MNI ASIA OPEN: Stimulus Deal Unlikely Ahead Election

EXECUTIVE SUMMARY:

• Tsy Sec Mnuchin: GETTING SOMETHING DONE BEFORE ELECTION IS DIFFICULT, Bbg
• MNI EXCLUSIVE: Credibility To Help Fed Hit Price Goal: Staff
• MNI POLICY: Low Unemployment Alone Not Enough To Hike- Clarida
• MNI REALITY CHECK: Dip Below 2% Seen For China September CPI
• MNI POLICY: Yuan Strength In 2020 "Moderate", PBOC Official
• MNI SOURCES: France Faces EU Calls To Ease Brexit Fish Stance
  
  
  

US

• US: Mnuchin Stimulus Deal "Difficult" Before Election Treasury Secretary Steve Mnuchin has stated, following a call with House Speaker Nancy Pelosi today, that "At this point getting something done before the election and executing on that would be difficult just given where we are and the level of detail." Adds that "There are money issues, but there's also policy issues," and that "We continue to make progress on certain issues. On certain issues we continue to be far apart."
  
  
• FED: The Federal Reserve should manage to reach and maintain its longer-run 2% inflation target as the Covid-19 pandemic passes, because markets and the public trust policy makers' commitment to get there, two Kansas City Fed economists told MNI. The Fed's 2% inflation target enshrined in 2012 kept expectations especially well anchored and that record should carry over to the averaging framework adopted earlier this year, the economists Brent Bundick and Andrew Lee Smith said in an interview. For more see 10/14 main wire at 1448ET
  
  
• FED: The Federal Reserve will do all it can to bring about low unemployment but that alone would not be enough to trigger interest rate hikes, Fed Vice Chair Richard Clarida said Wednesday, adding that "additional support from monetary -- and likely fiscal -- policy will be needed" to support the recovery. A "low unemployment rate, in and of itself, will not be sufficient to trigger a tightening of monetary policy absent any evidence from other indicators that inflation is at risk of moving above mandate-consistent levels," he said in prepared remarks before the Institute of International Finance, echoing comments from San Francisco Fed chief Mary Daly overnight.

ASIA

• CHINA: China's consumer inflation may have slowed to below 2% y/y for the first time in eighteen months in September, helped by slower pork price gains, beneficial base effects on a year ago, along with increased supply levels as the economy reopens weigh on price pressure, industry leaders and analysts told MNI. Food prices, a main driver pushing CPI higher in recent months, have stabilized somewhat, dampening upside pressure, according to Wang Jingwen, a senior researcher at the Pangoal Institution, with pork prices edged lower in the first half of September, having risen sharply in the same month a year ago, he said. For more see 10/14 main wire at 0920ET.
• CHINA: China's robust recovery has fueled a "moderate" appreciation of the yuan and will help provide conditions for stabilizing the economy's leverage ratio at a reasonable level, People's Bank of China officials told reporters Wednesday. The yuan's 3.3% rise against the dollar so far this year reflects benign economic fundamentals, said Sun Guofeng, head of the monetary policy department. Orderly capital inflows and wide interest spreads with other major economies as China maintains monetary policy at normal settings have also contributed to the currency's "moderate" advance, said Sun. For more see 10/14 main wire at 0934ET.

EUROPE

• FRANCE: This week's European Union summit will see efforts by some member states to push back against French demands on fisheries in Brexit talks, but any breakthrough is unlikely with officials prepared to see negotiations press ahead through October, sources close to preparations told MNI. For more see 10/14 main wire at 1311ET

OVERNIGHT DATA

September PPI +0.4%; Core +0.4%

• * U.S. PPI rose 0.4% in September, above market expectations for a 0.2% gain, according to figures released Wednesday by the Bureau of Labor Statistics.
  
• * Nearly two-thirds of that increase was driven by a 0.4% increase in prices for final demand services, the BLS said. Prices for final demand goods were also up 0.4%.
  
• * Final demand food prices were up 1.2% in September after falling 0.4% in August. Final demand energy prices dropped 0.3%.
  
• * Excluding food and energy, PPI rose 0.4% when financial markets had expected a 0.2% increase.
  
• * Excluding food, energy, and trade services, final demand PPI was up 0.4%.

