MNI China Daily Summary: Wednesday, October 16

MNI: ITALY FINAL HICP +1.2% M/M, +0.7%Y/Y

MNI BRIEF: BOJ's Adachi Sees Conditions For Normalisation

MNI: PBOC Net Injects CNY581.4 Bln via OMO Wednesday

CHINA PBOC CONDUCTS CNY642.4 BLN VIA 7-DAY REVERSE REPOS WEDS

MNI: PBOC Sets Yuan Parity Higher At 7.1191 Weds; +2.66% Y/Y

US MBA: REFIS -26% SA; PURCH INDEX -7% SA THRU OCT 11 WK

MNI: US MBA: MARKET COMPOSITE -17.0% SA THRU OCT 11 WK

MNI: UK SEP OUTPUT PPI -0.5% M/M, -0.7% Y/Y

CANADA: Politics Week: Trudeau Faces More Pressure To Resign

CANADA: Politics Week: Parliament Opens With Early Election Threats

AUSTRALIA: Albanese Lines Up Budget for May Election

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GBP: Markets See US Elections, Not UK Budget, as Key Test for S/T GBP Weakness

GBP
CEEMEABulletUKGlobalForeign Exchange BulletsRegionMarkets
  • GBP's post-CPI break lower represents the second meaningful range breakout so far this week, with EuroStoxx50 future weakness also putting prices below the 4929.00 October low on the back of poorly received LVMH and ASML earnings over the past 24 hours.
  • The next focus for G10 FX will be the sustainability of the next GBP leg lower. Two-week vols today capture the first post-UK budget options expiry - which appears to have arrested the decline in vols for GBP against both the USD and EUR - but GBP/USD vol skews in favour of three-week contracts - meaning markets apportion a greater risk of spot vol following the US election, rather than the first Labour budget, despite the up-rating of the black hole in UK finances to £40bln yesterday.
  • Options-implied probability looks for a 44% chance of GBP/USD below 1.30 on the session following the Presidential election (28% below 1.29, 16% below 1.28), up from 39% this time last week. This leaves the 100-dma as a key litmus test for weakness, today crossing at 1.2954.
  • We don’t think the BoE will entertain the idea of a 50bp cut as a direct result of this morning's CPI print, given still elevated (but cooling) wage growth and services inflation, which leaves the profile of cuts through to H2'25 still quite flat, despite today’s repricing.
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  • GBP's post-CPI break lower represents the second meaningful range breakout so far this week, with EuroStoxx50 future weakness also putting prices below the 4929.00 October low on the back of poorly received LVMH and ASML earnings over the past 24 hours.
  • The next focus for G10 FX will be the sustainability of the next GBP leg lower. Two-week vols today capture the first post-UK budget options expiry - which appears to have arrested the decline in vols for GBP against both the USD and EUR - but GBP/USD vol skews in favour of three-week contracts - meaning markets apportion a greater risk of spot vol following the US election, rather than the first Labour budget, despite the up-rating of the black hole in UK finances to £40bln yesterday.
  • Options-implied probability looks for a 44% chance of GBP/USD below 1.30 on the session following the Presidential election (28% below 1.29, 16% below 1.28), up from 39% this time last week. This leaves the 100-dma as a key litmus test for weakness, today crossing at 1.2954.
  • We don’t think the BoE will entertain the idea of a 50bp cut as a direct result of this morning's CPI print, given still elevated (but cooling) wage growth and services inflation, which leaves the profile of cuts through to H2'25 still quite flat, despite today’s repricing.