MNI ASIA OPEN - Fed's Barkin Suggests Data Masking Weakening Economy

NEWS:

FED (MNI): Barkin: Anecdotal Evidence Economy Weakening More Than Data
Richmond Fed's Barkin ('24 voter) notes in prepared remarks that he is "still looking to be convinced, both that demand is settling and that any weakness is feeding through to inflation. We have time to see if we have done enough, or whether there's more work to do". Anecdotal evidence from Barkin's regional business contacts suggests the economy is weakening more than resilient economic data on growth and employment suggests.

FED (MNI): Fed’s Barkin Not Relying On Long Yields As Eyeing Prices
Richmond Fed President Tom Barkin also said Tuesday he's not relying on long-term interest rates to do the Fed’s job while watching inflation to determine whether officials need to raise rates again.

FED (MNI): One Fed Bank Wanted Sept Discount Hike - Minutes
Directors of the Federal Reserve Banks of Cleveland voted to raise the discount rate ahead of the September FOMC meeting to 5.75%, according to minutes from the discussions, while the remaining eleven regional banks sought to hold the rate steady at 5.5%.

FED (MNI): Richmond Fed's R-star Estimate Rises To 2.3%
A model of the U.S. neutral real rate of interest developed by Richmond Fed economists indicates r-star has risen by nearly two percentage points since the pandemic to a significantly higher level than the Laubach-Williams model more commonly cited in Fed deliberations, Thomas Lubik of the Richmond team told MNI, adding fodder to the debate over whether the era of rock-bottom rates is over.

ECB (MNI): MNI SOURCES: ECB Doves Wary Of December Push For Hike
The European Central Bank is set to hold its deposit rate unchanged at next week’s meeting, though even some dovish Governing Council voices see a chance of debate over a hike in December if inflation does not fall fast enough, Eurosystem sources told MNI.

US (MNI): Second Speaker Ballot Expected After Jordan Drops 20 Votes
Republican speaker nominee Jim Jordan (R-OH) has failed to secure the speaker's gavel in a first roll call on the House floor. The final vote tally: Jordan 200, House Minority Leader Hakeem Jeffries (D-NY) 212. Others 20, Present 0. It should be noted that several reps declined to vote suggesting that the actual 'noe' vote may be higher than 20. A second speaker vote is now expected shortly.

CANADA (MNI): Stabilizing Prices Helps BOC Turn Neutral-Freeland
Canadian Finance Minister Chrystia Freeland said Tuesday the government is working to stabilize prices in such a way that allows for the central bank to shift monetary policy from restrictive to neutral.

BOE (MNI): MNI BRIEF: MPC Split On Over-Tightening Risks - BOE Dhingra
Bank of England Monetary Policy Committee members have moved to "two ends of the spectrum" on the risks of over-tightening against a backdrop of data uncertainty, Swathi Dhingra said Tuesday, although adding that she felt it would risk reinforcing stagflation.

US/ISRAEL (MNI): 2000 US Military Personnel Readied, No Decision Made On Deployment
Wires carrying comments from the US Department of Defense confirming that 2000 US military personnel have been placed on a, "heightened state of readiness, but no decisions have been made to deploy forces at this time." The Pentagon confirms that deployment of the carrier group, USS Gerald R Ford, now stationed in the Eastern Mediterranean, has been extended.

SCOTLAND (MNI): First Minister-Devolved Scottish Gov't To Issue Bonds On International Markets
In his speech to the Scottish National Party (SNP) conference, First Minister Humza Yousaf has claimed that the devolved Scottish gov't intends to seek to raise money on international bond markets "in our own right" for the first time. Claims that the "Scottish gov't bond issue will be subject to market testing and due diligence", with the bond issuance set to fund infrastructure projects according to the FM.

BANK OF KOREA (MNI): MNI BOK WATCH: Pause At 3.5% Expected As Economy Slows
The Bank of Korea will likely keep its policy rate unchanged at 3.50% at Thursday’s policy-decision meeting for the sixth straight time despite higher inflation, as concern grows over a slower economy, observers told MNI. BOK policymakers, however, will likely maintain a hawkish tone thanks to September's recent sticky inflation read and keep the door open to future rate hikes to prevent market expectations of a premature rate cut.

CHINA (MNI): China GDP To Beat Expectations- Ex PBOC's Sheng
China’s third quarter gross domestic product growth is likely to beat expectations after central bank data on aggregate financing to the real economy (AFRE) signalled that the economy's expansion hit bottom in August, a former high-ranking People’s Bank of China official told MNI.

