CREDIT OPEN: Market takes stock after UK budget

Futures point to continued weakness for European stock indices this morning to follow on from weakness in the US (S&P500 -0.33% and Nasdaq -0.56% both fell) and a once again mixed bag over in Asia. The Nikkei shed -0.9% with major Chinese bourses bucking the trend as official PMIs came in marginally ahead of expectations and hopes still abound for the announcement of more stimulus packages in the coming week.

The main talking points from Wednesday, from a US and global perspective, centred around the core PCE price index coming in a little above expectations and pointing to an incrementally slower-than-expected pullback in underlying price pressures. That could possibly add to worries around Friday's NFPs release, while the advance reading of Q3 GDP showed a slower pace of increase in the economy.

However, inadvertently becoming the main attraction was the release of the UK's Autumn Budget. Bonds (especially Gilts) sold off heavily in the wake of Chancellor Reeve's budget release which showed UK taxes to rise by GBP40bn, with notable rises in taxes on capital gains and carried interest for private equity. Market positioning suggests this leaves the BOE with only 25bps to cut into year-end.

The entire front end of the EGB complex, which had been underperforming before the budget announcements, saw yields spike wider with GER 2yr +11.78bp on the day whilst Gilts which had seen yields lower in the morning finished higher across the board.

Economic releases of interest from a European perspective come this morning in the shape of French, Italian and Eurozone CPI figures, which will be scrutinised in the wake of higher than expected readings from German regions and at the national level just yesterday (+2.0% vs 1.8% exp).

Later in the day and adding some colour on the same topic from the other side of the Atlantic is the latest update of the PCE Price Index.

On the back of the huge swing in momentum yesterday for its outstanding bonds (10yr moved from -8bp to +3.7bp) the UK is today looking to sell GBP2.25bn of 2053 Gilts. A close eye will be kept on the results of that in light of increased borrowing announced by Reeves in her first budget.

CB speak, with the Fed in blackout until 8th November, comes courtesy of the ECB's Escriva and Knot (who will be giving an on-stage interview at the Santander International Banking Conference).

For more on latest developments see the European Breakfast Briefing.

Thursday's supply prospects

The euro pipeline is all but empty (just two HY names present) after a busy first half of the week which saw a combined EUR22.75bn. That was, of course, given a big shot in the arm by the well flagged M&A-driven six-part trade from Danish transport and logistics company DSV A/S on Wednesday which in the end totalled EUR5bn and marked the joint-largest euro corporate trade of 2024 (recap here).

** SOMACIS EUR500m 7NC1 FRN at 3mE+450 area IPTs

** Neinor Homes EUR300m 5.25NC2 green secured at mid-high 6% IP

** New Development Bank USD 3yr green, price talk m/s +90 area

Six borrowers graced the US high-grade bond market Wednesday, two of which were funding recent acquisitions, all combining to raise USD16.9bn in the busiest issuance day since 19 borrowers descended on the market the day after Labor Day. Marsh & McLennan started things off with an early morning announcement of a USD7.25bn 7-pt offering to help fund its acquisition of McGriff Insurance Services, LLC. That was followed by Waste Management, who began marketing a USD5.2bn 5-pt offering to partially fund its purchase of Stericycle, a global leader in medical waste management. For all the colour and a full update see THE ENDGAME.

What to watch Thursday – Big day for bank earnings

** Key Data: GE Sep Import Price Index (07:00), GE Sep Retail Sales (07:00), FR Oct P CPI (07:45), IT Sep Unemployment Rate (09:00), EC Oct P CPI (10:00), IT Oct P CPI (10:00), EC Sep Unemployment Rate (10:00), US Sep Personal Income/Spending (12:30), US Sep Core PCE Price Index (12:30), US Weekly Initial/continuing Jobless Claims (12:30) and US Oct MNI Chicago PMI (13:45)

** Key Events: ECB’s Escriva (10:10) & Knot (11:35) speak

** Auctions: UK to sell GBP2.25bn 2053 Gilts (10:00)

** Earnings: 26 Stoxx600 & 49 S&P500 companies report. Former includes BBVA, BNP Paribas, Caixabank, Danske, Erste, Intesa Sanpaolo and Societe Generale

All times GMT

---- Subscribe to read more ----

To receive this analysis plus much more, subscribe to IGM. Request your free trial of the service today.