European markets steady despite US bank worries and France downgrade

EU mid-market update: European markets steady despite US bank worries and France downgrade; AWS outage permeates across world.

Notes/observations

– Sentiment more composed this morning after last week concerns that focused on fraud and loan losses at US regional banks, as credit risk fears came to the surface. EU bourses and US futures steadily in green as VIX drops.

– Euro gained slightly after S&P cut France’s rating to A+ from AA-, a move mostly priced in; Analysts warn fiscal risks persist. Italy was upgraded by Morningstar DBRS to A (low) on fiscal progress.

– Following reasonably robust China Q3 GDP and beat in Sept industrial production, HSBC expects modest Q4 improvement in China’s economy from services and infrastructure growth. US-China talks in Malaysia may set up a presidential meeting.

– Sterling eased ahead of the Nov 26th budget and inflation data, with possible tax hikes seen dampening growth.

– Oil extended losses on oversupply fears; Gold and industrial metals rose. During Friday’s tense meeting, Trump reportedly told Zelenskiy he was “losing the war” and echoed Putin’s arguments, claiming Russia’s economy was “doing great” while urging Kyiv to accept Moscow’s proposal. Though he later endorsed freezing the conflict along current front lines-rebuffing Putin’s demand for full control of Donetsk-the exchange underscored Trump’s growing alignment with Kremlin talking points.

– Trump’s escalating military posture near Venezuela signals a shift from coercive diplomacy to active regime-pressure. The buildup is designed to convince President Maduro and his circle that clinging to power could invite targeted U.S. strikes, even as hawkish advisers like Marco Rubio and Susie Wiles eclipse earlier negotiators.

– Amazon Web Services (AWS) outage in US-East region has caused global issues across a plethora of platforms and services, from AI platforms, to social media to gaming to news/media and email. Latest has Amazon claiming to have found root issue.

– OpenAI’s momentum is entering a consolidation phase just as its financial ambitions hit the trillion-dollar mark. According to Apptopia data cited by TechCrunch, global daily active user growth for ChatGPT has flattened, with October tracking an 8.1% m/m drop in new download growth, while average time per user in the U.S. has fallen 22.5% since July and sessions per user are down 20.7%.

– Notable EU corp news: Kering and L’Oréal struck a €4B fragrance and beauty partnership including 50-year licenses for Gucci, Bottega Veneta and Balenciaga. B&M fell 13% on accounting errors.

– Asia closed higher with Nikkei225 outperforming +3.5%. EU indices -0.1% to +1.3%. US futures +0.2-0.3%. Gold +0.1%, DXY 0.0%; Commodity: Brent -0.3%, WTI -0.3%; Crypto: BTC +3.5%, ETH +3.4%.

Asia

– China Q3 GDP Q/Q: 1.1% v 0.8%e; Y/Y: 4.8% v 4.7%e; GDP YTD Y/Y: 5.2% v 5.1%e.

– China Sept Retail Sales Y/Y: 3.0% v 3.0%e v.

– China Sept Industrial Production Y/Y: 6.5% v 5.0%e.

– China PBOC Monthly Loan Prime Rate (LPR) Setting left both 1-year and 5-year LPR unchanged at 3.00% and 3.50% respectively (as expected).

– China Sept Fixed Urban Assets YTD Y/Y: -0.5% v +0.1%e.

– China Sept Surveyed Jobless Rate: 5.2% v 5.3%e.

– China Sept Property Investment YTD Y/Y: -13.9% v -13.1%.

– China Sept New Home Prices M/M: -0.41% v -0.30% prior.

– New Zealand Q3 CPI Q/Q: 1.0% v 0.9%e; Y/Y: 3.0% v 3.0%e.

– BOJ’s Takata (hawkish dissenter) stated that would not act to constrain rate hikes in Japan. Initial fear over impact of tariff has diminished; now is prime opportunity to raise policy rate.

– Japan Ishin Party’s Yoshimura noted that it mostly agreed on conditions with LDP to form coalition. Parliamentary vote to choose PM scheduled for Tuesday.

Taiwan

– China President Xi said to sent message to newly elected Taiwan opposition leader Cheng Li-wun and called for efforts to advance reunification.

