MNI US OPEN - Fresh Cycle Highs in Tsy Yields the Key Driver

NEWS

US (BBG): Trump Leads Biden in Key States as Voters Fret About the Economy

Donald Trump is leading President Joe Biden in several key swing states as voters reject the economic message that is central to Biden’s reelection bid, according to a poll by Bloomberg News and Morning Consult. Trump, the frontrunner for the GOP nomination, leads Biden 47% to 43% among voters in Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin. The results across those seven states had a margin of error of 1 percentage point.

US/VENEZUELA (BBG): Venezuela Oil, Bond Sanctions Eased in US Bet on Free Elections

The US suspended sanctions on Venezuelan oil, gas and gold production after four years and lifted some restrictions on bond trading, expressing confidence that strongman President Nicolas Maduro is ready to take on all challengers in an open election. In a gesture of goodwill after Maduro’s government entered talks with some members of the opposition, the US Treasury Department said Wednesday it issued a six-month license authorizing transactions involving the oil and gas sector in Venezuela.

UK/ISRAEL (BBG): Sunak Lands in Israel as UK Joins Effort to Contain Conflict

Prime Minister Rishi Sunak arrived in Tel Aviv for a two-day visit to the wider region, as the UK joined the procession of foreign leaders visiting Israel in a bid to prevent the conflict from widening. The premier will hold meetings with Israeli Prime Minister Benjamin Netanyahu and President Isaac Herzog, before heading to a “number of other regional capitals,” his office said in a statement. It didn’t say what other countries the premier intends to visit.

UK (BBG): London Wins Back Europe’s Stock Market Crown From Paris

London has recaptured its crown as Europe’s largest stock market from Paris, lifted by surging crude oil prices. The combined market capitalization of primary listings in London — excluding ETFs and ADRs — is now $2,888.4 billion versus Paris’s $2,887.5 billion, according to an index compiled by Bloomberg. London had lost its status as Europe’s biggest stock market last November, extending an equity slump that stretched back to Britain’s vote to leave the European Union in 2016.

CHINA (Securities Daily): Digital and Green Framework Signed at Belt and Road

Representatives from 35 countries signed up to the Digital Economy and Green Development Economic and Trade Cooperation Framework during the Belt and Road Forum in Beijing, according to Securities Daily. Member states entered the agreement because digital and green transformation are two major trends in global economic and social transformation, and are important drivers of economic growth going forward.

CHINA/HONG KONG (MNI): NDRC Signs MoU With HKMA to Support Bond Market

MNI (Beijing) China’s National Development and Reform Commission has signed a memorandum of understanding with the Hong Kong Monetary Authority (HKMA) regarding cooperation in Hong Kong’s bond market, allowing the NDRC to better support Chinese enterprises' access to cross-border finance in Hong Kong and will promote the development of the local bond market.

CHINA/JAPAN (BBG): China Charges Japanese Executive Detained For Spying

A Japanese pharmaceutical company executive who was detained in Beijing on allegations of espionage has been formally charged, escalating a problem that has damaged ties between the two Asian neighbors and hit investor confidence in China. Japan’s Chief Cabinet Secretary Hirokazu Matsuno confirmed the indictment had taken place in mid-October in a briefing in Tokyo on Thursday.

JAPAN (BBG): Japan’s Key Labor Union Seeks More Pay Hikes for Next Year

Japan’s largest labor union federation demanded higher pay increases for next year, potentially providing the key element needed for the central bank to move toward policy normalization. Rengo, the country’s biggest trade union federation, called for companies to raise wages by “at least 5%” in principle Thursday, as part of its basic vision for the wage negotiations that culminate in the spring. The goal is slightly more ambitious than the one set before this year’s talks, when the union sought an “about 5%” increase.

BOJ (MNI): BOJ Managers Note Moderate Recovery

All nine regional Bank of Japan branch managers say their respective economies have gained or recovered moderately, despite impacts due to overseas economics and price rises, the BOJ's regional economic report said on Thursday. The report noted six out of the nine regions upgraded their economic assessment from three months ago with the remaining three regions leaving their assessment unchanged.

RBNZ (MNI): RBNZ to Lose Dual Mandate Within 100 Days - Ex Staff

New Zealand’s incoming government is likely to drop the Reserve Bank of New Zealand’s dual mandate targeting employment as well as inflation within its first 100 days in power and change the makeup of the Monetary Policy Committee, former Reserve staff and treasury advisors told MNI. The conservative National Party, which received 40% of the ballot, beating Prime Minister Chris Hipkins’s Labour, in Saturday’s election, has promised a single focus on price stability for the RBNZ, while minor parties it will rely on to form government have also called for central bank reform.

