MNI US OPEN - EZ Headline Inflation Sticky, Core Ticks Lower

NEWS

FED (MNI): Bostic Says Fed Restrictive Enough to Get Inflation to 2%

Federal Reserve Bank of Atlanta President Raphael Bostic Thursday reiterated his view that monetary policy is already restrictive enough to get inflation on track toward 2%, adding he doesn't see the need for easing policy any time soon. "Based on current dynamics in the macroeconomy, I feel policy is appropriately restrictive. I think we should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain," he said in prepared remarks.

US/CHINA (BBG): Raimondo Revives China Business Talks But Delivers No Deals

US Commerce Secretary Gina Raimondo won a promise to revive business talks between Washington and Beijing, a key step as both sides look to ease tensions. But American firms were left wondering if that will be enough to recommit to a market that looks increasingly risky. Raimondo ended a visit to Beijing and Shanghai with a pledge to restore the sorts of formal communication channels that had been severed over years of deteriorating ties. That will provide some predictability to US businesses, she said, who have told her they consider China increasingly “uninvestible” due to rising risks.

ECB (MNI): Data-Led Approach Key to Policy Moves - Schnabel

The ECB could pause or continue to raise rates at its next monetary policy meeting, Executive Board member Isabel Schnabel said in a speech Thursday, with high levels of uncertainty over the pace of disinflation supporting a data-dependent, meeting-by-meeting approach. “Should we judge that the policy stance is inconsistent with a timely return of inflation to our 2% target, a further increase in interest rates would be warranted,” she said.

BOE (MNI): Pill Favours 'Steady Hold' for Rates Policy

BoE Chief Economist Pill continues to speak from the SARB forum, notable comments include:

• One option for policy is to hold rates steady for longer, I tend to favour that approach on rates
• Still expecting a decline in UK inflation
• Core inflation not yet showing a downward trend
• Possibility of doing "too much" on rates in the UK
• A lot of rate hikes are yet to impact the UK economy

CHINA (Fitch Ratings): Fitch Affirms China at 'A+'; Outlook Stable

Fitch Ratings has affirmed China's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A+' with a Stable Outlook. We have revised lower our 2023 GDP growth forecast for China to 4.8%, from 5.6%, in our June Global Economic Outlook, as the boost from the removal of Covid-19 restrictions appears to be fading. A weakening property sector will continue to weigh on domestic demand through its impact on the construction and household sectors, evident from continued declines in housing starts and property prices.

CHINA (RTRS): Chinese Exporters Using Currency Swaps to Retain Dollars as Yuan Sags

Chinese exporters are using a complicated currency swap strategy to avoid converting their dollar earnings into yuan for fear of losing out on potential gains in the U.S. currency, official data and conversations with companies show. China's state banks are counterparties to some of these swap transactions that allow exporters to exchange their dollars for yuan, suggesting the country's currency regulator is comfortable with these trades even as authorities try to curb intense pressure on the yuan in spot markets.

BOJ (MNI): Time Needed to Change Easy Policy - BOJ's Nakamura

Bank of Japan board member Toyoaki Nakamura said on Thursday that the BOJ must continue with its easy policy as the economy has not reached the stage of achieving the 2% price target in a stable and sustainable manner. Nakamura told business leaders in Gifu City that the current price rises were mainly caused by pass-through of cost increases led by the rise in import prices and they did not involve wage hikes.

JAPAN (BBG): Japan’s Economy Ministry Seeks $840 Million for Chips Budget

Japan’s economy ministry is seeking a budget of more than ¥120 billion ($822 million) to strengthen the country’s semiconductor sector next year, as the nation positions chips at the core of its economic security policy. Overall the ministry requested a record ¥2.46 trillion budget for the fiscal year beginning in April 2024, marking a 45.7% increase from the previous year. Out of that, it’s asking for ¥123 billion in chip-related plans, the bulk of it for strengthening the supply chain, although money is also requested for investing in frontier research and development.

AUSTRALIA (RTRS): Aussie Home Price Downturn Over, to Rise This Year and Next: Reuters Poll

Australian home prices likely bottomed much earlier than previously expected and will rise for the rest of this year and next, as the Reserve Bank of Australia (RBA) is at or near the end of its tightening cycle, a Reuters poll of analysts found. The Aug. 14-29 Reuters survey of 14 analysts forecast home prices will rise 4.4% this calendar year, a significant upgrade from the flat-lining predicted in a poll published in June.

