EXECUTIVE SUMMARY
- MNI ECB PREVIEW - SEPTEMBER CUT, OCTOBER PAUSE
- BOJ NEEDS TO RAISE RATE TO NEUTRAL 1%, TAMURA SAYS
- BIDEN URGED TO RECONSIDER $14 BILLION US STEEL TAKEOVER
- UK PUBLIC FINANCES ON UNSUSTAINABLE PATH - OBR
Figure 1: Eurozone Inflation, % Y/Y (LHS) & Fed vs. ECB Policy Rates, % (RHS)
Source: MNI, Eurostat, Bloomberg, Fed, ECB
NEWS
MNI ECB PREVIEW - SEPTEMBER 2024: September Cut, October Pause
The ECB will cut the deposit rate by 25bp at this week's meeting. Having previously indicated that the trajectory for policy rates is lower provided that incoming data supports the baseline scenario, the weakening growth outlook and signs of moderating wage pressure provide sufficient cover for the ECB to cut. We would not expect any signs of the ECB pre-committing to another cut in October as with inflation close to target there is no urgency to do so. Moreover, indications of back-to-back cuts would undermine President Lagarde's previous assertion that policy rates will not necessarily move lower in a linear fashion, in turn triggering a dovish re-pricing that would be at odds with the ECBs cautious approach to normalisation.
US (BBG): Biden Is Urged to Reconsider $14 Billion US Steel Takeover
Nippon Steel Corp. is mounting a last-ditch push to muster support for its $14.1 billion takeover of United States Steel Corp., a deal opposed by President Joe Biden, Vice President Kamala Harris and ex-President Donald Trump. Biden and Harris want the company to remain domestically owned while Trump has flatly said he’d block it. The United Steelworkers union leadership also opposes the deal. But, among other stakeholders and some union members, the view is more mixed - with some supporting the deal because they worry that another buyer won’t match Nippon Steel’s pledges to invest $2.7 billion into some mills.
UK (MNI): UK Public Finances on Unsustainable Path - OBR
The Office for Budget Responsibility said Thursday that the UK public finances are on an unsustainable path in the long term. The OBR's projections showed that on current policy settings over the next 50 years public spending would rise from its current 45% of GDP to over 60%, with tax revenues stuck at around 40% of GDP with debt rising as a result to 274% of GDP and over 300% of GDP on an upside risks scenario. To get debt back to its pre-pandemic levels average fiscal tightening of 1.5 per cent of GDP per decade would be needed, the report published Thursday showed.
EU/HUNGARY (MNI): Hungary Ready to Sue EU Over Border Protection Cost - Orban Aide
Gergely Gulyas, chief of staff to Prime Minister Viktor Orbán told a news conference in Budapest that the Hungarian gov't is prepared to sue the European Commission for the amount of ~EUR2bn over the cost associated with protecting the EU's external border. Gulyas: "Hungary has spent EUR2bn on protecting the Schengen border in the past years without getting any meaningful contribution whatsoever from the EU." Hungary has been a vocal opponent of the migration pact agreed by the EU in May, which intends to relieve the burden on countries receiving the highest number of migrants (namely Greece and Italy) by distributing them to those that receive fewer.
BOJ (MNI): BOJ Needs to Raise Rate to Neutral 1% - Tamura
Bank of Japan board member Naoki Tamura said on Thursday that the BOJ will need to raise the policy interest rate to about 1% in the second half of the projection period to March 2027. “I think that the neutral interest rate is at least 1%. The BOJ needs to raise the rate to at least 1% not only to restrict the upside risk to prices but also to achieve the price stability target in a sustainable and stable manner,” Tamura told business leaders in Okayama City. Tamura also said that he is concerned over growing upside risk to prices due to the labour shortages, corporate pass-through of higher labour costs to prices and the rising trend of import prices.
JAPAN (BBG): Japan’s Leadership Race Is Wide Open as Party Elders Retreat
Japan’s ruling party leadership race kicked off Thursday with the weakened grip of party elders enabling a record number of candidates to enter a wide-open contest to steer the nation through a critical period of transition. Nine leadership hopefuls gave opening remarks at Liberal Democratic Party headquarters in Tokyo to begin the campaign for the Sept. 27 LDP presidential election, including two candidates under the age of 50 and two women. The winner will almost certainly be voted in as prime minister because of the LDP’s majority in parliament.
