Bank of England Gov Bailey jumps aboard the Fed's dove train – EU automakers extend slump

Notes/observations

- Sterling dives >1% as BOE Gov Bailey sees chance of more aggressive rate cuts: UK Guardian newspaper circulated an interview where Bailey said there is a prospect of BOE being more ‘activist’ in cutting rates if inflation remains ‘good’. Elsewhere in FX, JPY (yen) stabilizes ~146.5 after massive move yesterday.

- Final readings of European Services PMI unlikely to change ECB Oct rate cut expectations: Germany final reading was unrevised, while Italy missed consensus. Spain, France and Euro Zone beat.

- Automotive sector underperforms after multiple analyst downgrades for Aston Martin, Mercedes, Porsche and Stellantis.

- One of UK’s largest supermarkets Tesco reports strong H1 above estimates, with raised FY24 Adj Op guidance and increased dividend.

- US FDA affirmed that Eli Lilly's Zepbound (tirzepatide) injection shortage has been resolved; FDA also noted its concerns with unapproved GLP-1 drugs used for weight loss.

- Asia closed mixed with Nikkei outperforming +2.0%. EU indices are -0.8% to -0.1%. US futures are -0.4% to -0.5%. Gold -0.6%, DXY +0.2%; Commodity: Brent +1.0%, WTI +1.1%; Crypto: BTC -2.3%, ETH -5.8%.

Asia

- Japan Sept Final PMI Services: 53.1 v 53.9 prelim (confirms 3rd month of expansion).

- Australia Sept Final PMI Services: 50.5 v 50.6 prelim (confirms 8th month of expansion).

- Australia Aug Trade Balance (A$): 5.6B v 5.5Be; Exports M/M: -0.2% v +0.3% prior; Imports M/M: -0.2% v -0.6% prior.

- BOJ Board member Noguchi stressed that was vital to keep financial conditions easy; There was a gap between BOJ's view and market understanding in July.

Global conflict/tensions

US and G7 warned Israel against strikes on Iranian nuclear facilities and instead urge Israel to focus on military targets.

Europe

- ECB's Schnabel (Germany) stated that the return to 2% inflation target in timely manner was becoming more likely: Could not ignore the headwinds to growth but conceded that monetary policy Could not resolve structural growth issues.

- ECB’s Vasle (Slovenia) noted that could not exclude or commit to a rate cut in Oct. Would be additional cuts but they would be data dependent.

- ECB’s Centeno (Portugal, dove) noted that inflation had converged closely to the ECB's target and "well anchored". Stressed that state of economy needed ECB response of reducing rates.

Americas

Fed’s Barkin (voter for 2024; non-voter for 2025) saw two additional quarter percentage point cuts this year as a reasonable path if economy evolved as expected. Added that a 50bps of cuts in Sept might be warranted because rates were 'out of synch' with drop in inflation.

Energy

- OPEC Secretariat categorically refuted the claims made within the WSJ story as wholly inaccurate and misleading (**Reminder: article claimed that Saudi Oil Min reportedly warned that oil prices might fall to $50/bbl if others cheated and overproduced).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.77% at 517.14, FTSE +0.15% at 8,303.55, DAX -0.63% at 19,027.55, CAC-40 -0.90% at 7,509.64, IBEX-35 % at #, FTSE MIB -0.73% at 33,428.00, SMI -0.51% at 12,047.90, S&P 500 Futures -0.36%]Market Focal Points/Key Themes: European indices open generally lower and remained under pressure through the early part of the session; bank holiday in Germany, though bourse is open; Isreal closed for holiday; among sectors trending higher are energy and materials; sectors inclined to the downside are technology and real estate; Lanxess to divest is Urethan Systems unit to UBE; reportedly Lios raises offer for Lar earnings expected in the upcoming US session include Constellation Brands.

Equities

- Consumer discretionary: Tesco [TSCO.UK] +2.0% (H1 results, profit beats estimates, raises outlook and dividend; conf call comments), Galliford Try [GFRD.UK] +4.0% (FY results).

- Utilities: SSE [SSE.UK] +1.5% (trading update).

- Industrials: Aston Martin [AML.UK] -1.5% (HSBC and Jefferies both cut to hold), Stellantis [STLA.IT] -4.5% (Barclays cuts to equal weight), Mercedes-Benz [MBG.DE] -2.0% (Barclays cuts to equal weight), Porsche [POR3.DE] -3.0% (Barclays cuts to underweight) - Technology: SAP [SAP.DE] -1.5% (reportedly the US govt probe of SAP and Carasoft over price fixing has been expanded across nearly 100 agencies) - Telecom: Telecom Italia [TIT.IT] +2.5% (gets offer for Sparkle undersea cable unit).

