Mostly positive trade, as participants continue to second-guess the Fed - Newsquawk Europe Market Open

• APAC stocks were mostly positive but with gains capped as participants continued to second-guess the magnitude of the looming Fed rate cut, while markets in Mainland China, Taiwan and South Korea remained closed for holidays.
• Money markets now price in a 67% probability of a 50bps Fed rate cut on Wednesday vs the 48% probability seen on Friday, via Reuters.
• US and Japan are nearing a deal to curb chip technology exports to China, according to FT.
• European equity futures are indicative of a positive cash open with the Euro Stoxx 50 future +0.4% after the cash market closed lower by 0.3% on Monday.
• Looking ahead, highlights include German ZEW Sentiment, US Retail Sales, Canadian CPI, US Industrial Production, Business Inventories, NZ Current Account, Comments from ECB’s Elderson, Fed’s Logan & BoC’s Rogers, Supply from the UK & US.

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US TRADE

EQUITIES

• US stocks were mixed with most indices and sectors in the green, while the Nasdaq closed in the red due to Tech weakness which was led by downside in Apple (AAPL) on lower-than-expected pre-order sale analysis. Furthermore, treasuries ultimately bull flattened after a stronger NY Fed Manufacturing Survey reversed the earlier steepening induced by former NY Fed President Dudley who reiterated calls for a 50bps cut and thinks that the Fed will conduct such a move at the upcoming rate decision this week, while money markets now price in a 67% probability of a 50bps rate cut on Wednesday vs the 48% probability seen on Friday.
• SPX +0.13% at 5,633, NDX -0.47% at 19,423, DJIA +0.55% at 41,622, RUT +0.31% at 2,189
• Click here for a detailed summary.

NOTABLE HEADLINES

• WSJ's Timiraos wrote "Fed Prepares to Lower Rates, With Size of First Cut in Doubt: The central bank usually prefers to move in increments of a quarter point. This time, it’s complicated" which noted the decision whether to cut by 25bps or 50bps will come down to how Powell leads his colleagues through a finely balanced set of considerations, while he added that data over the past months showed inflation resumed a steady decline to the 2% goal but the labour market has cooled.
• Teamsters President said the union could make a decision on the Presidential endorsement as early as Wednesday.

NOTABLE US EQUITY UPDATES

• Microsoft (MSFT) announced a quarterly dividend increase of 10% to USD 0.83/shr and a new USD 60bln share repurchase program.
• Vista Equity and Blackstone (BX) are reportedly nearing a deal to buy Smartsheet (SMAR) for around USD 56/shr, or nearly USD 8bln.

APAC TRADE

EQUITIES

• APAC stocks were mostly positive but with gains capped as participants continued to second-guess the magnitude of the looming Fed rate cut, while markets in Mainland China, Taiwan and South Korea remained closed for holidays.
• ASX 200 marginally edged higher and printed a fresh intraday record high with early advances led by real estate and tech.
• Nikkei 225 suffered on return from the long weekend and fell beneath 36,000 amid headwinds from the recent currency strength.
• Hang Seng shrugged off early cautiousness and gradually climbed higher ahead of the Mid-Autum Festival in Hong Kong, while Midea Group's H shares surged over 8% on its Hong Kong debut following Hong Kong's largest IPO in three years.
• US equity futures lacked firm direction as participants await the upcoming central bank policy announcements.
• European equity futures are indicative of a positive cash open with the Euro Stoxx 50 future +0.4% after the cash market closed lower by 0.3% on Monday.

FX

• DXY lacked direction after yesterday's selling pressure as money markets priced in greater chances of a more aggressive 50bps Fed rate cut this week.
• EUR/USD held on to the majority of recent gains north of the 1.1100 level, while there were recent comments from ECB officials including Kazaks who said interest rates will continue to be lowered and there is no big reason to disagree with the rate bets for 2025.
• GBP/USD paused overnight and sat just above the 1.3200 level with light catalysts for the UK ahead of tomorrow's CPI data and Thursday's BoE.
• USD/JPY was choppy as the pair initially clawed back some of its recent losses but then drifted lower alongside the risk-off mood in Japan, before rebounding again.
• Antipodeans traded steadily amid a quiet calendar but held on to most of the spoils from the prior day's outperformance in cyclical currencies.

FIXED INCOME

• 10yr UST futures were little changed following the prior day's bull flattening as bets for a 50bps Fed rate cut ramped up and NY Fed Manufacturing topped forecasts.
• Bund futures took a breather after Monday's whipsawing and reclaim of the 135.00 status, while the attention turns to ZEW data.
• 10yr JGB futures mildly strengthened on return from the holiday closure amid underperformance in Japanese stocks.

COMMODITIES

• Crude futures remained underpinned after climbing yesterday on the back of a softer dollar but with gains capped by a lack of energy-specific catalysts.
• BSEE reported that 12% of oil production and 16% of natural gas production in the US Gulf of Mexico is shut in the aftermath of Francine.
• Spot gold traded sideways near record levels with participants unwilling to commit heading closer to the FOMC rate decision.
• Copper futures were rangebound amid the somewhat mixed mood in Asia and the continued absence of the largest buyer.

CRYPTO

• Bitcoin was slightly pressured and briefly dipped beneath the USD 58,000 level before reversing most of the earlier declines.

NOTABLE ASIA-PAC HEADLINES

• US and Japan are nearing a deal to curb chip technology exports to China, according to FT.
• Japanese Finance Minister Suzuki said FX fluctuations have both merits and demerits on Japan's economy, while they will respond appropriately after analysing the impact of FX moves. Furthermore, he reiterated that rapid FX moves are undesirable and it is important for currencies to move in a stable manner reflecting fundamentals.

DATA RECAP

• Singapore Non-Oil Exports MM (Aug) -4.7% vs. Exp. -3.3% (Prev. 12.2%)
• Singapore Non-Oil Exports YY (Aug) 10.7% vs. Exp. 15.0% (Prev. 15.7%)

GEOPOLITICS

MIDDLE EAST

• US Secretary of State Blinken will travel to Egypt today for US-Egypt strategic dialogue.
• Iran's nuclear chief said his discussions with the IAEA Director General were good and marked a step forward, while he added that Iran's relations with the agency remain stable and will not be undermined by psychological pressure.

OTHER

• North Korea's Foreign Minister travelled to Russia, according to KCNA.
• Two Chinese Coast Guard ships arrived in Russia's Port of Vladivostok for joint drills, according to RIA.

EU/UK

NOTABLE HEADLINES

• ECB's Kazaks said rates will continue to be lowered and there is no big reason to disagree with the rate bets for 2025.
• French President Macron is in talks with the European Commission to carve out a new, more powerful position for France in a plan that plan would make France's outgoing Foreign Minister Stephane Sejourne an executive vice president in the commission, according to Bloomberg.