MNI US OPEN - UK Budget U-Turn After Just 10 Days

NEWS

UK (MNI): Government Back Down from Controversial Tax Cut

The UK has abandoned plans to abolish the 45p rate paid by the country's top earners, Chancellor Kwasi Kwarteng announced Monday. The plans, attacked publicly by many Conservative MPs on Sunday, were announced as part of Kwarteng's 'mini-budget' laid out to Parliament on September 23.

Kwarteng said the plans, which were set to cost GBP2 billion annually, were becoming a distraction to the wider growth plan and following discussions with Prime Minister Liz Truss the government has decided not to proceed. The cut in tax for top earners has weighed heavily on the government in recent days, with the latest polling showing the opposition Labour Party seeing leads in double digits.

JAPAN (MNI): BOJ Policy Shift Would Be A “Miracle” – Kataoka

The Bank of Japan is unlikely to shift policy under a new Governor until at least the middle of the 2023 fiscal year, and even then it would be a “miracle”, former board member Goushi Kataoka told MNI.

The dovish former official said the BOJ would likely have to raise its core Consumer Price Index forecast for the next two fiscal years, maintain bond buying to curb yields, and that policymakers would be unmoved by a weak yen.

AUSTRALIA (MNI): MNI RBA Preview - October 2022: 50bp But a Very Close Call

We think that the data and RBA communique point to a final 50bp hike at the Bank’s October meeting, which would leave the cash rate target at 2.85%. Market pricing surrounding the terminal rate has shifted higher again in recent weeks’ although the June peak of 4.50% has not been breached.

CHINA (MNI): Defaults Loom for Chinese Developers - Analysts

The liquidity squeeze on Chinese property developers is expected to trigger more debt defaults as the government seeks to rebalance a market left oversupplied after the last boom, with only modest financial support offered to backstop confidence during the transition, analysts said.

The over 20% y/y decline in home sales over the first eight months of the year, coupled with a contraction in financing through loans and bond issuance, could prove a toxic combination for cash-strapped developers struggling under debt repayment pressures.

NEW ZEALAND (MNI): RBNZ Should Hike 50bps Says NZIER Shadow Board

The New Zealand Institute of Economic Research's Shadow Board recommended the Reserve Bank of New Zealand hike rates by 50bps to 3.5% at its Oct 5 meeting.

The recommendation by the Shadow Board, which includes former RBNZ chairman Arthur Grimes, aligns with market pricing that sees the Official Cash Rate being raised for an eighth consecutive meeting to its highest level since 2015.

EUROPE (BBG): Credit Suisse Risk Gauge at Record High, Shares Hit New Low

Credit Suisse Group AG’s gauge of credit risk rose to a record high while its stock hit a fresh low, adding to the turmoil after the bank’s attempts to reassure markets on its financial stability backfired. The five-year credit default swaps price of about 293 basis points is up from about 55 basis points at the start of the year and at the highest ever, according to ICE Data Services. At the same time, the shares dropped as much as 12% in Zurich on Monday and have lost about 60% just this year alone, on track for the biggest annual drop in Credit Suisse’s history.

ENERGY (BBG): Europe Gas Slides as Storage, EU Steps Cut Risks for This Winter

Natural gas prices in Europe fell amid signs the continent will be able to navigate this winter with sufficient inventories, an influx of LNG and measures planned by the European Union. Benchmark futures declined as much as 7%. European demand is likely to fall by a record 10% this year, and another 4% next year due to the high prices, according to the International Energy Agency. Gas saving measures will be crucial to help stretch inventories to the end of winter even with dwindling Russia supply, it said.

DATA

EUROZONE SEP FINAL MANUF. PMI 48.4 (FLSH 48.5); AUG 49.6 (MNI)

GERMANY SEP FINAL MANUF. PMI 47.8 (FLSH 48.3); AUG 49.1 (MNI)

UK SEP FINAL MANUF. PMI 48.4 (FLSH 48.5); AUG 47.3 (MNI)

FRANCE SEP FINAL MANUF. PMI 47.7 (FLSH 47.8); AUG 50.6 (MNI)

ITALY SEP MANUF. PMI 48.3 (FCST 47.5); AUG 48.0 (MNI)

SPAIN SEP MANUF. PMI 49.0 (FCST 49.4); AUG 49.9 (MNI)

SWISS SEP CPI -0.2% M/M, +3.3% Y/Y (MNI)

BOJ (MNI): Sep Tankan Sees Sentiment Drop, Solid Capex

• BOJ SEP TANKAN LARGE MFG INDEX +8; JUN +9; MEDIAN +10
• BOJ SEP TANKAN SMALL MFG INDEX -4; JUN -4; MEDIAN -4
• BOJ TANKAN LARGE NON-MFG INDEX +14; JUN +13; MEDIAN +12
• BOJ TANKAN SMALL NON-MFG INDEX +2; JUN -1; MEDIAN -3
• BOJ DEC TANKAN LARGE MFG INDEX FORECAST AT +9
• BOJ DEC TANKAN LARGE NON-MFG INDEX SEEN AT +11

Japanese headline business sentiment fell from three months ago, reporting the first drop in three quarters, hit by higher costs caused by rising commodity prices and a falling yen, the Bank of Japan's September Tankan business sentiment survey published Monday showed.

