EXECUTIVE SUMMARY
- POWELL SAYS FED NOT IN HURRY TO EASE QUICKLY - MNI
- ISRAEL SAYS IT HAS BEGUN ‘TARGETED’ GROUND RAIDS IN LEBANON - BBG
- BOJ OPINIONS NEED TO MULL RATE HIKES CAUTIOUSLY - MNI
- BOJ TANKAN SEES KEY SENTIMENT RISE, SOLID CAPEX PLANS- MNI
- RBNZ TO WEIGH BUSINESS CONFIDENCE RECOVERY IN LOOMING RATES CALL - BBG
Fig. 1: Australia Retail Sales Y/Y - Trend Improving
Source: MNI - Market News/Bloomberg
UK
DATA (MNI): BRC-NielsenIQ Shop Prices fell further printing -0.6% Y/Y in September, (vs -0.3% in August) the second consecutive negative year-on-year print. On a monthly basis, Shop Prices also fell by 0.2% M/M (vs 0.0% prior).
BOE (BBG): “A consumption-driven recovery in the UK could set off a renewed bout of inflation, but more interest rate cuts are likely as prices are “moving in the right direction,” Bank of England policymaker Megan Greene said.”
ECONOMY (BBG): “Business chiefs are the most pessimistic they have been about Britain’s economy since late 2022, when the country was still reeling from the effects of Liz Truss’s short spell as prime minister.”
EU
GERMANY (BBG): “Chancellor Olaf Scholz said Germany must attract more skilled workers from abroad and move faster to integrate new arrivals into the labor market to help get the struggling economy back on track.”
GERMANY/UAE (WSJ): “An oil producer from the United Arab Emirates is finally set to clinch a $13 billion-plus deal for Germany's Covestro -- a big bet on chemicals as part of its effort to transform into a fully integrated energy company akin to Exxon Mobil and other U.S. majors.”
US
FED (MNI BRIEF): Federal Reserve Chair Jerome Powell said Monday a strong economy means the central bank does not have to rush in reducing interest rates. “This is not a committee that feels like it’s in a hurry to cut rate quickly,” Powell said during a Q&A hosted by the National Association of Business Economics. “From a base case standpoint, we’re looking at it as a process that will play out over some time, not something that we need to go fast on.
FED (MNI BRIEF): U.S. interest rates are "well above" where they need to be over the medium term and are set to fall significantly over the next year or more, Federal Reserve Bank of Chicago President Austan Goolsbee said Monday.
OTHER
ISRAEL (BBG): “Israel said Monday night that it had begun “targeted ground raids” in southern Lebanon, escalating a campaign to root out Hezbollah despite international appeals for restraint.”
JAPAN (MNI): Japanese benchmark business sentiment remained unchanged over Q3, despite sentiment among major non-manufacturers posting its first rise in two quarters, the Bank of Japan’s September Tankan business sentiment survey released Tuesday showed.
JAPAN (MNI): Several Bank of Japan board members emphasised the need to consider raising the policy interest rate cautiously amid unstable markets and uncertainty over the U.S. economy at the Sept 19-20 meeting, the summary of opinions showed on Tuesday.
JAPAN (MNI BRIEF): The Bank of Japan's closely watched five-year Japanese firm inflation expectations, in addition to the one- and three year view, held above 2% over Q3, the BOJ September Tankan survey released on Tuesday showed, supporting the central bank’s view that the country's ingrained deflationary mindset is shifting.
AUSTRALIA (BBG): “Australian retail sales rose by more than expected in August as tax cuts and warmer weather encouraged households to spend more on dining out and on clothing and footwear, reinforcing the case for interest rates to remain on hold for the time being.”
NEW ZEALAND (MNI): RBNZ Set For Governance Shift After Banking Inquiry
NEW ZEALAND (BBG): “While economy contracted in 2q “more recent evidence suggests we are at or near the bottom of the economic cycle.” “We have seen inflation ease, interest rates begin to fall, and business and consumer expectations about future conditions improve. ”Says activity has likely remained flat through the third quarter “with no firm sign of a recovery just yet”
NEW ZEALAND (BBG): “New Zealand’s central bank will have to weigh signs of slowing inflation against a rebound in business confidence when it decides how much to cut interest rates by next week. While firms are struggling to raise prices due to weak demand, they are also more upbeat about the economic outlook now that borrowing costs are falling, the New Zealand Institute of Economic Research said Tuesday in Wellington.”
