MNI EUROPEAN OPEN: China Loan Prime Rates Cut By 25bps
MNI (SYDNEY) - EXECUTIVE SUMMARY
- ISRAEL HONES PLANS TO ATTACK IRAN AFTER ATTEMPT ON NETANYAHU- BBG
- US DEFICIT $1.8T in 2024, 3RD LARGEST IN HISTORY - MNI BRIEF
- BOSTIC SAYS FED NOT IN RUSH TO CUT TO NEUTRAL - MNI BRIEF
- CHINA OCT LPR REDUCED BY 25BP - MNI BRIEF
- RBA SURPRISED BY JOBS GROWTH - HAUSER - MNI BRIEF
Fig. 1: China 1yr & 5yr Loan Prime Rate
Source: MNI - Market News/Bloomberg
UK
FISCAL (BBG): “Rachel Reeves’ first challenge when it comes to delivering a delicately balanced UK budget at the end of the month is winning over an increasingly mutinous Labour Party.”
HOUSE PRICES (BBG): “UK's house prices rise 0.3% m/m in October versus +0.8% in September, according to Rightmove.”
EU
EU (MNI): European Parliament vetting of nominees for the next European Commission from Nov 4 to 12 is likely to highlight opposition to any further joint EU funding or any fresh major initiatives to reduce carbon emissions, parliamentary sources told MNI.
EU (BBC): “Moldova's referendum on whether to change its constitution and commit to joining the EU hangs in the balance, with the No and Yes votes neck and neck. With Yes on 49.6% and No on 50.3% - with 97% of the vote counted - it is a result few were expecting, as several recent surveys said the Yes vote would comfortably win.”
GERMANY (POLITICO): “Germany and Turkey discussed arms supplies and regional conflicts during German Chancellor Olaf Scholz's visit to Istanbul on Saturday. A project to supply Turkey with Eurofighter jets, spearheaded by Britain, is still in its early stages, Scholz said at a joint press conference with Turkish President Recep Tayyip Erdoğan.”
IRELAND (BBC): “Tánaiste (Irish deputy prime minister) Micheál Martin has said a general election date will be discussed between the three coalition party leaders next week. A general election must be called in the Republic of Ireland before the term ends in March 2025, with speculation rising that a poll could be called imminently.”
UKRAINE (DW): “Russia said it shot down one drone over Moscow and several others in three western Russian regions. Ukraine's capital, Kyiv, also sounded the air alarm overnight.”
US
FISCAL (MNI BRIEF): The United States saw a USD1.833 trillion federal budget deficit in 2024, according to Treasury Department data Friday rounding out the fiscal year, at 6.4% of gross domestic product, up from 6.2% in 2023. It is the third highest deficit in history and it’s been 23 years since tax revenue exceeded spending.
FED (MNI BRIEF): Atlanta Federal Reserve President Raphael Bostic said Friday the central bank is in no rush to lower interest rates to a more neutral stance, citing a robust labor market and still-declining inflation.
BUSINESS (BBC): “Boeing has offered striking machinists a 35% pay rise over four years in a new contract proposal they hope will end a month-long strike. About 33,000 unionised workers, mostly in Seattle, will vote on Wednesday whether to accept the offer from the aviation giant.”
OTHER
ISRAEL (BBG): “A day after a Hezbollah drone penetrated Israel’s air defenses and exploded next to the private home of Prime Minister Benjamin Netanyahu, he held a series of meetings with top security aides to discuss the next attack on Iran.”
AUSTRALIA (MNI BRIEF): Reserve Bank of Australia Deputy Governor Andrew Hauser says the strong labour market has surprised the central bank, noting supply and demand continue to remain unbalanced.
CHINA
LPR (MNI BRIEF): China's Loan Prime Rate fell 25 basis points on Monday according to a People's Bank of China statement, an expected move after the central bank cut the 7-day reverse repo rate by 20bp last month.
INVESTMENT (MNI BRIEF): China’s fixed-asset investment is likely to rebound to 7-8% y/y next year as property investment improves on recent stimulus and the issuance of ultra-long-term special treasuries drives infrastructure construction, said Lu Zhongyuan, former deputy director at the Development Research Center of the State Council on Saturday.
