Newsquawk European Market Wrap - 12th September 2024

• Firm trade across European bourses with Tech and Basic Resources outpacing peers amid broader sectoral gains.


• ECB cut its deposit rate by 25bps as expected, and said it has no pre-determined path; Lagarde offered little at the presser.


• US PPI M/M and core PPI M/M marginally topped forecasts whilst the Y/Y metrics printed below expectations; IJC was in line.

EQUITIES

• 
  European bourses, Stoxx 600 (+0.7%) were firmer across the board as the region caught up to the late gains on Wall Street on Wednesday. The ECB cut its deposit rate by 25bps, in-line with expectations; the accompanying staff projections left headline metrics unchanged, a lift to 2024 and 2025 core HICP projections but lowered the growth outlook. This spurred some slight pressure in European indices.


• 
  European sectors were mostly firmer; Basic Resources was the clear outperformer amid the positive action in the base metals complex, overtaking the Tech sector which opened in the top spot following the strong performance on Wall Street; ASML (+4%) / ASMI (+3.9%). Healthcare was initially dragged down by Roche (-2.9%) after its obesity-related updates. Chemicals was hampered by updates by US-listed Dow, where it cut guidance; news which weighed on peers in Europe.


• 
  US Equity Futures (ES +0.1%, NQ U/C, RTY +0.4%) are mixed, taking a breather following the significant gains made in the prior session; the RTY modestly outperforms. The data docket today, which included PPI (mixed) and IJC (in-line), passed with little follow-through to the equities complex.


• In terms of stock specifics, Micron (-3.5%) slips after receiving a double downgrade at BNP Paribas. As for US airliners, Alaska Air (+4%) gains after receiving upgrading guidance for Q3, with Delta (+6%) also benefiting after it raised its FY outlook. Moderna (-16%) sinks after cutting annual spending on R&D by 23% between 2024-2027.

FX

• 
  USD - Steady in the European morning, choppy after US players entered the market, with the index then seeing two-way action on the mixed PPI data before eventually holding a firm downward bias. To recap the data, PPI M/M and core PPI M/M marginally topped forecasts whilst the Y/Y metrics printed below expectations. Initial jobless claims meanwhile printed in-line at 230k whilst the prior was revised higher by 1k. Fed pricing was little changed after the data deluge. DXY look to end the session towards the bottom of a USD 101.52-84 parameter.


• 
  EUR - Looking to end the European session modestly firmer but off best levels in what has been choppy trade on ECB day, albeit with the ECB range very narrow amid an in-line event, where rates were cut as expected, whilst President Lagarde refrained from pre-committing to a particular rate path. Furthermore, the staff projections saw HICP inflation unchanged, but core inflation revised higher for 2024 and 2025 on account of services inflation. Growth forecasts were downgraded by 0.1ppt across the horizon. The press conference was a non-event. EUR/USD is poised to end the session towards the middle of a 1.1006-40 range.


• 
  GBP - Traded relatively flat vs. the USD with the pair contained within yesterday's 1.3001-1.3111 trading range in a 1.3033-67 parameter. Fresh UK drivers remain light during today's session.


• 
  JPY - Initially the laggard across the majors despite hawkishly-perceived comments from BoJ's Tamura overnight who followed suit from other policymakers this week alluding to the upward policy path at the bank. JPY later clawed back some lost ground as bond US bonds came off best levels. USD/JPY briefly dipped under 142.00 to trade in a 141.92-143.04 band.


• 
  Antipodeans - Both steady vs. the USD but with a mild upward bias amid the risk appetite this morning and rise in industrial commodities.. AUD/USD attempted to extend on yesterday's bounce after the pair printed a MTD low @ 0.6622. NZD/USD looks to end the day 0.6125-59 range.

FIXED

• 
  Bunds - Extended on losses during the ECB press conferences with little sustained reaction seen in EUR and EGBs with the policy announcement very much in fitting with expectations. There was no obvious reason as to why Bunds continued dipping during the press conference, but one theory could be Lagarde not commenting on October or how close the ECB is to the r-star. Bund Dec'24 is poised to end the session towards the bottom of a 135.35-134.70 range, with yesterday's low at 134.67.


• 
  USTs - USTs are flat/lower in an extension of yesterday's downside post-CPI which saw the curve flatten. Upticks were seen as US players entered the market and in the run-up to the ECB, which saw little reaction. Volatility was then seen on the mixed PPI metrics (which saw M/M metrics top forecasts for both headline and more and Y/Y miss), whilst jobless claims were in-line. US 10-year yield looks to end the session closer to the top of a 3.6380-3.6810% parameter. Ahead, US traders look to the 30yr auction after the last two 30yrs saw strong outings.


