EXECUTIVE SUMMARY
- FED'S KUGLER SUPPORTS MORE CUTS IF DISINFLATION CONTINUES
- CHINA VOWS TO HIT ECONOMIC GOALS, STOPS SHORT OF LARGE STIMULUS
- ECB CUT NEXT WEEK WOULDN’T GUARANTEE DECEMBER MOVE, VASLE SAYS
- ISRAEL DEFENSE CHIEF TO HEAD TO US AS RESPONSE TO IRAN LOOMS
Figure 1: Hang Seng Index sharply pares bulk of Golden Week gains
Source: MNI/Bloomberg
NEWS
FED (MNI): Fed's Kugler Supports More Cuts If Disinflation Continues
Federal Reserve Governor Adriana Kugler said Tuesday she favors lowering interest rates if inflation continues to fall as expected and added she's closely monitoring the economic effects from Hurricane Helene and geopolitical events in the Middle East for their impact on the U.S. economy. Significant progress in reducing inflation and a cooling in the labor market means the time has come to begin easing monetary policy, she said. "If downside risks to employment escalate, it may be appropriate to move policy more quickly to a neutral stance. Alternatively, if incoming data do not provide confidence that inflation is moving sustainably toward 2%, it may be appropriate to slow normalization in the policy rate."
FED (FT): Top Fed Official Says US Economy ‘Well Positioned’ for Soft Landing
A top Federal Reserve official said the central bank was now “well positioned” to pull off a soft landing for the US economy, as he signalled support for a slower pace of cuts after September's big half-point move. New York Fed president John Williams said the “very good” jobs report for September confirmed that the US economy remained in robust health even as inflation was continuing to ease after more than a year of high rates. “The current stance of monetary policy is really well positioned to both hopefully keep maintaining the strength that we have in the economy and the labour market, but also continuing to see that inflation comes back to 2 per cent,” Williams told the Financial Times on Monday.
FED (BBG): Fed’s Musalem Warns Against Easing Too Quickly, Prefers Patience
Federal Reserve Bank of St. Louis President Alberto Musalem said he supported the US central bank’s decision last month to lower interest rates by a half point, but emphasized he’d prefer further reductions to be gradual. Musalem said he penciled in a rate path that was slightly higher than the median official in the Federal Open Market Committee’s Summary of Economic Projections released last month, but he would not prejudge the scale or pace of future rate moves. “Given where the economy is today, I view the costs of easing too much too soon as greater than the costs of easing too little too late,” Musalem said Monday.
US/ISRAEL (BBG): Israel Defense Chief to Head to US as Response to Iran Looms
Israel’s defense minister is traveling to Washington soon as the country continues to weigh how to respond to an Iranian missile attack and the US urges restraint. Yoav Gallant will on Wednesday discuss the “ongoing Middle East security developments” with US Defense Secretary Lloyd Austin, the Pentagon said. US President Joe Biden has urged Israel not to attack Iran’s nuclear program or oil infrastructure, amid concerns either move could trigger a wider war that drags in Washington, pushes up energy prices and hits the global economy.
US/UKRAINE (BBG): Harris Says She’ll Weigh Ukraine NATO Membership at Later Point
Democratic presidential candidate Kamala Harris declined to say if she would support Ukraine’s push to join NATO if elected, but vowed she would insist Kyiv’s leaders were part of any US negotiation with Vladimir Putin over ending the ongoing conflict. Ukrainian President Volodymyr Zelenskiy has sought to secure an invitation from the US to join the military alliance, believing it would provide leverage in his push to negotiate an end to Russia’s invasion of his country.
MIDEAST (BBG): Hezbollah Says Supports Lebanon Diplomatic Efforts on Cease-Fire
Hezbollah’s deputy chief Naim Qasem says the group supports the diplomatic efforts led by its ally House Speaker Nabih Berri to reach a cease-fire agreement with Israel. Qasem says the group has overcome “painful blows” to its leadership. He says the group has filled vacant positions after Israel killed many of its leaders and commanders. Group has expanded its attacks in Israel and will continue doing so.
