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
- CHINA AUGUST PRODUCTION, SPENDING REBOUND AS EXPECTED - MNI BRIEF
- PBOC CUTS 14-DAY REVERSE REPO RATE, MLF RATE UNCHANGED - MNI
- BOJ TANKAN TO SHOW BETTER SENTIMENT, PRICE VIEWS - MNI BRIEF
- STRONG WAGES TO FRUSTRATE RBA’S INFLATION HOPES - MNI POLICY
- U.S. AUTO WORKERS LAUNCH FIRST SIMULTANEOUS STRIKE AT DETROIT THREE - RTRS
Fig. 1: CHina IP and Retail Sales Y/Y -Trend Improves
Source: MNI - Market News/Bloomberg
U.S.
LABOUR: The United Auto Workers union launched simultaneous strikes at three factories owned by General Motors, Ford and Chrysler parent Stellantis early on Friday, kicking off the most ambitious U.S. industrial labor action in decades. The walkouts at the "Detroit Three" will halt production of the Ford Bronco, Jeep Wrangler and Chevrolet Colorado pickup truck, along with other popular models. UAW President Shawn Fain said the union will hold off for now on more costly company-wide strikes, but said all options are open if new contracts are not agreed. (RTRS)
US/CHINA: A group of senior U.S. House Republicans on Thursday urged the Biden administration to crack down on Huawei and China's top semiconductor firm Semiconductor Manufacturing International Corp (SMIC) after reports suggested Huawei has developed an advanced smartphone. (RTRS)
POLITICS: House Speaker Kevin McCarthy, thwarted by hardliners from passing measures to fund the government and frustrated by their shutdown demands, dared conservative dissidents to try to oust him. “The speaker said, look if you want to make a motion to vacate the chair, bring it on,” Republican Representative Darrell Issa, a McCarthy ally, told reporters Thursday, using a parliamentary term for removing the speaker as he described McCarthy’s comments. (BBG)
POLITICS: The United States is divided over the Republican impeachment probe of Democratic President Joe Biden, according to a Reuters/Ipsos poll completed on Thursday, with a plurality of Americans supporting the idea. Some 41% of respondents said they supported the idea of Congress opening an impeachment investigation into Biden related to allegations involving his son Hunter Biden, while 35% were opposed and 24% said they were not sure. (RTRS)
OTHER
JAPAN: The Bank of Japan's September Tankan survey will show that business sentiment slightly improved and capital investment plans were revised up from three months ago, economists predicted. BOJ officials are focused on how inflation expectations held by businesses are evolving amid the drop of import prices. The BOJ will release the outcome of its Tankan quarterly business survey for Sept. at 0850 JST on October 2, Monday (2350 GMT on October 1, Sunday). (MNI)
JAPAN: Japan’s plan to double household income from investing is shaping up as a catalyst for even longer-term weakness in the yen — already this year’s worst-performing major currency. Retail investors who’ve been pouring savings into overseas stocks and funds are expected to accelerate their purchases in 2024 — driving selling of the yen in the process — when the government permanently removes taxes on dividends and trading profits on a highly popular form of investment account for individuals. (BBG)
JAPAN: Bank of Japan officials see a discrepancy between what Governor Kazuo Ueda said in a recent interview and how traders interpreted the remarks, according to people familiar with the matter. Most of what Ueda said in the Yomiuri newspaper interview published Saturday was consistent with his routine remarks of late. Taken in total, his comments indicate little change in the view among officials that they’ll need to weigh both upside and downside risks in deciding whether to adjust policies, the people said. (BBG)
AUSTRALIA: The Reserve Bank of Australia will be closely watching September quarter salary data to gauge the effect of a rise in the minimum wage, with market participants telling MNI that persistently strong pay increases for workers coupled with weak productivity mean another 25-basis-point interest-rate hike is likely to be required some time next year. (MNI)