NEW ZEALAND (BBG): New Zealand Opposition Eyes Quick Change to RBNZ’s Mandate

New Zealand’s main opposition National Party would quickly remove the central bank’s dual mandate and return it to a sole focus on inflation if it wins the October election. The party wants to show that it’s serious about eradicating excess inflation from the New Zealand economy, finance spokesperson Nicola Willis said in an interview with Bloomberg News Thursday in Wellington.

RUSSIA/TURKEY (NYT): Russia and Turkey Will Discuss Moscow’s Grain Proposal

About six weeks ago, Russia abandoned a deal that mitigated a global food crisis by enabling Ukrainian grain exports to get past Moscow’s warships in the Black Sea. Since then, Russian forces have repeatedly struck the port of Odesa, as well as other facilities connected to Ukraine’s grain industry, and warned civilian shippers that they could be considered to be aiding Ukraine in the war. Moscow is now pitching a plan that it casts as an alternative to the deal, one that appears aimed at helping its own exports. The foreign ministers of Russia and Turkey are set to discuss the proposal on Thursday in Moscow.

NORTH KOREA (BBG): North Korea Holds ‘Scorched Earth’ Missile Test to Defy US

North Korea test-fired two suspected ballistic missiles about a week after it failed to put a spy satellite into orbit, in a show of defiance after the US sent a B-1B strategic bomber to airspace off the peninsula for military drills with South Korea. Two short-range ballistic missiles were fired at about 11:40 p.m. and 11:50 p.m. Wednesday night from an area near Pyongyang’s main international airport toward waters off its east coast, South Korea’s Joint Chiefs of Staff said.

DATA

EUROZONE DATA (MNI): Sticky EZ Inflation Gives ECB Pause for Thought

• EUROZONE AUG FLASH HICP +5.3% Y/Y (MNI)

Mixed messages for European Central Bank policymakers in the August inflation data, but a tick lower in the core rate to 5.3% y/y will offer some respite, although the hawks will continue to point to the continuing elevated levels. According to Eurostat's flash inflation print, headline inflation was unchanged at 5.3% y/y in August, with the ex-energy, food, alcohol and tobacco rate at 5.3% y/y. Services inflation also slowed in the month, but remains elevated at 5.5% y/y.

EUROZONE JUL UNEMPLOYMENT RATE 6.4% (MNI)

ITALY AUG FLASH HICP +0.2% M/M, +5.5% Y/Y (MNI)

FRANCE DATA (MNI): Energy Drives Upside Inflation Surprise, But Core Looks More Tame

• FRANCE AUG CPI +1% M/M, +4.8% Y/Y
• FRANCE AUG HICP +1.1% M/M, +5.7% Y/Y
  
• FRANCE JUL PPI -0.2% M/M, +0.9% Y/Y

French inflation came in above expectations in August's flash reading: headline CPI at a 3-month high 4.8% Y/Y (vs 4.6% survey) was an acceleration from 4.3% in July, while the HICP headline rate of 5.7% (vs 5.4% survey) quickened from 5.1% prior. On a sequential M/M non seasonally adjusted basis, CPI accelerated to 1.0% (0.8% survey), the joint-fastest since March 2022, from 0.1% in July with HICP up 1.1%, joint-fastest since Oct 2022 (1.0% survey), vs 0.0% prior. Looking into the details though, core prices looked to have decelerated in August from July's 4.3% Y/Y in HICP - though INSEE does not publish a flash estimate.

FRANCE GDP Q2 2ND EST +1% Y/Y (MNI)
FRANCE GDP Q2 2ND EST +0.5% Q/Q (MNI)
FRANCE JUL CONSUMER SPENDING +0.3% M/M, -1.1% Y/Y (MNI)
FRANCE JUL CONSUMER MANUF SPENDING +0.3% M/M, -0.9% Y/Y (MNI)

GERMANY AUG UE RATE (SA) 5.7% (FCST 5.7%); JUL 5.7% (MNI)
GERMANY AUG JOB VACANCIES (SA) -11K; JUL -11K (MNI)
GERMANY AUG UE NET CHANGE (SA) +18K (FCST +10K); JUL +1K (MNI)

SWISS JUL RETAIL SALES -2.3% M/M, -2.2% Y/Y (MNI)

CHINA DATA (MNI): China's Aug Manufacturing Contracts at 49.7

• CHINA AUGUST MANUFACTURING PMI 49.7 VS 49.3 IN JULY

MNI (Beijing) China's Purchasing Managers' Index contracted for the fifth straight month, registering 49.7 in Aug, rebounding slightly from 49.3 in July though still below the breakeven 50 mark, data from the National Bureau of Statistics showed Thursday. The production and new orders sub-indices recorded 51.9% and 50.2%, up 1.7 and 0.7 pp from the previous month.

