Markets remain confused whether BOE would end its temporary Gilt buyback program on Friday

Notes/Observations

- UK Gilts in focus following BoE Gov Bailey comments last night which reiterated that bond buying program will end on Fri, Oct 14th. This morning, an FT article drew attention as a banker declared in talks with BoE about risk of margin calls and that decision on bond-buying program will take place on Thursday or Friday. However, article was rebutted following direct BoE remarks which reaffirmed program to end on Friday. GBP/USD reversed the gains made from FT article. UK Gilt yields continue to surge higher but with a slightly more orderly steepening nature.

- BOE Pill, the chief economist, scheduled to speak on 'State of the Nation' at 0735 ET.

- UK Aug Monthly GDP reading contracts as cost of living bites consumers; country seen heading towards recession.

- Some growing speculation that PM Truss could ditch yet more aspects of the mini-budget.

- Concern over Zaprorizhia NPP rose after a loss of all external power to the station. The plant now currently runs on Diesel generators in which only 10 days of fuel remains. Russia has denied access to a convoy supplying diesel fuel to the plant..

- US PPI later to provide color for hotly anticipated US CPI tomorrow.

- Asia closed mixed with Shanghai Composite outperforming at +1.5%. EU indices are mixed to green, with bond yields notably higher in UK Gilts. US futures are 0.4% to 0.7% higher. Gold -0.6%, DXY 0.0%; Commodity: Brent 0.0%, WTI -0.2%, UK Nat Gas +1.3%; Crypto: BTC +0.2%, ETH +1.4%.

Asia

- Bank of Korea (BOK) raised the Repo Rate by 50bps to 3.00% (as expected). Reiterated forward guidance that size and pace of hikes to depend on inflation and growth. Would monitor capital flows and geopolitical risks.

- BOK Gov Rhee post rate decision press conference noted that the decision to hike by 50bps was not unanimous (2 members sought only a 25bps hike).

- RBA Assist Gov Ellis (chief economist) noted that inflation expectations over one year remained well anchored inside 2-3% target range. Noted that nominal neutral rate was at least 2.5%.

Europe

- Bank of England (BOE) Gov Bailey emphasized to pension funds that they had 3 days left to get rebalancing done and affirmed Gilt intervention in markets would be temporary, BOE to be out by the end of the week.

- Pensions and Lifetime Savings Association (PLSA) welcomed the Bank of England’s continued steps to ensure the orderly operation of the gilt market.

- Reports circulated that BOE signaled to lenders it was prepared to prolong bond purchases, officials have privately indicated a flexible approach if market volatility flared up, despite BOE Gov’s warning of 3 days left.

- ECB's Villeroy (France) noted that recession fears must not derail ECB normalization; Current inflation level needed ECB determination. ECB should reach 'neutral' rate of about 2% by year end and should start shrinking its balance sheet once its interest rate is close to 2%.

Americas

- Fed's Mester (FOMC voter) stressed that Fed should stick to balance sheet runoff plan; Needed to do more, inflation had not slowed; Fed officials aligned on where policy needed to go.

- President Biden conceded that a very slight recession was possible, but downplayed risk; Saudis faced consequences after OPEC+ production cut.

- Treasury Sec Yellen reiterated market determined value of the dollar was in America's best interest. Current level reflected policies that were appropriate.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.12% at 387.48, FTSE +0.08% at 6,890.70, DAX -0.06% at 12,213.01, CAC-40 +0.04% at 5,835.44, IBEX-35 -0.67% at 7,306.68, FTSE MIB -0.75% at 20,574.00, SMI +0.12% at 10,220.00, S&P 500 Futures +0.51%].

Market Focal Points/Key Themes: European indices open with a lower bias, with Scandinavian and UK shares starting the day in the green; indices later turned around to trade generally positive; better performing sectors include health care and consumer discretionary; underperforming sectors include financials and real estate; earnings expected during the upcoming US session include Pepsico.

Equities

- Consumer discretionary: LVMH Moet Hennessy Louis Vuitton [MC.FR] +2% (sales), PageGroup [PAGE.UK] +1% (trading update).

- Consumer staples: Chr.Hansen [CHR.DK] +12% (earnings).

- Financials: Credit Suisse Group [CSGN.CH] -4% (probe in US).