ECB (BBG): ECB Cut Next Week Wouldn’t Guarantee December Move, Vasle Says
Reducing interest rates in October wouldn’t mean that the European Central Bank is certain to do so again at its final meeting of the year, according to Governing Council member Bostjan Vasle. “Even if the ECB happens to decide to lower rates next week, that wouldn’t automatically mean another cut is coming in December,” he told Bloomberg, describing a cut this month as “an option.” The comments could be seen as pushback against investor bets that the ECB will lower its deposit rate six times by the end of 2025 - including at the next two meetings - bringing it to 2% from 3.5% now.
ECB (RTRS): Bundesbank's Nagel Says He is Open to Another ECB Rate Cut
Bundesbank President Joachim Nagel is open to considering another European Central Bank interest rate cut at its meeting next week, he told Table Media, adding German economic growth in the second half would be weaker than expected. "I am certainly open to considering whether we could possibly make another interest rate cut," Nagel told Table Media, noting the ECB's interest rate policy had the desired price-dampening effect to date. "The inflation trend is one of the good news stories. We are clearly approaching our target of 2%."
ECB (BBG): ECB’s Inflation Fight Isn’t Over, Holzmann Tells Sueddeutsche
The European Central Bank mustn’t declare victory over inflation prematurely because underlying price pressures remain too high, Governing Council member Robert Holzmann told German newspaper Sueddeutsche Zeitung. “Inflation is on the right track - but it isn’t defeated,” the Austrian central-bank chief said in an interview published Monday, attributing a “major” part of the recent retreat to falling energy costs.
ECB (BBG): ECB to Assess How Weak Economy Affects Prices, Elderson Says
The euro-zone economy is weaker than expected and the European Central Bank must assess the knock-on effect for consumer prices at its meeting next week, Executive Board member Frank Elderson told Slovenia’s Delo newspaper. “A number of recent indicators suggest that downside risks to economic growth are already materializing,” he said in an interview published Tuesday. “So we will need to carefully assess whether this has any implications for our inflation outlook.”
CHINA/EU (BBG): China Investigates EU Cars, Slaps Levy on Brandy as Ties Worsen
China is studying raising tariffs on large-engine vehicles and will start collecting duties on brandy from Europe, escalating a trade spat after the European Union decided to impose tariffs on Chinese electric vehicles. “China is studying measures including raising the tariffs on imported gasoline cars with a large engine capacity,” the Ministry of Commerce said in a statement on Tuesday, adding it will safeguard the rights of its companies. In a separate statement, the ministry said importers of brandy from the EU will have to pay a deposit of as much as 39% of the value of the brandy effective Oct. 11.
CHINA (BBG): China Vows to Hit Economic Goals, Stops Short of Large Stimulus
China said it’s confident in reaching its economic targets this year and promised to further support growth, although it held back in unleashing more major stimulus in a disappointment to investors looking for more fuel for a world-beating stock rally. Officials in the National Development and Reform Commission, the country’s economic planning agency, said Tuesday they would speed up spending while largely reiterating plans to boost investment and increase direct support for low-income groups and new graduates.
CHINA (BBG): China’s Stock Euphoria Cools as Traders Reassess Stimulus Bets
Chinese stocks began Tuesday’s session with a bang - an onshore benchmark surged 11% as soon as trading resumed after a weeklong break. But the enthusiasm faded as the day progressed, with the lack of more major stimulus from a key policy meeting disappointing investors. In the end, the CSI 300 Index finished just 5.9% higher. In Hong Kong, a gauge of Chinese shares was down more than 10%, on course to erase almost all of the gains made while onshore markets were shut for the Golden Week.
