MNI US OPEN - FOMC Expected Unchanged for 2nd Consecutive Meeting

NEWS

MNI FED PREVIEW - NOVEMBER 2023: Determining a High Yield Strategy

The FOMC will leave rates unchanged for the 2nd consecutive meeting on Nov 1. While economic activity data has been strong and inflation progress has arguably stalled since the September meeting, the Committee will maintain a cautious approach as it assesses the impact of tighter financial conditions and the lagged effects of past tightening. Powell’s press conference and the Statement will attempt to underpin market hike pricing which is broadly aligned with the Fed’s previously signaled path. This will include maintaining a bias toward further tightening, though Powell has set a fairly high bar to further hikes.

US (BBG): White House Warns That Biden Would Veto GOP’s Israel Aid Bill

The White House said President Joe Biden would veto a bill proposed by House Republicans to provide assistance for Israel that would be paid for by slashing funds for the Internal Revenue Service. The Office of Management and Budget, in a lengthy statement on Tuesday night, said the measure “fails to meet the urgency of the moment by deepening our divides and severely eroding historic bipartisan support for Israel’s security.” The legislation, championed by the new House speaker, Mike Johnson, has already run into stiff bipartisan opposition from the US Senate, creating a standoff as he tries to reunite the Republicans who form his chamber’s narrow majority.

US/CHINA (BBG): White House Says Biden, Xi to Meet at APEC in San Francisco

President Joe Biden will meet with Chinese leader Xi Jinping on the sidelines of the Asia-Pacific Economic Cooperation summit in San Francisco in November, White House press secretary Karine Jean-Pierre said Tuesday. The confirmation follows months of work between the two countries to set up a sit-down for the two leaders around the APEC meeting — though the official acknowledgment appeared to happen almost by mistake during the daily White House press briefing.

US/ISRAEL (BBG): US and Israel Weigh Peacekeepers for Gaza Strip After Hamas

The US and Israel are exploring options for the future of the Gaza Strip, including the possibility of a multinational force that may involve American troops if Israeli forces succeed in ousting Hamas, people familiar with the matter said. The people said the conversations have been impelled by a sense of urgency to come up with a plan for the future of Gaza now that a ground invasion has begun. A second option would establish a peacekeeping force modeled on one that oversees a 1979 Egypt-Israel peace treaty, while a third would see Gaza put under temporary United Nations oversight.

ISRAEL/HAMAS (The Times): Egypt Opens Gaza’s Rafah Crossing for Foreign Nationals

The first foreign nationals have been allowed to leave the Gaza Strip after weeks of being trapped in the territory. In the past few minutes, foreign passport holders were seen entering the Rafah crossing from Gaza to Egypt, and cars have also been passing through. They are the first people to leave the besieged enclave since the war between Israel and Hamas began.

MNI BOE PREVIEW - NOVEMBER 2023: On Hold

There is a unanimous expectation that the MPC will vote to keep rates unchanged at 5.25% at its November policy meeting. The MNI Markets team (as well as the majority of the sell-side) expect a 6-3 vote breakdown with Mann, Haskel and Greene continuing to vote for a 25bp hike and Cunliffe’s replacement Sarah Breeden likely voting with the other internal MPC members and preferring rates to remain on hold. Forward guidance is likely to remain unchanged.

UK (BBG): UK House Prices Gain Most in Over a Year as Stability Returns

UK house prices rose unexpectedly in October, adding to signs that the property market is stabilizing as the Bank of England nears the end of its rate-hiking cycle. The average price of a home gained 0.9% to £259,423 ($315,240) following a 0.1% rise in September, according to mortgage lender Nationwide Building Society. The jump was the largest since August last year and defied economists’ expectations for a 0.4% fall. Prices were down 3.3% from the same time a year ago, an improvement on the 5.3% annual drop the month before.

UK (The Times): Keep Rates on Hold, Times Experts Urge

The Bank of England should repeat September’s decision and leave interest rates unchanged at 5.25 per cent, members of The Times shadow monetary policy committee (MPC) have urged. A clear majority of 7-2 backed maintaining Britain’s official interest rate at its present level, which would send a clear signal that the Bank of England is close to or has finished the rate-raising leg of its fight against inflation.

