Newsquawk European Market Wrap - 31st October 2024

• Yesterday's selling pressure in UK paper extended today with the UK 2yr yield up circa 18bps


• Stocks lower throughout the session amid a busy corporate earnings slate and soft large-cap US results


• JPY top of the G10 leaderboard following Ueda's hawkishly-perceived press conference

EQUITIES

• 
  European bourses, Stoxx 600 (-1.2%) began the European session entirely in the red, and continued to trundle lower as the session progressed.


• 
  European sectors were entirely in the red, with clear underperformance in Real Estate given the relatively high yield environment; particularly in the UK, as Gilts continued to slip in the aftermath of the UK Budget; Persimmon (-6.2%), Taylor Wimpey (-5.7%). Banks are faring better vs peers, after several European banks reported today; ING (+1%), BNP Paribas (-4.9%), SocGen (+11.4%). Other key post-earning movers include; TotalEnergies (-7.2%), Shell (+2.3%), STMicroelectronics (-3.1%), Maersk (+6.4%).


• 
  US Equity Futures (ES -1.1% NQ -1.7% RTY -0.6%) are entirely in the red, with sentiment hit following post-earning losses tech heavyweights Meta (-3.8%) and Microsoft (-3.8%). Breaking down their results, Meta topped Q3 sales and profit expectations, but slipped with traders citing heavy spending plans. Elsewhere, Microsoft topped top- and bottom-line expectations, but its guidance underwhelmed. Other key movers include; Uber (-8.9%), Merck (-3.2%), Bristol Myers Squibb (+5%). Amazon (-2.5%) and Apple (-0.5%) are both lower ahead of its earning after-hours.


• In terms of the US data docket today, PCE came in generally in-line, but with the core Y/Y printing just above expectations. Employment Costs rose at a slightly slower rate vs expectations; overall, OxEco writes that the data indicates solid growth in consumption in Q4 and are not concerned that the inflation progress is stalling. The data sparked some two-way action but ultimately had little impact on prices. Much of the downside picked up following the US cash open, and then took another leg lower following the release of the US Chicago PMI, which was considerably lower than expected.

FX

• 
  USD - DXY lower as JPY strength acted as a drag on the index. Today's data saw a broadly in-line (slightly firmer core Y/Y PCE) PCE report and below-expected IJC. However, this data will likely play second fiddle to tomorrow's NFP print; next week's US election also looms large. DXY is currently around the 104 mark, if downside resumes, the next support level comes via the 200DMA @ 103.82 (briefly crossed earlier).


• 
  EUR - Little follow-through for the EUR from above-expected EZ CPI given that regional releases had suggested such an outcome. Nonetheless, yesterday's regional releases and GDP metrics have underpinned the EUR as dovish bets for the ECB have been moderated (around 4bps of easing for the Dec meeting has been trimmed since yesterday morning). EUR/USD is currently in close proximity to its 200DMA @ 1.0869 and yesterday's high @ 1.0871.


• 
  GBP - Failed to claw back yesterday's post-budget losses. Initially yesterday, GBP cheered the near-term growth impact from the budget and potential for a slightly more hawkish approach from the BoE. However, concerns were stoked by borrowing forecasts from the OBR which have subsequently seen a surge in UK yields which GBP has been unable to benefit from due to the fiscal risk premium which now appears to be embedded in the pound. Accordingly, Cable briefly slipped onto a 1.28 handle, bottoming out @ 1.2887; lowest level since Aug 16th.


• 
  JPY - Strengthened in the wake of the BoJ policy decision. The announcement itself provided little in the way of surprises. However, the JPY began to pick up steam as Governor Ueda spoke and downplayed concerns over financial stability risks acting as an impediment to further policy tightening. Markets don't fully price another 25bps hike until Jun'25. USD/JPY briefly made its way onto a 151 handle but has since stabilised just above the 152.50 mark.


• 
  Antipodeans - Both initially steady vs. the USD before eventually moving lower as risk sentiment soured. No real follow through seen for AUD from mixed Australian Retail Sales and Building Approvals, nor mixed Chinese PMI metrics. After bottoming out yesterday at a fresh multi-month low, AUD/USD remained within yesterday's 0.6536-95 range. NZD/USD softer and briefly slipped below the bottom end of yesterday's 0.5950-6001 range.

FIXED

• 
  Gilts came for sale from the open, gapped down from Wednesday’s 94.92 close and are currently at a 93.18 trough, each move lower is a new base for the December contract. Action which began as a continuation of the post-budget move as participants digested the hawkish elements, evidenced by short-end yields leading and the curve flattening.


