MNI US OPEN - ECB Decision a Close Call

NEWS

MNI ECB PREVIEW: SEPTEMBER 2023 - A Hawkish Hold

Conflicting data, limited insight from policymakers since the last meeting, and the very marginal nature of hiking by 25bp or holding following 425bp in policy hikes this cycle, make the September ECB rate decision a tough call. We assume that the ECB will leave policy rates unchanged at this meeting, while maintaining a tightening bias and stressing that rates could head higher at future meeting. However, this is a relatively low conviction call.

NORGES BANK (MNI): Norges Bank Survey Finds 2024 Wage Expectations Up

Norges Bank's latest quarterly business survey, published ahead of next week's policy decision, found capacity constraints easing, employment continuing to rise and firms nudging up their expectations for wage growth next year. In the third quarter survey firms' wage expectations for this year were unchanged at 5.4 per cent but for 2024 rose to 4.6% from 4.4%. The oil sector, boosted by higher prices, anticipated the sharpest wage rises in 2024 of 5.1% and the energy sector was also more upbeat about the activity outlook with an increased willingness to invest in oil and gas extraction.

US (BBG): Biden Scoffs at Impeachment, Says GOP Aims to Shut Government

President Joe Biden dismissed House Republicans’ move to open an impeachment inquiry, saying the GOP has long been looking for an excuse to bring charges against him. “I tell you what, I don’t know quite why, but they just knew they wanted to impeach me,” Biden said Wednesday in his first comments on the Republican probe. “And now, best I can tell, they want to impeach me because they want to shut down the government.”

CHINA (Shanghai Securities News): PBOC Sends Clear Signal to Stabilise Yuan

The People's Bank of China still has plenty of policy tools to deal with abnormal fluctuations of the yuan, following its recent movement to increase the issuance of central bank bills in Hong Kong to tighten the liquidity of offshore yuan, said Ming Ming, chief economist of CITIC Securities. The yuan may face depreciation pressure in the short term, as the U.S. dollar index remains high due to the resilience of the U.S. economy, Ming added. The PBOC should raise the forex risk reserve ratio in due course to curb herding behaviour in forex trading, said Wang Qing, analyst at Golden Credit Rating.

NEW ZEALAND (MNI): Latest Poll Shows Nationals Coalition Just Able to Form Government

The latest 1News-Verian poll reported by RNZ is showing little change in support for the major parties ahead of the October 14 election but continued to indicate that there is likely to be a change of government to the centre-right. Support for the opposition National party rose 2pp to 39% giving them an additional seat in parliament. Their likely coalition partners ACT fell 3pp to 10% following a number of scandals. The incumbent Labour party fell 1pp to 28% and the Greens -2pp to 10%.

RUSSIA/NORTH KOREA (BBG): North Korea Says Putin May Visit After ‘Epoch-Making’ Talks

Russian President Vladimir Putin accepted an invitation from Kim Jong Un to visit North Korea after the two held their first summit in four years, which the US believed focused on Pyongyang sending arms to help Moscow attack Ukraine. Kim’s propaganda apparatus hailed the meeting held at Russia’s Vostochny Cosmodrome space center in the Amur region, with the official Korean Central News agency saying Thursday the two discussed issues of mutual interest, peace and security in the region and international justice.

COMMODITIES (BBG): Australian LNG Workers Escalate Strikes at Chevron Plants

Liquefied natural gas workers at key Chevron Corp. sites in Western Australia have begun ramping up a campaign of industrial action in a dispute that has roiled global energy markets. Staff started a program of escalated action Thursday after beginning partial strikes on Sept. 8, and will ratchet up stoppages over the “coming days and weeks,” the Offshore Alliance, a group representing two major labor unions, said in a Facebook post.

COMMODITIES (BBG): Iron Ore Rises to Five-Month High as China Mills Boost Output

Iron ore hit a five-month high, as steel mills ramp up production amid a seasonal pickup in construction after summer. Prices have rallied more than 6% this week, as Chinese authorities’ recent efforts to bolster the ailing steel-intensive property sector appear to have paid some dividends. Still, data showing steel stockpiles increased in early September compared with late August may be a signal that the increased demand period has had a soft start.

