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Euro Market Open: Overnight sentiment remained strong but Europe is seen lower after a strong close

  • APAC stocks traded higher across the board as the region sustained the momentum from Wall St where major indices extended their rally (SPX +3.06%, NDX +3.14%).
  • European equity futures are indicative of a softer open with the Euro Stoxx 50 future -0.5% after the cash market closed with gains of 4.3% yesterday.
  • DXY attempted to nurse some of its recent losses, cable and EUR/USD stalled just ahead of 1.15 and parity respectively. 
  • The US is reportedly pushing OPEC+ nations not to proceed with an output cut, arguing that economic fundamentals do not support an output cut.
  • Looking ahead, highlights include EZ, UK & US Final PMIs, US ISM Services, ADP, OPEC, Speeches from Fed's Bostic & UK PM Truss, Supply from UK & Germany.

US TRADE

  • US stocks extended on gains with the advances led by small caps and which saw all major indices post gains of at least 2.8%. There remains speculative chatter surrounding a potential Fed pivot given ongoing financial stability concerns and as economic data has been weakening with August JOLTs beneath expectations, while analysts noted momentum indicators were heavily oversold in September, helping to generate the bounce in October so far. Twitter was also in the spotlight and its shares rallied by more than 22% after reports that Elon Musk proposed to follow through with the deal on original terms.
  • SPX +3.06% at 3,790, NDX +3.14% at 11,583, DJIA +2.80% at 30,316, RUT +3.91% at 1,775.
  • Click here for a detailed summary.

NOTABLE HEADLINES

  • Fed's Jefferson (voter) said the Fed is resolute on bringing inflation back to 2% and is committed to taking further steps necessary. Jefferson said elevated inflation is the problem that concerns him the most, while he added that restoring price stability may take some time and will likely entail a period of below-trend growth.
  • Fed's Daly (2024 voter) repeated that the Fed is committed to getting inflation down, while she added further rate hikes are needed and they are to hold policies there until they are truly done with getting inflation down. Fed's Daly also suggested they have to understand and take into account the impact of rising rates and dollar strength on global financial conditions so that they don't end up overtightening policy.
  • Elon Musk reportedly proposed to Twitter (TWTR) to proceed with the deal at USD 54.20/shr, according to Bloomberg. Furthermore, CNBC's Faber also reported that Elon Musk sent a letter to Twitter and filed to the court (under seal) indicating his desire to drop litigation and follow through on the deal on original terms, while a WSJ source noted Twitter and Elon Musk are discussing how to ensure the deal can be closed.

APAC TRADE

EQUITIES

  • APAC stocks traded higher across the board as the region sustained the momentum from Wall St where the major indices extended their rally after soft data releases stoked hopes of a Fed pivot.
  • ASX 200 continued to benefit following RBA’s recent rate hike slowdown with tech, consumer discretionary and financials leading the advances, while M&A prospects added to the optimism with Link Administration Holdings boosted after it received further proposals from Dye & Durham to acquire some of its businesses.
  • Nikkei 225 reclaimed the 27k level although gains were capped by the lack of fresh catalysts and amid lingering geopolitical tensions after the US, Japan and South Korea responded to North Korea’s recent missile launch with military drills and even the test firing of four surface-to-surface missiles by the US and South Korea.
  • Hang Seng outperformed as it played catch up to yesterday’s advances on return from its holiday closure and with HSBC among the biggest gainers as it explores a multibillion-dollar sale of its Canadian business.
  • US equity futures took a breather after yesterday's advances in which the E-mini S&P (-0.5%) briefly topped 3,800.
  • European equity futures are indicative of a softer open with the Euro Stoxx 50 future -0.5% after the cash market closed with gains of 4.3% yesterday.

FX

  • DXY nursed some of its losses after having retreated to levels not seen since mid-September, with recent pressure from the positive risk tone and as markets priced in a less hawkish Fed after soft data releases.
  • EUR/USD slightly eased from yesterday’s best levels after a failure to return to parity.
  • GBP/USD retraced some of its recent advances after stalling near 1.1500 and amid mixed reports on the fiscal plan with the government said to consider bringing it forward to calm markets which Chancellor Kwarteng denied.
  • USD/JPY was choppy and traded on both sides of the 144.00 level amid a lack of pertinent drivers.
  • Antipodeans were mixed with NZD/USD momentarily boosted after the RBNZ delivered a 50bps rate hike and flagged further increases ahead, although the momentum in NZD was only brief given that the central bank’s decision was widely expected.

