Market is split on size of FOMC rate cut after more Fed watchers comment

EU mid-market update: Von Der Leyen shakes up EU Commission; Market is split on size of FOMC rate cut after more Fed watchers comment.

Notes/observations

- General theme of risk on across Europe and US futures as momentum builds for 50bps rate cut by Fed on Wed, despite no underlying evidence from data or Fed officials. CME Futures price 67% chance of 50bps cut, with 33% chance for 25bps.

- German ZEW Survey tanks to pandemic lows: Current Situation -84.5 lowest since May 2020 during COVID pandemic, while expectations was lowest since Oct 2023.

- EU Commission Pres Von Der Leyen announces sweeping changes to Commission structure and positions, essentially consolidating top decision-making to herself with removal of vice-president positions.

- Shares of Intel are higher premarket after its plans to turn its foundry business into an independent unit and agreement with Amazon.

- UK home improvement firm Kingfisher H1 results lifts retail sector across Europe, after raising FY guidance with accelerating pace of £300M share buyback, Q3 YTD LFL sales show improvement from H1.

- Euro and FX in general muted in range as ECB’s Kazaks and Simkus reinforce council view that Oct cut is very unlikely, citing lack of fresh data.

- Asia closed mixed with Hang Seng outperforming +1.4%. EU indices are +0.5-1.2%. US futures are +0.2-0.4%. Gold -0.2%, DXY -0.2%; Commodity: Brent +0.1%, WTI +0.3%; Crypto: BTC +0.3%, ETH +0.8%.

Asia

- Japan Fin Min Suzuki: Recent FX moves have both positive and negative impacts. Will closely watch impact of FX on Japan and economic livelihoods.

- New Zealand Treasury cut its Q2 GDP forecast from +0.2% to -0.4%.

- Group of senior US officials expected to travel to Beijing this week [Thurs and Fri] for ‘high-level’ meetings.

Global conflict/tensions

EU is planning to raise up to €40b in loans for Ukraine by year end regardless of US participation.

Americas

- White House Econ Advisor Brainard stated that inflation was coming back down close to normal levels; US economy had reached an 'important turning point' in the fight against inflation.

- WSJ's Timiraos: Fed usually prefered to move in increments of a quarter point; This time, it’s complicated; Withholding that larger cut until later this year could raise awkward questions over why that was the best approach; Powell could face at least one dissent on the decision from the 12 policymakers.

- Former WSJ's Fed Watcher Hilsenrath noted that it was a close call and the signals were mixed, Believed Fed would cut by 50bps; A growing number of former Fed officials say a half point move was appropriate.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.54% at 517.90, FTSE +0.75% at 8,340.67, DAX +0.52% at 18,725.15, CAC-40 +0.57% at 7,492.19, IBEX-35 +0.85% at 7,492.19, FTSE MIB +0.68% at 33,797.00, SMI +0.31% at 12,047.70, S&P 500 Futures +0.21%].

Market Focal Points/Key Themes: European indices open higher across the board and remained in the green through the early part of the session; equities trending higher in line with Asia and US performance; among sectors leading the way higher are communication services and utilities; lagging sectors include technology financials; retail subsector supported following Kingfisher results; Flutter confirms to acquire Playtech’s Snaitech unit; Ferguson earnings expected in the upcoming US session.

Equities

- Consumer discretionary: Kingfisher [KGF.UK] +6.5% (H1 results; raises outlook; Q3-to-date color), Hermes [RMS.FR] +1.0% (Exane BNP raises to outperform), THG Holdings [THG.UK] -3.0% (H1 results and update on demerger of THB Ingenuity).

- Financials: Commerzbank [CBK.DE] +1.0% (Unicredit may seek to raise stake in Commerzbank to 30%- Italian press).

- Healthcare: EssilorLuxottica [EL.FR] -0.5% (extends partnership with Meta for smart eyewear).

- Technology: Playtech [PTEC.UK] +1.0%, Flutter Entertainment [FLTR.UK] +1.0% (Flutter confirms to acquire Playtech's Snaitech for EV €2.3B in cash), Suess Microtec [SMHN.DE] +6.5% (Jefferies initiates with buy) - Materials: Essentra [ESNT.UK] -22.5% (trading update, revises FY expectations downwards).

Speakers

- ECB's Simkus (Lithuania) reiterated stance that likelihood for Oct rate cut was 'very small' as Council would not have many new data points before then.

- German ZEW Economists commented that hope for a swift improvement in economic situation was visibly fading.

- EU Commission Pres von der Leyen outlines new EU Commission structure: New commission will not have vice presidents.