CHINA (BBG): China to Cut Rates on $5 Trillion Mortgages as Soon as September
China is poised to cut interest rates on more than $5 trillion of outstanding mortgages as early as this month, according to people familiar with the matter, as it accelerates a move to reduce the borrowing costs for millions of families to spur consumption. Some banks are making final preparations to get ready for the upcoming adjustments on mortgage rates, said the people, asking not to be identified discussing a private matter. Some homeowners may enjoy up to 50 basis points of immediate rate reduction, one of the people said.
CHINA (BBG): China Braces for Another Typhoon After Yagi Slammed South Coast
Typhoon Bebinca is forecast to hit the east coast of China early Monday, threatening to bring excessive rainfall that could disrupt oil refineries and LNG import terminals and paralyze transport. The expected landfall of Bebinca, currently more than a thousand kilometers offshore, comes just after Super Typhoon Yagi claimed lives and caused extensive damage in the region, including Hainan island and northern Vietnam.
CHINA (MNI): China’s Foreign Investors Remain Positive
MNI (Beijing) Foreign investors in China remain optimistic about the nation’s long-term prospects, He Yongqian, spokesperson for the Ministry of Commerce, said on Thursday. Regarding Wednesday’s European Chamber of Commerce’s call for Beijing to make stronger efforts to boost foreign sentiment, He told reporters the total profits of foreign enterprises increased by 9.9% from January to July this year and 32,000 new foreign-invested enterprises were established, up 11.4% y/y.
CHINA (MNI): China Aluminium Rebound Likely in September
MNI (London) Aluminium prices in China are likely to trend higher in September given favourable macro conditions and declining production expectations in Yunnan, Shanghai Metals Market analysts said on Thursday. China’s aluminium production was expected to grow near 1.4% y/y in September to around 3.6 million mt, with the most-traded Shanghai Futures Exchange aluminium contract to fluctuating between 18,750 and 20,100 yuan/mt, the analysts said.
S. KOREA (BBG): South Korea Aims to End Short-Selling Ban on All Stocks in March
South Korea’s top financial regulator said it plans to lift the ban on short selling at the end of March and will ensure that necessary rule revisions are in place by then. The objective is to allow the strategy across all equities, not just in a limited number of stocks, Financial Services Commission chairman Kim Byoung-hwan said Thursday. While the country had previously said that the prohibition would be extended to March 30, there was uncertainty about whether the popular trading practice would resume afterward.
N. KOREA (BBG): North Korea Fires Multiple Missiles as Kim Vows to Ramp Up Nukes
North Korea fired multiple short-range ballistic missiles off its east coast early Thursday, South Korea’s military said, days after leader Kim Jong Un vowed to bolster his nuclear weapons capabilities exponentially and prepare his troops for combat. The missiles were launched from an area near Pyongyang, flying some 360 kilometers toward waters off the nation’s east coast, South Korea’s Joint Chiefs of Staff said. Japan’s defense ministry said the missiles reached an altitude of 100 km.
COMMODITIES (BBG): Oil Demand Growth Lowest Since Pandemic as China Cools, IEA Says
Global oil demand growth is “slowing sharply” as China’s economy cools, pushing prices to a three-year low, the International Energy Agency said. World consumption increased by 800,000 barrels a day in the first half of the year, barely a third of the expansion in the same period of 2023, the adviser to major economies said in a monthly report. It’s the lowest rate since oil demand crashed during the 2020 pandemic.
CORPORATE (BBG): UniCredit’s Orcel Says Takeover of Commerzbank Among Options
UniCredit SpA Chief Executive Officer Andrea Orcel said that the bank remains flexible with regard to the next steps on its stake in Commerzbank AG, while signaling that a full takeover is possible. “We may go up, we may go down, and we may combine” Orcel said in an interview with Bloomberg Television on Thursday. “We are very patient.” On Wednesday, UniCredit revealed that it now owned 9% of Commerzbank, adding all the shares the German government offered this week to a position it had quietly built in the market.