BI (BBG): Indonesia Surprises With Rate Hike to Preempt Rupiah Losses

Indonesia’s central bank resumed raising interest rates, surprising the markets as it moved to help bolster the rupiah amid risks from a conflict in the Middle East. Bank Indonesia increased its seven-day reverse repurchase rate by 25 basis points to a fresh four-year high of 6% on Thursday. It’s the first rate hike since January, when policymakers said they had already done enough to guide inflation back to the 2%-4% target.

BOK (MNI): Restrictive Stance, But Concerns Over Growth

Bank of Korea Governor Rhee Chang-yong on Thursday maintained a hawkish stance amid stubborn inflation, but refrained from flagging any near-term rate cut despite highlighting concerns over South Korea's slowing economy. The BOK on Thursday as expected decided unanimously to keep its policy interest rate unchanged at 3.50% for the sixth consecutive meeting. While inflation remains above-target, exports are slowing due to lower global demand for tech goods.

RUSSIA (BBG): Russia Has No Plans Yet to Further Ease Diesel Export Rules

Russia doesn’t currently have plans to ease remaining restrictions on diesel exports, according to Deputy Prime Minister Alexander Novak, indicating that there won’t be additional relief for the tight fuel market. “There are no decisions yet,” Novak told Bloomberg News in Beijing. “But if there are any problems, they will be considered by the Energy Ministry.”

CORPORATE (BBG): Tesla Tempers Growth Expectations as Musk Sees Storm Ahead

Elon Musk is dialing back expectations for Tesla Inc. as years of rapid expansion collide with rising interest rates and a more cost-conscious consumer. After months of persistent price cuts, Tesla’s margins have fallen well below the floor once set by its recently departed chief financial officer. The company is “ruthlessly” cutting costs to keep up, according to vehicle engineering chief Lars Moravy. But an unpredictable economic environment has Musk feeling

DATA

FRANCE OCT MANUF SENTIMENT AT 98 (MNI)

JAPAN DATA (MNI): Japan Sept Exports Post First Rise in Three Months

• JAPAN POSTS JPY62.4 BLN TRADE SURPLUS IN SEP
• JAPAN SEP EXPORTS +4.3% Y/Y; AUG -0.8%

Japan's September exports posted their first y/y rise in three months, up 4.3% following August's 0.8% fall, driven by solid automobile and their parts exports, Ministry of Finance data showed on Thursday. Auto parts exports rose 12% in September, up from the 1.1% decline the previous month, however automobile exports slowed to a 26.9% gain from August's 40.9% increase, indicating demand is recovering as supply-side restrictions ease.

JAPAN DATA (MNI): BOJ Q3 Real Export Index Rises 0.8% Q/Q

The Bank of Japan's real export index, calculated using Ministry of Finance trade data, rose in Q3 0.8% q/q, the second straight quarterly rise following a 2.4% increase in Q2, data released by the BOJ showed on Thursday. The figures were calculated by MNI based on BOJ data and confirmed by bank officials. The BOJ will release details of the index next Tuesday. The September real export index rose 4.6% m/m for the first rise in two month following an unrevised 6.1% fall in August.

AUSTRALIA DATA (MNI): Aussie Unemployment Strong at 3.6%, Employment Weak

• AUSTRALIA SEP UNEMPLOYMENT RATE +3.6%
• AUSTRALIA SEP LABOR PARTICIPATION RATE +66.7%
• AUSTRALIA SEP EMPLOYED PERSONS CHANGE 6.7K
• AUSTRALIA SEP F-T EMPLOYED PERSONS CHANGE -39.9K

Australia’s unemployment rate fell 0.1 pp to 3.6% in September, stronger than the 3.7% expected, however, employment was softer than anticipated growing by 7,000 – significantly lower than the 20,00 predicted, according to Australian Bureau of Statistics data. The employment number was down significantly from last month’s 65,000 jobs, while the participation rate fell 0.2 pp to 66.7% from last month’s record high of 67.0%.

FOREX: Rates Dictate Play, Keeping USD Firm

• Rates markets continue to dictate play early Thursday, with the further run higher for longer-end yields putting markets under more pressure. Both 10- and 30-y US yields again hit the best levels since 2007 as the steepening move accelerated and markets continue to bake-in the higher-for-longer theme across asset prices. This has supported the greenback across Thursday trade, keeping the USD Index within range of recent highs.
• Equity markets are lower across the board through the European morning, with poor performance across China and Hong Kong markets feeding directly into poor trade on the continent. The broad risk-off is helping support the JPY and CHF, both of which are toward the top-end of the G10 table.
• AUD and NZD are faring more poorly, with the firmer USD, softer labour market data and disappointing Chinese home sales data working against the currency. The technical backdrop remains bearish on the currency, with short-term gains still considered corrective. Attention is on $0.6286, the Oct 3/13 low. A clear break of this support would confirm a resumption of the trend and open 0.6215, a Fibonacci projection.
• Weekly jobless claims from the US are the data highlight Thursday, with existing home sales and the Philly Fed Business Outlook the other key releases. While data will be watched, the appearance from Fed's Powell will likely take more focus.
• The Fed chair speaks from the Economic Club in New York. While markets expect little from the Fed on rates at the November meeting, the near 50/50 pricing for another 25bps hike at some point across this cycle leaves an element of uncertainty and will be key for the trajectory of the USD across the week.