- Healthcare: Koninklijke Philips [PHIA.NL] -8% (trading update).

- Industrials: Kloeckner [KCO.DE] -12% (prelim results), Barratt Developments [BDEV.UK] -8% (trading update).

- Technology: Darktrace [DARK.UK] -3% (trading update).

- Materials: Cropenergies [CE2.DE] +13% (earnings).

Speakers

- BOE spokesperson reiterated stance that the temporary Guilt buy-back operation to end on Friday, Oct 14th (as planned).

- BOE’s Haskel noted that slower UK productivity was a big medium-term issue.

- UK Business Sec Rees-Mogg commented that there was not seem to be a systemic problem in pension funds.

- Politico's deputy editor Courea twee of some growing speculation that UK PM Truss could ditch yet more aspects of the mini-budget.

- NATO Sec Gen Stoltenberg stated that anuclear strike would have consequences for Russia; Had not seen change in nuclear posture.

- Russian govt spokesperson Peskov reiterated that the goals of military operation in Ukraine were unchanged; Western leaders play with nuclear rhetoric every day, Russia did not want to and would not take part in this.

- Russia First Dep Energy Min Sorokin stated that an oil price cap would harm the whole market.

- China PBOC reiterated vow to promote healthy development of digital yuan.

- IAEA chief Grossi: Zaporizhzhia Nuclear.

Currencies/fixed income

- USD holding onto most recent gains heading into US inflation data in the coming sessions (PPI on Wed, CPI on Thurs). Treasury Sec Yellen also the greenback when she noted that the market-determined value of greenback was in US interest.

- GBP/USD was whippy as comments centered on the temporary BOE Gilt buying operation. The BOE spokesperson reiterated the Gov recent stance that the operation will end on Fri, Oct 14th as planned. Markets hoping for a possible extension if volatility in UK financial markets continued. Cable did find some support after reports circulated of some growing speculation that PM Truss could ditch yet more aspects of the mini-budgetThe UK 10-year Gilt yield tested above the intervention highs of 4.50% but thus far unable to sustain momentum to hold above that psychological level. Japanese officials keep up the rhetoric of watch FX market closely.

- USD/JPY moved above the Sept BOJ intervention level to hit a fresh 24-year high near 146.40.

Economic data

- (SE) Sweden Sept PES Unemployment Rate: 3.1%v 3.2% prior.

- (NL) Netherlands Aug Trade Balance: €5.1B v €6.8B prior.

- (FI) Finland Aug Current Account: -€0.2B v -€0.3B prior.

- (UK) Aug Monthly GDP M/M: -0.3% v 0.0%e; GDP 3M/3M: -0.3% v -0.2%e.

- (UK) Aug Industrial Production M/M: -1.8% v -0.1%e; Y/Y: -5.2% v +0.5%e.

- (UK) Aug Manufacturing Production M/M: -1.6% v -0.1%e; Y/Y: -6.7% v +1.1%e.

- (UK) Aug Construction Output M/M: 0.4% v 0.5%e; Y/Y: 6.1% v 5.6%e.

- (UK) Aug Index of Services M/M: -0.1% v 0.1%e; 3M/3M: -0.1% v -0.2%e.

- (UK) Aug Visible Trade Balance: -£19.3B v -£20.5Be; Overall Trade Balance: -£7.1B v -£9.0Be.

- (RO) Romania Q2 Final GDP Q/Q: 1.8% v 2.1% prelim; Y/Y: 5.1% v 5.3% prelim.

- (RO) Romania Sept CPI M/M: 1.3% v 0.9%e; Y/Y: 15.9% v 15.4%.

- (TR) Turkey Aug Industrial Production M/M: 2.4% v 3.0%e; Y/Y: 1.0% v 2.7%e.

- (TR) Turkey Aug Retail Sales Y/Y: 9.0% v 2.3% prior.

- (EU) Euro Zone Aug Industrial Production M/M: 1.5% v 0.7%e; Y/Y: 2.5% v 1.5%e.

Fixed income issuance

- (SK) Slovakia Debt Agency (Ardal) to sell EUR-denominated 10-year bond via syndicate; guidance seen +85bps to mid-swaps.

- (IN) India sold total INR220B vs. INR220B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK1.02B in 3-month and 6-month bills.

