- BLINKEN HEADS TO MIDDLE EAST FOR NEW CEASEFIRE PUSH AS ISRAEL STRIKES BEIRUT - RTRS
- FED’S DALY EXPECTS MORE RATE CUTS AHEAD - MNI BRIEF
- FED’S SCHMID PREFERS GRADUAL CUTS, TO HIGHER NEUTRAL - MNI BRIEF
- JAPAN CORP LOAN DEMAND RISES - BOJ SURVEY - MNI BRIEF
- CHINESE FIRMS INCREASINGLY HEDGING CURRENCY RISK - MNI BRIEF
Fig. 1: US 10yr Yield Following Trump Election Odds Higher
Source: MNI - Market News/Bloomberg
UK
BOE (MNI BRIEF): Many UK borrowers are on fixed rate mortgages and the full impact of higher interest rates is still being felt and this may mean that a consumption rebound will lag despite policy rate cuts, Megan Greene, independent Bank of England Monetary Policy Committee member said in an op-ed in the Financial Times Monday.
EU
EU (BBG): " Car sales in Europe fell in September for the first consecutive monthly decline in more than two years as the region’s economy continued to stagnate and consumers trimmed spending."
ITALY (BBG): “Italian Premier Giorgia Meloni’s government is pushing through new legislation in a bid to salvage her controversial plan on illegal migration, after a court in Rome blocked her long-delayed program to divert asylum seekers to Albania.”
RUSSIA (BBG): " Russia’s role in the European Union’s liquefied natural gas market is growing, even as the bloc weighs how to clamp down on supplies from the nation."
US
FED (MNI BRIEF): The Federal Reserve will keep cutting interest rates as inflation continues trending lower, San Francisco Fed President Mary Daly said Monday. “I expect additional cuts going forward to continue as inflation comes down,” she said during a Q&A with The Wall Street Journal.
FED (MNI BRIEF): Kansas City Federal Reserve President Jeff Schmid said Monday he prefers the central bank scale back rate cuts to more modest adjustments so there is time to observe the economy’s reaction and to assess the neutral rate, which is likely "well above" what it was in the decade before the pandemic.
FED (MNI BRIEF): Minneapolis Fed President Neel Kashkari on Monday said he expects a "modest" decrease in the central bank's policy rate in coming quarters, but added that if the labor market surprisingly weakens then he could see a quicker fall in interest rates.
OTHER
MIDEAST (RTRS): “U.S. Secretary of State Antony Blinken headed to the Middle East on Monday to launch another push for an elusive ceasefire, seeking to revive negotiations to end the Gaza war and defuse the spillover conflict in Lebanon.”
JAPAN (MNI BRIEF): Demand for financing by Japanese corporates via banks rose over Q3 amid sales and capital investment increases, and the drop of internally-generated funds, according to the senior loan officer opinion survey on bank lending practices released by the Bank of Japan Tuesday.
CANADA (MNI): The BOC is lagging on rate cuts with a model linked to how officials say they react symmetrically to misses of their target suggesting borrowing costs should already be a quarter- to a half-point lower, according to an upcoming paper from the C.D. Howe Institute.
CHINA
POLICY (PEOPLE’S DAILY): “Authorities must enhance policy consistency in the implementation of China’s package of additional policies, which form a systematic deployment aimed at high-quality development, said the Party-run newspaper People’s Daily in a commentary.”
GROWTH (21ST CENTURY BUSINESS HERALD): “Guangdong province, one of the country's economic powerhouses, registered a 3.4% y/y growth in the first three quarters, 21st Century Business Herald reported. The province’s fixed-asset investment fell 3.4% during this period, but the figure rose 3.5% excluding property investment.”
BONDS (BBG): “Central Huijin Investment Ltd., a unit of China’s sovereign wealth fund that has at times bought equity to stabilize the stock market, issued bonds that pushed its total local debt sales this year to a record.”
FX (MNI BRIEF): Chinese firms are increasingly hedging their forex risk via derivatives, with 27% of companies using the instruments since the start of the year, an historical high, according to Li Hongyan, deputy director general at the State Administration of Foreign Exchange.
YUAN (BBG): “China will carry out counter-cyclical adjustments in a timely manner to maintain a stable foreign exchange market, SAFE’s deputy chief Li Hongyan says in a briefing.”