CHINA (MNI): China to Accelerate Investment - NDRC Officials
MNI (Beijing) China will bring forward next year’s central government budget investment of CNY100 billion to accelerate infrastructure spending and continue to issue ultra long-term special treasury bonds in 2025 to support major projects, Zheng Shanjie, director of National Development and Reform Commission told reporters Tuesday. The CNY1 trillion ultra long-term special treasuries this year have all been allocated to projects and localities, Zheng added. While Liu Sushe, deputy director at NDRC said it will urge local governments to complete the issuance of the remaining CNY290 billion of special bonds by end of October.
CHINA (MNI): China Local Govs to Speed Up Fiscal Spending
MNI (Beijing) China will push local governments to speed up fiscal spending in a bid to support the economy while helping them carry out debt swaps and resolve debt risks, officials at the National Development and Reform Commission told reporters on Tuesday.
JAPAN (BBG): Japanese Buy Record Amount of US Sovereign Bonds in August
Japanese funds bought a record amount of US sovereign bonds in August amid a rally in Treasuries, the latest balance-of-payments data from the country’s Ministry of Finance showed on Tuesday. Net buying came to ¥5.59 trillion ($37.8 billion), bringing total purchases to ¥12.8 trillion for the January-August period. That’s similar to the amount bought during the same period a year earlier. The data include bonds sold by the government, agencies, and local municipalities.
RBA (MNI): Less Restrictive Conditions Discussed - RBA Minutes
The Reserve Bank of Australia board noted inflation could prove less persistent, even without weaker-than-expected activity, should rent inflation or petrol prices fall faster than expected, leading to less restrictive financial conditions, the minutes of September’s meeting showed. The material decline in other commodity prices could also reduce firms’ cost base “or the decline in discretionary spending flowed through materially more quickly to services inflation,” the minutes stated.
NORTH KOREA (MNI): Kim Ramps Up Combative Rhetoric as Key Legislative Meeting Starts
North Korea's state media quoted Kim Jong-un as warning that the country would not be afraid to use nuclear weapons if it comes under attack, according to South Korean Yonhap News Agency. The apparent escalation in his hawkish rhetoric comes on the back of the start to a key parliamentary meeting in North Korea, during which the rubber-stamp legislature is expected to approve constitutional amendments designating South Korea as a "primary foe," and potentially formalising the country's nuclear doctrine.
MEXICO (BBG): Mexico’s Supreme Court Will Review AMLO’s Judicial Overhaul
Mexico’s Supreme Court has agreed to review the judicial overhaul passed by Congress last month that critics say threaten the body’s independence, according to a person with direct knowledge of the decision. It’s the last resort to appeal the controversial decision, which calls for the election of judges by popular vote. The court has so far accepted four requests from judges and magistrates asking it to review the judicial reform, rule on its implications on the judiciary’s independence and the division of powers in Mexico, according to the person.
COMMODITIES (BBG): Metals Slump as China Fails to Deliver Fresh Stimulus Measures
Iron ore slumped from a five-month high and base metals fell, after a hotly-anticipated briefing by China’s top economic planner ended without new pledges to boost government spending. Iron ore futures in Singapore fell around 5% after rising by nearly that amount ahead of the briefing. Copper dropped to its lowest in almost two weeks in a sharp sell-off across base metals, while investor disappointment was reflected across wider Chinese markets.
CORPORATE (BBG): Vistry Shares Plunge Most Since Brexit After Profit Warning
Vistry Group Plc fell by the most in eight years after the homebuilder said adjusted profit would be £80 million ($105 million) lower than previously forecast for the full year. The warning came after the company found that costs had been understated in one of its divisions, according to a statement Tuesday. The homebuilder said it has initiated an independent review of the business and made changes to the management team.
