MNI US OPEN - China Stimulus & Fedspeak Promote Equity Recovery

NEWS

US (NYT): McCarthy Floats Return as Divided G.O.P. Prepares to Choose a Speaker

Less than a week after his ouster, the former speaker indicated he would be open to reinstatement as Republicans prepared to discuss whom to nominate to succeed him. Former Speaker Kevin McCarthy floated the possibility on Monday that he might be open to reclaiming the post from which he was ousted less than a week ago, even as two other Republicans vied to replace him in a contest that has highlighted the party’s deep divisions.

US/EU (BBG): EU, US Seek Steel Deal That May Include Tariffs on China Exports

The European Union is working on an interim deal with the US that would introduce new tariffs aimed at excess steel production from China and other countries in order to end a Trump-era trade conflict. The levies would primarily be focused on imports from China that benefit from non-market practices, Bloomberg reported earlier this month. The provisional political agreement on the so-called Global Steel and Aluminum Arrangement is expected to be announced at an Oct. 20 summit in Washington, according to people familiar with the plans.

US (BBG): Biden Interviewed by Special Counsel on Classified Documents

President Joe Biden was interviewed over two days as part of the special counsel investigation into classified material found at a former private office and one of his homes in Delaware, the White House said Monday. “The voluntary interview was conducted at the White House over two days, Sunday and Monday, and concluded Monday,” White House spokesman Ian Sams said in a statement. “As we have said from the beginning, the president and the White House are cooperating with this investigation.”

EU (MNI): Bond Sell-Off Makes EU Fiscal Deal Crucial - Buti

A deteriorating geopolitical situation and bond-market sell-off make a rapid deal on new European fiscal rules imperative, the architect of European Commission proposals for a new fiscal regime Marco Buti told MNI, adding that he was confident of agreement by the end of the year.

UK (MNI): BOE: Higher Long-term Rates Pose System Risks - FPC

Rising long-term interest rates and the outlook for higher-for-longer central bank policy rates both pose systemic stress risks for parts of the global banking system, according to the BOE's latest financial policy summary. According to the FPS, parts of the global banking system and financial markets "remain vulnerable to stress from increased rates and are subject to significant uncertainty". The uncertainty also reflects risk from the growth and inflation outlook and geopolitical tensions, the FSR said.

GERMANY (MNI): German Bankruptcies, Layoffs to Tick Up - IWH Halle

The number of German companies going bust is set to rise “significantly” in the coming months after stabilising over the summer, a leading think tank reported Tuesday, with construction, real estate and housing firms particularly hard hit. Just over 1,000 partnerships and corporations declared themselves insolvent in September, around the same number as in August but 33% more than in September 2022. Some 11,500 jobs were affected at the largest 10% of firms, with industry, health and social work accounting for most jobs lost last month, according to IWH Halle’s Insolvency Trend.

RIKSBANK (MNI): Hikes More Likely Than Cuts - Riksbank's Breman

The next moves by Sweden’s Riksbank are far more likely to be further tightening than rate cuts, First Deputy Governor Anna Breman told MNI, stressing that the balance of inflation risks remains to the upside. While the Riksbank's central forecast shows the policy rate remaining flat at a high level for an extended period, in the so-called “Table Mountain” pattern similar to that currently projected by other central banks after the recent bout of surging prices, Breman said in an interview that officials had to be alive to persistent inflation risks.

GLOBAL (BBG): IMF Warns of Inflation’s Tenacity, Weaker Global Growth in 2024

The International Monetary Fund lifted its global inflation forecast for next year and called for central banks to keep policy tight until there’s a durable easing in price pressures. The IMF boosted its projection for the pace of consumer price increases across the world to 5.8% for next year in its World Economic Outlook released Tuesday, up from 5.2% seen three months ago. The call for vigilance on inflation comes as it also trimmed the forecast for economic growth in 2024.

CHINA (BBG): China Weighs New Stimulus, Higher Deficit to Meet Growth Target

China is considering raising its budget deficit for 2023 as the government prepares to unleash a new round of stimulus to help the economy meet the government’s annual growth target, according to people familiar with the matter. Policymakers are weighing the issuance of at least 1 trillion yuan ($137 billion) of additional sovereign debt for spending on infrastructure such as water conservancy projects, said the people, asking not be identified discussing a private matter.