MNI NORGES BANK PREVIEW - NOVEMBER 2023: Prepwork for Dec Hike

Guidance dictates Norges Bank should keep rates unchanged, opting for a December hike instead. Markets and sell-side analysts are well primed for a peak rate of 4.50% by year-end. September’s MPR showed the bank foresee the possibility for rate cuts from H2’24.

CHINA (BBG): PBOC Drains Liquidity in Signal It Sees Rate Surge as Temporary

China’s central bank withdrew cash from the financial system, suggesting it views Tuesday’s abrupt surge in short-term borrowing costs as a one-off disruption. The People’s Bank of China drained a net 109 billion yuan ($14.9 billion) from money markets Wednesday by doling out a smaller amount of new short-term loans than was maturing. The withdrawal came even as funding conditions tightened sharply in recent days due to month-end demand, tax payments and large government bond sales.

CHINA (MNI): Agricultural Price Index Lowest Since June 2022

MNI (Beijing) China's daily prices for agricultural products hit new lows Wednesday, with the Agricultural Wholesale Price 200 Index falling to 115.50 points, the lowest point since June 2022, according to data released by the Ministry of Agriculture and Rural Affairs. The Agricultural Wholesale Price 200 Index is generated based on the price data of various agricultural products, including pork and eggs, from 200 typical agricultural wholesale markets across the country.

JAPAN (BBG): Kanda Says “We’re on Standby” on JPY

Traders are piling into fresh bets against the yen, triggering pushback from Japanese authorities who are threatening once again to take action including the possibility of currency intervention. The yen edged away from a year-to-date low Wednesday after Masato Kanda, Japan’s top currency official at the finance ministry, said authorities are ready to act if needed. “We’re on standby,” Kanda told reporters, echoing language he used a year ago on the day Japan made the first of three forays into the market. “But I can’t say what we’ll do, and when — we’ll make judgments overall, and we’re making judgments in a state of urgency.”

JAPAN (BBG): Japan Economic Package Includes 21.8trln Yen in Spending: Draft

Japan will unveil around 21.8 trillion yen in spending for its latest stimulus package according to the latest draft of the plans obtained by Bloomberg. Around 13.1 trillion yen will go toward funding the package through an extra budget: documents. Around 6.3 trillion yen will be earmaked to mitigating inflationary impacts. Around 3 trillion yen will be set aside to help firms raise wages, increase incomes and assist regional growth.

JAPAN (MNI): Japan Q3 GDP to Fall 0.1% Q/Q; -0.3% Annualised

Japan's economy in Q3 will likely have fallen 0.1% q/q – or a 0.3% annualised fall – the first contraction in four quarters, due to weaker public investment and despite stronger private consumption and capital investment, economists predicted. The forecast follows Q2's 1.2% q/q growth, or an annualised 4.8%. Some economists, however, expect the economy to grow in Q3 for the fourth straight quarter.

BOJ (MNI): BOJ Offers Extraordinary JGB Buying Operations

The Bank of Japan on Wednesday offered extraordinary government bond buying operations to curb the rise in JGB yields for the first time since Oct 24. The bank offered to buy JPY100 billion of JGBs with a remaining life of one-three years and JPY300 of JGBs with a remaining life of five-10 years. The 10-year JGB yield rose to 0.970%, the highest level since May 2013.

BOJ (MNI): BOJ Focuses on Future Price-Setting Strength

The Bank of Japan will focus on whether forward-looking price-setting behaviour expands to strengthen price rises after the impact of higher import prices dissipates, according to the full text of the Bank of Japan’s October Outlook Report. “With regard to spillover from wages to prices, developments in services prices – where labor costs account for a high share of output prices – are particularly important,” the report said.

AUSTRALIA (MNI): IMF Sees Inflation Moderation Too Slow, Says RBA Needs to Hike More

The IMF has released its conclusions from its 2023 Article IV Mission on Australia. It recommends further rate hikes to reduce sticky core inflation and reforms to boost productivity growth, which the RBA has noted for some time is too low. The market has over a 70% chance of a 25bp move at the November 7 meeting priced in. The IMF is forecasting 2024 growth of 1.25%, resulting in the closure of the output gap, down from 1.8% this year.

