MNI US OPEN - ECB Hawks Send Mixed Post-Meeting Signals

NEWS

ECB (MNI): Eurozone Inflation Still Too High - Villeroy

Bank of France Governor Francois Villeroy said Friday inflation in the euro zone remains too high and that the ECB is committed to bringing it back towards its 2% target by 2025. “These inflation rates remain too high: we must and we will bring inflation back towards our 2% target by 2025. I reiterate this morning this clear commitment which is fully consistent with our latest ECB forecasts. Monetary policy is the first line of defence, and the main remedy for this disease,” he said.

ECB (BBG): ECB’s Muller Sees No Further Rate Hikes in Coming Months

European Central Bank Governing Council member Madis Muller said further increases in borrowing costs are unlikely as current levels are probably sufficient to return inflation to the 2% target. “At yesterday’s ECB meeting, we decided to raise interest rates by another 0.25%, but we also made it clear that, to the best of our knowledge, no further interest-rate hikes are expected in the coming months,” Muller said Friday in a blog post.

ECB (BBG): ECB’s Guindos Says Rates at 4% May Be Enough to Tame Inflation

Maintaining interest rates at 4% for a prolonged period may be sufficient to tame inflation, according to European Central Bank Vice President Luis de Guindos. “We believe that with the latest increase the level of interest rates, if kept there for some time, may be enough for inflation to converge to the 2% target,” Guindos told Spanish radio station Cope on Friday — a day after the ECB’s 10th straight hike.

ECB (FT): ECB Hawks Warn of December Rate Rise if Inflation and Wages Stay Hot

Several of the European Central Bank’s more hawkish rate-setters believe that interest rates could rise again in December if wages keep increasing rapidly and inflation proves stickier than hoped. Investors widely expect the ECB’s rate rise on Thursday, which saw the deposit rate hit 4 per cent, to be its last. But three people involved in Thursday’s monetary policy meeting told the Financial Times that, if eurozone inflation were higher than forecast, the door was still open to raise rates again when the central bank updates its projections in December.

US (BBG): Biden Speaks With UAW Chief, Auto Executives as Strike Looms

President Joe Biden spoke with United Auto Workers President Shawn Fain and executives from Detroit’s three legacy automakers as they approach a Thursday night deadline for a deal that would prevent a strike, the White House said. The White House said Biden discussed with union and company leaders “the status of ongoing negotiations” but didn’t provide specifics on the conversations.

US (BBG): McCarthy Dares Hardliners to Oust Him as Shutdown Fight Rages

House Speaker Kevin McCarthy, thwarted by hardliners from passing measures to fund the government and frustrated by their shutdown demands, dared conservative dissidents to try to oust him. “The speaker said, look if you want to make a motion to vacate the chair, bring it on,” Republican Representative Darrell Issa, a McCarthy ally, told reporters Thursday, using a parliamentary term for removing the speaker as he described McCarthy’s comments.

CANADA (BBG): Trudeau Cuts Tax on Rental Builds, Pushes Grocers on Pricing

Canadian Prime Minister Justin Trudeau pledged to cut the federal sales tax on new rental apartment construction and to demand that grocery store executives restore price stability as part of a suite of measures aimed at making life more affordable. Trudeau also promised to amend competition law to remove provisions allowing companies to argue that cost savings outweigh negative impacts on competition, as well as extend a repayment deadline for the government’s pandemic-era small-business loans until next year.

EU (MNI): Spain Expects Agreement on EU Fiscal Rules by End of 2023

Spanish Finance Minister, Nadia Calvino, has told reporters on the sidelines of an EU finance ministers' meeting in Santiago de Compostela, Spain that she expects to European Union members to reach a new agreement on fiscal rules by the end of the year. Calvino: "What we will do is lay out an ambitious calendar to have an agreement by the end of the year under the Spanish presidency."

