MNI US OPEN - Equity Bounces Moderates Ahead of Key Labour Market Data

NEWS

EU/RUSSIA (BBG): EU Backs Russia Sanctions Package Including Oil Price Cap

The European Union backed a new package of Russia sanctions that includes support for a price cap on oil sales to third countries, according to people familiar with the issue. The agreement includes measures to mitigate the impact the sanctions will have on countries with large shipping industries, such as Greece, Cyprus and Malta, said the people, who asked not to be identified because the discussions were private.

OPEC (BBG): OPEC+ Considers Large Production Cut, Sparking Push-Back From US

OPEC+ is considering its biggest production cut since 2020, a move Washington is trying to head off with furious diplomatic efforts. The group is set to discuss a cut to its output limits of as much as 2 million barrels a day, using current targets as a starting point. While a significant move, the actual impact on global supply would be smaller because several countries are already pumping below their quotas.

US officials are making calls to counterparts in the Gulf trying to push back against the move, according to people familiar with the situation.

OIL (MNI): US Administration Pushing Against OPEC+ Cuts

The US isn’t considering an additional release from the SPR despite the expected cut in OPEC production according to White House spokeswoman Karine Jean-Pierre yesterday. “We’re not considering new releases from the Strategic Petroleum Reserve beyond the 180 million”.

NEW ZEALAND (MNI): RBNZ Hikes 50bp, No Slowing Down in 2022

The Reserve Bank of New Zealand considered a 75bp hike at its October meeting, signalling its determination to sustain the pace of monetary tightening this year as it lifted rates 50bps to 3.5% as expected on Wednesday. It was the eighth consecutive hike by the RBNZ since Oct 2021, delivering a cumulative 325bps of tightening and lifting the Official Cash Rate to its highest level since early 2015.

ECB (BBG): ECB’s Panetta Won’t Be Italy’s Finance Chief in Blow to Meloni

Fabio Panetta, a member of the European Central Bank’s executive board, won’t be Italy’s next finance minister, a blow to right-wing leader Giorgia Meloni’s attempt to pick a cabinet capable of reassuring investors. Panetta said he wouldn’t take on the role after being asked by some participants during a meeting of euro-area finance chiefs in Luxembourg earlier this week, according to a person familiar with the matter who spoke on condition of anonymity because the talks were private.

JAPAN (MNI): BOJ Estimates Output Gap Narrowed in Q2

Japan's estimated output gap narrowed to -0.69 percentage points in Q2 from -1.02 pp in Q1, recording the ninth consecutive quarterly negative gap, the Bank of Japan estimated on Wednesday.

The output gap is still far from what BOJ officials predicted as they had expected it to turn positive around the second half of fiscal 2022 and then continue to expand moderately, with Japan’s economy following a growth path that outpaced its potential growth rate.

NORTH KOREA (MNI): U.S. Redeploys Aircraft Carrier Strike Group To East Sea

The U.S. will deploy its nuclear-powered aircraft carrier USS Ronald Reagan to the East Sea following the latest IRBM launch by North Korea, Yonhap News reports citing South Korean military command.

DATA

RBNZ HIKES RATES 50BPS TO 3.5% (MNI)

EUROZONE SEP FINAL SERVICES PMI 48.8 (FLSH 48.9); AUG 49.8 (MNI)

UK SEP FINAL SERVICES PMI 50.0 (FLSH 49.2); AUG 50.9 (MNI)

GERMANY SEP FINAL SERVICES PMI 45.0 (FLSH 45.4); AUG 47.7 (MNI)

GERMANY AUG TRADE BALANCE +1.2B (FCST +4.7B); JUL +3.4Br (MNI)

FRANCE SEP FINAL SERVICES PMI 52.9 (FLSH 53.0); AUG 51.2 (MNI)

FRANCE AUG MANUFACTURING OUTPUT +2.7% M/M, +3.1% Y/Y (MNI)

FRANCE AUG INDUSTRIAL PRODUCTION +2.4% M/M, +1.2% Y/Y (MNI)

ITALY SEP SERVICES PMI 48.8 (FCST 49.0); AUG 50.5 (MNI)

SPAIN SEP SERVICES PMI 48.5 (FCST 49.8); AUG 50.6 (MNI)

