Credit Agricole

Asia overnight:

The mood among investors improved during the Asian session. The grace period on a bond payment to be made by Chinese property developer, Evergrande, was due to expire on Saturday, which if left unpaid, would tip the developer into official default. Media reports are that Evergrande has made the payment, however, which led to a rally in risk in the Asian session. A dip in UST 10Y yields back below 1.70% also helped bolster sentiment. At the time of writing, most Asian bourses were trading higher and S&P500 futures slightly in the red. The CAD and Antipodean currencies were modest outperformers in the G10 against a weaker USD and JPY. The AUD was held back by the RBA making an unscheduled purchase of government bonds.

EUR: Assessing the impact of the ‘energy crisis’

Focus today will be on the preliminary October PMIs out of the Eurozone. Key for investors would be any indications that the recent surge in energy prices has dampened business confidence. Indeed, markets worry that the combination of growing energy costs, labour shortages, supply chain disruption and a slowdown in China could make European companies less optimistic about the future especially if soaring cost-push inflation erodes the real purchasing power of consumers inside and outside of the Eurozone. Ahead of the release, expectations are for the PMIs to edge slightly lower but to remain comfortably in expansionary territory. To the extent this is confirmed tomorrow, we believe that the data could continue to support the ECB narrative of continuing vigorous recovery and thus allow the bank to signal next week that it is moving closer to policy normalisation. In turn, this should continue to make the EUR a less attractive funding currency and encourage further unwinding of shorts in the currency.

Citi

European Open

Evergrande made the headlines on a quiet Asian morning, paying USD83.5mn of bond interest that was due on 23 September to a trustee account, just shy of its 30 day grace period deadline. China also saw Zhengzhou thermal coal futures decline further, marking a 20% decline in 3 days since the clampdown by regulators on speculation and hoarding. USD held onto its gains from a NY session which saw UST selling off across the curve. US President Joe Biden weighed in on the energy crisis today, warning that high gasoline prices are likely to continue into next year, and placing the blame on policies by OPEC and other foreign oil producers.

Looking ahead, we flag several pieces of data. From the US, we see Fedspeak from Daly (15:00 BST), followed more notably by Powell (23:00 BST). GBP sees Retail Sales Ex Auto Fuel MoM (07:00 BST) and Markit PMI (09:30 BST). EUR will see Markit PMI releases for Eurozone Composite and Germany at 08:30 BST). On the EM front, we highlight a rate decision for RUB (11:30 BST) where we expect a 25bps hike. We also expect CPI from HKD (09:30 BST) and MXN (12:00 BST), and trade data from THB (time unknown) and BRL (13:30 BST)