at 1.020%, 7s +4.0bps at 1.356%, 10s +4.7bps at 1.571%, 20s +5.7bps at 2.079%, 30s +5.7bps at 2.134%; TYZ1 volumes were below average. Inflation breakevens rose; 5yr TIPS -0.1bps at -1.682%, 10yr TIPS +2.2bps at -0.895%, 30yr TIPS +4.2bps at -0.200%. Similar to Wednesday trade, Europe lifted the offer on arrival, and that was despite stocks futures holding onto gains. Perhaps some spillover from Europe as traders digested the late reports Wednesday of the proposed new ECB purchase programme that lacks a capital key, in addition to the Gilt rally on new BoE member Pill's inflation comments. There was also likely some duration support from the earlier move lower in energy prices, where lows in oil also lined up with session highs in T-Notes at 131-25. Sellers soon emerged for bonds at the NY handover, emboldened by the lower-than-expected initial jobless claims – note Friday's NFP does not take into account this data. The leg higher in oil prices after the US Energy Department denied prior reporting on potential SPR releases only added to the Treasury selling. The selling levelled off at the European close, with yields hugging highs (10yr at key support at 1.57%) into the futures settlement, with traders now looking to Friday's jobs report, although absent a disaster, Fed policy looks to be on autopilot. It's worth noting there was heavy activity in short-dated Treasury puts earlier on, with desks noting the pick-up in TYX VOL as a result. Otherwise, dealers will likely be keeping on the offer ahead of next week's refunding. T-note (Z1) futures settled 10+ ticks lower at 131-12+.

Fed's Mester (2022, 2024 voter) said it is very important the public understands the Fed goals and noted that both supply side and demand side factors are influencing inflation. Mester added that Fed's dot plots do not show an aggressive increase in rates and that policymakers need to decipher how much of inflation is driven by supply-side versus demand factors. Furthermore, she stated if inflation and longer-run inflation expectations move up, would take that as indicative that demand-side factors are playing a bigger role than anticipated. (Newswires)

US Senate voted 61-38 to clear the first procedural hurdle on the debt limit bill and then voted 50-48 to pass the debt limit bill which sends it to the House, while House Majority Leader Hoyer later stated that the House will convene on October 12th to address the debt limit bill. (Newswires)

White House said US President Biden looks forward to signing debt limit legislation once it is passed by Congress and there were also comments from US Treasury Secretary Yellen that she exhaled a sigh of relief over the debt-limit deal, while she stated that having a debt ceiling is becoming increasingly damaging to the US and noted that there is still a lot of work to be done on debt ceiling before December 3rd. (Newswires)

US Democrats are near an agreement to boost carbon capture credit for power plants sought by US Senator Manchin, according to sources. (Newswires)