MARKET DATA
NEW ZEALAND AUG BUILDING PERMITS M/M -5.3%; PRIOR 26.4%
AUSTRALIA SEP F JUDO BANK PMI MFG 46.7; PRIOR 46.7
AUSTRALIA AUG BUILDING APPROVALS M/M -6.1%; MEDIAN -4.3%; PRIOR 11.0%
AUSTRALIA AUG RETAIL SALES M/M 0.7%; MEDIAN 0.4%; PRIOR 0.1%
**MNI BOJ SEPT TANKAN LARGE MFG INDEX +13; JUNE +13; MEDIAN +14
BOJ TANKAN LARGE NON-MFG INDEX +34; JUNE +33; MEDIAN +32
BOJ DEC TANKAN LARGE MFG INDEX FORECAST AT +14
BOJ DEC TANKAN LARGE NON-MFG INDEX SEEN AT +28
**MNI JAPAN AUG JOBLESS RATE FALLS TO 2.5% FROM JULY 2.7%
MNI: UK SEP BRC SHOP PRICES -0.2% M/M, -0.6% Y/Y
SOUTH KOREA SEP EXPORTS Y/Y 7.5%; MEDIAN 6.4%; PRIOR 11.2%
SOUTH KOREA SEP IMPORTS Y/Y 2.2%; MEDIAN 5.0%; PRIOR 6.0%
SOUTH KOREA SEP TRADE BALANCE $6658MN; MEDIAN $5000MN, PRIOR $3770MN
MARKETS
US TSYS: Tsys Futures Erase Earlier Gains, PMIs & More Fed Speak Later Today
- Tsys futures have reversed earlier gains and now trade near session lows although still well off the lows made overnight, as headlines out of the middle east have seem to slow while the USD saw buying following dovish comments from the BoJ.
- US Dockworkers strike set to go ahead after no deal announced, equities ticked slightly lower on these headlines but so far moves have been limited.
- TU is trading +00⅞ at 104-04¾, vs lows of 104-04⅜, while TY is now unchanged for the Asian session at 114-13, vs lows of 114-12
- The Fed's Powell reaffirmed that interest rates will be lowered "over time" as inflation continues to move toward the 2% target, while emphasizing that future rate decisions will depend on incoming economic data and the pace of labor market cooling. Powell noted the Fed is not rushing rate cuts, leaving the door open for gradual easing depending on economic conditions.
- Cash tsys curves have reversed their earlier flattening move and are twist steepening with the front-end outperforming, yields are +0.5bps to -1bps with the 2yr -0.6bps at 3.635%, while 10yr is +0.2bp at 3.783%.
- Later today we have flash PMI, JOLTS and ISMs and more Fed speak from Bostic, Barkin and Cook.
BOJ: Cash Curve Twist-Flattening After BoJ’s SoO
JGB futures are holding in positive territory, +6 compared to settlement levels.
- Several Bank of Japan board members emphasised the need to consider raising the policy interest rate cautiously amid unstable markets and uncertainty over the US economy at the Sept 19-20 meeting, the summary of opinions showed.
- “The Bank's basic thinking remains that if the outlook for economic activity and prices will be realised, the Bank will adjust the degree of monetary accommodation accordingly,” one member noted. “That said, financial markets have remained unstable. In making policy decisions, it is important for the Bank to carefully assess not only developments in financial markets at home and abroad but also the factors underlying these developments, such as the situation in overseas economies, particularly the U.S. economy.”
- Cash US tsys are flat to 1bp richer in today’s Asia-Pac session.
- The cash JGB curve continues to hold a twist-flattening, pivoting at the 2-year, with yields 4bps higher to 4bps lower.
- Swap rates are 2bps lower to 3bps higher, with a steepening bias. Swap spreads are tighter out to the 10-year and mixed beyond.
- Tomorrow, the local calendar will see Monetary Base and Consumer Confidence data alongside BoJ Rinban Operations covering 1-5-year and 25-year+ JGBs.
AUSSIE BONDS: Cheaper & At Worst Levels, Mixed Domestic Data
ACGBs (YM -2.0 & XM -0.5) are weaker and near session cheaps after today’s mixed domestic data.
- At face value, the retail sales data suggested some positive impact from the government's tax cuts/costs of living relief measures. The ABS also noted: “This year was the warmest August since 1910, which saw more spending on items typically purchased in spring.”
- Concerning building approvals: "The movements in dwellings excluding houses continue to be the result of volatility in apartment approvals, with the broad environment around apartments remaining subdued," said Daniel Rossi, ABS.
- Cash US tsys are flat to 1bp richer in today’s Asia-Pac session.
- Cash ACGBs are cheaper with the belly underperforming. The AU-US 10-year yield differential at +22bps.
- Swap rates are 1-3bps higher, with the 3s10s curve flatter.
- The bills strip is cheaper, with pricing -3 to -5 across contracts.
- RBA-dated OIS pricing sits 1-4bps firmer across meetings. Notably, pricing for 2025 meetings is now 2-4bps higher than pre-RBA levels on September 24.
- For context, these same meetings were 6-10bps softer compared to pre-RBA levels the day after the decision.
