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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY:
- SENATE DEAL ON DEBT CEILING SETS UP YEAR-END REPEAT
- GERMAN INDUSTRIAL PRODUCTION SLUMPS ON SUPPLY CHAIN DISRUPTION
- BOE'S PILL SEES GREATER CONCERNS ABOUT UK INFLATION OUTLOOK
- ECB'S STOURNARAS: MARKET RATE HIKE VIEWS DON'T REFLECT GUIDANCE
- SEFCOVIC: NO RENEGOTIATION OF N IRELAND PROTOCOL
Fig. 1: Energy Prices Continue To Correct
Source: BBG, MNI
NEWS:
U.S. DEBT LIMIT: Senate Democrats are set to take up the offer of minority leader Mitch McConnell (R-KY) to raise the debt ceiling and avoid a catastrophic default on US gov't debt. The offer is set to see senate Republicans standing aside to allow Democrats to raise the debt ceiling to provide funding through to early December without filibustering.
- As such, by the end of the year Congress will once again have the twin perils of increasing or suspending the debt ceiling while also working to continue gov't funding to prevent a shutdown of the federal gov't.
- There may be some reasons for optimism, though. With another two months until the ceiling looms in the immediate vicinity, Senate Democrats have the time to seek to raise the debt ceiling via reconciliation (avoiding a filibuster and only needing 50 votes to pass). Majority leader Chuck Schumer (D-NY) has eschewed using reconciliation previously, but come December could find it the path of least resistance.
- For Senate Republicans, the increase is being viewed as an opportunity to set up attack ads on vulnerable Democratic incumbents for voting for greater gov't debt come the 2022 mid-terms.
GERMANY / INDUSTRY (RTRS): German industrial output dropped by far more than expected in August due to supply chain disruptions that are holding back growth in Europe's biggest economy and hitting the auto sector particularly hard, official data showed on Thursday.The Federal Statistics Office said industrial output fell by 4.0% on the month after an increase of 1.3% in July. A Reuters poll had pointed to a decline in August of 0.4%."Manufacturers continue to report production constraints due to supply shortages of intermediate products," the Office said in a statement.Production of cars and car parts fell by 17.5% on the month.
BOE: Bank of England Policy Maker Huw Pill comments in a questionnaire submitted to the Treasury Committee in Parliament, his first public comments since being named to the Monetary Policy Committee. "In my view, that balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long lasting than originally anticipated."
ECB (BBG): Investors shouldn't expect premature interest-rate increases from the European Central Bank as it plots its exit from pandemic stimulus, Governing Council member Yannis Stournaras said. Bets that the ECB's first hike will happen around mid-2023 "are not in accordance with our forward guidance," the Bank of Greece governor told Bloomberg Television on Thursday. European government bonds extended gains after the comments.Stournaras also said that policy makers will try to avoid any disruption after the end of the ECB's 1.85 trillion-euro ($2.1 trillion) emergency debt-buying program, which was launched in response to a selloff in bonds by highly indebted countries.
ECB (BBG - PUBLISHED EARLIER IN THE SESSION): The European Central Bank is studying a new bond-buying program to prevent any market turmoil when emergency purchases get phased out next year, according to officials familiar with the matter.The plan would both replace the existing crisis tool and complement an older, open-ended quantitative-easing scheme that's currently acquiring 20 billion euros ($23.1 billion) in debt every month, said the officials, who asked not to be identified because the discussions are confidential. No decisions have been made, they said. An ECB spokesperson declined to comment on the report, while noting that staff discuss a wide array of ideas that aren't necessarily presented to the Governing Council or the Executive Board.
EU/UK: European Commission VP Maros Sefcovic speaking at the Institute of International and European Affairs in Dublin on the NI protocol and ongoing issues with the EU-UK relationship. In keeping with previous Commission statements, says that there will be no renegotiation of the NI protocol.
- Sefcovic: "Without any shadow of a doubt, reaching consensus on Northern Ireland was the most challenging part of those negotiations...This solution was shaped, agreed by both sides, we therefore share responsibility for making it work on the ground...The protocol is not the problem - on the contrary it is the only solution we have...Simply opposing the protocol without providing real solutions won't make the problems go away either.
- Sefcovic argues that the NI protocol has 'enourmous benefits to offer' as it provides 'unparalleled access' to two huge markets, stating that "You can have jam on both sides of your bread".
- Earlier this week Lord Frost, the UK's point man on EU-UK talks, stated that without a revision to the protocol the UK may be forced to invoke Article 16 of said protocol in order to protect NI-GB trade. Sefcovic says that the UK threat is an 'unhelpful distraction' that 'will not help us find solutions any quicker'.
- Sefcovic states that the EU will not accept options that 'cut Northern Ireland off from the Single Market'.