Global conflict/tensions

– Pres Trump’s military build-up off the coast of Venezuela said to eb aimed at convincing President Maduro and his inner circle that staying in power will be more costly than leaving.

– IDF begun a wave of attacks against Hamas targets in southern Gaza as both sides accuse each other of breaching ceasefire: Israel claimed terrorist fired on their troops in Rafah (**Note: Pres Trump: Gaza ceasefire still in effect).

– Trump said to have told Zelenskiy he was losing the war, warning: “If Putin wanted it, he would destroy you”; Trump also reportedly said that Russia’s economy is “doing great”, in a sharp contrast to his recent public remarks. Did not discuss Ukraine ceding Donbas region to Russia; region should stay as it is now with Russia having ~ 78% of it.

– VP Vance: Pres Trump hasn’t made decision yet on giving Tomahawks to Ukraine.

Europe

– S&P cuts France sovereign rating to A+ from AA-.

– Canadian ratings agency DBRS raises Italy sovereign rating at (low) from BBB (high); outlook stable; Outlook stable (unscheduled action; third downgrade this fall).

– UK Oct Rightmove House Prices M/M: 0.3% v 0.4% prior; Y/Y: -0.1% v -0.1% prior.

– Bundesbank/ECB Nagel said Europe needs to act in a more offensive way to protect own interests in trade dealings with China.

Trade

– President Trump: Believed China would make a deal on soybeans; Wants China to buy same amount of soybeans as they were pre-tariffs. Did not want China to play rare earth ‘game’ with US.

– China said to have replaced trade negotiator Li Chenggang at WTO/UN after public criticism from US Tsy Sec Bessent ((*Note: Bessent to meet his China counterparty VP He Lifeng next week in Malaysia to discuss rare earths).

Speakers/fixed income/FX/commodities/erratumEquities

Indices [Stoxx600 +0.51% at 569.14, FTSE +0.34% at 9,386.60, DAX +0.95% at 24,073.49, CAC-40 -0.13% at 8,163.78, IBEX-35 +1.11% at 15,781.90, FTSE MIB +1.00% at 42,174.00, SMI -0.09% at 12,626.09, S&P 500 Futures +0.26%].

Market focal points/key themes: European indices open generally higher and remained upbeat through the early part of the session; easing of trade tensions seen supporting risk appetite; sectors leading the way higher include financials and industrials; while communication services and consumer discretionary sectors are among the laggards; Kering to sell beauty division to L’Oreal; earnings expected in the upcoming US session include Cleveland Cliffs and Steel Dynamics.

Equities

– Consumer discretionary: Kering [KER.FR] +4.5% (agrees €4B sale of beauty division to L’Oréal), Aryzta [ARYN.CH] +1.5% (trading update).

– Financials: Plus500 [PLUS.UK] +1.0% (trading update), Bank of Ireland [BIRG.IE] +1.0% (Motor Finance provision).

– Industrials: Rheinmetall [RHM.DE] +4.0% (Israel-Hamas strikes amid ceasefire; details in Friday’s Trump-Zelenskiy meeting in White House), Forvia [EO.FR] -7.0% (earnings).

Speakers

– France Foreign Min Barrot noted that the presence of Putin on European territory only made sense if it allowed to bring an immediate and unconditional ceasefire. Time was against Putin, he should accept immediate cease-fire.

– Russia Presidential special envoy to meet Iran top security official on Monday (Oct 20th).

Currencies/fixed income

– FX focus was on the Yen currency ahead of Tuesday’s Parliamentary vote for the next Prime Minister. Japan Ishin Party’s Yoshimura noted that it mostly agreed on conditions with LDP to form coalition and this likely assured that Takaichi would be elected. Her prior dovish stance prompted that Nikkei to surge over 3.3% and the yen weaken back towards the 151 neighborhood.

– EUR/USD at 1.1660 in quiet trade and well contained within the 1.150-1.20 trading range. The recent French sovereign downgrade on its budget situation provided another headwind in the pair.

– Overall the USD focus to hinge on upcoming release of CPI data despite the ongoing UIS govt shutdown.