NEW ZEALAND: Nicola Willis, who would become New Zealand’s next finance minister if her National Party wins the October election, said she would resign if her party fails to deliver the income tax cuts it has promised. “If we didn’t deliver tax reduction, yes I would resign,” Willis told TVNZ’s Breakfast Friday in Wellington. “We are making a commitment to the New Zealand people and we intend to keep it.” (BBG)
PERU: Peru cut interest rates for the first time since the Covid-19 pandemic, joining a regional trend as inflation ebbs across Latin America. The central bank reduced its policy rate to 7.50% from 7.75% on Thursday, as expected by a majority of analysts. (BBG)
CHINA
ECONOMY: China's production and consumption rebounded more than expected in Aug, despite real-estate weakness dragging down investment which failed to spring back as expected, data released by the National Bureau of Statistics on Friday showed. Industrial production rose 4.5% y/y in Aug to hit a four-month high, outperforming the 4.0% forecast and accelerating from July's 3.7%. Retail sales increased 4.6% y/y, beating expectations for 3.0% and accelerating from July's 2.5%. (MNI BRIEF)
PBOC: The People's Bank of China (PBOC) reduced its 14-day reverse repo rate by 20bp to 1.95% and held the seven-day reverse repo rate and medium-term lending facility unchanged at 1.8% and 2.5%. (MNI BRIEF)
PROPERTY: Chinese state-linked developer Sino-Ocean Group Holding Ltd. has suspended payment on all its offshore debts, citing tight liquidity as the nation’s property debt crisis deepens. Trading in eight of its dollar bonds will be suspended until further notice, the builder said in a statement to the Hong Kong stock exchange. (BBG)
COUNTRY GARDEN: Distressed Chinese developer Country Garden Holdings Co. has again delayed a deadline for creditors to vote on its request to extend payment on an onshore bond, according to a holder familiar with the matter. The voting was extended to 10 p.m. Beijing time Monday from Thursday, said the noteholder who was briefed by one of the underwriting banks. This is the third time that Country Garden has delayed the deadline. (BBG)
YUAN: China’s latest cut in reserve requirement ratio for commercial banks will help stabilize the yuan exchange rate, PBOC-backed newspaper Financial News says in a front-page commentary Friday, citing analysts. (Financial News)
YUAN: China is said to have told some brokerage firms to reduce proprietary trading in the foreign-exchange market, as authorities step up their defense of the beleaguered currency. (BBG)
POLICY: The yuan may not pose as a major barrier to China’s monetary policies and authorities will mainly use other tools to stabilize the currency, according to Golden Credit Rating International. (BBG)
RRR: PBOC’s 25bp reserve requirement ratio cut is estimated to release more than 500b yuan in medium- and long-term liquidity for the market, Chinese central bank-backed Financial News reports on Thursday. (Financial News)
SOEs: Authorities want central state-owned enterprises and small and medium-sized companies to strengthen cooperation with each other in the area of strategic emerging industries such as new generation of mobile communication and artificial intelligence, China Securities Journal reports Friday. (CSJ)
TOURISM: The upcoming Mid-Autumn Festival and National Day holiday may create a new tourism peak as bookings for hotels and tickets for the eight-day holiday increased by nearly six times y/y, according to data by Fliggy, an online travel platform. Train tickets for many popular cities including Beijing and Shanghai have sold out, and hotel prices near tourist attractions in many cities have generally increased by more than 2-3 times. (The Paper)
CHINA MARKETS
MNI: PBOC Cuts 14-Day Reverse Repo Rate, MLF Rate Unchanged
The People's Bank of China (PBOC) reduced its 14-day reverse repo rate by 20bp to 1.95% and held the seven-day reverse repo rate and medium-term lending facility unchanged at 1.8% and 2.5%.