US MBA: MARKET COMPOSITE -0.7% SA THRU OCT 9 WK
US MBA: REFIS -0.3% SA; PURCH INDEX -2% SA THRU OCT 9 WK
US MBA: UNADJ PURCHASE INDEX +24% VS YEAR-EARLIER LEVEL
US MBA: 30-YR CONFORMING MORTGAGE RATE 3.00% VS 3.01% PREV

MARKETS SNAPSHOT

• DJIA down 146.98 points (-0.51%) at 28679.81
  
• S&P E-Mini Future down 23 points (-0.66%) at 3497
• Nasdaq down 93.7 points (-0.8%) at 11863.9
• US 10-Yr yield is down 0.3 bps at 0.7239%
• US Dec 10Y are steady at at 139-6.5 at 139-6.5
• EURUSD up 0.0004 (0.03%) at 1.1737
• USDJPY down 0.33 (-0.31%) at 105.39
• WTI Crude Oil (front-month) up $0.81 (2.01%) at $39.89
• Gold is up $9.9 (0.52%) at $1898.60
• European bourses closing levels:
• EuroStoxx 50 down 5.91 points (-0.18%) at 3267.94
• FTSE 100 down 34.65 points (-0.58%) at 5959.09
• German DAX up 9.07 points (0.07%) at 12991.58
• French CAC 40 down 5.95 points (-0.12%) at 4933.94

US TSY SUMMARY

In spite of the early risk-off tone, Wednesday's trade was much more subdued than the prior session (TYZ only 680k by the close), Tsys were mostly firmer but off midday lows as equities see-sawed off lows (ESZ0 -14.0).

• - Covid-19 and stimulus related headlines remained key drivers, though nothing really new: comments from Tsy Sec Mnuchin re: difficulty in reaching stimulus agreement before election while gulf between parties remains. Worrying European developments: French PM Macron imposes curfew for major French cities (GRENOBLE, LILLE, LYON, MARSEILLE, TOULOUSE), not a full lock-down to stem spread of virus for next 4 weeks.
  
• - Myriad Fed speakers on day, Fed VC Clarida humming familiar tune: "additional support from monetary, and likely fiscal policy will be needed" to support recovery. Dal Fed Kaplan: 2% infl not a ceiling, "overshoot" is around 2.25%.
  
• - Decent US$ denominated supra-sov issuance on day w/$6B total China 4pt making up half day's supply.
  
• - The 2-Yr yield is unchanged at 0.139%, 5-Yr is down 0.3bps at 0.3008%, 10-Yr is down 0.7bps at 0.7206%, and 30-Yr is down 0.9bps at 1.5021%.

US TSY FUTURES CLOSE:

Steady to firmer in the long end -- well off midday highs, yld curves flatter but off lows, very light volumes (TYZ<720k), update:

• 3M10Y -0.748, 61.832 (L: 59.912 / H: 62.736)
• 2Y10Y -0.496, 58.129 (L: 56.838 / H: 59.488)
• 2Y30Y -0.732, 136.241 (L: 134.257 / H: 138.105)
• 5Y30Y -0.574, 119.938 (L: 118.391 / H: 121.219)
• Current futures levels:
• Dec 2Y steady at 110-14.125 (L: 110-13.75 / H: 110-14.25)
• Dec 5Y steady at 125-28.5 (L: 125-27 / H: 125-29.75)
• Dec 10Y up 0.5/32 at 139-7 (L: 139-04.5 / H: 139-10.5)
• Dec 30Y up 3/32 at 175-9 (L: 175-01 / H: 175-22)
• Dec Ultra 30Y up 10/32 at 219-30 (L: 219-10 / H: 221-01)

US TSYS/SUPPLY

Preview week's auctions:

• DATE TIME AMOUNT SECURITY (CUSIP)/ANNC
• 13-Oct 1130ET $54B 13W-Bill (9127963U1), 0.105%
• 13-Oct 1130ET $51B 26W-Bill (9127964Y2), 0.115%
• 13-Oct 1300ET $30B 43D-Bill CMB (9127963B3), 0.095%
• 13-Oct 1300ET $30B 119D-Bill CMB (9127964C0), 0.110%
• 14-Oct 1130ET $25B 105D Bill CMB (912796B65), 0.105%
• 14-Oct 1130ET $30B 154D Bill CMB (912796C98), 0.120%
• 15-Oct 1130ET $30B 4W-Bill (9127964S5)
• 15-Oct 1130ET $30B 8W-Bill (9127965C9)

