MNI US OPEN - BoE's Pill Fails to Repeat '24 Rate Cut Messaging

NEWS

FED (MNI): Fed's Harker Still Leaning Against Further Rate Hikes

Philadelphia Fed President Patrick Harker on Wednesday again argued the Federal Reserve should stop raising interest rates and hold them at their current 22-year highs, while warning rate cuts are not forthcoming in the near future. "While I see us on the path of taming inflation and protecting our economic underpinnings, I would also caution that a decrease in the policy rate is not something that is likely to happen in the short term," he said in prepared remarks.

MNI Webcast with Fed's Tom Barkin On Nov 9

You are invited to listen to a speech and Q&A in real-time by Thomas Barkin, President & CEO of the Federal Reserve Bank of Richmond.

• Tom Barkin joins us to discuss the Outlook for the US Economy & Fed Policy.
• Date: Thursday, 9 Nov 2023
• Time: 16:00 - 17:15 GMT
• This event is on the record and will run as a Zoom Webinar

US (BBG): GOP Field Spars Over Foreign Policy, Blames Trump for Losses

The third Republican presidential debate focused on questions over foreign policy crises and the party’s latest election losses, an embarrassment the candidates blamed on former President Donald Trump. Questions on foreign policy largely dominated the first hour, with the candidates backing aggressive military action by Israel against Hamas saying Israeli Prime Minister Benjamin Netanyahu should consider the complete eradication of the militant group. Florida Governor Ron DeSantis said he would advise Netanyahu to “finish the job once and for all with these butchers.”

US (BBG): DeSantis Says He Will ‘Rein in’ Federal Reserve if Elected

Florida Governor Ron DeSantis says he is going to “rein in” the Federal Reserve if he is elected president. “The Fed should focus on stable prices - they are not an economic central planner for the American people,” DeSantis said at a Republican presidential primary debate.

US (NYT): House Republicans Subpoena Biden’s Son and Brother in Impeachment Inquiry

Representative James Comer, the chairman of the Oversight Committee, demanded testimony from James Biden and Hunter Biden as he hunts for evidence of bribery and corruption by the president. House Republicans on Wednesday issued subpoenas demanding testimony from Hunter and James Biden, the president’s son and brother, as they hunt for evidence to try to build an impeachment case against him.

BOE (BBG): BOE’s Pill Says No Need for More Hikes to Bear Down on Inflation

The Bank of England does not need to raise interest rates further to bear down on inflation because policy is already restrictive, Chief Economist Huw Pill said. Addressing the Institute of Chartered Accountants in England and Wales, Pill said: “Having established monetary policy is in restrictive territory it is not the case that we need to raise rates in order to bear down on inflation. Sustaining rates at their current level will continue to bear down inflation.” “It is that maintaining of the restrictive stance that is key to achieving the inflation target.”

UK (The Times): Real Pay Has Not Grown for 17 Years, Economists Claim

UK workers are on course to miss out on £17,000 from lost growth in real pay by the end of this year, economists are forecasting. A sharp slowdown in real income growth, following a 17-year long squeeze, is poised to leave living standards where they were in 2006, according to analysis by PwC, a consultancy. The research reinforced a report by the National Institute of Economic and Social Research this week that estimated the real incomes of the UK’s poorest will take until 2026 to recover to their pre-pandemic level.

ECB (MNI): ECB on Hold, But Risks Remain - ECB's De Guindos

European Central Bank interest rates will continue to be made on a meeting-by-meeting basis, defined by data available to the Governing Council, Vice President Luis de Guindos told Slovakia's Finance magazine in an interview published Thursday. "We will continue taking a meeting-by-meeting and data-dependent approach to interest rate decisions," De Guindos said, although he added that holding interest rates at their current level would be likely to "substantially contribute to bringing inflation back down to the 2% level".

ECB (MNI): Eurozone Needs to Strike Balance on Reserves - Lane

A new European Central Bank operational framework should avoid excessively scarce or excessively abundant reserves, even if they are set at an overall level lower than currently, ECB chief economist Philip Lane said on Thursday. Speaking at the ECB's Money Markets conference in Frankfurt, Lane said he favoured a middle path that strikes "an appropriate balance between the benefits and costs associated with the creation of central bank reserves and also seems best suited to safeguard the stability of the banking and financial systems."