• 
  Gilts - Tracked the downside in global peers with UK-specific newsflow on the lighter side. Focus for the UK will begin to turn towards next week's UK CPI print which is followed up the next day by the latest BoE rate decision. Gilt Dec'24 eventually fell under 101 to print a range between 100.85-101.51.

COMMODITIES

• 
  Crude - Firmer trade across the crude complex amid the broader risk-on mood across markets, whilst some desks also flag potential short covering after the market moved into "oversold" territory following the latest batch of Chinese data - which flagged a sluggish economy. Analysts at ING suggest the supply risk from Hurricane Francine provided a reason to short-cover. IEA OMR was released this morning in which it cut its 2024 world oil demand growth forecast to 900k BPD (prev. 970k BPD), and sees 2025 demand at 950k BPD. IEA said, "The rapid decline in global oil demand growth in recent months, led by China, has fuelled a sharp sell-off in oil markets". WTI Oct traded between 67.24-68.66/bbl while Brent Nov printed a 70.59-71.93/bbl range.


• 
  Precious Metals – Firmer across the board but to varying degrees. Spot palladium once again outperformed after South Africa's Sibanye Stillwater said it was cutting loss-making US palladium production. Spot gold surged to all time highs at USD 2,551.72/oz (vs low 2,511.08/oz) with potential tailwinds from geopolitics, with gains in the yellow metal seen picking up shortly after reports that a Russian missile hit a vessel carrying grains outside of Ukrainian waters.


• 
  Base Metals - Firmer across the board amid the continued revival across industrial commodities, with prices also helped by the broader risk-on mood. Elsewhere, LME nickel rallied over 2% yesterday after Russian President Putin floated potential export controls on several commodities including nickel." 3M LME copper waned after hitting resistance at USD 9,300/t to print a daily range between 9,135.50-9,299.50/t.


• 
  IEA OMR: cuts 2024 world oil demand growth forecast to 900k BPD (prev. 970k BPD), sees 2025 demand growth at 950k BPD; says "The rapid decline in global oil demand growth in recent months, led by China, has fuelled a sharp sell-off in oil markets". "Outside of China, oil demand growth is tepid at best". China is leading rapid decline.


• NHC says continued weakening is forecasted and Francine is expected to become a post-tropical cyclone later today.


• 
  UBS says Hurricane Francine likely disrupted about 1.5mln barrels of US oil production; due to the hurricane, September production in the Gulf of Mexico will be reduced by some 50k BPD.

EUROPEAN DATA

• German Wholesale Price Index YY (Aug) -1.1% (Prev. -0.1%)


• German Wholesale Price Index MM (Aug) -0.8% (Prev. 0.3%)


• Spanish HICP Final YY (Aug) 2.4% vs. Exp. 2.4% (Prev. 2.4%)


• Spanish CPI YY Final NSA (Aug) 2.3% vs. Exp. 2.2% (Prev. 2.2%)


• Spanish CPI MM Final NSA (Aug) 0.0% vs. Exp. 0.0% (Prev. 0.0%)


• Spanish Core CPI YY (Aug) 2.7% (Prev. 2.8%)


• Swedish CPIF MM (Aug) -0.5% vs. Exp. -0.4% (Prev. 0.1%)


• Swedish CPIF YY (Aug) 1.2% vs. Exp. 1.3% (Prev. 1.7%)


• Swedish CPI MM (Aug) -0.6% vs. Exp. -0.5% (Prev. 0.1%)


• Swedish CPI YY (Aug) 1.9% vs. Exp. 2.1% (Prev. 2.6%)

CENTRAL BANKS

• Click for ECB Review


• 
  ECB STATEMENT: Deposit Rates cut 25bps to 3.50% (prev. 3.75%), as expected; Refi Rate cut to 3.65% (prev. 4.25%) and Marginal Lending cut to 3.90% (prev. 4.505(, as expected; not pre-committing to a particular rate path. POLICY STANCE: Governing Council is not pre-committing to a particular rate path.Will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. Will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim INFLATION:Recent inflation data have come in broadly as expected, and the latest ECB staff projections confirm the previous inflation outlook. Domestic inflation remains high as wages are still rising at an elevated pace. However, labour cost pressures are moderating, and profits are partially buffering the impact of higher wages on inflation. For core inflation, the projections for 2024 and 2025 have been revised up slightly, as services inflation has been higher than expected.FORECASTS: HICP INFLATION: 2024: 2.5% (prev. 2.5%) 2025: 2.2% (prev. 2.2%) 2026: 1.9% (prev. 1.9%) HICP CORE INFLATION (EX-ENERGY & FOOD): 2024: 2.9% (prev. 2.8%) 2025: 2.3% (prev. 2.2%) 2026: 2.0% (prev. 2.0%). GDP: 2024: 0.8% (prev. 0.9%) 2025: 1.3% (prev. 1.4%) 2026: 1.5% (prev. 1.6%)