Speakers

- BOE Gov Bailey noted that the prospect of BOE becoming a “bit more aggressive, bit more activist” in cutting interest rates if inflation continued to be 'good'; Living cost pressures not as persistent

- BOE Decision Maker Panel (DMP) Sept Survey: 3-month ahead CPI: 3.6% v 3.4%e; 1-year ahead CPI: 2.7% v 2.7%e; 3-year ahead CPI: 2.6% v 2.7% prior.

- Sweden Central Bank (Riksbank) Dep Gov Jansson commented that: 25bps rate cuts in Nov and Dec was main scenario; 50bps was possible; not worried about rate cuts causing uptick in consumption and inflation. SEK currency remained weak and any strengthening would be welcomed.

- BOJ Board member Noguchi (dove) stated that could not say now when BOJ would raise rates again; Timing for another rate hike was data-dependent.

- Japan Fin Min Kato confirmed stance that Japan govt and BOJ to continue to work closely in line with joint accord.

- Thailand Fin Min Pichai noted that it had discussed household debt and restructuring with central bank (BOT); planning measures to help ease the situation. Added that BOT to consider key rate cut proposal; lower interest rates would be good and ease borrowers' burden.

Currencies/fixed income

- USD continued to find some legroom to add to recent gains.

- EUR/USD at 1.1045 by mid-session as focus remains on the Oct ECB meeting where it was expected to deliver another rate cut.

- GBP/USD was lower after BOE Gov Bailey noted that the prospect of BOE becoming a “bit more aggressive, bit more activist” in cutting interest rates. Pair tested 1.3125 during the session.

- USD/JPY probed the 147.20 area in the aftermath of Wed’s Japanese PM Ishiba commented that the country was not in environment now for additional rate hikes.

Economic data

- (RU) Russia Sept Services PMI: 50.5 v 51.5e (3rd month of expansion); Composite PMI: 49.4 v 52.1 prior.

- (CH) Swiss Sept CPI M/M: -0.3% v -0.1%e; Y/Y: 0.8% v 1.0%e; CPI Core Y/Y: 1.0% v 1.1%e.

- (CH) Swiss Sept CPI EU Harmonized M/M: -0.3% v 0.0% prior; Y/Y: 0.9% v 1.0% prior.

- (SE) Sweden Sept PMI Services: 49.1 v 52.4 prior (1st contraction in 4 months)Composite PMI: 49.7 v 52.8 prior.

- (TR) Turkey Sept CPI M/M: 3.0% v 2.2%e; Y/Y: 49.4% v 48.3%e; CPI Core Y/Y: 49.1% v 48.0%e.

- (TR) Turkey Sept PPI M/M: 1.4% v 1.7% prior; Y/Y: 33.1% v 35.8% prior.

- (ES) Spain Sept Services PMI: 57.0 v 54.0e (13th month of expansion and highest since Apr 2023); Composite PMI: 56.3 v 52.8e.

- (ZA) South Africa Sept PMI (whole economy): 51.0 v 50.5 prior (2nd month of expansion).

- (IT) Italy Sept Services PMI: 50.5 v 51.1e (9th month of expansion); Composite PMI: 49.7 v 50.2e.

- (FR) France Sept Final Services PMI: 49.3 v 48.3 prelim (confirmed 1st contraction in 3 months); Composite PMI: 48.6 v 47.4 prelim.

- (DE) Germany Sept Final Services PMI: 50.6 v 50.6 prelim (confirmed 7th month of expansion; Composite PMI: 47.5 v 47.2 prelim.

- (EU) Euro Zone Sept Final Services PMI: 51.4 v 50.5 prelim (confirmed 8th month of expansion); Composite PMI: 49.6 v 48.9 prelim.

- (UK) Sept Final Services PMI: 52.4 v 52.8 prelim (confirmed 11th month of expansion); Composite PMI: 52.6 v 52.9 prelim.

- (UK) Sept Official Reserves Changes: $2.1B v $3.6B prior.

- (HK) Hong Kong Aug Retail Sales Volume Y/Y: -11.8% v -10.1%e; Retail Sales Value Y/Y: -10.1% v -9.0%e.

- (EU) Euro Zone Aug PPI M/M: 0.6% v 0.5%e; Y/Y: -2.3% v -2.4%e.

- (CY) Cyprus Sep CPI M/M: 0.3% v 0.3% prior; Y/Y: 0.7% v 1.5% prior.

Fixed income issuance

- (IN) India sold total INR190B vs. INR190B indicated in 3-month, 6-month and 12-month bills.

- (ES) Spain Debt Agency (Tesoro) sold total €B vs. €4.0-5.0B indicated range in 2027, 2029, 2041 SPGB bonds.

- Sold €1.85B in 2.50% May 2027 SPGB bonds; Avg Yield: 2.277% v 2.531% prior; bid-to-cover: 2.18x v 3.23x prior.