ECB (MNI): Rates Will Not Rise Without New Shock - ECB's Villeroy

The European Central Bank will not raise rates further in this cycle barring some new “shock”, Bank of France Governor Francois Villeroy said on Thursday. Inflation is showing a clear downwards trend although there could be ups and downs in the rate of price increases in the short term, Villeroy told France’s Radio Classique.

EU (BBG): France and Germany Ramping Up Efforts to Reach EU Fiscal Deal

France and Germany are ramping up efforts to find a joint agreement on new fiscal rules that can pave the way for a European Union deal by the end of the year, French Finance Minister Bruno Le Maire said. He told reporters ahead of a meeting of EU finance ministers in Brussels on Thursday that he plans to head to Berlin in the coming days to work on the dossier with German counterpart Christian Lindner. He said it was essential to have an agreement by the end of the year, saying the “whole credibility of the EU is at stake.”

SPAIN (MNI): Sanchez Set Up to Remain PM as PSOE & Junts Reach Agreement

Multiple outlets reporting that acting PM Pedro Sanchez's centre-left Spanish Socialist Workers' Party (PSOE) has reached an agreement with the hard-line Catalan separatist Together for Catalonia (Junts) that will see Sanchez given the requisite support to win an investiture vote in parliament. In exchange for this, the gov't will agree to an amnesty deal for those prosecuted under sedition laws in relation to the illegal Catalan independence referendum in 2017.

PORTUGAL (MNI): President to Dissolve AR But No Election Until '24 Budget Passed - Reports

Portuguese outlet Observador reporting that in the wake of PM Antonio Costa's resignation amid a corruption probe, President Marcelo Rebelo de Sousa will announce the dissolution of the Assembly of the Republic (the Portuguese parliament) in an address at 2000 local time (1500ET, 2000GMT, 2100CET).

BOJ (MNI): Cannot Clarify BOJ Policy Removal Order - Ueda

Bank of Japan Governor Kazuo Ueda said on Thursday that he cannot clarify the order policymakers would remove yield curve control and negative interest rates in moving toward the normalization of easy policy. Ueda told lawmakers that the order will depend on economic and price conditions when the BOJ can foresee the achievement of 2% price target, adding the central bank will continue with negative rates and the the YCC framework until hitting the bank’s 2% target was in sight.

BOJ (BBG): BOJ Discussed Policy Options With an Eye on Potential Exit

Bank of Japan board members meeting last month discussed policy options with an eye on a potential exit from the world’s last negative-rate regime, according to a summary of opinions from the gathering. While many members noted that the YCC tweak was appropriate due to the need for continuing stimulus, one member also signaled that the move would be conducive to a smooth exit from the negative rate policy in the future.

JAPAN (BBG): Japan’s Unpopular Premier Drops Idea of Election This Year

Japanese Prime Minister Fumio Kishida has decided against calling an election before the end of the year, Kyodo News and other media reported, after a promise of tax rebates failed to stop a slide in his support rates. Kishida ruled out dissolving the lower house of parliament to hold a snap election in order to implement his economic plans on a tight political schedule, Kyodo reported Thursday, citing a close aide it did not name.

JAPAN (BBG): Japan’s Cabinet to Approve $88bln Extra Budget to Fund Stimulus

Japan’s cabinet is set to approve a 13.2 trillion yen ($87.5 billion) supplementary budget to help fund Prime Minister Fumio Kishida’s latest economic stimulus package, which aims to boost growth and mitigate the impact of inflation on households. The extra budget will be partly financed by issuing 8.9 trillion yen in additional government bonds, according to documents obtained by Bloomberg

DATA

CHINA DATA (MNI): China CPI Dips 0.2% in October, Below Expectations

• CHINA OCT CPI -0.2% Y/Y VS MEDIAN -0.1%; SEP +0.0% Y/Y
• CHINA OCT CPI -0.1% M/M VS +0.2% M/M SEP
• CHINA OCT PPI -2.6% Y/Y VS MEDIAN -2.7% Y/Y; SEP -2.5% Y/Y
• CHINA OCT PPI +0.0% M/M VS +0.4% M/M SEP