BANKING (MNI BRIEF): “China's banking sector performance shows regional disparities are widening, with the NPL ratio notably increasing in some central and western provinces, a report from the China Banking Association has said. However, the report highlighted overall commercial banks' non-performing loan ratio reached 1.56% by the end of June, down 0.06 percentage points from the same period in 2023, and the lowest level since 2016. The report noted downward pressure on retail loan asset quality was more obvious than with corporate loans. (Source: Yicai)
CSRC (SECURITIES TIMES): The China Securities Regulatory Commission appreciates the current positive market momentum and will take measures to further stabilise expectations and strengthen confidence, Commission representatives said at a recent symposium, the Securities Times has reported.
CHINA MARKETS
MNI: PBOC Net Injects CNY166.2 Bln via OMO Monday
The People's Bank of China (PBOC) conducted CNY208.9 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY166.2 billion after offsetting the maturity of CNY42.7 billion today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5573% at 09:56 am local time from the close of 1.6065% on Friday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 50 on Friday, the same as the close on the previous trading day. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
MNI: PBOC Sets Yuan Parity Lower At 7.0982 Mon; +2.91% Y/Y
The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.0982 on Monday, compared with 7.1274 set on Friday. The fixing was estimated at 7.0985 by Bloomberg survey today.
MARKET DATA
CHINA 5YR LPR 3.60%; MEDIAN 3.65%, PRIOR 3.85%
CHINA 1YR LPR 3.10%; MEDIAN 3.15%, PRIOR 3.35%
SOUTH KOREA EXPORTS OCT 20 DAYS -2.9% Y/Y; PRIOR -1.1%
SOUTH KOREA IMPORTS OCT 20 DAYS -10.1% Y/Y; PRIOR -4.5%
UK OCT RIGHTMOVE HOUSE PRICE M/M 0.3%; PRIOR 0.8%
UK OCT RIGHTMOVE HOUSE PRICE Y/Y 1.0%; PRIOR 1.2%
MARKETS
US TSYS: Tsys Futures Steady, Focus On Corporate Earnings This Week
- Tsys futures are little changed for far today, TU is unch at 103-14¼, while TY is -01 at 112-06. Headlines have been light in the region so far today, China lower LPR to support the local economy, while Oil prices have edges slightly higher after a decent drop last week.
- There is very little on the economic calendar this week, focus turning to corporate earnings with 15% of S&P 500 due to report this week, Verizon, GE, Lockheed Martin, Coca-Cola to report first.
- The 10yr is holding steady at 4.081%, trading just at the 200-day EMA resistance. Curves were little changed over the past week with the 2s10s flattening 1bps, while the 5s10s steepened 0.5bps.
- Fed funds futures now vs 1 week ago; November 23.6bps vs 21.7bps, December 43.6bps vs 44.3bps, January 62.1bps vs 63.4bps.
JGBS: Futures Stronger & At Session Highs, 10Y GX Supply Tomorrow
JGB futures are stronger and at session highs, +18 compared to the settlement levels.
- Support for Japanese Prime Minister Shigeru Ishiba’s ruling coalition is continuing to soften in the runup to this coming weekend’s election, two polls showed, indicating the possibility that the vote may result in a weakened and unstable administration.
- “If Japan’s ruling coalition unexpectedly loses its majority at the Oct. 27 lower house elections and Prime Minister Ishiba faces pressure to step down early, there’s a high possibility that political uncertainties will cause drops in Japanese stocks, the yen and JGB yields in the short term, writes Ataru Okumura, senior interest rate strategist at SMBC Nikko Securities.” (per BBG)
- Cash US tsys are little changed in today’s Asia-Pac session after Friday’s modest bull-steepener.
- Beyond the 1-year (+4.4bps), cash JGBs are flat to 1bp richer out to the 20-year, but ~2bps cheaper for longer-dated maturities. The benchmark 10-year yield is 1.4bps lower at 0.963% versus the cycle high of 1.108%.