DATA
UK DATA (MNI): BRC-KPMG Retail Sales Highest Since March; Driven by Food Sales
- UK BRC SEP BY VALUE SHOP SALES LFL +1.7% YY, TOTAL +2% YY
UK total retail sales growth accelerated in September to 2.0% Y/Y after 1.0% in August, the highest print since March 2024. Like-For-Like sales rose 1.7% Y/Y
(vs 0.8% in August). However, despite the pickup there are still concerning trends under the surface. Non-Food sales in the 3-months to September are still below levels
seen last year, despite the series becoming less negative at -0.3% 3M Y/Y (from a fall of 1.7%Y/Y in the three months to August). Food sales continue to see decent sales growth, however, rising 3.1%Y/Y in the three months to September (vs 2.9% in the three months to August).
SWEDEN DATA (MNI): Sep Flash Inflation - Not Enough to Shift Riksbank Thinking
- SWEDEN SEP CPIF +1.15% Y/Y
Swedish flash September CPIF ex-energy inflation was 2.01% Y/Y (vs 2.16% prior), a little above the 1.9% consensus and the Riksbank's 1.85% forecast in the September MPR. This was the first time the flash release was published, and as expected there are no details on the underlying drivers. There isn't enough of a surprise here to change the outlook for the Riksbank ahead of the November 7 meeting. Taken at face value, the data supports the Riksbank's base case of 25bp cuts at the November and December meetings.
GERMANY AUG IND PROD +2.9% M/M (MNI)
JAPAN DATA (MNI): Japan August Real Wages Turn Negative
Inflation-adjusted real wages, a barometer of household purchasing power, turned negative in August for the first time in three months, down 0.6% compared to July's 0.3% growth and June's 1.1% rise, preliminary data released by the Ministry of Health, Labour and Welfare on Tuesday showed. Weak bonuses (+2.7% in Aug), compared to June and July's strong reads, drove the fall, the data showed. Bank of Japan officials had largely anticipated the negative real-wage print, but they expect income conditions to improve, which will support consumption.
JAPAN DATA (MNI): Japan's Sept Sentiment, Outlook Indexes Fall
Japan's sentiment and outlook indexes for two to three months ahead posted their first drop in four months in September, temporarily increasing concern over the outlook for spending, the Economy Watchers report released by the Cabinet Office showed Tuesday. The Economy Watchers sentiment index for the current economic climate stood at a seasonally adjusted 47.8 in September, down from 49.0 in August, while the outlook index fell 0.6 points to 49.7.
JAPAN AUG HOUSEHOLD SPENDING -1.9% Y/Y; JULY +0.1% (MNI)
JAPAN AUG HOUSEHOLD SPENDING +2.0% M/M; JULY -1.7% (MNI)
AUSTRALIA DATA (MNI): Consumer Confidence Rises to Highest Since Rate Hikes Began
Westpac consumer confidence for October rose 6.2% m/m to 89.8, the highest level since May 2022 when RBA tightening began, but it remains pessimistic. The improvement was driven by a better economic outlook helped by falling rate hike expectations and easing price pressures. Westpac expects the RBA to soften its tone in the November 5 statement. The Westpac-Melbourne Institute mortgage rate expectations index fell 14.1% in October and is now at its lowest since Covid when rates were cut. "Just over half of consumers" believe that rates will be steady or down over the year ahead up from around a quarter 3 months ago. The RBA last hiked in November last year and the survey showed that stable mortgage rates are supporting households.
FOREX: AUD Undermined by Soft Iron Ore, China Presser
- A press conference held by China's NDRC appeared to disappoint markets in stopping short of material commitments to considerable stimulus - helping drive risk sentiment lower via soft equities in Asia-Pac trade - although the impact moderated sharply into the European open. Nonetheless, a softer view of China's growth push has worked against AUD, undermined by the softer iron ore price, keeping the EUR/AUD bounce in tact as price shows above the 1.6344 100-dma.
- The USD was offered through the European open, aided by a break above the overnight low in USD/JPY and the NY high in EUR/USD - at 147.51 and 1.0987 respectively.
- ECB speak has been thick and fast across the morning, with both Vasle and Nagel talking up the openness of the October meeting for the next rate cut step - the firm consensus for markets. This has kept EUR/GBP pressured toward recent lows - but further downside conviction may need to emerge outside of the ECB monpol channel.
