US futures were modestly in the green, reversing an earlier drop in Asian markets as traders awaited signals from central banks in a week full of monetary policy decisions. Europe’s Stoxx 600 benchmark climbed 0.3%, lifted by energy names with oil majors TotalEnergies, BP and Shell among the biggest contributors. As of 7:45am, S&P 500 futures and Nasdaq contracts were both up around 0.1%; crude rallied to a new 10 month high with Brent surpassing $95. The dollar and gold were flat while Bitcoin rose.

In premarket trading, mega-cap Tech names were mostly higher. Keep an eye on AAPL which is reportedly seeing better than expected iPhone demand despite a tepid reception to its announcement a week ago. Block, formerly known as Square, shares fall as much as 1.7% after the digital payments firm said that Alyssa Henry, the CEO of its Square business, is leaving, with Jack Dorsey to take over. Analysts said that the development was a surprise and may add to other concerns about the company, but welcomed Dorsey stepping in to the role. Here are some other notable premarket movers:

• Equinox Gold shares fall 10% after the company agrees to sell $150 million of 4.75% unsecured convertible senior notes due 2028.
• Nio falls 4.4% after reporting proposed offering of $500m of convertible senior notes due 2029 and $500m of convertible senior notes due 2030.
• Rackspace Technology shares are indicated higher after Raymond James upgraded the infrastructure-software company to outperform from market perform, saying its turnaround plan is gaining traction.
• Rocket Lab USA shares fall as much as 19%, after the spacecraft maker said its rocket had experienced an issue shortly after launch, forcing it to end the mission. It also postponed an upcoming mission.

In other news, the UAW set a Friday at 12pm ET deadline for a deal before expanding the strike. Macy’s is said to hire 38k holiday workers vs. 41k in 2022 and 76k in 2021. Today’s macro data focus is on Housing Starts and Building Permits; we'll see if the hard data matches yesterday’s soft data which showed the NAHB Housing Index fall to the lowest level since April.

With the Fed forecast to keep interest rates on hold this week, traders will be focused on the so-called dot plot summary of economic forecasts. The two main questions are whether policymakers will retain their projections for one more 25 basis-point hike by year-end, and how much easing they are penciling in for 2024. In June, they projected one percentage point of cuts.

“The Fed is likely to highlight that in its collective view the fight against inflation has not yet been won and that the FOMC will be highly data-dependent in terms of future rate decisions, leaving the door open for a possible rate hike later in the year,” said Richard Flax, chief investment officer at European digital wealth manager Moneyfarm. “If the Fed sounds a more hawkish tone, we could see a continuation of the higher-for-longer trend that we’ve seen recently, with lower probability of significant rate cuts in 2024.”

Meanwhile, as reported yesterday, crude has soared by about a third since mid-June as Saudi Arabia and Russia joined hands to curb supplies and drive a rebound in prices. That has sustained the pressure on central bankers as they seek to cool inflation, while managing risks to their economies. The Federal Reserve sets policy Wednesday, the Bank of England Thursday and the Bank of Japan Friday.

“Central banks have done a rather good job so far, but there’s little room for manoeuvre now,” said David Kalfon, chief executive officer of Sanso Investment Solutions. “They made clear since the start of the cycle that beating inflation is the key, not growth.”

The prospect of rates staying higher for longer has not only drained some of the enthusiasm toward tech shares, after they led the rally in US stocks earlier this year, but may have popped the AI bubble. Flows suggest investors are positioning for more losses in the Nasdaq 100, according to Citigroup's Chris Montagu who said that Nasdaq futures continued to attract bearish flows last week, leaving positioning heavier on short bets rather than long. That suggests “few investors are comfortable taking a bullish view on the possibility of a near-term reversal for the growth/tech related index,” they wrote in a note dated Sept. 18. The Nasdaq 100 is down about 3.9% from a peak on July 18.

