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.
* Correction to source of China budget deficit story
EXECUTIVE SUMMARY
- POWELL SAYS OFFICIALS FIGURING OUT IF INFLATION IS ON SUSTAINABLE PATH - MNI
- DEMOCRATS MACHIN WILL NOT SEEK RE-ELECTION - RTRS
- RBA REVISES CORE CPI FORECASTS - DJ
- BARKIN SAYS INFLATION MAY BE HARDER TO TAME THAN SOME EXPECT - MNI
- CHINA CAN RAISE 2024 BUDGET DEFICIT RATIO TO SPUR GROWTH - CNA
Fig. 1: BBDXY vs 10 Year US Yield
Source: MNI - Market News/Bloomberg
U.K.
POLITICS (BBG): Home Secretary Suella Braverman faced accusations of inciting divisions after she said London’s Metropolitan Police played “favorites” with protest groups, heaping pressure on Prime Minister Rishi Sunak to end a political alliance borne out of expediency that looks increasingly like a liability.
LONDON (BBG): London’s new Lord Mayor, who will take the reins on Saturday, is looking to turn the City into a hub for trading the exotic asset classes of the future.
TRADE (BBG): The UK and Mexico agreed to extend a commitment to reduced or zero tariffs until they conclude talks for a free trade agreement, providing certainty to businesses trading between the two nations.
ENERGY (BBG): The UK government is preparing to offer significantly higher subsidies for new offshore wind farms to get the country’s clean-power strategy back on track after developers shunned a previous auction.
EUROPE
PORTUGAL (BBG): Portugal will face an early election on March 10 after Prime Minister Antonio Costa unexpectedly resigned on Tuesday amid a probe into possible government corruption.
EU/CHINA (BBG): The European Union and China are set to hold a summit on Dec. 7-8, according to people familiar with the matter.
U.S.
FED (MNI): Federal Reserve officials are trying to figure out whether they have raised interest rates enough to put inflation on a sustainable path back to its 2% target, Fed Chair Jerome Powell said Thursday.
FED (MNI): Richmond Fed President Tom Barkin told an MNI Webcast on Thursday inflation may be harder to tame than some expect, though some effects of higher interest rates have yet to be felt.
POLITICS (RTRS): Democratic U.S. Senator Joe Manchin, a maverick who has often bucked party leadership in the past two years, said on Thursday that he will not seek re-election, hurting Democrats' chance of defending their thin Senate majority in the 2024 election.
APEC (BBG): US officials are aiming for the Asia-Pacific Economic Cooperation summit to be a signature moment in President Joe Biden’s efforts to strengthen economic ties in the region and manage the relationship with China.
META (WSJ): Meta Platforms has struck a preliminary deal to sell a new, lower-priced version of its virtual-reality headset in China, regaining a foothold among consumers in the country 14 years after Facebook was shut out.
OTHER
RBA (DJ): The Reserve Bank of Australia sharply revised up its forecasts for core inflation in the near term and warned that inflation pressures are cooling at a slower pace than anticipated against the backdrop of an economy that is proving more resilient than expected.
NEW ZEALAND (BBG):New Zealand's manufacturing PMI fell to 42.5 in October from revised 45.1 in September, according to Bank of New Zealand.
MIDDLE EAST (BBG): The Pentagon said its military personnel in Syria and Iraq have come under attack four times since an overnight US airstrike on an arms depot, which was intended as a deterrent.
ISRAEL (BBG): Israel said it agreed to limited pauses in fighting in the Gaza Strip so civilians can flee its war with Hamas, a description that fell short of what the US hailed as a significant agreement for daily, four-hour halts.
OIL (BBG): Oil headed for a third straight weekly drop on growing demand concerns and the unwinding of its war-risk premium, with Saudi Arabia blaming speculators for the decline.
CHINA
PROPERTY (BBG): China’s property sector risks are under control, central bank Governor Pan Gongsheng said, amid heightened concern over the financial health of another major developer in the troubled industry.
FISCAL (CNA): China can raise its budget deficit ratio next year to support the economic recovery because there is still space for the central government to issue more debt, Wang Yiming, a policy adviser to the central bank, said on Friday.
