EXECUTIVE SUMMARY
- IRAN MISSILE ATTACK ON ISRAEL SPURS SWIFT PROMISE TO RETALIATE - BBG
- FED’S COOK; AI TO SPUR PRODUCTIVITY GROWTH - MNI BRIEF
- CHINESE STOCKS IN HONG KONG JUMP WITH DEVELOPERS LEADING GAINS - BBG
- SOUTH KOREA INFLATION COOLS MORE THAN EXPECTED AS RATE CUT TALK GROWS - RTRS
Source: MNI - Market News/Bloomberg
UK
GEOPOLITICS (BBG): “Prime Minister Keir Starmer’s trip to Brussels on Wednesday will be his first real foray into forging a new post-Brexit relationship with Europe, a process expected to take months, if not years amid competing priorities.”
EU
ECB (BBG): “ The European Central Bank is likely to lower borrowing costs at this month’s meeting and beyond, but some investors’ and economists’ easing expectations appear exaggerated, according to Governing Council member Martins Kazaks.”
FRANCE (BBG): “Prime Minister Michel Barnier delayed a target date to bring the budget deficit within the European Union limit by two years in an admission of the dire state of France’s finances.”
US
FED (MNI BRIEF): Wider adoption of AI has the potential to accelerate U.S. and global productivity and wage growth, helping to hold down inflation in the future, Federal Reserve Governor Lisa Cook said Tuesday in remarks that did not touch directly on the economic outlook or monetary policy.
ECONOMY (MNI INTERVIEW): US Factory Activity To Shrink Until 2025-ISM
POLITICS (BBG): “ Democrat Tim Walz and Republican JD Vance opened up their vice presidential debate sparring over which party standard-bearer is best positioned to be commander-in-chief, looking for the upper hand in early clashes over foreign policy, immigration, and climate change.”
CORPORATE (BBG): “Apple Inc., fresh off the release of the iPhone 16, is preparing to announce a new low-end phone early next year alongside upgraded iPads.”
OTHER
MIDEAST (BBG): “Iran fired about 200 ballistic missiles at Israel on Tuesday, a sharp but brief escalation between Middle Eastern adversaries that threatened to trigger a fresh round of attacks as Prime Minister Benjamin Netanyahu vowed to retaliate.”
ISRAEL (BBG): “ Israel was downgraded by S&P Global Ratings amid what the ratings firm sees as “an increasing likelihood” that the conflict with Hezbollah intensifies.”
SOUTH KOREA (RTRS): “South Korea's consumer inflation cooled more than forecast in September and below the central bank's target for the first time since early 2021, amid growing expectations of an imminent policy easing.”
CHINA
EQUITIES (BBG): “Chinese shares listed in Hong Kong jumped Wednesday, extending a stimulus-induced euphoria as traders returned from a public holiday.”
PROPERTY (BBG): “The city of Beijing became the latest of China’s four so-called tier-one cities to ease rules for homebuyers, following through on the central government’s call to put a floor under the property market decline.”
CHINA/CANADA: (RTRS): “China's commerce ministry said on Wednesday it has asked the World Trade Organization (WTO) to rule on Canada's imposition of steep tariffs on Chinese electric vehicles as well as steel and aluminum products.”
MARKET DATA
JAPAN SEP MONETARY BASE Y/Y -0.1%; PRIOR 0.6%
JAPAN SEP CONSUMER CONFIDENCE INDEX 36.9; MEDIAN 37.0; PRIOR 36.7
SOUTH KOREA SEP CPI M/M 0.1%; MEDIAN 0.4%; PRIOR 0.4%
SOUTH KOREA SEP CPI Y/Y 1.6%; MEDIAN 1.9%; PRIOR 2.0%
SOUTH KOREA SEP CPI EX FOOD & ENERGY Y/Y 2.0%; MEDIAN 2.0%; PRIOR 2.1%
SOUTH KOREA SEP S&P PMI 48.3; PRIOR 51.9
MARKETS
US TSYS: Tsys Futures Trade In Tight Ranges Ahead Of Jobs Data
- Tsys futures have traded in very tight ranges today TU is + 00⅞ at 104-06⅝, while TY is +02+ at 114-24+, there has been a small move higher over the past 30 minutes and we now trades near session highs.