• 
  ECB President Lagarde (post-meeting statement) says recovery is facing headwinds, according to surveys, but is expected to strengthen. ECONOMY: Recovery is facing headwinds, according to surveys, but is expected to strengthen Fading monpol restriction should support the economy. LABOUR MARKET: Labour market remains resilient. Surveys point to further moderation in demand for labour. Nominal wage growth is expected to remain high and volatile for the rest of the year; overall labour cost growth is moderating. Unit labour costs are seen continuing to decline BALANCE OF RISKS: Growth risks are skewed to the downside (NOTE: This is an unchanged assessment).


• 
  ECB President Lagarde (Q&A): Domestic inflation is not satisfactory; reiterates ECB will be data-dependent, deciding policy on a meeting-by-meeting basis. Reiterates ECB is not committing anything with regards to the October meeting. She is not endorsing ECB staff estimates on r-star and said ECB needs to be attentive to risks of below target inflation. She said services inflation requires very attentive understanding and monitoring.


• 
  BoJ Tamura says do not have a pre-set idea on pace of further rate hikes when asked BoJ could raise rates again by year-end or March-end of current fiscal year; unlike US and Europe, Japan hikes are likely to be slow. Data out so far show Japan's economy moving in line with forecasts made in BoJ's July meeting. Focusing too much on whether markets are stable or not could prevent BoJ from conducting monetary policy appropriately reflecting economic and price developments. Big and rapid market volatility is undesirable. Weak Yen being reversed somewhat but rise in import costs seen earlier this year will likely affect consumer inflation with a lag. "My view on 1% being estimated neutral rate is not something set in stone it is something i feel would be useful in determining future rate hike prices."


• 
  BoE has made "substantial amendments to our proposals in response to consultation feedback and evidence". "In terms of the capital impact, the BoE says there will only be a very small impact on requirements, on average, across UK firms." "In some cases, changes were designed following "too much conservatism" in the original proposals, or where reforms were too difficult or costly to implement in practice."

GEOPOLITICS

• 
  Chinese Commerce Ministry will visit Europe next week to discuss EV tariffs; Chinese Commerce Minister to meet with EU Commission Vice President on September 19th for talks, according to the Chinese Commerce Ministry.


• 
  Ukrainian PM Zelenskiy says Russian missile hit vessel in the Black Sea carrying grains en-route to Egypt; Vessel already left Ukrainian waters when it was struck, no causality. Grain vessel was struck in Romanian waters near the mouth of Danube River in the Black Sea overnight, according to Reuters citing sources.

NOTABLE NORTH AMERICAN NEWS

• 
  Greyscale is to launch first US XRP trust, paving way for a potential ETF, via Fox Business.

NORTH AMERICAN DATA

• US PPI Final Demand YY (Aug) 1.7% vs. Exp. 1.8% (Prev. 2.2%, Rev. 2.1%)


• US PPI Final Demand MM (Aug) 0.2% vs. Exp. 0.1% (Prev. 0.1%)


• US PPI exFood/Energy YY (Aug) 2.4% vs. Exp. 2.5% (Prev. 2.4%)


• US PPI exFood/Energy MM (Aug) 0.3% vs. Exp. 0.2% (Rev. -0.2%)


• US PPI ex Food/Energy/Tr YY (Aug) 3.3% (Prev. 3.3%, Rev. 3.2%)


• US PPI ex Food/Energy/Tr MM (Aug) 0.3% (Prev. 0.3%)


• US Continued Jobless Claims w/e 1.85M vs. Exp. 1.85M (Prev. 1.838M, Rev. 1.845M)


• US Jobless Claims 4-Wk Avg w/e 230.75k (Prev. 230.0k, Rev. 230.25k)


• US Initial Jobless Claims w/e 230.0k vs. Exp. 230.0k (Prev. 227.0k, Rev. 228k)


• Canadian Building Permits MM. (Jul) 22.1% vs. Exp. 7.1% (Prev. -13.9%, Rev. -13.0%)

NOTABLE ASIA-PAC NEWS

• 
  China is to reportedly cut rates on USD 5tln mortgages as soon as September to boost consumption; China to cut rates by up to 50bps, according to Bloomberg sources.


• China's CSI 300 index closes at the lowest level since early 2019.


• 
  South Korean aims to end short-selling ban on all stocks in March, according to Bloomberg.

ASIA-PAC DATA

• Indian CPI Inflation YY (Aug) 3.65% vs. Exp. 3.5% (Prev. 3.54%).

12 Sep 2024 - 15:06- Fixed IncomeEU Research- Source: Newsquawk