Original insights into market moving news

[PODCAST] European Open Rundown 11th October 2021

  • Asia-Pac stocks traded mostly positive after shrugging off the weak post-NFP US lead
  • Chinese Vice Premier Liu He exchanged views with USTR Tai on the trade agreement during a virtual discussion on Saturday
  • In FX, the DXY maintains 94.00 status, EUR/USD sits on a 1.15 handle and GBP is firmer post-hawkish BoE remarks
  • BoE’s Saunders stated that an increase in interest rates could come “significantly earlier” than previously anticipated
  • Looking ahead, highlights include ECB's Lane, Elderson, de Cos, Fed's Evans


New Zealand reported 60 new COVID-19 infections on Sunday which is a large increase for the country and raised doubts for easing of restrictions, while New Zealand PM Ardern later announced that they need to maintain coronavirus restrictions longer with Auckland to remain on level 3 and which will be reviewed in one week. (Newswires)

Singapore PM Lee said they must press on with the strategy of living with COVID-19 and the number of COVID-19 related deaths are likely to increase in the next few months, while it could take three to six months to reach a new normal. PM Lee commented that they may have to tap on the breaks again if cases grow too fast again and stated they will tighten restrictions for unvaccinated people. Furthermore, it was also reported Singapore's vaccinated travel lanes scheme is to be extended to include an additional 9 countries which are UK, US, Canada, Denmark, France, Italy, Netherlands, Spain and South Korea. (Newswires)


Asia-Pac stocks traded mostly positive after having shrugged off the early weakness stemming from last Friday’s lacklustre performance stateside and disappointing NFP jobs data. Note, markets in Taiwan and South Korea were closed. ASX 200 (-0.3%) was the laggard with underperformance in tech, consumer stocks and defensives overshadowing the gains in commodities and with Star Entertainment the worst hit with losses of more than 20% after media outlets alleged that it enabled suspected money laundering, organised crime, fraud and foreign interference which the Co. said were misleading reports. However, downside for the index was limited as New South Wales businesses reopened from the lockdown that lasted for over three months. Nikkei 225 (+1.5%) reversed opening losses as exporters cheered a weaker currency and with the government mulling over JPY 100bln financial support for chip factory construction. Hang Seng (+2.0%) and Shanghai Comp. (+0.4%) were both positive following talks between China's Vice Premier Liu He and USTR Tai on Saturday in which China was said to be negotiating for a cancellation of tariffs and sanctions. The advances in Hong Kong were led by tech stocks including Meituan despite the Co. being fined CNY 3.4bln by China’s market regulator for monopolistic behaviour, as the amount was seen to be a slap on the wrist, while the gains in the mainland were only mild as participants also reflected on the substantial liquidity drains by the PBoC totalling a net CNY 510bln since Saturday. Finally, 10yr JGBs were pressured amid the gains in Japanese stocks and lack of BoJ purchases in the market, while price action was also not helped by the continued weakness in T-note futures amid the semi-holiday conditions in US for Columbus Day in which the NYSE and the Nasdaq will open but bonds trading will remain shut.

PBoC injected CNY 10bln via 7-day reverse repos on Saturday for a CNY 320bln net drain and the central bank also injected CNY 10bln via 7-day reverse repos today with the rate kept at 2.20% for a CNY 190bln net drain. (Newswires) PBoC set USD/CNY mid-point at 6.4479 vs exp. 6.4490 (prev. 6.4604)

Chinese President Xi said the Chinese Communist Party is crucial to rejuvenation of the Chinese people and that they must strengthen the leadership of the party in all aspects, while he vowed to achieve peaceful reunification with Taiwan. (Newswires)

Chinese Vice Premier Liu He said China is negotiating cancellation of tariffs and sanctions, while he exchanged views with USTR Tai on the trade agreement during a virtual discussion on Saturday, while the USTR office also confirmed USTR Tai and Vice Premier Liu reviewed implementation of the trade deal and agreed the sides will consult on certain outstanding issues. (Newswires)

China’s NDRC proposed banning private investment in news outlets and ban on reproducing new content generated by non-China media, while it also proposed restrictions on internet, finance and agriculture. (Newswires)


