MNI US OPEN - BoE Decision is a Coin Toss

NEWS

MNI BOE PREVIEW - SEPTEMBER 2023: Guidance Tweak?

The MPC policy announcement on Thursday will be closely watched by markets, despite unanimous expectation amongst sell-side analysts prior to Wednesday's inflation print that there will be a 25bp hike. We discuss the data leading up to the decision and the potential for changes to forward guidance. We expect the Bank to target a reduction in the stock of gilt holdings in the APF of GBP100bln over the next 12 months. We look at the risks and what this means for the maturity buckets.

MNI UK INFLATION INSIGHT - AUGUST 2023: Lower Services Inflation

We noted in our inflation preview that a services CPI number notably softer than 7.2% Y/Y (absent some strange temporary factors) would be enough to move market pricing for today’s MPC meeting to around 50/50 and that is broadly where we sit at the time of writing. The MNI Markets team now expect a much more split decision at today's meeting. We are pretty much on the fence whether we see a hike or not. Even if we do see a hike, we would now expect more dovish dissenters than Dhingra alone.

NORGES BANK (MNI): Hikes 25 Basis Points, Raises Peak to 4.5%

Norges Bank delivered a well-trailed 25-basis-point rate hike, taking the policy rate to 4.25%, at its September meeting but surprised by stating that it was likely to hike again in December. Norway's central bank raised its projections accompanying the decision to show the policy rate holding at close to 4.5% through much of 2024 before declining gradually in 2025 and 2026 to reach 3.2% three years out. While analysts were united in anticipating Thursday's 25bp hike many had assumed that Norges Bank would signal a 4.25% peak with only a slim chance of a further hike.

RIKSBANK (MNI): Riksbank Hikes 25bps, Leaves Door Ajar to 25bp More

The Riksbank Hiked 25 basis points to 4% and published a rate path showing a 4.1% peak, leaving the door ajar to one more 25bps hike The Riskbank hiked 25 basis points, lifting the policy rate to 4.0%, at its September meeting and stated that it could hike further. The rate path accompanying the decision showed the policy rate rising very gradually and peaking at 4.1% and staying there until the second half of 2025 and then dipping to stand at 3.69% three years ahead, suggesting peak is now very close to peak, and, with the executive board's central scenario anticipating a prolonged period of flat rates, the so-called 'Table Mountain' approach, which is being adopted by advanced economy central banks.

SNB (MNI): SNB Holds Policy Rate at 1.75%, But Battle Not Won

Weak growth and the expected passthrough of previous monetary policy tightening prompted the Swiss National Bank to hold its key policy rate of interest at 1.75% on Thursday, although it said further hikes have not been ruled out. Inflation fell to 1.6% in August, inside the SNB’s tolerance band of 0-2%. Overall, the medium-term projection dipped slightly, averaging 2.2% for 2023 and 2024, and 1.9% in 2025, with the Swiss economy also seeing the effects of monetary tightening by other central banks.

GLOBAL (MNI): Global Inflation Indicators Turning, Second Round Effects Key

Some global inflation indicators are steadying and some are becoming less disinflationary or in the case of oil now putting upward pressure on prices. The US saw a 0.5pp increase in headline inflation in August and Australia's RBA cited rising fuel prices as making the return to target "uneven". The key will be if there will be second round effects on core from higher costs.

US (BBG): McCarthy Revises Plan to Avert Shutdown, Flips Some GOP Holdouts

House Speaker Kevin McCarthy won the support of a few hardliners Wednesday night in his effort to quell his restive right flank and pass a short-term spending bill but the risk of a US government shutdown remains high just 10 days before a funding lapse. After a closed-door meeting that lasted more than two hours, the besieged speaker was still short of the votes he needs to pass a Republican-only spending measure that has no chance of winning support in the Democratic-controlled Senate.

ECB (BBG): ECB’s Nagel Says Too Soon to Declare Rates Have Reached Plateau

European Central Bank Governing Council member Joachim Nagel said it’s too soon to say whether interest rates have reached their peak as policymakers still face stubborn inflation. “Have we reached the plateau?” Nagel said in a speech in Frankfurt on Thursday. “This cannot yet be clearly predicted. The inflation rate is still too high. And the forecasts still only show a slow decline toward the target level of 2%.”

