MNI US OPEN - BoC Poised for Watch and Wait

NEWS

US (MNI): Johnson Becomes Latest Rep. to Seek Speaker's Gavel After Day of High Drama

Representative Mike Johnson (R-LA) will become the fourth Republican speaker-designate to seek the speaker's gavel in a vote likely to take place on the floor of the House of Representatives around 1200ET on 25 Oct. It remains unclear whether Johnson, a little known hardline social conservative who served on former President Donald Trump's impeachment defence team and has backed halting aid to Ukraine, will have the requisite support to win the requisite 217 votes to become speaker.

MNI BOC PREVIEW - OCTOBER 2023: Expecting a Hawkish Watch and Wait

The BoC is almost unanimously seen keeping its policy rate on hold at 5% on Wednesday for the second meeting running. Unusually heavy BoC speak since the Sep 6 decision has lent slightly hawkish but mixed data should see similar guidance. Instead, we focus on updated forecasts for when the Bank sees excess supply (July forecast early 2024) and when it sees inflation returning to the 2% target (July forecast mid-2025).

MNI ECB PREVIEW - OCTOBER 2023: Hawks Back Down, ECB on Hold

The ECB is not expected to deliver any material policy changes at the October meeting. In addition to clearly indicating in September that policy rates are at (or least very near) peak levels, the ECB will remain on hold given the recent downside inflation surprise, weak growth, delayed impact of previous tightening and notable dilution of hawkish pressure on the GC.

CHINA (BBG): Country Garden Default on Dollar Bond Declared for First Time

Chinese developer Country Garden Holdings Co. was deemed to be in default on a dollar bond for the first time ever, underscoring its fall into distress amid a broader property debt crisis that’s shaken the world’s second-biggest economy. Country Garden’s failure to pay interest on the note within a grace period that ended last week “constitutes an event of default,” according to a notice to holders from trustee Citicorp International Ltd. seen by Bloomberg News.

CHINA (BBG): China Signals Zero Tolerance for Sharp Slowdown With Rare Steps

Chinese President Xi Jinping signaled that a sharp slowdown in growth and lingering deflationary risks won’t be tolerated, making a series of rare policy moves to boost sentiment in the world’s second largest-economy. The government increased its headline deficit on Tuesday to the largest in three decades and unveiled a sovereign debt package that marked a shift from its traditional growth model. Xi also made an unprecedented trip to the central bank — sending a powerful message about his focus on the economy.

CHINA (MNI): China Debt Risks Under Control - Vice Minister

MNI (Beijing) China’s government debt ratio remains "reasonable and under control" despite the budget deficit increasing to 3.8% from 3% following the increase in the national fiscal deficit, according to Vice Minister of Finance Zhu Zhongming. Speaking at a press conference on Wednesday, Zhu stressed the central government was responsible for repaying the principal and interest on the new bonds, which would be listed as central fiscal deficit. “The additional CNY1 trillion treasury bonds will not increase the repayment burden of local governments,” he noted.

HONG KONG (MNI): HK to Strengthen Offshore Yuan Business - John Lee

MNI (Beijing) Hong Kong will work to strengthen its offshore Yuan business to maintain its status as a leading financial and business hub, John Lee, Chief Executive of Hong Kong, said on Wednesday during his key policy address of 2023. Lee said the government would press ahead with expanding Yuan counters under the Southbound Trading of Stock Connect scheme and facilitate the trading of Hong Kong stocks in Yuan. “We will take forward the introduction of offshore Mainland government bond futures and enrich the variety of Yuan investment products” Lee explained.

HONG KONG (BBG): Hong Kong Cuts Stock, Housing Taxes to Revive Role as Hub

Hong Kong is slashing extra stamp duties for some homebuyers and reversing a pandemic-era increase in stock trade levies as officials seek to boost the beleaguered property sector and revive the city’s status as a financial hub. Chief Executive John Lee detailed the measures Wednesday during the second policy address of his tenure, including a highly anticipated move to cut taxes for homebuyers who aren’t from the city as well as residents who already own property — the first change to housing curbs in the decade since they were introduced.

JAPAN (MNI): PM to Issue Specific Instructions Regarding Tax Cut on Thursday

Wires carrying comments from Deputy Chief Cabinet Secretary Hiroshi Moriya stating that "PM Fumio Kishida is to issue specific instructions regarding planned tax cuts on Thursday." The comments come after Kishida's speech to a plenary session of the House of Representatives on 23 October in which he stated that he was considering income tax cuts and tax breaks for business to spur investment.

JAPAN (MNI): Japan Nippon Life to Boost Yen Bond Holdings in FY23 2H

Japan insurers Nippon Life will boost domestic bonds holdings in the second half of this fiscal year, with purchases to include 30-year JGBs and yen-denominated foreign corporate bonds, the company’s chief fund manager said Wednesday. Intentions are to maintain the current balance of hedged-foreign bond holdings despite high hedging costs but will invest money in attractive corporate bonds, Akira Tsuzuki, senior general manager of finance and investment planning department, told reporters.