BoE Governor Bailey stated that inflation will be higher than forecast and is concerned of above target inflation, while he added that they have to prevent inflation expectations from becoming embedded and noted there are some large unwanted price changes. (Newswires/Yorkshire Post)

BoE’s Saunders stated that an increase in interest rates could come “significantly earlier” than previously anticipated. Markets have priced an earlier rate rise than previously which, he thinks is appropriate, while he noted that a hike in February is fully priced in and that an increase in December is half priced in. Saunders notes that it looks to him as if the labour market is tight in many sectors and that will likely push up pay growth. (Telegraph)

UK Brexit Minister Frost is expected to tell Brussels on Tuesday that a significant change to the Northern Ireland Protocol is vital to restore genuinely good UK-EU relations, while it was separately reported that the EU offered to scrap many Northern Ireland border controls to ease tensions. (Newswires/FT)

UK Chancellor Sunak and Business Secretary Kwarteng reportedly clashed regarding a possible bailout for British companies struggling with surging energy costs with the Kwarteng stating he was working very closely with Sunak after having promised industrial energy users to explore practical solutions, although the Treasury denied that it had been in such talks. (FT)

UK Business Secretary Kwarteng reportedly agreed to work on a factory industry rescue deal to avoid a fresh wave of shortages, according to The Telegraph. Furthermore, manufacturers are asking for a price cap to stem crippling power costs that they warn would make production unprofitable and lead to empty shelves, while an industry source said that “No one was saying they were about to shut down tonight, but we just can’t guarantee that won’t be the situation in a few weeks without action”. (Newswires/Telegraph)

UK manufacturers of steel, glass, ceramics and paper warned the government that they could shutdown production unless action is taken on rising wholesale gas prices. In other news, there were reports that BP-backed energy supplier Pure Planet is close to a collapse and are in talks with the energy regulator. (Newswires/Sky News)

ECB's Villeroy reiterated the Council view that expects inflation in the euro zone to peak in the approaching months. (Newswires)

German Finance Minister Scholz said OECD countries agreed on the most important parameters for global minimum taxation and stated that the agreement of EU states to tax reform is a great success and will ensure that the reform can be implemented quickly throughout the EU, while the OECD also confirmed that 136 nations agreed to a global corporate tax accord and that the new policy will add USD 150bln in new revenue for governments. (Newswires)

Austrian Chancellor Kurz stepped down following pressure from coalition partner the Greens amid investigations of corruption, while he proposed Foreign Minister Schallenberg as next PM and will remain as the party leader. (Newswires)


In FX markets, the DXY remained lacklustre after Friday’s disappointing NFP jobs data. Fed’s Daly weighed in on the jobs data in which she noted that the job market will have ups and downs and it is too early to say it is stalling, while she added the Delta variant has taken its toll but has not derailed them. EUR/USD was rangebound with a lack of fresh fundamental drivers. GBP/USD eked marginal gains after weekend comments from BoE officials including Governor Bailey who noted concern of above-target inflation and suggested they have to prevent inflation expectations from becoming embedded, while BoE’s Saunders said markets have priced an earlier rate rise than previously which he thinks is appropriate. USD/JPY and JPY-crosses extended on last week’s advances amid anticipation of increased spending after the incoming elections and antipodeans were somewhat mixed with AUD/USD mildly underpinned by the reopening in Australia’s most populous state and NZD/USD contained by increased COVID-19 cases in New Zealand.


Commodities were somewhat mixed with WTI crude futures testing the USD 81/bbl level to the upside with prices underpinned by the mostly positive risk tone and reopening headlines for the Asia-Pac region including in Australia's most populous state and with Singapore widening its travel vaccine lanes to include nine additional countries, while there were also reports of flash flooding and landslides in China's top coal producing region which could further add to the power crunch issues. Elsewhere, gold prices were rangebound after the post-NFP fluctuations and with participants looking ahead to this week's FOMC Minutes and US inflation data, while copper was kept afloat amid the predominantly constructive mood.

