MNI EUROPEAN OPEN: China Property Stocks Lower After Briefing
MNI (SYDNEY) - EXECUTIVE SUMMARY
- US BOMBERS STRIKE HOUTHI WEAPONS STORAGE SITES IN YEMEN - BBG
- CHINA TO DOUBLE LOANS FOR UNFINISHED PROPERTIES TO $562BN - BBG
- JAPAN SEPT EXPORTS POST 1ST DROP IN 10 MONTHS - MNI BRIEF
- AUSSIE LABOUR MARKET STRONG, ADDS 64K JOBS - MNI BRIEF
Fig. 1: China & Hong Kong Property Equity Indices
Source: MNI - Market News/Bloomberg
UK
FISCAL (MNI INTERVIEW): There is a strong case for the UK Treasury to exclude the new National Wealth Fund and British Business Bank from its debt target if as expected it replaces its current rules in the Oct 30 Budget, former senior Treasury and Office for Budget Responsibility official Andy King, told MNI.
BOE (FT/BBG): "Sam Woods, chief executive of the Prudential Regulation Authority, will use his annual City dinner speech to financial executives in London on Thursday to fend off criticism that it is not doing enough to aid economic expansion, Financial Times reports, citing people briefed on the matter."
EU
EU/CHINA (MNI): Progress on a solution to the European Union-China electric vehicle dispute looks difficult following intense negotiations between the two sides in the days since EU states backed the Commission’s proposed tariffs on Oct 4, EU trade sources told MNI.
EU (EURONEWS): “The leaders' summit in Brussels will cover migration policy, support for Ukraine and the situation in the Middle East.”
GERMANY (POLITICO): “Biden is due to arrive in Germany on Thursday night for a brief visit to both celebrate the new spirit of transatlantic solidarity and discuss what the West can do to hamper the Russian president’s progress in Ukraine.”
UKRAINE (BBC): “Ukrainian President Volodymyr Zelensky has presented MPs with a long-awaited "victory plan" that aims to strengthen his country's position enough to end the war with Russia.”
UKRAINE (POLTICO): “NATO chief Mark Rutte said Wednesday that the alliance will reach a €40 billion military aid target for Ukraine, but was fuzzier on just when Ukraine will get into the alliance.”
POLAND (ECONOMIST): “The green neon of Zabka, Europe’s largest convenience-store chain by number of outlets, is ubiquitous in Poland. Roughly half of Poland’s population lives within 500 metres of one of its 10,500 outlets. Now customers will be able to shop for a slice of the retailer itself: on Thursday it makes its debut on the Warsaw Stock Exchange.”
ISRAEL (POLITICO): “A top Israeli minister lashed out at French President Emmanuel Macron on Wednesday, calling him a “disgrace” after Israeli firms were blocked from participating in a French arms fair.”
US
MIDEAST (BBG): “US B-2 stealth bombers struck weapons storage sites linked to Houthi rebels in Yemen, the latest effort to blunt attacks by the Iran-backed group that have roiled commercial shipping in the Red Sea.”
POLITICS (BBG): “Vice President Kamala Harris sought to deflect criticism over the administration’s handling of the border crisis, her stance on transgender rights and her ties to President Joe Biden in a combative interview Wednesday on Fox News.”
OTHER
CANADA (MNI BOC WATCH): The Bank of Canada is expected to lower borrowing costs by half a point next Wednesday as weakening inflation, growth and labor demand steer policymakers' concerns away from sticky wages and housing costs and towards undershooting their target for price growth.
NORTH KOREA/SOUTH KOREA (BBG): “North Korea has defined South Korea as a “hostile state” in its constitution, driving a wedge deeper between the nations after Pyongyang stoked tensions earlier this week by blowing up its sections of roads that linked it to the southern part of the peninsula.”
JAPAN (MNI BRIEF): Japan’s exports posted their first y/y drop in 10 months in September, down 1.7% following August's 5.5% gain, driven by the slowing global economy, data released by the Ministry of Finance showed on Thursday.
AUSTRALIA (MNI BRIEF): Australia continued to show strong jobs growth in September, adding over 64,000 positions, higher than the 25,000 market expectation, while the unemployment rate tightened 10 basis points to 4.1%, data from the Australian Bureau of Statistics showed Thursday.
CHINA
HOUSING (BBG): “ China will nearly double its loan quota to so-called “white-list” property projects to 4 trillion yuan ($562 billion) to ensure completion of unfinished homes and stem the decline of its real estate sector.”