CHINA (BBG): Country Garden Signals Default as China Property Woes Deepen

Chinese developer Country Garden Holdings Co. offered the strongest indication yet that it’s set for a maiden default and debt restructuring, in the latest sign that authorities’ rescue efforts are far from enough to stop the nation’s property crisis from worsening. China’s former top builder warned in a stock exchange filing Tuesday that it will not be able to meet all of its future offshore payment obligations, including dollar bonds. Such non-payment may lead to relevant creditors demanding acceleration of payment or pursuing enforcement action, it added.

BOJ (BBG): BOJ to Mull Lifting This Year’s Price View Close to 3%: Kyodo

The Bank of Japan is considering raising its inflation forecast for the current fiscal year close to 3% when it updates its price and growth views at the end of this month, Kyodo News reported Tuesday without specifying the source of its information. The BOJ meets to set policy on Oct. 30-31 amid continued speculation of policy adjustments as inflation continues to run well above its 2% target. The central bank’s current forecast for the year ending in March is 2.5%.

JAPAN (MNI): IMF Ups Japan 2023 GDP View to +2.0% vs. July +1.4%

IMF Keeps Japan 2024 GDP Forecast At 1.0%The International Monetary Fund on Tuesday upgraded its forecast for Japan’s gross domestic product this year to 2.0% from its July 1.4%, but left its 2024 growth forecast at 1.0%.“For Japan, policy rates for the medium term [2026–28] are revised upward, reflecting changes to the country’s yield-curve-control framework, and long-term rates are revised upward accordingly,” the IMF’s World Economic Outlook stated.

ISRAEL (MNI): Market Focus Turns to Length, Scope of Conflict

Amid the mass bombardment of targets in the Gaza strip by Israeli forces overnight and the likelihood of a war that extends beyond the coming days into weeks, market focus is likely to turn to two crucial aspects of the conflict: how long it continues for and does it broaden into a regional conflagration.

DATA

UK DATA (MNI): Shop Sales Slow in September

• UK BRC SEP BY VALUE SHOP SALES LFL +2.8% YY, TOTAL +2.7% YY

BRC-KPMG Total Retail Sales rose +2.7%Y/Y in September (vs +4.1%Y/Y growth in August). Like-For-Like Sales also slowed to +2.8%Y/Y in September (vs +4.3%Y/Y growth in August). Non-Food Total Sales led the decline in the rate of Total Sales growth, decreasing -1.2% over the 3-months to September with Clothing sales moving into negative territory as unseasonal warm weather delayed demand for winter wardrobe purchases.

NORWAY (MNI): September CPI Shows Downside Surprise

• NORWAY SEP CPI -0.1% M/M, +3.3% Y/Y
• NORWAY SEP CORE CPI +0.4% M/M, +5.7% Y/Y

Norway September CPI-ATE printed at +5.7 Y/Y (vs +6.1% cons; +6.3% prior) and+0.4 M/M. Headline CPI was +3.3% Y/Y (vs +4.0% cons; +4.8% prior) and -0.1%M/M. Norges Bank had forecasted CPI-ATE at +6.1% and CPI at +4.2% Y/Y. This significant downside surprise may call into question the Norges Bank's rate decision in December, which was previously signalled to be a hike.

ITALY AUG IP +0.2% M/M, -4.2% Y/Y (MNI)

JAPAN DATA (MNI): Japan Sept Sentiment Index Drops; Govt Cuts View

Japan's Economy Watchers sentiment index posted its second monthly drop in September, falling a seasonally adjusted 3.7 points to 49.9, while the outlook index for two-three months ahead also fell 1.9 points to 49.5, prompting the government to lower its assessment. The Economy Watchers report, released by the Cabinet Office Tuesday, showed worsening of all three components linked to households, firms and labour drove the fall.

FOREX: Paring Gains Going into the US Session

• The Dollar was trading closer to flat against G10s overnight and going into the EU Cash Govie open.
• Early mover was the NOK, which fell following the Norway CPI coming below consensus.
• The NOK is still worst performer, now down 0.39% but off its worst level, following some reversal in the USD, falling lower, on the back of the Risk Off tone in Europe and the US.
• The Yen was under early pressure, as US Yields ticked higher into the European session.
• USDJPY trades in a most notable range in G10, 90 pips, tested above 149.00, to print a 149.07 high, but as since fallen back below 149.00, with the dollar taking its cue from the move higher in Equities.
• Looking ahead, US Final Wholesales inventories is the only notable release, but unlikely to be a big market mover, with the main focus on the US CPI this week.
• Speakers include, Fed Perli, Bostic, Waller, Kashkari, Daly, and ECB Villeroy.

