MNI US OPEN - Focus Turns to Fed Following UK CPI Miss

NEWS

MNI FED PREVIEW - SEPTEMBER 2023: The Last Mile

The FOMC will hold rates at its September meeting, while maintaining its tightening bias. Despite recent progress on inflation, which will see core PCE forecasts revised down for the first time since 2020, we expect most of the FOMC’s median expectations to be largely unchanged in the latest set of quarterly projections. That includes the median rate “dots” indicating one further hike by end-2023, as most participants will remain cautious of signalling that the hiking cycle is over, and 100bp of cuts in 2024.

MNI BOE PREVIEW - SEPTEMBER 2023: Guidance Tweak?

The MPC policy announcement on Thursday will be closely watched by markets, despite unanimous expectation amongst sell-side analysts that there will be a 25bp hike (absent any large surprises in Wednesday’s inflation print). We discuss the data leading up to the decision and the potential for changes to forward guidance. We expect the Bank to target a reduction in the stock of gilt holdings in the APF of GBP100bln over the next 12 months. We look at the risks and what this means for the maturity buckets.

MNI NORGES BANK PREVIEW - SEPTEMBER 2023: Another 25bp Expected

The Bank have guided for another 25bps rate hike at the September meeting, and the as-expected fluctuations in inflation, FX and economic growth make for a straight-forward decision on the headline deposit rate, but a more complicated conversation for guiding policy thereafter. The Bank’s June projections pitted the peak policy rate averaging 4.21% across Q4’23 and Q1’24 – a forecast that will likely have to be notched slightly higher given the bumper inflation reading across June.

MNI RIKSBANK PREVIEW - SEPTEMBER 2023: 25bp Hike Against a Weak Backdrop

The Riksbank are expected to hike 25bps on Thursday, with their signalling for the policy path going forwards the key question this meeting. Headline and underlying inflation have fallen over the summer, though the August CPIF ex-energy reading still came in above the Riksbank forecast and remains far above the 2% target. The continued depreciation of the SEK is of significant concern to the Executive Board. While direct intervention is not expected, there is potential for the Riksbank to announce the hedging of its FX reserves this meeting.

US (NYT): Right-Wing House Republicans Derail Pentagon G.O.P. Bill, Rebuking McCarthy

The floor defeat underscored the G.O.P. resistance Speaker Kevin McCarthy was facing as he struggled to round up votes to avoid a government shutdown. Deep Republican divisions erupted onto the House floor on Tuesday as a handful of far-right conservatives blocked a Pentagon spending bill from coming up for debate, dealing an embarrassing setback to Speaker Kevin McCarthy as he struggled to round up votes to prevent a government shutdown in less than two weeks.

US (NYT): Biden, in U.N. Speech, Calls for Action on Ukraine and Other Crises

As other major leaders skipped the annual opening session of the General Assembly, Mr. Biden used his address to try to counter war fatigue both at home and abroad. President Biden sought to rally the world on Tuesday to stick with Ukraine and warned against appeasing Moscow in a way that would reward its aggression and encourage the further use of force to redraw the global map.

US/CANADA/INDIA (BBG): Trudeau’s Murder Claim Risks Upending US Courtship of India

Canadian Prime Minister Justin Trudeau’s shocking allegations that India orchestrated the murder of a separatist leader leaves President Joe Biden caught between one of the US’s closest allies and an increasingly important partner in countering China. Indian leader Narendra Modi’s government on Tuesday denied that it had anything to do with the slaying of a prominent Sikh leader in Canada, calling the allegation “absurd.” Both nations expelled one of the other’s diplomats, and that’s before Canada has made any evidence public.

US/CHINA (BBG): China Accuses US of Hacking Huawei Servers as Far Back as 2009

China accused the US of infiltrating Huawei Technologies Co. servers beginning in 2009, part of a broad-based effort to steal data that culminated in tens of thousands of cyber-attacks against Chinese targets last year. The Tailored Access Operations unit of the National Security Agency carried out the attacks in 2009, which then continuously monitored the servers, China’s Ministry of State Security said in a post on its official WeChat account on Wednesday. It didn’t provide details of attacks since 2009.