- Headlines has been light today, with little coming out of the Vice Presidential debate. Looking at APAC markets, the focus again has all been on Hong Kong listed Chinese equities, with the BBG China Property Gauge surging over 30% on huge volumes.
- Cash tsys curve has done nothing today with yields all trading wrapped around unchanged for the session. The 2yr at 3.604% just off recent lows of 3.54%, while the 10yr is trading at 3.733%.
- Traders are reducing their bets on a further rally in US Treasuries, scaling back expectations of a half-point rate cut by the Fed in November. This unwind is ahead of the September jobs report out on Friday and follows comments from Powell suggesting a gradual approach to rate cuts.
- Projected rate cut pricing into year end gaining some momentum vs. this morning's levels (*): Nov'24 cumulative -34.9bp (-35.4bp), Dec'24 -70.8bp (-68.9bp), Jan'25 -102.3bp (-102.1bp).
- Focus will turn to MBA Mortgage Applications & ADP Employment Change later today
JGBS: Richer, BoJ Noguchi Speech & 10Y Supply Tomorrow
JGB futures are stronger but off session highs, +22 compared to settlement levels.
- Outside of the previously outlined monetary base, the market has had comments from Japan's new PM and his LDP team to digest.
- "I don't believe that we have completely overcome deflation at this point, and I still cannot deny the possibility of falling back" into deflation, Ryosei Akazawa, the minister in charge of economic revitalization, said at a news conference. (per BBG)
- Cash US tsys are slightly cheaper in today’s Asia-Pac session after yesterday’s haven-induced rally. The US calendar will see MBA Mortgage Applications and ADP Employment Change data later today. Nevertheless, the market will remain on Middle East headlines watch.
- Cash JGBs are richer across benchmarks beyond the 1-year, with yields 1-3bps lower. The benchmark 10-year yield is 2.6bps lower at 0.830% versus the cycle high of 1.108%.
- The swap curve has twist-steepened, pivoting at the 10-year, with yields 1bp lower to 4bps higher. Swap spreads are wider.
- The local calendar will see Jibun Bank Composite & Services PMIs tomorrow alongside 10-year supply. BoJ Board Noguchi will also give a speech in Nagasaki.
AUSSIE BONDS: Richer, Narrow Ranges, Focus On Middle East
ACGBs (YM +3.0 & XM +4.5) are stronger after dealing in narrow ranges in today’s Sydney session. With the domestic calendar empty today, the local market was on Middle East headlines watch.
- Cash US tsys are slightly cheaper, in today’s Asia-Pac session after yesterday’s haven-induced rally. The US calendar will see MBA Mortgage Applications and ADP Employment Change data later today.
- Cash ACGBs are 3-4bps richer with the AU-US 10-year yield differential at +23bps.
- Today’s ACGB Jun-35 auction once again demonstrated solid pricing, with the weighted average yield coming in below prevailing mid-yields and the cover ratio increasing to 3.7563x.
- TCorp issued A$500mn of its 3.00% 20 March 2028, 3.00% 20 April 2029 and 3.00% 20 February 2030 benchmark bonds via Yieldbroker tender. The auction was conducted on an exchange for a physical basis against the December bond futures contracts.
- The bills strip is slightly richer, with pricing flat to +1.
- RBA-dated OIS pricing is little changed across meetings. Nevertheless, 2025 meetings are 2-4bps firmer than pre-RBA levels. A cumulative 13bps of easing is priced by year-end.
- Tomorrow, the local calendar will see Judo Bank Composite & Services PMIs and Trade balance data.