INDONESIA (MNI): Opinion Poll Front-Runner Formally Joins Presidential Race

Indonesian Defence Minister Prabowo Subianto joined the race to succeed Indonesian President Joko Widodo, paving the way for a three-way contest in which Prabowo is seen as a front-runner. The former special forces commander is running against two former regional governors Ganjar Pranowo and Anies Baswedan. The latest opinion poll by Indikator Politik put Prabowo on 37%, with Ganjar on 35% and Anies on 22%.

CORPORATE (BBG): Alphabet Shares Fall After Cloud Unit Misses Estimates

Alphabet Inc.’s cloud computing unit reported a smaller than expected profit, raising concerns about the company’s position in a market that is critical to its future. Shares of Alphabet fell 6.5% in premarket trading on Wednesday. As Google’s dominant search business matures, investors are looking to the cloud unit to take the lead on growth. The unit reported operating income of $266 million, missing estimates of $434 million.

CORPORATE (BBG): Microsoft Gains After Cloud Growth Drove Sales Surge in Quarter

Microsoft Corp. share were on track for their biggest gain in three months after it reported strong sales, bolstered by recovering cloud-computing growth amid demand for new artificial intelligence products. Revenue in the fiscal first quarter, which ended Sept. 30, rose 13% to $56.5 billion, the most in six quarters and topping analysts’ average projections. Profit was $2.99 a share, the software maker said in a statement Tuesday. Azure cloud-services sales gained 29%, compared with 26% growth in the previous quarter.

CORPORATE (BBG): Barclays Plans Cost Cuts After Trading Miss, Lower Guidance

Barclays Plc is planning to cut costs after the banking giant’s trading division missed estimates in the third quarter and the firm lowered guidance for its UK lender again. The British group’s corporate and investment bank reported £3.08 billion ($3.8 billion) in revenue, weaker than the £3.24 billion expected by analysts, as fixed income, currency and commodity trading declined by 26% on a year ago.

DATA

GERMAN DATA (MNI): IFO Points to Very Weak Growth, But Potential Q3 Trough

The ifo Business Climate Index for October came in higher than expected at 86.9versus 86.0 (consensus) and 85.7 (prior). This was the first monthly increase after 5 consecutive declines. The upside surprise vs consensus was higher for the expectations index (84.7 vs 83.5 consensus) than for the current assessment (89.2 vs 88.5 consensus) but the bottom line is that each showed improvement - even when taking into account upward revisions to September's readings (for the Business Climate and Expectations indices).

SPAIN DATA (MNI): Fuel Prices Pushing Monthly PPI Higher

Spanish NSA PPI for September remained in deflation on the year, printing at -8.6% Y/Y (vs a revised -9.9% prior). The monthly print was +1.4% M/M (vs a revised +1.3% prior). PPI excluding energy rose +1.8% Y/Y (vs +1.7% prior). The monthly print was driven higher by energy prices - particularly fuel products - with the manufacture of refined petroleum products rising +7.7% M/M. Energy prices still fell -25.7% Y/Y, but this is almost 4pp higher than the -29.3% seen in August.

AUSTRALIA DATA (MNI): Aussie CPI Measures Higher Than Expected

• AUSTRALIA Q3 CPI +1% Q/Q
• AUSTRALIA Q3 TRIMMED CPI +1.2% Q/Q

Australia’s Consumer Price Index rose 1.2% in the September quarter and 5.4% y/y, while the monthly read – also released today – increased 5.6% y/y, data from the Australian Bureau of Statistics showed Tuesday. Both measures printed higher than market expectations, which had Q3 CPI at 1.1% q/q, or 5.3% y/y, and monthly inflation at 5.3% y/y. Q3 trimmed mean inflation was 1.2% q/q and 5.2% y/y, also higher than expectations. The higher reads will concern the RBA, which forecasted CPI to fall to 4.25% by Q4 within its August Statement on Monetary Policy.

CHINA DATA (MNI): China Liquidity Tightest Since Jan as Recovery Quickens

• MNI OCT CHINA LIQUIDITY CONDITION INDEX 62.8 VS SEP 52.6

MNI (Beijing) China’s interbank liquidity reached its tightest level since January as economic recovery gathered strength following mid-year lows, but the proportion of traders expecting further easing jumped ahead of key year-end policy meetings, MNI's latest China Liquidity Survey shows. The Chinese economy grew by 4.9% y/y in Q3, beating market expectations of 4.5%, as production and consumption rebounded more than anticipated but weakness in real estate continued to drag down investment.