JAPAN DATA (MNI): Japan July Factory Output Fall First in Two Months

• JAPAN JULY INDUSTRIAL OUTPUT -2.0% M/M; JUNE +2.4%

Japan's industrial output fell 2.0% m/m in July for the first drop in two months following June's 2.4% gain, due to lower production of machinery and electronic parts, and devices, although production for motor vehicles rose slightly, data released by the Ministry of Trade and Industry showed on Thursday. July’s drop was largely in line with the Bank of Japan's view that industrial production has been more or less flat.

JAPAN DATA (MNI): Japan July Retail Sales +6.8% Y/Y; 17th Monthly Rise

• JAPAN JULY RETAIL SALES +6.8% Y/Y; JUNE +5.6%
• JAPAN JULY RETAIL SALES+2.1% M/M; JUNE -0.6%

Japanese retail sales rose 6.8% y/y in July, following the 5.8% y/y growth reported last month, marking the 17th monthly rise. On a monthly basis, retail sales increased 2.1%, rising from last 0.6% fall in June. General merchandise sales increased 6.3% y/y, quicker than the 4.5% y/y increase last month, while sales of fabric apparels and accessories rising 3.0% y/y, picking up from the decrease of 2.0% y/y in June.

AUSTRALIA DATA (MNI): Capex Booming, FY24 Growth Solid But Slower

Q2 Australian capital expenditure was stronger than expected rising 2.8% q/q after an upwardly revised 3.7% the previous quarter. This left annual capex growth at 10.8% y/y up from 7.2% and the strongest since Q2 2021. Both building and machinery & equipment investment are robust but the former is driving the strength. Investment is needed to try and boost productivity.

FOREX: EUR Looks Through EZ CPI Uptick as ECB Pricing Fades

• EUR trades lower headed into the NY crossover, with markets shrugging higher-than-expected headline inflation reads from France, Italy and the Eurozone aggregate to re-focus on slowing pace of core inflation, which edged to 5.3% from 5.5%.
• ECB pricing for the September meeting continues to fade, with markets pricing a 1/3 chance of a 25bps hike. ECB's Holzmann summarised the current governing council view, stating the August inflation data is a "conundrum for the ECB".
• The JPY trades well, rising against all others in G10, keeping the pair within range of yesterday's lows of 145.56, a break below which would open 144.54 for direction.
• Scandi currencies underperform, with the NOK softer alongside SEK as the Norges Bank up the pace of daily FX purchases for September to NOK 1.1bln from NOK 1.0bln previously. The purchases are nominally to help the government finance the central government deficit, but markets remain wary of the activities despite their market neutral approach.
• Weekly jobless claims data comes and the July personal income/spending release comes ahead of the MNI Chicago PMI, which markets expect to rise to 44.2 from 42.8 previously.

EGBS: Firmer & Steeper as ECB Pricing Eases

An expectation matching deceleration in core Eurozone CPI Y/Y dominates post-data reaction, with the uptick in the headline Y/Y CPI release in line with what the national CPI releases reflected ahead of time.

• Comments from ECB’s Schnabel were more in line with the data-dependent central train of thought at the Bank vs. her historical hawkish leanings. This allowed the space to firm ahead of the data, even though her comments were not overtly dovish.
• Typically hawkish comments from ECB’s Holzmann have little impact.
• Pricing covering the September ECB meeting now shows ~8bp of tightening, comfortably back below even chances of a 25bp step, after moving above the 50/50 mark in recent days.
• Bund futures look through Tuesday’s high as they trade to best levels of the day post-EZ CPI, but follow through there is lacking.
• That leaves the contract +35, a little shy of highs, while the major German cash benchmarks are 2-7bp richer, bull steepening.
• Other core/semi-core curves see similar bull steepening moves, with spreads vs. Bunds within 0.5bp of yesterday’s closing levels.
• Peripherals are flat to 1bp tighter vs. 10-Year bunds.
• Little reaction to yesterday’s BBG source report suggesting Italian PM Meloni’s coalition is “considering selling minority stakes in selected state-owned companies to boost Italy’s public finances.”