FIXED INCOME

  • 10yr UST futures were rangebound as the tailwinds from recent soft data releases petered out.
  • Bund futures traded sideways with price action stuck near 141.50 after yesterday’s retreat.
  • 10yr JGB futures were uneventful and failed to benefit from the BoJ’s presence in the market for an additional JPY 1.1tln of JGBs on top of its fixed-rate operations which was as scheduled.

COMMODITIES

  • Crude was uneventful overnight but held on to most of this week's gains ahead of the OPEC+ meeting with producers mulling cuts of as much as 2mln bpd, while the US was pushing for countries to refrain from reducing output.
  • US Private Inventory (bbls): Crude -1.8mln (exp. +2.1mln), Cushing +0.9mln, Distillates -4.0mln (exp. -1.4mln), Gasoline -3.5mln (exp. -1.3mln)
  • Saudi Arabia, Russia and other producers are set to announce deep cuts at the OPEC+ meeting on Wednesday and are pushing for cuts of 1-2mln bpd or more, although these could be phased in over several months, according to FT citing sources. Furthermore, the cuts would be made from existing production, not quota levels that some OPEC+ member countries have been unable to fulfil and it was noted that such a cut is likely to have a big impact on prices.
  • US is reportedly pushing OPEC+ nations not to proceed with an output cut and is arguing to OPEC+ that economic fundamentals do not support an output cut, according to a source familiar with the matter cited by Reuters.
  • White House said the Biden administration is not considering a new SPR release, according to Bloomberg.
  • EU is likely to approve a G7 cap on Russian oil price in two steps, while the EU's two-step approach reflects concern among some member states about the proposal, which will place a maximum price on what can be paid for Russian seaborne oil, according to WSJ. It was later reported that there was a deal in principle on the EU sanctions package including oil price elements and Coreper is to formalise and wrap up on Wednesday once the text is cleaned up, according to WSJ's Norman, while the Hungarian Foreign Minister separately commented that the new EU-proposed price cap on oil will not apply to pipeline shipments, according to Reuters.
  • EU energy chief said Europe has enough storage to get through the winter without Russian gas if there is mild weather.
  • Nord Stream said it is unable to inspect the damaged sections of the pipeline due to the lack of earlier requested permits.
  • Spot gold was rangebound but held onto most of the spoils from yesterday's dollar demise.
  • Copper prices were kept afloat amid the positive risk tone but with upside capped amid the absence of Chinese buyers and mixed output numbers from Chile.
  • Codelco copper production declined 29.6% Y/Y in August at 101.8k tonnes, while Escondida copper production rose 13.7% in August to 92.7k tonnes and Collahuasi copper production fell 5.4% in August to 45.6k tonnes, according to Cochilco.

GEOPOLITICS

RUSSIA-UKRAINE

  • Russian ambassador to the US said Moscow perceives the US decision to send more military aid to Ukraine as an immediate threat to Russia's strategic interests and the decision raises the danger of a direct military clash between Russia and the West, according to Reuters.

OTHER

  • South Korean and US militaries test-fired four surface-to-surface missiles in response to North Korea's launching a missile over Japan, according to Yonhap.
  • US aircraft carrier USS Ronald Reagan is to be redeployed to South Korea's east coast, according to Yonhap.
  • US is to ask the UN Security Council to meet publicly on Wednesday over North Korea’s missile launch, according to an official.
  • White House said US President Biden reinforced ironclad commitment to Japan's defence in a call with Japanese PM Kishida.

CRYPTO

  • Bitcoin marginally pulled back overnight after having reclaimed the 20,000 level.

ASIA

NOTABLE APAC HEADLINES

  • RBNZ hiked the OCR by 50bps to 3.50%, as expected. RBNZ stated that the Committee agreed it is appropriate to continue to tighten policy and members agreed that monetary conditions needed to continue to tighten until inflation was back in target range. RBNZ also stated that core consumer inflation is too high and labour resources are scarce, while they considered whether to increase the OCR by 50bps or 75bps and some members highlighted that a larger increase in the OCR now would reduce the likelihood of a higher peak in the OCR being required.

DATA RECAP

  • South Korea CPI MM (Sep) 0.3% vs. Exp. 0.4% (Prev. -0.1%)
  • South Korean CPI YY (Sep) 5.6% vs. Exp. 5.7% (Prev. 5.7%)

EU/UK

NOTABLE EU/UK HEADLINES

  • Votes to implement the UK government's "mini-budget" will not take place until next spring in an attempt to put off potential rebellions until 2023, according to the understanding of the Telegraph.
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