The central bank conducted CNY591 billion via one-year MLF, CNY105 billion via seven-day repo and CNY34 billion via 14-day repo on Friday. The operation has led to a net injection of CNY367 billion after offsetting the maturity of CNY363 billion reverse repos and CNY400 billion MLF today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.8423% at 09:30am local time from the close of 1.9463% on Thursday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 48 on Thursday, the same as Wednesday's print. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
PBOC Yuan Parity At 7.1786 Friday Vs 7.1874 Thursday.
The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1786 on Friday, compared with 7.1874 set on Thursday. The fixing was estimated at 7.2835 by Bloomberg survey today.
MARKET DATA
NZ AUGUST BUSINESSNZ MANUFACTURING PMI 46.1; PRIOR 46.6
CHINA 1YR MLF RATE 2.50%; MEDIAN 2.50%; PRIOR 2.50%
CHINA 1YR MLF VOLUMES 591BN Yuan; PRIOR 401BN YUAN
CHINA AUGUST NEW HOME PRICES M/M -0.29; PRIOR -0.23%
CHINA AUGUST INDUSTRIAL PRODUCTION Y/Y 4.5%; MEDIAN 3.9%; PRIOR 3.7%
CHINA AUGUST RETAIL SALES Y/Y 4.6%; MEDIAN 3.0%; PRIOR 2.5%
CHINA AUGUST FIXED ASSET INVESTMENT EX RURAL YTD Y/Y 3.2; MEDIAN 3.3%; PRIOR 3.4%
CHINA AUGUST PROPERTY INVESTMENT YTD Y/Y -8.8%; MEDIAN -8.9%; PRIOR -8.5%
CHINA AUGUST RESIDENTIAL PROPERTY SALES -1.5%; PRIOR 0.7%
CHINA AUGUST SURVEYED JOBLESS RATE 5.2%; MEDIAN 5.3%; PRIOR 5.3%
JAPAN JULY TERTIARY INDUSTRY INDEX M/M 0.9%; MEDIAN 0.3%; PRIOR -0.4%
MARKETS
US TSYS: Narrow Ranges In Asia
TYZ3 deals at 109-26, +0-02, a 0-05 range has been observed on volume of ~50k.
- Cash tsys sit ~1bp richer across the major benchmarks.
- Tsys have observed narrow ranges with little follow through on moves, a move higher after stronger than forecast Chinese data didn't follow through and tsys pared gains through the session.
- FOMC dated OIS remain stable, a terminal rate of 4.45% is seen in December, there are ~50bps of cut by July 2024.
- There is a thin data docket in Europe today. Further out we have US industrial production, University of Michigan consumer sentiment and the Empire Manufacturing index.
JGBS: Futures In Positive Territory, Subdued Session Ahead Of BoJ Policy Decision Next Friday
JGB futures are firmer and just off Tokyo session highs, +9 compared to settlement levels.
- There hasn’t been much in the way of domestic drivers to flag. The tertiary industry index, just released, printed +0.9% m/m for July versus +0.3% est. and a revised -0.7% prior.
- The cash JGB curve has twist flattened, pivoting at the 3s, with yields 0.7bp higher to 1.2bp lower. The benchmark 10-year yield is 0.9bp lower at 0.707% versus the post-YCC tweak high of 0.723%.
- Swaps are dealing richer, with rates 0.6bp to 1.5bp lower. Swap spreads are tighter, apart from the 7-year.
- Next week the local calendar sees Trade Balance and Tokyo Condominiums for Sale data on Tuesday, ahead of National CPI and the BoJ Policy Decision on Friday.
- The MoF will conduct Liquidity Enhancement Auctions on Tuesday (1-5-years) and Thursday (5-15.5-years).
AUSSIE BONDS: Richer, At Sydney Session Highs But Small Ranges, RBA Minutes On Tuesday
ACGBs (YMZ3 +1.8 & XMZ3 +2.2) are dealing at or near Sydney session highs, although the range has been modest. In the absence of domestic drivers, the local market has drifted with US tsys in the Asia-Pac session. US tsys are ~1bp richer across benchmarks.
- Cash ACGBs are 2bp richer, with the AU-US 10-year yield differential 4bp lower at -18bp.
