MNI US OPEN - Fed's Mester Sees One Additional Hike, Then Hold

NEWS

FED (MNI): One More Fed Hike Likely, Then Hold for Some Time - Mester

A final interest rate hike will likely be needed to boost the fed funds rate to its cycle peak, where it will sit for some time to stabilize prices, Federal Reserve Bank of Cleveland President Loretta Mester said Monday. The FOMC will carefully monitor economic, banking and financial market developments amid "considerable uncertainty" around the outlook so it can set monetary policy in a way that balances the costs of overtightening and under-tightening, she said.

US (MNI): Gaetz 'Motion to Vacate' Against McCarthy Sets Up High-Stakes Showdown

On the evening of 2 October Rep. Matt Gaetz (R-FL) moved a 'motion to vacate the chair' in an effort to eject Speaker of the House of Representatives Kevin McCarthy (R-CA) from his office. The move sets up a high-stakes showdown. Gaetz will have to convince three or more of his colleagues to back the eventual vote to oust McCarthy. Meanwhile, McCarthy will also be engaged in fraught discussions attempting to both shore up support among House Republicans but also potentially seeking the backing of Democrats in order to keep hold of the gavel.

US (BBG): Biden Campaign Launches New Ad on Economy Aimed at Swing States

Joe Biden’s reelection campaign is launching a new ad highlighting his efforts to lower consumer costs, ramping up its effort to reverse the president’s poor marks on the economy ahead of the 2024 election. The minute-long spot cites caps on insulin prices for seniors, Medicare’s power to negotiate drug prices, clean-energy investments and lower health care premiums as examples of how Biden has worked to ease Americans’ financial burdens.

ECB (BBG): ECB Not Yet at Inflation Target, More Work to Be Done, Lane Says

The European Central Bank can’t relent in its fight to tame inflation, according to Chief Economist Philip Lane. “Price increases are still well above 2%, we are not at the inflation target yet and therefore there is still work to be done in terms of bringing inflation down,” Lane said at a conference in Vilnius, Lithuania, on Tuesday.

JAPAN (BBG): Kishida Says Japan Pensions With $600 Billion to Sign ESG Pact

Japanese pension funds managing 90 trillion yen ($600 billion) will join a global initiative for responsible investment, Prime Minister Fumio Kishida said in a speech on Tuesday. Seven of the nation’s public retirement funds will start preparations to sign the Principles for Responsible Investment, Kishida said. The PRI was started by the United Nations in 2006 to encourage investment that takes environmental, social and governance factors into consideration. As the number of members has increased globally, Japanese firms have been slower to join — a situation that Kishida hopes to change.

JAPAN (BBG): Japan’s Benchmark Bond Sale Meets Firm Demand in Weak Market

Japan’s auction of benchmark 10-year sovereign bonds met firm demand Tuesday as yields near multi-year highs spurred investor demand amid the global debt selloff. Yields on 10-year notes slid two basis points from a fresh decade high after the sale by the Ministry of Finance drew a higher-than-estimated cut-off price. Bond futures extended gains.

RBA (MNI): RBA Holds at 4.1%, Bullock Holds Steady

The Reserve Bank of Australia board held the cash rate steady at 4.1% for the fourth consecutive month Tuesday. In a sign of stability, newly installed Governor Michelle Bullock made little change to the previous Governor Philip Lowe’s Sept 5 statement. However, Bullock did highlight rising services and fuel prices as areas of concern. The decision to hold the cash rate steady was largely in line with market expectations.

RBA (MNI): New Governor Points to Oil Prices

Newly-appointed Reserve Bank of Australia Governor Michelle Bullock made only slight changes to Tuesday’s official statement, upgrading concerns about oil prices, following the board’s decision to hold the cash rate steady for a fourth consecutive month at 4.1%.While most of the statement remained unchanged, Bullock noted that goods price rises had eased, while services continued to increase. The governor also highlighted oil prices, noting that they had risen noticeably, as the board maintained its tightening bias from the Sept 5 statement that further hikes “may be required”.

MNI RBNZ PREVIEW - OCTOBER 2023: Prolonged Pause, Watch Inflation Risks

The RBNZ is highly likely to keep rates at 5.5% at its October 4 meeting, which is inline with a unanimous consensus. Given the upcoming election and key data and forecasts following October's meeting, the RBNZ is unlikely to change the tone of its comments significantly this month or hint at possible forecast revisions. It will probably reiterate its higher for longer monetary policy view while retaining its neutral stance.

