MNI US OPEN - BoJ Tilts Dovish With No Formal Tweak to YCC

NEWS

MNI FED PREVIEW - NOVEMBER 2023: Determining a High Yield Strategy

The FOMC will leave rates unchanged for the 2nd consecutive meeting on Nov 1. While economic activity data has been strong and inflation progress has arguably stalled since the September meeting, the Committee will maintain a cautious approach as it assesses the impact of tighter financial conditions and the lagged effects of past tightening. Powell’s press conference and the Statement will attempt to underpin market hike pricing which is broadly aligned with the Fed’s previously signaled path. This will include maintaining a bias toward further tightening, though Powell has set a fairly high bar to further hikes.

BOJ (MNI): BOJ Keeps YCC, 1% 10-Year JGB Yield as Reference

The Bank of Japan board on Tuesday maintained yield curve control, but shifted to a more flexible stance toward the 10-year interest rate, changing its language on the 1% upper bound to refer to it as a reference point in its market operations. The BOJ also deleted the movement of the 10-year interest rate +/-0.5 percentage points from the target.

BOJ (MNI): L/T Rate Unlikely to Rise Above 1% "Sharply" - Ueda

Bank of Japan Governor Kazuo Ueda said on Tuesday he does not expect the long-term interest rate to rise sharply above the 1% reference. He told reporters the BOJ must preemptively increase yield curve control's flexibility amid high uncertainty over economic and price conditions. He noted the rise in U.S. interest rates had driven the increase in the long-term interest rate, but the BOJ's upward price revision had also contributed to the board's decision.

BOJ (MNI): FY25 Core-Core CPI 1.9%, 2% in Sight - BOJ Outlook

While the Bank of Japan board does not believe Japan's economy will achieve the 2% price target over its March 2026 projection period, its latest forecasts show the target may become apparent in April, the BOJ's Outlook Report showed on Tuesday. The board revised its median forecast for core CPI in fiscal 2025 to 1.7% from July’s 1.6% and increased its median forecast for core-core CPI to 1.9% from July’s 1.8%. However, the predictions remain below the bank’s 2% target, reflecting the desire of policymaker not to send a message to markets that the BOJ may soon exit its easy policy.

BOJ (MNI): BOJ Keeps Q4 JGB Buy Frequency, Scale Per Auction

The Bank of Japan said on Tuesday it would leave the frequency of Japanese government bond buying operations and the scale per operation of each zone unchanged in Q4 from the previous quarter. The decision reflected high uncertainties over the global economy and global inflation rates, the BOJ noted. "The Bank will make nimble responses for each maturity by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchase operations and the Funds-Supplying Operations against Pooled Collateral," the Bank added.

JAPAN (MNI): FX Intervention Data Next Up at 1000GMT/0600ET

The focus on Japan is not over, with the Ministry of Finance set to release their monthly reserve data, including stats around any possible FX intervention operations. There have been three sessions this month in which markets have suspected potential intervention (Oct 3, Oct 17 and Oct 26), but no confirmation provided by any Japanese authority. We expect the data to be released at 7pm local time (1000GMT/0600ET) and only cover the month up to Oct 27 due to the staggered pattern of their releases, meaning it wouldn't cover any operations that may have taken place this week (e.g. Post-BoJ decision).

UK (BBG): UK Property Slowdown Causes Surge in Firms in Critical Distress

The number of British businesses in financial distress has soared, driven by high interest rates and mounting trouble in the construction and property sectors. There were 5,919 construction firms in “critical” financial distress in the three months through September, according to insolvency practitioners Begbies Traynor Group Plc — up 46% from the second quarter. Real estate businesses suffered a 38% jump, the report published Tuesday said. Construction and real estate made up nearly 30% of all UK companies in critical financial distress as the housing market slowdown takes its toll.

ISRAEL (MNI): Regional Risk Ratchets Up Amid On-The-Ground Fighting in Gaza

Amid the significant expansion in ground operations by Israeli Defence Forces (IDF) in Gaza, the risks of the conflict broadening into a wider conflagration are perhaps at their highest points since the 7 October attacks by Hamas. Rather than a full-scale invasion, according to numerous outlets Israeli forces appear to be building up armoured capabilities to the northwest, northeast and south of Gaza City, while remaining outside of the city limits.

CHINA (MNI): Increased China Car Inventory Indicates Weak Demand

MNI (Beijing) The China Automobile Distribution Association announced on Tuesday its Vehicle Inventory Alert Index had risen to 58.6% in October, up 0.8 pp m/m but down 0.4 pp y/y. The survey accounts for the inventory-to-sales ratio amongst China’s largest dealers and considers below 50% within a reasonable range while an increased level shows lower market demand and a build up of inventory pressure. October’s read is the highest level since April this year.