- Sold €1.50B in 1.45% Apr 2029 SPGB bond; Avg Yield: 2.378% v 2.690% prior; Bid-to-cover: 2.60x v 1.65x prior.

- Sold €1.19B in 4.70% July 2041 SPGB; Avg Yield: 3.356% v 0.813% prior; Bid-to-cover: 2.17x v 1.43x prior.

- (ES) Spain Debt Agency (Tesoro) sold €M vs. €250-750M indicated range in 2.05% Nov 2039 Inflation-linked bonds (SPGBei); Real Yield: 1.304% v 1.392% prior; Bid-to-cover: 2.38x v 1.95x prior.

- (FR) France Debt Agency (AFT) sold total €B vs. €10.0-12.0B indicated range in 2034, 2049 and 2055 Bonds (4 tranches).

- Sold €2.485B in 1.25% May 2034 Oat; Avg Yield: 2.86% v 3.23% prior; Bid-to-cover: 2.55x v 2.41x prior.

- Sold €6.165B in 3.00% Nov 2034 Oat; Avg Yield: 2.92% v 2.95% prior, bid-to-cover: 2.15x v 2.19x prior.

- Sold €1.917B in 3.00% Jun 2049 Green Oat; Avg Yield: 3.42%; Bid-to-cover: 2.89x (syndicated on Jan 16th 2024).

- Sold €1.415B in 3.25% May 2055 Oat; Avg Yield: 3.55% v 3.49% prior; Bid-to-cover: 3.41x v 2.66x prior.

- (SE) Sweden sold total SEK500M vs. SEK500M indicated in I/L 2030 and 2039 Bonds.

Looking ahead

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

- 05:30 (CH) Swiss National Bank to sell 1-month and 3-month Bills.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-year, 5-year and 10-year bonds.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 06:00 (CZ) Czech Republic to sell CZK5.0B in 3-month Bills.

- 06:00 (RO) Romania to sell 2026 and 2032 bonds.

- 07:00 (ZA) South Africa Aug Electricity Consumption Y/Y: No est v 6.9% prior; Electricity Production Y/Y: No est v 8.5% prior.

- 07:30 (US) Sept Challenger Job Cuts: No est v 75.9K prior; Y/Y: No est v 1.0% prior.

- 08:00 (MX) Mexico Aug Leading Indicators M/M: No est v -0.06 prior.

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

- 08:30 (US) Initial Jobless Claims: 221Ke v 218K prior; Continuing Claims: 1.83Me v 1.834M prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 27th: No est v $625.2B prior.

- 09:00 (BR) Brazil Sept Services PMI: No est v 54.2 prior; Composite PMI: No est v 52.9 prior.

- 09:00 (PL) Poland Central Bank Gov Glapinski post rate decision press conference.

- 09:30 (CA) Canada Sept Services PMI: No est v 47.8 prior; Composite PMI: No est v 47.8 prior.

- 09:45 (US) Sept S&P Final Services PMI: 55.4e v 55.4 prelim; Composite PMI: No est v 54.4 prelim.

- 10:00 (US) Aug Factory Orders: 0.1%e v 5.0% prior; Factory Orders (ex-transportation): No est v 0.4% prior.

- 10:00 (US) Aug Final Durable Goods Orders: 0.0%e v 0.0% prelim; Durables (ex-transportation): 0.5%e v 0.5% prelim; Capital Goods Orders (non-defense/ex-aircraft): No est v 0.2% prelim; Capital Goods Shipments (non-defense/ex-aircraft): No est v 0.1% prelim.

- 10:00 (US) ISM Services Index: 51.7e v 51.5 prior; Prices Paid: 56.3e v 57.3 prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 10:40 (US) Fed's Kashkari moderates chat with member Bostic on inclusive economy.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 13:30 (BR) Brazil Aug Central Govt Budget Balance (BRL): -22.4Be v -9.3B prior.

- 17:00 (KR) South Korea Sept Foreign Reserves: No est v $415.9B prior.

- 18:00 (CO) Colombia Central Bank Sept Minutes.

- 20:30 (HK) Hong Kong Sept PMI (whole economy): No est v 49.4 prior.

- 21:00 (PH) Philippines CPI M/M: 0.3%e v 0.1% prior; Y/Y: 2.5%e v 3.3% prior.

- 21:30 (AU) Australia Aug Household Spending M/M: 0.5%e v 0.8% prior; Y/Y: 2.7%e v 2.9% prior.

- 21:30 (AU) Australia Aug Home Loans Value M/M: 1.0%e v 3.9% prior; Owner-Occupier Loan Value M/M: No est v 2.9% prior; Investor Loan Value M/M: No est v 5.4% prior.

- 23:30 (JP) Japan to sell 3-Month Bills.