ECB (BBG): Makhlouf Says Further ECB Rate Hike Possible: Irish Independent

The European Central Bank Governing Council member Gabriel Makhlouf said that there might still be an interest-rate hike in October and rejected bets on cuts in the spring. “I’m not saying that at our next meeting we’re going to hold” rates, he told the Irish Independent in an interview published Thursday. Still, even inflation above the ECB’s 2% target might not force additional action, he said.

EU/CHINA (MNI): Econ & Trade Dialogue on 25 Sept Following Earlier Digital Talks

MNI (London) Wires reporting comments from the Chinese Ministry of Commerce, which has stated that China will co-host a China-EU high-level economic and trade dialogue in Beijing on 25 September. This dialogue comes shortly after the EU-China High-level Digital Dialogue that took place on 18 September in Beijing involving China's Vice Premier Zhang Guoqing and the European Commission Vice-President for Values and Transparency Vera Jourova.

CANADA/INDIA (BBG): Canada Reduces Number of Diplomats in India Over Safety Concerns

Canada’s High Commission will reduce the number of diplomats in India due to security concerns as a diplomatic row escalates over murder allegations made by Prime Minister Justin Trudeau. “In the light of the current environment where tensions have heightened, we are taking action to ensure the safety of our diplomats,” Global Affairs Canada said in a statement. “Out of an abundance of caution, we have decided to temporarily adjust staff presence in India.”

MNI BOJ PREVIEW - SEPTEMBER 2023: BOJ to Maintain Its Existing Policies, Press Conference the Focus

At the July Monetary Policy Meeting (MPM), the BOJ introduced a more flexible approach to its yield curve control (YCC) strategy. While maintaining the target for long-term yields at 0% with a permissible range of +/-50bps, they effectively allowed the 10-year yield to rise as high as 1.0%. Considering the adjustments made to the YCC framework in July, our analysis aligns with the prevailing consensus, anticipating that the BOJ will maintain its existing policies in the upcoming announcement, including the short-term interest rate remaining at -0.1%

JAPAN (BBG): Japan’s Kishida to Outline Economic Support Steps Next Week

Prime Minister Fumio Kishida is set to sketch out promised economic measures early next week, a move that comes as polls show voters are dissatisfied with the steps he’s taken so far to alleviate the pain of rising prices partly fueled by weakness in the yen. Speaking to reporters in New York, where he gave a speech at the United Nations, Kishida warned that Japan’s economic situation remains unstable, while the economic outlook for other major countries is also unpredictable.

AUSTRALIA (BBG): Chevron and Unions Reviewing New Plan to End LNG Strikes

Chevron Corp. and unions are close to a deal that would end strikes at liquefied natural gas plants in Australia that have roiled global markets, with the nation’s labor regulator putting forward new proposals to resolve remaining disputes. “The parties are on the precipice of achieving historical first enterprise agreements,” the Fair Work Commission said in a statement dated Thursday. “A large number of issues have been settled. However, a failure to settle all of the outstanding issues will result in those agreed provisions simply evaporating.”

RBA (MNI): Spotlight on RBA Data-Dependence as Labour, GDP Run Hot

Recent stronger-than-expected data, particularly GDP and employment, have fueled debate over whether the Reserve Bank of Australia will be pushed into hiking rates further to pull inflation back to its 2-3% target band, but prominent economists and former staff members were divided, with one seeing room for it to continue its wait-and-see approach. While August’s unemployment held flat at 3.7% last week, employment strengthened with 65,000 jobs created, illustrating persistently high labour demand.

POLAND/UKRAINE (BBG): Poland to Stop Giving Weapons to Ukraine as Spat Worsens

Poland said it has stopped supplying weapons to Ukraine, further escalating a dispute over grain shipments that’s threatening to break a key alliance in Kyiv’s fight against Russia. “We are no longer transferring weapons to Ukraine, because we are now arming Poland with more modern weapons,” Prime Minister Mateusz Morawiecki said in an interview with Polsat television, in response to a question from a reporter on whether Warsaw would continue to support Kyiv despite the grain-exports disagreement.

MNI CBRT PREVIEW - SEPTEMBER 2023: Another Large-Scale Hike

Further tightening from the CBRT is expected this week, with the benchmark one-week repo rate expected to be raised by 500bps to 30%. Since the August decision, President Erdogan has backed the use of high interest rates, suggesting that the central bank now has the political support to continue with the large-scale rate hikes which are needed to tame inflation momentum and expectations.

