MNI US OPEN - US 10y Tops 4% For First Time Since '08

NEWS

EU (MNI): ECB Could Hike By Further 75bps in October - Rehn

The European Central Bank could hike by another 75 bps at its October meeting and perhaps push to reach a neutral rate before the end of the year, Governing Council member Olli Rehn said Wednesday.

Speaking in Helsinki, Rehn, who also serves as Bank of Finland Governor, said there was still a debate over whether to raise rates by 50 or 75 bps at the October 27 meeting, with policymakers waiting to see a further month of data before a decision. However, Rehn stressed reaching a neutral rate did not necessarily mean the ECB's job was done, noting that if fighting inflation meant moving into restrictive monetary policy, 'so be it'.

ECB (BBG): ECB’s Holzmann Says 100 Basis-Point Hike ‘Currently Too Much’

A 100 basis-point increase in interest rates by the European Central Bank would be “currently too much,” according to Governing Council member Robert Holzmann, who favors a three-quarter-point step next month.

NATO (MNI): Stoltenberg in Talks w/Danish Defence Min After Nord Stream 'Sabotage'

Wires reporting that NATO Secretary-General Jens Stoltenberg has been in talks with Danish Defence Minister Morten Bdskov following the apparent sabotage of the Nord Stream gas pipelines in the Baltic Sea this week.

US (BBG): Ian Escalates into Category 4 Hurricane Heading For Florida

Hurricane Ian became a dangerous Category 4 storm as it roars toward Florida, threatening to batter the Gulf Coast with devastating wind gusts and floods. The storm has maximum winds of 140 miles (220 kilometers) per hour, making it a major hurricane on the five-step Saffir-Simpson scale. It was about 75 miles from Naples, Florida, at 5 a.m. local time.

GERMANY (Dow Jones): Germany Raises Debt Issuance in 4Q

The German government's debt issuance will increase by 22.5 billion euros ($21.59 billion) in the fourth quarter of 2022 compared to the forecast published in December, the German Finance Agency said in its quarterly funding review on Wednesday. "The expansion of the issuing activities is due to the Federal government's measures to address the energy crisis," the Finance Agency said.

BRAZIL (MNI): Latest Quaest Poll Has Lula Over 50% in First Round Election

The latest opinion poll from outlet Quaest, released less than a week before the 2 October presidential election shows leftist Workers’ Party (PT) candidate Luiz Inacio ‘Lula’ da Silva leading with 51% of the vote, compared to 36% for right-wing Liberal Party incumbent President Jair Bolsonaro.

DATA

GERMANY (MNI): DIW: "All Signs Point to Recession"

GERMANY OCT GFK CONSUMER CONFIDENCE -42.5 (FCST -39.0); SEP -36.8r

The German Institute for Economic Research (DIW Berlin) sees the German economy as currently in a recession. This is very similar to IFO, who are already predicting a 'winter recession' and was echoed by ECB Executive Board member Isabel Schnabel last week, who stated that a technical German recession was becoming increasingly likely.

ITALY SEP CONSUMER CONFIDENCE 94.8 (MNI)

ITALY SEP BUSINESS CONFIDENCE 105.2 (MNI)

FRANCE SEP CONSUMER SENTIMENT 79 (MNI)

SWEDEN (MNI): Consumer confidence data at record low

SWEDEN SEP ECONOMIC TENDENCY SURVEY 90.8 (FCST 95.0); AUG

Looking a little more into that Swedish confidence miss - which was largely driven by the big miss in consumer confidence which is now at a record low. The survey period for the consumer confidence data is usually between 1-15 of the month - so this will have been before the Riksbank delivered the larger than expected 100bp hike.

SWEDEN AUG RETAIL SALES -5.1% Y/Y (MNI)

AUSTRALIA (MNI): Retail Sales Resilient Despite RBA Hikes

AUSTRALIA AUG RETAIL SALES +0.6% M/M

The Reserve Bank of Australia's five consecutive rate hikes have yet to be fully felt by consumers as August retail sales rose a better-than-expected 0.6%, highlighting the resilience of household spending. While the August data slowed from the 1.3% pace recorded in July, it was the eighth consecutive monthly rise and lifted y/y retail sales growth to 19.2%, the Australian Bureau of Statistics said - the highest since April 2021.

CHINA (MNI): MNI CHINA LIQUIDITY INDEX: Quarter-End Tightens; Economy Hopes

MNI Sep China Liquidity Conditions Index 59.4 Vs 53.1 Aug

Liquidity conditions across China’s interbank market tightened modestly into quarter-end, even as the People’s Bank of China injected more funds into the system, the latest MNI Liquidity Conditions Index shows.

The Liquidity Condition Index, rose to 59.4 in September from 53.1 previously, with 34.4% of the participants reporting marginally tighter liquidity condition towards the end of the month. The higher the index reading, the tighter liquidity appears to survey participants.

UK SEP BRC SHOP PRICES +0.7% M/M, +5.7% Y/Y (MNI)

FOREX: Persistent Upside in US Yields Tilts Markets Back to Dollars

• JPY is firmer headed through the NY crossover, with USD also clawing back some modest losses posted on Tuesday. Risk aversion prevails, with cash equities across Europe all sitting lower.
• Rates markets are again the key driver, with US yields again hitting new highs ahead of the NY crossover and putting the 10y yield above 4.00% to underpin the greenback across Asia-Pac and European hours.
• GBP volatility continues amid mixed reports that the newly-installed Chancellor Kwarteng is meeting again with key banking figures and could ask firms not to short GBP - a headline that was met with GBP/USD weakness and keeps the pair within range of the overnight lows at 1.0632.
• NOK is among the worst performers in G10 as the Norwegian government look to increase their tax take from a number of key natural resource industries and as the risk-off backdrop shakes high Beta currencies. EUR/NOK is now within range of key resistance at 10.4502 - the mid-June highs. Clearance here would be the highest level since 2021.
• Focus turns to advance trade balance data and pending home sales numbers from the US. The Fed speaker schedule is very busy, with appearances from Bullard, Bostic, Bowman, Barkin, Evans as well as the Fed chair Powell.