CHINA MARKETS
MNI: PBOC Net Injects CNY90.1 Bln via OMO Tuesday
The People's Bank of China (PBOC) conducted CNY158.4 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY90.1 billion after offsetting the maturity of CNY68.3 billion today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5464% at 09:23 am local time from the close of 1.6277% on Monday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 47 on Monday, compared with the close of 50 on Friday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
MNI: PBOC Sets Yuan Parity Higher At 7.1223 Tues; +2.86% Y/Y
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1223 on Tuesday, compared with 7.0982 set on Monday. The fixing was estimated at 7.1230 by Bloomberg survey today.
MARKET DATA
NEW ZEALAND SEP TRADE BALANCE NZD -2108MN; PRIOR -2306MN
NEW ZEALAND SEP EXPORTS NZD 5.01BN; PRIOR 4.85BN
NEW ZEALAND SEP IMPORTS NZD 7.12BN; PRIOR 7.15BN
NEW ZEALAND SEP TRADE BALANCE NZD 12mth YTD -9086MN; PRIOR -9399MN
MARKETS
US TSYS: Tsys Futures Erase Earlier Gains, 10yr Yield Tracks Trump/Harris Spread
- Tsys futures continue to push lower and now comfortably trade below Monday's lows, volumes are almost double those of recent averages. The front-end is holding up better than further out the curves although it has given back earlier gains. TU is - 01 at 103-08, while TY is -06+ at 111-10 and has broken below 111-14 (50.0% retracement of the Apr - Sep bull cycle (cont)), with next support seen at the July 22 lows of 111-00.
- The cash tsys curve has bear-steepened, an earlier TU/UXY block steepener looks to have contributed to the sell-off over the past few hours. The 2yr is +1bps at 4.041%, while the 10yr is +1.8bps at 4.214% back at July 26 highs. The 2s10s is +1bps at 17.253, the steepest since Sept 27th
- The 10yr yield have been tracking the Polymarket Trump v Harris spread, with Trump taken a commanding lead with odds now 63.5% vs 36.3%, while the 10yr yield is now 60bps off the September lows.
- The Fed's Mary Daly stated that the Fed is likely to continue cutting interest rates to protect the labor market from further weakening, noting no signs to halt rate reductions. Last month, the Fed lowered rates by half a percentage point to 4.75%-5%, with Daly supporting the larger cut due to labor market concerns. There was little reaction from tsys following her comments.
- Projected rate cuts recede vs. Monday morning's levels (*): Nov'24 cumulative -23bp (-23.0bp), Dec'24 -39.7bp (-42.7bp), Jan'25 -57.6bp (-60.1bp)
- There is no meaningful economic data, focus on home sales flash PMIs, weekly claims, durables and UofM sentiment later this week.
JGBS: Cheaper, Local Calendar Is Light Again Tomorrow, Tokyo CPI On Friday
JGB futures are weaker but off session cheaps, -31 compared to settlement levels.
- The MoF sold ¥350bn of 10-year climate transition notes at a slightly lower-than-expected cut-off yield, signaling decent investor demand. The cut-off yield was 0.943%, compared with 0.945% estimated by traders in a Bloomberg survey.
- Cash US tsys have extended yesterday’s sharp back-up in yields. US yields are currently flat to 2bps higher, with a steepening bias, after being 1-2bps lower early in the session. The focus is now on home sales, flash PMIs and weekly claims, durables and UofM sentiment later this week.
- Cash JGBs are 2-4bps cheaper across benchmarks. The benchmark 10-year yield is 1.7bps higher at 0.981% versus the cycle high of 1.108%.
- Swap rates are flat to 1bp higher, with swap spreads tighter.
- Tomorrow, the local calendar is empty, ahead of Jibun Bank PMIs, Weekly International Investor Flow and Machine Tool Orders data on Thursday. Thursday will also see 20-year supply.
- Tokyo CPI prints on Friday, while this weekend is the legislative elections, where new PM Ishiba's ruling party is struggling in the polls.
AUSSIE BONDS: Sharply Cheaper & At Worst Levels As US Tsys Extend Sell-Off
ACGBs (YM -11.0 & XM -14.5) are weaker and at session cheaps, as cash US tsys extend yesterday’s sharp back-up in yields. US yields had been 1-2bps lower early in the session. The local calendar was empty today and will be light again tomorrow.
- Cash ACGBs are 10-14bps cheaper with the AU-US 10-year yield differential at +21bps.
- The cash 3/10 curve steepened by 4bps, reaching its highest level since early November 2023. The ACGB 3/10 cash curve has been closely aligned with recent upward pressure on the US 10-year tsy yield. This is reflected in the 30-day correlation between the two, which has returned to positive territory after two months in negative territory. Since mid-September, the US 10-year yield has risen by 55-60bps. Over the same period, the ACGB 3/10 cash curve has steepened by 15bps, now standing at 50bps.