GILTS: A Touch Firmer, BoE Pricing Eases

Gilts look to EGBs and the previously outlined comments from BoE’s Pill, who reiterated his preference for higher for longer interest rates as opposed to risking overtightening,

• Gilt futures +15 ticks, with the bid slowing just ahead of yesterday’s high after an opening downtick was quickly faded.
• Cash Gilts run flat to 1bp richer, bull steepening at the margin.
• BoE-dated OIS eases by 2-5bp, with ~26bp of tightening now showing for next month, while terminal policy rate pricing hovers a little below 5.85%.
• Comments from Karen Ward, chief EMA market strategist at JPMorgan Asset Management and advisor to Chancellor Hunt, suggested that the UK should consider lifting the BoE’s inflation target from 2% once price pressures have been curbed. This failed to attract much market interest.
• Most of the DMO's FQ3 issuance calendar met expectations, although the lack of a new index-linked syndication and explicit mention on 30+ year potential tenders was noted.

EQUITIES: E-Mini S&P Extends Corrective Recovery

Eurostoxx 50 futures traded higher yesterday as the contract extends the corrective recovery from 4187.00, the Aug 18 low. The contract has breached resistance at the 50-day EMA at 4330.6. A continuation higher would signal scope for a climb towards resistance at 4420.00. On the downside, a breach of 4187.00 would be a bearish development and confirm a resumption of the downtrend. The E-mini S&P contract traded higher yesterday and is holding on to its recent gains. Price has traded above resistance at 4520.90, the base of a bull channel, drawn from the Mar 13 low that was breached on Aug 16. A clear break of this level would strengthen the upleg and open 4560.75, the Aug 4 high. Initial support to watch lies at 4452.93, the 50-day EMA. A return below the average would be a bearish development.

• Japan's NIKKEI closed higher by 285.88 pts or +0.88% at 32619.34 and the TOPIX ended 18.62 pts higher or +0.8% at 2332.
• Elsewhere, in China the SHANGHAI closed lower by 17.261 pts or -0.55% at 3119.876 and the HANG SENG ended 100.8 pts lower or -0.55% at 18382.06.
• Across Europe, Germany's DAX trades higher by 94.29 pts or +0.59% at 15986.22, FTSE 100 higher by 1.33 pts or +0.02% at 7474.96, CAC 40 up 9.58 pts or +0.13% at 7373.98 and Euro Stoxx 50 up 12.11 pts or +0.28% at 4327.3.
• Dow Jones mini up 119 pts or +0.34% at 35073, S&P 500 mini up 5.25 pts or +0.12% at 4529.25, NASDAQ mini up 4 pts or +0.03% at 15505.25.

COMMODITIES: Short Term Correction in Gold Remains in Play

The uptrend in WTI futures remains intact and recent weakness is considered corrective. Last week’s move lower resulted in a print below support at $78.33, the Aug 3 low, however price action has since recovered. Note that a key support also lies at the 50-day EMA, which intersects at $77.96. A clear break of this level would highlight a stronger bear cycle. Price has pierced resistance at $81.75, Aug 21 high, a clear break would be bullish. A short-term correction in Gold remains in play and the yellow metal has breached resistance at the 50-day EMA - at $1931.1. This strengthens the current bull cycle and signals scope for a stronger recovery. Attention turns to $1948.3, 61.8% of the Jul 20 - Aug 21 bear leg. It has been pierced, a clear break would open $1963.3, the 76.4% retracement. On the downside, initial firm support lies at $1903.9, the Aug 25 low.

• WTI Crude up $0.21 or +0.26% at $81.85
• Natural Gas down $0.01 or -0.25% at $2.79
• Gold spot up $2.28 or +0.12% at $1944.82
• Copper down $2.85 or -0.74% at $384.4
• Silver down $0.09 or -0.36% at $24.54
• Platinum down $1.7 or -0.17% at $977.78