Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY
- POWELL SIGNALS NOVEMBER RATE HIKE OFF TABLE - BBG
- BIDEN ASK FOR UKRAINE & ISRAEL FUNDING - BBG
- JAPANESE INFLATION SLOWS - MNI
- CHINA PUMPS MOST LIQUIDITY ON RECORD AT OMO - BBG
Fig. 1: U.S. 10-Year Tsy Yield (%)
Source: MNI - Market News/Bloomberg
U.K.
CONSUMER CONFIDENCE (BBG) : UK consumer confidence fell the most since the start of the coronavirus pandemic as cash-strapped households felt the impact of persistent inflation and higher interest rates.
COUNCILS (BBG) : English councils are grappling with £4 billion ($4.9 billion) gap in their finances over the next two years, threatening to further fuel a wave of bankruptcies that’s crippling local authorities.
EUROPE
CREDIT SUISSE (BBG): UBS Group AG is poised to start its next wave of job cuts at Credit Suisse, this time targeting about 10% of support staff, likely in areas such as compliance, risk and marketing, Financial News reported.
STEEL (BBG): The US and European Union have yet to reach an accord on steel and aluminum ahead of a summit in Washington and are poised to keep negotiating until a year-end deadline, when tariffs would return on billions of dollars of transatlantic trade in the absence of a deal.
HUNGRY (BBG): European Union officials told Hungary’s government to do more to address rule of law concerns that led to the suspension of the bloc’s funding earmarked for the country.
U.S.
BIDEN (BBG): President Joe Biden directly appealed to the American people to support funding for Israel and Ukraine’s war efforts, warning that Hamas and Russian President Vladimir Putin pose parallel threats to US democracy.
POLITICS (BBG) : Jim Jordan failed Thursday to sway holdouts who have opposed his bid to be the next US House speaker, raising questions about the Trump loyalist’s next move.
FED (BBG): Federal Reserve Chair Jerome Powell suggested the US central bank is inclined to hold interest rates steady again at its next meeting while leaving open the possibility of a future hike if policymakers see further signs of resilient economic growth.
FED (BBG) : The Federal Reserve should hold interest rates steady even though economic growth is coming in a bit faster than expected, Philadelphia Reserve Bank President Patrick Harker said.
BANKS (BBG): The Federal Reserve’s head of supervision wants to broaden the scenarios in annual stress tests to gauge whether big banks can weather shocks and still keep lending.
MIDDLE EAST (BBG) : The US is seeing stepped-up drone attacks in Iraq and Syria, the Pentagon said Thursday, while an American destroyer in the Red Sea intercepted cruise missiles and drones fired toward Israel by Houthi rebels in Yemen.
OTHER
BOJ (MNI): The Bank of Japan said on Friday it will offer a five-year fund-providing operation under pooled collateral on Tuesday and the duration of loans will start on Wednesday and end Oct. 25, 2028.
JAPAN (MNI): The y/y rise of Japan's annual core consumer price inflation rate slowed to 2.8% in September from August's 3.1% but stayed above the Bank of Japan's 2% target for the 18th straight month, data released by the Ministry of Internal Affairs and Communications showed on Friday.
NEW ZEALAND (BBG): New Zealand’s trade deficit widened to NZ$2.33 billion in September according to data released by the Statistics New Zealand.
OIL (BBG): India is rejecting pressure from Russian oil suppliers to pay for crude imports in the Chinese currency as tensions between New Delhi and Beijing continue to simmer.
OIL (BBG): Oil advanced as geopolitical tensions ratcheted higher in the Middle East, with prices poised for a second straight weekly gain.
CHINA
LPR (MNI): China's Loan Prime Rate remained unchanged on Friday, according to a People's Bank of China statement, in line with market expectation following the PBOC's decision to keep a key policy rate steady on October 16.
LIQUIDITY (BBG): China pumped the most liquidity into its financial system via short-term monetary tool on record, suggesting policymakers are keen to keep funding costs low to bolster the economy.
LOCAL DEBT (Sec Daily): Local governments will likely issue over CNY1 trillion in bonds in Q4, as about CNY400 billion of the special bond quota remains, while authorities may continue to increase issuance of special refinancing bonds to swap out implicit debts. There are 17 provinces that have disclosed their refinancing plans totaling CNY726 billion as of Oct 13, with the scale exceeding market expectations reflecting great capital demand, according to Feng Lin, analyst at Golden Credit Rating. Wind Information shows up to CNY3.5 trillion infrastructure project-backed special bonds were issued as of Oct 19.
GDP (MNI): Authorities should cut interest rates to maintain the strong Q3 recovery momentum into Q4, according to Pang Ming, chief economist at Jones Lang LaSalle Greater China. Despite Q3 GDP growth exceeding expectations, authorities still need to address insufficient demand, Pang added. Additionally, the government should reduce financing costs for firms and households and maintain proactive fiscal policy through advancing special-bond issuance and post-investment funds to strengthen demand. Liu Yuanchun, president of Shanghai University of Finance and Economics, said officials had begun to see the property market stabilise, but the large scale of adjustment means investors need to take a long-term view on the sectors' recovery.
STEEL (21st Century Herald): China’s building industry has reduced its proportion of steel demand from 40% of total steel output to 30% in 2023, according to Wang Guoqing, head of the Lange Steel Research Center. Wang said as policymakers promote modern industrialisation, buyers are demanding more industrial grade steel and less construction. China’s proportional demand for high-value-added steel varieties will continue increasing, as the country focuses on boosting consumption in the automotive, consumer goods, cars and home appliances sectors, Wang added. The National Bureau of Statistics announced recently China's crude steel production in September 2023 was 82.11 million tons, down 5.6% y/y but year to date remained up 1.7%.
CHINA MARKETS
MNI: PBOC Injects Net CNY733 Bln Via OMO Fri; Rates Unchanged
The People's Bank of China (PBOC) conducted CNY828 billion via 7-day reverse repo on Friday, with the rate unchanged at 1.80%. The operation has led to a net injection of CNY733 billion after offsetting the maturity of CNY95 billion reverse repos today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.9320% at 09:35 am local time from the close of 2.0723% on Thursday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 50 on Thursday, compared with the close of 58 on Wednesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
PBOC Yuan Parity Lower At 7.1793 Friday vs 7.1795 Thursday.
The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1793 on Friday, compared with 7.1795 set on Thursday.
MARKET DATA
New Zealand Sep Trade Balance $-2.329mn; Prior -2.273bn
UK Oct GfK Consumer Confidence -30; Prior -21
Japan Sep National CPI 3.0% Y/Y; Prior 3.2%
Japan Sep National CPI Ex Fresh Food 2.8% Y/Y; Prior 3.1%
Japan Sep National CP Ex Fresh Food, Energy 4.2% Y/Y; Prior 4.3%
MARKETS
US TSYS: Marginally Richer In Asia
TYZ3 deals at 105-24, +0-10+, a 0-10 range has been observed on volume of ~123k.
- Cash tsys sit 1-5bps richer across the major benchmarks, light bull flattening is apparent.
- Tsys ticked higher through the Asian session as risk-off flows added a layer of support, US Equity Futures are lower and the USD has ticked higher. President Biden noted in an address to the nation that he will be asking congress for ~$100 billion in resources for Israel, Ukraine, Taiwan and the US southern border.
- There several highlights flow wise including buyers in TY (4.35k) US (2.65k) and FV (3k).
- Fedspeak from Dallas Fed President Logan crossed early in the session, she noted she is not yet convinced that CPI is trending toward target but higher long term yields will give the Fed time to evaluate data.
- German PPI and UK Retail Sales provide the highlights in today's European session, further out the data calendar is thin. Fedspeak from Philadelphia Fed President Harker and Cleveland Fed President Mester is due.
JGBs: Futures Near Session Highs, Tracking US Tsys In Asia-Pac
In Tokyo afternoon dealings, JGB futures are stronger and near session highs, +13 compared to the settlement levels, having more than reversed overnight weakness induced by US tsys.
- There hasn’t been much in the way of domestic drivers to flag, outside of the previously outlined National CPI, which printed in line with expectations at the headline level but slightly above expectations for core and core-core measures.
- Accordingly, the direction in JGBs has likely been assisted by the partial reversal of yesterday’s US tsy weakness in today’s Asia-Pacific session. Cash US tsys are 1-5bps richer, with the curve flatter. Reuters reported that drones had hit US bases in Iraq.
- Cash JGBs are mixed, with the belly of the curve performing the best. Yield movements are ranging from -1.2bps to +1.7bps. The 5-year is outperforming on the curve at 0.362% after BOJ said it would offer 5-year loans to banks on Tuesday (See link ICYMI). The benchmark 10-year yield is 0.2bp lower at 0.838% versus the cycle high of 0.851% set yesterday.
- The swaps curve is richer, with the belly outperforming. Swap spreads are tighter.
- Next week, the local data calendar is empty on Monday ahead of Jibun Bank PMIs and Department Sales on Tuesday.
- Monday sees BOJ Rinban operations covering 1- to 25-year JGBs.
AUSSIE BONDS: Dealing At Session Highs, US Tsys Richer, Q3 CPI Next Wednesday
ACGBs (YM +5.0 & XM +5.5) sit at highs after grinding higher through the Sydney session. With the local calendar empty, the unwinding of early weakness appears linked to the partial reversal of yesterday’s US tsy weakness in today’s Asia-Pacific session. Cash US tsys are 1-5bps richer, with the curve flatter. Reuters reported that drones had hit US bases in Iraq.
- That said, today’s local price action was also likely supported by technically driven buying. Some local participants have possibly used the heavy price action this week to either cover shorts or enter longs after futures contracts were pushed to cycle lows.
- Cash ACGBs are 5-6bps richer, with the AU-US 10-year yield differential 3bps lower at -21bps.