BI (BBG): Indonesia Keeps Rate Steady Amid Renewed Pressure on Rupiah

Indonesia’s central bank left its benchmark interest rate unchanged to guard against the risk of currency volatility and inflation driven by surging rice prices. Bank Indonesia held the seven-day reverse repurchase rate at 5.75% on Thursday, as seen by all of 27 economists in a Bloomberg survey. The policy rate has been at this level — a four-year high — for eight straight months.

BSP (BBG): Philippines Extends Rate Pause to Shield Growth as Prices Jump

The Philippine central bank kept its benchmark interest rate steady for a fourth straight meeting, looking past last month’s inflation pickup after economic growth slowed and the peso weakened. The Bangko Sentral ng Pilipinas on Thursday left its target rate at 6.25%, as seen by 20 of 22 economists surveyed by Bloomberg. Two predicted a quarter-point increase.

DATA

UK AUG CGNCR GBP5.93 BN (MNI)
UK AUG PSNB GBP+10.76 BN (MNI)
UK AUG PSNCR GBP2.47 BN (MNI)
UK AUG PSNB-X GBP+11.58 BN (MNI)

FRANCE SEP MANUF SENTIMENT AT 99 (MNI)

CHINA (MNI): PBOC Injects Net 141bln via OMO Thursday; Rates Unchanged

MNI (Beijing) The People's Bank of China (PBOC) conducted CNY169 billion via 7-day repo and CNY82 billion via 14-day repo on Thursday, with the rate unchanged at 1.80% and 1.95%, respectively. The operation has led to a net injection of CNY141 billion after offsetting the maturity of CNY110 billion reverse repos today, according to Wind Information.

NEW ZEALAND (MNI): NZ GDP Beats Expectations at 0.9% Q/Q

New Zealand GDP increased faster than expected in the June quarter, growing 0.9% q/q, up from 0% in Q1, according to Stats NZ data released Thursday. The market had expected 0.5% growth. The economy grew 1.8% annualised, up from 2.2% the previous quarter. Expenditure on GDP rose 1.3% in Q3, following a 0.2% fall in the March quarter, the data showed.

FOREX: USD Underpinned Post-FOMC, BoE Next on Central Bank Gauntlet

USD remains underpinned in the wake of the FOMC decision (dot plot tweaks for ’24 & ’25 at hawkish end of expectations, Powell noting potential that r* is higher and a firmer tone re: economic growth), weakness in equities has helped, although the BBDXY failed to breach early September highs.

• JPY has benefited from the broader equity market weakness, after the initial yield differential impulse saw USD/JPY to fresh ’23 highs. USD/JPY now sits at Y148.20, with JPY atop the G10 FX table.
• NOK has benefitted from hawkish adjustments to the Norges Bank’s rate track, which came alongside the signalled 25bp hike. The Bank also alluded to the likelihood of another rate hike, most likely in December.
• Elsewhere, the SEK failed to hold on to knee-jerk gains surrounding the bank’s FX hedging policy, which came ahead of time vs. most expectations. Still, the hedging amount outlined was in line with rough calculations and the upward shift in the Riksbank’s rate path forecast was perhaps a little shallower than could have been expected, even with the Governor pointing to the likelihood of one further rate hike. EUR/SEK trades comfortably off session lows.
• CHF finds itself at the bottom of the G10 pack after the SNB left policy rates unchanged (BBG consensus looked for a hike). While Chairman Jordan pointed to the potential for further hikes and noted that the inflation battle is not yet over, some of the language deployed and the SNB playing down the idea of a hawkish pause has also weighed on the CHF.
• GBP also struggles, with uncertainty ahead of the BoE decision, triggered by yesterday’s CPI data, noted. Cable shows below $1.23 for the first time since April, even with markets once again leaning more towards the idea of a hike later today.

EGBS: Softer Post-FOMC, Peripherals Widen

Bund futures did close the opening gap lower, but still got nowhere near testing pre-FOMC levels before some fresh selling came in. That leaves the contract -45.

• German cash benchmarks sit 3.5-5.5bp cheaper, bear flattening post-FOMC.
• Hawkish leaning comments from ECB Governing Council members will have helped cap the rebound. Flows in U.S. Tsys and gilts will have also weighed.
• ECB’s Kazaks warned that the recent lift in energy prices presents a structural shift, in turn posing upside risks to inflation. He also noted that he was "quite satisfied" with the current level of interest rates, although he is not ready to say peak levels have been reached, while he also pushed back on the idea of mid-’24 rate cuts. Finally, Kazaks noted that APP sales and the end of PEPP reinvestments should be discussed before the Bank considers cutting interest rates (he noted that a pre-requisite for the latter is inflation consistently undershooting target).
• Elsewhere, ECB’s Nagel pointed to still stubborn inflation, also noting that it is not clear if rate levels have peaked.
• Core/semi-core EGB spreads to Bunds are little changed to a touch wider.
• Peripherals widen vs. Bunds on as markets react to the FOMC, pressuring carry plays (BTPs 3bp wider vs. Bunds).
• French & Spanish supply was smoothly digested.
• Impending BoE developments are eyed.

