China’s government announced export controls on rare earth materials.
Hamas-Israel agreed to a Gaza ceasefire deal; conflicting reports whether the ceasefire is in effect, though the Israeli Deputy Foreign Minister confirmed that it is.
European bourses are mixed whilst US equity futures trade around the unchanged mark.
DXY grinds higher amid continued NZD losses and a heavy GBP.
OATs outperform as the odds of fresh legislative elections diminish, USTs await Fed speak.
Crude benchmarks slightly higher despite Gaza ceasefire deal, XAU takes a breather.
Looking ahead, New Zealand Manufacturing PMI, ECB Minutes (Sep), Eurogroup Meeting, Banxico Minutes, Speakers including, ECB’s Lane, BoC’s Rogers, Fed Chair Powell, Bowman, Barr & Kashkari, Supply from US, Earnings from Delta Air & PepsiCo.
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TARIFFS/TRADE
US President Trump’s administration is reportedly planning to exclude generics from the big pharma tariff plan, although the decision isn’t final and could change, according to WSJ.
Canadian PM Carney said there will be some bilateral deals alongside the USMCA
China’s government announced export controls on rare earth materials with MOFCOM stating that foreign firms and individuals must obtain a dual-use items export license regarding rare earth exports, while domestic exporters exporting some dual-use items shall declare the final destination country or region as required, with requirements taking effect from December 1st. Furthermore, it stated that exports of items for design, development, production or use of weapons of mass destruction will not be approved and export applications to overseas military users, as well as to importers and end-users on watch lists, shall not be approved in principle.
Vietnam said negotiators are to travel to the US in October and November to continue trade talks.
EUROPEAN TRADE
EQUITIES
European bourses (STOXX 600 -0.2%) opened mostly on a firmer footing, but sentiment has slipped a touch to display a bit more of a mixed picture in Europe.
European sectors are mixed. Telecoms and Basic Resources takes the top spot, with the latter boosted by a few broker upgrades from within the sector alongside strength in underlying metals prices. Banks are found towards the foot of the pile, with losses in HSBC (-6.4%) driving the sector lower after it proposed to privatise Hang Seng Bank. Elsewhere, Lloyds (-2.9%) dips after the Co. warned of a “material” hit related to the FCA’s latest motor finance ruling.
US equity futures (ES U/C NQ U/C RTY -0.2%) are trading very modestly lower/flat across the board after closing broadly higher in the prior session.
China’s Commerce Ministry has added 14 foreign firms to unreliable entity list; China adds BAE Systems (BA/ LN) and AeroVironment (AVAV) to its unreliable entity list.
Acer (2353 TT) September (TWD): Revenue 29.5bln, +35.4% M/M, +12.2% Y/Y, the highest in 11 years.
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FX
A fourth session of gains for the broader USD and index, this time with a lending hand from GBP weakness (more below), as well as ongoing losses in the NZD following the 50bps jumbo rate cut delivered by the RBNZ yesterday. The macro narrative surrounding the US remains a downbeat one as the government shutdown continues to drag on, delaying economic data releases and threatening a hit to domestic growth, with today’s weekly Jobless Claims also shelved for now. DXY prints on either side of 99.00 and eclipsed Wednesday’s peak (99.06).
EUR/USD is subdued but to a lesser extent than some peers, with some degree of certainty arising on the French political front, with news that French President Macron will name a new PM in the next 48 hours and said there is a possible path to a budget by December 31st. Polymarket odds point to a 32% chance of a French election being called by the end of the month, vs a c. 70% probability yesterday morning, according to ING. On the data front, Germany printed a larger trade surplus than expected, although imports and exports contracted. This follows a string of woeful German data, with German Industrial Output and Industrial Orders this week falling well short of consensus. Focus now turns to the ECB Minutes later.
USD/JPY tilts higher amid Dollar strength and following rangebound APAC trade amid a pause from the recent Takaichi-related advances, with her economic measures and PM nomination said to likely be delayed. USD/JPY has climbed as high as 153.22, with focus now on whether the pair begins to approach 155.