CORPORATE (BBG): Seven & I Shareholder Oasis ‘Disappointed’ by Takeover Response
Seven & i Holdings Co. shareholder Oasis Management is “disappointed” that the Japanese retailer rejected Alimentation Couche-Tard Inc.’s acquisition proposal, according to the founder of the activist investment firm. “Couche-Tard has put forward a very serious proposal to the company and I am a little bit disappointed with the company’s reaction,” Seth Fischer, chief investment officer at Oasis, said in a Bloomberg Television interview in Tokyo on Thursday.
DATA
SPAIN DATA (MNI): Services Inflation Remained Within Elevated YTD Range in August
- SPAIN AUG HICP +0% M/M, +2.4% Y/Y
Spanish August HICP confirmed flash estimates at 2.4% Y/Y, though services inflation remained stuck within this year's 3.5-4.1% Y/Y range. This meant HICP inflation excluding unprocessed foods and energy products was steady at 2.9% Y/Y. Services inflation rose a tenth to 3.7% Y/Y (vs 3.6% prior). A rebound in recreation and culture inflation (2.4% Y/Y vs 1.9% prior) was driven by a 6.6% M/M rise in package holiday prices (which implied an annual rate of 5.5% Y/Y vs 2.4% prior). Restaurant and hotel inflation also remained sticky at 4.7% Y/Y (vs 4.8% prior).
SWEDEN DATA (MNI): Electricity Prices Weigh on Headline, But Core Inflation In Line
- SWEDEN AUG CPIF +1.2% Y/Y
The Swedish August CPI outcome is consistent with the Riksbank cutting rates at each of its three remaining meetings this year, but is not yet enough to tempt the Executive Board into a faster easing pace (i.e. 50bp cuts). Although CPIF at 1.2% Y/Y (vs 1.7% prior) was below consensus of 1.4% and the Riksbank June MPR projection of 1.7%, CPIF ex-energy was in line with analyst and the Riksbank's forecasts at 2.2% Y/Y (vs 2.2% prior). The Riksbank's June MPR forecasts CPIF ex-energy to fall below the 2% target in September. Such inflation outcomes may increase the risk of inflation expectations falling further below the 2% target, which may influence the pace of easing into 2025 as rates appraoch so-called neutral.
JAPAN DATA (MNI): Japan CGPI Rises 2.5% Y/Y on Slower Import Prices
- JAPAN AUG CORP GOODS PRICE INDEX +2.5% Y/Y; JULY UNREV
- JAPAN AUG CORP GOODS PRICE INDEX -0.2% M/M; JULY REV +0.5%
Japan's corporate goods price index rose 2.5% y/y in August, down from July’s unrevised 3.0%, as import-price rises decelerated despite posting their seventh straight gain of 2.6%, down from last month's 10.8%, data released by the Bank of Japan showed on Thursday. The data indicated slowing import prices, driven by the correction of the yen’s fall, will slow corporate pass-through of higher costs. Electric power, gas and water (+10.6% y/y vs. +6.5% in June) boosted the results, but lower prices of petroleum and coal products (-4.0% vs. +0.4), and nonferrous metals (11.4% vs. 18.9%) weighed.
AUSTRALIA DATA (MNI): Consumer Inflation Expectations Stuck at 2024 Average
Melbourne Institute consumer inflation expectations eased 0.1pp in September to 4.4% y/y, in line with the series average. Apart from the recent low of 4.1% in May, the series has been moving around 4.4% through 2024 and is struggling to move closer to 4%, despite petrol prices trending lower since April and July headline CPI moderating to 3.5% y/y. While there continues to be a lot of coverage of cost-of-living pressures in the press, Westpac noted that consumers were less concerned about inflation in September.
FOREX: Equity Rally Provides Stability in FX, Ranges Remained Contained
- The impressive recovery for major equity benchmarks late Wednesday and subsequent consolidation at the highs this morning has provided a sense of calm across currency markets. In line with this sentiment the Japanese yen is softer on the day, and USDJPY currently trades in the middle of its relatively contained 80 pip range, after rising as high as 143.04 in early European trade.
