US consumer confidence sinks in September

• The Conference Board said its US consumer confidence index dropped to 109.3 this month from 115.2 in August. This marks the third straight monthly decline, pushing the index to the lowest level since February. A separate measure, which places more emphasis on the labor market, has dropped 19.6 points from a peak of 128.9 in June. The survey’s labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, fell to a reading of 42.5 this month from 44.4 in August. This is a measure that closely correlates to the unemployment rate in the Labor Department's employment report. Consumers' inflation expectations over the next 12 months slipped to 6.5% from 6.7% last month. Appetite to buy motor vehicles fell to a nine-month low. And the purchase of household appliances like washing machines and clothes dryers over the next six months also saw less appetite from consumers, supporting expectations for a slowdown in consumer spending this quarter. US core capital goods orders (orders for non-defense capital goods excluding aircrafts), a closely watched proxy for business spending plans, rose 0.5% m/m last month.
• St. Louis Federal Reserve president James Bullard said the Federal Reserve should let its roughly USD 8tn balance sheet shrink next year as soon as it winds down a bond purchase program, warning high inflation may require more aggressive steps by the central bank including two interest rate hikes in 2022. Bullard said he now expects inflation to remain at 2.8% through next year, well above the central bank's 2% target and the highest among new economic projections issued by Fed officials last week. While agreeing that inflation will ease somewhat on its own, he said it will take more central bank effort to ensure that happens smoothly over time, without restrictive policies that could imperil the current expansion. At their meeting last week Fed policymakers expected slightly higher rates beginning next year, the start of a possible hedge against prices rising too fast.
• European Central Bank President Christine Lagarde and board member Fabio Panetta yesterday urged patience before tightening ECB monetary policy as the euro zone economy emerges from the pandemic.  Euro zone borrowing costs have risen in recent weeks as investors bring forward their interest rate hike expectations, on the back of pressures that are steadily building on the back of several factors, from higher energy prices to supply bottlenecks. Lagarde and Panetta stressed the ECB should not overreact to transitory supply shocks that have no bearing on the medium term.  They added they will only react to improvements in headline inflation that are durable and reflected in underlying inflation dynamic. While inflation could rise as high as 4% by the end of this year, Lagarde argued that price growth will then quickly sink back below the bank's target and remain under its 2% objective for years to come.

Today’s Economic Data and Events

• 18:00 US Pending Home Sales (MoM) (Aug) Forecast 1.4%            
• 18:30 US Crude Oil Inventories Forecast -1.652M               -             
• 19:45 GB BoE Gov Bailey Speaks                                                               
• 19:45 US Fed Chair Powell Speaks                                                            
• 19:45 EU ECB President Lagarde Speaks                                                                
• 20:30 EU ECB President Lagarde Speaks                                                                                

Fixed Income

• US Treasuries continued to sink overnight as attention shifts away from the Fed and on to the political brinkmanship in the US over bills to continue funding the government. The 2yr UST yield added 2bps to settle at 0.3% while the 10yr added another 5bps to close at 1.54%.
• Emerging market bonds received a bit of a breather overnight with yields holding relatively stable. Yields on 10yr Turkish government bonds rose 1bps to 17.81% while both South African and Indian markets were quiet.
• APICORP is in the market with a USD 750m 5yr green bond that is set to price around 50bps over midswaps. The funding will be used for projects in renewable energy, pollution prevention and green buildings, according to press reports.

FX

• With markets in mini-meltdown mode the dollar remains well supported. The DXY index added 0.4% overnight to 93.77 even as the US government heads towards funding uncertainty and potential, if low, of a default on US Treasuries. Heavy selling in major pairs eased toward the end of the session but most currencies managed to hold their losses in the evening.
• EURUSD fell a third day running, down 0.1% to 1.1683, while USDJPY jumped up 0.45% to 111.50, its highest level since July. GBPUSD was the most prominent casualty overnight, falling more than 1.1% to GBPUSD 1.3537, as the economy grapples with high inflation and supply shortages.
• Commodity currencies weren’t spared the sell off with USDCAD off by 0.47% to 1.2687, AUD down 0.69% to 0.7236 and NZD down 0.9% to 0.6957.

Equities

• Slowing growth, higher rates, supply shocks and the potential for the US government to stop operating. Equity markets are working through a brutal array of forces and taking the natural path of least resistance lower. European markets were off heavily early in the day with the EuroStoxx 50 down 2.6% while the FTSE managed ‘only’ a drop of 0.5%. During the US session the S&P gave up more than 2% while the NASDAQ lost 2.8% and the Dow fell 1.6%.
• In Asia markets in early trade today it’s a similar picture. The Nikkei was off by around 2.5% with the Hang Seng and CSI falling around 1% each.
• Regional markets appear somewhat insulated from the risk off switch, benefitting from interest in large local IPOs. The DFM gained 0.5% while the ADX was flat. The Tadawul managed a gain of 0.1% overnight.

Commodities

• Brent futures poked their head above USD 80/b in trading early yesterday but then surrendered most of those gains over the rest of trading. The contract ended the day at USD 79.09/b, down 0.55% while it has given back a further 1.4% in trade so far this morning. WTI followed a similar pattern with an early pop faded and the contract ending down 0.2% overnight at USD 75.29/b and is down by a full USD 1/b so far today.
• The API reported a build in US crude inventories last week of 4m bbl along with decent builds in both gasoline and diesel stocks. Official EIA data will be released this evening.
• Gold prices are failing to get any risk-off benefit and are suffering the impact of higher UST yields. Gold fell 0.9% overnight to USD 1,734/troy oz while the rest of the precious metals complex also pushed lower.

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