UK (BBG): Sunak’s Green U-Turn Opens Tory Rifts, Throws Net Zero in Doubt

Prime Minister Rishi Sunak said he would roll back some green-energy policies without abandoning the UK’s carbon goal, opening rifts within his Conservative Party and adding new uncertainty for companies that have invested based on those targets. Sunak was pressed into issuing a statement justifying his move late Tuesday after the BBC reported he would soften key policies, such as the timing of a ban on the sale of internal combustion cars. “We are committed to net zero by 2050 and the agreements we have made internationally, but doing so in a better, more proportionate way,” Sunak said, without providing specifics.

CHINA (MNI): PBOC Pledges to Curb Sharp Yuan Moves

The People’s Bank of China will take prompt actions to curb any overshoot of the yuan exchange rate, while enhancing support to the economy via expanding credit and reducing funding cost, a senior official of the Bank told reporters on Wednesday during a briefing. The forex regulators have sufficient policy room and tools to “correct any one-way pro-cyclical moves” and “deal with transitions disrupting market order”, said Zou Lan, head of the PBOC's monetary policy department, noting the yuan has remained strong against major non-U.S dollar currencies since mid-July thanks to China’s economic recovery.

CHINA (MNI): Banks’ Narrow Margins Restrain LPR Cut

MNI (Beijing) China’s commercial banks’ squeezed interest margins helped hold the loan prime rate (LPR) steady in September, however, the People’s Bank of China will likely cut its policy rates to guide down the reference lending rate by 5-10bp later this year to bolster the slowing economy, economists and analysts told MNI. The LPR, based on the rate on the PBOC’s medium-term lending facility (MLF) and quotes submitted by 18 banks, remained at 3.45% for the one-year maturity and 4.2% for the over-five-year tenor on Wednesday in line with expectations.

CHINA (MNI): No Deflationary Outlook in China - NDRC Official

MNI (Beijing) China will not experience deflation in the future as the economy continues to recover, but prices are still low which requires attention, Cong Liang, deputy director at the National Development and Reform Commission, told reporters on Wednesday. Cong said deflation would not occur given August’s data showed household consumption and supply, and demand dynamics were improving.

DATA

UK DATA (MNI): Slower UK Inflation Offers BOE Rate Path Options

• UK AUG CPI +0.3% M/M, +6.7% Y/Y
• UK AUG CORE CPI +0.1% M/M, +6.2% Y/Y
• UK AUG RPI +0.6% M/M, +9.1% Y/Y
• UK AUG INPUT PPI +0.4% M/M, -2.3% Y/Y
• UK AUG OUTPUT PPI +0.2% M/M, -0.4% Y/Y

Headline inflation slowed again in the UK in August dipping to 6.7% y/y, the lowest level since February 2022, data released Wednesday by the Office for National Statistics showed. Services inflation, closely watched by the Bank of England, fell to 6.8%, below the 7.4% seen in July -- and below highest City expectations for a rise to 7.6%. Core inflation was also markedly lower, driven by slower services inflation, falling to 6.2% from 6.8% in July.

UK JUN-AUG MEDIAN PAY AWARDS +5%: XpertHR (MNI)

EUROZONE JUL CONSTRUCTION OUTPUT +0.8% M/M, +1% Y/Y (MNI)

GERMANY AUG PRODUCER PRICES -12.6% Y/Y (MNI)

JAPAN DATA (MNI): Japan Aug Exports Fall, Autos Rise

• JAPAN POSTS JPY930.5 BLN TRADE DEFICIT IN AUG
• JAPAN AUG EXPORTS -0.8% Y/Y; JULY -0.3%
• JAPAN AUG IMPORTS -17.8% Y/Y; JULY -13.6%

Japan’s exports posted their second straight year-on-year drop in August due to slowing exports of chip-making equipment, falling 0.8% following July's 0.3% drop, data released by the Ministry of Finance showed on Wednesday. Automobile exports, however, rose 40.9% , accelerating from July's 28.2% y/y gain, indicating that demand is recovering as supply-side restrictions ease. The data printed largely in line with the Bank of Japan's forecasts, despite weakness in overseas economies having a mostly benign impact thanks to the waning effects of supply-side constrains.

