Oil market breaths sigh of relief after Israel attack on Iran avoids most sensitive targets

EU mid-market update: Oil market breaths sigh of relief after Israel attack on Iran avoids most sensitive targets; Japan's LDP party on the ropes.

Notes/observations

- Understated Israeli attack on Iran causes risk premium in crude to unwind, triggering 4-5% drop for Brent and WTI. Iran vowed to reply to Israel in ‘corresponding’ manner with all tools at disposal.

-Japanese yen trade is choppy as Japan’s ruling LDP party lost majority in lower house of parliament for first time in 15-years; A special diet session is scheduled for Nov 11th to vote on PM.

- US election polls remain razor thin between Trump and Harris, with only 7 days left before America votes, although it may take several days or even weeks to count and confirm the winner of the 2024 US election due to varying state ballot-processing rules, potential recounts and anticipated high mail-in voting.

- UK budget expected on Wed, Sterling is little changed at just below ~1.30. Speculation is rife for sweeping tax rises.

- EU Earnings Spotlight: Philips down 15% after same-store sales missed expectations and FY guidance is substantially cut; Noted uncertainties in China have intensified and expected to continue.

- Asia closed higher with Nifty50 outperforming +0.9%. EU indices are +0.1-0.7%. US futures are +0.5-0.8%. Gold -0.7%, DXY 0.0%; Commodity: Brent -5.6%, WTI -5.9%; Crypto: BTC +1.6%, ETH +1.4%.

Asia

- Japan ruling party LDP and coalition partner Komeito confirmed to have lost a majority in parliament; with the combined opposition parties winning more than half of the 465 seats; **Note: Outcome leaves Japanese politics as well as fiscal and monetary policy uncertain going forward.

- Japan PM Ishiba stated that it was not considering broader coalition at this time. LDP received a very difficult verdict from voters and must take this result to heart and be reborn.

Global conflict/tensions

- Israel PM Netanyahu stated that recent the strike on Iran was a success and it hit both the Iranian defenses and missile production facilities.

- Israeli retaliation strike was viewed as limiting itself on military targets, oil lower.

- Iran’s supreme leader signaled a measured response to Israel’s attack rather than an immediate reprisal.

Europe

- UK Oct Lloyds Business Barometer: 44 v 47 prior.

- Moody’s cut France outlook to Negative from Stable: Affirms sovereign rating at Aa2.

- Canadian ratings agency DBRS affirms Italy sovereign rating at BBB (high), Stable trend.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.37% at 520.72, FTSE +0.16% at 8,262.06, DAX +0.60% at 19,563.65, CAC-40 +1.07% at 7,578.06, IBEX-35 +0.82% at 11,909.53, FTSE MIB +0.64% at 35,000.00, SMI +0.36% at 12,221.50, S&P 500 Futures +0.59%].

Market focal points/key themes: European indices open generally higher and advanced firmly into the green as the session progressed; easing geopolitical uncertainty seen supporting risk appetite; Cyprus, Greece and Turkey closed for holidays; among sectors leading the way higher are materials and communication services; energy the only sector in the red, with health care lagging; oil & gas subsector under pressure following subsiding Middle East concerns; Brookfield delays bid for Grifols again over funding issues; Good Energy gets takeover offer from Esyasoft Holding; earnings expected in the upcoming US session include CenterPoint, Flowserve, and Ford.

Equities

- Consumer discretionary: Opmobility [OPM.FR] +9.5% (earnings), EasyJet [EZJ.UK] +4.5% (oil prices drop following limited Israeli attack on Iran).

- Energy: Shell [SHEL.UK] -2.0% (oil prices drop following limited Israeli attack on Iran), GALP [GALP.PT] -1.5% (Q3 earnings, affirms guidance) - Financials: Lloyds [LLOY.UK] -1.0% (notes the recent Court of Appeal decisions on Wrench, Johnson and Hopcraft relating to motor commission arrangements; Assessing the potential impact of the decisions) - Healthcare: Philips [PHIA.NL] -14.5% (Q3 results, cuts guidance citing China slowdown) - Industrials: Traton [8TRA.DE] -2.0% (9M results), Volkswagen [VOW3.DE] +1.0% (Board said to draft restructuring proposals to save up to €4.0B, incl. potential 10% wage cut and 2-year wage freeze) - Telecom: KPN [KPN.NL] -1.5% (Q3 earnings, beats estimates, affirms guidance) - Materials: Wacker Chemie [WCH.DE] -0.5% (Q3 results).