FOREX: USD Index Steadies Above Key Support, GBP Fails to Recover

• AUD sits higher against most others in G10 following the higher-than-expected CPI print during Asia-Pac hours, with the release putting prices to just below the $0.64 handle. AUD/USD has drifted since, with the gravity of more sizeable option strikes at 0.6325 (A$421mln) and 0.63 (A$727mln) likely weighing.
• The USD Index is seen firmer, snapping a four session streak of lower highs after markets found firm support ahead of the 50-dma of 105.285 yesterday. The longer prices hold above this mark (which is trending higher), the more likely a resumption of the M/T uptrend drawn off the July low.
• The single currency trades well, helping pressure the Monday high in EUR/GBP. Strength through 0.8726 opens the bull trigger of 0.8741 for direction, a level that could come into focus in the coming week, which covers both the ECB and BoE rate decisions.
• The Bank of Canada decision takes focus going forward, with the board seen unanimously keeping its policy rate on hold at 5% for the second meeting running. We focus on updated forecasts for when the Bank sees excess supply (July forecast early 2024) and when it sees inflation returning to the 2% target (July forecast mid-2025).
• Outside of the BoC, new home sales data for September is set to cross, and while both ECB's Lagarde and Fed's Powell are set to make appearances, they will steer clear of comments on monetary policy given the respective media blackout periods for both the ECB and the Fed.

EGBS: Core EGBs and Gilts Slightly Cheaper

Core EGBs and Gilts sit flat to a touch cheaper this morning, as better-than-expected German IFO numbers do not provide much impulse in either direction.

• Australian CPI upside surprise as well as Country Garden's USD bond default (largely anticipated) will have provided pressure early on, and impending supply from Italy, Germany and the UK also provided headwinds.
• OATs underperform, with cash benchmarks flat to 1-3bps cheaper, while cash Bunds are 0-2bps cheaper across tenors.
• The UK 2s10s curve is seen twist flattening almost 2bps today, currently at -25.5bps. Gilt futures sit at 92.76, and currently sit at the 200-day EMA of 92.74. The Oct 24 high of 93.34 as the first resistance and the Oct 24 low of 92.44 the first support.
• Periphery spreads are seen mixed, with the 10-year BTP/Bund spread 2.3bps wider at 202.1bps and Spain/Bund spreads 0.8bps wider at 111.8bps. Aforementioned Italian supply will have provided pressure here, while earlier Spanish PPI did not move the needle. Greek and Portuguese spreads are 3bps and 0.4bps tighter respectively this morning.
• The remaining data calendar is light today, with no scheduled MPC and ECB speakers. The BoC decision and US new home sales are the highlight in the North American session.

EQUITIES: Outlook in Eurostoxx 50 Futures Remains Bearish

A bearish theme in Eurostoxx 50 futures remains in play and last week’s extension lower reinforces current conditions. Support at 4082.00, the Oct 4 low and a bear trigger, has been cleared. This confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. The focus is on the 4000.00 handle. Initial firm resistance is at 4148.00, the 20-day EMA. S&P e-minis maintain a softer tone and the contract started this week on a bearish note. Support at 4235.50, the Oct 4 low and bear trigger, has been breached. The break confirms a resumption of the downtrend and opens 4194.75, the May 24 low. Price remains below resistance at the 50-day EMA, at 4399.13. A clear breach of this average is required to strengthen a bullish condition. Initial resistance is at 4341.49, the 20-day EMA.

• Japan's NIKKEI closed higher by 207.57 pts or +0.67% at 31269.92 and the TOPIX ended 13.67 pts higher or +0.61% at 2254.4.
• Elsewhere, in China the SHANGHAI closed higher by 11.87 pts or +0.4% at 2974.114 and the HANG SENG ended 93.8 pts higher or +0.55% at 17085.33.
• Across Europe, Germany's DAX trades lower by 25.91 pts or -0.17% at 14852.86, FTSE 100 higher by 6.99 pts or +0.09% at 7396.89, CAC 40 down 22.23 pts or -0.32% at 6871.42 and Euro Stoxx 50 down 11.07 pts or -0.27% at 4054.05.
• Dow Jones mini up 25 pts or +0.08% at 33294, S&P 500 mini down 14.75 pts or -0.35% at 4256.25, NASDAQ mini down 84.25 pts or -0.57% at 14761.75.

COMMODITIES: WTI Futures Trade Lower Again as Pullback from Last Friday’s High Extends

WTI futures traded lower Tuesday as the pullback from last Friday’s $89.85 high extends. The medium-term trend condition is bullish and the latest pullback appears to be a correction. A resumption of gains would expose the bull trigger at $92.48, the Sep 28 high. Clearance of this hurdle would confirm a resumption of the uptrend. For bears, a move through $80.20, the Oct 6 low, would instead highlight a short-term top. Gold is holding on to the bulk of its recent gains and reversal from $1810.5, the Oct 6 low. The yellow metal has breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The break strengthens a bullish theme and opens $2003.4, a Fibonacci retracement point. Initial firm pivot support lies at $1912.7, the 50-day EMA. Clearance of this level is required to signal a short-term top and a potential reversal.

• WTI Crude down $0 or 0% at $83.77
• Natural Gas up $0.01 or +0.2% at $2.977
• Gold spot up $2.77 or +0.14% at $1974.11
• Copper down $0.5 or -0.14% at $362.05
• Silver down $0.07 or -0.32% at $22.8615
• Platinum down $6.74 or -0.76% at $884.75