HOUSING (SECURITIES DAILY): “More cities will offer homebuyers eligibility to apply for household registration, referred to as Hukou in China, which has been a key attraction for non-natives in major cities as it links with high-quality medical care and education, Securities Daily reported citing analysts.”
GROWTH (MNI EM): MNI EM: China Needs Over 5.1% Growth In Q4 To Meet Targets
CONSUMPTION (ECONOMIC DAILY): “Over 10 million consumers had purchased more than 14 million household appliances as of Oct 15 via the trade-in programme, Economic Daily reported citing data by the Ministry of Commerce. It enjoyed CNY13 billion subsidies from the central government, and has driven a total CNY69 billion of sales.”
CHINA MARKETS
MNI: PBOC Net Drains CNY17.4 Bln via OMO Thursday
The People's Bank of China (PBOC) conducted CNY132.6 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net drain of CNY17.4 billion after offsetting the maturity of CNY150 billion today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5343% at 09:29 am local time from the close of 1.6367% on Wednesday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 46 on Wednesday, compared with the close of 50 on Tuesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
MNI: PBOC Sets Yuan Parity Higher At 7.1220 Thurs; +2.76% Y/Y
The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1220 on Thursday, compared with 7.1191 set on Wednesday. The fixing was estimated at 7.1212 by Bloomberg survey today.
MARKET DATA
JAPAN SEPT. TRADE BALANCE -Y294.3B YEN; EST. -Y316.0B
JAPAN SEPT. ADJUSTED TRADE BALANCE -Y187.24B YEN; EST. –Y521.0B; PRIOR –Y472.0B
JAPAN SEPT. EXPORTS -1.7% Y/Y; EST. +0.9%; PRIOR +5.5%
JAPAN SEPT. IMPORTS +2.1% Y/Y; EST. +2.8%; PRIOR +2.3%
AUSTRALIA SEPT. EMPLOYMENT +64.1K M/M; EST. +25.0K; PRIOR +42.6K
AUSTRALIA SEPT. FULL-TIME EMPLOYMENT +51.6K M/M; PRIOR -5.9K
AUSTRALIA SEPT. PART-TIME EMPLOYMENT +12.5K; PRIOR +48.5K
AUSTRALIA SEPT. JOBLESS RATE 4.1%; EST. 4.2%; PRIOR 4.1%
AUSTRALIA SEPT. PARTICIPATION RATE 67.2%; EST. 67.1%; PRIOR 67.1%
MARKETS
US TSYS: Tsys Futures Edge Lower, Markets Cautious Ahead Of TSMC Earnings
- Tsys futures have edged slightly lower throughout the day, we trade just off session's worst and testing Wednesday's lows. TU is -00⅞ at 103-14¾, while TY is -03 at 112-14.
- Focus in the region was on China's housing briefing, although the market seemed to be underwhelmed with property stocks trading off 2-10%. Australia had stronger-than-expected employment data, which saw rate cuts pushed further out, while the 2yr yields jumped 5bps.
- The world's largest chipmaker TSMC will release earnings shortly, a miss could see risk assets sell off heavily, following the reaction to ASML's lower-than-expected sales guidance on Tuesday.
- Earlier, Kamala Harris interviewed on Fox, where she emphasized that her presidency would not be a continuation of Biden’s, as she would bring her own life experiences and fresh ideas. Betting markets edged slightly further in Trumps direction during the interview, while PredictIt was unchanged.
- Cash tsy curve has bear-steepened today, yields are +0.5bps to 2bps higher. The 2yr is trading +0.9bps at 3.947%, while the 10yr is +1.8bps at 4.03%. The 2s10s is +0.704 at 7.952.
- Fed fund futures are pricing in 23.6bps or 95% chance of a cut at the November meeting, and 45.5bps of cuts by the December meeting both little changed over the past few sessions. Looking further out the curve there is 145bps priced in through to October 2025.
- Data picks up today with two key reports: weekly jobless claims (following up from the previous week's hurricane-impacted upside surprise) and retail sales. Chicago Fed Pres Goolsbee also makes an appearance at a careers event so unlikely to be a market-mover.
JGBS: Twist-Flattener, Rengo Wage Hike News Weighs, Natl CPI Tomorrow
JGB futures are weaker, currently trading at session lows in Tokyo, down 7 points from settlement levels.