European stocks managed to shrug off opening declines to trade slightly higher. The Stoxx 600 is up 0.2% with real estate, financial services and autos the best performing sectors. Oil majors TotalEnergies SE, BP Plc and Shell Plc were among the biggest contributors as Europe’s Stoxx 600 benchmark climbed 0.3%. Here are Europe's biggest movers:

• Billerud shares gain as much as 9.4%, the most since 2020, after Jefferies upgraded its view on the Swedish paper and packaging firm to buy from hold, quoting year-to-date underperformance and easing wood costs heading into 2024.
• TUI shares rise as much as 6.6% after the package tour operator confirmed it expects underlying Ebit to grow significantly in 4Q and the full fiscal year, as holiday bookings continue to defy the cost-of-living squeeze.
• Ocado shares gain as much as 5% after the UK online grocer reported sales growth in the third quarter. Bernstein said the update shows good progress toward the company’s full-year guidance of mid-single-digit revenue growth.
• Volkswagen rises as much as 3.4%, the best performer in Germany’s DAX index, after Jefferies double-upgrades the shares to buy from underperform, citing the potential for improvements and cost cuts in 2024, as well as the stock’s attractive valuation.
• Avacta shares rise as much as 15% after the UK biotech provided an update to its key AVA6000 trial, saying the “excellent safety profile” of the chemotherapy candidate “continues to be observed in the sixth dose escalation cohort.”
• British Land shares gain as much as 2.6% after UK landlord upgrades retail park ERV growth guidance for FY2024 to 3%-5% from 2%-4% on the back of continued “significant leasing momentum,” according to a statement.
• Kion shares fall as much as 4.1% after an offering of shares from Invesco via Goldman Sachs priced at €35.20 apiece, representing an approximately 5.8% discount to the last close.
• SocGen shares fall as much as 3.3% after the co. suffered rating downgrades from BNP Paribas Exane and HSBC after the French lender’s new CEO failed to win over investors with a new strategic plan on Monday.
• SMCP Shares in France’s SMCP plunged as much as 29% amid huge trading volumes on Monday after the owner of fashion brands Sandro, Maje, Claudie Pierlot and Fursac, cut its 2023 guidance, citing a slowdown in Europe and lower-than-expected Chinese consumption.
• Naked Wines shares drop as much as 10%, the most since July 4, after the online wine merchant said sales fell in the first quarter of the current fiscal year and predicted a decline in revenue for the year. Higher profits have come at the expense of sales, according to Stifel.
• Kingfisher shares fall as much as 7.2% after the home improvement retailer reported first-half results that missed estimates and provided an outlook for the year which was also below expectations. Analysts flagged weakness in Poland during the first half.

Earlier in the session, Asian stocks fell for a second day as traders awaited a slew of major central bank decisions, with  rising inflationary pressure from higher oil prices keeping the door open for hawkish messages. The MSCI Asia Pacific Index dropped as much as 0.4% on Tuesday before closing almost flat, led by technology and health-care shares.

• Hong Kong and mainland Chinese benchmarks traded in a tight range as investors weighed the recent green shoots in economic data against ongoing property sector woes. They are closely monitoring headlines from distressed developers for further clues on their financial health. Sentiment was driven by pressure in tech and mixed fortunes among the property stocks but downside stemmed following further US-China talks and the PBoC’s continued liquidity efforts.
• Japan's Nikkei 225 underperformed as recent losses in the region caught up to the index on return from the holiday closure and with sentiment also dampened with participants second-guessing if BoJ Governor Ueda will lay the groundwork this week for a future exit.
• Australia also slid as traders parsed minutes from the central bank’s September meeting.  The ASX 200 was pressured as weakness in real estate and financials led the declines from early on, while the RBA minutes from the September meeting provided very little in the way of new information.

In FX, the Bloomberg Dollar Spot Index is down 0.1%, the Norwegian krone and the Swedish krona were among the best performers in the Group-of-10 ahead of central bank decisions in both countries on Thursday The pound and euro are flat with the latter showing little reaction to a downward revision to euro area CPI.