DATA

UK DATA (MNI): Downward Revision to Manufacturing PMI

• UK FINAL OCT MANUF PMI 44.8 (FLASH 45.2); SEP 44.3 (MNI)

UK PMI manufacturing final release (revised down 4 tenths) points to "All five of the sub-components included in the PMI calculation signalled a deterioration in operating conditions during October. Alongside lower new orders, output and employment, stocks of purchases also declined and suppliers' delivery times improved (traditionally a sign of weak demand)."

SWEDEN DATA (MNI): Manufacturing PMI Remains in Contraction

Swedish Manufacturing PMI for October remained in contractionary territory at45.7 (vs 43.3 cons; 43.4 prior). The PMI has consistently been more pessimistic than the manufacturing component of the Economic Tendency Indicator (which is more closely followed in Sweden). The increase in the index was broad-based, with rises in new orders (both export and domestic), production and employment. However, all major components remain in contractionary territory other than planned production (55.2 vs 51.8 prior).

CHINA DATA (MNI): Caixin PMI Falls Back into Contractionary Territory

• CHINA OCT CAIXIN MANUFACTURING PMI 49.5 VS 50.6 IN SEP

The Caixin manufacturing PMI for China slipped back into contractionary territory for October. The headline came in at 49.5, versus a 50.8 consensus estimate. We were also well below the September outcome of 50.6. This result joins the official PMI for October back in the contractionary zone (yesterday's print was also 49.5). The trend for the Caixin PMI has largely been sideways through 2023, which is not suggesting a buoyant recovery, at least for smaller/export orientated manufacturers, which the survey tends to represent.

AUSTRALIA DATA (MNI): Building Approvals Soft but Signs of Gradually Improving

• AUSTRALIA SEP BUILDING APPROVALS -4.6% M/M, -20.6% Y/Y

The number of home building approvals for September fell 4.6% m/m compared with an expected 2.5% rise. There was weakness across private houses and multi-dwelling approvals down 4.6% m/m and 5.1% respectively. 3-month momentum is positive for houses though but still negative for apartments. There were some slight improvements in annual rates but they're still negative compared to a year ago and total approvals are down 18.2% compared with pre-pandemic.

NEW ZEALAND DATA (MNI): Orderly Easing of the Labour Market in Line With RBNZ Outlook

• NEW ZEALAND 3Q EMPLOYMENT CHANGE Q/Q -0.2%; MEDIAN 0.4%; PRIOR 1.0%
• NEW ZEALAND 3Q EMPLOYMENT CHANGE Y/Y 2.4%; MEDIAN 3.2%; PRIOR 4.1%
• NEW ZEALAND 3Q PARTICIPATION RATE 72.0%; MEDIAN 72.5%; PRIOR 72.4%
• NEW ZEALAND 3Q UNEMPLOYMENT RATE 3.9%; MEDIAN 3.9%; PRIOR 3.6%

NZ labour market data was either below or close to expectations. Q3 employment contracted 0.2% q/q after rising 1%, the first drop since Q2 2022. The unemployment rate rose 0.3pp to 3.9% in line with consensus but the highest since Q2 2021. It was slightly higher than the RBNZ's projected 3.8% but still consistent with Q4's 4.4% forecast. Private wage growth came in below the 1%q/q forecast.

FOREX: JPY Claws Back Small Part of Losses

• JPY is toward the top-end of the G10 table, pulling back a small part of yesterday's acute post-BoJ losses. USD/JPY has faded around 50 pips from the new cycle high of 151.72, while EUR/JPY slips just over a point from yesterday's 160.85 on profit-taking and consolidation. The Japanese finance ministry stated that they "on standby" in currency markets, helping aide a recovery off lows for the currency.
• The single currency is the poorest performer, with EUR/USD testing the uptrendline support drawn off the early October lows at 1.0550. This keeps the near-term outlook bearish, with weakness through that mark opening 1.0524 and below. All Saint's Day holidays across the continent have kept activity and markets muted so far Wednesday, with focus on the Fed decision and the US Treasury's Quarterly Refunding Announcement later today.
• The greenback is strictly mid-table, with more stable European equities countered by a softer US equity picture. A lower open on Wall Street is expected later today, however losses are consolidative and muted at this point in time.
• ADP Employment Change, JOLTS job openings and the ISM report for October are all set to cross, with the Fed chair due to give his post-decision press conference at 1830GMT/1230ET.