MNI (Beijing) China's Consumer Price Index fell by 0.2% in October to mark a three-month low, while the Producer Price Index -- a measure of factory-gate inflation -- dropped further, data from the National Bureau of Statistics showed Thursday. The decline in October CPI has exceeded a market consensus of -0.1%, which compared to a flat reading in September. Food costs fell by 4% in October, further declining from September's 3.2% fall, led by the significant drop in pork prices. This dragged down the overall CPI by 0.75 pp. On a monthly basis, CPI fell 0.1%, compared to September's 0.2% gain.

JAPAN DATA (MNI): Trade Surplus at Multi-Year Highs

Japan September trade and current account figures printed fairly close to expectations. The trade balance was 341.2bn, versus 244.5bn forecast (prior was -749.5bn). This is the highest surplus since Q3 2021, slightly beating the June result from this year. The current account (adjusted) printed slightly below expectations (2010.9bn, versus 2297bn forecast). This largely owed to slightly lower primary income receipts, 3076.4bn in September, versus 3557.6bn prior.

JAPAN DATA (MNI): Japan Oct Sentiment Index Sees 3rd Straight Drop

Japan's sentiment index posted a third straight decline in October, as did the outlook index for two to three months ahead, but the government left its assessment unchanged, the Economy Watchers Index released by the Cabinet Office showed on Thursday. The Economy Watchers sentiment index for the current economic climate fell a seasonally adjusted 0.4 points to 49.5 in October from 49.9 in September.

FOREX: GBP on the Up as Pill Fails to Repeat Mid'24 Cut Messaging

• Having traded mid-table for much of the European morning, GBP is now modestly outperforming as markets eyed comments from BoE's Pill, who moved markets earlier in the week in suggesting that it's reasonable to expect rates could be cut by mid'24. He didn't repeat that messaging today, stressing that the BoE cannot "declare victory on inflation" and that restrictive policy will be maintained for an extended period.
• GBP/USD recovered above the 1.23 handle in response, narrowing the gap with next resistance levels at 1.2313, the 38.2% retracement of the week's range. 1.2335 would be next, marking the mid-point of the hi-lo since Monday.
• NZD is the firmest currency in G10, but the NZD/USD pair remains within a range. The pair has recovered off yesterday's 0.5906, but remains below the Wednesday high.
• The single currency is trading less favourably, with the EUR lower against all others. ECBspeak so far Thursday has provided few surprises, but both Villeroy reinforced the view that rates are unlikely to rise further from current levels.
• In contrast to yesterday's Fedspeak, today's FOMC speakers are more explicitly commenting on the current economic outlook and policy. Barkin's comments will be carefully eyed as the Richmond Fed rotates back into a voting seat next year, and he speaks on the economic outlook at a webcast with MNI. Fed's Powell also appears at an IMF conference and is set to comment on policy, with a confirmed text release also set.

EGBS: Softer on Thursday; Curves Steepen

Core EGBs are softer this morning alongside Gilts and USTs as participants take yesterday's rally as an opportunity to close out longs/enter shorts. Bund futures have retraced around 50% of yesterday's moves higher, with curves steepening globally.

• Gilts underperform core EGBs as comments from BoE Pill were less dovish than earlier in the week, while ECB-speak from de Guindos and Villeroy did not move the needle (the former noting that it was too early to consider cutting rate and the latter that further tightening would only come in the face of external shocks/surprises). Comments on the CB reserves/liquidity by Lane did not contain pertinent information on the Eurozone QT outlook.
• Bund futures currently sit -0.22 ticks lower today at 130.51, with the 20-day EMA at 129.44 the first support noted by our technical analyst. 10y Bund yields are up 2.6bp at 2.641% and Schatz yields are up 0.3bp at 2.995%.
• The 10-year GGB/Bund spread is 1.3bps tighter today at 127.1bps while other periphery spreads are flat/slightly wider on the day. The PGB/Bund spread has stabilised after two days of political-induced widening, with analysts having noted that spread tightening is likely to be contained as strong fundamentals reassert themselves in the medium-term.
• There is no data or supply of note the remainder of today, with Lagarde at 1730GMT the main event.