Speakers

- ECB's Wunsch (Belgium): Not seeing any urgency in acelleration the pace of easing; underlying inflation key indicator.

- Iran Foreign Ministry spokesperson noted that its response to Israel to correspond to the attack and would use all available tools to respond; had shown restraint in the past.

- China Politburo said to stress that focus to be on resolving risks in key areas.

Currencies/fixed income

- A quiet start to a busy week for macro news. Dealers to focus on US economic data this week, including jobs and PCE inflation figures. The USD has been firmer as upcoming data unlikely to change expectations for smaller Fed interest-rate cuts.

- EUR/USD crawled back above the 1.08 level with focus on key inflation and GDP data to be released over the week. ECB rhetoric still given mixed signals on pace of expected easing but all sing the tune of being ‘data dependent’ on the upcoming Dec decision.

- USD/JPY was above 153.30 area as markets assessed the outcome of the Japanese general election. Ruling Liberal Democratic Party lost its majority for the first time in 15 years (has been in power since 1955). Yen currency weaker as the outcome left the Japanese political environment uncertain and puts into question fiscal and monetary policy policies. BOJ decision later this week and was expected to keep policy steady.

Economic data

- (FI) Finland Oct Consumer Confidence: -6.8 v -8.1 prior; Business Confidence: -12 v -12 prior.

- (SE) Sweden Sept Trade Balance (SEK): +0.8B v -6.5B prior.

- (ES) Spain Sept Adjusted Retail Sales Y/Y: 4.1% v 2.1%e; Retail Sales (unadj) Y/Y: 1.7% v 3.1% prior.

- (TW) Taiwan Sept Leading Monitoring Indicator: 34 v 39 prior- (HK) Hong Kong Sept Trade Balance (HK$): -53.2B v -44.1Be; Exports Y/Y: 4.7% v 6.6%e; Imports Y/Y: 1.4% v 2.2%e.

- (CH) Swiss Weekly Total Sight Deposits (CHF): B v 467.1B prior; Domestic Sight Deposits: B v 459.4B prior.

Fixed income issuance

- None seen.

Looking ahead

- (CO) Colombia Sept Industrial Confidence: No est v -1.4 prior; Retail Confidence: No est v 13.8 prior.

- 07:00 (UK) Oct CBI Retailing Reported Sales: -10e v +4 prior; Total Distribution: No est v -8 prior.

- 06:00 (EU) Daily Euribor Fixing.

- 06:25 (EU) Daily ECB Liquidity Stats.

- 06:30 (DE) Germany to sell €2.0B in 6-month BuBills.

- 06:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 07:00 (IL) Israel to sell combined ILS1.9B in 2027, 2039, 2035 and 2062 bonds.

- 07:00 (NO) Norway announcement on upcoming Bond issuance.

- 07:00 (BR) Brazil Oct FGV Construction Costs M/M: 0.6%e v 0.6% prior.

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 08:00 (MX) Mexico Sept Trade Balance: -$1.6Be v -$4.9B prior.

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 09:00 (UK) Daily Baltic Dry Bulk Index.

- 10:00 (FR) France Debt Agency (AFT) to sell €6.2-7.8B in 3-month, 6-month and 12-month bills.

- 10:30 (US) Oct Dallas Fed Manufacturing Activity Index: -9.2e v -9.0 prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 13:00 (US) Treasury to sell 2-year and 5-year Notes.

- 13:30 (CA) Bank of Canada (BOC) Gov Macklem.

- 15:45 (ES) ECB's Da Guindos (Spain).

- 16:00 (US) Weekly Crop Progress Report.

- 17:45 (NZ) New Zealand Sept Filled Jobs M/M: No est v 0.2% prior.

- 18:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 87.5 prior.

- 19:30 (JP) Japan Sept Jobless Rate: 2.5%e v 2.5% prior; Job-to-Applicant Ratio: 1.23x v 1.23x prior.

- 20:01 (UK) Oct BRC Shop Price Index Y/Y: -0.5%e v -0.3% prior.

- 22:00 (KR) South Korea Sept Retail Sales Y/Y: No est v 9.2% prior; Department Store Sales Y/Y: No est v 4.4% prior; Discount Store Sales Y/Y: No est v 4.4% prior.

- 22:30 (SG) Singapore Sept Unemployment Rate: 1.9%e v 2.0% prior.

- 23:35 (JP) Japan to sell 2-Year JGB Bonds.