- In similar vein, both EURCHF and USDCHF are around 0.25% higher today, as bullish positions against funding currencies renews its appeal.
- EURUSD trades within an 18 pip range ahead of today’s ECB decision and press conference, with a deposit rate cut of 25bp well baked in to expectations.
- We would not expect any signs of the ECB pre-committing to another cut in October as with inflation close to target there is no urgency to do so. Moreover, indications of back-to-back cuts would undermine President Lagarde’s previous assertion that policy rates will not necessarily move lower in a linear fashion.
- With the bar for any meaningful surprises particularly high, single currency volatility is likely to remain low, with this view emboldened by the impressive 13.5bn of options rolling off between 1.0945/1.1055 at today’s NY cut.
- Standing out in emerging markets, the South African rand is lower on the session after failing to capitalise on the recovery in equities. USDZAR is +0.5% on the session with a survey showing inflation expectations declining further providing support.
- Aside from the ECB, US PPI data and initial jobless claims highlight the economic calendar.
EGBS: Weaker Ahead of ECB Decision, Equities and Crude Weigh
The net impact of the rally in equities and crude that began yesterday afternoon has continued to weigh on FI this morning. Bund futures are -43 ticks today at 134.93. Initial firm support in Bunds remains some way off at 134.01 (the 20-day EMA), though.
- Regional focus remains on this afternoon’s ECB decision, where a 25bps cut is unanimously expected. The decision is at 1315BST/1415CET, before the press conference at 1345BST.
- Our baseline scenario for the guidance looks for President Lagarde to indicate a willingness to cut policy rates further but refuse to be drawn into speculating on the October meeting.
- The German cash curve has lightly bear flattened, but 2s10s remains just shy of YTD steeps.
- 10-year peripheral spreads to Bunds are tighter on the back of the equity rally. Today’s 3/7-year BTP supply was digested smoothly.
GILTS: Under Light Pressure Following Crude & Equity Recovery
Gilts weaker, low in futures 100.87.
- A recovery from yesterday’s lows in crude oil and equities has weighed.
- Technicals remain bullish, initial support at 100.64, while resistance is seen at yesterday’s peak (100.41).
- Yields 1.5-3.0bp higher, curve bear flattens.
- Solid cover at this morning’s tender operation for GBP2.0bln of the 0.125% Jan-26 gilt, although the price tail wasn’t particularly tight.
- SONIA futures flat to -6.5.
- BoE-dated OIS shows ~46.5bp of cuts through year-end and ~131bp through June ’25 vs. ~48.5bp and ~135bp late yesterday.
- No market reaction to Goldman’s BoE call change given the bearish inputs mentioned above. They now look for sequential cuts to 3.00% come Q325 vs. quarterly cuts to the same terminal rate come Q326 previously.
- Spill over from the ECB decision (25bp cut unanimously expected, focus on accompanying rhetoric) and U.S. data (PPI & weekly jobless claims) is set to dominate today.
EQUITIES: Wednesday Rally Signals Possible Bullish Reversal for E-Mini S&P
Despite a short-term bounce, Eurostoxx 50 futures continue to trade closer to their recent lows. The latest move down has resulted in a break of both the 20- and 50-day EMAs. A resumption of the bear leg would signal scope for weakness towards 4686.53, a Fibonacci retracement point. Initial key short-term resistance has been defined at 4998.00, the Sep 3 high. First resistance is at 4867.99, the 50-day EMA. A volatile and bullish session in S&P E-Minis yesterday, highlights a possible bullish reversal and the end of the corrective cycle between Sep 3 - 6. The contract is trading above the 20- and 50-day EMAs and a continuation higher would signal scope for a climb towards 5669.75, the Sep 3 high. On the downside, a reversal lower and a breach of 5394.0.00, the Sep 6 low, would reinstate a bearish theme.
- Japan's NIKKEI closed higher by 1213.5 pts or +3.41% at 36833.27 and the TOPIX ended 61.83 pts higher or +2.44% at 2592.5.
- Elsewhere, in China the SHANGHAI closed lower by 4.672 pts or -0.17% at 2717.123 and the HANG SENG ended 131.68 pts higher or +0.77% at 17240.39.