- Tomorrow, the local calendar is empty, apart from the AOFM’s planned sale of A$800mn of the 2.75% 21 June 2035 bond.
NZGBS: Closed On A Strong Note, NZIER Pricing Intentions Soften
NZGBs closed on a strong note, with benchmark yields 1-2bps lower, after being as much as 3bps higher earlier. This came despite a strengthening in business confidence.
- The NZIER Q3 Business Opinion Survey showed, after seasonal adjustment, a net 5% of businesses expect the economy to deteriorate versus a revised 40% in Q2. This was the strongest reading since Q2 2021.
- With cash US tsys little changed in today’s Asia-Pac session, the local market’s change in direction during the session appeared linked to NZIER pricing intentions.
- A net 3% of firms raised prices in Q3, which was the lowest reading since Q4 2020. Just 7% see price increases in Q4.
- NZIER expects a 25bp cut in the OCR next week but a case can be made for a bigger move given the decline in pricing expectations. BNZ has shifted to a 50bp cut next week.
- Swap rates closed 1-2bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed 1-3bps softer across meetings. A cumulative 91bps of easing is priced by year-end.
- Tomorrow, the local calendar is empty.
- Later today the US calendar flash PMI, JOLTS and ISMs data, and more Fed speak from Bostic, Barkin and Cook.
FOREX: Yen & NZD Lose Ground, A$ Outperformance Aided By Retail Sales Beat
The USD is firmer against JPY and NZD as the Tuesday session unfolds. Both currencies are down around 0.45% against the USD at this stage. The USD BBDXY index is slightly higher last near 1223.5.
- USD/JPY has spent most of the session tracking higher, the pair last 144.25/30, just off session highs (144.33). Whilst we are still comfortably below intra-session highs from Friday (146.49), it is still an impressive rebound from yesterday's lows at 141.65.
- Today's data pointed to a resilient economic backdrop, with the unemployment rate edging down, while the Q3 Tankan survey painted a positive outlook. The BoJ Summary Of Opinions from the September meeting didn't suggest there was any need to rush further rate hikes, with the central bank stating that CPI trends, wages and US developments are key watch points.
- This backdrop has weighed on yen at the margins, whilst onshore equity gains and a tick up in US equity futures have been other yen headwinds. US yields sit close to unchanged at this stage.
- NZD/USD has faltered back to 0.6325. Local bank BNZ calling for a 50bps cut in light of the softer NZIER survey figures earlier today.
- AUD/USD has outperformed, aided by a retail sales data beat, which has weighed on RBA easing expectations into 2025, albeit at the margin. The pair got to highs of 0.6935, but sits back at 0.6915 in latest dealings.
- Looking ahead, we have final EU PMI reads for September, as well as CPI as well. In the US it is the ISM print and the JOLTS job openings data.
ASIA: Asian Equities Mostly Higher, Japan Leads As Yen Falls
Global equities are mostly higher today as investors navigate central bank policy signals, political developments, and geopolitical risks. In Japan, stocks posted gains fueled by a weaker yen, boosting exporters like technology and automotive firms. The Topix +1.70% and Nikkei 225 +1.90% driven by positive sentiment following the BoJs dovish stance, even as the Tankan report bolstered confidence in the economy. U.S. Equity futures are little changed today. Investors remain cautious following headlines that Israel had begun “targeted ground raids” in southern Lebanon, escalating a campaign to root out Hezbollah despite international appeals for restraint and US Dockworkers strike is set to go ahead following now deal being reached.
- It has been a slow session, with very light trading as China, Hong Kong & South Korean markets are closed.
- Japanese equities are ticking higher post lunch, tech stocks particularly semiconductor names are the top performing sector with the likes of Tokyo Electron +3.2% & Disco Corp +4.30%, exporters are also trading well while Consumer Staples & Discretionary stocks are lagging today.
- Australia's ASX200 is -0.90% retreating from record highs with mining and banking stocks leading the decline BHP, Rio Tinto, and Fortescue dropping over 2%, while all major banks were also lower. Despite the market downturn, REA Group rose 5.2% after abandoning its Rightmove acquisition, Sigma Health surged 15.6% on acquisition news, and Appen continued its rally, up 10.2%.
- Asian EM is higher today, with Philippines's PSEi +1.20%, Indonesia's JCI +0.70%, Thailand's SET +0.85% while India's Nifty 50 is Flat.
OIL: Middle East Tensions Offset by Expected Supply Increase from Libya.
- West Texas Intermediate has stabilized for now above $68 as news breaks of the potential ground raids by Israel into Lebanon.
- As the markets digests the impending supply coming on line from Libya, it comes at a time when the ever evolving situation in the Middle East conflict evolves further.
- WTI is trading at $68.24 in the Asia morning session, with Brent at $71.78.