CHINA/US (RTRS): China's ambassador to the United States said Sino-US relations have shown positive signs of stopping a decline and stabilising but still faced challenges, as the leaders of both countries prepare for an expected highly-anticipated meeting this month.
CORPORATE (BBG): Industrial & Commercial Bank of China Ltd. was hit by a cyberattack that prevented it from clearing swathes of trades, forcing US clients of the world’s largest lender by assets to reroute transactions and leaving brokers and traders scrambling to assess the extent of the impact.
PBOC (MNI): The People’s Bank of China will promote the institutional opening of the financial market in a steady and orderly manner, according to an article published on its website. The central bank will further improve market access, increase yuan asset liquidity, enrich risk hedging tools, improve foreign exchange transaction convenience, and better meet asset allocation and risk management needs of global investors. Authorities will also support more overseas central banks, international development institutions, multinational enterprises to issue panda bonds in China.
INFLATION: (MNI): China's 0.2% y/y fall in October CPI was mainly linked to declining pork prices, while high-frequency data showed the economy remained generally stable, according to He Xiaoshu, analyst at GF Securities. Auto sales continued to rise and subway passenger flows reflected active residential activity, He added. Pork prices fell 2% m/m, or 30.1% y/y in October amid sufficient supply and weak demand after the October holiday. Q4 pork prices may rebound seasonally but will not rise sharply given steady growth in hog production, said Chen Guanghua, an official from Ministry of Agriculture and Rural Affairs.
CIPS (MNI) : China’s Cross-border Interbank Payment System (CIPS) will expand its “circle of friends” for engaging in cross border yuan payments, according to a statement from the organisation. For next steps, CIPS will improve its user-centred approach, and continue to enrich the functionality of products and services. CIPS said 42 overseas direct users have been added so far in 2023, bringing total users to 1,481 across 182 countries and regions. Yicai news outlet noted CIPS remained open during the Mid-Autumn Festival and National Day holidays for the first time this year, and in H1 domestic and foreign users made 24.5 trillion yuan of cross-border yuan receipts and payments, up 20% y/y.
CHINA MARKETS
MNI: PBOC Injects Net CNY160 Bln Via OMO Fri; Rates Unchanged
The People's Bank of China (PBOC) conducted CNY203 billion via 7-day reverse repo on Friday, with the rate unchanged at 1.80%. The operation has led to a net injection of CNY160 billion after offsetting the maturity of CNY43 billion reverse repos today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.8105% at 10:21 am local time from the close of 1.8367% on Thursday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 45 on Thursday, compared with the close of 42 on Wednesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
PBOC Yuan Parity Lower At 7.1771 Friday vs 7.1772 Thursday
The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.1771 on Friday, compared with 7.1772 set on Thursday. The fixing was estimated at 7.2947 by Bloomberg survey today.
MARKET DATA
JAPAN OCT M2 MONEY STOCK 2.4% Y/Y; PRIOR 2.4% Y/Y
JAPAN OCT M3 MONEY STOCK 1.8% Y/Y; PRIOR 1.8% Y/Y
NEW ZEALAND OCT BUSINESSNZ MFG PMI 42.5; PRIOR 45.1
MARKETS
US TSYS: Narrow Ranges In Asia
TYZ3 deals at 107-19, +0-02, 0-010 range has been observed on volume of ~151k.
- Cash tsys sit ~1bp richer across the major benchmarks.
- Tsys firmed off session lows as participants perhaps used the early move lower to square short positions with spillover from ACGBs, which firmed a touch after the RBAs SoMP, adding a layer of support.
- Tsys held marginally firmer dealing in a narrow range for the remainder of the Asian session.
- TY briefly dealt below Thursdays lows before paring losses, support came in ahead of the 20-Day EMA (107-08). Resistance is at 108-25, high from Nov 3.
- September GDP and Industrial Production from the UK provides the highlight in Europe today, further out we have the latest UofMich Survey. There are a number of Fed speakers including Logan, Bostic and Daly.
JGBs: Yields Only Marginally Above Recent Lows, Q3 GDP, 5yr Supply In Focus Next Week
JGB futures have seen a modest upside bias emerge in the afternoon session, albeit still well within recent ranges. We were last 144.49, -.27. Earlier lows in the session were at 144.40. This fits broadly with the pattern of US futures, with TYZ up from Thursday lows (last 107-19, +02+), maintaining a modest bid tone.