• The Australian dollar gained; the Reserve Bank of Australia considered the case for raising borrowing costs this month, according to minutes of the Sept. 5 meeting
• The euro fell for a first day in three after hitting its lowest level since March last week; common currency could be already in mean-reversion mode according to options.

In rates, treasuries are little changed as US trading day begins, with futures near high end of Monday’s ranges, after plying narrow ranges during Asia session and London morning. Volumes and flows remain thin ahead of Wednesday’s Fed policy announcement. Tuesday session includes 20-year bond reopening and housing starts data. Yields across the curve are higher on the day by less than 2bp, 10-year near 4.32%, rising 2bps from Monday's close with bunds and gilts outperforming by 1.5bp and 6bp in the sector; UK bonds outperform in Europe ahead of domestic August CPI due Wednesday. Dollar IG issuance slate includes World Bank 5Y and is expected to grow; 10 issuers sold almost $15b Monday and at least one issuer stood down. Treasury coupon auctions resume with $13b 20-year bond reopening at 1pm New York time; this week also includes a $15b 10-year TIPS reopening Thursday.

In commodities, oil continues to climb with WTI futures up 1.1% at YTD high and approaching $93/bbl while Brent briefly rose above $95 for the first time this year.

Looking to the day ahead now, and data releases include US housing starts and building permits for August, as well as Canada’s CPI for August. Otherwise, central bank speakers include the ECB’s Elderson.

Market Snapshot

• S&P 500 futures little changed at 4,505.25
• MXAP down 0.1% to 162.78
• MXAPJ down 0.2% to 503.25
• Nikkei down 0.9% to 33,242.59
• Topix little changed at 2,430.30
• Hang Seng Index up 0.4% to 17,997.17
• Shanghai Composite little changed at 3,124.96
• Sensex down 0.4% to 67,596.84
• Australia S&P/ASX 200 down 0.5% to 7,196.63
• Kospi down 0.6% to 2,559.21
• STOXX Europe 600 up 0.2% to 457.69
• German 10Y yield little changed at 2.70%
• Euro little changed at $1.0688
• Brent Futures up 0.7% to $95.13/bbl
• Gold spot up 0.0% to $1,934.08
• U.S. Dollar Index down 0.12% to 105.07

Top Overnight News

• Secretary  of State Blinken and Chinese Vice resident Han Zheng sounded conciliatory following a meeting Monday at the UN, the latest sign that relations between the two countries may be modestly thawing. SCMP  
• The world economy is set for a slowdown as interest-rate increases weigh on activity and China's rebound disappoints, the OECD said. Growth will ease to 2.7% in 2024 after an already "sub-par" expansion of 3% this year, according to its latest forecasts. BBG
• Senior Chinese officials were told that an internal Communist Party investigation found ex-Foreign Minister Qin Gang to have engaged in an extramarital affair that lasted throughout his tenure as Beijing’s top envoy to Washington. Qin, once considered a trusted aide to leader Xi Jinping, was stripped of his foreign minister title in July—without explanation—after he disappeared from public view a month earlier. At one point leading up to his ouster, the Foreign Ministry said the absence of 57-year-old Qin was due to health reasons. WSJ
• Japan’s BOJ isn’t expected to make any changes Thurs night, but Ueda will continue to lay the rhetorical groundwork for a further normalization of policy. BBG
• India rejected allegations by Justin Trudeau that its agents were behind the June 18 assassination of a prominent Sikh leader in British Columbia, calling them "absurd and motivated," and moved to expel a Canadian diplomat. The festering ties threaten to derail plans for an early-stage trade deal. BBG
• The UAW warned it will expand its auto workers' strike from noon Friday if "serious progress" isn't made in talks with Ford, GM and Stellantis. The Chrysler parent described resumed negotiations as "constructive," but union leader Shawn Fain told NPR they have a "long way to go." BBG
• Trump plans to skip the next GOP debate on Sept 27 and instead address a crowd in Detroit as the former president looks to inject himself into the UAW strikes. NYT
• McCarthy’s fiscal blueprint, unveiled over the weekend, doesn’t have enough Republican support to make it out of the House (and it was already DOA in the Senate and White House), raising the odds of a shutdown at the end of the month. NYT
• Crude rallied, with Brent tipping over $95. Rising energy costs may cause a significant reversal in US headline inflation, forcing the Fed to act more aggressively. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly lower following the flat performance stateside amid a lack of catalysts and with risk appetite sapped as markets brace for the approaching flurry of central bank meetings. ASX 200 was pressured as weakness in real estate and financials led the declines from early on, while the RBA minutes from the September meeting provided very little in the way of new information. Nikkei 225 underperformed as recent losses in the region caught up to the index on return from the holiday closure and with sentiment also dampened with participants second-guessing if BoJ Governor Ueda will lay the groundwork this week for a future exit. Hang Seng and Shanghai Comp were choppy owing to the pressure in tech and mixed fortunes among the property stocks but with downside stemmed following further US-China talks and the PBoC’s continued liquidity efforts.