DATA:
UK DATA: Updates on UK furlough numbers
A data dump in terms of the numbers of people on furlough in the UK. The numbers are roughly in line with expectations. It's still another month or two until we get anything definite in terms of how many of these furloughed workers kept their jobs past the end of September, although anecdotal evidence is looking more promising than originally expected (more in line with the BoE view than the consensus sell-side view).
- From the govt's CJRS statistics (provisional numbers):
- Employees on full furlough end of July 826.2k, end of August 727.7k
- Flexible furlough: 746.0k in July, 595.1k in August,
- BoE Decision Maker Survey:
- Full furlough: 1.3% in September from 1.8% in August
- ONS Business insights and impact on the UK economy: 7 October 2021:
- "The proportion of businesses' workforce reported to be on full or partial furlough leave (the HM Revenue and Customs (HMRC) Coronavirus Job Retention Scheme (CJRS)) fell to 5% in early September 2021 (representing a provisional approximate range of between 4% to 6% of businesses' workforce) after remaining unchanged throughout August 2021 at 6%."
- "The estimated 5% of businesses' workforce reported to be on full or partial furlough leave in early September 2021 suggests that approximately 1.1 to 1.6 million people were furloughed within the industries surveyed in BICS. Of the workforce reported to be on furlough, a higher proportion were partially furloughed than fully furloughed, with 2% of the workforce (approximately 0.3 to 0.8 million people) reported to be fully furloughed."
FIXED INCOME: Risk On Tone Sees Core FI Retreat
A largely risk-on tone early Thursday has seen core FI weaken for the most part, with Gilts underperforming Bunds and Treasuries.
- The overall driver has been the continued retracement in energy prices since yesterday, with oil prices falling ~2% helping boost equities. A temporary resolution over the US debt limit also helping.
- While breakevens have pared recent gains, real yields have ticked higher (particularly in the UK, with initial comments from new Chief Econ Pill).
- Periphery EGB spreads have tightened, with ECB's Stournaras pushing against market rate hike pricing, and a BBG sources story on the ECB considering a new post-crisis bond-buying program.
- Ahead in the session are US initial jobless claims, the ECB minutes and Lane, Holzmann, Schnabel comments, while we also hear from Cleveland Fed's Mester.
Latest levels:
- Dec US 10-Yr futures (TY) down 2/32 at 131-21 (L: 131-17 / H: 131-25)
- Dec Bund futures (RX) up 3 ticks at 169.68 (L: 169.4 / H: 169.92)
- Dec Gilt futures (G) down 10 ticks at 124.69 (L: 124.6 / H: 125.19)
- Italy / German 10-Yr spread 3bps tighter at 104.4bps
FOREX: Markets More Stable, But Oil-Tied FX Follows Energy Lower
- Markets trade relatively steady ahead of the NY crossover, with most major pairs trading inside the recent range. Commodity- and oil-tied currencies are faring slightly poorly, with the NOK falling against all others in G10. The move coincides with a further pullback in oil prices off the week's cycle high, with WTI and Brent crude futures off around 2% apiece.
- AUD and NZD are trading slightly more favourably, benefiting from the recovery in equity markets off the Wednesday lows. AUD/USD staged a test of the $0.73 handle, but faltered on the show above. Markets need to take out the 50-dma at 0.7307 to turn the outlook more positive.
- Data today will be further scoured for clues ahead of Friday's payrolls release, with weekly jobless claims numbers crossing just ahead of the NY open.
- ECB speak is plentiful Thursday, with speeches due from Holzmann, Lane and Schnabel alongside the release of the ECB minutes from their September rate decision. Fed's Mester, BoC's Macklem and PBoC's Yi Gang also make appearances.
EQUITIES: NASDAQ Bounces To 6-Session High
- Asian stocks closed mixed, with Japan's NIKKEI up 149.34 pts or +0.54% at 27678.21 and the TOPIX down 2.29 pts or -0.12% at 1939.62. The HANG SENG ended 735.24 pts higher or +3.07% at 24701.73.
- European equities are higher, with the German Dax up 171.68 pts or +1.15% at 15160.57, FTSE 100 up 48.61 pts or +0.69% at 7068.07, CAC 40 up 61.19 pts or +0.94% at 6570.94 and Euro Stoxx 50 up 55.06 pts or +1.37% at 4067.21.
- U.S. futures are higher, led by tech, with the Dow Jones mini up 167 pts or +0.49% at 34458, S&P 500 mini up 28.5 pts or +0.65% at 4382.5, NASDAQ mini up 149.25 pts or +1.01% at 14907.75.
COMMODITIES: Energy Prices Continue To Correct
- WTI Crude down $1.8 or -2.32% at $76.73
- Natural Gas down $0.24 or -4.18% at $5.64
- Gold spot down $1.7 or -0.1% at $1764.41
- Copper up $3.65 or +0.88% at $419.4
- Silver up $0.05 or +0.21% at $22.7321
- Platinum down $2.32 or -0.23% at $990.49
LOOK AHEAD:
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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