- A report indicating that Japan's Rengo union will seek wage hikes of at least 5% next year appears to have triggered a sharp reversal in JGB futures. Futures closed the overnight session up 26 points compared to settlement levels.
- In 2024, negotiated wage gains tracked by the Rengo Federation reached a 33-year high of 5.1%.
- However, part of today's selloff in the Tokyo session can be attributed to the US Treasury market, with yields trading 1-2bps higher and showing a steepening bias in the Asia-Pacific session.
- Outside of the previously outlined trade balance data, there hasn't been much by way of domestic data drivers to flag. The Tertiary Industry Index fell 1.1% m/m in August.
- The cash JGB curve has twist-flattened, pivoting at the 20-year, with yields 3bps higher to 3bps lower.
- The MoF accepted Y399.3bn at today’s Liquidity Enhancement Auction.
- Swap rates are flat to 4bps higher, with a steepening bias. Swap spreads are tighter out to the 5-year and wider beyond.
- Tomorrow, the local calendar will see National CPI and Weekly International Investment Flow data alongside BoJ Rinban Operations covering 1-10-year and 25-year+ JGBs.
AUSSIE BONDS: Cheaper After Jobs Data But Off Worst Levels
ACGBs (YM -5.0 & XM -3.0) are 5-8bps lower after a strong Employment Report, though they have recovered slightly from the session's worst levels.
- RBA officials often speak of the labour market. Today’s September data plus what appears to be a turn in the trend since mid-year will likely confirm its view that the labour market is tighter than implied by full employment estimates and that firms are “labour hoarding”. The gradual deterioration in some of its metrics appears to have stalled or turned, thus policy is likely to “need to be sufficiently restrictive” for now.
- Cash US tsys are 1-2bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s modest gains.
- Cash ACGBs are 3-4bps cheaper, with the AU-US 10-year yield differential 3bps wider to +21bps.
- Swap rates are 2-3bps higher, with the 3s10s curve flatter.
- The bills strip is cheaper, with pricing -4 to -6., but well off worst levels.
- RBA-dated OIS pricing is 7-10bps firmer for 2025 meetings after the data. A cumulative 5bps of easing is priced by year-end versus -8bps pre-data.
- Tomorrow, the local calendar is empty apart from the AOFM’s planned sale of A$500mn of the 4.75% 21 April 2027 bond.
NZGBS: Short-End Extends Post-CPI Rally
NZGBs ended the day near the middle of their trading range, with the 2/10 curve experiencing a bull-steepening. Benchmark yields ranged from flat to 2bps lower, with the 2-year yield sitting 7bps below its pre-CPI level yesterday, while the 10-year yield is unchanged.
- It was a mixed session for the NZGB 10-year on a relative basis within the $-bloc. The NZ-US yield differential widened by 1bp to +38bps, while the NZ-AU differential lower by 2bps to -17bps. Australian yields rose sharply following a strong September Employment Report.
- The weekly bond supply was adequately absorbed, with cover ratios ranging from 2.22x to 2.93x.
- Cash US tsys are 1-2bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s modest gains. US data picks up today, with two key reports: weekly jobless claims (following up from the previous week's hurricane-impacted surprise) and retail sales. Chicago Fed Pres Goolsbee also makes an appearance.
- Swap rates closed flat to 4bps lower, with the 2s10s curve steeper.
- RBNZ-dated OIS pricing is 1-5bps softer across meetings. Following yesterday's Q3 CPI data, a cumulative 99bps of easing is priced by February, with 57bps in November.
- Tomorrow, the local calendar is empty.
FOREX: USD Index Up From Lows As China Property Equity Losses Cools Risk
The USD BBDXY index sits close to unchanged in latest dealings, last near 1253.25. This is up from earlier lows of 1251.53. Risk sentiment has softened post the China Housing Ministry led press briefing.
- AUD/USD got to highs of 0.6710, but sits back near 0.6685/90 in latest dealings, still up 0.30% for the session. A$ sentiment was buoyed by the much stronger than expected September jobs data, which has pushed out RBA easing risks.
- We also tracking higher during the early stages of the China press briefing as China/HK equity sentiment pushed higher. However, this gave way to a more cautious tone, as the main focus of the press briefing was reiterating already announced policies and expanding credit for troubled property development projects.
- As China real estate equities rolled over so too did iron ore, another constraint on AUD gains.