CHINA (BBG): China Told Some Brokers to Cut Back Proprietary FX Trading

China told some brokerage firms to reduce proprietary trading in the foreign-exchange market, according to people with knowledge of the matter, marking another step by the authorities to defend the beleaguered currency. The People’s Bank of China asked several brokers earlier this week to reduce currency proprietary desk trading, without giving specific guidance on the limit of trading volume, the people said, declining to be named discussing private matters.

CHINA (MNI): Economy to Continue Recovery - NBS Spokesperson

MNI (Beijing) China’s economy will continue to improve in the near term as government policies to stabilise the housing market and promote the private economy increasingly take effect, said Fu Ling Hui, spokesperson at the National Bureau of Statistics at a press conference on Friday. Authorities will further support economic growth through deepening reform and opening which includes creating a unified market.

BOJ (BBG): BOJ Is Said to See Gap Between Ueda Remarks, Market Reaction

Bank of Japan officials see a discrepancy between what Governor Kazuo Ueda said in a recent interview and how traders interpreted the remarks, according to people familiar with the matter. Most of what Ueda said in the Yomiuri newspaper interview published Saturday was consistent with his routine remarks of late. Taken in total, his comments indicate little change in the view among officials that they’ll need to weigh both upside and downside risks in deciding whether to adjust policies, the people said.

BOJ (MNI): Yield Curve Control on Hold, October in Focus

The Bank of Japan is likely to maintain its yield curve control policy unaltered when it meets on Sept 21-22 as the economy and prices move in line with forecasts, however its focus will shift to upcoming October service price revisions amid persistently high costs.With officials already envisaging scrapping yield curve control next April should wage gains persist, possibly preceded by an increase in the overnight rate from negative levels, officials are waiting to see whether household inflation expectations ease together with core CPI.

JAPAN (BBG): Japan Premier’s Cabinet Reshuffle Meets Muted Public Response

Japanese Prime Minister Fumio Kishida’s cabinet reshuffle won him a modest bump in one opinion poll and left support rates in two others unchanged as speculation simmers about a general election. Kishida brought a record-equaling five female ministers into his team, while keeping much of his core economic lineup unchanged in a revamp aimed at refreshing his image, with approval ratings stuck close to their lowest since he took office in 2021.

AUSTRALIA (MNI): Strong Wages to Frustrate RBA's Inflation Hopes

The Reserve Bank of Australia will be closely watching September quarter salary data to gauge the effect of a rise in the minimum wage, with market participants telling MNI that persistently strong pay increases for workers coupled with weak productivity mean another 25-basis-point interest-rate hike is likely to be required some time next year.

DATA

UK DATA (MNI): Long-Term Inflation Expectations Data Marginally Encouraging for MPC

Overall the Bank will probably be marginally encouraged by the fall in long-run inflation expectations with slight disappointment over the rise in expectations for 1-2 years. Inflation expectations over the coming year and the following year edged up a little in the August survey versus the May survey. However, the MPC will be more concerned here with the longer-term inflation expectations - which fell from 3.0% in May to 2.9% in August. That is the lowest level since May 2021, down from a peak of 3.5% in May 2022 and now only 0.3ppt above the long-run average of 2.6%

FRANCE AUG HICP +1.1% M/M, +5.7% Y/Y (MNI)

CHINA DATA (MNI): China Aug Production, Spending Rebound as Expected

• CHINA AUG INDUSTRIAL OUTPUT +4.5% Y/Y VS MEDIAN +4.0% Y/Y: NBS
• CHINA AUG RETAIL SALES +4.6% Y/Y VS MEDIAN +3.0% Y/Y
• CHINA YTD FIXED-ASSET INVESTMENT +3.2% Y/Y VS MEDIAN +3.4% Y/Y
• CHINA AUG UNEMPLOYMENT RATE +5.2% VS JUL +5.3%

MNI (Beijing) China's production and consumption rebounded more than expected in Aug, despite real-estate weakness dragging down investment which failed to spring back as expected, data released by the National Bureau of Statistics on Friday showed. Industrial production rose 4.5% y/y in Aug to hit a four-month high, outperforming the 4.0% forecast and accelerating from July's 3.7%. Retail sales increased 4.6% y/y, beating expectations for 3.0% and accelerating from July's 2.5%.