Currencies/fixed income

- USD continued to consolidate from recent losses ahead of Wed’s FOMC decision. Markets continued to debate the magnitude of the initial step of easing. Fed futures current pricing 69% (v 59% d/d) chance of 50bps rate cut at this week's meeting after another WSJ's Timiraos piece. US will see the release of Retail Sales and industrial production data and dealers noting a weak figures would likely reinforce market speculation that there could be a 50 basis points move.

- EUR/USD edged higher after ECB member Simkus noted that the chances of an Oct rate cut was small. Euro was little phased by weak German ZEW data.

- GBP/USD was holding above 1.32 with focus on BOE rate decision on Thurs. Markets expect BOE to keep its policy steady but approx. 40% chance of a 25bps rate cut.

- USD/JPY was back above the 140 level as policy divergence between the Fed and BOJ dictates price action. Bank of Japan was expected to keep policy steady on Friday but signal that further interest rate hikes were coming.

Economic data

- (IN) India Aug Wholesale Prices (WPI) Y/Y: 1.3% v 1.8%e.

- (ES) Spain Q2 Labour Costs Y/Y: 4.1% v 3.9% prior.

- (ZA) South Africa Q3 BER Consumer Confidence: -5 v -10 prior.

- (DE) Germany Sept ZEW Current Situation Survey: -84.5 v -80.0e; Expectations Survey: 3.6 v 17.0e.

- (EU) Euro Zone Sept ZEW Expectations Survey: 9.3 v 17.9 prior.

Fixed income issuance

- (ID) Indonesia sold total IDR22.0T vs. IDR22.0T target in bills and bonds.

- (UK) DMO sold £2.25B in 4.375% July 2054 Gilts; Avg Yield: 4.329% v 4.636% prior; bid-to-cover: 2.89x v 3.35x prior; Tail: 0.9bps v 0.2bps prior.

Looking ahead

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

- 05:15 (CH) Switzerland to sell 3-month Bills.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (ZA) South Africa to sell combined ZAR3.75B in 2033, 2038 and 2044 bonds.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 06:00 (IL) Israel Q2 Current Account Balance: No est v $6.8B prior.

- 06:00 (FI) Finland to sell combined €1.0-1.5B in 2029 and 2034 RFGB Bonds.

- 06:30 (EU) ESM to sell €1.1B in 6-month bills.

- 06:30 (TR) Turkey to sell Bonds.

- 07:00 (BR) Brazil Sept FGV Inflation IGP-10 M/M: 0.1%e v 0.7% prior.

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

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:15 (CA) Canada Aug Annualized Housing Starts: 250.0Ke v 279.5K prior.

- 08:30 (US) Aug Advance Retail Sales M/M: -0.2%e v +1.0% prior; Retail Sales (ex-auto) M/M: 0.2%e v 0.4% prior; Retail Sales (ex-auto/gas): 0.3%e v 0.4% prior; Retail Sales (control group): 0.3%e v 0.3% prior.

- 08:30 (US) Sept New York Fed Services Business Activity Index: No est v +1.8 prior.

- 08:30 (CA) Canada Aug CPI M/M: 0.0%e v 0.4% prior; Y/Y: 2.1%e v 2.5% prior; CPI Core-Trim Y/Y: 2.5%e v 2.7% prior; Core-Median Y/Y: 2.2%e v 2.4% prior; Consumer Price Index: 162.1e v 162.1 prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:15 (US) Aug Industrial Production M/M: +0.2%e v -0.6% prior; Capacity Utilization: 77.9%e v 77.8% prior; Manufacturing Production: +0.2%e v -0.3% prior.

- 09:00 (NL) ECB’s Elderson (Netherlands) on panel.

- 10:00 (US) Sept NAHB Housing Market: 40e v 39 prior.

- 10:00 (US) July Business Inventories: 0.3%e v 0.3% prior.

- 13:00 (US) Treasury to sell 20-Year Bond Reopening.

- 16:30 (US) Weekly API Oil Inventories.

- 18:00 (CA) Bank of Canada (BOC) Rogers.

- 18:45 (NZ) New Zealand Q2 Current Account Balance (NZD): No est v -4.4B prior; Current Account to GDP Ratio YTD: No est v -6.8% prior.

- 19:20 (AU) RBA’s Jones.

- 19:50 (JP) Japan Aug Trade Balance: -¥1.456Te v -¥621.8B prior; Adjusted Trade Balance: -¥1.0Te v -¥755.2B prior; Exports Y/Y: 10.4%e v 10.2% prior (revised from 10.3%); Imports Y/Y: 15.0%e v 16.6% prior.

- 19:50 (JP) Japan July Core Machine Orders M/M: 0.7%e v 2.1% prior; Y/Y: +2.5%e v -1.7% prior.

- 20:30 (AU) Australia Aug Westpac Leading Index M/M: No est v -0.04% prior.

- 23:30 (JP) Japan to sell 12-Month Bills.