- Swap rates are 10-14bps higher, with the 3s10s curve steeper.
- The bills strip has bear-steepened, with pricing -3 to -11.
- RBA-dated OIS pricing is 4-11bps firmer for 2025 meetings, with late-2025 leading. A cumulative 3bps of easing is priced by year-end.
- Tomorrow, the local calendar is empty apart from the AOFM’s planned sale of A$800mn of the 4.25% 21 December 2035 bond.
NZGBS: Closed Well Off Cheaps, Dramatically Outperformed $-Bloc
The NZGB 2/10 curve twist-steepened, with yields closing 1bp lower to 4bps higher, after a dramatic mid-session reversal. Earlier in the session, NZGB yields had been 4-7bps cheaper after the US tsys negative lead-in from the NY session.
- NZ-US and NZ-AU 10-year yield differentials narrowed an impressive 7-8bps on the day.
- With the local calendar light, the reversal of fortune appeared linked to record investor interest in today’s government bond issue. NZDM issued $5bn of the May-30 bond via a syndicated tap, with the total book size topping $23.9bn. The previous record book size was $22.760bn for the Aug-36 line. Bonds were issued at +15 bps over Apr-29 bond, with a yield to maturity of 4.17%.
- Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session, extending yesterday’s sharp back-up in yields. Yields had been 1-2bps lower early in the session.
- Swap rates closed 3-7bps higher, with the 2s10s curve steeper and implied swap spreads 2-3bps wider.
- RBNZ dated OIS pricing is 2bps softer to 4bps firmer, with July 2025 underperforming. A cumulative 103bps of easing is priced by February, with 57bps by year-end.
- Tomorrow, the local calendar is empty. RBNZ Governor Adrian Orr will speak about monetary policy at the Peterson Institute on Thursday.
FOREX: Yen Underperforms AUD and NZD Amid Yield Surge
The USD BBDXY index sits slightly lower in the first part of Tuesday dealings, last near 1256.6, but there has been greater focus on AUD and NZD outperformance, particularly against the yen.
- USD/JPY has hit fresh multi month highs, getting to 151.10, but sits slightly lower now, last near 150.90. Earlier comments crossed from the Deputy Cabinet Secretary that he would not comment on current FX rate (per BBG).
- We also heard from BoJ official Kato that the central bank is not targeting a specific FX level, but is watching upside risks from import prices closely. Kato also stated the central bank is watching US economy/election risks as well (per Jiji/RTRS).
- The turnaround in US yields, which were softer in the first part of trade, to tick higher (now up a little over 1bps at the back end), helped push USD/JPY higher.
- AUD and NZD both sit around 0.40% higher. AUD/USD last near 0.6680/85, while NZD is near 0.6055.
- We have seen a very sharp sell off in Aussie bonds, with yields up over 14bps for the 10yr. This looks globally driven on US/EU spill over, but has nevertheless likely helped the AUD today.
- China/HK equities have also tracked higher to the break, another marginal positive. US equity futures hold lower at this stage.
- Looking ahead, we have US data in terms of the Richmond Fed survey, while the BoE's Bailey will also speak. We also hear from the ECB's Lagarde.
ASIA STOCKS: Asian Equities Edge Lower Amid Political Uncertainty
Asian markets are mostly lower today, largely just a continuation from overnight on Wall street. US tsys yields are reversing earlier gains, there is uncertainty in Japan surrounding the upcoming general election and weak domestic demand have also weighed on the local market. It is a quiet week for economic data in the region this week
- China & Hong Kong equities are little changed today, Ping An Insurance's reported strong quarterly earnings, while Chinese electric-vehicle makers saw a rise in their shares after surpassing sales estimates for the week starting Oct. 7, with sales showing a 62% w/w growth, significantly stronger than initial forecasts.
- Short selling of HK listed equities hit its lowest in three and a half years, thanks to a rally triggered by a series of Chinese stimulus measures. Short positions made up only 9.7% of total turnover on Friday, a level not seen since April 2021, although it edged slightly higher to 10.7% on Monday.
- Asian Tech stocks are struggling today, with Samsung (-1.30%), TSMC (-1.40%), Tokyo Electron (-2.50%) which has weighed on teh tech heavy KOSPI (-1%) & TAIEX (-0.60%). Foreign investors have returned to selling South Korean stocks with $144m of outflows so far today, with majority coming from tech stocks, although there has been buying of Financial stocks.
