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(Z1) Off Recent Highs


Coming up in the Asia-Pac session on Friday:


Coming up in the Asia-Pac session on Friday:


Retracement Mode


Bounce Needs to Hold

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Fig. 1: 30-Yr Tsy Yields Outperforming

Source: BBG, MNI


E.U.: EU Commission President Ursula von der Leyen said today that the EU would not repeat the mistake made by leaders after the financial crisis of withdrawing fiscal support too soon. In her State of the Union address to the European Parliament, she said "Last time we declared victory too soon and we will not repeat that mistake." Von der Leyen also noted that consultation talks on the Stability and Growth Pact would likely restart in coming weeks.

E.U.: Speaking on foreign policy, EU Commission President Ursula von der Leyen states that the EU should do more on its own regarding its foreign policy. 'Europe can , and should, be able and willing to do more on its own if you don't deal with a crisis abroad, this crisis will come to you.' 'We have developed a European defence ecosystem. What we need now is a European defence union...issue is why this has never worked in the past?'

U.S. / COVID VACCINE (WSJ): President Biden is expected to meet Wednesday with executives from companies including Walt Disney Co., Microsoft Corp. and Walgreens Boots Alliance Inc. to advance his Covid-19 vaccination requirements for the private sector. The White House meeting comes after a plan Mr. Biden announced last week designed to bring the pandemic under control, which includes vaccine requirements affecting roughly 100 million workers. Attendees are expected to discuss how they are expanding requirements at their companies and institutions and how mandates have driven up vaccinations among employees, a White House official said.

CHINA / EVERGRANDE (BBG): Evergrande's long-term rating was downgraded by S&P to CC from CCC. Outlook remains negative.

ECB (BBG): Office workers probably won't return to their desks full-time as companies learned to live with flexible arrangements during the coronavirus pandemic, according to European Central Bank President Christine Lagarde. "We're heading toward a hybrid movement, where part of the week will be spent in the office so that people can meet, can see each other, can hold regular meetings and have face-to-face contact," she said on "The David Rubenstein Show: Peer-to-Peer Conversations" on Bloomberg Television. "But the rest of the week will likely be working from home."

U.K. / FRANCE (BBG): A large fire is raging at a key electricity converter station in the U.K., shutting down a major cable that brings power from France to Britain.The outage couldn't come at a worse time with supplies already short and prices at record highs. Britain is a net importer of power, with France its biggest supplier via two 2,000 megawatt cables that run across the English Channel.

GERMANY / AUTOS / CHIP SHORTAGE (BBG): Daimler AG's main Mercedes-Benz division expects sales to stabilize in the fourth quarter and still aims to generate double-digit returns this year despite disruptions from the global semiconductor shortage. While chip supply bottlenecks have been exacerbated by recent factory shutdowns in Malaysia, underlying demand for Mercedes luxury cars remains very strong in China, Europe and North America, Daimler Chief Financial Officer Harald Wilhelm said in an interview.


MNI: UK AUG CPI +0.7% M/M, +3.2% Y/Y VS +2.0% Y/Y JUL

UK DATA: CPI Surges To Near Decade High On Base Effects

UK consumer price inflation surged to an annual rate of 3.2% in August, up from 2.0% in July. That's the highest outturn since March 2012, and the biggest single month change in in the annual rate since the series began in January 1997.

The restaurant and hotel sector accounted for 0.69 percentage points of the change in CPI, with prices in the sector depressed in August of 2020 by the Eat Out to Help Out scheme and reduced VAT payments. ONS economists estimate that the falling away of the EOHO programme alone contributed to 0.4pp of the total rise, but noted some unrelated price increases in the sector last month. The extreme distortion of the EOHO scheme overshadowed the broad-based nature of the jump in inflation. However, ONS official did stress that the statistical agency does "expect this [month's large rise] to be a temporary effect."

Second-had car prices rose by 4.9% between July and August, or by 18.3% at an annual pace, contributing another 0.06 percentage points to the change in CPI. With a shortage of computer chips limited the supply of new cars, used-car prices could continue to lift inflation in the months to come.

EUROZONE DATA: Industrial Production Outpaces Expectations

Industrial production in the eurozone jumped by 1.5% between June and July, far exceeding expectations of a 0.6% gain, with signs pointing to increased vaccine output through the month.

  • Output for June was revised slightly higher, declining just 0.1% over May versus the initially-published 0.3% decline, according to Eurostat data released on Wednesday.
  • Over the year to July, industrial production expanded by 7.7%, topping forecasts of a 6.0% increase, following an upwardly revised 10.1% gain in June.
  • Production of non-durable consumer goods increased by 3.5% in July, while intermediate goods rose 0.4% and capital goods rose by 2.7%. Energy output declined by 0.6%.
  • Irish output led the eurozone, rising by 7.8% between June and July, while Belgian output increased by 5.0%. Both countries received regulatory approval for expanded production of the Pfizer Covid vaccine over the spring, which may have contributed to the boost in output.

FIXED INCOME: Back to flat (gilts reverse early weakness). IP the focus

Core fixed income is now little changed to yesterday's close, but this masks a decent move seen in gilts on the open.

  • UK CPI came in higher than expected at 3.2%Y/Y (2.9% exp) with core CPI at 3.1% (2.9% exp). Part of the increase relative to last month's print was due to the base effects of last August's depressed CPI print due to the "Eat out to help out" scheme. However, this was already considered in the expectations and the surprises were generally fairly broad-based. Gilt futures hit a low of 127.79 for the day around 10 minutes after the open but have since recovered to around 128.02 (not far from yesterday's close of 128.04).
  • BTP and GGB spreads have widened a bit today, but other EGB spreads are sitting fairly steady.
  • Today will see the inaugural EU bill auction with the EU looking to sell up to E3bln of 3-month bills and up to E2bln of 6-month bills.
  • The highlight on the data calendar ahead will be US industrial production while we are due to hear from the ECB's Schnabel and Lane.
  • TY1 futures are down -0-0+ today at 133-19 with 10y UST yields down -0.9bp at 1.276% and 2y yields unch at 0.208%.
  • Bund futures are up 0.03 today at 171.94 with 10y Bund yields down -0.1bp at -0.342% and Schatz yields up 0.1bp at -0.716%.
  • Gilt futures are up 0.01 today at 128.05 with 10y yields unch at 0.737% and 2y yields up 1.0bp at 0.238%.

FOREX: USD Off Overnight Highs

  • The USD is ebbing off the overnight highs, with the USD Index back below the 50-dma. Greenback weakness has helped EUR/USD recover off the overnight lows of 1.1799, with the Tuesday high at 1.1846 now within range. Markets need to close above here to confirm a reversal, after which focus will turn to key resistance at the 1.1909 level.
  • Persistent oil strength continues to work in favour of the NOK, which outperforms all others in G10. This puts USD/NOK on track to take the Tuesday low at 8.5739 ahead of the 200-dma at 8.5550.
  • Canadian CPI due Wednesday is expected to creep higher, mimicking the US release yesterday with median core CPI seen inching up to 2.7% Y/Y - matching levels last seen in 2008. USD/CAD remains in a short-term uptrend, with 50-dma support at 1.2590 providing some support.
  • US Empire manufacturing, import/export price indices and industrial production data also cross. ECB's Schnabel and Lane are both due to speak.

EQUITIES: S&P Futs Edging Higher From Tuesday's Lows

  • Asian stocks closed weaker, with Japan's NIKKEI down 158.39 pts or -0.52% at 30511.71 and the TOPIX down 22.48 pts or -1.06% at 2096.39China's SHANGHAI closed down 6.379 pts or -0.17% at 3656.223 and the HANG SENG ended 469.02 pts lower or -1.84% at 25033.21.
  • European stocks are fairly flat, with the German Dax up 0.42 pts or +0% at 15722.99, FTSE 100 up 0.02 pts or +0% at 7034.06, CAC 40 down 6.06 pts or -0.09% at 6652.97 and Euro Stoxx 50 down 2.69 pts or -0.06% at 4191.67.
  • U.S. futures have edged higher, with the Dow Jones mini up 60 pts or +0.17% at 34643, S&P 500 mini up 11 pts or +0.25% at 4455.5, NASDAQ mini up 47 pts or +0.31% at 15434.

COMMODITIES: Energy Complex Remains Resilient

  • WTI Crude up $0.61 or +0.87% at $70.89
  • Natural Gas up $0.12 or +2.32% at $5.297
  • Gold spot down $3.75 or -0.21% at $1802.24
  • Copper up $2.15 or +0.5% at $433.35
  • Silver down $0.07 or -0.29% at $23.7232
  • Platinum down $8.07 or -0.85% at $932.9