MNI US OPEN - ECB Pause Vindicated as Eurozone Inflation Slows

NEWS

FED (MNI): Fed Has Time to See if 'More Work' Needed - Barkin

Federal Reserve Bank of Richmond President Tom Barkin said Thursday he supported an interest rate pause at last week's FOMC meeting and will be watching the labor market for clues of better balance and moderating wages before deciding whether there is a need for further monetary tightening. "The range of potential outcomes, to me, is still pretty broad. That’s why I supported our decision to hold rates steady at the last meeting," he said in prepared remarks.

US (BBG): Biden’s $100 Billion Chips Bet Ensnared in Arizona Union Fight

High-stakes labor showdowns are putting President Joe Biden’s administration in between the companies central to his economic vision and the workers he’s promised will reap the rewards of a US manufacturing renaissance. It’s not just in the United Auto Workers strike, where Biden took a side on Tuesday by joining the picket line in Belleville, Michigan. One of the key issues in the union’s clash with the Big Three automakers is pay and workplace conditions at a slew of new electric-vehicle battery plants that will enable the White House’s climate and industrial goals.

ECB (BBG): ECB Rates Will Probably Stay on Hold for a While, Kazaks Says

European Central Bank interest rates will probably remain steady for an extended period, according to Governing Council member Martins Kazaks. “Most likely, rates will be around where they are at the moment and also remain there for some time,” Kazaks told Latvia’s LTV on Friday. “Of course, that’s dependent on the economy — if inflation doesn’t go down, then there could be a small increase.”

US/CHINA (MNI): New US-China Talks Help Build Momentum for Xi-Biden Meeting

Senior US and Chinese officials held “candid” talks in Washington as a flurry of high-level diplomacy bolsters expectations President Xi Jinping will attend a major summit in California this year. Daniel Kritenbrink, the top State Department official for Asia, met with Vice Foreign Minister for Asia Sun Weidong on Thursday, in the latest exchange of government officials from the world’s largest economies. The two men had a “constructive” conversation about regional issues including North Korea, and emphasized the importance of a free and open Indo-Pacific, according to a State Department readout.

ITALY (MNI): Rome Sees Spread Red Light at +340-350 - Government

Italy's government feels the current spreads between Italian and German ten-year bonds -- currently around 200 basis points -- are not concerning and won’t be until it reaches the “guard threshold” presently seen in the range of 340-350 basis points, undersecretary for the Economy, Federico Freni, said on Friday.

CHINA (MNI): China’s Economy Improves in September, Satellite Data Show

China’s economy showed signs of a stronger recovery in September, according to several early indicators and a firm analyzing the global economy using satellite data. Activity around Chinese shopping malls remained at relatively high levels in September following an increase in August, according to SpaceKnow, a US company that analyzes satellite images. A pickup in cement manufacturing, which began in June, was also sustained through this month, the data show.

CHINA/RUSSIA (MNI): Xi-Putin Talks to Discuss 'All Issues of Bilateral Cooperation'

MNI (London) Speaking to Russian state-run TASS, China's ambassador to Moscow Zhang Hanhui states that Chinese President Xi Jinping's discussions with his Russian counterpart Vladimir Putin at an upcoming meeting, "will discuss all current and key issues of bilateral cooperation, as well as our strategic interaction in the international arena. This is very important." The two are expected to hold discussions on the sidelines of the upcoming Belt and Road Initiative (BRI) forum, taking place in Beijing 17-18 October.

RBA (MNI): Board to Consider Fourth Pause at 4.1%

The Reserve Bank of Australia will consider keeping the cash rate on hold at 4.1% for a fourth consecutive meeting on Oct 3 as trimmed mean inflation continues to moderate, the labour market shows signs of softening and uncertainty on the Chinese economy increases. Data published since the board last met has fallen largely in line with RBA forecasts, though surging oil prices and the weakening Australian dollar may prompt the board to hike in November in pursuit of its 2-3% price target, following the release of Q3 inflation data.

RBA (MNI): RBA to Look at Underutilisation in NAIRU Revamp

The Reserve Bank of Australia will consider incorporating underutilisation data into its labour force models, such as its estimate of the non-accelerating inflation rate of unemployment (NAIRU), following the publication of an employment white paper by the Treasury this week, according to academics and former staffers.

DATA

EUROZONE DATA (MNI): Eurozone Inflation Slows Again to 4.3% in Sept

• EUROZONE SEP FLASH HICP +4.3% Y/Y
• EUROZONE SEP FLASH CORE HICP +4.5% Y/Y

Eurozone inflation continued to slow in September, with the headline number dipping to 4.3%, the slowest rate since October 2021. Last month, headline inflation stood at 5.2%. The core rate, closely watched by ECB policymakers, also slowed again in September, falling to 4.5% from 5.3% last month. The two rates were largely in line with expectations following the release of national reports this week. The data will encourage the ECB as it continues with its battle to get inflation back to its 2% target.

