MNI US OPEN - EUR Fades as Nord Stream Flag 'Unprecedented' Damage

NEWS

RUSSIA/EUROPE (BBG): Nord Stream Says Damage to Gas Pipeline to Germany Unprecedented

Nord Stream said the damage to its key pipeline to Germany is “unprecedented” and it’s impossible to say when flows could resume.

It’s the clearest signal yet that Nord Stream flows won’t resume this winter, after European Union leaders have repeatedly accused Moscow of weaponizing energy. Germany is probing the incidents in the Baltic Sea on the two idled Nord Stream gas pipelines from Russia, while Denmark steps up security on its energy installations.

RUSSIA (MNI): Rogozin May Become Presidential Envoy to New District with Annexed Ukrainian Territories

Moscow is planning to create a new federal district, which will include the Crimean peninsula, as well as the annexed Donetsk and Luhansk People's Republics and Ukraine's Zaporizhzhia and Kherson regions, Vedomosti reports citing sources in the Federal Council and Crimean government.

FED (CNBC): Fed’s Evans Sees Getting Inflation Under Control is Job Number One

Speaking on CNBC Europe, Fed’s Evans said US policy makers can probably sit and wait after bringing interest rates to a peak in March, and they may even avoid a recession in the process. “By spring of next year we are going to get to a funds rate that we can sort of sit and watch how things are behaving,” he told CNBC Europe on Tuesday. “And if inflation starts to come down, things will be more restrictive and we would want to adjust downward.”

NEW ZEALAND (MNI): RBNZ's Orr Says Tightening Cycle "Very Mature"

Reserve Bank of New Zealand Governor Adrian Orr said the Bank's tightening cycle was "very mature" and "well advanced", in remarks ahead of the Oct 5 meeting in which it is expected to raise the Official Cash Rate by 50 bps to 3.50%.

Speaking at a Council of Trade Unions' event, Orr said the Bank's policymakers "still have some work to do" in their fight against inflation.

THAILAND (MNI): BoT Preview: Under Pressure to Turn More Hawkish

The Bank of Thailand was a latecomer to the global tightening party, only inaugurating its current rate-hike cycle last month. The Committee voted 6-1 to raise the policy rate by 25bp, with the sole dissenter calling for a 50bp move. We believe that the decision will be finely balanced between another 25bp rate rise and a front-loaded 50bp hike. The BoT’s reluctance to start tightening monetary conditions leaves it significantly behind the curve, with inflation running too hot to handle and the baht printing multi-year lows.

DATA

JAPAN (MNI): Aug Services PPI Year-on-Year Rise Slows

JAPAN AUG SERVICES PRODUCER PRICE INDEX +1.9% Y/Y; JUL

JAPAN AUG SERVICES PRODUCER PRICE INDEX -0.2% M/M; JUL +0.3%

Japan’s services produce price index rose 1.9% y/y in August, marking the 18th straight rise, but slowed from a revised +2.0% in July, preliminary data released by the Bank of Japan on Tuesday showed.

The data showed that services prices don’t rise easily in Japan compared with other countries. Unless services prices rise, Japan’s inflation rate will not rise in a stable and sustainable manner as desired by the Bank of Japan. BOJ officials are focused on corporate price revisions in October amid the rise in resource prices.

SWEDEN AUG PPI +3.3% M/M; +22.0% Y/Y; JUL +20.4 Y/Y

FOREX: GBP Steadies as USD Index Sees Rare Relief

• Following the market tumult across the UK Friday/Monday, GBP is trading higher as the dust settles, putting the currency above all others in G10 ahead of the NY crossover. Gains remain marginal at this stage, however, with GBP/USD yet to top the late Monday high of 1.0931, which remains the key upside level to prompt any further recovery.
• The USD Index is also working in favour of GBP/USD, sitting lower in what would mark only the second lower close in seven sessions if current price action is sustained into the close. Equity markets are seen firmer, with futures indicating a positive open on Wall Street later today.
• Progress for the single currency is slower, however, with a statement issued by Nord Stream hampering any EUR upside. The pipeline operator has claimed that damage to the pipeline is "unprecedented" and they are unable to give an estimate as to when flows will be resumed. EUR/USD dipped on the headline to put the pair within range of overnight lows at 0.9584.
• Focus turns to the prelim durable goods orders release for August as well as September consumer confidence. The speakers slate is busy: ECB's Centeno, Villeroy, Panetta, de Guindos are scheduled as well as BoE's Pill, Fed's Bullard, Kashkari, and Powell - although the Fed Chair is speaking on digital currencies today.