- Fed's Kugler made her first post-NFP comments on FOMC policy today, sticking to a dovish theme in flagging the "serious" reduction in inflation as well as citing several metrics that point toward a cooling labour market, affirming that Kugler is likely to opt for further rate cuts ahead "if inflation recedes".
- Focus for the duration of Tuesday trade rests on US/Canadian trade balance data as well as appearances from ECB's Centeno & Nagel and Fed's Bostic & Collins.
EGBS: Tight Ranges as Early Rally Fades
Bund futures have traded in a 37-tick range today, currently +1 at 133.45. A continuation of the recent selloff would strengthen a developing bearish threat.
- The Oct 7 low at 133.40 and round number support at 133.00 shield key support at 132.65, the Sep 2 low.
- Core FI found light support this morning after weakness in equity and crude oil prices overnight (with markets disappointed by a lack of fresh Chinese stimulus), but the moves have faded.
- Today's dual trance EU-bond syndication will be the largest since 2022, with E10bln of 3/15-year EU-bonds tapped.
- German August industrial production was stronger than expected, but was not a major market mover.
- The usually hawkish Nagel said he was open to an October ECB cut, while Vasle stressed that such a move wouldn’t guarantee another cut in December.
- 10-year peripheral spreads to Bunds have moved away from intraday wides as European equities stabilise a little.
GILTS: Early Bid Fades, Yesterday's Low in Futures Holds
Gilts have pulled back from session highs as equity benchmarks find an intraday base.
- Chinese policymakers aided the rally in early London trade, with many left disappointed as no fresh stimulus was delivered at a policymaker press conference.
- The recent bearish impetus has since reasserted itself.
- Futures -1 at 96.35, with yesterday’s low (96.32) holding for now.
- The technical downtrend remains intact, with yesterday’s low protecting the 1.00 projection of the Sep 17-30-Oct 1 price swing (96.23).
- Bulls need to break the highs of the last couple of sessions (96.93/98.14) to start turning the technical tide more in their favour.
- Yields now little changed to 1bp higher, steepening at the margin after yesterday’s bear flattening.
- 10-year yields closed above the downtrend line drawn off the October ’23 high, retesting yesterday’s high in recent trade. A fresh extension would target the July 1 high (4.286%).
- 10s little changed vs. Bunds after the spread closed at fresh cycle wides yesterday.
- I/L supply was digested smoothly.
- GBP STIRs unwind initial dovish moves.
- SONIA futures back to near unchanged levels.
- BoE-dated OIS pricing 22bp of cuts for Nov, 35.5bp of cuts through Dec and 93bp of cuts through June, also little changed on the day.
EQUITIES: Latest Pullback in Eurostoxx 50 Futures Appears to Be a Correction
The latest pullback in Eurostoxx 50 futures appears to be a correction. Key short-term support to watch is 4927.81, the 50-day EMA. A clear break of this average would signal scope for a deeper retracement. Recently, the contract breached resistance at 5024.00, the Sep 3 high. This confirmed a resumption of the bull leg that started Aug 5 and cancels a recent bearish theme. Key resistance and the bull trigger is 5106.00, the Sep 30 high. A bull cycle in S&P E-Minis remains intact and the latest shallow pullback still appears to be a correction. Moving average studies are in a bull-mode setup, highlighting a dominant uptrend and positive market sentiment. Scope is seen for a climb towards 5868.50, a Fibonacci projection, and 5900.00 further out. Initial support to watch is 5736.55, the 20-day EMA. It has been pierced. Key support lies at 5669.25 the 50-day EMA.
- Japan's NIKKEI closed lower by 395.2 pts or -1% at 38937.54 and the TOPIX ended 40.24 pts lower or -1.47% at 2699.15.
- Elsewhere, in China the SHANGHAI closed higher by 153.278 pts or +4.59% at 3489.775 and the HANG SENG ended 2172.99 pts lower or -9.41% at 20926.79.