– 10-year German Bund yield at 2.60%, France 10-year Oat at 3.39% and 10-year Gilt yield at 4.53% 10-year Treasury yield: 4.02%.

Economic data

– (DE) Germany Sept PPI M/M: -0.1% v +0.1%e v -0.5% prior; Y/Y: -1.7% v -1.5%e.

– (EU) Euro Zone Aug Current Account Balance: €11.9B v €29.8B prior.

– (CH) Swiss weekly Total Sight Deposits (CHF): 473.8B v 474.2B prior; Domestic Sight Deposits: 451.1B v 451.7B prior.

– (GR) Greece Aug Current Account Balance: €1.1B v €0.8B prior.

– (PL) Poland Sept Sold Industrial Output M/M: 16.0% v 13.7%e; Y/Y: 7.4% v 5.2%e.

– (PL) Poland Sept Employment M/M: -0.1% v -0.1%e; Y/Y: -0.8% v -0.8%e; Average Gross Wages M/M: -0.2% v -0.2%e; Y/Y: 7.5% v 7.6%e.

– (PL) Poland Sept PPI M/M: -0.2% v -0.1%e; Y/Y: -1.2% v -1.0%e.

– (PT) Portugal Aug Current Account Balance: €.6B v €1.4B prior.

– (IT) Italy Aug Current Account Balance: €4.7B v €8.7B prior.

– (HK) Hong Kong Sept Unemployment Rate : 3.9% v 3.7%e.

– (EU) Euro Zone Aug Construction Output M/M: % v 0.5% prior; Y/Y: % v 3.2% prior.

Fixed income issuance

– (IT) Italy Debt Agency (Tesoro) open subscription to sell new 7-year BTP Valore (retail bond).

– (NO) Norway sold NOK vs. NOK2.0B indicated in 6-month Bills; Avg Yield: % v 3.98% prior; bid-to-cover: x v 1.60x prior.

– (SK) Slovakia Debt Agency (Ardal) sold total €499.3M in 2031, 2035, 2036 and 2047 Bonds.

Looking ahead

– 05:25 (EU) Daily ECB Liquidity Stats.

– 05:30 (DE) Germany to sell combined €7.0B in 3-month and 9-month BuBills.

– 05:30 (EU) European Union to sell combined €6.0B in NGEU 2028, 2033 and 2045 bonds.

– 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

– 06:00 (RO) Romania to sell combined RON800M in 2031 and 2038 bonds.

– 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

– 08:00 (UK) Daily Baltic Dry Bulk Index.

– 08:30 (CA) Canada Sept Industrial Product Price M/M: No est v 0.5% prior; Raw Materials Price Index M/M: No est v -0.6% prior.

– 09:00 (IN) India announces details of upcoming bond sale (held on Fridays).

– 09:00 (FR) France Debt Agency (AFT) to sell €6.4-8.0B in 3-month, 6-month and 12-month bills.

– 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

– 10:00 (US) Sept Leading Index: No est v -0.5% prior.

– 10:00 (DE) ECB’s Schnabel (Germany).

– 10:30 (CA) Canada Q3 BoC Overall Business Outlook Survey: No est v -2.4 prior; BoC Business Outlook Future Sales: No est v 6 prior.

– 12:00 (CO) Colombia Aug Economic Activity Index (Monthly GDP) Y/Y: 3.4%e v 4.3% prior.

– 15:00 (AR) Argentina Sept Trade Balance: No est v $1.4B prior.

– 15:00 (DE) ECB’s Nagel (Germany).

– 15:00 (EU) ECB’s Vujcic (Croatia).

– 16:00 (US) Weekly Crop Progress Report.

– 17:45 (NZ) New Zealand Sept Trade Balance (NZD): No est v -1.2B prior; Exports: No est v 5.9B prior; Imports: No est v 7.1B prior.

– 18:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 83.0 prior.

– 19:45 (AU) RBA’s Jones.

– 19:45 (AU) RBA’s Jones.

– 20:00 (KR) South Korea Oct Exports 1-20 Days Y/Y: No est v -15.2% prior; Imports Y/Y: No est v 9.9% prior.

-23:35 (JP) Japan to sell 10-Year Climate Transition Bonds.

– (JP) Parliament vote on next PM.