JAPAN DATA (MNI): Japan Household Assets Hit Record at End-June

The balance of financial assets held by Japanese households stood at a record high of JPY2,115 trillion at the end of June, up 4.6% y/y and higher for the 13th straight quarterly rise, preliminary fund circulation data released by the Bank of Japan on Wednesday showed. Cash and deposit balances at the end of June, which accounted for 52.8% of the total financial assets, stood at a record high of JPY1,117 trillion, up 1.4% from a year earlier.

AUSTRALIA DATA (MNI): Westpac Leading Index Signals Below Trend Growth Into 2024

The Westpac leading index fell 0.04% m/m in August after an upwardly revised+0.01%. The 6-month annualised growth rate continues to improve gradually rising to -0.5% from -0.6% in July and the -1.1% trough in May. Westpac says this measure leads detrended growth by 3 to 9 months and it continues to signal subpar growth going into Q1 2024 but a trough may have been reached.

NEW ZEALAND DATA (MNI): Current Account Deficit Narrowing Following Concerning Levels

The Q2 NZ current account deficit narrowed more than expected to $4.2bn from a downwardly revised $4.7bn. Seasonally adjusted it narrowed $1bn to $6.6bn, due to a better trade deficit. This resulted in the ratio to GDP falling to 7.5%from 8.2% in Q1. This brings it on track to meet the RBNZ's revised forecast of6.8% for Q1 2024. Q4 2022 looks to have been the peak at 8.8% of GDP, one of the worst in the OECD.

FOREX: GBP Struggles Post-UK CPI, USD/JPY Tags Fresh ’23 High

GBP finds itself at the foot of the G10 FX table after the softer than expected UK CPI data pushed markets into pricing a near coin toss re: the odds of a BoE hike tomorrow.

• Terminal policy rate pricing has been trimmed to reflect 25bp of tightening i.e. one further hike from current rate levels signals the end of the tightening cycle.
• Meanwhile, most of the sell-side still leans towards a hike at tomorrow’s event, albeit with heavy caveats applied.
• GBP has recovered from session lows.
• USD/JPY showed to a fresh YtD peak above Y148.00 in early London hours, dealing as high as Y148.17.
• A quick reminder that top Japanese FX diplomat Kanda warned that the relevant Japanese authorities are watching FX markets with urgency, stressing that they will take appropriate steps if required.
• Pre-Kanda, we saw U.S. Tsy Secretary Yellen note that she understands the potential need to smooth out JPY volatility, in what was deemed a tacit approval of any required intervention on the part of the Japanese authorities.
• Higher beta FX (Scandis and Antipodeans) sit at the top of the G10 FX table, albeit within contained ranges, with global equity benchmarks on the front foot.
• The FOMC decision (no hike expected, with focus on rhetoric & SEP) dominates the global risk docket today.

EGBS: UK CPI Provides Some Outright Support, GGB Tightening the Standout

Bunds have stabilised within the range asset around the UK CPI data, which allowed the contract to tick away from initial technical support at 129.30 (which held to the tick), after a show below yesterday’s base.

• German cash benchmarks twist steepen, running 2bp richer to 0.5bp cheaper, with the shorter end underpinned by feedthrough from the aforementioned UK data.
• Core/semi-core 10s are little changed to a touch tighter vs. Bunds.
• Peripherals are flat to tighter, with Greek outperformance noted around the smooth passage of the latest round of benchmark 10-Year GGB supply (10-Year GGBS tighten 8bp vs. Bunds on the day). 10-Year BBG/Bunds remains off cycle tights.
• 10- & 30-Year BTP yields have stabilised below 4.50 & 5.00% respectively.
• ECB speak will be eyed through the remainder of the session, although risk-taking capability/appetite will likely be curtailed ahead of the impending FOMC decision across the Atlantic.

GILTS: Futures Hit Fresh Session Highs, Most Still Favour a BoE Hike Tomorrow

Gilt futures move to fresh session highs in recent dealing, last sitting +95 on the day, with the reassessment of the BoE outlook post-CPI dominating.

