MNI ASIA OPEN - Chair Powell Touts Progress On Inflation

NEWS

FED (MNI): Powell Touts Progress On Inflation, Jobs Before Nov Meet
The Federal Reserve will "carefully" consider whether to raise interest rates further and how long to keep them high, given "very favorable" decline in inflation over the summer, indications that the labor market is cooling and the likelihood of more "meaningful tightening" still filtering through from past increases, Fed Chair Jerome Powell said Thursday.

FED (MNI): Fed's Powell - Rise In Yields 'Clearly A Tightening'
The Federal Reserve is keeping a close eye on the spike in long-term bond yields that has "clearly" tightened financial conditions and "at the margin it could" reduce the need for the Fed to tighten further, Fed Chair Jerome Powell said Thursday. "It's clearly a tightening in financial conditions. We need to be watching this."

US (MNI): Cyclical Job Growth Slowing - Fed's Robertson
Booming U.S. job growth figures belie a steady cooldown in the labor market, considering that health care sector has played an outsize role in overall hiring for reasons unrelated to the economic outlook, Federal Reserve Bank of Atlanta economist John Robertson told MNI.

ECB (MNI): ECB To Look Through Oil Spike - Ex-BdF Official
The European Central Bank would be tempted to look through any small increases in inflation feeding through from energy markets at a time when the economy is slowing and wages pressure easing, a former senior economist at the Bank of France told MNI.

CHINA (MNI): NDRC Signs MoU With HKMA To Support Bond Market
China’s National Development and Reform Commission has signed a memorandum of understanding with the Hong Kong Monetary Authority (HKMA) regarding cooperation in Hong Kong’s bond market, allowing the NDRC to better support Chinese enterprises' access to cross-border finance in Hong Kong and will promote the development of the local bond market.

US (MNI): Jordan Abandons Third Speaker Ballot, Backs McHenry As Interim Speaker
Reports from Congress indicate that Republicans are increasingly supportive of a move to elevate Speaker Pro Tempore Patrick McHenry (R-NC) as interim speaker with increased power to move legislation. Installing McHenry would significantly lower the risk of a government shutdown on November 17.
However, shortly followed by an update, see below...

US (NYT): Jordan Reverses Himself and Will Push for a Third Speaker Vote
Hours after saying he would endorse empowering an interim speaker, the hard-right Republican from Ohio reversed himself and said he would pursue another vote in his bid for speaker. It was not immediately clear when another vote could be scheduled.

US (MNI): Senate Majority Leader Schumer To Lead Middle East CODEL
Senate Majority Leader Chuck Schumer (D-NY) is expected to depart Washington tonight with a Congressional Delegation to Israel, Saudi Arabia, and Egypt. According to Punchbowl News, the bipartisan CODEL is understood to include Senators Lindsay Graham (R-SC), Corey Booker (D-NJ), John Thune (R-SD), Richard Blumenthal (D-CT), Chris Coons (D-DE), Susan Collins (R-ME), and Katie Britt (R-AL).

MIDDLE EAST (BBG): US Base Attacked in Syria, Resulting In Minor Injuries
A US base in Syria was targeted by drones, while a US destroyer intercepted cruise missiles and drones in Yemen, incidents that caused minor injuries but prompted fresh concerns that Israel’s war with Hamas may spark a bigger conflict and pull in the US.

CANADA (CBC): Large Number of Canadian Diplomats Left India Overnight: CBC
A large number of Canadian diplomats left India overnight, CBC News has learned. The departures followed two weeks of negotiations between India and Canada after India issued a demand for "parity" in the number of diplomats present in the two countries, a source with knowledge of the situation told CBC News.

ARGENTINA (MNI) Political Risk Analysis - Argentina Election Preview
MNI has published a preview of this Sunday’s first round election in Argentina. Argentina holds its general election on 22 October, with elections for the presidency and the Congress of the Argentine Nation taking place. The Argentinian economy remains in a state of turmoil, with inflation running at 138% y-o-y in September leading the central bank to raise the benchmark interest rate to 133%, and two in five Argentinians now living below the poverty line.

