MNI US OPEN - ECB Hold, US GDP Awaited

NEWS

MNI ECB PREVIEW - OCTOBER 2023: Hawks Back Down, ECB on Hold

The ECB is not expected to deliver any material policy changes at the October meeting. In addition to clearly indicating in September that policy rates are at (or least very near) peak levels, the ECB will remain on hold given the recent downside inflation surprise, weak growth, delayed impact of previous tightening and notable dilution of hawkish pressure on the GC.

US/CHINA (BBG): Biden to Meet With China’s Foreign Minister Friday in Washington

President Joe Biden will see Chinese Foreign Minister Wang Yi when he visits the White House on Friday, a courtesy gesture that could lay the groundwork for a leaders’ meeting next month, according to a person familiar with the matter. China’s top diplomat will have two days of meetings in Washington with Secretary of State Antony Blinken and National Security Advisor Jake Sullivan. Biden and Chinese President Xi Jinping will possibly meet in San Francisco next month when the US hosts an economic summit for Asia-Pacific nations.

US/CHINA (BBG): Biden Requests $56 Billion in Domestic Spending, Disaster Aid

President Joe Biden is asking lawmakers to approve just under $56 billion in disaster relief and other domestic programs, as part of an emergency request unveiled Wednesday. The request, which comes in addition to the $106 billion the administration wants for Israel, Ukraine, and other foreign assistance programs last week, includes $23 billion to respond to natural disasters including hurricanes and wildfires and $16 billion for childcare funding.

US/EQUITIES (BBG): Tech Stocks Set to Slide as Meta Warning Adds to Earnings Gloom

Futures on the Nasdaq 100 index slumped on Thursday, pushing the gauge toward a correction, as Meta Platforms Inc.’s disappointing earnings renewed concern that valuations for Big Tech are overblown. Facebook-owner Meta shares tumbled in premarket trading as its fourth-quarter revenue forecast trailed the average analyst estimate at the midpoint. Google-parent Alphabet Inc. had also posted underwhelming earnings this week, with analysts saying the relative weakness in the cloud business overshadowed strength elsewhere.

ISRAEL (MNI): Israeli Military Conduct Further Incursions, Despite US Pleas for Delay

The Israel-Hamas conflict escalated further overnight - with confirmation that the Israeli military had put a "relatively large" contingent of troops and tanks into northern Gaza in order to attack several Hamas militant targets in the area. While the incursion at present looks short of a full ground operation in the territory, it has caught markets by surprise given US pressure on the Israeli government to delay and full invasion.

EU (MNI): EUCO Meets With MidEast, Ukraine, LT Budget & Migration on Agenda

The European Council meets on 26 October in Brussels with a number of major geopolitical and macroeconomic issues on the agenda. Member state leaders due to start arriving at 1400CET (0800ET, 1300BST). Wires have reported that the draft EUCO conclusions call for "humanitarian corridors and pauses" to get aid into Gaza, but one of the meeting's main aims will be to reach a united EU line on the conflict after weeks of indecision regarding the bloc's stance on aid and the Israeli response to Hamas' 7 Oct attack.

SCOTLAND (MNI): More Details on Scottish Bond Plan to Come in December

The Times writes that Senior leaders at Baillie Gifford, Bank of America and Royal Bank of Scotland have acknowledged the issuing of debt by Holyrood would significantly raise Scotland's international profile. Detail on the plan has been limited although it is expected the amounts raised would be relatively small and used to fund infrastructure projects, but Holyrood cannot exceed its 450 million annual borrowing limit and has a ceiling of 3 billion in total.

SLOVAIKIA/UKRAINE (AFP): Slovakia Announces Halt of Military Aid to Ukraine

Slovakia's new populist Prime Minister Robert Fico said Thursday that his government was stopping military aid to Ukraine. Fico told MPs that the country would "no longer supply weapons to Ukraine", repeating promises made during his election campaign, but would still supply humanitarian aid to its war-torn neighbour.