EU/HUNGARY (FT): Brussels to Unfreeze Hungary Funds as it Seeks Help for Ukraine

The European Commission is preparing to release billions of euros in EU funds to Hungary currently frozen because of rule of law concerns, in a move that could secure Budapest’s support for an increase to the bloc’s budget and significant financial assistance to Ukraine. Releasing the funds, which have been frozen since last December, would mark a victory for prime minister Viktor Orbán, who has vowed not to agree to any increase in the EU budget until Hungary’s access to it is restored. The commission intends to unfreeze about €13bn in funding before the end of November, three officials briefed on the discussions told the FT.

TURKEY (BBG): Turkey’s Inflation Tops 61% as Surging Oil Prices Worsen Outlook

Turkish inflation accelerated in line with forecasts to exceed 61% for the first time this year as higher energy costs complicate efforts to contain domestic demand with jumbo interest-rate hikes. With food costs on the rise, the pace of annual price gains jumped to 61.5% last month from almost 59% in August, according to Turkey’s statistical office. The median estimate in a Bloomberg poll of economists was 61.6%.

WHEAT (MNI): Ukraine, Poland & Lithuania Agree 'Green Corridor' to Shift Border Checks

The Ukrainian Ministry of Agrarian Policy and Food has stated that a 'green corridor' has been established between the Ukrainian/Polish border to the Lithuanian port of Klaipėda. This will see all veterinary, sanitary and phytosanitary control for Ukrainian agricultural exports carried out at Klaipėda rather than the border with Poland, speeding up the process of exporting grain. Crucially for Poland this ensures that , as Agriculture Minister Robert Telus stated after the agreement was reached, "As we said earlier, Ukrainian grain will not reach Poland,"

DATA

SPAIN DATA (MNI): Services PMI Eyed after Unemployment Claims

The change in Spanish unemployment claims for September showed a second consecutive monthly increase to 19.8k persons (vs 24.8k prior). Services were the only sector to show a positive change in claims, (18.8k vs 23.1k prior) while construction, agriculture and industry showed small falls. Tomorrow's Spanish services PMI for September will be closely eyed to gauge the impact that softer demand is having on service sector employment alongside inflation. Expectations are for 49.8 (vs 49.3 prior).

SWISS SEP CPI -0.1% M/M, +1.7% Y/Y (MNI)

UK SEP BRC SHOP PRICES +0% M/M, +6.2% Y/Y (MNI)

AUSTRALIA DATA (MNI): House Building Approvals Look to Have Turned

• AUSTRALIA SEP BUILDING APPROVALS +7% M/M, -22.9% Y/Y

Building approvals for August rose a stronger than expected 7% m/m after an upwardly revised 7.4% drop. Private sector house approvals rose 5.8% m/m and apartments +9.4%. The monthly rebound is not as strong as it looks due to the volatility of the multi-dwelling component which is driving negative 3-month momentum. However, the building of houses is looking more promising. New homes are needed given the shortage and the record growth in the working-age population.

FOREX: RBA Continuity Does Little to Prop the Currency

• The RBA kept policy unchanged - as expected - and made very little change to the policy statement. The Board retained its tightening bias, keeping options open for the November 7 decision.
• The decision did little to restore stability in the currency however, with AUD/USD edging through the late September lows to print the lowest levels since November last year. The pair through the bear trigger next opens the 0.63 handle support ahead of 0.6272. AUD remains the poorest performer in G10 headed into the NY crossover.
• NZD has been dragged lower alongside AUD, while the EUR is the session's best performer. Equity markets across Europe appear to have bottomed, which has lent some support to EUR/USD, helping the pair off overnight lows of 1.0460. Nonetheless, there are scant signs of a stronger reversal, with spot unable to retake the 1.05 handle at pixel time.
• The USD Index sits just below a fresh trend higher printed overnight at 107.21. This extends the medium-term uptrend posted off the July lows, with 107.993, the 21 Nov'22 high, the next upside level of note.
• Focus turns to JOLTS job data as markets look to parse all labour market indicators ahead of Friday's payrolls report. Markets expected the US to have added 170k jobs over the month, with ample focus on any negative revisions given the trend so far in 2023.

EGBS: Bunds Twist Steepen, Peripherals Widen

Bund futures last show -10 or so.

