Fed watcher and former Fed official comments spark market pricing for 50bps cut next week

EU Mid-Market Update: Fed watcher and former Fed official comments spark market pricing for 50bps cut next week; First Boeing strike since 2008.

Notes/observations

- ECB commentary from Villeroy, Muller, Vasle, Rehn, Nagel and Simkus all reinforce concern over inflation while reiterating no pre-commitment to rate path. A sources piece following ECB decision suggested officials have not ruled out a rate cut in Oct but seen as unlikely.

- Fed, BOJ and BOE decisions next week: Futures price in first 25bps cut for Fed but overnight bets on 50bps were increased, on the back of WSJ Timiraos piece. yesterday and former Fed official Dudley comments. BOE expected to pause, following ECB style of cut, hold, cut, hold. BOJ also expected to leave policy unchanged, but BOJ members have hinted at another hike during 2024. Overnight Yen strengthened to Dec 2023 highs.

- Boeing US factory workers begin strike after rejecting labor deal; Widespread impacts on 737 aircraft deliveries is expected, the first strike since 2008, when it lasted about two months.

- Trump backs out of further TV debates against Harris following swing in polls that put Kamala ahead.

- China attempts to fix declining productivity in aging population, by approving raising retirement age for men and women by 3 years (5 years for factory workers), first hike to retirement age since 1978.

- Asia closed mixed with Hang Seng outperforming +0.8%. EU indices are -0.1% to +0.4%. US futures are 0.0-0.1%. Gold +0.4%, DXY -0.4%; Commodity: Brent +0.7%, WTI +0.8%; Crypto: BTC -0.4%, ETH -0.4%.

Asia

- South Korea Aug Import Price Index M/M: -3.5% v +0.4% prior; Y/Y: 1.8% v 9.9% prior.

- South Korea Aug Export Price Index M/M: -2.6% v +0.8% prior; Y/Y: 5.7% v 13.0% prior.

- New Zealand Aug Manufacturing PMI: 45.8 v 44.4 prior (18th month of contraction).

- Japan July Final Industrial Production M/M: 3.1% v 2.8% prelim; Y/Y: 2.9% v 2.7% prelim.

Europe

- ECB Oct rate cut said to be unlikely for now; would require exceptional negative growth surprises.

Americas

- WSJ Fed Watcher Timiraos noted decision on whether to cut by 0.25 or 0.5 percentage points is closely contested (**Note: Fed futures now price 43% (v 14% d/d) chance of 50bps rate cut at Sept 18th).

- Former NY Fed Pres Dudley saw a strong case for 50bps cut in upcoming FOMC meeting.

- Peru Central Bank (BCRP) cut its Reference Rate by 25bps to 5.25% (as expected) for its 2nd straight cut in the current phase of its easing cycle. Cut did not necessarily mean that future easing would follow. Future cuts to depend on inflation data and its determinants.

Tensions

- Reportedly Russia-linked hacker groups on Sept 12th briefly disrupted Taiwanese financial platforms including Taiwan stock exchange and Mega Financial Holding Co.’s website.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.49% at 514.60, FTSE +0.07% at 8,246.95, DAX +0.55% at 18,609.15, CAC-40 +0.33% at 7,459.72, IBEX-35 +0.56% at 11,465.03, FTSE MIB +0.17% at 33,514.00, SMI +0.62% at 12,064.91, S&P 500 Futures +0.18%].

Market Focal Points/Key Themes: European indices open generally higher and advanced through the early part of the session; among sectors trending higher are consumer discretionary and utilities; sectors unable to break into the green include financials industrials; DSV to acquire Schenker from Deutsche Bahn; UK CMA preliminarily found competition issues with Vodafone/Three merger; Flutter acquires majority stake in NSX Group; National Grid sells its ESO unit to the government; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Straumann [STMN.CH] +3.5% (HSBC raised to buy).

- Energy: Tethys Oil [TETY.SE] +76.0% (to be acquired) - Financials: Bollore [BOL.FR] +6,0% (to send three buyout offers then squeeze-outs for Compagnie Du Cambodge as well as Financiere Moncey and Sif Artois).