- NZD/USD got dragged higher by AUD initially but now sits back at 0.6060, little changed for the session.
- USD/JPY has tracked familiar ranges, the pair last near 149.50, little changed for the session. Earlier data showed a slowdown in export growth, back into negative territory.
- In the cross asset space, US equity futures sit -0.20-0.30% weaker, while US yields are up a touch, led by the back end.
- Looking ahead, the ECB decision is announced followed by President Lagarde’s press conference. It is expected to cut rates 25bp. In terms of data, US September retail sales, budget & IP, October Philly Fed & NAHB housing index, August inventories and jobless claims print. There’s also euro area September CPI and August trade. The Fed's Goolsbee also speaks.
CHINA: Property Stocks Plunge Following Housing Briefing
- China is expanding its "white list" credit program for property projects to 4tr yuan by the end of 2024, up from 2.23t yuan currently. This program is designed to provide credit support for developers, helping them complete unfinished housing projects, particularly those that have caused unrest due to delays. Minister Ni also highlighted plans to renovate 1 million homes in "urban villages," using local government special bonds for funding. Additionally, banks are being urged to expedite loans for stalled projects, aiming to deliver homes to buyers.
- Local governments are also empowered to buy back idle land parcels where developers are unwilling or unable to proceed with construction. Measures to stabilize the housing market in key cities such as Beijing, Shanghai, Guangzhou, and Shenzhen were also emphasized, with steps like easing home purchase restrictions and lowering mortgage rates.
- Investors saying the update doesn't seem to fix the underlying problem that there seems to currently be an over supply of property and/or home buyers don't have the ability/want to purchase properties at the moment, the recently announced measures look to be just transferring the risk from some developers onto local governments.
Market Reaction:
- Despite these support measures, market sentiment remains weak. The CSI 300 which initially showed gains of up to 1.3%, erased those gains during the briefing and now trades flat. Property stocks, particularly those focused on developers, saw significant declines. A Bloomberg gauge tracking developer shares dropped around 7.5% with major onshore developers like Sunac (-20%), Vanke (-10%), Longfor (-9%), the moves reflecting investor skepticism about the effectiveness of the government's efforts.
- The offshore yuan also pared some morning gains as officials spoke, signaling cautious market reactions, while in the commodity space Iron ore and steel futures in both Singapore and Shanghai also weakened.
ASIA STOCKS: Asian Equities Mixed, Tech Underperforms Ahead Of TSMC Earnings
Asian equities are mixed today, with no clear direction, tech stocks are underperforming following ASML's lower-than-expected sales guidance on Tuesday, which looks to have added to concerns ahead of earnings from TSMC the world's largest chipmaker. China's equities market has seen increased volatility, with the market disappointed with the housing briefing, property benchmarks swung from +1.5% to -3%. Elsewhere, Australia's employment data was stronger-than-expected, with the ASX200 making new record highs.
- Outside of the China Housing briefing the market has been rather quiet, the US announced they had conducted strikes on weapon storage facilities in Yemen, although this did little to move markets.
- Japanese equities are mixed, with the Nikkei trading down 0.50% following a 2.75% drop from Tokyo Electron, while the TOPIX is trading flat, with banks outperforming (TOPIX Banks Index +1.60%)
- Taiwan's TAIEX & South Korea's KOSPI are both little changed today, with the market eagerly awaiting TSMC earnings which are due out at 1700 AEST / 1400 HKT.
- Australian equities have hit new all time highs following much stronger-than-expected employment data. Australia's labor market remained robust in September, with employment growth surpassing expectations. The economy added 64.1k jobs, driven mainly by full-time positions (+51.6k), while part-time employment also increased by 12.5k. This followed a revised gain of 42.6k jobs in August. The unemployment rate held steady at 4.1%, the lowest since May, and the participation rate reached a new high of 67.2%. Banks are the top performing stocks, closing followed by real estate. Tech stocks struggle, although they only make up a small portion of the index, ASX 200 is currently 0.62% higher.
OIL: Crude Off Intraday Highs On Risk Pullback Following China Housing Brief
Crude has risen slightly today to add to Wednesday’s moderate gains. It rose earlier in the session but then more than gave up those advances as markets were disappointed with China’s support measures for the property sector announced today and there was a general pullback in risk. The USD index is flat.
- WTI is up 0.3% to $70.60/bbl off the intraday low of $70.52 but below today’s high of $71.11. The benchmark rose 0.2% on Wednesday after Tuesday’s sharp fall.