DATA

SWEDEN DATA (MNI): More Disinflation Than Expected

• SWEDEN AUG CPIF +4.7% Y/Y

Sweden CPIF inflation for August was +4.7% Y/Y and -0.1% M/M. Consensus was for a +4.9% Y/Y rise, while the Riksbank expected +4.8% in its June MPR. CPIF ex-energy was 7.2% Y/Y (versus consensus of 7.4% and the Riksbank at 6.9%). As expected, downward pressure was applied from food, electricity and package holidays (the latter mainly due to seasonal factors). Food prices fell -0.7% M/M, while electricity prices fell -36.8% Y/Y on the back on base effects. Upward contributions to the monthly CPI figure came from clothing, fuel and congestion charges.

JAPAN DATA (MNI): Weakening Core Machine Orders Points to Slower CAPEX

• JAPAN JULY CORE MACHINE ORDERS -1.1% M/M; JUNE +2.7%

Japan's July core machine orders came in a touch below expectations. In m/m terms we printed at -1.1%, versus -0.8% projected and +2.7% in June. In y/y terms we were at -13.0%, versus -10.3% forecast and -5.8% prior. This continues the downtrend in core machine orders in y/y terms, albeit with a volatile trend since the start of the year. The y/y pace is now the lowest going back to Q3 2020.

AUSTRALIA DATA (MNI): Aussie Unemployment Holds at 3.7%, Employment Solid

• AUSTRALIA AUG UNEMPLOYMENT RATE +3.7%
• AUSTRALIA AUG LABOR PARTICIPATION RATE +67%
• AUSTRALIA AUG F-T EMPLOYED PERSONS CHANGE 2.8K

The Australian unemployment rate remained at 3.7% in Aug., in line with market expectations, while employment jumped by about 65,000, according to data released today by the Australian Bureau of Statistics. Employment growth is typically 32,000 per month, according to Bjorn Jarvis, head of labour statistics at the ABS. “The employment-to-population ratio rose 0.1 pp to 64.5%, around the record high in June," Jarvis said.

AUSTRALIA DATA (MNI): Inflation Expectations Signal Confidence RBA Reducing Inflation

The Melbourne Institute's measure of consumer inflation expectations moderated to 4.6% in September from 4.9%, which was in line with April but the lowest since January 2022. This is going to be good news to the RBA as the series has been trending lower since June last year. There were a number of conflicting influences this month with petrol prices higher since the last survey but down in recent weeks and July CPI printing lower than expected.

FOREX: Focus is on the ECB

• The Dollar leans in the red across the majors this morning, with the Kiwi and the Aussie the early best performer overnight with the Aussie helped by the employment data.
• Going into the US session, the Dollar is still down, but has pared some of its weakness, now closer to flat against the GBP, EUR, NZD, CHF, SEK, NOK and JPY.
• EURUSD stays in that 7 sessions range of 1.0686/1.0769, as market participants await the ECB.
• As previously noted, given the lack of risk events and data, large options expiry may have played a role in keeping the pair within ranges.
• Initial technical, resistance/support will be at that range.
• Best performer against the Greenback, over a 5 day period is the CAD, up 1.05% buoyed by the latest Employment data last week, and has overtaken the Kiwi and the Aussie as the best performer against the USD in G10 today, albeit by just 0.15%.
• Main focus is now on the ECB decision, with calls for a hike or Unchanged rate decision completely split.
• On the data front, sees US PPI/Retail sales.

EGBS: Generally Flat to a Touch Firmer, ECB on Deck

Bund futures trade around mid-range, stabilising after the early pull away from best levels.

• That leaves the contract +20 or so, with the German cash benchmarks running 0.5-1.5bp richer, lightly steepening.
• Headline flow has been limited, with the usual comments surrounding pre-ECB positioning evident.
• ECB-dated OIS shows a little under 17bp of tightening for today’s meeting, with terminal deposit rate pricing sitting bang on 4.00%. A reminder that Tuesday’s (single-sourced) hawkish ECB sources piece from RTRS biased pricing higher yesterday, tipping the odds of a hike beyond 50/50 in the market’s view.
• Core/semi-core EGB spreads to Bunds are little changed, while peripheral spreads to 10-Year German paper sit within 1bp of yesterday’s closing levels.
• A quick reminder that Italian PM Meloni ruled out scrapping the banking tax late on Wednesday, although she left the door open to amendments as long as the tax take surrounding the measure still contributes ~€3bn.
• Irish supply saw decent demand as the NTMA rounded off its scheduled issuance for calendar ’23.

