US EARLY MORNING: US equity futures are little changed, as are Treasury yields and the USD; focus is shifting onto the heavy central bank slate in the second part of the week

US PRE-MARKETS: US equity futures are once again trading with a directionless bias, Treasury yields are little changed, while the Dollar Index is flat. Crude futures are continuing to gain on fundamentals and sentiment. The focus is now shifting to the numerous central bank announcements due in the coming days (FOMC on Wednesday, preview below; BoE, SNB, Norges, Riks on Thursday; BoJ on Friday). Additionally, traders are keeping an eye on the labour negotiations between automakers and unions; the UAW has threatened further industrial action if a deal cannot be struck by the end of Friday, while the Unifor union in Canada has extended talks with Ford amid some signs of progress (See Equity News section, below).

JPM STAYS OW ENERGY/COMMODITIES: JPM strategist Marko Kolanovic notes that equities are up YTD on multiple expansion while real rates and cost of capital are moving deeper into restrictive territory. "History suggests this relationship is becoming increasingly unsustainable, with the S&P 500 multiple over-valued by 3-4x vs real rates, posing risk to valuations, especially since earnings expectations already face a high hurdle for 2024." Despite the bond sell-off taking yields back toward cyclical highs, the risk of hawkish surprises from the Fed and BoJ, as well as a possible US government shutdown, is keeping JPM neutral on duration. "While risk markets continue to trade in a benign fashion, the news over the past week are in our opinion reducing rather than increasing the chances of soft landing; higher oil prices, inflation persistency, geopolitics and the risk of steeper curves, all reduce the chances of soft landing going forward," Kolanovic says, "we stay overweight energy/commodities as we see room for a further rise in commodity prices, and investor allocations remain low."

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19 Sep 2023 - 09:30- Fixed IncomeData- Source: Newsquawk

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