S.KOREA (BBG): S. Korea to Probe Stock Short-Selling Trade by Global Banks

South Korea’s Financial Supervisory Service plans full probe into stock short-selling trades by global investment banks as the watchdog strengthens its efforts to root out illegal short sales. Global investment banks that have conducted short-selling trades most frequently in South Korea will be subject to the investigation that would start in Nov., FSS said in a statement on Tuesday. FSS will look into all short-selling transactions since May 2021 when South Korea partially lifted stock short selling ban that was imposed during the pandemic.

GLOBAL (MNI): Big Central Bank Balance Sheets Here to Stay

Central banks will inevitably end up with very large balance sheets by historical standards despite efforts to sell assets accumulated through quantitative easing because of the demand for reserves from commercial banks, economics professor Stephen Cecchetti, a former head of the Monetary and Economic Department at the Bank for International Settlements, told MNI.

COMMODITIES (BBG): China’s Rush to Gold Shows Few Signs of Fading, Council Says

China’s appetite for gold will stay strong through the rest of 2023, the World Gold Council said, just as domestic prices for the safe-haven soared to a record amid the strongest investment demand in more than two years. Demand for gold bars and coins in China rose 16% year-on-year in the third quarter and will “remain robust” in the final three months, the council said in its latest outlook. Economic and political uncertainties, currency volatility and central-bank stockpiling have all fueled a buying binge.

CORPORATE (WSJ): Nvidia's $5 Billion of China Orders in Limbo After Latest U.S. Curbs

New U.S. export controls may compel artificial-intelligence giant Nvidia to cancel billions of dollars in next-year orders for its advanced chips to China, a move that could deprive Chinese tech companies of crucial AI resources. The Santa Clara, Calif.-based company had already finished delivering orders of its advanced AI chips to China for this year, according to people familiar with the matter, and was pushing to deliver some 2024 orders in advance before the new rules were scheduled to come into effect in mid-November.

DATA

FRANCE DATA (MNI): Services Prices Sticky in October

• FRANCE OCT CPI +0.1% M/M, +4% Y/Y
• FRANCE OCT HICP +0.2% M/M, +4.5% Y/Y
• FRANCE SEP PPI +0.7% M/M, -1.7% Y/Y

French flash October inflation came broadly in line with expectations for both CPI and HICP. The annual CPI print was driven lower by a slowdown in energy, food and non-energy industrial goods prices. However, services prices rose on an annual and monthly basis (drive largely by transport prices), which pushed the M/M prints back into positive territory. Services were 0.3% M/M (vs -1.6% prior) and 3.2% Y/Y (vs 2.9% prior).

FRANCE Q3 FLASH GDP +0.1% Q/Q, +0.7% Y/Y (MNI)
FRANCE SEP CONSUMER SPENDING +0.2% M/M, -3% Y/Y (MNI)

ITALY Q3 FLASH GDP +0% Q/Q, +0% Y/Y (MNI)

UK OCT BRC SHOP PRICES +0.3% M/M, +5.2% Y/Y (MNI)

SWISS AUG RETAIL SALES +0.8% M/M, -0.6% Y/Y (MNI)

CHINA DATA (MNI): China's Oct PMI Falls Back to Contraction at 49.5

• CHINA OCT MANUFACTURING PMI 49.5 VS 50.2 IN SEP

MNI (Beijing) China's manufacturing Purchasing Managers' Index fell by 0.7 points to 49.5 in October, falling back to the contractionary zone below the breakeven 50 mark, indicating that the foundation for continued recovery requires further consolidation, data from the National Bureau of Statistics showed Tuesday. The production sub-index declined by 1.8 points to 50.9, impacted by a higher comparison base in September and fewer working days in October.

JAPAN DATA (MNI): Japan Factory Output Rises First In Three Months

Japan's industrial output rose 0.2% m/m in September, its first rise in three months, following a 0.7% fall in August, due to higher production of motor vehicles and general-purpose, and business oriented machinery, data released by the Ministry of Trade and Industry showed on Tuesday. The September data printed largely in line with the Bank of Japan's view that industrial production has been more or less flat, but a weak outlook could make BOJ officials more cautious.

JAPAN SEPT RETAIL SALES +5.8% Y/Y; AUG +7.0% (MNI)
JAPAN SEPT RETAIL SALES -0.1% M/M; AUG +0.2% (MNI)

FOREX: JPY Offered, EUR/JPY Touches Fresh Multi-Decade Highs

• With markets geared for a potential formal tweak to yield curve control, asset markets were disappointed by no headline change to policy, and merely a more flexible approach to policy-setting. Resultingly, markets have interpreted the decision dovishly, tipping JPY lower against all others in G10. USD/JPY is rallying back toward the cycle highs at 150.78, while EUR/JPY makes a clear break to cycle highs.
• EUR/JPY rallied to 160.15 this morning, breaking to the highest levels since August 2008.
• NOK sits offered on the back of the Norges Bank FX sales being upped to NOK 1.4bln/day from NOK 1.2bln prior - EUR/NOK hits session highs, aided by the rallying EUR, but USD/NOK also on the front foot, recovering off the overnight low of 11.1306.
• EUR/NOK showing through the late October high to print the best levels since early July. Likely to place further pressure on the I-44 import-weighted FX rate, which printed at 122.11 yesterday, in close proximity to multi-month highs from Oct26.
• EUR is modestly outperforming along with SEK, benefiting from the steadier market backdrop as futures point to a positive open on Wall Street later today.
• Focus ahead turns to the Japanese confirmation of potential FX intervention across October at 1000GMT/0600ET, with MNI Chicago PMI the highlight on the data docket.