- In the cash JGB space, yields have continued to tick away from earlier highs. The 10yr is back to the low 0.85% region. We are above Thursday lows, but well below earlier Nov highs ~0.97%. The 20yr is back to 1.55%, while 10yr swap rates are just under 1.04% (earlier Nov highs were ~1.16%).
- This week has seen BoJ Governor Ueda reinforce that the timing of the central bank's exit from easy policy settings still remains quite uncertain.
- 3 month bill supply was digested easily enough earlier. Next week's supply focus will be on 5yr debt. Bloomberg noted the government's extra budget is not expected to change the issuance calendar for the current fiscal year.
- On the data front next week is Q3 GDP (out Wednesday).
AUSSIE BONDS: Cheaper On Friday, Oct Labour Market Report Due Next Week
Aussie Bonds have held cheaper through Friday's session and ACGBs sit 6-9bps cheaper across the major benchmarks.
- XM (-0.1000) and YM (-0.070) are also holding lower, however losses were marginally pared after the RBA's SoMP.
- The statement didn't appear to shed much light on the outlook for the economy. CPI is expected to return to the top of the band by end of 2024. THe growth outlook is a touch firmer, and the employment forecast is at 4%.
- 10 Year AU US Swaps spreads remain stable and sit flat today.
- Looking ahead the highlight of next week's docket is the October Labour Market report which crosses on Thursday. The unemployment rate is expected to tick higher to 3.7%.
NZGBs: Cheaper On Friday, Docket Light Next Week
NZGBs have held their early move lower dealing in narrow ranges for the most part in today's session. Cash NZGBs sit 1-11bps cheaper across the major benchmarks, the curve has bear steepened.
- 10 NZ US Swap Spread printed their narrowest level since early February on Thursday (+37bps) before trimming losses today to sit at +51bps.
- RBNZ dated OIS remain stable, a terminal rate of 5.55% is seen in February with ~40bps of cuts by October 2024.
- A reminder on the wires early in today's session was BusinessNZ Mfg PMI for October which printed at 42.5 this morning, the prior read was revised lower to 45.1. This is the lowest reading since August 2021 and marks the 8th consecutive month of contraction.
- Looking ahead the docket is relatively light next week with Oct PSI, Food Prices and Card Spending due. Q4 PPI rounds off the docket.
GOLD: Tracking Lower For The Second Straight Week
Gold has had a reasonably tight range to start Friday trade ($1956.49 to $1960.85). We sit modestly below session highs in latest dealings, $1958.60. This is near closing levels from Thursday in NY. Thursday's +0.40% gain was the first for this week and came despite a firmer USD backdrop, although the precious metal is still tracking -1.70% down for the week.
- We are tracking for a second consecutive weekly loss in gold, as the Middle East war premium gets unwound.
- In terms of levels, gold remains a long way from the bull trigger at $2009.4 (Oct 27 high) after recent heavy declines.
- Equally though sentiment has still stabilized somewhat in the face of a rebound in US yields. Thursday lows were around the $1945 level, while the 50-day EMA is near $1938.80.
OIL: Weekly Losses Trimmed, But Only Marginally, Demand Concerns Weighing
Brent crude has drifted higher versus Thursday closing levels in NY. We were last near $80.50/bbl, a further gain of 0.60%, after Thursday's +0.60% rise. This only unwinds earlier losses in the week marginally though. At this stage we are still tracking 5.20% lower, which would be the 3rd straight week of losses for the benchmark. WTI was last just above $76.15/bbl, having followed a similar trajectory.
- As risks of a wider Middle East conflict have fallen, demand concerns have become more prominent. This week's China data has been a concern (even with higher oil import volumes). Continued consumer spending headwinds was hihglihgted by a PBoC official today.
- Bloomberg has also reported that Asia diesel spreads are turning more bearish on rising supply (see this link for more details).
- Elsewhere, the WTI prompt month time-spread has flattened and is oscillating between a shallow contango and shallow backwardation. Weak prompt demand, record US output and expectations of building Cushing stocks are weighing on the prompt and pushing the market into contango.