• However, while this narrative remains the case, the magnitude of the move is ramping up at the long-end as well with the UK’s 10yr yield at a 4.51% peak. For reference, if a ~5% yield is realised in the near-term this would remove essentially all of Reeves’ headroom.


• Note, while the action has been pronounced and is rout-like in its magnitude there are some factors which separate it from the post-Truss action, namely the involvement of the OBR and new Golden Rule. Furthermore, this morning’s UK auction was very strong which is a good sign in the current environment and provided support at the time; however, this is caveated a touch by it being a Green tap, which benefits from its own separate demand base.


• Amidst this, EGBs & USTs have been pressured with yields also bid across their curves, though in the US the belly leads. US focus has been on data, with a knee-jerk hawkish move on weekly claims at their lowest since mid-May.


• However, this then pared as PCE was in-line and the unrounded figure for the core M/M only just nudging up to 0.3%, albeit the priors were revised higher, while the ECI moderated slightly. Overall, nothing to substantially change the picture and we now await Payrolls before the election & Fed next week.


• Amidst this, USTs down to an initial 110-06 base, saw a fleeting bounce on weak Chicago PMI, but have reverted back to lows and are set to end the European session at a 110-04+ trough with the 30yr yield eyeing 4.50% to the upside.


• EGBs weighed on in-fitting with Gilts into EZ HICP but were ultimately unreactive to the hotter-than-expected measures given data earlier in the week telegraphed this. Down to a 131.31 base in the European morning and have since, given the above, slipped to a 131.15 base.


• 
  UK sells GBP 2.25bln 1.50% 2053 Green: b/c 3.15x (prev. 3.26x), average yield 4.831% (prev. 4.545%), tail 0.5bps (prev. 0.6bps)

COMMODITIES

• 
  Crude benchmarks continued to climb, benefitting from the tense geopolitical environment and weak USD. The main update came early doors via a since-deleted post from Sky Arabia that Tel Aviv is considering launching a large-scale pre-emptive attack against Iran.


• Since, evacuation orders and strikes have occurred in various regions while the benchmarks have likely also benefited from reports in CNN that the US doubts there is a possibility of a Lebanon ceasefire pre-election, pushing back on Lebanon’s PM hoping for one within hours/days.


• 
  WTI and Brent at the top-end of USD 1.30/bbl ranges with high points of USD 69.64/bbl and USD 73.15/bbl respectively.


• Moving to metals, spot gold printed a fresh ATH early doors just above USD 2790/oz but has since faded by over USD 40/oz despite ongoing geopolitical tensions and USD weakness, with the metal losing out to JPY strength and rampant yield upside.


• 
  Base metals had a tentative start owing to a mixed set of PMIs from China. As the risk tone slipped further, 3M LME Copper came under more pressure but is holding just above the USD 9.5k mark, with USD pressure perhaps assisting.


• 
  Energy Intel's Bakr says, re. recent OPEC+ source reports, that "they didn’t even talk about this yet".


• 
  Reuters Crude Poll: US crude oil exp. to average USD 76.73/bbl in 2024 (prev. USD 77.64 in Sept.); Brent exp. to average USD 80.55/bbl in 2024 (prev. USD 81.52/bbl in Sept.) 2025 forecast: US Crude oil exp. to average USD 72.73/bbl (prev. USD 73.03/bbl in Sept.) Brent exp. to average USD 76.61/bbl (prev. USD 76.94/bbl in Sept.)


• 
  US EIA- Nat Gas, Change Bcf 78.0bcf vs. Exp. 81.0bcf (Prev. 80.0bcf).


• Citi says it continues to see more room for Gold prices to rise to USD 3000/oz over the next six months.

EUROPEAN NEWS

• 
  UK Chancellor Reeves says there will be more plans to boost growth. Is not going to come back for more money in the spring. Commenting on yesterday's budget, says "will not have to do anything like that ever again".


• 
  German engineering orders -8% Y/Y in September (Domestic -15%; Foreign Orders -5%); Jun-Sept-4% Y/Y (Domestic -16%, Foreign Orders Unch.), according to VDMA.