Top Asian News

• Chinese Foreign Minister Wang said China and Russia pursue an independent foreign policy and the cooperation between the sides is not aimed at a third party and will not be influenced by a third party. Wang also stated that China and Russia should follow the trend of progress of the times, show their responsibilities as major countries, fulfil their international obligations and strengthen strategic cooperation.
• China summoned the German envoy after German Foreign Minister Baerbock's recently described Chinese President Xi as a dictator on US television, according to SCMP.
• European Commission Vice President Vera Jourova said it is important that China and EU keep communications open including in various degrees where they disagree, while she added China is a partner, competitor and systemic rival for Europe. Furthermore, she added that China's continued economic success requires an attractive investment environment for foreign companies and that the EU does not seek to decouple from China.
• RBA Minutes from the September 5th meeting stated they considered raising rates by 25bps or holding steady and the case for holding steady was stronger, while it added that recent data did not materially alter the economic outlook. Furthermore, it reiterated that some further tightening of monetary policy may be required should inflation prove more persistent than expected.
• Japan ruling LDP senior official Seko says economic stimulus of a minimum of JPY 15tln is needed, and desirably JPY 20tln, according to Jiji press; size of economic stimulus must be around 3% of GDP.

European bourses are in the green, Euro Stoxx 50 +0.2%, though only modestly so with the space struggling to reclaim lost ground from Monday. Sectors are primarily in the green, with outperformance seen in Autos following a double-upgrade to Volkswagen while Retail lags in the red amid pressure in Kingfisher who cut FY guidance. Stateside, futures are in-fitting with European peers in posting a slight positive bias but generally struggling for direction as we await the Fed to kick off a blockbuster week of Central Bank activity; ES +0.2%.

Top European News

• OECD: The world economy is expected to grow by 3.0% in 2023, before slowing down to 2.7% in 2024. A disproportionate share of global growth in 2023-24 is expected to continue to come from Asia, despite the weaker-than-expected recovery in China.
• BoE's Woods (FPC/PRC) says we are seeing a pick-up in impairments across the financial sector from a very low base, interested in banks' exposure to the Chinese property sector.

FX

• Buck continues to buckle in the build-up to FOMC and a host of other Central Bank confabs, DXY edges closer to 105.000 within incrementally lower 105.210-010 range.
• Kiwi, Loonie and Aussie elevated amidst strength in underlying commodities, NZD/USD comfortably above 0.5900 pre-NZ current account data, AUD/USD probing 0.6450 post-hawkish RBA minutes and USD/CAD sub-200 DMA awaiting Canadian CPI.
• Sterling, Euro and Yen all hovering near big figures vs. Dollar, at 1.2400, 1.0700 and 148.00 respectively.
• PBoC set USD/CNY mid-point at 7.1733 vs exp. 7.2839 (prev. 7.1736)

Fixed Income

• Bonds bounce broadly, but not uniformly as the countdown to Central Bank-fest continues.
• Gilts outperform mainstream peers within 95.46-94.94 range pre and post-well received 2053 DMO sale.
• Bunds toppy above 130.00 between 130.10-129.80 parameters and T-note lags in tight 109-20/14 band awaiting US housing data, 20 year supply and the start 2-day Fed meeting.

Commodities

• WTI and Brent November futures remain on a positive footing after settling firmer on Monday with known fundamentals keeping the complex underpinned.
• However, following the OECD downgrades to 2024 growth views for numerous key economies including the EZ, Germany, UK & China some pressure has been seen across the commodity space; currently, WTI and Brent are firmer by circa. USD 0.50/bbl, having trimmed by a similar magnitude from earlier highs which saw Brent eclipse USD 95.00/bbl.
• Spot gold is essentially unchanged on the session given the USD remains contained overall but has been somewhat choppy within the current bounds, yellow metal continues to trade on either side of the 50-DMA at USD 1931/oz.
• Base metals are pressured given APAC losses and with further pressure emanating from the mentioned OECD forecasts.

Geopolitics

• G7 Foreign Ministers meeting chair Japan said Russia must withdraw its troops and military equipment from the internationally recognised territory of Ukraine immediately, completely and unconditionally, while G7 members condemned Russia for staging sham elections in illegally occupied territories of Ukraine and will never recognise Russia's illegitimate claims. G7 reiterated the call on third parties to cease any and all assistance to Russia's war of aggression or face severe costs and it called on China to press Russia to stop its military aggression and immediately withdraw its troops from Ukraine.
• Russian and Chinese Foreign Ministers noted the 'futility' of attempts to resolve the Ukraine crisis without due account for Russian interest and participation, while they also noted the closeness of their positions on the anti-Russian and anti-Chinese character of US actions in international affairs, according to Reuters.
• US State Department said following a meeting between Secretary of State Blinken and Chinese Vice President Han that the sides had a candid and constructive discussion. Furthermore, they exchanged views on Russia's war in Ukraine and North Korea's provocative actions, while Blinken underscored the importance of peace across the Taiwan Strait, according to Reuters.
• US, Japan and South Korea officials shared concerns that Russia-North Korea cooperation may have a negative impact on peace and stability in the Indo-Pacific, according to Japan's Foreign Ministry.
• South Korean Foreign Ministry announced the successful transfer of Iran's frozen funds to a third country and hopes that this will lead to the development of bilateral ties, according to Reuters.
• White House said it was deeply concerned about allegations made by Canadian PM Trudeau regarding the killing of a Sikh leader and it is critical that Canada's investigation proceed and perpetrators are brought to justice. Furthermore, India's government said allegations of Indian government involvement in any act of violence in Canada are absurd and motivated, while it added that allegations made by Canadian PM Trudeau to PM Modi regarding India's involvement in any act of violence in Canada were completely rejected, according to Reuters.
• IAEA says negotiations with Iran are not progressing as quickly as required, according to Al Arabiya.
• Azerbaijan's Defence Ministry has started "anti-terrorist" operations in Karabakh, according to Tass; "Large fighting begins near Stepanakert in Nagorno-Karabakh as Azerbaijan announces start of operation", according to ELINT News.

US Event Calendar

• 08:30: Aug. Housing Starts MoM, est. -0.9%, prior 3.9%
• 08:30: Aug. Housing Starts, est. 1.44m, prior 1.45m
• 08:30: Aug. Building Permits MoM, est. -0.2%, prior 0.1%
• 08:30: Aug. Building Permits, est. 1.44m, prior 1.44m, revised 1.44m

DB's Jim Reid concludes the overnight wrap

The overarching narrative behind the trilogy is that the financial world experienced a unique golden era during 1980-2020, but that the trends that enabled this super-cycle are set to reverse going forward. The pandemic accelerated this process, but we think those forces would likely have arisen in the 2020s regardless. For instance, inflation is back in a way we haven’t experienced in a generation, and there’s been a rapid rise in real yields over the last couple of years as well. All this is going to severely constrain the ability of policymakers to manage the business cycle. As a result, we think there’s going to be a higher frequency of recessions over the coming years and decades.

The second half of the study includes our updated multi-asset class returns across numerous DM and EM countries going back over 200 years where possible. We review the decade so far, which for bonds and 60/40 portfolios is up there with the worst on record. Commodities are outperforming, whilst equities are mixed depending on the country. For instance, US, Japanese and Indian bourses are outperforming history and leading the way. But others are still down over the 2020s in real terms.

From 300-plus years of history to the last 24 hours and the main story as we start the big central bank week has been the relentless rise in oil prices over recent weeks, with yesterday seeing Brent Crude climb a further +0.66% to $94.55/bbl. That’s its highest closing level in over 10 months, and comes on the back of 3 consecutive weekly gains which have shown no sign of stopping yet. This morning in Asia we're up another +0.75% to over $95/bbl. The recent rises are already filtering through into retail gasoline prices, with the US daily average from the AAA at an 11-month high of $3.88/gallon on Sunday.

Given those fresh signs of inflationary pressures, investors moved to price in that interest rates would remain higher for longer into 2024. For instance, the rate priced in for the Fed’s June 2024 meeting hit a new high for this cycle at 5.16%, suggesting that investors don’t expect much in the way of cuts anytime soon. It was the same story for other central banks, with the June 2024 rate for the ECB (+7.9bps) and the BoE (+2.2bps) also moving higher. Remember that we’ve got the Fed’s decision tomorrow, the Bank of England on Thursday, and then the Bank of Japan on Friday, so this is an important week in mapping out the path towards year-end, and how far they want to keep tightening policy.

In turn, that helped spark a decent sell-off amongst most sovereign bonds. In Europe, yields on 10yr bunds were up +3.1bps to 2.70%, whilst those on 10yr OATs (+3.1bps), BTPs (+4.9bps) and gilts (+3.2bps) also moved higher. Over in the US, the 2yr Treasury yield (+2.0bps) closed at 5.055%, which is just the 3rd time in this cycle it’s closed above the 5.05% mark. Meanwhile, the 10yr yield bucked the global trend and was down -3.0bps to 4.30% after flirting with August’s post-2007 intra-day highs and above 4.35% early in the US session.

For equities, this pattern of heavier losses in Europe and a steady US performance was also evident. In fact, the STOXX 600 (-1.13%) saw its worst daily performance in over a month, and there were heavy losses for the DAX (-1.05%), the CAC 40 (-1.39%) and the FTSE 100 (-0.76%) as well. But in the US, the S&P 500 (+0.07%) managed to eke out a very small gain, aided by a strong outperformance from energy stocks (+0.68%). Tech stocks saw a mixed day, with the IT sector outperforming within the S&P 500 (+0.47%) but with the Magnificent Seven mega cap index down -0.19% after a -3.32% fall for Tesla. Small caps underperformed, with the Russell 2000 index (-0.69%) falling to its lowest since June.

Overnight in Asia, Japan is leading the declines across major indices with a -0.96% drop in the Nikkei after it returns from holiday. China’s CSI 300 is also weaker (-0.23%) this morning but sentiment for the Hang Seng is slightly better (+0.02%). S&P 500 futures are flat and 10y Treasury yields are up +0.6bps.

There was little in the way of economic data yesterday. But in the US, we did get the NAHB’s housing market index, which fell more than expected to 45 (vs. 49 expected). Housing is an interesting sector, as it’s one of the most sensitive to changes in interest rates, and this index declined in every single month of 2022. At the start of 2023, it then recovered for 7 months in a row, but the last two months have seen two further declines, with the index at a 5-month low amidst higher long-term interest rates.

To the day ahead now, and data releases include US housing starts and building permits for August, as well as Canada’s CPI for August. Otherwise, central bank speakers include the ECB’s Elderson.