DATA

• Retail sales closed Q3 on an unexpectedly strong note, with the headline advance figure up 0.7% (vs 0.3% expected, 0.8% prior), ex-auto/gas up 0.6% (vs 0.1% expected, 0.3% prior), and the GDP-input control group up 0.6% (vs 0.1% expected, 0.2% prior).
• Notably all of August's major categories were revised up (headline 0.2pp, ex-auto 0.3pp, ex-auto/gas and control group each +0.1pp). 5 retail sales sub-categories failed to rise in August (electronics/ appliance stores, building materials, clothing contracted; furniture and sporting goods stores were flat).
• Apart from that though, gains were solid, led by miscellaneous retailers (+3.0%), nonstore retailers (+1.1%), motor vehicle dealers (+1.0%), and gasoline stations (+0.9%). Ex-gas stations, retail sales were +0.7% M/M, the highest since May.
• The nominal retail sales beat is made slightly more impressive given headline CPI faded in September vs August somewhat on a M/M basis (0.4% vs 0.6%, in part on a slowdown in gas price inflation to 2.1% from 10.6%).
• On a CPI-deflated basis, real retail sales were positive Y/Y for the first time since January, albeit barely at +0.1% Y/Y; nominal was up 3.8% (CPI was 3.7%).
• While the retail sales series remains choppy on a M/M basis, this is another solid report that betrays little sign of consumer weakness to end Q3 that had been suggested by BEA credit card spending data for example.

• The NAHB housing market index was weaker than expected in October as it fell to 40 (cons 44) from a downward revised 44 (initial 45). Declines were concentrated in the West (-7) and South (-5) whilst the Midwest (-1) and Northeast (-1) were little affected.
• The decline in the national figure was broad-based by component, with future sales -5pts to 44, present sales -4pts to 46 and prospective buyers -4pts to 26. In all cases these are the lowest since Jan'23. The prior slide in homebuilder price to book ratios has again led this relative decline.

US DATA: A Tepid Trend For Production But Better Than It Could Be

• Industrial production increased 0.3% M/M (cons 0.0), with the beat following a string of revisions that were marginally softer on net including 0.0 vs an initial 0.4 in Aug and 1.0 from an initial 0.7% in July. It left production up 2.5% annualized in Q3 from 0.7% in Q2, although it has been boosted by utilities production surging 15% owing in part to hot weather in July.
• Manufacturing production meanwhile saw a similar 0.4% M/M after -0.1% M/M, but with the 3M/3M at just 0.0% in Q3 after 0.3% in Q2. Whilst subdued, these trend rates continue to hold up well vs the ISM manufacturing survey still in contraction territory despite its recent increase to 49.0 in the September release.

CANADA DATA: CPI In Q3 Exceeds BoC Forecast From July

• With headline CPI coming in at 3.8% Y/Y (cons 4.0) in September after what had been a surprisingly strong 4.0% Y/Y in August, it left CPI at an average 3.7% Y/Y in Q3 as a whole.
• That compares with the 3.3% the BoC forecast for Q3 back in July which was then seen easing to 2.9% in Q4 (at the time revised up from 2.5) and 2.2% in 4Q24 (revised up from 2.1%).
• The two reports since then have paved the way for sizeable near-term upward revisions to these forecasts in next week's MPR.

US TSYS: Off Fresh Multi-Year Lows But Still A Sizeable Belly-Led Cheapening

• Cash Treasuries have pared some of the day’s sizeable belly-led losses in the second half of the session, with some risk-off flows most recently seen with Israel advising its citizens to leave Turkey.
• Nevertheless, 5Y yields are still 14bps higher today, currently at 4.858% off an earlier high of 4.892% that marked fresh highs since 2007, of which 12.5bps comes from real yields.
• TYZ3 trades at 106-11 (-27+) off earlier lows of 106-03+ which tested support at the Oct 4 low after which lies the round 106-00 before ultimately 105-06+ (2.0% 10-dma envelope). Volumes are elevated at a cumulative 1.9M.
• At the front end, the Fed terminal is seen with a cumulative +15bp of hikes to 5.48% effective in January followed by 70bps of rate cuts to year-end, pushing below the 71bps seen after the hawkish FOMC dot plot on Sep 20.
• Kashkari (’23 voter) still to come late on at 1700ET, whilst tomorrow sees a plethora of Fedspeak including permanent voters Waller, Williams and Bowman, along with the Fed’s Beige Book and housing data.

• Recap of the day’s moves: Early trading started with a more outright bear steepening. It came from an extension of yesterday’s move linked to US efforts to prevent a widening of the Israeli-Hamas conflict through the broader region, as well as a heavy supply burden in both Asia-Pac and European markets along with the hawkish combination of touted wage demands from Japan's largest wage union re: Spring '24 wage talks and BBG sources pointing to adjustments higher in the BoJ's upcoming updated CPI projections.
• The day’s moves then morphed into the belly-led sell-off seen at present after strong retail sales data, with the strength of domestic data later reinforced by an upward revision to the Atlanta Fed’s GDPNow to 5.4% annualized for Q3. There was minimal reaction to the NAHB housing index dropping to its lowest since January. There is also further political uncertainty after Jim Jordan failed to secure the speaker's gavel in a first roll call in the House.