- For Brent, this week's low sits at $79.20/bbl, with all key EMAs back above $85/bbl.
- Looking ahead, on Monday OPEC publishes its monthly oil report. IEA publishes its monthly report on Tuesday, US CPI is out on Tuesday as well, while China activity figures print on Wednesday.
EQUITIES: Broad Losses, Hong Kong & Some China Related Markets Underperform
Regional equities are lower in Friday Asia Pac trade. Weakness has been broad based, although for the most part, losses have been under 1%. Hong Kong and some China related markets are the exception. US futures were lower, particularly in the tech space, in early trade, but have largely recouped losses. Eminis are marginally higher, last near 4366, while Nasdaq futures are down a touch (but were off -0.30% at one stage).
- Carry over from the US yield rebound in Thursday trade, led by Powell comments and a poor 30yr debt auction, has weighed on Asia Pac sentiment so far today. The fact that nominal US yields have drifted a little lower today has probably helped contain the fallout for broader risk appetite, including in the equity space.
- In HK, the HSI is off 1.6% at the break, slightly above session lows. Some disappointing earnings results, led by China chipmaker SMIC has weighed, while comments from PBOC advisor Wang Yiming were also noteworthy. He stated that China can still achieve its growth target this year, but noted that domestic demand remains under pressure given a weak consumption recovery.
- Elsewhere, PBoC Governor Pan reiterated that the central government is paying close attention to local government debt risks in some provinces, while broader property risks remain manageable.
- The CSI 300 sits 0.70% down at the break, but also away from session lows. Northbound stock connect outflows have been evident in the first part of the session (-4.7bn yuan).
- Japan stocks are outperforming modestly, the Topix off 0.10%, up from session lows, with weakness in Softbank weighing in early trade.
- The Kospi and Taiex are both off by less than 1% at this stage. It's a similar story in SEA markets.
FOREX: Narrow Ranges In Asia
There have been narrow ranges across G-10 FX on Friday, BBDXY is marginally lower however there have been little follow through on moves. US Tsy Yields are marginally lower in Asia trimming gains seen in yesterday's NY session and US Equity futures are a touch softer.
- AUD/USD is down ~0.1% at $0.6360/65, post SoMP losses have been pared. The statement didn't appear to shed much light on the outlook for the economy. Technically the pair has breached the 20-Day EMA and support now comes in at $0.6315, low from Oct 31.
- Kiwi is dealing in a narrow range below the $0.59 handle. On the wires early in todays session was BusinessNZ Mfg PMI for October which printed at 42.5 this morning, the prior read was revised lower to 45.1. This is the lowest reading since August 2021 and marks the 8th consecutive month of contraction.
- Yen is unchanged this morning. USD/JPY prints at ¥1.151.30/35. Technically bulls remain in the drivers seat, resistance comes in at ¥151.72 high from Oct 31.
- September GDP and Industrial Production from the UK provides the highlight in Europe today.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Flag | Country | Event |
| 10/11/2023 | 0700/0700 | ** |  | UK | UK Monthly GDP |
| 10/11/2023 | 0700/0700 | ** | | UK | Index of Services |
| 10/11/2023 | 0700/0700 | *** | | UK | Index of Production |
| 10/11/2023 | 0700/0700 | ** | | UK | Trade Balance |
| 10/11/2023 | 0700/0700 | ** | | UK | Output in the Construction Industry |
| 10/11/2023 | 0700/0800 | * |  | NO | CPI Norway |
| 10/11/2023 | 0700/0800 | ** |  | SE | Private Sector Production m/m |
| 10/11/2023 | 0700/0700 | *** | | UK | GDP First Estimate |
| 10/11/2023 | 0900/1000 | * |  | IT | Industrial Production |
| 10/11/2023 | 1230/1330 |  | EU | ECB's Lagarde fireside chat with Martin Wolf | |
| 10/11/2023 | 1230/0730 |  | US | Dallas Fed's Lorie Logan | |
| 10/11/2023 | 1400/0900 | | US | Atlanta Fed's Raphael Bostic | |
| 10/11/2023 | 1500/1000 | ** | | US | U. Mich. Survey of Consumers |
| 10/11/2023 | 1900/1400 | ** | | US | Treasury Budget |
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.