BONDS: Core FI Firmer Post-BOJ, And Ahead of Likely Soft Euro Inflation

Core FI sits firmer across the board Tuesday as 2s10s curves bull flatten, with the BoJ decision overnight being viewed as a dovish pause. Gilts and Treasuries outperform Bunds in spite of Eurozone CPI tracking to come in below sub-3% according to MNI estimates.

• The BoJ changed the language on the 1% upper bound for the 10-year JGB yield, now referring to it as a "reference point" rather than a strict bound. The move to add more flexibility was less hawkish than expected after Nikkei reported that the BoJ would tweak the YCC framework after the European session yesterday.
• Gilt futures are up 54 ticks at 93.18 with 10y yields down -5.3bp at 4.505%. The softening in the BRC Shop Price Index overnight (to 5.2% Y/Y from 6.2% prior) may be providing additional support here.
• TY1 futures are up 0-5+ at 106-12+ with 10y UST yields down -5.3bp at 4.842%. The main domestic interest yesterday came with Treasury borrowing estimates - the Q4 estimate was $76bln lower than previously announced in July, due to projections of higher receipts.
• Bund futures are up 42 ticks at 129.15 with 10y Bund yields down -2.6bp at 2.794%. French CPI came inline and did not move the needle while German retail sales came in softer than expected.
• Peripheries are mixed vs Bunds at 10-year handle, with the 10-Yr BTP/Bund spread 1.3bps wider at 192.9bps and the 10-year PGB/Bund spread 1.3bps tighter at 69bps. Italian flash Q3 GDP was stagnant, slightly below expectations of a 0.1% rise Q/Q and Y/Y.
• Today's docket includes the EZ-wide inflation estimate, alongside Italian/German supply and ECB-speak from de Cos, Visco, Muller, Nagel, and Guindos. In the US, we get the Employment Cost Index and the October MNI Chicago PMI.

EQUITIES: Eurostoxx Futures Trade Just Ahead of Last Week's Lows

A bearish theme in Eurostoxx 50 futures remains in play and price is trading just ahead of its recent lows. The recent break of support at 4082.00, the Oct 4 low and a bear trigger, confirmed a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position too. The focus is on the 4000.00 handle. Initial firm resistance is at 4116.80, the 20-day EMA. S&P e-minis maintain a softer tone. The contract traded to a fresh cycle low last Friday and bears remain in the driver’s seat. Last week’s breach of support at 4235.50, Oct 4 low and bear trigger, confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position too. The focus is on 4100.00. Initial firm resistance is at 4285.39, the 20-day EMA.

• Japan's NIKKEI closed higher by 161.89 pts or +0.53% at 30858.85 and the TOPIX ended 22.48 pts higher or +1.01% at 2253.72.
• Elsewhere, in China the SHANGHAI closed lower by 2.782 pts or -0.09% at 3018.771 and the HANG SENG ended 293.88 pts lower or -1.69% at 17112.48.
• Across Europe, Germany's DAX trades higher by 48.25 pts or +0.33% at 14764.41, FTSE 100 higher by 7.61 pts or +0.1% at 7334.93, CAC 40 up 28.27 pts or +0.41% at 6853.34 and Euro Stoxx 50 up 13.59 pts or +0.34% at 4041.91.
• Dow Jones mini up 54 pts or +0.16% at 33069, S&P 500 mini down 1.75 pts or -0.04% at 4184, NASDAQ mini down 36 pts or -0.25% at 14380.5.

COMMODITIES: Gold Remains Close to Recent Cycle Highs

WTI futures traded lower Monday as the pullback from $89.85, the Oct 20 high, extends. The medium-term trend condition is unchanged and remains bullish plus the recent move lower 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 conditions are unchanged - the metal remains firm and traded to a fresh cycle high last Friday. Price has recently breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The continuation higher strengthens a bullish theme and opens $2022.20 next, the May 15 high. Initial firm pivot support lies at $1924.4, the 50-day EMA. Clearance of this level is required to signal a short-term top and a potential reversal.

• WTI Crude up $0.6 or +0.73% at $82.89
• Natural Gas up $0.03 or +1.01% at $3.388
• Gold spot up $1.38 or +0.07% at $1997.46
• Copper up $1 or +0.27% at $366.9
• Silver down $0.1 or -0.43% at $23.226
• Platinum up $2.03 or +0.22% at $937.64