US DATA: First Sub-200k Week For Initial Claims Since Jan, But Higher Continuing Claims

• Initial jobless claims were lower than expected at a seasonally adjusted 198k (cons 210k) in the week to Oct 14, covering a payrolls reference week, after a marginally upward revised 211k (initial 209k).
• It’s the first sub-200k week since January and whilst we don’t put too much weight on a given week, the four-week average isn’t far off at 206k.
• Recall that in 2019 for a comparison with prior periods of tightness, initial claims averaged 218k and saw a low of 197k for the year.
• Based off a 19k drop in the non-seasonally adjusted data to 181k considering mixed results for the same week in previous years, it looks like a reasonably fair SA process at first glance.
• Continuing claims provided an offsetting miss though, surprisingly increasing to 1734k (cons 1706k) from 1705k, marking its highest since early July.

US DATA

Small Miss For Philly Fed Mfg Despite Orders Bounce

• The Philly Fed manufacturing index lifted by slightly less than expected in October, to -9.0 (cons -7.0) from -13.5.
• It came despite bounces in new orders (+14.6pts to 4.4) and shipments (+14.0pts to 10.8) which drove the monthly improvement.
• Price components softened, with prices paid -2.6pts to 23.1 and prices received -0.2pts to 14.6. Both these values are off lows seen earlier in 2023 but are still low by post-pandemic standards and more in line with ‘normal’ pre-pandemic levels.
• The six-month ahead business outlook meanwhile dipped slightly to 9.2 from 11.1. It's more optimistic than current conditions but with less dispersion compared to the Empire State equivalent at 23.1 for the six-month vs -4.6 current.

Existing Home Sales Fall Less Than Expected, Relative Supply Slowly Increases

• Existing home sales fared better than expected in September as they fell -2.0% (cons -3.7%) after an unrevised -0.7% M/M
• It’s a less severe drop as what has been indicated by pending home sales but nevertheless leaves the level of sales at the lowest since 2010 (recall that mortgage applications last week touched fresh lows since 1995).
• Against the typical seasonal norm for September, the months of supply increased by 0.1 to 3.4, although it’s still below the 4.2 months averaged in September in 2017-19.
• As such the market remains relatively tight with fewer willing to move with mortgage rates continuing to set multi-year highs.

US TSYS: Extending Twist Steepening Late Into Session, Biden Address Still Ahead

• Treasuries extend their twist steepening late in the session, with the 2Y pushing new session highs (equating to 6.5bp richer), whilst the long-end is firmly cheaper with 10Y +6bps (never quite clearing 5%) and 30Y +10bps.
• 2s10s sits 12.5bps higher on the day, +10bps since Powell’s remarks and especially the Q&A, at -18bps for highs since Sep’22, whilst 2s30s has increased +16.5bps.
• TYZ3 trades at 105-17+ (-11), having seen sizeable volatility post-Powell touching 105-30+ with the text before a low of 105-10+, the latter new recent lows. Support is seen at 105-01+ (2.0% 10-dma envelope). Very strong cumulative volumes of 2.15M.
• The front end has been strongly bid based on sanguine opening to remarks, noting that "Incoming data over recent months show ongoing progress toward both of our dual mandate goals—maximum employment and stable prices" and the significant tightening in financial conditions (which at the margin could mean less need to hike).
• The long-end did however see significant cheapening impetus on there being evidence that policy is “not too tight right now”.
• Fed Funds implied rates show just 1bp of tightening priced for Nov, building to a cumulative +10bp to a terminal 5.43% effective rate in January (-2.5bp since Powell). It’s followed by 70bp of cuts to end-2024 from 68bp pre-Powell, still near lows for recent months.
• Still to come, Biden’s address on foreign policy with potentially $100B pledged after the close at 2000ET, plus Fedspeak from Bostic, Harker and Logan. Tomorrow meanwhile sees a near-empty US docket after a few stacked days.