FX: Volatile Equities Prompt Two-Way USD Flow, NZD Remains G10 Underperformer

• Despite the firmer US data and higher US yields on Tuesday, two-way swings for major equity benchmarks left the USD index close to unchanged for the session.
• Initially, the higher-than-expected retail sales figures from the US prompted some greenback strength, however, the subsequent bounce for US equities following the soft-landing thesis sapped the greenback momentum and saw the USD index fall to session lows.
• Amid the volatile swings, EURUSD traded from as low as 1.0539 to highs of 1.0595 but was unable to consolidate these gains ahead of the close as equities once again fell back into mid-range.
• NZD remains the weakest performer in G10, with NZD/USD looking set to close below the 0.5900 handle following the below-forecast NZ CPI, which saw the Q3 Y/Y rate slow to 5.6% from 5.9% previously. Initial focus for the pair is on 0.5859, the September low and lowest since November of last year.
• Similar weakness has been felt for GBP, which trades poorly following this morning's pay data: average weekly earnings for August came in below expectations at +8.1% vs. exp. +8.3%. Although, the focus quickly shifts to Wednesday's inflation release. GBPUSD trend conditions remain bearish, and the recent recovery is considered corrective. A continuation lower would refocus attention on support and the bear trigger, at 1.2037, the Oct 4 low.
• Kicking off Wednesday’s APAC schedule is DRBA Governor Bullock, due to participate in a fireside chat about the current economic climate at the Australian Financial Security Authority Inaugural Summit. Chinese GDP and activity data then takes focus before the aforementioned UK September inflation release.

FX OPTIONS: Expiries for Oct17 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(E899mln), $1.0525-30(E560mln) $1.0665-80(E1.4bln)
• USD/JPY: Y148.00($1.1bln), Y148.25($520mln), Y150.00($1.0bln), Y151.00($656mln)
• GBP/USD: $1.2395-00(Gbp1.1bln), $1.2430-50(Gbp1.1bln)
• USD/CAD: C$1.3505-20($660mln), C$1.3800($1.1bln)
• USD/CNY: Cny7.3000($532mln), Cny7.3500($1.2bln)

US STOCKS: Equities Reverse Gains But Relatively Resilient To Yield Squeeze

• Equities have seen a quick but limited step lower with Israel advising its citizens to leave Turkey in a sign of regional spillover. It adds to reversal of earlier gains, hindered by the second wind of the sell-off in the belly of the Treasury curve that started around 1230ET.
• Despite moving back lower on the day, they hold up well with 5Y yields hitting fresh highs since 2007 and currently +15.5bps despite having rallied 2bps off yield highs.
• ESZ3 trades at 4388.8 (-0.3%) off a high of 4423.25 having stopped just short of resistance at 4426.42 (50-day EMA).
• The Nasdaq 100 (-0.6%) e-mini underperforms in light of the real yields squeeze, and notably weighed by Nvidia which has pared losses but to a still heavy -4.5%, whilst the Russell 2000 (+1.2%) benefits from the strength in today’s US retail sales data helping support the soft-landing view.
• Broad beats for today’s pre-market earnings: Johnson & Johnson (adj EPS $2.66 vs est $2.52), Lockheed (adj EPS 6.77 vs est 6.67), GS (net rev $11.82B vs est $11.13B), BofA (trading revenue ex DVA $4.42B vs est $4.16B)
• A few smaller names to come after the close but greater focus is on tomorrow’s earnings slate, which includes Tesla, Procter & Gamble, Morgan Stanley, Netflix, Abbot Laboratories & Elevance Health.

COMMODITIES: Crude Futures Reverse Losses With Some Middle East Regional Spillover

• Crude prices are finishing the session having edged higher, lifting off the intraday low of $85.60/b for WTI with an added boost coming from Israel advising its citizens leave Turkey as the market continues to monitor the ongoing situation in the Middle East.
• Ahead, US crude oil inventories are expected to rise by 0.4m bbl on the week when the EIA releases its weekly summary Oct. 18, according to a Wall Street Journal survey.
• Saudi Aramco’s CEO Amin Nasser said that global oil demand for H2 2023 is likely to be 103m b/d with the company’s spare capacity at 3m b/d. Peak demand is forecast at around 105mb/d in 2029 according to Energy Intelligence although with growth narrowing to around 100k-200kb/d annually from 2027.
• Vitol’s CEO Russell Hardy expects Brent crude oil prices to be trading at around $85/bbl next year, he said during the annual Energy Intelligence Forum in London.
• WTI is +0.5% at $87.11 with resistance remaining at $89.59 (Oct 4 high).
• Brent is +0.6% at $90.19 with resistance remaining at $91.56 (Oct 3 high).
• Gold is +0.2% at $1924.06 as geopolitical concerns and on balance a softer USD offset a strong push higher in Treasury yields. A high of $1931.58 came close to a key resistance at $1932.9 (Oct 13 high).