GBP is among the laggards, despite limited newsflow before comments from BoE’s Mann. Initial losses were seemingly driven by technicals as GBP/EUR fell under 1.1500. BoE’s Mann stuck to her stance, arguing that “policy needed to remain restrictive for longer, both to squeeze out inflation persistence”. Little reaction was seen on the comments.
Antipodeans are subdued with little notable influence from China’s return from the National Day Golden Week holiday, whilst the Kiwi underperformed and is still feeling the hangover from the RBNZ on Wednesday.
PBoC set USD/CNY mid-point at 7.1102 vs exp. 7.1484 (Prev. 7.1055)
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FIXED INCOME
A contained start to the day for USTs. Newsflow has been light aside from last night’s FOMC Minutes being digested and the ongoing geopolitical situation around Hamas – see the feed for analysis. The above aside, the US docket is once again devoid of data owing to the shutdown, which still continues with no end in sight. As such, the main focal point is the heavy speakers docket headline by Chair Powell; from Powell, we do expect a text release, though this will be pre-recorded welcoming remarks, no Q&A expected. Texts also due from Bowman (voter), Goolsbee (2025), Barr (voter). As it stands, USTs are in a very narrow 112-18 to 112-24+ band and entirely within Wednesday’s 112-17 to 112-27 confines.
OATs are awaiting the announcement from President Macron on who the next PM will be, an update on this is expected by the end of Friday but there is no specific time for this yet. Politico reports that Jean-Louis Borloo has come to their attention as a potential candidate for French PM, as he can “speak to the left,” “embody a depresidentialized government,” and be “not as openly a lieutenant of Emmanuel Macron”, Politico surmises. Ahead of this, OATs are outperforming peers with gains of c. 20 ticks at most. Upside that appears to be a function of the diminished odds of legislative elections in the near term and signs of some cooperation between parties. Given this, the OAT-Bund 10yr yield spread is holding just beneath 83bps, vs the 88.2bps seen in recent sessions.
Drifting throughout the European morning. Down to a 128.79 low with downside of c. 12 ticks at most. While marginally underperforming its peers, the benchmark remains clear of Wednesday’s 128.49 base. Pressure potentially a function of the updates on Germany’s automobile situation. As the nation has agreed on EUR 3bln worth of EV incentives, an agreement that comes ahead of a meeting at 14:00BST on the subject. While we don’t yet know how the incentives will be financed, the prospect of additional issuance is potentially weighing on the space.
Gilts opened lower by 13 ticks before slipping one more to a 90.65 trough, a point that the benchmark has remained around since. UK-specific newsflow light. No move to a text release from BoE’s Mann that stuck to her known hawkish bias. Overall, the complex is under modest pressure but is broadly in-fitting with EGB peers as we await a fresh catalyst.
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COMMODITIES
Crude benchmarks trade rangebound as the European session got underway, as Hamas and Israel agreed to the first part of the Gaza ceasefire. Despite today being the day of the ceasefire, Israel continues to raid the Gaza Strip; sources citing Netanyahu’s office said, “the ceasefire will come into effect only after the government approves it”, according to Al Jazeera. The Israeli cabinet is to meet at 15:00 BST. Though most recently Bloomberg reported, citing the Israeli Deputy Foreign Minister that the ceasefire is in effect.
Spot XAU is taking a breather this morning as the yellow metal formed a new ATH at USD 4059/oz in yesterday’s session. The metal fell down to USD 4k/oz during the APAC session as the Gaza ceasefire eased geopolitical tensions and dollar strengthening following the hawkish Fed minutes.
Base metals extend higher as Chinese markets re-open following a week-long holiday. 3M LME Copper dipped to a low of USD 10.59k/t before reversing c. USD 280/t higher as China announced export controls on rare earth materials. Within the announcement, foreign firms and individuals must obtain a dual use items export licence to export rare earth materials. This is to come into effect on December 1st.
Britain’s energy grid operators are confident of sufficient electricity and gas supply this winter, while peak British day gas demand is seen at 182 MCM this winter vs. peak supply of 565 MCM.