- Alongside the anticipated return of supply from Libya (following a compromise reached by regional governments over the new Central Bank Head for the country) OPEC has indicated that it will stick to its original plan to bring back online further production.
- All of this occurs against a backdrop of slowing global growth with China slowing down and the US cutting rates to avoid a rapid slowdown.
- For September, West Texas saw a decline of 7.30% and Brent 5.95%.
GOLD: Fed Chair Powell’s Comments Weigh
Gold is slightly higher in today’s Asia-Pac session, after closing 0.9% lower at $2634.58 on Monday.
- Bullion was pressured yesterday by Fed Chair Powell’s remarks at the NABE conference, where he stressed the Fed is not in a hurry to cut rates. He also emphasised that the overall US economy remains on solid footing.
- The US 2-year rate was up 8bps to 3.64%, while the 10-year was 3bps cheaper at 3.78%.
- Lower rates are typically positive for gold, which doesn’t pay interest.
- Today's US calendar will see flash PMI, JOLTS and ISMs data, and more Fed speak from Bostic, Barkin and Cook.
- According to MNI’s technicals team, last week’s move 0.9% move higher confirmed a resumption of the primary uptrend, with a focus on $2675.5 next, a Fibonacci projection. Firm support lies at $2583.9, the 20-day EMA.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Period | Country | Release | Prior | Consensus | |
| 01/10/2024 | 0630/0830 | ** | Aug |  CH | Retail Sales m/m | 1.4 | -- | % |
| 01/10/2024 | 0630/0830 | ** | Aug | CH | Retail Sales wda y/y | 2.7 | -- | % |
| 01/10/2024 | 0715/0915 | ** | Sep |  ES | S&P Global Manufacturing PMI | -- | -- | |
| 01/10/2024 | 0745/0945 | ** | Sep |  IT | S&P Global Manufacturing PMI | -- | -- | |
| 01/10/2024 | 0750/0950 | ** | Sep |  FR | S&P Global Manufacturing PMI (f) | -- | -- | |
| 01/10/2024 | 0755/0955 | ** | Sep |  DE | S&P Global Manufacturing PMI (f) | -- | -- | |
| 01/10/2024 | 0800/1000 | ** | Sep |  EU | S&P Global Manufacturing PMI (f) | -- | -- | |
| 01/10/2024 | 0830/0930 | ** | Sep |  GB | S&P Global Manufacturing PMI (f) | -- | -- | |
| 01/10/2024 | 0900/1100 | *** | Sep | EU | HICP (p) 'Core' y/y | 2.8 | 2.7 | % |
| 01/10/2024 | 0900/1100 | *** | Sep | EU | HICP (p) y/y | 2.2 | 1.9 | % |
| 01/10/2024 | 0900/1100 | *** | Sep | EU | HICP core m/m | 0.3 | -- | % |
| 01/10/2024 | 0900/1100 | *** | Sep | EU | HICP m/m | 0.1 | 0.1 | % |
| 01/10/2024 | 0900/1000 | ** | 04-Oct | GB | Bid to Cover Ratio | -- | -- | |
| 01/10/2024 | - | *** | Sep |  US | NA-made light vehicle sales SAAR | -- | -- | (m) |
| 01/10/2024 | 1255/0855 | ** | 28-Sep | US | Redbook Retail Sales y/y (month) | 5.2 | -- | % |
| 01/10/2024 | 1255/0855 | ** | 28-Sep | US | Redbook Retail Sales y/y (week) | 4.4 | -- | % |
| 01/10/2024 | 1345/0945 | *** | Sep | US | S&P Global Manufacturing PMI (f) | 47 | 47 | |
| 01/10/2024 | 1400/1000 | *** | Sep | US | ISM Man. Employment Index | 46 | -- | |
| 01/10/2024 | 1400/1000 | *** | Sep | US | ISM Manufacturing Index | 47.2 | 47.7 | |
| 01/10/2024 | 1400/1000 | *** | Sep | US | ISM Manufacturing New Orders | 44.6 | -- | |
| 01/10/2024 | 1400/1000 | *** | Sep | US | ISM Manufacturing Prices Index | 54 | -- | |
| 01/10/2024 | 1400/1000 | * | Aug | US | Construction Spending m/m | -0.3 | 0.1 | % |
| 01/10/2024 | 1400/1000 | *** | Aug | US | JOLTS job openings level | 7673 | 7693 | (k) |
| 01/10/2024 | 1400/1000 | *** | Aug | US | JOLTS quits rate | 2.1 | -- | % |
| 01/10/2024 | 1430/1030 | ** | Oct | US | Dallas Fed services index | -7.7 | -- | |
| 01/10/2024 | 1530/1130 | * | 04-Oct | US | Bid to Cover Ratio | -- | -- | |
| 01/10/2024 | 1530/1130 | ** | Sep | US | Bid to Cover Ratio | -- | -- |