CHINA (MNI): China Stimulus to Keep 2024 Growth Over 5%, Advisors Say

MNI (Beijing) Fiscal stimulus announced this week will keep China’s economy growing at over 5% next year, and the People’s Bank of China will boost liquidity and cut reserve requirements to facilitate an additional CYN1 trillion in issuance of treasury bonds, policy advisors and economists told MNI, adding that central government borrowing is likely to remain relatively high in 2024.

JAPAN (MNI): Dai-ichi Life to Increase Longer JGB Holdings

Japan’s Dai-ichi Life Insurance company will further increase its holding of yen bonds, mainly 30- and 40-year Japanese government bonds, for the second half of this fiscal year to March 2024, the company’s fund manager said on Thursday. “We plan to increase the balance of yen bonds steadily but we will increase its purchase of yen bonds, if JGB yields rose,” Kouhei Horikawa, general manager at the investment planning department at Dai-ichi Life, told reporters.

BSP (MNI): Bangko Sentral ng Pilipinas Delivers 25bp Off-Cycle Rate Hike

Bangko Sentral ng Pilipinas announces its decision to raise the key interest rate by 25bp to 6.50% in an off-cycle move after Governor Eli Remolona earlier this week flagged the potential for such a pre-emptive step. The move came on the back of the BSP's assessment that upside risks to the price outlook continue to manifest, while second-round effects have broadened, calling for urgent monetary policy response.

MNI CBRT PREVIEW - OCTOBER 2023: Further Tightening Required

Further tightening from the CBRT is expected, with the benchmark one-week repo rate expected to be raised by 500bps to 35% given that inflation is still running above 60%. In addition to tightening via the key rate, the central bank will likely continue to tweak the rules and regulations around FX tools and KKM accounts to manage financial conditions. Of the sell-side estimates we have previewed, most are expecting a 500bp policy rate increase though downside risks are noted by some.

DATA

SWEDEN DATA (MNI): Weakness in Sentiment Persists, But Inflation Expectations Fall

The October Economic Tendency Indicator printed at 84.7 in October (slightly lower than an upwardly revised 86.0 in September), but remaining below the 90 handle indicating "much weaker growth than usual". The quarterly survey, which includes inflation expectations for firms, showed business expect 2024 inflation at 2.2% (from 2.4% in July) - the lowest since summer 2021. Consumer inflation expectations for the next 12 months once again ticked down to 7.0% (vs 7.1% prior). These expectations peaked at 11.4% in September 2022.

JAPAN DATA (MNI): Japan Sept Services PPI Rises 2.1% vs. Aug +2.1%

Japan's services producer price index rose 2.1% y/y in September, marking the 31st straight rise following August's 2.1% gain, showing that pass-through of cost increases continued, preliminary data released by the Bank of Japan on Monday showed. BOJ officials will focus on whether high services prices will lead to wage hikes in non-manufacturers as they are necessary to achieve the bank's 2% target, not only to boost inflation.

FOREX: USD/JPY Volatility Continues to Stir Speculation of Intervention

• Volatility across JPY markets takes the early focus in FX, as the post-5y auction weakness in Treasury futures persists into Thursday morning. The resulting widening of the US/JN yield differential worked further in favour of USD/JPY, pushing the rate to a new recovery high of 150.78. Shortly following the print, a sharp spike in volumes saw the rate correct lower, prompting a ~75 pip slide to new lows before stabilising.
• The price action was very reminiscent of a similar move in markets on October 17th, however the total volumes traded were considerably smaller on today's move. Recall that Kanda confirmed that the Japanese authorities will continue not to confirm intervention on a day-to-day basis, raising focus on the October 31st BoJ reserves release, at which markets will gain official confirmation of any market intervention.
• The USD Index has gained alongside the run higher in yields. The Greenback has firmed through the Oct 13 highs, opening next resistance at the 76.4% retracement for the October downleg. The bull trigger is still someway off at 107.348, but today's strength makes a test in the coming weeks more likely.
• Focus Thursday turns to the US advance GDP print, at which markets expect a bumper print that's continued to firm across the year, with some sell-side estimates even topping 5% for the Q/Q annualized reading. The ECB rate decision also takes focus. While no change in rates is expected, any discussion of the balance sheet will be a focus, and in particular any tweaks to bank reserve requirements.