STIR: Lack of Dovish Follow Up From Pill & Softer Bonds Allows BoE Pricing to Nudge Higher

In terms of the exacts surrounding market pricing in the wake of the previously covered comments from BoE chief economist Pill, BoE-dated OIS last runs flat to ~5bp firmer on the day.

• Weakness In core global FI markets will also be aiding the move.
• ~8bp of tightening is priced through the Feb ’24 MPC, meaning that markets show just under 1/3 odds of a further 25bp rate hike in the current cycle.
• Beyond there, the market no longer fully prices a 25bp cut for the August ’24 MPC (~22bp of easing is priced there vs. current effective SONIA), probably owing to the fact that Pill didn't reaffirm his Monday thoughts/comments re: a cut at that meeting/market pricing.
• ~61bp of cumulative cuts are priced through ’24 at present.

EQUITIES: Eurostoxx 50 Futures Continue to Trade Above 50-Day EMA

A short-term bull cycle in Eurostoxx 50 futures remains intact and the contract is trading closer to its recent highs. Price has recently traded through resistance at both the 20- and 50-day EMAs. The broader trend condition is bearish, however, a clear break of the 50-day EMA, at 4183.70, would signal scope for a stronger bull cycle and open 4256.00, the Oct 12 high. On the downside, key support and the bear trigger lies at 4001.0, the Oct 27 low. S&P e-minis traded higher last week and the contract maintains a firm short-term tone. The latest recovery still appears to be a correction, however, price has cleared the 20- and 50-day EMAs. The break of the 50-day average - a key short-term pivot level - has strengthened bullish conditions. Sights are on 4430.50, the Oct 12 high and 4435.50, trendline resistance drawn from the Jul 27 high. Key support and the bear trigger is at 4122.25, the Oct 27 low.

• Japan's NIKKEI closed higher by 479.98 pts or +1.49% at 32646.46 and the TOPIX ended 29.17 pts higher or +1.27% at 2335.12.
• Elsewhere, in China the SHANGHAI closed higher by 0.906 pts or +0.03% at 3053.279 and the HANG SENG ended 57.17 pts lower or -0.33% at 17511.29.
• Across Europe, Germany's DAX trades higher by 22.69 pts or +0.15% at 15250.64, FTSE 100 lower by 8.05 pts or -0.11% at 7393.11, CAC 40 up 26.22 pts or +0.37% at 7059.19 and Euro Stoxx 50 up 19.07 pts or +0.46% at 4197.1.
• Dow Jones mini up 19 pts or +0.06% at 34191, S&P 500 mini down 0.75 pts or -0.02% at 4399, NASDAQ mini down 18.5 pts or -0.12% at 15368.75.

COMMODITIES: WTI Futures Remain Close to Wednesday's Lows

A bearish theme in WTI futures remains in play and the contract has traded sharply lower this week. The move down has resulted in a break of support at $80.20, the Oct 6 low. The breach highlights a stronger short-term reversal and a continuation lower would pave the way for a move towards $74.26, 76.4% retracement of the May 4 - Sep 28 bull run. On the upside, initial firm resistance has been defined at $83.60. The recent uptrend in Gold remains intact and the latest pullback appears to be a correction - for now. Price has recently breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. This strengthens a bullish theme and a resumption of gains would open $2022.20 next, May 15 high. Initial firm pivot support lies at $1937.2, the 50-day EMA. Clearance of this level is required to signal a short-term top.

• WTI Crude up $0.73 or +0.97% at $76.01
• Natural Gas up $0.03 or +1.06% at $3.139
• Gold spot down $3.59 or -0.18% at $1946.8
• Copper down $2.2 or -0.6% at $361.75
• Silver down $0.12 or -0.54% at $22.4397
• Platinum down $5.92 or -0.68% at $865.6