US Baker Hughes Rig Count (w/e October 8th): Oil +5 at 433, Nat Gas unch. at 99, and Total +5 at 533. (Newswires)

China's NDRC said that power plants significantly raised their coal reserves, although there were also reports of flooding and landslides affecting China’s major coal producing province of Shanxi. (Newswires)

Blockade in Sudan’s main port by tribal protestors is causing shortages of wheat and fuel oil for power generation. (Newswires)


German Chancellor Merkel said they are in very decisive weeks regarding the future of the nuclear deal with Iran and want to send a message to Iran that they must quickly return to the negotiating table. (Newswires)

US State Department said talks in Doha with the Taliban were candid and professional, while the US reiterated that the Taliban will be judged on its actions and not just words. It was also separately reported that UK and US warn citizens of threat to hotels in Kabul, Afghanistan. (Newswires/AFP)

China’s PLA Western Theater Command said India insists on unreasonable and unrealistic demands which adds difficulties to negotiations after the sides held the 13th round of corps commander-level talks on Sunday, while India’s government stated that talks with China on border have ended in deadlock and that China did not provide any forward-looking proposals. (Newswires/Global Times)


Treasuries bear steepened and inflation breakevens rallied as the jobs report added to cost-push inflation woes ahead of next week's auctions. 2s +0.9bps at 0.316%, 3s +1.7bps at 0.577%, 5s +2.9bps at 1.048%, 7s +3.2bps at 1.387%, 10s +3.4bps at 1.605%, 20s +2.9bps at 2.107%, 30s +2.8bps at 2.161%; TYZ1 volumes were well above average at over 2mln. Inflation breakevens widened: 5yr BEI +1.5bps at 2.764%, 10yr BEI +2.6bps at 2.485%, 30yr BEI +2.2bps at 2.378%; but all off their peaks, especially 5yr. T-Notes hit interim lows of 131-04 at the European open before beginning to ascend into the NY handover. In an initial reaction to the headline miss in NFP, T-Notes jumped from 131-08 to 131-18+, although as the dust settled, and the positive revisions and persistent wage gains leant to the tight labour market argument, sellers emerged into the session. The long-end led the curve cheaper, with eyes on 10yr and 30yr auctions next Tuesday/Wednesday, while the further upside in oil only added to the widening of inflation breakevens. T-Notes hit session lows at 131-01, with the 10yr cash yield making fresh recent peaks at 1.62%, taking the benchmark comfortably back within the Q2 pandemic-high trading range when the reflation trade was all the rage. Rates traders now look to next week's busy schedule due to the holiday-shortened week, with 3s and 10s actions Tuesday, and 30s Wednesday, where US CPI and FOMC Minutes will muddy the trade set-up; Thursday sees claims and PPI; Friday sees Retail Sales and UoM prelim. survey. Meanwhile, Fed speak is set to ramp up. T-note (Z1) futures settled 8 ticks lower at 131-04+.

Fed’s Daly (2021, 2024 voter) said the job market will have ups and downs and it is too early to say it is stalling, while she added the Delta variant has taken its toll but has not derailed them. Daly also stated that everyone is feeling the rise in prices which is painful and that inflation is directly related to COVID, but doesn’t see this as a long-term phenomenon. (Newswires)

US President Biden said the unemployment rate in the latest jobs report shows the US is moving forward. President Biden separately tweeted that an average 600k new jobs were created every month since he took office and noted that jobs and wages are up, while unemployment is down. (Newswires/Twitter)

US Treasury Secretary Yellen said once Congress and the White House agree on spending plans, it is their responsibility to raise the debt limit and she is confident Congress will be able to raise the debt ceiling on December 3rd, while she added there is an argument to make some proposed benefits in the Biden spending plan to subject to income limits. Yellen also said she is confident that Congress will pass global corporate minimum tax and stated that minimum tax will likely be included in a reconciliation package. (Newswires)

US Senate Minority Leader McConnell sent a letter to President Biden stating that he will not provide assistance again to the Democrats for raising the US debt limit and Democrats now have time until December to address the debt limit through reconciliation. In relevant news, there were comments on Friday from Democrat Senator Warner that the reconciliation plan will be around USD 2tln. (Newswires)

Goldman Sachs lowered its 2021 US GDP growth forecast to 5.6% from 5.7% and lowered 2022 GDP growth forecast to 4.0% from 4.4%, while it noted that consumption and fiscal slowdown are key challenges. (Newswires)