BOND SUMMARY: Duration Remains Out Of Favour

Global curves are steepening as long-end yields continue to hit multi-year highs. No new "news" driving these moves, with continued themes including Fed hawkishness/USD gains/UK macro policy concerns/European energy crisis.

• European long-end yields are leading the way higher, with UK 30Ys pushing decisively through 5.00% for a fresh post-1998 high amid a 30Y Green Gilt syndication.
• Meanwhile, new post-2014 highs for Buxl (moving higher above 2%); and 30Y USTs (sit just shy of 3.90%). US 10Y yields trade above 4% for the first time since 2008.
• Short-end instruments are outperforming. Several ECB speakers weighed in on a 75bp October hike and getting rates to "neutral" by end-year (though Holzmann said 100bp is "currently too much").
• A heavy Fed speaker slate lies ahead with Powell, Evans, Bowman, Bostic, Bullard and Barkin. 7Y Note supply also eyed.
• Somewhat overlooked in the morning's tumult were new post-Apr 2020 BTP spread wides vs Bunds (257.9bp).

Latest levels:

• US: 2-Yr yield down 2.9bps at 4.2541%, 5-Yr up 3.2bps at 4.216%, 10-Yr up 5.8bps at 4.0027%, 30-Yr up 6.6bps at 3.8917%.
• DE: 2-Yr yield down 0.7bps at 1.976%, 5-Yr up 6.3bps at 2.233%, 10-Yr up 10.9bps at 2.34%, 30-Yr up 12.6bps at 2.218%.
• UK: 2-Yr yield down 1.7bps at 4.63%, 5-Yr down 2.2bps at 4.677%, 10-Yr up 4.3bps at 4.549%, 30-Yr up 9.6bps at 5.084%.
• Italy / German 10-Yr spread 2.3bps wider at 254.9bps

SONIA: Sonia Strip Takes Over 25bp out of Terminal Pricing; 30y Yields Off Highs

• The SONIA curve remains some way off of the lows seen yesterday with the Dec-22 contract 22 ticks above the low of 94.63 and Sep-23 contract 27 ticks above yesterday's low of 93.645. Terminal rates of above 6% are still being priced, but we seem to have stabilized somewhat at current levels.
• Gilts on the other hand have seen new cycle highs in yields across the curve this morning, with particular focus on the 10s30s curve which hit its steepest level since 1998 as 30-year yields moved over 5%.
• The announcement that the 30-year green gilt syndication would go ahead today has been one of the drivers today but 30-year yields are now around 9.5bp off their intraday highs.
• The orderbook for the syndication is substantially lower than at launch last year, but probably still high enough to give the market some comfort. We will hear over the next few minutes the size of the transaction - with any size over GBP5bln likely to help subdue some of the panic in the market.
• There is also focus on a story that at least three LDI pension schemes have requested emergency capital to remain in their positions - which has also weighed on the long-end this morning.
• 2y yields down -7.7bp today at 4.524%, 5y yields down -3.0bp at 4.654%, 10y yields up 2.6bp at 4.528% and 30y yields up 8.5bp at 5.066%.
• 2s10s up 10.3bp today at +0.4bp and 10s30s up 5.9bp at 53.8bp.

EQUITIES: Risk Off Prevails, E-mini S&P Narrows Gap With Key Bear Trigger

EUROSTOXX 50 futures remain soft and the contract continues to trend lower, marking an extension of the reversal on Sep 13 from 3678.00. Key short-term support at 3423.00, the Sep 5 low, has been cleared. S&P E-Minis trend conditions remain bearish following last week’s extension lower and the bearish follow through this week. The move strengthens bearish conditions and attention is on key support at 3657.00, Jun 17 low and an important medium-term bear trigger.

• Japan's NIKKEI closed lower by 397.89 pts or -1.5% at 26173.98 and the TOPIX ended 17.86 pts lower or -0.95% at 1855.15.
• Elsewhere, in China the SHANGHAI closed lower by 48.795 pts or -1.58% at 3045.067 and the HANG SENG ended 609.43 pts lower or -3.41% at 17250.88.
• Across Europe, Germany's DAX trades lower by 192.36 pts or -1.58% at 11938.86, FTSE 100 lower by 108.46 pts or -1.55% at 6874.02, CAC 40 down 72.01 pts or -1.25% at 5679.64 and Euro Stoxx 50 down 49.44 pts or -1.49% at 3277.52.
• Dow Jones mini down 170 pts or -0.58% at 29013, S&P 500 mini down 29 pts or -0.79% at 3630, NASDAQ mini down 136 pts or -1.2% at 11190.

COMMODITIES: Gold Price Action Confirms Bear Flag Formation

WTI futures are consolidating. Bearish conditions 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. Gold last week broke out of its recent range and in the process confirmed the bear flag formation evident on the daily chart. This confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs.

• WTI Crude down $0.2 or -0.25% at $78.13
• Natural Gas up $0.07 or +1.07% at $6.722
• Gold spot down $9.08 or -0.56% at $1619.99
• Copper down $2.2 or -0.67% at $326.5
• Silver down $0.31 or -1.7% at $18.0651
• Platinum down $8.68 or -1.02% at $840.81