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NOTABLE DATA RECAP
UK RICS Housing Survey (Sep) -15.0 vs. Exp. -18.0 (Prev. -19.0, Rev. -18)
German Trade Balance, EUR, SA (Aug) 17.2B vs. Exp. 15.2B (Prev. 14.7B); Exports MM SA (Aug) -0.5% vs. Exp. 0.3% (Prev. -0.6%); Imports MM SA (Aug) -1.3% vs. Exp. -0.5% (Prev. -0.1%)
NOTABLE EUROPEAN HEADLINES
German coalition agrees to EUR 3bln in EV incentives through 2029, Chancellor Merz adds that they are aiming for an accord on the combustion ban by Thursday.
Jean-Louis Borloo has come to the attention of Politico as a potential candidate for French PM Politico writes “Jean-Louis Borloo could fit the composite portrait drawn up overnight by a Macronist strategist: he could “speak to the left,” “embody a depresidentialized government,” and be “not as openly a lieutenant of Emmanuel Macron” as Sébastien Lecornu. Put more trivially by an advisor who got wind of the idea: “He won’t go and ask the PR for permission to pee.””
BoE’s Mann says “the risks to the outlook for the UK economy are two-fold. Inflation remains persistently persistent and the outlook for growth remains modest”. “This assessment of risks to consumption is set against a background of persistently high inflation, and drifting household inflation expectations. Neither are target-consistent”. “For the first theme, inflation and consumer scarring, the research shows that the rapid increase in the price level has scarred consumers, even as inflation has moderated and real income growth resumed”.
NOTABLE US HEADLINES
Fed’s Williams (Voter, Neutral) supports further rate cuts; does not think the US economy is on the verge of a recession, via NYT. “Tariffs have boosted inflation by maybe a quarter of a percentage point, up to a half point, in terms of the price level”. “The most recent indicators for September…are consistent with a gradual cooling overall in the labor market and not one that is showing any acceleration”. “I think we have a reasonably good picture of what’s happening, especially around the things that matter the most to us, which is maximum employment and price stability”. “Even with this modestly restrictive policy, I see a modest cooling of the labor market and a modest cooling of inflation”. “… own view is that yes, we would have lower rates this year, but we’ll have to see exactly what that means”. “My basic view is that we are on a journey back toward neutral.” and “In my view, the neutral interest rate is still relatively low, probably somewhat below 1%”.
US President Trump said most workers will get back pay and noted they want to make Obamacare better, while he stated that military personnel will probably be paid during the shutdown. Furthermore, it was separately reported that White House officials said President Trump is mulling shifting funds to pay troops, according to POLITICO.
Democratic bill to end US government shutdown failed to win enough votes to pass in the Senate, while the Republican bill to end the US government shutdown also failed to win enough votes to pass in the Senate.
US House Minority Leader Jeffries said he supports an effort to pass a standalone bill to pay military troops.
US IRS is to furlough 34k employees as part of the government shutdown.
BofA card spending, week to Oct 4th: 2.2% Y/Y (prev. 2.2%).
GEOPOLITICS
MIDDLE EAST – EUROPEAN DAY
Kann News, on the Israel-Hamas deal in the Israeli government, states that a clear majority in the government is expected. National Security Minister Ben-Gvir and Finance Minister Smotrich are expected to vote against – but not to resign.
Israeli security cabinet and government meeting on agreement delayed to 17:00 local time (15:00BST), according to Reuters citing sources.
“Israeli Raid on Gaza Strip”, according to Sky News Arabia.
Gaza ceasefire agreement goes into effect, via Al Qahera.
Israeli PM Netanyahu’s office confirms that PM Netanyahu will convene the government on Thursday to approve the Gaza agreement, while an Israeli government spokesperson said they expect hostages to start being released on Saturday. Furthermore, Yedioth Ahronoth quoted Israeli officials stating that the Gaza agreement will be signed on Thursday and the first release will be either Saturday or Sunday, while it was later reported that the ceasefire will come into effect today at 12:00 noon (10:00BST/05:00EDT).
Hamas said an agreement was reached to end the Gaza war, secure an Israeli withdrawal and for a hostage-prisoner swap, while it called on US President Trump and guarantor states to ensure Israel implements the Gaza ceasefire deal.
Qatar Foreign Ministry spokesperson noted that mediators said an agreement was reached on all terms of the first phase of the Gaza ceasefire, while the Gaza ceasefire is to include an end of the war, the release of Israeli hostages and Palestinian prisoners, as well as entry of aid. Furthermore, the spokesperson said the details of the Gaza ceasefire agreement are to be announced later.