BONDS: Awaiting Data and Announcements in US Session

EGBs and Gilts sit weaker this morning, with curves bear steepening. USTs outperform and bull flatten on the day, though this comes off the back of a spike in volumes and weakness across Treasury futures (>200k traded in just two minutes) seen in late US trading yesterday after the official futures close.

• Today currently sees low volumes and a thin data docket, owing to the All Saint's day holiday across most of Europe, with markets waiting for the US session which features data (ADP, JOLTS, ISM Manuf) and key announcements (Fed, Treasury Refunding).
• TY1 futures are down -0-4+ today at 106-01 with 10y UST yields down -2.6bp at 4.906% and the 2s10s down -0.8bp today at -16.5bp. Note the inconsistency between futures and cash here is due to different "close" times as noted above.
• Bund futures are down -0.38 today at 128.61 and 10y Bund yields up 3.5bp at 2.839%, with the 2s10s curve up 2.9bp today at -17.8bp. Gilts sit similarly, with futures down -0.40 today at 92.76 and 10y yields up 4.2bp at 4.551%. There are no scheduled ECB speakers today, and UK markets await the BoE decision tomorrow (where unchanged rates are expected).
• Peripheries are mixed, with Portuguese and Greek spreads tighter vs Bunds and the 10-year BTP/Bund spread 2.3bps wider at 199.9bps at typing.

EQUITIES: Recovery in E-Mini S&P This Week Considered Corrective

A bearish theme in Eurostoxx 50 futures remains in play and the contract remains closer to its recent lows. The recent breach of support at 4082.00, the Oct 4 low and bear trigger, confirmed a resumption of the downtrend and this maintains the bearish price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position too. Sights are on the 4000.00 handle. Initial firm resistance is at 4112.30, the 20-day EMA.S&P e-minis maintain a softer tone and the latest recovery appears to be a correction. The contract traded to a fresh cycle low last Friday. The recent breach of support at 4235.50, Oct 4 low and bear trigger, confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. MA studies are in a bear-mode position too. The focus is on 4100.00. Initial firm resistance is at 4278.42, the 20-day EMA.

• Japan's NIKKEI closed higher by 742.8 pts or +2.41% at 31601.65 and the TOPIX ended 56.96 pts higher or +2.53% at 2310.68.
• Elsewhere, in China the SHANGHAI closed higher by 4.305 pts or +0.14% at 3023.076 and the HANG SENG ended 10.7 pts lower or -0.06% at 17101.78.
• Across Europe, Germany's DAX trades higher by 31.78 pts or +0.21% at 14842.15, FTSE 100 higher by 13.22 pts or +0.18% at 7334.92, CAC 40 up 16.75 pts or +0.24% at 6902.4 and Euro Stoxx 50 up 7.81 pts or +0.19% at 4068.93.
• Dow Jones mini down 94 pts or -0.28% at 33042, S&P 500 mini down 11 pts or -0.26% at 4201.25, NASDAQ mini down 41.5 pts or -0.29% at 14448.75.

COMMODITIES: Short-Term Pullback in Gold Corrective, Technical Conditions Unchanged

WTI futures traded lower again Tuesday as the pullback from $89.85, the Oct 20 high, extends. The medium-term trend condition is bullish and the recent move lower still appears to be a correction. A resumption of gains would expose the bull trigger at $92.48, the Sep 28 high. Clearance of this hurdle would confirm a resumption of the medium -term uptrend. For bears, a move through $80.20, the Oct 6 low, would instead highlight a short-term top. Gold conditions are unchanged - the uptrend remains intact and a short-term pullback is considered corrective. Price has recently breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The continuation higher strengthens a bullish theme and opens $2022.20 next, the May 15 high. Initial firm pivot support lies at $1926.7, the 50-day EMA. Clearance of this level is required to signal a short-term top and a potential reversal.

• WTI Crude up $0.54 or +0.67% at $81.59
• Natural Gas down $0.06 or -1.59% at $3.524
• Gold spot down $0.98 or -0.05% at $1981.88
• Copper down $1 or -0.27% at $363.95
• Silver down $0.21 or -0.91% at $22.6214
• Platinum down $8.75 or -0.93% at $927.98