BONDS: NZGBS: 44bps Of Easing Priced For RBNZ Next Week
NZGBs closed richer across benchmarks, with yields 1-3bps lower. Nevertheless, the local market finished well off the session’s best levels. With the domestic calendar empty today, the local market was on Middle East headlines watch following yesterday’s events.
- Cash US tsys are slightly cheaper, in today’s Asia-Pac session after yesterday’s haven-induced rally. The US calendar will see MBA Mortgage Applications and ADP Employment Change data later today.
- Swap rates closed flat to 1bps lower.
- RBNZ dated OIS pricing closed flat to 1bp softer across meetings, with 44bps or a 76% chance of a 50bp cut next week. The market is pricing in 92bps of cuts now by November.
- ANZ expects the RBNZ will cut the OCR by 50bps to 4.75% next week. “Now that most economists are calling it and the market is pretty much fully pricing it, one has to conclude that on balance the likeliest scenario is that the RBNZ will just take what’s on the table”. (per BBG)
- The calendar is light for the remainder of the week, with just ANZ Commodity prices tomorrow.
- Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 1.50% May-31 bond, NZ$200mn of the 4.25% May-34 bond and NZ$50mn of the 1.75% May-41 bond.
ASIA: Asian Equities Mixed, HK Stocks Surge On Stimulus Measures
- Asian markets are trading with mixed results today, influenced by geopolitical tensions and optimism surrounding China’s economic recovery.
- Chinese shares listed in Hong Kong extended their rally as the HS China Enterprises Index climbed 7.25%, reflecting a bullish sentiment on the back of China’s stimulus measures, despite ongoing geopolitical concerns. Property stocks have been the top performing with BBG property gauge trading up 30% and now up 140% from the September lows, Tech stocks have also surged with HSTech Index up 8.50%
- Japanese equities are lower today as tensions mount in the Middle East and dampen demand for exporters, semiconductor stocks have seen the bulk of the losses with Tokyo Electron -2.45%, Advantest -3.50% & lasertec -3.40%. Investors are also cautious following the new prime minister being announced which saw equities sell off last week, while the yen holds onto recent gains which has been hurting exporters. The Topix is -0.75%, while the Nikkei is -1.45%
- Elsewhere, South Korea's KOSPI is little changed today with major tech stocks like SK Hynix and Samsung Electronics posting mixed performances. Foreign investors have been better sellers of local tech stocks today with total outflows of $233m. Australia's ASX 200 is also little changed today as gains in Metals & Mining stocks are offset by losses in Financials, Health Care & Real Estate stocks.
FOREX: Hong Kong Equity Surge Drives FX Risk On
Risk appetite has recovered in the FX space, aided by a further surge in Hong Kong equity markets, which have returned after yesterday's break. NZD//USD is up close to 0.40%, while the A$ and NOK are both up 0.30%. Yen has underperformed, down 0.20%, steady trends have been evident elsewhere.
- Early focus was on the potential Israel response to the overnight missile launches from Iran. Further fighting has taken place in Lebanon, but Israel has not retaliated directly against Iran yet. Oil prices are up, but away from Tuesday intra-session highs.
- So lack of fresh meaningful further escalation has likely been welcomed by the market. Returning Hong Kong equity markets have been the other positive for FX risk appetite. The main headline HSI is up 6%, with strong gains in China-related sub indices. Property gauges continue to surge as Beijing became the latest major city to ease home buying restrictions.
- NZD/USD is back up to 0.6305, so 0.40% stronger for the session. A 50bps cut from the RBNZ next is rapidly becoming a consensus view, this hasn't weighed on NZD though. Market pricing for a 50bps cut is close to fully priced (around -44bps off implied OIS).
- AUD/USD has lagged NZD gains slightly, but is still back above 0.6900 level, so still within striking distance of recent highs just above 0.6940.
- Yen has lost ground, last near 143.80/25. Some selling interest in the pair appears above 144.00. Outside of the risk one tone from HK equities, commentary from new government officials has been in focus, with on-going caution around further BoJ rate hikes, including from new PM Ishiba. This looks to be in line with BoJ thinking.