GILTS: Cross-Market Moves at the Fore after Bulls Fail to Breach Resistance in Futures

The move away from session bests stabilises, leaving gilt futures mid-range, +15 or so.

• Cash benchmarks are 0.5-1.5bp richer.
• Bulls ran out of steam just ahead of 95.79 in futures, the Sep 1 high and key resistance level, with cross-market moves coming to the fore thereafter.
• SONIA futures last show flat to 3.5bp richer, with the late greens and early blues leading.
• Minimal twist flattening has been seen on the BoE-dated OIS strip, with pricing covering this month’s meeting showing 20bp of tightening, while terminal policy rate pricing ticks back below 5.65%.
• Gloom surrounding the housing market dominated local news flow overnight, with the RICS house price balance metric moving to the lowest level seen since ’09.
• Participants remain focus on the potential for cross-market spill overs surrounding the impending ECB decision, with domestic headline flow light since the gilt open.

EQUITIES: Short Term Gains in E-Mini S&P Deemed Corrective

A bear cycle in Eurostoxx 50 futures remains in play and short-term gains are considered corrective. Price has recently pierced key support at 4187.00, the Aug 18 low and a bear trigger. A clear break of this level would strengthen bearish conditions and open 4177.40 next, a Fibonacci retracement. Key resistance has been defined at 4358.00, the Aug 30 high. Initial firm resistance is seen at 4273.90, the 20-day EMA. A bear cycle in the E-mini S&P contract remains in play and short-term gains are considered corrective - for now. Key resistance has been defined at 4597.50, the Sep 1 high where a break is required to reinstate the recent bullish theme. For bears, a stronger sell-off would signal scope for a move towards the key support and bear trigger at 4397.75, the Aug 18 low. Clearance of this support would strengthen a bearish case.

• Japan's NIKKEI closed higher by 461.58 pts or +1.41% at 33168.1 and the TOPIX ended 26.93 pts higher or +1.13% at 2405.57.
• Elsewhere, in China the SHANGHAI closed higher by 3.484 pts or +0.11% at 3126.551 and the HANG SENG ended 38.7 pts higher or +0.21% at 18047.92.
• Across Europe, Germany's DAX trades lower by 25.7 pts or -0.16% at 15607.42, FTSE 100 higher by 25.12 pts or +0.33% at 7546.06, CAC 40 down 22.48 pts or -0.31% at 7192.49 and Euro Stoxx 50 down 7.72 pts or -0.18% at 4210.92.
• Dow Jones mini up 42 pts or +0.12% at 34615, S&P 500 mini up 10.25 pts or +0.23% at 4476.5, NASDAQ mini up 44.25 pts or +0.29% at 15390.25.

COMMODITIES: Gold Within Close Proximity of Key Support at $1903.9

The uptrend in WTI futures remains intact and this week’s gains reinforce this condition. The break higher confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. Note too that moving average studies are in a bull-mode position, highlighting a rising trend. Sights are on the psychological $90.00 handle. On the downside, initial firm support to watch lies at $84.35, the 20-day EMA. Gold traded lower again yesterday. Key support to watch lies at $1903.9, the Aug 25 low. A break of this level would be viewed as a bearish development and highlight the fact that the recovery between Aug 21 - Sep 1 has been a correction. This would expose $1884.9, the Aug 21 low. On the upside, initial firm resistance is seen at $1928.7, the 50-day EMA. Key resistance is at $1953.0, the Sep 4 high.

• WTI Crude up $0.66 or +0.75% at $89.28
• Natural Gas up $0.05 or +1.79% at $2.728
• Gold spot down $1.11 or -0.06% at $1906.79
• Copper up $1.55 or +0.41% at $380.95
• Silver down $0.27 or -1.18% at $22.5576
• Platinum down $0.62 or -0.07% at $901.69