But business sentiment among major non-manufacturers, mainly the face-to-face services, improved for the second straight quarterly rise as economic activity resumed after the government lifted the state of emergency.

FOREX: USD/JPY Uptick Puts Pair Back into Intervention Territory

• JPY is among the weakest currencies in G10 early Monday, putting USD/JPY back toward recent highs and within range of the previous levels at which Japan's Ministry of Finance intervened in the currency to stem the pair's incline.
• There have been no major statements or indications from Japanese authorities of further action, but expectations will certainly grow should the pair creep higher. Overnight highs at 145.30 mark first resistance ahead of 145.90 - the cycle high - further out.
• Equities are lower across Europe, marking a sour start to the last quarter of the year, but growth proxies and high beta currencies are outperforming, putting AUD and NZD at the top of the G10 pile. Moves come ahead of tomorrow's RBA rate decision, at which the bank are seen raising rates by a further 50bps to 2.85%.
• Focus turns to the ISM Manufacturing data due later today, with particular attention likely to be paid to the employment subcomponent ahead of Friday's nonfarm payrolls release.
• Central bank speakers due today include Fed's Bostic & Williams and BoE's Mann.

BOND SUMMARY: Gilt curve remains steeper despite retracing earlier moves

• Gilts had a very strong open on the back of the Chancellor's announcement this morning that the 45% tax rate on earnings above GBP150,000 would not be abolished - opening up the prospect of further U-turns on the large fiscal spending announced 10 days ago in the government's "Growth Plan." A large part of this rally has been retraced, with the futures contract now little changed versus last week's close at the time of writing (it had been as high as 160 ticks higher earlier this morning). The curve has remained steeper, however.
• US Treasuries reversed some of their quarter-end sell-off this morning with 2-year yields down 8.0bp at writing.
• Bunds by contrast, have seen more limited moves this morning so far, despite the weaker than expected PMI revisions.
• Looking ahead the highlight later today will be the ISM manufacturing index.
• TY1 futures are up 0-1+ today at 112-03+ with 10y UST yields down -4.0bp at 3.792% and 2y yields down -8.0bp at 4.201%.
• Bund futures are up 0.01 today at 138.50 with 10y Bund yields up 0.9bp at 2.114% and Schatz yields up 1.6bp at 1.762%.
• Gilt futures are unch today at 964.40 with 10y yields up 1.2bp at 4.097% and 2y yields down -5.4bp at 4.145%.

EQUITIES: Futures Contracts Hit Fresh Cycle Lows

S&P E-Minis trend conditions remain bearish and the contract has traded to a fresh cycle low today. Moving average studies are in a bear mode position, highlighting the current trend direction. EUROSTOXX 50 futures trend conditions remain bearish and the contract has traded to a fresh trend low today. Last week's bearish extension confirms a continuation of the reversal on Sep 13 from 3678.00. Note Chinese markets are closed this week for Golden Week.

• Japan's NIKKEI closed higher by 278.58 pts or +1.07% at 26215.79 and the TOPIX ended 11.64 pts higher or +0.63% at 1847.58.
• Across Europe, Germany's DAX trades lower by 158.04 pts or -1.3% at 11949.52, FTSE 100 lower by 71.43 pts or -1.04% at 6820.26, CAC 40 down 91.92 pts or -1.6% at 5667.53 and Euro Stoxx 50 down 48.77 pts or -1.47% at 3268.13.
• Dow Jones mini up 39 pts or +0.14% at 28839, S&P 500 mini down 4.75 pts or -0.13% at 3596.5, NASDAQ mini down 65.25 pts or -0.59% at 10969.75.

COMMODITIES: WTI Futures Close to Recent Highs, Gold Recovery Continues

WTI futures are trading closer to recent highs. Bearish conditions remain intact though and the climb from last Monday’s low is considered corrective. The contract has recently cleared support at $80.89, Sep 8 low. Gold has recovered from last Wednesday's low of $1615.0. Short-term gains are considered corrective and the downtrend remains intact. The next resistance is at $1676.6, the 20-day EMA.

• WTI Crude up $3.62 or +4.55% at $83.09
• Natural Gas down $0.06 or -0.81% at $6.685
• Gold spot up $4.31 or +0.26% at $1665.14
• Copper down $4.4 or -1.29% at $337.05
• Silver up $0.39 or +2.02% at $19.4155
• Platinum up $4.24 or +0.49% at $868.32