- Swap rates are 0.5bp lower to 1bp higher, with a slight steepening bias. Swap spreads are wider out the 20-year and tighter beyond.
- Tomorrow, the local calendar is empty from 10-year GX supply.
AUSSIE BONDS: Slightly Richer, Domestic Calendar Light Again Tomorrow
ACGBs (YM +2.0 & XM +2.0) are slightly stronger after today’s fireside chat by RBA Deputy Governor Hauser at the CBA 2024 Global Markets Conference.
- “The response of interest-rate traders to Australia’s recent economic data suggests the Reserve Bank’s policy reaction function is being understood, Deputy Governor Andrew Hauser said.” (See BBG link)
- Today’s auction showcased strong demand for ACGBs, with the weighted average yield coming in 0.94bps below the prevailing mid-yields. The cover ratio surged to 4.7486x, significantly higher than the previous auction’s 3.520x. This week's ACGB supply is larger with the usual weekly issuance of A$1.5bn, with A$800mn of the 4.25% 21 December 2035 bond due on Wednesday and A$300mn of the 4.25% 21 June 2034 bond on Friday.
- Cash US tsys are little changed in today’s Asia-Pac session after Friday’s modest bull-steepener.
- Cash ACGBs are 1-2bps richer with the AU-US 10-year yield differential at +21bps.
- Swap rates are flat to 1bp lower, with a slight flattening bias.
- The bills strip is flat to +1.
- RBA-dated OIS pricing is steady. A cumulative 4bps of easing is priced by year-end.
- Tomorrow, the local calendar is empty.
NZGBS: Closed Flat, Subdued Start To The Week For Global Bonds
NZGBs closed flat after trading 1-2bps richer earlier in the session. NZ-US and NZ-US 10-year yield differentials finished 1bp wider than Friday’s closing levels.
- With the domestic calendar light today, the local market sought guidance from US tsys. However, cash US tsys are little changed in today’s Asia-Pac session after Friday’s modest bull-steepener.
- With a limited docket of impactful events on this week's US schedule, the focus will be on weekly jobless claims data and flash PMIs, with appearances by FOMC members Logan and Schmid featuring Monday, and the Fed's Beige Book out Wednesday.
- Swap rates closed 1bp higher, with implied swap spreads wider.
- RBNZ dated OIS pricing closed flat to 3bps softer, with April 2025 leading. A cumulative 101bps of easing is priced by February, with 56bps by year-end.
- Tomorrow, the local calendar will see Trade Balance data and a speech on Financial Markets by RBNZ Assistant Governor Silk. RBNZ Governor Adrian Orr will speak about monetary policy at the Peterson Institute on Thursday.
FOREX: USD Ticks Lower, China Asset Sentiment Positive After LPR Cuts
The USD sits slightly weaker in in the first part of Monday trade although outside of JPY, AUD & NZD up around 0.15%, moves have been very modest in the G10 FX space. The USD BBDXY index was last 1251.60, slightly down on end levels from last week.
- AUD/USD sits slightly firmer at 0.6715. Earlier we had comments from RBA Deputy Governor Hauser, that the central bank has been surprised by the strength in the labour market. Hauser also stated inflation was too high but the RBA was prepared to act in both directions given so much uncertainty surrounding the outlook.
- China related asset sentiment has mostly been positive, after banks cut both the 1yr and 5yr LPR by 25bps (consensus had looked for a 20bps cut). China equities are higher at the break, while metal prices have also firmed.
- NZD/USD has ticked higher, last at 0.6080, but remains very much within recent ranges.
- USD/JPY is down to 149.25/50, backing away from a test of 150.00 for now. Earlier lows were just under 149.10.
- In the cross asset space, US equity futures are close to flat, while US yields have also been close to unchanged. Gold prices are higher.
- Looking ahead, the Fed’s Logan, Kashkari, Schmid and Daly speak and the US leading index for September is released. IMF/World Bank meetings are taking place. US PMIs on Thursday are likely the key data for the week.
