CREDIT OPEN: EU return set to drive a busier week
EU stocks are set for opening gains on Monday with markets set to build on Friday’s rally seen following the bumper US payroll print.
Notably, strong US employment data was taken at face value with markets focussed on the positive economic message which has lifted hopes for a soft landing, or perhaps even no landing at all.
With that, very few are still holding out hope for another outsized 50bps cut at the Fed’s next meeting in November with the probability of a more modest 25bps reduction currently seen above 95% (CME data) vs. just 5% for a 50bps move.
Friday’s gains on S&P500 (+0.68%) and Nasdaq (+1.22%) were also sufficient to tip both indices marginally into positive territory on the week.
Over in Asia, it's been a day of catchup for most markets but not all with mainland China markets still shuttered for the last of the Golden Week holidays. The Hang Seng is at over two year highs on Monday as the tailwind from stimulus plans also continues to underpin while the Nikkei is being lifted by a weaker JPY as the dollar continues to adjust to reduced rate cut expectations. US index futures are largely flat with S&P futures holding just below its contract high hit in late September.
Having gained 8.4% on the week on fears over supply disruption Brent is sitting off Friday’s over 1-month peak of USD79.30 (last USD77.65) as markets await potential retaliation by Israel against Iran on a day which also marks the one-year anniversary of attacks by Hamas.
Following Friday’s key data, today’s schedule of economic releases delivers limited information to move markets although there is a hefty slate of speakers who could drive volatility.
Already out, German factory orders sank by 5.8% MoM in Aug, much worse than the 2.0% fall expected, and more than fully unwinds the upwardly revised 3.9% gain seen in July.
Looking ahead this week, the FOMC minutes to the September meeting will be out on Wednesday while Thursday's US CPI report will take centre stage on the data front.
Earnings are fast approaching too where Pepsi kicks off this week’s update tomorrow while US banks report from Friday.
For more on latest developments see the European Breakfast Briefing.
Monday’s supply prospects
Respondents in our survey expect ca. EUR27.5bn of supply to materialise in the coming week, spearheaded by SSA issuers with an anticipated appearance from the EU driving activity in that asset class. This will mark a significant uptick from last week’s EUR9.95bn (ex HY corp) supply which missed even the lowest estimate of EUR12.5bn, with a German holiday, US payrolls and geopolitical worries weighing.
** European Union EUR offering
** Kookmin Bank EUR 3.25yr sustainable covered
Faced with earnings blackouts and the possibility of an extended weekend ahead of the Columbus Day holiday, the Street does not have high hopes for a pickup in US high grade issuance this week, with the average estimate coming in around USD17bn. The most bullish of the bunch thinks we could see as much as USD20bn price next week, while the bears think we won't see any more than USD10-12bn cross the tape. See the IG WEEKLY WRAP UP.
What to watch today (and for the week)
** Key Data: EC Aug Retail Sales (10:00) and US Aug Consumer Credit (20:00)
** Key Events: ECB’s Cipollone (08:05), Lane (08:45) & Escriva (12:45) speak, along with Fed’s Kashkari (18:50), Bostic (23:00) and Musalem (23:30)
** Auctions: No major term auctions scheduled for Monday 7th Oct
** Viewpoint - The week ahead:
- RBNZ to cut 25bp or 50bp (Wednesday)? FOMC minutes (Wednesday)
- US September CPI & jobless claims (Thursday). September PPI (Friday)
- Canadian August trade (Tuesday). September labour market report & BoC Q3 Business outlook (Friday)
- German August IP (Tuesday), trade (Wednesday). September final CPI (Friday)
- UK KPMG/REC jobs report (Monday). September BRC retail sales (Tuesday). August GDP (Friday)
All times BST
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