FRANCE DATA (MNI): Soft French Inflation Consistent with Germany, Belgium, Netherlands

• FRANCE SEP CPI -0.5% M/M, +4.9% Y/Y
• FRANCE SEP HICP -0.6% M/M, +5.6% Y/Y
• FRANCE AUG PPI +0.6% M/M, -1.4% Y/Y

France September flash CPI was softer-than-expected, consistent with the narrative across many states in the September round, such as Germany, Belgium and the Netherlands. On a sequential monthly basis, CPI was -0.5% M/M (vs 1.0% prior) and HICP was -0.6% M/M (vs 1.1% prior). Consensus was for -0.3% M/M on both prints. The Y/Y CPI print was driven by disinflation in food (9.6% vs 11.2% prior), services (2.8% Y/Y vs 3.0% prior) and manufactured products (2.9% vs 3.1% prior), but offset somewhat by higher energy prices (11.5% vs 6.8% prior) - particularly oil products.

GERMANY DATA (MNI): Further Evidence of Softening Labour Market

• GERMANY SEP UE RATE (SA) 5.7% (FCST 5.7%); AUG 5.7%
• GERMANY SEP UE NET CHANGE (SA) +10K (FCST +15K); AUG +20K
• GERMANY SEP UNEMPLOYMENT RATE +5.7%

Germany unemployment claims rate for September was stable at 5.7%, with the net change in unemployment claims rising 10k on the month (vs 15k expected, 20k prior). Total vacancies fell for an 8th consecutive month, by -8k (vs -11k prior). The vacancy to unemployment ratio thus fell once again, indicating less tightness in the German labour market. This week saw the release of several surveys with employment components - the IAB Labour Market Barometer, IFO Employment Barometer and EC Expected Employment Indicator.

ITALY SEP FLASH HICP +1.7% M/M, +5.7% Y/Y (MNI)

UK Q2 GDP +0.2% Q/Q, +0.6% Y/Y (MNI)
UK AUG M4 MONEY SUPPLY +0.2% M/M, -0.8% Y/Y (MNI)
UK BOE AUG MORTGAGE APPROVALS 45,354 (MNI)

SWISS KOF SEP ECONOMIC BAROMETER 95.9 (MNI)

JAPAN DATA (MNI): Japan Sept Tokyo Core CPI 2.5% vs. Aug 2.8%

• JAPAN SEP TOKYO CORE CPI +2.5% Y/Y; AUG +2.8%
• JAPAN SEP TOKYO CORE-CORE CPI +3.8% Y/Y; AUG +4.0%

The y/y rise in the Tokyo core inflation rate slowed to 2.5% in September from August's 2.8% driven by lower energy prices, indicating the nationwide September core CPI will fall from August's 3.1%, data from the Ministry of Internal Affairs and Communications showed on Friday. The core-core CPI (excluding fresh food and energy) – a key indicator in the underlying trend of inflation – rose 3.8% y/y in September, also slowing from August's 4.0% but above the bank's 2% target for the 16th straight month.

JAPAN DATA (MNI): Jan Aug Factor Output Flat M/M; Auto Drops

• JAPAN AUG INDUSTRIAL OUTPUT UNCHAGED M/M VS. JULY -1.8%

Japan's industrial production was unchanged m/m in August following a 1.8% drop in July as higher production for electrical machinery and information, and communication electronics equipment offset the drop in automobile production, Ministry of Trade and Industry data showed Friday.

JAPAN DATA (MNI): Japan Sep Consumer Confidence Falls, Gov Cuts View

Japan's consumer confidence index posted its second straight drop in September, falling to 35.2 from August's 36.2, as all components worsened from the previous month, prompting the Cabinet Office to lower its assessment for the first time since November 2022, the data released by the Cabinet Office showed on Friday.

JAPAN AUG RETAIL SALES+7.0% Y/Y; JULY +7.0% (MNI)
JAPAN AUG RETAIL SALES +0.1% M/M; JULY +2.2% (MNI)

FOREX: Greenback Falters Further, Death Cross Forms in EUR/USD

• Greenback comfortably the poorest performer in G10 early Friday, helping tip EUR/USD back above 1.06 and extend the short-term corrective recovery. Markets have shown back above the Tuesday high of 1.0609, opening 1.0657 as the next upside level.
• The fading USD has allowed the technically oversold condition in EUR/USD and GBP/USD to fully reverse - suggesting this USD dip could be corrective in nature at these levels. Yesterday's close secured a 'death cross' in EUR/USD (50-dma falling bellow 200-dma), the first since mid-2021, and shows near-term momentum clearly pointed lower in the pair. Worth recalling the majority of sell-side month-end FX rebalancing models all pointed to USD buying into the month-end fix, so markets may be wary heading into US hours of underlying USD demand.
• Eurozone flash inflation came in below consensus expectations in September at an unrounded 4.344% Y/Y (vs. 5.2% prior; 4.5% cons). This was the lowest headline print since October 2021, but left little impact on the EUR, which remains staunchly mid-table. AUD, NZD and NOK are outperforming, while JPY and USD remain the poorest performers.
• Data Friday includes August US trade balance numbers, personal income/spending and the latest PCE data. The MNI Chicago PMI is expected to deteriorate to 47.6 from 48.7 previously, just ahead of the final September University of Michigan sentiment release. Speakers include Fed's Williams, who rounds off the week talking on monetary policy.