- Swap rates are 1-3bp lower, with EFPs tighter.
- The bills strip has twist flattened, with pricing -1 to +3.
- RBA-dated OIS pricing is flat across meetings.
- (AFR Joye) I was asked to tender our strongest convictions at a conference this week. The first was that we would experience the worst corporate default cycle since the global financial crisis in the US and since the 1990-91 recession in Australia. The second was that cash and liquid, high-grade bonds should outperform stocks and risky debt over the next few years. (See link)
- Next week the local calendar is empty on Monday, ahead of the RBA Minutes for the September meeting on Tuesday.
- Next Wednesday the AOFM plans to sell A$800mn of the 2.75% 21 June 2035.
NZGBS: Slightly Cheaper, Narrow Ranges, Q2 GDP Next Thursday
NZGBs closed flat to 1bp cheaper after dealing a narrow range after the BusinessNZ manufacturing PMI failed to be a market mover.
- NZ’s Performance of Manufacturing Index contracted further in August, sliding to 46.1 from 46.6 in July on a seasonally adjusted basis, according to trade organization BusinessNZ. "While the key sub-index components of New Orders (46.6) and Production (43.9) improved slightly from July, the trend since March has seen them all but entrenched in contraction" said Catherine Beard, BusinessNZ’s Director of Advocacy.
- Given the absence of significant domestic catalysts, local market participants appeared to turn their attention overseas for guidance. US tsys, JGBs and ACGBs all displayed modest strength during the Asia-Pac session.
- Swap rates are flat to 1bp higher.
- RBNZ dated OIS pricing is flat to 2bp firmer across meetings, with terminal OCR expectations lifting 2bp to 2.64%.
- Next week the local calendar sees the Performance Services Index (Aug) and Non-Resident Bond Holdings (Aug) data on Monday, BoP Current Account Balance (Q2) on Tuesday, GDP (Q2) on Thursday and Trade Balance (Aug) on Friday.
- Next Thursday, the NZ Treasury plans to sell NZ$200mn of the 0.25% May-28 bond, NZ$225mn of the 2.0% May-32 bond and NZ$75mn of the 2.75% May-51 bond.
FOREX: Antipodeans Firm In Asia
The Antipodeans are firmer in Asia after China's August Monthly Economic Activity Data was firmer than forecast. Industrial Production and Retail Sales were the stand out beats.
- AUD is the strongest performer in the G-10 space at the margins. AUD/USD is up ~0.4%, last printing at $0.6465/70. The pair sits a touch above resistance at $0.6460, high from Sep 14.
- NZD/USD is up ~0.3%, the pair sits a touch below the 20-Day EMA ($0.5933). BusinessNZ Mfg PMI ticked lower in August, printing at 46.1 the prior read was revised higher to 46.6.
- Yen is little changed from opening levels, USD/JPY prints at ¥147.35/40. The uptrend remains intact for the pair, resistance comes in at ¥147.87 the 7 Sep high and bull trigger. Support is at ¥145.91 low from Sep 11.
- Elsewhere in G-10; EUR and GBP are a touch firmer.
- Cross asset wise; US Tsy Yields are ~1bp lower across the curve and BBDXY is down ~0.1%. E-minis are up ~0.2% and Hang Seng is up ~1.5%.
- There is a thin data docket in Europe today.
EQUITIES: Australian Stocks Surge On Commodity Prices, Better China Data
Regional equities are a sea of green in Asia Pac for Friday trade. Positive leads from US/EU markets on Thursday is helping, while US futures are a touch higher at this stage. Eminis were last near 4565, +0.20%, while Nasdaq futures were around 0.25% higher at 15714. We sit slightly down on best levels for the session. Announced strikes by the UAW at a number of US car manufacturers hasn't dented equity futures sentiment materially at this stage.
- Australian stocks are among the best performers, the ASX 200 up a little over 1.5% at this stage. Firmer commodity prices, particularly in terms of iron ore and oil, is seeing the materials sub sector outperform.