- Healthcare: Valneva [VLA.FR] -9.0% (placement), Fresenius [FRE.DE] +3.0% (JPM raised to overweight).

- Industrials: DSV [DSV.DK] +1.5% (confirms to acquire Schenker for €14.3B EV), Konecranes [KCR.FI] +7.0% (raised outlook), Senior [SNR.UK] -1.0% (Boeing's union strike).

-Utilities: Iberdrola [IBE.ES] +1.0% (reportedly Qatar sounds out Spain govt to raise Iberdrola stake).

Speakers

- BoE/Ipsos Quarterly Inflation Attitude Survey (Next 12 Months): 2.7% v 2.8% prior; 2-year ahead inflation expectations: 2.6% v 2.6% prior.

- ECB’s Nagel (Germany): On a good course to reach inflation target by the end of 2025.

- ECB's Rehn (Finland) stated that rate cuts supported growth but needed better productivity. Road to the 2.0% ECB inflation target was bumpy. Needed fresh data due to fresh uncertainties on economy.

- ECB's Villeroy (France) stated that ECB should continue to cut gradually as appropriate but pace had to be highly pragmatic. Must be attentive of risk of undershooting inflation target and noted that market inflationary expectations were below ECB Staff Projections.

- ECB's Simkus (Lithuania) stated that inflation was calming down and suggested more ECB cuts must happen.

- ECB’s Vasle (Slovenia) reiterated Council stance that ECB would not commit to pre-determined rate. Inflation to be largely steered by core and services readings.

- ECB's Muller (Estonia) noted that a temporary acceleration in inflation was likely with services remaining a concern. Confidence was growing that inflation is on the right track. Euro-Zone economy was awaiting moderate recovery.

- Austria Central Bank (OMB) updated its economic outlook which cut 2024 GDP growth from +0.3% to -0.7% and cut 2025 GDP growth outlook from 1.8% to 1.0%. OMB cut 2024 CPI EU Harmonized forecast from 3.6% to 2.9% and cut 2025 CPI EU Harmonized outlook from 2.9% to 'just above 2.0%

Currencies/fixed income

- USD tried to claw back some of its post ECB losses. Focus of market participants now shofting towards the Fed. The greenback was softer following ECB post rate decision press conference as Lagarde did not make the Oct meeting ‘live’ but stuck to her standard rhetoric of no pre-set rate path. Dealers taking notice of WSJ Fed Watcher Timiraos who worte that the upcoming Fed decision on whether to cut by 25bps or 50bps was closely contested (**Note: Fed futures now price 43% (v 14% d/d) chance of 50bps rate cut at Sept 18th).

- EUR/USD tested 1.1090 overnight as markets believed that an ECB Oct rate cut was unlikely for now and such a move would require exceptional negative growth surprises. The session saw a plethora of ECB speak that stuck with Lagarde’s rhetoric from Thursday.

- GBP/USD rebounded as well with the pair at 1.3140 by mid-session. BOE Inflation Attitude Survey (Next 12 Months) improved slightly to 2.7% v 2.8% prior but markets still expect the central bank to pause at next week’s policy decision.

- USD/JPY back below 141 level on overall USD weakness. Focus turns to next week’s BOJ decision.

Economic data

- (FI) Finland Aug CPI M/M: -0.5% v +0.2% prior; Y/Y: 1.2% v 1.0% prior.

- (FI) Finland July GDP Indicator Y/Y: 0.p0% v 2.0% prior.

- (FR) France Aug Final CPI M/M: 0.5% v 0.6% prelim; Y/Y: 1.8%e v 1.9% prelim.

- (FR) France Aug Final CPI EU Harmonized M/M: 0.6% v 0.6% prelim; Y/Y: 2.2% v 2.2% prelim; CPI (Ex-Tobacco Index): 120.01 v 120.07e.

- (FR) France Q2 Final Wages Q/Q: 0.6% v 0.6% prelim.