US EURODLR FUTURES CLOSE

Mildly higher to steady at points along the strip, narrow ranges on modest volumes. Lead quarterly holds steady since 3M LIBOR set' -0.00675 to 0.23013% (+0.00600/wk). Latest lvls:

• Dec 20 steady at 99.755
• Mar 21 +0.005 at 99.795
• Jun 21 +0.005 at 99.805
• Sep 21 +0.005 at 99.805
• Red Pack (Dec 21-Sep 22) +/-0.005
• Green Pack (Dec 22-Sep 23) steady to +0.005
• Blue Pack (Dec 23-Sep 24) steady to +0.005
• Gold Pack (Dec 24-Sep 25) steady to +0.005

US LIBOR FIXING

• US00O/N 0.08088 0.00088
• US0001W 0.09988 0.00338
• US0001M 0.14575 -0.00263
• US0003M 0.23013 -0.00675
• US0006M 0.25325 -0.00125
• US0012M 0.34400 -0.00150

FED: NY Fed Operational Purchase:

TIPS 7.5Y-30Y, $1.201B accepted of $2.814B submission
Updated NY Fed operational purchase schedule, $40.2B from 10/15-10/28

• Thu 10/15 1010-1030ET: TIPS 1Y-7.5Y, appr $2.425B
• Fri 10/16 1010-1030ET: Tsy 0Y-2.25Y, appr $12.825B
• Mon 10/19 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
• Tue 10/20 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
• Wed 10/21 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
• Thu 10/22 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
• Fri 10/23 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.825B
• Tue 10/27 1010-1030ET: Tsy 7Y-20Y, appr $3.625B
• Wed 10/28 1010-1030ET: Tsy 20Y-307Y, appr $1.750B

Supra-Sovereigns On Tap

• Date $MM Issuer (Priced *, Launch #)
• 10/14 $6B #China $1.25B 3Y +25, $2.25B 5Y +30, $2B 10Y +50, $500M 30Y +80
• 10/14 $3B *CADES 10Y Social bond +28
• 10/14 $1B *EIB WNG 7Y +13
• 10/14 $1B *Council of Europe 3Y +3
• 10/14 $800M #New York Life, $500M 3Y +25, $300M 3Y FRN SOFR+36
• 10/14 $750m #Franklin Resources 10Y +90
• 10/14 $Benchmark Naftogaz investor call, interest in 5- and 7Y

FOREX SUMMARY: USD Under Pressure Post PPI

US data came above expectations, so the move was unrelated. USD tested low against multiple pairs, EUR, GBP, AUD, CNY, CNH, CHF, JPY, SGD, ILS, and NOK.

• Largest moves observed in GBP, with Cable recovering losses. Latest Brexit headline from the UK, noted that some progress have been made this week.
  
• Oil traded firmer, Brent and WTI over Tue's highs, mainly driven by the USD, and no spillovers noted in petro currencies.
  
• EMFX have benefited from the wide range USD selling, and TRY off record high now at 7.9000.
  
• Federal Reserve will do all it can to bring about low unemployment but that alone would not be enough to trigger interest rate hikes. Packed speaker schedule ahead includes Fed Quarles, Logan and Kaplan; BoE Haldane and RBA Lowe.
  
• All eyes remains on US stimulus, Covid spikes and Thu's EU Summit.

EGBs-GILTS CASH CLOSE: Bull Flattening Going Into Summit

As we head into the European Summit on Thur-Fri, the prevailing themes Wednesday were bull flattening in Bunds and Gilts and widening periphery spreads. While not a resolutely risk-off session, safe havens outperformed globally as equities weakened.
French and Spanish supply tomorrow; fairly thin on data, while attention turns to IMF/World Bank meetings and the EU Summit for further Brexit drama.
Closing levels:

• Germany: The 2-Yr yield is down 1bps at -0.745%, 5-Yr is down 1.5bps at -0.764%, 10-Yr is down 2.5bps at -0.581%, and 30-Yr is down 3.1bps at -0.161%.
  
• UK: The 2-Yr yield is down 0.5bps at -0.048%, 5-Yr is down 0.8bps at -0.058%, 10-Yr is down 1.9bps at 0.22%, and 30-Yr is down 3.5bps at 0.767%.
  

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