BONDS: Bund & Gilt Curves Bear Flatten

Bund and gilt futures are off Asia/early London highs, with European equities on the front foot on the back of feedthrough from Monday’s Fedspeak and hope re: fresh Chinese stimulus. Elsewhere, oil prices have recovered from session lows alongside the rally in European equities.

• Supply also provides some background pressure for EGBs, with the books on the latest EU syndication now closed.
• I/L supply out of Germany and the UK wouldn’t have been a meaningful mover for conventional paper.
• Bund futures last show -10 or so, with the German cash benchmarks sitting 1-4bp cheaper, bear flattening.
• EGB spreads to Bunds are generally a tighter after widening on Monday, with BTPs outperforming (aided by the recovery in equities), albeit consolidating the bulk of the well-documented spread widening seen in recent weeks. The exception to the trend is Portuguese & Greek 10s, which sit 0.5-1bp wider vs, Bunds.
• Gilts bear flatten, with futures +15 and cash gilts running 1-5bp cheaper. Lower tier local data won’t have moved the needle for markets, while BoE MPC member Mann stuck to the hawkish side of the spectrum late on Monday.

EQUITIES: Bear Cycle in E-Mini S&P Remains in Play Despite Recent Recovery

Eurostoxx 50 futures trend conditions remain bearish, with Friday’s rally and the follow through this morning deemed corrective in nature. The contract has traded below 4128.00, the Sep 27 low. This confirms a resumption of the downtrend that started late July and signals scope for a move towards 4055.40, a Fibonacci retracement point. Initial firm resistance is at 4207.30, the 20-day EMA. A break of this average would signal a possible short-term base. A bear cycle in S&P E-minis remains in play, despite Friday’s sharp corrective rally and the follow through this morning. The contract traded lower last Wednesday, confirming a resumption of the bear leg once again. This maintains the price sequence of lower lows and lower highs and signals scope for weakness towards 4194.75, the May 24 low. Pivot resistance is 4441.61, the 50-day EMA. Ahead of the 50-day average is resistance at 4381.68, the 20-day EMA.

• Japan's NIKKEI closed higher by 751.86 pts or +2.43% at 31746.53 and the TOPIX ended 48.11 pts higher or +2.12% at 2312.19.
• Elsewhere, in China the SHANGHAI closed lower by 21.686 pts or -0.7% at 3075.236 and the HANG SENG ended 147.33 pts higher or +0.84% at 17664.73.
• Across Europe, Germany's DAX trades higher by 237.53 pts or +1.57% at 15365.28, FTSE 100 higher by 110.14 pts or +1.47% at 7602.59, CAC 40 up 94.57 pts or +1.35% at 7115.11 and Euro Stoxx 50 up 63.59 pts or +1.55% at 4175.72.
• Dow Jones mini up 84 pts or +0.25% at 33879, S&P 500 mini up 11 pts or +0.25% at 4378.75, NASDAQ mini up 48.25 pts or +0.32% at 15232.75.

COMMODITIES: WTI Futures Hold Onto Monday's Gains

WTI futures traded lower last week, but started the week on a stronger footing. The recent bearish price action resulted in a break of support at $88.19, the Sep 26 low. The contract has also cleared support at the 50-day EMA, at $84.46. This signals scope for a deeper retracement towards the $80.00 handle and $79.57, a Fibonacci retracement point. Initial firm resistance is at $87.71, the 20-day EMA. A break would signal a possible reversal. A bearish theme in Gold was put on pause Monday after a second session of gains. Monday’s bounce put prices back above $1850. Nonetheless, the recent sell-off resulted in a break of support at $1901.1 and this was followed by a breach of $1884.9, the Aug 21 low. This confirmed a resumption of the downtrend that started early May. The focus is on $1804.9, the Feb 28 low and a key support. On the upside, firm resistance is at $1878.2, the 20-day EMA.

• WTI Crude up $0.12 or +0.14% at $86.46
• Natural Gas up $0 or +0.06% at $3.377
• Gold spot down $3.31 or -0.18% at $1858.28
• Copper down $1.55 or -0.43% at $362.95
• Silver down $0.12 or -0.54% at $21.77
• Platinum up $0.41 or +0.05% at $891.22