EUROPEAN DATA

• 
  EU HICP Flash YY (Oct) 2.0% vs. Exp. 1.9% (Prev. 1.7%); Services 3.9% Y/Y (prev. 3.9%); HICP-X F&E Flash YY (Oct) 2.7% vs. Exp. 2.6% (Prev. 2.7%); Unemployment Rate (Sep) 6.3% vs. Exp. 6.4% (Prev. 6.4%, Rev. 6.3%); HICP-X F,E,A&T Flash YY (Oct) 2.7% vs. Exp. 2.60% (Prev. 2.70%); HICP-X F, E, A, T Flash MM (Oct) 0.2% (Prev. 0.10%)


• 
  German Retail Sales YY Real (Sep) 3.8% vs. Exp. 1.6% (Prev. 2.1%); Retail Sales MM Real (Sep) 1.2% vs. Exp. -0.5% (Prev. 1.6%); Import Prices YY (Sep) -1.3% vs. Exp. -1.4% (Prev. 0.2%); Import Prices MM (Sep) -0.4% vs. Exp. -0.4% (Prev. -0.4%)


• 
  French CPI (EU Norm) Prelim MM (Oct) 0.3% vs. Exp. 0.20% (Prev. -1.30%); CPI Prelim YY NSA (Oct) 1.2% vs. Exp. 1.10% (Prev. 1.10%); CPI Prelim MM NSA (Oct) 0.2% vs. Exp. 0.20% (Prev. -1.20%); CPI (EU Norm) Prelim YY (Oct) 1.5% vs. Exp. 1.5% (Prev. 1.4%)

CENTRAL BANKS

• 
  ECB President Lagarde said the inflation goal is in sight but cannot say inflation is completely under control, while they will base the size and order of cuts on economic data. Lagarde added that no Euro area recession is expected in 2024-2026 and she reaffirmed commitment to a continued interest rate reduction, according to Le Monde.


• 
  ECB's Panetta says rates need to come down; inflation is easing and need to pay attention to weakness of the economy. ECB needs to avoid the risk of pushing inflation below target.


• 
  BoJ's Ueda says the domestic economy is recovering moderately, though some weak moves are seen. Did not need to use the language at this meeting that they can afford to spend time scrutinising risks. Uncertainties remain but markets have slowly regains stability. Can't currently say how much wages would need to increase for them to hike further; if wage hikes are similar to this year's Spring negotiations that would be a "positive development", but that does not mean we decide to hike with only that. Click for full details.
  

GEOPOLITICS

• Israeli Military issue another evacuation order for Lebanon's Baalbek city and two nearby towns, according to Reuters citing an Israeli statement

NORTH AMERICAN DATA

• 
  US Core PCE Price Index MM (Sep) 0.3% vs. Exp. 0.3% (Prev. 0.1%, Rev. 0.2%); unrounded 0.2538% (prev. 0.1304%)


• 
  US Core PCE Price Index YY (Sep) 2.7% vs. Exp. 2.6% (Prev. 2.7%)


• 
  US PCE Price Index MM (Sep) 0.2% vs. Exp. 0.2% (Prev. 0.1%); unrounded 0.1754% (prev. 0.0906%)


• 
  US PCE Price Index YY (Sep) 2.1% vs. Exp. 2.1% (Prev. 2.2%, Rev. 2.3%)


• 
  US Consumption, Adjusted MM (Sep) 0.5% vs. Exp. 0.4% (Prev. 0.2%, Rev. 0.3%)


• 
  US Personal Consump Real MM (Sep) 0.4% (Prev. 0.1%, Rev. 0.2%)


• 
  US Personal Income MM (Sep) 0.3% vs. Exp. 0.3% (Prev. 0.2%)


• 
  US Initial Jobless Claims 216.0k vs. Exp. 230.0k (Prev. 227.0k, Rev. 228k)


• 
  US Continued Jobless Claims 1.862M vs. Exp. 1.885M (Prev. 1.897M, Rev. 1.888M)


• 
  US Employment Costs (Q3) 0.8% vs. Exp. 0.9% (Prev. 0.9%)


• 
  US Employment Wages QQ (Q3) 0.8% (Prev. 0.9%)


• 
  US Employment Benefits QQ (Q3) 0.8% (Prev. 1.0%)


• 
  US Challenger Layoffs (Oct) 55.597k (Prev. 72.821k)


• 
  US Chicago PMI (Oct) 41.6 vs. Exp. 47.0 (Prev. 46.6)


• 
  Canadian GDP MM (Aug) 0.0% (Prev. 0.2%, Rev. 0.1%)

31 Oct 2024 - 15:00- Fixed IncomeEU Research- Source: Newsquawk