- Looking ahead, we have some ECB speak, EU unemployment figures, while in the US the ADP report will be in focus.
OIL: Oil Price Steadies as Israel Retaliation Awaited
- Iran airstrikes on Israel steps up escalations in the region and represents one of the most significant attacks.
- It is reported that Iran fired as many as 200 ballistic missiles at Israel, though reports as to their effectiveness remain scarce.
- Whilst at this stage it appears (as with the attacks in April) the missiles were largely thwarted by Israel’s defence systems, the attack is a clear indication that tensions are escalating further.
- Oil is pricing off some earlier gains as the impact of Iranian missile strikes on Israel become clearer, but uncertainty surrounds the response.
- WTI approached US$72 in US trade but last tracked near $70.89 in by Asia Pac lunchtime.
- Brent too spiked on news of the missiles jumping as high as $75.40 before settling back at $74.50/55 in latest dealings.
- For WTI futures, key resistance remains at the 50-day EMA of $71.69, which is the key upside hurdle for bulls. A move lower would refocus attention on $64.61, the Sep 10 low and bear trigger.
- Israel’s Prime Minister Bejamin Netanyahu has vowed to retaliate stating that ‘Iran made a big mistake tonight and will pay for it.’
- US President Joe Biden has ordered the US military to continue to support the defence of Israel. US Naval destroyers were heavily involved in the firing of interceptors aimed at destroying the incoming missiles from Iran.
GOLD: Haven Buying Drives Solid Gain
Gold is slightly lower in today’s Asia-Pac session, after closing 1.1% higher at $2663.23 on Tuesday.
- Bullion benefited from a flight to safety as the markets monitored Israel's invasion of Southern Lebanon and Iran's missile attack on Israel.
- Geopolitical risks overshadowed yesterday's ISM Mfg miss and higher-than-expected job openings data.
- US job openings unexpectedly increased in August after two straight monthly decreases, but hiring was soft and consistent with a slowing labour market.
- The ISM’s manufacturing employment measure dropped to 43.9 from 46.0 in August. Its measure of prices paid by manufacturers decreased to 48.3, the lowest level since December 2023, from 54.0 in August.
- Gold has rallied nearly 30% this year, hitting a series of record highs.
- Recent gains have been fueled by anticipation of interest rate easing by the Federal Reserve, which last month kicked off its cutting cycle with a 50bp move.
- Lower rates are typically positive for gold, which doesn’t pay interest.
- According to MNI’s technicals team, the focus is on $2690.2 next, a Fibonacci projection. Firm support lies at $2589.8, the 20-day EMA.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 02/10/2024 | 0715/0915 |  EU | ECB's De Guindos speech at SUERF and Latvijas Bankas conference | |
| 02/10/2024 | 0730/0930 | EU | ECB's De Guindos in panel discussion on financial architecture | |
| 02/10/2024 | 0900/1100 | ** | EU | Unemployment |
| 02/10/2024 | 0900/1000 | ** |  GB | Gilt Outright Auction Result |
| 02/10/2024 | 0930/1130 | EU | ECB's Lane chairing policy panel at Joint BoC - ECB - NY FED Conference | |
| 02/10/2024 | 1100/0700 | ** |  US | MBA Weekly Applications Index |
| 02/10/2024 | 1200/1400 | EU | ECB's Elderson participates in European Affairs Webinar | |
| 02/10/2024 | 1215/0815 | *** | US | ADP Employment Report |
| 02/10/2024 | 1300/0900 | US | Cleveland Fed's Beth Hammack | |
| 02/10/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 02/10/2024 | 1500/1100 | US | Fed Governor Michelle Bowman | |
| 02/10/2024 | 1615/1215 | US | Richmond Fed's Tom Barkin | |
| 02/10/2024 | 1645/1845 | EU | ECB's Schnabel Walter Eucken Lecture |