BOND SUMMARY: USTs Bid, Gilts Whipsaw, BTPs In Focus

Following yesterday's sharp sell-off, core sovereign bonds have recovered some of the lost ground this morning. There have been no material price catalysts this morning, with the reversal likely reflecting a natural correction following yesterday's heavy selling pressure.

• USTs have been bid with cash yields down 6-11bp and the belly of the curve outperforming. TYZ2 has pushed up to the top end of the morning's range (111-02 : 111-25+) and last traded at 111-22+.
• BTPs have continued to push lower with yields up 5-12bp and the curve bear steepening. BTP underperformance suggests that for now any perceived sovereign debt risk is Italy-specific. Uncertainty around the incoming government's policy platform may be preventing a deeper sell-off.
• Bunds have firmed across the short-end and belly of the curve with yields down 2-4bp.
• It is a similar story for OATs. The curve has twist steepened with the 2s30s spread widening 3bp.
• The Euribor strip has steepened with greens/blues up 0.5-4.0 ticks. ESTR forwards are close to fully-pricing a 75bp hike in October, with the terminal rate now sitting at around 3% by June 2023.

UK: SONIA curve remains steeper at the front-end

The SONIA curve remains steeper than at yesterday's close due to bigger moves at the very front-end as the market has reduced the probability of an intermeeting hike. The market is looking ahead to Pill's speech at 14:35BST / 9:35ET later today for more guidance.

• The Sep-22 contract remains 38 ticks higher on the day at 96.90 (but had been as high as 96.95 earlier today). The Sep-23 SONIA contract is now up 20.5 ticks on the day at 94.175 (off the highs of 94.255 earlier).
• The 2s10s gilt curve continues to flatten too, from yesterday's low of -46.2bp to -18.1bp at writing.
• 10s30s are also steepening, at 38.6bp at writing (the highest since 12 September) from yesterday's low of 9.4bp.
• This morning's 10-year linker auction went well - which will probably provide some comfort to the gilt market.

EQUITIES: Futures Trend Remains Bearish

S&P E-Minis trend conditions remain bearish following last week’s extension lower and break of the July support. The move lower strengthens bearish conditions and attention is on key support at 3657.00. EUROSTOXX 50 futures remain soft following the reversal on Sep 13, from 3678.00, the Jun 13 high and last week’s follow through.

• Japan's NIKKEI closed higher by 140.32 pts or +0.53% at 26571.87 and the TOPIX ended 8.73 pts higher or +0.47% at 1873.01.
• Elsewhere, in China the SHANGHAI closed higher by 42.636 pts or +1.4% at 3093.862 and the HANG SENG ended 5.17 pts higher or +0.03% at 17860.31.
• Across Europe, Germany's DAX trades higher by 145.33 pts or +1.19% at 12374.76, FTSE 100 higher by 27.79 pts or +0.4% at 7048.67, CAC 40 up 64.67 pts or +1.12% at 5835.42 and Euro Stoxx 50 up 38.33 pts or +1.15% at 3381.44.
• Dow Jones mini up 293 pts or +1% at 29640, S&P 500 mini up 44.5 pts or +1.21% at 3715.25, NASDAQ mini up 155 pts or +1.37% at 11474.25.

COMMODITIES: Oil Prices in the Green as Dollar Strength Fades

Bearish conditions in WTI futures were reinforced last week - the contract cleared support at $80.89, the Sep 8 low. This marks a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. Earlier in the European morning, Goldman Sachs cut their forecast for 2023 oil prices "significantly" on the deteriorating macro outlook. Their 2023 Brent view has been revised to $108/bbl from $125/bbl previously.

Gold traded lower Friday, breaking out of its recent range and in the process confirmed the bear flag formation evident on the daily chart.

• WTI Crude up $1.26 or +1.64% at $77.81
• Natural Gas up $0.16 or +2.33% at $7.064
• Gold spot up $15.37 or +0.95% at $1636.96
• Copper up $4.4 or +1.34% at $333.7
• Silver up $0.31 or +1.67% at $18.645
• Platinum up $10.98 or +1.29% at $862.3