• Futures have recovered from yesterday’s low but for now remain below resistance at 96.49, the Sep 14 high. A break of this resistance is required to confirm a resumption of the bull cycle that started Aug 17 and this would open the 97.00 handle. Key short-term support has been defined at Monday’s 94.64 low.
• Cash Gilts run 5.5-15.5bp richer, with the curve bull steepening, although the short end of the gilt curve is a little off richest levels of the day.
• Both the 2s10s and 5s30s curves operate off steepest levels of the day, after the 2s10s curve tagged the least inverted level seen over the last few weeks, while 5s30s hit the steepest level since June.• SONIA futures last show 10.5-19.5bp richer through the blues, with the reds leading.
• 13bp of tightening is showing for tomorrow’s MPC (52% odds of tightening is priced), while terminal policy rate pricing shows below the 5.50% mark in recent dealing i.e. one more 25bp hike is no longer fully discounted for the current cycle.
• The sell-side notes that we have seen still point to a hike tomorrow, although with far less conviction in the wake of today’s softer than expected inflation readings.

EQUITIES: Break Lower in E-Mini S&P Tuesday Reinforces Bearish Conditions

A strong sell-off in Eurostoxx 50 futures on Monday highlighted a bearish start to this week’s session. A continuation lower would threaten the recent short-term bullish theme and refocus attention on key near-term support at 4210.00, the Sep 8 low. Clearance of this level would confirm a resumption of the downtrend that started late July. Key short-term resistance has been defined at 4359.00, the Sep 15 high. A break would be bullish. A bear cycle in S&P E-minis remains in play and yesterday’s break lower reinforces current conditions. The contract has breached support at 4483.25, the Sep 7 low. This confirms a resumption of the bear leg that started Sep 1. A continuation lower would expose 4397.75, the Aug 18 low. Initial key resistance has been defined at 4566.00, the Sep 15 high. Clearance of this level would instead reinstate a bullish theme exposing 4597.50, Sep 1 high.

• Japan's NIKKEI closed lower by 218.81 pts or -0.66% at 33023.78 and the TOPIX ended 24.3 pts lower or -1% at 2406.
• Elsewhere, in China the SHANGHAI closed lower by 16.389 pts or -0.52% at 3108.568 and the HANG SENG ended 111.57 pts lower or -0.62% at 17885.6.
• Across Europe, Germany's DAX trades higher by 100.94 pts or +0.64% at 15768.4, FTSE 100 higher by 43.28 pts or +0.57% at 7707.26, CAC 40 up 25.27 pts or +0.35% at 7307.12 and Euro Stoxx 50 up 22.91 pts or +0.54% at 4265.48.
• Dow Jones mini up 46 pts or +0.13% at 34858, S&P 500 mini up 7 pts or +0.16% at 4496.25, NASDAQ mini up 27.25 pts or +0.18% at 15398.75.

COMMODITIES: WTI Futures Enter Short-Term Bearish Corrective Cycle

The uptrend in WTI futures remains intact however the contract has entered a short-term bearish corrective cycle. The trend condition is overbought and a move lower would allow this to unwind. The first key support to watch lies at $86.53, the 20-day EMA and is a potential short-term objective. On the upside, clearance of yesterday’s $93.74 high would confirm a resumption of the uptrend and open $94.66, a Fibonacci projection. Gold has recovered from last week’s $1901.1 low on Sep 14. A break of this level would strengthen a bearish theme and highlight the fact that the recovery between Aug 21 - Sep 1 has been a correction. This would expose $1884.9, the Aug 21 low. On the upside, the recent breach of the 50-day EMA does highlight a possible developing bullish threat. Key resistance is at $1953.0, the Sep 1 high where a break is required to confirm a bullish theme.

• WTI Crude down $1.3 or -1.43% at $89.9
• Natural Gas down $0.11 or -3.76% at $2.74
• Gold spot down $2 or -0.1% at $1929.39
• Copper up $0.4 or +0.11% at $375.05
• Silver up $0.05 or +0.21% at $23.2451
• Platinum up $1.17 or +0.12% at $945.6