- (TR) Turkey Central Bank (TCMB) Sept Inflation Expectations Survey (Next 12-months): 27.5% v 28.7% prior.

- (TH) Thailand May Foreign Reserves w/e Sept 6th: $236.9B v $235.7B prior.

- (CN) Weekly Shanghai copper inventories (SHFE): 185.5K v 215.4K tons prior.

- (PL) Poland Aug Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 4.3% v 4.3% prelim.

- (CZ) Czech July Current Account Balance (CZK): -13.7B v -20.7Be.

- (RU) Russia Narrow Money Supply w/e Sept 6th (RUB): 18.33T v 18.30T prior.

- (UK) BoE/Ipsos Quarterley Inflation Attitude Survey: 2.7% v 2.8% prior.

- (EU) Euro Zone July Industrial Production M/M: -0.3% v -0.3%e; Y/Y: -2.2% v -2.3%e.

- (IS) Iceland Aug International Reserves (ISK): 912B v 898B prior.

Fixed income issuance

- (IN) India sold total INR220B vs. INR220B indicated in 2031 and 2073 bonds.

Looking ahead

- (EU) European Finance Ministers (Eurogroup) meeting (with ECB chief Lagarde attending).

- (CO) Colombia Q2 Current Account: No est v -$1.9B prior.

- (CO) Colombia Central Bank's Economists Survey.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2033, 2043 and 2058 Bonds.

- 06:00 (UK) DMO to sell £5.0B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £2.5B respectively).

- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave Key One-Week Auction Rate unchanged at 18.00%.

- 07:30 (IN) India Forex Reserve w/e Sept 6th: No est v $684.0B prior.

- 08:00 (PL) Poland July Current Account Balance: -€0.5Be v +€0.6B prior; Trade Balance: -€0.9Be v -€0.2B prior; Exports: €26.4Be v €27.1B prior; Imports: €27.3Be v €27.3B prior.

- 08:00 (BR) Brazil July Economic Activity Index (Monthly GDP) M/M: -0.9%e v +1.4% prior; Y/Y: 4.3%e v 3.2% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Aug Import Price Index M/M: -0.2%e v +0.1% prior; Y/Y: 0.9%e v 1.6% prior; Import Price Index (ex-petroleum) M/M: 0.2%e v 0.2% prior.

- 08:30 (US) Aug Export Price Index M/M: -0.2%e v +0.7% prior; Y/Y: 1.4%e v 1.4% prior.

- 08:30 (CA) Canada July Wholesale Sales (ex-petroleum) M/M: -1.1%e v -0.6% prior.

- 08:30 (CA) Canada Q2 Capacity Utilization Rate: 78.8%e v 78.5% prior.

- 10:00 (US) Sept Preliminary University of Michigan Confidence: 68.5e v 67.9 prior.

- 12:00 (RU) Russia Q2 Preliminary GDP (2nd reading) Y/Y: 4.0%e v 4.0% advance.

- 12:00 (EU) Potential sovereign ratings after European close (Moody’s on Spain, S&P on Spain and Fitch on Germany).

- 13:00 (US) Weekly Baker Hughes Rig Count.

- 21:30 (CN) China Aug New Home Prices M/M: No est v -0.7% prior; Used Home Prices M/M: No est v -0.8% prior.

- 22:00 (CN) China Aug Industrial Production Y/Y: 4.7%e v 5.1% prior; Industrial Production YTD Y/Y: 5.8%e v 5.9% prior.

- 22:00 (CN) China; Aug Retail Sales Y/Y: 2.5%e v 2.7% prior; Retail Sales YTD Y/Y: 3.4%e v 3.5% prior.

- 22:00 (CN) China Aug YTD Urban Fixed Assets Y/Y: 3.5%e v 3.6% prior.

- 22:00 (CN) China Aug YTD Property Investment Y/Y: -10.0%e v -10.2% prior; Residential Property Sales Y/Y: No est v -25.9% prior.

- 22:00 (CN) China Aug Surveyed Jobless Rate: 5.2%e v 5.2% prior.