MNI US OPEN - European Energy Costs Rollover as EU Pledge Action

NEWS

EU/ENERGY (BBG): EU Nears Gas Storage Goal Early Despite Russian Supply Cut
The European Union is set to meet its gas storage filling goal two months ahead of target as the bloc braces for a tough winter with Russia limiting supplies and energy contracts trading at elevated levels throughout the continent. Reserves in the EU were 79.94% full as of Sunday, according to Gas Infrastructure Europe inventory data.

EU/ENERGY (BBG): European Energy Prices Plunge as EU Plans to Intervene in Crisis
European energy prices plunged on signs that the region is stepping up efforts to curb a crisis that threatens to tip the region into recession with winter approaching. German power for next year plunged as much as 26%, while Dutch natural gasfell as much as 11%. Both benchmark contracts extended losses from Monday, after surging to records last week.

UK/ENERGY (The Times): Liz Truss will approve a series of oil and gas drilling licences in the North Sea in one of her first acts as prime minister as part of a long-term plan to ensure Britain’s energy security. Kwasi Kwarteng, the business secretary, and Jacob Rees-Mogg, the Brexit opportunities minister, have been meeting oil and gas companies to negotiate a deal to secure energy supplies this winter. The pair have a two-pronged approach that involves securing more gas from Norway while maximising domestic production.

US (The Times): Donald Trump’s popularity among Republican voters has surged since the FBI raid on his Florida home amid an investigation into secret documents he kept after leaving the White House. In a new USA Today/Ipsos poll 59 per cent of Republicans said they believed he should be the nominee for the White House in 2024 and “deserves re-election”. Forty-one per cent said it was time for the party to move on.

ECB (BBG): ECB Needs to Keep Raising Interest Rates, Lane Tells Spain’s TVE
The European Central Bank should lift borrowing costs step by step so that economy can adjust, chief economist Philip Lane tells Spain’s state-run television TVE. He added that the Euro-area economy is to see reduction of demand in second half of year, may witness some weeks of contraction, but Europe is better prepared to face slowdown than in 2008.

IRAQ (BBG): Deadly Clashes Erupt Over Cleric in Iraq, Iran Closes Border
Iran closed its border crossings with Iraq after deadly clashes erupted in Baghdad over a decision by a prominent Shiite cleric to step back from politics, deepening a government crisis in the OPEC-member state. Iraq’s military announced a nationwide curfew, but oil exports are said to be unaffected for now.

DATA

GERMANY BAVARIA AUG CPI +0.4% M/M, +8.4% Y/Y (MNI)

GERMANY SAXONY AUG CPI +0.2% M/M, +7.3% Y/Y (MNI)

GERMANY BADEN WUERT AUG CPI +0.3% M/M, +7.3% Y/Y (MNI)

SPAIN AUG FLASH HICP +0.1% M/M, +10.3% Y/Y (MNI)

SWEDEN AUG ECONOMIC TENDENCY SURVEY 97.5; JUL 101.4r (MNI)

UK JUL M4 MONEY SUPPLY +0.5% M/M, +4.4% Y/Y (MNI)

UK BOE JUL MORTGAGE APPROVALS 63,770 (MNI)

JAPAN JULY JOBLESS RATE AT 2.6%, UNCHANGED FROM JUNE 2.6% (MNI)

AUSTRALIA JUL BUILDING APPROVALS -17.2% M/M, -25.9% Y/Y (MNI)

EUROZONE DATA: AUG ECONOMIC SENTIMENT INDEX 97.6 (MNI)

• Sentiment indicators for the eurozone aggregate weakened further in August, all falling slightly lower than anticipated levels. However, fresh improvements in outlooks in the detail of the report are not to be discounted.
• Economic sentiment weakened by 1.3 points to 97.6, whilst industrial confidence saw the largest decline of 2.2 points to 1.2 and services by 1.7points to 8.7. The largest declines in overall sentiment were recorded by the Netherlands (-4.8) and Germany (-2.5), whilst Spain saw a small improvement(+0.8).
• Consumer confidence was confirmed at -24.9, a modest improvement on the July record low as future expectations were better.
• Industry was the key driver of weakening confidence, dampening for the sixth consecutive month as demand faltered. Services confidence also saw a decline.
• For both sub-indices improvements were however seen in expectations, hinting at a shift towards more optimistic outlooks. Stabilisation was noted in the retail and construction sectors.
• Price expectations declined again in August, implying both consumers and industry anticipating inflation to be moving beyond the peak. This alongside the shift towards more optimistic sentiment regarding future economic conditions will be welcome news for the ECB, despite headline figures remaining downbeat.

BOND SUMMARY: Gilts catch up with yesterday's moves

• Gilts have been the biggest movers today, but only because UK markets were closed yesterday; moves have largely been catching up with moves seen yesterday in EGBs. However, moves on the open this morning were extreme for 2-year gilts, with yields hitting a high of 3.06%, up 24bp from Friday's close, before moving in line with the move Schatz yields since Friday's close a few minutes later. At the time of writing 2-year gilt yields are around 13bp higher on the day.
• The German curve has, however, moved away from the gilt curve since early trading as there have been a few relatively weak German state CPI prints - which are pointing to a downside surprise for today's national CPI print. The German curve has bull flattened today, and dragged the UST curve to bull flatten also.
• Looking ahead we continue to have a number of ECB speakers (Vasle, Holzmann, Stournaras, Wunsch) as well as the Fed's Barkin and Williams. Whilst on the data calendar in addition to the national German inflation print, we have US Conference Board consumer confidence, JOLTS and US housing data.
• TY1 futures are up 0-11+ today at 117-12+ with 10y UST yields down -4.0bp at 3.065% and 2y yields down -1.4bp at 3.412%.
• Bund futures are up 0.22 today at 148.83 with 10y Bund yields down -2.9bp at 1.471% and Schatz yields down -1.6bp at 1.066%.
• Gilt futures are down -1.28 today at 108.95 with 10y yields up 11.2bp at 2.712% and 2y yields up 12.1bp at 2.921%.

FOREX: Relief for Gas Futures Underpins Brighter Risk Backdrop

• Antipodean currencies outperform in early Tuesday trade, with AUD and NZD among the strongest FX in G10. Commodity- and growth-tied currencies are re-coupling with equities, which also sit stronger ahead of the NY crossover. The somewhat more buoyant risk backdrop stems from the EU's pledge to get energy costs under control on the continent, with an EU ministers meeting slated for September 9th.
• Measures are speculated to include a market infrastructure overhaul, and potentially measures including price caps for energy. The pledges have knocked benchmark European gas futures lower by ~10%, helping relieve some of the recent market stress.
• CHF and USD are among the poorest performers on the day, with EUR/CHF printing a higher high for a sixth consecutive session and putting the cross on track to test the 0.9819 50-dma.
• USD/JPY has been unable to maintain the strength seen across the Monday session, with yesterday's Y139.00 still in tact. This represents a key upside level going forward, and a break above here would open July's Y139.39 and beyond.
• Looking ahead, focus turns to the national German inflation print, with the regional releases so far supporting the consensus view of an uptick for the Y/Y release, and a slowing in the M/M figure. The central bank speakers slate will likely take more focus, with ECB's Vasle, Holzmann, Stournaras, Wunsch and Muller all set to appear. Fed's Barkin and Williams are also on the docket.

EQUITIES: Energy Price Relief Feeds Through into Higher Stocks

Cash markets across Europe trade higher, with outperformance noted in Germany's DAX, benefiting from the drop in energy prices since the beginning of the week. Europe's tech and consumer discretionary sectors are the strongest so far, mirrored in higher US futures - indicating a positive open on Wall Street later today.

• Japan's NIKKEI 225 closed up 316.62 pts or +1.14% at 28195.58 and the TOPIX ended 24.28 pts higher or +1.25% at 1968.38.
• China's SHANGHAI closed down 13.508 pts or -0.42% at 3227.22 and the HANG SENG ended 74.19 pts lower or -0.37% at 19949.03.with the German DAX up 188.18 pts or +1.46% at 13081.28, FTSE 100 up 41.21 pts or +0.55% at 7467.53, CAC 40 up 68.59 pts or +1.1% at 6291.67 and Euro Stoxx 50 up 49.46 pts or +1.39% at 3620.55.
• Dow Jones mini up 244 pts or +0.76% at 32320, S&P 500 mini up 34.25 pts or +0.85% at 4070.5, NASDAQ mini up 143 pts or +1.14% at 12635.

COMMODITIES: Pullback in European Energy Prices Dents Industrial Metals

• WTI Crude up $0.03 or +0.03% at $97.03
  
• Natural Gas down $0.15 or -1.59% at $9.188
  
• Gold spot down $1.76 or -0.1% at $1735.3
  
• Copper down $1.65 or -0.46% at $359.4
  
• Silver down $0.01 or -0.03% at $18.7582
  
• Platinum down $1.28 or -0.15% at $865.84