MIDEAST: Axios-Israel Strikes On Iran In Oct Destroyed Active Nuke Research Site
Axios reports that according to US and Israeli officials, the 25 October Israeli strikes on Iran destroyed an active nuclear weapons research facility. The Israeli strikes, in retaliation to an earlier Iranian missile barrage against Israel, were initially seen to be at the low-escalation end of the spectrum, targeting military sites. Indeed, the Taleghan 2 site at Parchin was according to previous reports believed to be inactive. However, the Axios story claims that "Israeli and U.S. intelligence began detecting research activity at Parchin earlier this year, including Iranian scientists conducting computer modeling, metallurgy and explosive research that could be used for nuclear weapons."
- The 25 Oct strikes have, so far, marked the end of the tit-for-tat attacks between Iran and Israel. The widespread view was that attacks on military sites would be seen as less escalatory, while hitting oil refineries or nuclear facilities would risk a wider regional conflict.
- As Axios notes though, "Taleghan 2 was not part of Iran's declared nuclear program so the Iranians wouldn't be able to acknowledge the significance of the attack without admitting they violated the nuclear non-proliferation treaty." This would go some way to explaining Iran's reaction to the strikes, with Supreme Leader Ayatollah Ali Khamenei saying they should not be 'exaggerated'.
- International Atomic Energy Agency (IAEA) Director General Rafael Mariano Grossi has been in Iran this week, with seemingly conciliatory language coming from Tehran suggesting that they are willing to negotiate with the E3 countries.
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ECB: Q3 BLS: Potential Downside Risks To Firm Credit Standard Expectations In Q4
Respondents to the ECB’s Bank Lending Survey have overestimated the quarter-ahead net tightening in lending standards for enterprises since the start of 2023. In Q3, banks reported unchanged lending standards for firms, after expecting a net tightening of 5% in the Q2 survey (that is, the net percentage of banks expecting a tightening of standards was 5%). Risk perceptions in Q3 were nonetheless "reported as having a small tightening impact".
- Still, this may suggest downside risks to expectations for a 4% net tightening of standards in Q4.
- Indeed, this 4% figure was mostly driven by a net 10% expected tightening of standards in Germany, with French, Spanish and Italian standards expected to be unchanged.
- The gradual easing of enterprise lending standards (both expected and actual) should nonetheless support a further recovery of the Eurozone credit impulse (on a 3m Y/Y basis) in the months ahead.
- On the demand side, “banks expect loan demand [from enterprises] to increase moderately further (4%)”.
- Note that the Q3 BLS was conducted between Sep 6 and Sep 23 i.e. before the dovish shift in consensus towards an October ECB cut.
- Lower interest rates should support the case for easier credit standards amongst firms, but overall credit demand may be slower to react if Eurozone economic growth concerns continue to intensify.
STIR: US TSYS/OVERNIGHT REPO: SOFR Spikes, Should Pull Back
SOFR records a sizeable 5bp jump to 4.86% Tuesday vs the previous print for Friday. It's the highest rate since Oct 2, at which point month/quarter-end dynamics were still settling down (SOFR hit 5.05% Oct 1).
- This is probably on the high side of expectations but a rise was expected largely on account of Treasury mid-month coupon settlements Tuesday. It's expected SOFR will subside again as the week goes on, before picking up toward the end of the month.
- Other key repo reference rates also picked up (BGCR and TGCR up 2bp respectively).
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 4.86%, 0.05%, $2272B
- Broad General Collateral Rate (BGCR): 4.83%, 0.02%, $834B
- Tri-Party General Collateral Rate (TGCR): 4.83%, 0.02%, $795B
GILT PAOF RESULTS: GBP874.999mln of the 4.00% Oct-31 Gilt sold.
- A total of GBP875.000mln had been available.
- This leaves GBP19.743bln of the gilt in issue.