- Swap rates are 6bps lower, with EFPs little changed.
- The bills strip has bull-flattened, with pricing +2 to +7.
- RBA-dated OIS pricing is 1-7bps softer, with Dec’24 leading.
- Next week, the local calendar sees nothing on Monday, ahead of Judo Bank PMI data and RBA Governor Bullock’s speech at CBA’s Annual Conference on Tuesday. Q3 CPI data is due on Wednesday, with Bloomberg consensus expecting a cooling in headline and core CPI measures. The Trimmed Mean measure is forecast to fall to 5.0% y/y from 5.9%.
- Next Friday, the AOFM plans to sell A$800mn 0.5% Sep-26 bond.
NZGBS: Bull Flattening As US Tsys Partially Reverse Thursday’s Move
NZGBs bull-flattened, with benchmark yields flat to 4bps lower. In addition to the previously outlined trade balance data, price action today has likely been influenced by strong demand (cover ratios 2.5x to 3.8x) seen at the weekly supply. Technical issues within the YieldBroker tendering system prompted the NZ Debt Management office to reschedule yesterday's bond auction to today.
- Nevertheless, today’s intra-session strengthening in NZGBs, particularly for the 10-year, appears linked to a partial reversal of yesterday’s US tsy weakness in today’s Asia-Pacific session. Cash US tsys are 1-5bps richer, with the curve flatter.
- Swap rates closed 3-4bps lower, with implied swap spreads narrower.
- RBNZ dated OIS pricing closed 1-5bps softer across meetings. Terminal OCR expectations sit at 5.63%, the lowest level since mid-September and 23bps lower than early October levels.
- Next week, the local calendar is light until ANZ Consumer Confidence on Friday.
- Next Thursday, the NZ Treasury plans to sell NZ$200mn of the 4.5% May-27 bond, NZ$200mn of the 3.5% Apr-33 bond and NZ$100mn of the 2.75% May-51 bond.
GOLD: Firmer In Asia-Pac After A Large Gain On Thursday
Gold is 0.2% higher at a 13-week high in the Asia-Pac session, after closing +1.4% at $1974.46, off a high of $1977.78, on Thursday.
- The demand for bullion remains robust, primarily driven by a surge in safe-haven purchases due to escalating tensions in the Middle East. The US has reported an increase in drone attacks in Iraq and Syria. Additionally, an American destroyer in the Red Sea intercepted cruise missiles launched at Israel by Houthi rebels in Yemen.
- Once again, geopolitical risk dominated a further climb for US Treasury yields. Higher government bond yields, in the face of rising geopolitical uncertainty, appear to have driven flows into alternative portfolio hedges like gold, which has rebounded almost 10% off the October lows.
- According to MNI’s technicals team, Thursday’s clearance of $1965.5 (61.8% retrace of May 4 – Oct 6 bear leg) opens $1987.5 (Jul 20 high).
FOREX: Antipodeans Lower In Asia, Narrow Ranges Elsewhere On Friday
The Antipodeans are lower in Asia today, AUD and Kiwi continued moves seen late in yesterday's NY session before paring losses as US Tsys ticked higher. WTI has firmed back above the $90/barrel handle and US Equity Futures are lower.
- Kiwi is the weakest performer in the G-10 space down ~0.3% a touch above YTD lows, last printing at $0.5830/35. Downside support now comes in at $0.5812, low from 19 Oct, the $0.58 handle and $0.5719 a Fibonacci projection.
- AUD/USD is down ~0.2% at $0.6315/20. Technically the outlook remains bearish, support comes in at $0.6286 Low Oct 3 / 13 and the bear trigger. Upside resistance is seen at $0.6393 High Oct 18.
- Yen is little changed looking through a mixed September CPI report and has dealt in narrow ranges today. Attention is on the 150.00 handle and the recent 150.16 high (Oct 3). A clear break of 150.00 would reinforce bullish conditions and open 150.40, a Fibonacci projection. On the downside, a breach of 147.43, Oct 3 low, would be an important bearish development.
- Elsewhere in G-10 EUR and GBP are a touch lower however ranges have been narrow. BBDXY is up ~0.05%.
- German PPI and UK Retail Sales provide the highlights in today's European session.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 20/10/2023 | 0600/0800 | ** |  | DE | PPI |
| 20/10/2023 | 0600/0700 | *** |  | UK | Public Sector Finances |
| 20/10/2023 | 0600/0700 | *** | | UK | Retail Sales |
| 20/10/2023 | 0600/0800 | ** |  | SE | Unemployment |
| 20/10/2023 | 1230/0830 | ** |  | CA | Retail Trade |
| 20/10/2023 | 1300/0900 |  | US | Philadelphia Fed's Pat Harker | |
| 20/10/2023 | 1615/1215 | | US | Cleveland Fed's Loretta Mester | |
| 20/10/2023 | 1930/1530 | ** | | US | Treasury Budget |
| 20/10/2023 | 2000/1600 | | US | Fed Financial Stability Report |
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.