CHINA DATA (BBG): China Home Prices Drop at Faster Pace Before Fresh Stimulus

China home prices dropped at a faster pace in August, underscoring why policymakers stepped up efforts at the end of month to address a slowdown that’s weighing on the world’s second-largest economy. New-home prices in 70 cities, excluding state-subsidized housing, declined 0.29% last month from July, when they fell 0.23%, National Bureau of Statistics figures showed Friday. Other official data showed property investment and residential sales remained weak, even as economic activity picked up.

RATINGS: Friday’s Rating Slate

Sovereign rating reviews of note scheduled for after hours on Friday include:

• Fitch on Germany (current rating: AAA; Outlook Stable) & Malta (current rating: A+; Outlook Stable)
• Moody’s on Greece (current rating: Ba3; Outlook Positive) & Luxembourg (current rating: Aaa; Outlook Stable)
• S&P on Belgium (current rating: AA; Outlook Stable), Croatia (current rating: BBB+; Outlook Stable) & Spain (current rating: A: Outlook Stable)
• DBRS Morningstar on Latvia (current rating: A, Stable Trend) & The Netherlands (current rating: AAA, Stable Trend)

FOREX: The Yen is Again Under Pressure

• USD stays on the back foot in the early European session, helped by the Risk On tone.
• AUD was the best early performer in G10s vs the Greenback, up 0.39%, with Risk a supporting factor, but AUDUSD is now up 0.26% at typing, with the NOK now leading in G10, up 0.29%.
• Next resistance is seen further out, at 0.6522 in AUDUSD.
• Early focus is on the USDJPY, although off its best levels, USDJPY traded close to 147.87 the September high and highest print since last November, printed a 147.82 high so far.
• The move in USDJPY, spilled over, with the Yen also trading near its lows against the EUR, GBP, while AUDJPY lags.
• JPY is down 0.18%, CAD and CHF are circa flat against the Greenback.
• The Pound is mostly underpinned, but Cable stays in a 46 pips range, and trades near the middle of that 1.2400/1.2446 range.
• Looking ahead, US IP, and prelim Michigan will be the notable data releases.

EGBS: Cheaper, Bunds Unwind ECB Rally & Peripherals Widen

The early morning hawkish sources report re: the ECB from the FT (‘ECB hawks warn of December rate rise if inflation and wages stay hot’) applied pressure to Bunds, with the contract only really finding a base in recent trade, as the EURIBOR strip ticks away from worst levels.

• The usually hawkish ECB Governing Council member Muller indicated that he doesn’t expect further rate hikes in the coming months, while noting that higher-than-expected inflation levels could generate the need for another hike.
• ECB-dated OIS terminal rate pricing is unchanged on the day, but there has been a modest unwind of some of the pricing of cuts seen in ’24.
• Bund futures ~20 ticks above yesterday’s low, with the ECB-derived rally unwound.
• German cash benchmarks 4-5bp cheaper.
• Core/semi-core EGB curves see similar moves.
• The sources piece and this morning’s outright cheapening seems to have been enough to trigger some re-widening in peripheral spreads, with BTPs and GGBs seeing the largest moves (+2.5bp vs. Bunds). Yesterday’s dovish hike, which signalled a likely end to the hiking cycle, and lack of movement on the PEPP front promoted peripheral compression post-ECB.
• Various peripheral political figures have expressed unease with the latest ECB rate hike.
• Elsewhere, a late Thursday BBG source piece suggested that the Italian PM and Finance Minister are “increasingly aware of the impact that a wider-than-announced deficit could have on bond yields and the ability to finance new measures,” suggesting they are seeking to reassure investors that Italy’s finances are under control.