- (SE) Sweden sold SEK12.5B vs. SEK12.5B indicated in 3-month Bills; Avg Yield: 1.4191% v 1.5306% prior; Bid-to-cover: 2.90x v 1.79x prior.

- (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 2.125% May 2032 Bonds; Avg Yield: 3.72% v 2.92% prior; bid-to-cover: 1.79x v 3.24x prior.

- (IT) Italy Debt Agency (Tesoro) sold €6.0B vs. €6.0B indicated in 12-month Bills; Avg Yield: % v 2.091% prior; Bid-to-cover: 1.40x v 1.31x prior.

- (UK) DMO sold £3.5B in new 4.125% Jan 2027 Gilts; Avg Yield: 4.800% v 1.518% prior; bid-to-cover: 2.08x v 2.34x prior; Tail: 0.8bps v 0.4bps prior.

Looking ahead

- OPEC Monthly Oil Report (MOMR).

- 05:15 (CH) Switzerland to sell new 1.5% Oct 2038 green Bonds.

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

- 05:30 (ZA) South Africa Sept SACCI Business Confidence: No est v 110.3 prior.

- 05:30 (DE) Germany to sell €4.0B in 1.70% Aug 2032 Bunds.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €0.75-1.0B in 2025 and 2031 OT bonds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 06:00 (RU) Russia OFZ Bond auction (if any).

- 06:45 (US) Daily Libor Fixing.

- 07:00 (US) MBA Mortgage Applications w/e Oct 7th: No est v -14.2% prior.

- 07:00 (MX) Mexico Aug Industrial Production M/M: -0.1%e v +0.4% prior; Y/Y: 2.9%e v 2.6% prior; Manufacturing Production Y/Y: 5.4%e v 5.1% prior.

- 07:00 (UK) Weekly PM Question time in House.

- 07:30 (CL) Chile Central Bank Economists Survey.

- 07:35 (UK) BOE Pill (chief economist).

- 08:00 (HU) Hungary Central Bank (MNB) Sept Minutes.

- 08:00 (IN) India Aug Industrial Production Y/Y: 1.7%e v 2.4% prior.

- 08:00 (IN) India Sept CPI Y/Y: 7.4%e v 7.0% prior.

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

- 08:30 (US) Sept PPI Final Demand M/M: +0.2%e v -0.1% prior; Y/Y: 8.4%e v 8.7% prior

- 08:30 (US) Sept PPI (ex-food/energy) M/M: 0.3%e v 0.4% prior; Y/Y: 7.3%e v 7.3% prior.

- 08:30 (US) Sept PPI (ex-food/energy/trade) M/M: 0.2%e v 0.2% prior; Y/Y: No est v 5.6% prior.

- 09:30 (EU) ECB chief Lagarde.

- 09:45 (UK) BOE APF Gilt purchase operation.

- 10:00 (US) Fed’s Kashkari.

- 11:00 (NL) ECB’s Knot (Netherlands).

- 12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report.

- 13:00 (MX) Mexico Sept Total Formal Job Creation: No est v +157.4K prior.

- 13:00 (UK) BOE’s Mann.

- 13:00 (US) Treasury to sell 10-Year Notes reopening.

- 13:45 (US) Fed’s Barr.

- 14:00 (US) FOMC Sept Meeting Minutes.

- 14:30 (NL) ECB’s Knot (Netherlands).

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

- 17:00 (CL) Chile Central Bank (BCCH) Interest Rate Decision: Expected to raise Overnight Rate Target by 50bps to 11.25%.

- 17:00 (ES) ECB’s Cos (Spain).

- 17:45 (NZ) New Zealand Sept Food Prices M/M: No est v 1.1% prior.

- 18:30 (US) Fed’s Bowman.

- 19:01 (UK) Sept RICS House Price Balance: No est v 53% prior.

- 19:50 (JP) Japan Sept PPI (CGPI) M/M: 0.3%e v 0.2% prior; Y/Y: 8.9%e v 9.0% prior.

- 19:50 (JP) Japan Sept Bank Lending Y/Y: No est v 1.9% prior; Bank Lending (ex-trusts) Y/Y: No est v 2.2% prior.

- 20:00 (AU) Australia Oct Consumer Inflation Expectation: No est v 5.4% prior.

- 23:00 (KR) South Korea Sept Total Bank Lending to Household (KRW) No est v 1060.8T prior.