GILTS: Futures Sub-96.00, BoE Pricing Off Yesterday’s Dovish Extremes Ahead of Decision

Bears push gilt futures sub-96.00 at the second attempt, although late Tuesday levels are still some distance away, owing to yesterday’s post-CPI rally.

• Cash gilts run 4-7bp cheaper, with the belly to intermediates leading the weakness.
• Some light hawkish BoE pricing adjustments post-FOMC, with payers coming in after yesterday’s dominant receiver-side flows, will have aided the move in gilts.
• A little over 14bp of tightening is now showing for today’s BoE decision, as markets lean more towards a hike than no move in rates, while terminal policy rate pricing shows above 5.50%, meaning one hike is a little more than fully priced once again. A quick reminder that yesterday’s softer than expected CPI data has seemingly made the decision much tougher to call.
• SONIA futures last 1-7bp cheaper a little off session lows.
• Fresh selling in Tsys would have done the cheapening move in gilts no harm.

EQUITIES: Post-Fed Dip in E-Mini S&P Reinforces Bearish Conditions

A strong sell-off in Eurostoxx 50 futures on Monday highlighted a bearish start to this week’s session. A continuation lower would threaten the recent short-term bullish theme and refocus attention on key near-term support at 4210.00, the Sep 8 low. Clearance of this level would confirm a resumption of the downtrend that started late July. Key short-term resistance has been defined at 4359.00, the Sep 15 high. A break would be bullish. A bear cycle in S&P E-minis remains in play and this week’s break lower reinforces current conditions. Support at 4483.25, the Sep 7 low, has been breached, confirming a resumption of the bear leg that started Sep 1. A continuation lower would expose 4397.75, the Aug 18 low and the next key support. Initial key resistance has been defined at 4566.00, the Sep 15 high. A break of this level would be seen as a bullish development.

• Japan's NIKKEI closed lower by 452.75 pts or -1.37% at 32571.03 and the TOPIX ended 22.59 pts lower or -0.94% at 2383.41.
• Elsewhere, in China the SHANGHAI closed lower by 23.867 pts or -0.77% at 3084.701 and the HANG SENG ended 230.19 pts lower or -1.29% at 17655.41.
• Across Europe, Germany's DAX trades lower by 126.8 pts or -0.8% at 15654.5, FTSE 100 lower by 40.14 pts or -0.52% at 7691.49, CAC 40 down 80.15 pts or -1.09% at 7249.38 and Euro Stoxx 50 down 41.78 pts or -0.98% at 4233.72.
• Dow Jones mini down 74 pts or -0.21% at 34653, S&P 500 mini down 17.25 pts or -0.39% at 4429.75, NASDAQ mini down 89.75 pts or -0.59% at 15062.

COMMODITIES: Technical Uptrend in WTI Futures Intact Despite Short-Term Bearish Correction

The uptrend in WTI futures remains intact, however, the contract has entered a short-term bearish corrective cycle. The trend condition is overbought and a move lower would allow this to unwind. The first key support to watch lies at $86.25, the 20-day EMA and is a potential short-term objective. On the upside, clearance of Tuesday’s $92.43 high would confirm a resumption of the uptrend and open $94.66, a Fibonacci projection. Gold traded higher yesterday but quickly pulled back from the session high. The recent breach of the 50-day EMA does highlight a possible developing bullish threat. Key resistance is at $1953.0, the Sep 1 high where a break is required to confirm a bullish theme. On the downside, $1901.1, the Sep 14 low, marks a key near-term support. A breach of this level would strengthen a bearish theme and expose $1884.9, the Aug 21 low.

• WTI Crude down $1.24 or -1.38% at $88.45
• Natural Gas up $0.01 or +0.18% at $2.739
• Gold spot down $7.38 or -0.38% at $1923.12
• Copper down $8.7 or -2.3% at $368.85
• Silver down $0.1 or -0.45% at $23.1393
• Platinum down $9.27 or -1% at $920.68