GILTS: Curve Bear Flattens, Bouncing Off Cheaps in Recent Trade

Weakness in Gilts remains evident mid-way through the morning, although the space is off cheaps, with benchmark futures running ~70 ticks softer on the session.

• Initial support comes in at 95.37, yesterday’s low and just below today’s base. Below there, bears would eye 94.63, the 20-day EMA.
• Cash benchmarks are 5-7bp cheaper, bear flattening.
• The BoE/Ipsos inflation attitudes survey saw a 0.1ppt uptick in inflation expectations covering the next 12 months (to 3.6%), while the medium-term measure moderated to 2.9% (see more on that here). The latter point may have helped Gilts to stabilise.
• There hasn’t been much in the way of other domestic triggers to note, with the early Friday hawkish ECB sources piece from the FT the likely driver for Bund weakness.
• Still, the moves in the UK short end have outpaced benchmark European counterparts, with some flagging a potential unwind of what they deem relatively long positioning in the SONIA reds as a potential background catalyst.
• SONIA futures last run 0.25-7.0bp cheaper, off session lows as gilts bounce, with the reds leading the move (adding further credence to above positioning comments).
• BoE-dated OIS show ~22bp of tightening for next week’s meeting, while terminal policy rate pricing sits in the 5.60-5.65% band.

EQUITIES: Recent Recovery in E-Mini S&P Undermines Bearish Theme

Eurostoxx 50 futures traded sharply higher yesterday and price is firmer today. These strong gains threaten the recent bearish theme and signal a possible short-term reversal with a key support defined at 4210.00, the Sep 8 low. A continuation higher would expose resistance at 4388.00, the Aug 30 high where a break would strengthen a bullish case. For bears, a break of 4210.00, would resume the recent downtrend. A bear cycle in the E-mini S&P contract remains in play, however, the current recovery undermines this bearish theme. A continuation higher would open 4597.50, the Sep 1 high, where a break would strengthen a bullish case. This would open 4617.40, a Fibonacci retracement. Key short-term support has been defined at 4483.25, the Sep 7 low. A break would be seen as a bearish development.

• Japan's NIKKEI closed higher by 364.99 pts or +1.1% at 33533.09 and the TOPIX ended 22.81 pts higher or +0.95% at 2428.38.
• Elsewhere, in China the SHANGHAI closed lower by 8.808 pts or -0.28% at 3117.743 and the HANG SENG ended 134.97 pts higher or +0.75% at 18182.89.
• Across Europe, Germany's DAX trades higher by 157.38 pts or +1% at 15962.76, FTSE 100 higher by 52.79 pts or +0.69% at 7725.65, CAC 40 up 99.55 pts or +1.36% at 7408.22 and Euro Stoxx 50 up 38.94 pts or +0.91% at 4318.69.
• Dow Jones mini up 47 pts or +0.13% at 34971, S&P 500 mini up 4 pts or +0.09% at 4510, NASDAQ mini down 3 pts or -0.02% at 15475.

COMMODITIES: Break of $90 Handle Reinforces Uptrend in WTI Futures

The uptrend in WTI futures remains intact and this week’s gains reinforce this theme. 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. The $90.00 handle has been cleared, this opens $92.17 next, the Nov 8 2022 high (cont). Initial firm support to watch is $84.90, the 20-day EMA. Gold traded lower again yesterday but has recovered from the session low of $1901.1. A break of this level would strengthen the current bearish theme 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 $1928.0, the 50-day EMA. Key resistance is at $1953.0, the Sep 4 high.

• WTI Crude up $0.38 or +0.42% at $90.57
• Natural Gas up $0.03 or +0.96% at $2.73
• Gold spot up $6.66 or +0.35% at $1917.44
• Copper down $1.4 or -0.37% at $380.8
• Silver up $0.38 or +1.7% at $23.0327
• Platinum up $5.83 or +0.64% at $917.64