BONDS: Bulk of Early London Cheapening Holds as Bearish Momentum Extends

The early cheapening in EGBs and gilts largely holds after an extension of the bearish momentum dominated core global FI markets during Asia-Pac and early European trade.

• Technical breaks, a reiteration of the Fed’s higher for longer narrative and data revealing Chinese shedding of U.S. Tsys (albeit in August) were cited as contributary factors across several desks.
• U.S. Tsy yields have registered fresh cycle highs across the curve.
• That leaves Bund futures -20 or so, with the next technical support level a handful of ticks below session lows at 127.21. German cash benchmarks run 1.5-2.5bp cheaper.
• BTPs remain under widening pressure, with the well-documented Italian fiscal issues and the recent source reports/ECB comms playing down the need for imminent TPI deployment adding extra layers of weakness beyond the outright core global FI sell off. The proximity to a run of Italian sovereign credit rating reviews, given the aforementioned fiscal issues, will also be factoring in. 10-Year BTP yields sit above 5% as a result.
• Continued EGB supply is also providing some background pressure for the broader space.
• Gilt futures have cleared initial technical support leaving bears to focus on the Oct ’22 lows. The contract last prints -50, while cash gilt yields are flat to 5bp higher, with 10s seeing the most weakness. BoE pricing is now off hawkish session extremes, with the OIS strip twist steepening.

EQUITIES: E-Mini S&P Extends Pullback from 50-Day EMA

A bearish theme in Eurostoxx 50 futures remains in play and this week’s move signals the end of the recent Oct 4 - 12 corrective cycle. Note too that resistance at the 50-day EMA, at 4241.70, remains intact. A clear break of this average is required to signal scope for a stronger correction. Sights are on the bear trigger at 4082.00, the Oct 4 low. Clearance of this level would confirm a resumption of the downtrend.S&P e-minis found resistance last week at 4430.50 (Oct 12 high) and this means that - for now - resistance at the 50-day EMA, at 4422.22, remains intact. A clear breach of the average is required to strengthen bullish conditions and this would open 4486.12, trendline resistance drawn from the Jul 27 high. On the downside, a deeper pullback would open 4235.50, the Oct 4 low and bear trigger.

• Japan's NIKKEI closed lower by 611.63 pts or -1.91% at 31430.62 and the TOPIX ended 31.18 pts lower or -1.36% at 2264.16.
• Elsewhere, in China the SHANGHAI closed lower by 53.317 pts or -1.74% at 3005.393 and the HANG SENG ended 436.63 pts lower or -2.46% at 17295.89.
• Across Europe, Germany's DAX trades lower by 69.86 pts or -0.46% at 15030.59, FTSE 100 lower by 86.33 pts or -1.14% at 7503.67, CAC 40 down 63.36 pts or -0.91% at 6901 and Euro Stoxx 50 down 21.48 pts or -0.52% at 4084.93.
• Dow Jones mini down 90 pts or -0.27% at 33720, S&P 500 mini down 11.5 pts or -0.26% at 4330, NASDAQ mini down 24.75 pts or -0.16% at 14994.

COMMODITIES: Bullish Theme in Gold Continues to Be Strengthened

WTI futures traded higher yesterday and the contract remains firm. The latest recovery has highlighted a key support at $81.50, the Oct 6 low. The medium-term trend condition remains bullish and an extension higher would expose the bull trigger at $95.03, the Sep 28 high. Clearance of this hurdle would confirm a resumption of the uptrend. For bears, a move through $81.50, would instead highlight potential for a stronger bear cycle. Gold traded higher Wednesday, extending the reversal from $1810.5, the Oct 6 low. The yellow metal has pierced key resistance at $1953.0, the Sep 1 high. A clear break of this level would further strengthen a bullish theme and open $1987.5, the Jul 20 high. Note that moving average studies still highlight a broader bear trend condition, however, prices would need to trade below last Friday's low of $1868.8 to signal a reversal.

• WTI Crude down $1.41 or -1.6% at $87.35
• Natural Gas down $0.02 or -0.62% at $3.041
• Gold spot up $2.26 or +0.12% at $1948.64
• Copper up $0.25 or +0.07% at $359.5
• Silver up $0.06 or +0.26% at $22.9292
• Platinum down $8 or -0.9% at $885.84