FOREX: EUR/USD Slips After Failed Test of Bear Channel Top

• EUR/USD trades lower headed into the NY crossover, with the pair fading following the challenge of the bear channel top at 0.9998. The dip lower in the pair is primarily USD driven and part of broader market consolidation after the sharp equity rally posted since the beginning of the week.
• GBP's post-Mini budget bounce is similarly fading, with GBP lower against most others in G10. Markets look to the PM's conference appearance later today (1100BST/0600ET) for direction, with Truss expected to double-down on her government's pro-growth strategy.
• The moderation in risk sentiment has seen the USD Index decline bottom out, with prices bouncing slightly off the Tuesday low at 110.055. Labour market data may determine the longevity of any bounce, with ADP employment change and ISM Services later today, ahead of NFP on Friday.
• NZD is the firmest currency in G10 following a hawkish turnout from the RBNZ decision. The bank raised rates by 50bps - as expected - but confirmed the bank also examined a 75bps step to tackle stubborn inflation.
• Focus turns to US and Canadian trade balance data as well as the final September US stats. ISM services index will also be watched closely for any repetition of the weak employment component posted as part of the manufacturing release on Monday.

BOND SUMMARY: Reversal, With UK Long-End Weakness In Focus Again

Yields have reversed higher Wednesday after the rally earlier in the week, with the UK long end continuing its dramatic underperformance.

• USTs are outperforming amid a broader risk-off move including a broadly stronger USD.
• A global focal point continues to be 30Y Gilt yields which rose by as much as 20bp, last up 11bp, in volatile trade.
• Earlier, EGBs were underpinned to a modest degree by weak Italy and Spain service PMIs and final Eurozone readings seeing weaker revisions, though UK PMI saw an upward revision.
• Attention for the rest of the session paid to UK PM Truss's conference speech, a non-monetary policy ECB meeting, and US ADP Employment and ISM services. Fed's Kashkari and Bostic also appear.

Latest levels:

• US: 2-Yr yield up 2.7bps at 4.1192%, 5-Yr up 6.4bps at 3.9177%, 10-Yr up 7.2bps at 3.7048%, and 30-Yr up 5.9bps at 3.7538%.
• DE: 2-Yr yield up 3.6bps at 1.606%, 5-Yr up 6.7bps at 1.774%, 10-Yr up 7.7bps at 1.948%, and 30-Yr up 7.8bps at 1.985%.
• UK: 2-Yr yield up 10.8bps at 4.028%, 5-Yr up 8.7bps at 4.198%, 10-Yr up 10.3bps at 3.978%, and 30-Yr up 10.4bps at 4.142%.
• Italy / German 10-Yr spread 6.1bps wider at 236.8bps

EQUITIES: Bounce Fades, But Still Within Range of Recent Highs

S&P E-Minis traded higher Tuesday, extending Monday’s reversal from 3571.75. Monday’s candle pattern is a bullish engulfing line and this highlights an important short-term trend reversal. EUROSTOXX 50 futures have established a bullish short-term tone following this week’s strong reversal. A corrective cycle has been established and this is allowing a recent oversold trend condition to unwind. Note Chinese markets remain closed for Golden Week.

• Japan's NIKKEI closed higher by 128.32 pts or +0.48% at 27120.53 and the TOPIX ended 6.03 pts higher or +0.32% at 1912.92.
• Across Europe, Germany's DAX trades lower by 31.7 pts or -0.25% at 12640.12, FTSE 100 lower by 30.06 pts or -0.42% at 7055.95, CAC 40 down 10.97 pts or -0.18% at 6027.91 and Euro Stoxx 50 down 10.26 pts or -0.29% at 3473.77.
• Dow Jones mini down 198 pts or -0.65% at 30164, S&P 500 mini down 25.5 pts or -0.67% at 3777.5, NASDAQ mini down 74.75 pts or -0.64% at 11566.25.

COMMODITIES: WTI Approaches 50-Day EMA Ahead of Possible OPEC+ Production Cut

WTI futures are trading closer to recent highs. The latest move higher has resulted in a break above the 20-day EMA. Attention is on the key resistance at the 50-day EMA. Gold has traded sharply higher this week reinforcing the current short-term bull cycle. The rally has resulted in a break of the 20-day EMA. Note that the yellow metal has cleared a trendline resistance drawn from the Mar 8 high.

• WTI Crude down $0 or 0% at $86.31
• Natural Gas down $0.12 or -1.76% at $6.724
• Gold spot down $12.49 or -0.72% at $1713.72
• Copper up $0.4 or +0.11% at $349.3
• Silver down $0.38 or -1.79% at $20.697
• Platinum down $10.62 or -1.14% at $924.21