- Across Europe, Germany's DAX trades higher by 213.25 pts or +1.16% at 18544.46, FTSE 100 higher by 72.57 pts or +0.89% at 8266.67, CAC 40 up 45.73 pts or +0.62% at 7442.56 and Euro Stoxx 50 up 56.08 pts or +1.18% at 4819.66.
- Dow Jones mini up 54 pts or +0.13% at 40960, S&P 500 mini up 8.5 pts or +0.15% at 5569.75, NASDAQ mini up 31.25 pts or +0.16% at 19302.25.
Time: 09:50 BST
COMMODITIES: Gold Continues to Trade in Tight Range, Still Close to Recent Highs
WTI futures remain in a bearish condition. Tuesday’s strong sell-off reinforces current conditions and confirmed an extension of the bear cycle. This also maintains the price sequence of lower lows and lower highs. A continuation lower would open $63.93 next, a Fibonacci projection point, ahead of the psychological $60.00 handle. Short-term gains would be considered corrective. Firm resistance is at $71.56, the 20-day EMA. Gold continues to trade inside a range but remains closer to its recent highs. The trend condition is unchanged and the primary direction remains up. Note too that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend. Sights are on $2536.4 next, a Fibonacci projection. The 20-day EMA has recently been pierced. The next firm support to watch is $2453.4, the 50-day EMA. Short-term weakness is considered corrective.
- WTI Crude up $0.82 or +1.22% at $68.11
- Natural Gas down $0.02 or -0.84% at $2.249
- Gold spot up $4.97 or +0.2% at $2516.62
- Copper up $8.25 or +1.99% at $422.4
- Silver up $0.13 or +0.45% at $28.8034
- Platinum down $0.85 or -0.09% at $956.64
Time: 09:50 BST
MNI (LONDON)
| Date | GMT/Local | Impact | Country | Event |
| 12/09/2024 | 1215/1415 | *** |  EU | ECB Deposit Rate |
| 12/09/2024 | 1215/1415 | *** | EU | ECB Main Refi Rate |
| 12/09/2024 | 1215/1415 | *** | EU | ECB Marginal Lending Rate |
| 12/09/2024 | 1230/0830 | *** |  US | Jobless Claims |
| 12/09/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 12/09/2024 | 1230/0830 | *** | US | PPI |
| 12/09/2024 | 1230/0830 | * |  CA | Building Permits |
| 12/09/2024 | 1230/0830 | * | CA | Household debt-to-income |
| 12/09/2024 | 1245/1445 | EU | ECB Monetary Policy Press Conference | |
| 12/09/2024 | 1345/1545 | EU | Eurosystem staff macroeconomic projections publications | |
| 12/09/2024 | 1415/1615 | EU | ECB Podcast: Lagarde presents the latest monetary policy decisions | |
| 12/09/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 12/09/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 12/09/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 12/09/2024 | 1600/1200 | *** | US | USDA Crop Estimates - WASDE |
| 12/09/2024 | 1700/1300 | *** | US | US Treasury Auction Result for 30 Year Bond |
| 12/09/2024 | 1800/1400 | ** | US | Treasury Budget |
| 13/09/2024 | 0430/1330 | ** |  JP | Industrial Production |
| 13/09/2024 | 0645/0845 | *** |  FR | HICP (f) |
| 13/09/2024 | 0830/0930 | ** |  GB | Bank of England/Ipsos Inflation Attitudes Survey |
| 13/09/2024 | 0900/1100 | ** | EU | Industrial Production |
| 13/09/2024 | - | *** |  CN | Money Supply |
| 13/09/2024 | - | *** | CN | New Loans |
| 13/09/2024 | - | *** | CN | Social Financing |
| 13/09/2024 | - | EU | ECB's Lagarde in Eurogroup meeting | |
| 13/09/2024 | 1230/0830 | ** | US | Import/Export Price Index |
| 13/09/2024 | 1230/0830 | ** | CA | Wholesale Trade |
| 13/09/2024 | 1400/1000 | ** | US | U. Mich. Survey of Consumers |
| 13/09/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |