Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY:
- EUROPEAN GAS SURGES 40% AS E.U. PLEDGES ACTION AMID RECORD RALLY
- UK INFLATION BREAKEVENS HIT 13-YEAR HIGH ON ENERGY PRICE SURGE
- CHINA TECH STOCKS HIT RECORD LOW AS YIELDS RISE
- ECB'S VILLEROY TO BE REAPPOINTED BANQUE DE FRANCE GOVERNOR
- FRANCE'S LE MAIRE: WE WANT G20 CORP TAX DEAL BY END-OCTOBER
Fig. 1: UK Breakeven Inflation Soaring
NEWS:
E.U. / ENERGY (BBG) : European energy prices extended their blistering rally as the region-wide supply crunch showed no sign of easing, prompting the European Union to pledge swift action to protect the economy. Dutch and U.K. gas futures have jumped 60% in just two days, hitting fresh records along with surging power as EU lawmakers debated the crisis.
E.U. / ENERGY (BBG) : The European Union sounded the alarm on the potential of soaring energy prices to undermine the bloc's economy, and pledged new guidance for member states struggling to contain the crisis.The EU didn't respond directly to respond to nations' demands for action, and instead vowed to set out recommendations for member states next week on the measures they can take without undermining EU rules. They will include compensation for the most vulnerable households, tax cuts and state aid for companies, EU energy chief Kadri Simson said Wednesday.
FRANCE / ENERGY (BBG): The French government may step in to protect households if gasoline and diesel prices keep soaring, Finance Minister Bruno Le Maire said.European governments are under pressure from consumers and businesses to allay a jump in energy costs caused by a gas crunch. France already announced a temporary freeze in regulated gas prices for households and a tax cut on electricity bills."We must leave all doors open, and always react when necessary, and when we need to temporarily protect the purchasing power of the French," Le Maire said on RTL radio Wednesday, when asked if the government might cut taxes on gasoline and diesel. "We're ready" to step in to contain gasoline and diesel prices "if they keep soaring."
CHINA / TECH STOCKS (BBG): A benchmark tracking Chinese technology stocks closed at a fresh record low Wednesday, as concerns about inflation amid a worsening energy crunch pushed global bond yields higher.The Hang Seng Tech Index, which officially launched in July last year, dropped 1.5% in a fifth day of declines to close below its previous Aug. 20 low. The rise in bond yields revived fears about the sector's valuation, wiping out earlier gains in the benchmark following an overnight rebound in U.S. tech stocks.
CHINA / PROPERTY (BBG): Chinese property firms continued to see declines in their dollar bonds Wednesday, amid uncertainty stoked by a developer's surprise defaultand continued thin liquidity as the Golden Week holiday continues, according to credit traders.Investors were still waiting for China Evergrande Group to disclose details of its "major transaction" after Hong Kong's market closed. With no update, shares of two businesses in which Evergrande holds a stake fell for a second day. The developer's listed subsidiaries have tumbled in recent weeks amid concern the company will need to dispose of its stakes quickly and at a significant discount.
ECB:Banque de France governor Francois Villeroy de Galhau has been renominated for the role by President Emmanuel Macron, the Elysee Palace said in a statement Wednesday. Any final reappointment will be subject to hearings by the National Assembly and Senate finance committees, the statement added.
GERMAN POLITICS: Guy Chazan at the FT tweets: "Germany's FDP now under maximum pressure to show their cards after Greens publicly announced they favour talks on a coalition with SPD and FDP. Liberals making a statement at 11am German time [0500ET, 1000BST]." CDU's grip on power seen to be waning as talks with Greens yesterday, although deemed 'constructive and objective' by Green leader Annalena Baerbock, came alongside polls showing strong public support for the SPD's Olaf Scholz to become chancellor (52% of respondents).
G20: French Finance Minister Bruno Le Maire speaking on a number of different topics:
- Says that G20 finance ministers are a milimetre away from reaching a deal on global corporate tax rates. Adds that the main topic of debate is the minimum base tax rate. Consensus for minimum rate generally around 15%. Says that a deal could be reached next week in Washington, D.C. or failing that at the G20 meeting in Rome at the end of the month.
- On energy price crisis in Europe, says that he told EU colleagues that the electricity price should not be entirely determined by the price of natural gas, with average production costs the main driver instead.
- Says he wants the end of any sign of a trade war between the EU and the US, and that tariffs should be removed on steel and aluminium products. Says that he is working effectively with US Treasury Secretary Janet Yellen.
- On foreign policy, Le Maire states that the EU should be as powerful and self-sufficient as the US or China without having to rely on either for technology. The drive for 'strategic autonomy' for the EU remains a major foreign policy objective of the Macron administration, although the French president has yet to convince all other EU leaders.
RUSSIA / US: Reuters reporting comments from the Russian Foreign Ministry stating that Foreign Minister Sergey Lavrov discussed and reviewed the Iran nuclear deal with US Secretary of State Anthony Blinken. Discussion likely to have come in a phone call between the two, weeks after the two foreign ministers pointedly did not meet on the sidelines of the UN General Assembly in New York. There remains notable confusion as to when talks between Iran and the JCPoA signatories will resume in Vienna, with the European nations pushing hard for an immediate re-start. The Iranian gov't - which has not engaged in talks since Ebrahim Raisi won the presidential election in August - continues to say that talks will resume 'soon', but without giving a concrete date or month.
DATA:
MNI: GERMANY AUG IND ORD -7.7% M/M, +11.7% Y/Y; JUL +4.9%r M/M
MNI BRIEF: EZ August Sales Edge Higher After July Dip
Eurozone retail sales increases by a modest 0.3% in August, failing to stage a significant rebound from the downwardly-revised 2.6% fall (originally -2.3%) in July. Sales were unchanged in the year to August, down from an unrevised 3.1% y/y gain in July, and sharply below the dramatic gains recorded earlier in the year, although those improvements were measured against a very low 2020 base.
Food, drink and tobacco accounted for much of the August weakness, declining by 1.7% in August, while non-food sales rose by 1.8%. Online activity most likely kept sales growth in the black, rising by 9.0%, reversing a 10.4% plunge in July. Retail activity did pick up in Germany, rising by 1.1% after a 4.5% fall in July. French sales declined by 1.2%, extending a 2.3% fall in July while activity in Spain decreased by 0.4% after dropping 0.1% the previous month.
FIXED INCOME: Hiking expectations driving
Core fixed income reached new recent lows this morning. Gilt futures their lowest level since February 2019, Bund futures their lowest levels since May 2021 and TY1 futures their lowest level of the month. Expectations of monetary policy tightening is driving the moves with equities moving lower as a result with money markets moving lower, led by short sterling.
- UK Prime Minister Boris Johnson's speech at 11:30BST/6:30ET will be watched today after his comments yesterday reiterating that we wanted the UK to move to a high wage, high productivity economy and that wages needed to rise. Any announcement on the future of the minimum wage would be closely watched (but is not expected until the Budget).
- Later today we also see the ADP employment report but there are not many other notable speakers scheduled.
- TY1 futures are down -0-3+ today at 131-20 with 10y UST yields up 1.7bp at 1.544% and 2y yields up 0.3bp at 0.289%.
- Bund futures are down -0.20 today at 169.46 with 10y Bund yields up 1.8bp at -0.171% and Schatz yields up 0.7bp at -0.705%.
- Gilt futures are down -0.39 today at 124.25 with 10y yields up 4.8bp at 1.131% and 2y yields up 4.6bp at 0.494%.
FOREX: EUR/USD Sinks to New 2021 Low
- EUR/USD holds close to the day's lows amid a firmer greenback and further signs of a slowdown in the post=pandemic recovery. Eurozone retail sales for August came in well below expectations, with the July figure also being revised lower to a drop of 2.6% on the month. The pair has so far found some support at the 1.1550 level, but further weakness would open losses toward 1.1493, the 50% retracement of the 2020-2021 rally.
- Risk-off is evident across assets this morning, with equities sinking to erase the entirety of Tuesday's late rally. A push through 4267.50 could reignite the risk-off tone, further favouring the USD and haven currencies, which are already outperforming ahead of the NY crossover.
- At the other end of the table, NZD is the underperformer, falling against all others despite the RBNZ hiking rates overnight. While the bank took the first step in their tightening cycle, they declined to provide a commitment to further rate rises, undermining NZD throughout Asia-Pac trade.
- Focus turns to ADP employment change data for another further insight into Friday's payrolls release. There are no notable central bank speakers Wednesday.
EQUITIES: Broad Decline, Tech Resumes Underperformance
- Asian equities closed weaker, with Japan's NIKKEI down 293.25 pts or -1.05% at 27528.87 and the TOPIX down 5.84 pts or -0.3% at 1941.91. The HANG SENG ended 137.66 pts lower or -0.57% at 23966.49
- European stocks are down sharply, with the German Dax down 315.41 pts or -2.08% at 15194.49, FTSE 100 down 87.21 pts or -1.23% at 7077.1, CAC 40 down 105.27 pts or -1.6% at 6576.28 and Euro Stoxx 50 down 79.4 pts or -1.95% at 4065.43.
- U.S. losses are led by Tech stocks, with the Dow Jones mini down 311 pts or -0.91% at 33872, S&P 500 mini down 47.75 pts or -1.1% at 4286.25, NASDAQ mini down 190 pts or -1.3% at 14465.
COMMODITIES: Metals Suffer As Energy Prices Continue To Rise
- WTI Crude up $0.18 or +0.23% at $79.35
- Natural Gas up $0.01 or +0.22% at $6.429
- Gold spot down $10.99 or -0.62% at $1753.61
- Copper down $6.55 or -1.56% at $415.8
- Silver down $0.31 or -1.38% at $22.4816
- Platinum down $16.72 or -1.73% at $956.29
LOOK AHEAD:
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.