- Better than expected China IP and retail sales data for August is adding positive momentum to this theme.
- Hong Kong stocks are also up strongly at the break, +1.66% for the HSI. China's 1yr MLF rate was held steady at 2.50%, but the rollover amount larger than expected, leaving a net cash yuan injection of 191bn. This coupled with yesterday's RRR cut announcement is driving optimism around the growth recovery.
- Still, on the mainland, China shares are barely in positive territory at the break, the CSI 300 up 0.06%. The Shanghai Composite is doing better, at +0.28%.
- Property developer concerns remain though, with Sino-Ocean suspending all offshore debt payments, while Country Garden has further delayed a bond extension vote to Monday.
- Japan (Topix +1.25%) and South Korean (Kospi +1.3%) have outperformed the Taiex (+0.20%).
- In SEA, most markets are firmer, although Philippine and Thailand market are struggling for positive traction.
OIL: Tracking Firmly Higher For The Week
Brent crude has continued to build on Thursday's gain of close to 2%. We were last near $94.60/bbl, up nearly a further 1% for the first part of Friday trade. At this stage we are tracking +4.35% firmer for the week, which would be the third straight week of gains. WTI is above $91/bbl, also tracking +4% higher for the week.
- Outside of the well documented tighter supply backdrop, crude, along with other commodity prices, have benefited from modest upside surprises to China IP and retail sales activity prints today.
- Better than expected China data should, all else equal, curb further growth downgrades, which in turn should be supportive for the commodity price outlook more broadly.
- For Brent, mid Nov 2022 highs near $97/bbl could be the next upside target, although a test of the $100/bbl level is being spoken about by some analysts.
- On the downside, the 20-day EMA is back near ~$89/bbl,
GOLD: Steady Despite A Firmer USD & Higher US Treasury Yields
Gold is 0.3% higher in the Asia-Pac session, after closing +0.1% on Thursday. Bullion held up well considering a solidly higher DXY index and higher Treasury yields. Nonetheless, gold is headed for a second straight weekly decline.
- US Treasury yields were pressured on Thursday by stronger than expected PPI and retail sales data. That followed the release of the hotter-than-forecast CPI data on Wednesday.
- One possible explanation for the relatively steady performance on Thursday could be the dovish hike from the ECB. The ECB raised interest rates to a record high of 4% but sent a clear message it was probably done with raising rates as economic growth slows. The statement said “…the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.” Lagarde did however add the caveat that she “can’t say that now we are at peak”.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 15/09/2023 | 0645/0845 | *** |  | FR | HICP (f) |
| 15/09/2023 | 0800/1000 | ** |  | IT | Italy Final HICP |
| 15/09/2023 | 0830/0930 | ** |  | UK | Bank of England/Ipsos Inflation Attitudes Survey |
| 15/09/2023 | 0900/1100 | * |  | EU | Trade Balance |
| 15/09/2023 | 0900/1100 | | EU | Labour Force Survey (Q2) | |
| 15/09/2023 | 0945/1145 | | EU | ECB's Lagarde & Panetta speak in Spain | |
| 15/09/2023 | 1230/0830 | * |  | CA | International Canadian Transaction in Securities |
| 15/09/2023 | 1230/0830 | ** | | CA | Monthly Survey of Manufacturing |
| 15/09/2023 | 1230/0830 | ** |  | US | Import/Export Price Index |
| 15/09/2023 | 1230/0830 | ** | | US | Empire State Manufacturing Survey |
| 15/09/2023 | 1300/0900 | * | | CA | CREA Existing Home Sales |
| 15/09/2023 | 1315/0915 | *** | | US | Industrial Production |
| 15/09/2023 | 1400/1000 | *** | | US | University of Michigan Sentiment Index (p) |
| 15/09/2023 | 1400/1000 | ** | | US | U. Mich. Survey of Consumers |
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.