BONDS: Core FI Reverses Early Losses

Core fixed income has reversed the majority of its early losses.

• Early European trading was characterized by EGBs and gilts catching up with the weakness seen in USTs - largely as a result of yesterday's poor 5-year UST auction. Curves remain somewhat steeper versus yesterday.
• US 10-year yields also hit a high of 4.9873% shortly after the European open, but have since moved around 4bp off these levels.
• It's set to be a busy day with both the ECB meeting and some key US data due (most notably Q3 GDP and core PCE).
• TY1 futures are up 0-1 today at 105-22+ with 10y UST yields down -0.7bp at 4.950% and 2y yields down -0.2bp at 5.120%.
• Bund futures are down -0.05 today at 128.08 with 10y Bund yields down -0.3bp at 2.885% and Schatz yields down -0.8bp at 3.111%.
• Gilt futures are unch today at 922.24 with 10y yields down -0.5bp at 4.603% and 2y yields down -1.7bp at 4.814%.

EQUITIES: Recent Losses Reinforce Bearish Trend in Eurostoxx 50 Futures

A bearish theme in Eurostoxx 50 futures remains in play and last week’s extension lower reinforces current conditions. Support at 4082.00, the Oct 4 low and a bear trigger, has been cleared. This confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. The focus is on the 4000.00 handle. Initial firm resistance is at 4142.30, the 20-day EMA. S&P e-minis maintain a softer tone and the contract is trading lower today. This week’s breach of support at 4235.50, the Oct 4 low and bear trigger, confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position too. The focus is on 4166.25, a Fibonacci projection. Initial firm resistance is at 4328.94, the 20-day EMA.

• Japan's NIKKEI closed lower by 668.14 pts or -2.14% at 30601.78 and the TOPIX ended 30.15 pts lower or -1.34% at 2224.25.
• Elsewhere, in China the SHANGHAI closed higher by 14.185 pts or +0.48% at 2988.299 and the HANG SENG ended 40.72 pts lower or -0.24% at 17044.61.
• Across Europe, Germany's DAX trades lower by 187.59 pts or -1.26% at 14703.74, FTSE 100 lower by 56.74 pts or -0.77% at 7357.1, CAC 40 down 67.72 pts or -0.98% at 6847.35 and Euro Stoxx 50 down 44.95 pts or -1.1% at 4027.47.
• Dow Jones mini down 120 pts or -0.36% at 33027, S&P 500 mini down 28.5 pts or -0.68% at 4181.25, NASDAQ mini down 152.25 pts or -1.05% at 14326.5.

COMMODITIES: Medium-Trend Condition in WTI Futures Still Bullish Despite This Week's Losses

WTI futures have traded lower this week as the pullback from last Friday’s $89.85 high extends. The medium-term trend condition is bullish and the latest move lower appears to be a correction. A resumption of gains would expose the bull trigger at $92.48, the Sep 28 high. Clearance of this hurdle would confirm a resumption of the uptrend. For bears, a move through $80.20, the Oct 6 low, would instead highlight a short-term top. Gold remains firm and is holding on to the bulk of its recent gains. The yellow metal has breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The break strengthens a bullish theme and opens $2003.4, a Fibonacci retracement point. Initial firm pivot support lies at $1915.3, the 50-day EMA. Clearance of this level is required to signal a short-term top and a potential reversal.

• WTI Crude down $0.47 or -0.55% at $84.83
• Natural Gas down $0.02 or -0.7% at $2.989
• Gold spot up $12.84 or +0.65% at $1992.16
• Copper up $1.45 or +0.4% at $360.2
• Silver up $0.27 or +1.17% at $23.1243
• Platinum up $0.55 or +0.06% at $908.01