BONDS: Euro Inflation Progress Helps Bunds Lead Global Core Rally

Global core FI has rallied with European outperformance focused on curve bellies in morning trade Friday.

• With more preliminary data out this morning showing convincing progress on eurozone inflation in September (the slowdown in Euro core HICP to 4.5% vs 4.8% consensus particularly noteworthy), Germany is leading the rally, with 5Y-10Y yields down 8+bp, pulling back from multi-year highs set Thursday.
• Gilts have underperformed Bunds; 5Y yields are outperforming on the UK curve, down 5+bp.
• US Tsys have leaned bull flatter, with 10Y yields down around 4bp.
• Periphery EGB spreads have narrowed on a more constructive global risk atmosphere than seen earlier in the week, with the USD fading and equities higher.
• Earlier, JGBs spiked higher on an unscheduled BOJ bond purchase, but the move quickly reversed.
• Attention for the rest of the session is on month- and quarter-end dynamics, with a solid US data slate including August PCE, final UMich sentiment, inventories, trade balance, and of course, September MNI Chicago PMI.

Latest levels:

• Dec US 10Y futures (TY) up 11/32 at 108-6.5 (L: 107-26 / H: 108-08.5)
• Dec Bund futures (RX) up 135 ticks at 128.44 (L: 127.46 / H: 128.46)
• Dec Gilt futures (G) up 117 ticks at 94.05 (L: 93.62 / H: 94.18)
• Italy / German 10-Yr spread 3.4bps tighter at 190.4bps

EQUITIES: Latest Bounce in Eurostoxx 50 Futures Considered Corrective

Eurostoxx 50 futures maintain a softer tone and the latest bounce is considered corrective. This week’s extension reinforces current conditions and key support at 4210.00, the Sep 8 low, has been breached. The clear break confirms a resumption of the downtrend that started late July and opens 4109.90, a Fibonacci projection. Key short-term resistance has been defined at 4359.00, the Sep 15 high. A bear cycle in S&P E-minis remains in play and the contract traded lower this week, extending the current downleg. The recent break of support at 4397.75, the Aug 18 low, reinforced bearish conditions and signals scope for a continuation lower. Sights are on 4242.15, a Fibonacci retracement point. Initial firm resistance is 4472.85, the 50-day EMA. Short-term gains are considered corrective.

• Japan's NIKKEI closed lower by 14.9 pts or -0.05% at 31857.62 and the TOPIX ended 22.12 pts lower or -0.94% at 2323.39.
• Across Europe, Germany's DAX trades higher by 120.29 pts or +0.79% at 15432.19, FTSE 100 higher by 54.13 pts or +0.71% at 7650.93, CAC 40 up 64.59 pts or +0.91% at 7173.44 and Euro Stoxx 50 up 36.73 pts or +0.88% at 4194.48.
• Dow Jones mini up 156 pts or +0.46% at 34042, S&P 500 mini up 21 pts or +0.48% at 4357.5, NASDAQ mini up 101.75 pts or +0.68% at 14956.25.

COMMODITIES: Gold Sell-Off This Week Reinforces Bearish Conditions

The uptrend in WTI futures remains intact and this week’s recovery has confirmed a resumption of the trend - resistance at $92.43, Sep 19 high, has been cleared. This maintains the bullish price sequence of higher highs and higher lows and note that moving average studies are in a bull-mode position, reflecting the market's positive sentiment. Sights are on $97.08 next, a Fibonacci projection. Key support has been defined at $88.19, the Sep 2 low. Gold sold off sharply this week, reinforcing bearish conditions. The move lower has resulted in a break of support at $1901.10 and this has been followed by a move through $1884.9, the Aug 21 low. A resumption of the downtrend that started off the early May high has been confirmed. Attention turns to $1839.0, a Fibonacci retracement point. On the upside, initial firm resistance is at yesterday’s high of $1903.9.

• WTI Crude up $0.26 or +0.28% at $92.09
• Natural Gas up $0.01 or +0.27% at $2.961
• Gold spot up $7.24 or +0.39% at $1871.66
• Copper up $3.6 or +0.97% at $374.4
• Silver up $0.4 or +1.75% at $23.014
• Platinum up $7.96 or +0.87% at $917.96