- Brent is 0.3% higher at $74.43/bbl today after rising to $74.92 and then falling to $74.31. It rose 0.5% on Wednesday.
- Conflict in the Middle East continued with the US striking Houthi weapons storage facilities in Yemen. The Iran-backed group has significantly disrupted shipping in the Red Sea over the last year.
- Bloomberg reported that US crude inventories fell 1.6mn barrels when a rise had been expected, according to people familiar the API data. Gasoline stocks fell 5.9mn and distillate 2.7mn. The official EIA figures are out today.
- Later the Fed’s Goolsbee speaks and the ECB decision is announced followed by President Lagarde’s press conference. It is expected to cut rates 25bp. In terms of data, US September retail sales, budget & IP, October Philly Fed & NAHB housing index, August inventories and jobless claims print. There’s also euro area September CPI and August trade.
Gold has hit a new all-time high of 2684.95 in today’s Asia-Pac session, after closing 0.4% higher at $2673.83 on Wednesday.
- Bullion, up nearly 30% year-to-date, is among the top-performing commodities in 2024. Optimism surrounding rate cuts has fueled recent gains, especially after the US Federal Reserve initiated its easing cycle last month. However, traders have tempered their expectations regarding the size and pace of rate cuts following mixed US economic data. Lower interest rates typically benefit gold, which doesn’t offer a yield.
- Attention is now focused on today’s US retail sales and jobless data, as traders seek further insights into the US Fed’s easing trajectory.
- Robust central bank purchases and rising geopolitical tensions have also bolstered gold prices.
- According to MNI’s technicals team, the trend condition in gold remains bullish, with sights still on $2,690.2, a Fibonacci projection.
UP TODAY (TIMES GMT/LOCAL)
Date | GMT/Local | Impact | Country | Event |
17/10/2024 | 0900/1100 | *** | EU | HICP (f) |
17/10/2024 | 0900/1100 | * | EU | Trade Balance |
17/10/2024 | 1100/0700 | *** | TR | Turkey Benchmark Rate |
17/10/2024 | 1215/1415 | *** | EU | ECB Deposit Rate |
17/10/2024 | 1215/1415 | *** | EU | ECB Main Refi Rate |
17/10/2024 | 1215/1415 | *** | EU | ECB Marginal Lending Rate |
17/10/2024 | 1230/0830 | *** | US | Jobless Claims |
17/10/2024 | 1230/0830 | * | CA | International Canadian Transaction in Securities |
17/10/2024 | 1230/0830 | *** | US | Retail Sales |
17/10/2024 | 1230/0830 | ** | US | Philadelphia Fed Manufacturing Index |
17/10/2024 | 1245/1445 | EU | ECB Monetary Policy Press Conference | |
17/10/2024 | 1315/0915 | *** | US | Industrial Production |
17/10/2024 | 1400/1000 | * | US | Business Inventories |
17/10/2024 | 1400/1000 | ** | US | NAHB Home Builder Index |
17/10/2024 | 1415/1615 | EU | ECB Podcast: Lagarde presents MonPol Decision | |
17/10/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
17/10/2024 | 1500/1100 | ** | US | DOE Weekly Crude Oil Stocks |
17/10/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
17/10/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
17/10/2024 | 2000/1600 | ** | US | TICS |
17/10/2024 | 2000/2100 | GB | BOE's Woods Speech at Mansion House | |
18/10/2024 | 2330/0830 | *** | JP | CPI |
18/10/2024 | 0200/1000 | *** | CN | GDP |
18/10/2024 | 0200/1000 | *** | CN | Fixed-Asset Investment |
18/10/2024 | 0200/1000 | *** | CN | Retail Sales |
18/10/2024 | 0200/1000 | *** | CN | Industrial Output |
18/10/2024 | 0200/1000 | ** | CN | Surveyed Unemployment Rate M/M |
18/10/2024 | 0600/0800 | ** | SE | Unemployment |
18/10/2024 | 0600/0700 | *** | GB | Retail Sales |
18/10/2024 | 0800/1000 | ** | EU | EZ Current Account |
18/10/2024 | 0900/1100 | ** | EU | Construction Production |
18/10/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
18/10/2024 | 1230/0830 | *** | US | Housing Starts |
18/10/2024 | 1330/0930 | US | Atlanta Fed's Raphael Bostic |