EQUITIES: Asian Equities Edge Higher, Tech Outperforming Ahead Of Earnings
Most Asian equity markets are trading higher today with gains seen in South Korea, Taiwan, Australia, China, while Japanese equities are mixed, Hong Kong equities are the worst performing across the region. Chinese stocks rose after banks cut lending rates to support economic growth, with the CSI 300 up 0.85%, while the small & growth focus indices jumped 2-3%. Middle East tensions pushed gold to a record high above $2,730 while other previous metals followed with silver, palladium, and platinum also trading higher.
- Asian tech stocks are the top performers today with TSMC and SK Hynix driving gains, particularly due to continued enthusiasm for AI chip stocks. Tech stocks in Hong Kong were lower, however they did outperform the wider market, with the HSTech index -0.25% vs the HSI down 0.55%. Elsewhere in tech, Australia's Wisetech Global plunged 11.4% after concerns arose regarding the company's leadership.
- South Korea has seen small inflows from foreign investors today, with focus on buying tech stocks, while they have been better sellers of Transport, Financials & Steel names
- Previous metal miners continue to benefit from higher commodity prices, as gold makes new all time highs, while Silver trades up 7.10% over the past three sessions.
- US equity futures are trading little changed today with Dow Jones +0.05%, S&P 500 unch & Nasdaq 100 -0.08%.
- It is a quiet week for economic data in Asia & US this week, key meetings from the IMF and World Bank will be closely watched. Drivers of prices this week will largely be earnings related, 15% of S&P 500 due to report this week with Verizon, GE, Lockheed Martin, Coca-Cola to report first.
OIL: Crude Stabilises But Finds Little Support From China Rate Cuts
Oil prices have stabilised during APEC trading today after falling almost 2% on Friday but have found little support from China’s LPR cuts. WTI is up 0.4% to $68.94/bbl after a high of $69.03 earlier, and Brent is 0.2% higher at $73.22/bbl after rising to $73.32. Crude markets are currently focused on supply/demand fundamentals but the conflict in the Middle East continues to be monitored closely. The USD index is down slightly.
- China’s 1-year LPR was reduced 25bp to 3.1% and 5-year to 3.60% - 5bp more than Bloomberg consensus was forecasting. Oil has been concerned for some time about the outlook for China given it is the world’s largest crude importer. It was disappointed with fiscal announcements made this month.
- The market continues to wait for Israel’s retaliation for Iran’s October 1 attack and Bloomberg is reporting that PM Netanyahu has met with advisors on how Israel should respond.
- Later the Fed’s Logan, Kashkari, Schmid and Daly speak and the US leading index for September is released. IMF/World Bank meetings are taking place. US PMIs on Thursday are likely the key data for the week.
GOLD: Up For A Fifth Consecutive Session
Gold is 0.3% higher in today’s Asia-Pac session, after closing 1.1% higher at $2721.46 on Friday.
- Friday’s gain took bullion’s winning streak to four consecutive sessions, while today’s move has extended the record high to $2,732/oz.
- Analysts note that US election hedges and ongoing geopolitical uncertainties could drive gold higher near-term.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after Friday’s modest bull-steepener. With a limited docket of impactful events on this week's US schedule, the focus will be on weekly jobless claims data and flash PMIs, with appearances by FOMC members Logan and Schmid featuring Monday, and the Fed's Beige Book out Wednesday.
- Lower rates are typically positive for gold, which doesn’t pay interest.
- According to MNI’s technicals team, the clearance of $2,700 reinforces current bullish trend conditions, with sights on $2737.8 next, a Fibonacci projection.
UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Country | Event |
21/10/2024 | 0600/0800 | ** | DE | PPI |
21/10/2024 | - | EU | ECB's Lagarde and Cipollone participate in IMF/World Bank Meetings | |
21/10/2024 | 1255/0855 | US | Dallas Fed's Lorie Logan | |
21/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
21/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
21/10/2024 | 1700/1300 | US | Minneapolis Fed's Neel Kashkari | |
21/10/2024 | 2105/1705 | US | Kansas City Fed's Jeff Schmid | |
21/10/2024 | 2240/1840 | US | San Francisco Fed's Mary Daly | |
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 |