• German cash benchmarks are 0.5bp richer to 1bp cheaper, twist steepening.
• A negative lead from HK equities and a downtick in crude oil futures helped support Bund futures in Asia, before two-way trade ensued around the old Eurex open.
• Since then, global equity and crude oil benchmarks have recovered from session lows, helping reverse the early, modest richening in Bunds.
• The presence of the German Unity Day holiday will be thinning out liquidity, although German markets remain open, as indicated above.
• More widely, core/semi-core EGBs are little changed vs. Bunds in spread terms, while peripherals are biased wider.
• BTPs lead the widening in peripherals, giving back ~4bp of yesterday’s BTP Valore demand-inspired tightening as the Bund/BTP spread retakes the 190bp mark.
• We haven’t seen much headline flow there, although continued Italian fiscal worry remains evident.
• A raft of early morning ECB speak hasn’t really moved the needle, with familiar risks surrounding food and services inflation, as well as wage growth, touted (via chief economist Lane). This was accompanied by comments re: the need for rates to stay at restrictive levels for as long as is required.

GILTS: Bull Steepening Holds, Off BRC-Inspired Bests

The early bull steepening on the curve holds, aided by the previously covered softening in the BRC shop price index.

• To recap, the lower tier local data saw monthly food prices falling for the first time in 2 years and the headline index sitting at the lowest level Since Sep ’22, still a little above 6% Y/Y.
• Gilts are off best levels as crude oil and global equity index futures recover from lows, last showing unchanged on the day.
• Cash gilts are 0.5-2.5bp richer.
• 2s10s sit at the least inverted level seen since June (-41bp), while 5s30s have hit the steepest level seen since May showing around 42bp at typing (early morning bullet erroneously pulled level from 5s10s curve).
• The presence of GBP2.25bn of 1.50% Jul-53 green gilt supply factored into underperformance in the long end pre-auction. Only average demand was seen at the auction, which has done little for the long end post-supply.
• SONIA futures are +0.5 to +3.5, with the reds outperforming.
• BoE-dated OIS softens on the day but is off dovish session extremes. Terminal policy rate pricing indicates ~20.5bp of further tightening in the cycle, leaning more towards the idea of one further hike than no further movement in the policy rate.

EQUITIES: E-Mini S&P Trading Close to Recent Lows

Eurostoxx 50 futures trend conditions remain bearish and the latest bounce has been corrective. The contract has traded below 4128.00, the Sep 27 low. A continuation lower would confirm a resumption of the downtrend that started late July and signal scope for a move towards 4109.90, a Fibonacci projection. Initial firm resistance is at 4237.60, the 20-day EMA. A break of this average would signal a possible short-term base. A bear cycle in S&P E-minis remains in play and the contract is trading closer to its recent lows. 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 4461.47, the 50-day EMA. Ahead of the 50-day average is resistance at 4399.00, the Sep 22 high, and 4415.45, the 20-day EMA.

• Japan's NIKKEI closed lower by 521.94 pts or -1.64% at 31237.94 and the TOPIX ended 38.97 pts lower or -1.68% at 2275.47.
• Across Europe, Germany's DAX trades lower by 3.01 pts or -0.02% at 15244.2, FTSE 100 higher by 24.87 pts or +0.33% at 7535.81, CAC 40 up 2.25 pts or +0.03% at 7070.41 and Euro Stoxx 50 up 4.56 pts or +0.11% at 4142.19.
• Dow Jones mini up 52 pts or +0.15% at 33691, S&P 500 mini up 8.25 pts or +0.19% at 4332.75, NASDAQ mini up 26.25 pts or +0.18% at 15012.

COMMODITIES: Corrective Cycle in WTI Futures Remains in Play

WTI futures have started the week on a bearish note and a corrective cycle is in play. The contract has traded through support at $88.19, the Sep 26 low. The breach highlights a short-term top and signals scope for a move towards the 50-day EMA, which intersects at $84.37 today. A clear break of this average would strengthen a bearish condition. On the upside, key short-term resistance has been defined at $95.08, the Sep 28 high. Gold started this week’s session on a bearish note and the metal is trading lower again today. The recent sell-off resulted in a break of support at $1901.1 and this was followed by a breach of $1884.9, the Aug 21 low. This confirmed a resumption of the downtrend that started early May. Attention is $1804.9, the Feb 28 low and a key support. On the upside, firm resistance is at $1898.1, the 20-day EMA.

• WTI Crude down $0.13 or -0.15% at $88.65
• Natural Gas down $0.01 or -0.46% at $2.828
• Gold spot down $1.74 or -0.1% at $1826.12
• Copper down $2.85 or -0.78% at $361.3
• Silver up $0.08 or +0.38% at $21.1147
• Platinum up $2.6 or +0.29% at $883.87