US President Trump previously said he may go to the Middle East by the end of the week, maybe on Sunday, while he separately commented that he will most likely be going to Egypt. It was also reported that the White House said President Trump will get a routine yearly check-up on Friday and is considering going to the Middle East shortly thereafter.
US Special Envoy Witkoff and White House Kushner is to travel to Israel on Thursday night, via Israeli Media.
US President Trump announced that Israel and Hamas have both signed off on the first phase of the peace plan which means that all of the hostages will be released very soon, and Israel will withdraw their troops to an agreed upon line as the first steps towards a strong, durable, and everlasting peace. Trump also said he believes Iran will be part of the peace situation and that he spoke with Israeli PM Netanyahu, while he thinks Gaza will be rebuilt and that hostages will probably be released on Monday. In relevant news, Trump told Axios’s Ravid in a phone call that he is likely going to Israel in the coming days and would possibly speak in front of the Knesset, which he will definitely do if they want him to.
MIDDLE EAST – OVERNIGHT
“Channel 12 quoted sources in Netanyahu’s office: The ceasefire will come into effect only after the government approves it”, according to Al Jazeera.
OTHER
Taiwan Defence Ministry report stated that China is using hybrid warfare to weaken people’s trust in the government and support for defence spending, while it added that China is increasing its grey zone attacks and frequency of military activities. Furthermore, it stated that China has been using AI tools to scan weak points in Taiwan’s critical infrastructure and steal and analyse intelligence, as well as noted that China is using botnet cyber-attacks with AI to weaken Taiwan’s digital infrastructure and cybersecurity.
UN is to slash a quarter of peacekeepers globally due to lack of funding, according to a senior UN official.
Ukraine President Zelenskiy says Russian forces aim to urgently capture eastern city of Pokrovsk, Ukrainian strikes against Russia may lead to gasoline shortages of up to 20%, US and Russia ‘have no shared perspective’ on war.
Kremlin spokesperson Peskov says the dialogue between Russia and the USA have been put on a “serious pause”, via CGTN Europe.
CRYPTO
Bitcoin is a little lower and trades just shy of the USD 122k mark, with Ethereum underperforming and down to USD 4.35k.
APAC TRADE
APAC stocks were predominantly higher following the tech rebound stateside, where the S&P 500 and NDX notched fresh record levels, while participants were encouraged by an agreement on the first phase of a Gaza ceasefire deal, and with Chinese traders returning from the National Day Golden Week holiday.
ASX 200 eked mild gains with strength in mining and materials, while tech and the top-weighted financial industry lagged.
Nikkei 225 resumed its recent rally with the ascent spearheaded by tech advances following the strength in US counterparts.
Hang Seng and Shanghai Comp were somewhat mixed as the Hong Kong benchmark took a backseat to the Mainland Chinese markets, which reopened for the first time this month, while there were also divergences between some banks as Hang Seng Bank was the biggest gainer after jumping more than 26% and with HSBC in the red after proposing to take the former private.
NOTABLE ASIA-PAC HEADLINES
Former BoJ Deputy Governor Wakatabe said the BoJ can raise interest rates if inflation expectations heighten and push up underlying inflation, but added the BoJ will likely find it hard to justify raising rates this year due to prospects of weak Q3 GDP. Furthermore, he said the BoJ has not committed to a set timing for raising rates and has not dropped any signals, while he stated the BoJ must coordinate policy with the government, but does not need to keep rates low solely to fund government spending.
Chinese Commerce Ministry announces export control on some rare earth equipment materials; adds new rare earth elements to list. Announces additional export control on items related to Lithium batteries and Artificial Graphite anode materials. Export control on items related to super hard materials. Export control on some medium and heavy rare earth-related items. List includes rare earth materials and machinery for export control.
Adviser to Japan’s new LPD leader Takaichi, Honda, says the BoJ should be cautious about raising interest rates; unclear when the next rate hike would be, but Takaichi is likely to be cautious. USD/JPY is unlikely to rise above 155 as inflation expectations remain cautious. Weak JPY is positive for the economy when in the recovery phase.
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