- Australian equities are the worst performing in the region today, with all sectors in the red. There doesn't seem to be much of a catalyst for the underperformance, other than caution heading into the US election, investors looking to book profit after the ASX200 recently made new all time highs. Today the ASX200 is trading 1.60% lower.
OIL: US Officials in the Middle East Hoping for Cease Fire Ahead of Election.
- Ahead of next month’s US Presidential Election, US officials arrived in the Middle East hoping to secure a cease fire in the war
- Secretary of State Antony Blinken will visit Israel whilst US envoy Amos Hochstein headed to Beirut.
- The Head of the International Energy Agency Fatih Birol told BBG TV in Singapore on Monday that “If we don’t see a major escalation of the situation in the Middle East, I still expect that oil prices will be further under pressure because we are entering a period, including next year, of more comfortable markets.”
- Brent’s prompt spread — the difference between its two nearest contracts — has narrowed in recent weeks, suggesting physical conditions are becoming less tight. The differential was 35 cents a barrel in backwardation, compared with 69 cents about a month ago.
- WTI had traded up through US$71/bbl during yesterday's trading session and gave back earlier gains later to be at $70.43.
- Brent followed a similar trend trading up through US$74.50/bbl and is down at $74.08 this morning.
- Middle East tensions continue to simmer following a drone attack on Israeli PM Benajmin Netanyahu’s home which was followed swiftly by attacks on Hezbollah strongholds in Lebanon.
- Also, in Singapore the CEO of Saudi Aramco spoke as news that China banks were cutting lending rates to support the economy saying he was bullish on consumption patterns in China as ongoing stimulus measures begin to impact the world’s largest oil importer.
Gold is 0.3% higher in today’s Asia-Pac session, after closing steady on Monday, having risen to a fresh record high of $2,740.6 earlier in the session.
- There was no obvious headline for the pullback from the highs, as higher Treasury yields and the bid in the dollar started to reassert themselves.
- There was little reaction to MN Fed Kashkari town hall event, where he said rates will surge if the US deficit "goes to the moon". Meanwhile, Kansas City Federal Reserve President Jeff Schmid said Monday aftermarket that he prefers the central bank scale back rate cuts to more modest adjustments. Hence, there is time to observe the economy’s reaction and to assess the neutral rate, which is likely "well above" what it was in the decade before the pandemic.
- Lower rates are typically positive for gold, which doesn’t pay interest.
- According to MNI’s technicals team, technicals remain bullish, with sights on $2,767.1 next, the 3.236 projection of the Jul 25 - Aug 2 - Aug 5 price swing.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 22/10/2024 | 0600/0700 | *** |  GB | Public Sector Finances |
| 22/10/2024 | 0900/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 22/10/2024 | 1230/0830 | * |  CA | Industrial Product and Raw Material Price Index |
| 22/10/2024 | 1230/0830 | ** |  US | Philadelphia Fed Nonmanufacturing Index |
| 22/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 22/10/2024 | 1325/1425 | GB | BOE's Bailey address at Bloomberg Global Regulatory Forum | |
| 22/10/2024 | 1345/1445 | GB | BOE's Greene fireside chat with Josh Lipsky | |
| 22/10/2024 | 1400/1000 | ** | US | Richmond Fed Survey |
| 22/10/2024 | 1400/1600 |  EU | ECB's Lagarde in conversation with Francine Lacqua | |
| 22/10/2024 | 1500/1700 | EU | ECB's Lane in fireside chat at Seminar of Bank of New York | |
| 22/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 22/10/2024 | 1915/2115 | EU | ECB's Lagarde in panel discussion on cross border payments | |
| 22/10/2024 | 2000/2200 | EU | ECB's Lane at Columbia University seminar | |
| 22/10/2024 | 2015/2115 | GB | BOE's Breeden panellist at G20 cross-border payments event | |
| 23/10/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 23/10/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 23/10/2024 | - | EU | ECB's Lagarde and Cipollone in G20 FMs and CB Governors meeting | |
| 23/10/2024 | 1300/1400 | GB | BOE's Breeden panellist at IIF meeting | |
| 23/10/2024 | 1300/0900 | US | Fed Governor Michelle Bowman | |
| 23/10/2024 | 1345/0945 | CA | BOC Monetary Policy Report | |
| 23/10/2024 | 1345/0945 | *** | CA | Bank of Canada Policy Decision |