FX: USD Index Sheds 0.4% As Powell Acknowledges Inflation Progress

• Despite some volatile two-way flow following remarks from Fed Chair Powell on Thursday, the USD index has consolidated losses on the day, declining 0.50% as we approach the APAC crossover. The downward bias has been emphasised by Powell’s remarks on the progress of inflation that has prompted another steepening move for the US yield curve.
• Leading the gains in G10 are the Euro and the Swiss Franc as the Japanese Yen continues to be stuck between the attractive carry profile and the fear of verbal/actual intervention from the Ministry of Finance.
• EURUSD saw some decent upward momentum following the Powell release, coinciding with a break of multiple weekly highs at 1.0595 which prompted a quick rally to highs of 1.0616. Price has since drifted back below the 1.06 handle, however looks set to register a 0.5% advance on the session. On the upside, a break of 1.0640, the Oct 12 high, would signal scope for a stronger technical correction.
• Despite a moderate bounce alongside the greenback weakness, NZDUSD is underperforming once again, following on from the fresh 2023 lows made on Wednesday.
• In sympathy with its Antipodean counterpart, and weakness for equities, AUDUSD is also slightly softer on the day. Furthermore, softer labour market data and disappointing Chinese home sales data worked against the currency. The technical backdrop remains bearish on the currency, with short-term gains still considered corrective. Attention is on $0.6286, the Oct 3/13 low. A clear break of this support would confirm a resumption of the trend and open 0.6215, a Fibonacci projection.
• China’s reference lending rate will likely remain unchanged on Friday, after Q3’s strong-than-expected economic performance and as the yuan passes through a period of weakness, economists told MNI. Elsewhere, the RBNZ Statement of Intent will be published before retail sales data for both the UK and Canada.

FX OPTIONS: Expiries for Oct20 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0475-85(E1.2bln), $1.0550(E1.3bln), $1.0575-85(E744mln), $1.0600(E1.4bln), $1.0625(E2.0bln), $1.0640-55(E1.8bln)
• USD/JPY: Y148.85-05($1.0bln), Y149.00-05($976mln), Y150.00($857mln), Y150.50($720mln)
• USD/CAD: C$1.3555($798mln), C$1.3600($1.6bln), C$1.3715-25($576mln)
• USD/CNY: Cny7.2500($1.3bln), Cny7.3000-15($910mln)

EQUITIES: Slide Continues, Tesla A Particularly Large Drag

• Equities have taken another sharp step lower, with the S&P e-mini pushing new lows of 4305.00 (-0.9%) as Treasuries see a renewed sell-off with the 10Y yield back at fresh cycle highs at 4.99% seen during Powell’s Q&A and 30Y yields pushing higher still.
• The trend structure remains bearish from a technical perspective, with ESZ3 nearing support at 4299.50 (Oct 9 low) after which lies a bear trigger at 4235.5 (Oct 4 low).
• Geopolitical risk remains at the fore, with gold just one dollar off recent highs of $1975 after another day of strong gains for +1.35%.
• Within single names, Tesla continues to lead with heavy declines, currently down more than 10% after yesterday’s post-close results.
• Earnings after today’s close: Taiwan Semiconductor, Intuitive Surgical & CSX
• The Nasdaq 100 e-mini is in line with S&P, also -0.9%, whilst the Dow outperforms (-0.6%) and Russell 2000 underperforms (-1.5%).
• Within the S&P, banks outperform(-0.4%) despite Fed VC for Supervision Barr suggesting greater stress testing, whilst the KBW index suggests regional bank outperformance at -0.2% despite.

COMMODITIES: Gold Clears Latest Resistance On Escalating Middle East Tensions

• A weaker USD before escalating tensions in the Middle East have seen oil and especially gold surging late in the session.
• Reuters has reported rockets and drones hitting an Iraq base housing US forces, whilst the Pentagon has said a US base in Syria was targeted yesterday by two drones and Brigadier General Ryder says a US destroyer has shot down cruise missiles and drones from Yemen which are believed to have been aimed at Israel.
• WTI trades +2.2% at $90.32 having just pulled back off a high of $90.55. It moves closer to resistance at $91.84 (76.4% retrace of Sep 28 – Oct 6 bear leg).
• Brent trades +1.85% at $93.19, just off a high of $93.33. It’s through yesterday’s high of $93.00, with next resistance at the bull trigger at $95.35 (Sep 28 high).
• Gold trades +1.4% at $1976.20 off a high of $1977.91, clearing $1965.5 (61.8% retrace of May 4 – Oct 6 bear leg) to open $1987.5 (Jul 20 high).