- Across Europe, Germany's DAX trades lower by 141 pts or -0.74% at 18964.29, FTSE 100 lower by 105.32 pts or -1.27% at 8198.4, CAC 40 down 85.58 pts or -1.13% at 7490.59 and Euro Stoxx 50 down 49.04 pts or -0.99% at 4920.67.
- Dow Jones mini down 17 pts or -0.04% at 42228, S&P 500 mini up 6.5 pts or +0.11% at 5751, NASDAQ mini up 16.25 pts or +0.08% at 20006.75.
Time: 09:50 BST
COMMODITIES: Rally in WTI Futures Undermines Recent Bearish Theme
WTI futures traded higher Monday as the pair extended the rally that started on Oct 1. The climb undermines a recent bearish theme and suggests potential for a continuation higher near-term. Sights are on $77.40, the 76.4% retracement of the Jul 5 - Sep 10 bear leg. This level has been pierced, a clear break of it would strengthen a bullish condition. On the downside, initial firm support to watch is $71.18, the 20-day EMA. Gold remains in consolidation mode. The trend condition is unchanged and bulls remain in the driver’s seat. The latest pause appears to be a flag formation - a bullish continuation pattern, reinforcing the current trend condition. Moving average studies are in a bull-mode set-up too, highlighting a clear uptrend and positive market sentiment. The focus is on $2690.2 next, a Fibonacci projection. Firm support lies at $2615.0, the 20-day EMA.
- WTI Crude down $1.5 or -1.94% at $75.57
- Natural Gas up $0.01 or +0.51% at $2.76
- Gold spot down $4.62 or -0.17% at $2638.58
- Copper down $13.4 or -2.93% at $443.2
- Silver down $0.5 or -1.59% at $31.191
- Platinum down $11.29 or -1.16% at $965.89
Time: 09:50 BST
| Date | GMT/Local | Impact | Country | Event |
| 08/10/2024 | - |  EU | ECB's de Guindos at ECOFIN meeting | |
| 08/10/2024 | 1230/0830 | ** |  US | Trade Balance |
| 08/10/2024 | 1230/0830 | ** |  CA | International Merchandise Trade (Trade Balance) |
| 08/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 08/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 08/10/2024 | 1645/1245 | US | Atlanta Fed's Raphael Bostic | |
| 08/10/2024 | 1700/1300 | *** | US | US Note 03 Year Treasury Auction Result |
| 08/10/2024 | 2000/1600 | US | Boston Fed's Susan Collins | |
| 09/10/2024 | - |  NZ | Reserve Bank of New Zealand Meeting | |
| 08/10/2024 | 2330/1930 | US | Fed Vice Chair Philip Jefferson | |
| 09/10/2024 | 0030/1130 | * |  AU | Building Approvals |
| 09/10/2024 | 0100/1400 | *** | NZ | RBNZ official cash rate decision |
| 09/10/2024 | 0600/0800 | ** |  DE | Trade Balance |
| 09/10/2024 | 0830/1030 | EU | ECB's Elderson in 'true cost of green...' session | |
| 09/10/2024 | 0900/1000 | ** |  GB | Gilt Outright Auction Result |
| 09/10/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 09/10/2024 | 1200/0800 | US | Atlanta Fed's Raphael Bostic | |
| 09/10/2024 | 1315/0915 | US | Dallas Fed's Lorie Logan | |
| 09/10/2024 | 1400/1000 | ** | US | Wholesale Trade |
| 09/10/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 09/10/2024 | 1630/1230 | US | Fed Vice Chair Philip Jefferson | |
| 09/10/2024 | 1700/1300 | ** | US | US Note 10 Year Treasury Auction Result |
| 09/10/2024 | 1800/1400 | *** | US | FOMC Minutes |
| 09/10/2024 | 2100/1700 | US | Boston Fed's Susan Collins | |
| 09/10/2024 | 2200/1800 | US | San Francisco Fed's Mary Daly |