MNI US OPEN - German Regional CPIs an Early Sign of National Disinflation

NEWS

US (BBG): US Military Attacks Two Syrian Facilities It Says Linked to Iran

US forces conducted strikes on two facilities in eastern Syria it believes were used by Iran’s Islamic Revolutionary Guard Corps and affiliated groups, in response to attacks on American troops in the region. Defense Secretary Lloyd Austin said President Joe Biden ordered the “precision self-defense” strikes following attacks since Oct. 17 that resulted in the death of one US contractor and injured 21 American personnel. Austin warned Iran and its proxies not to threaten US forces.

US/CHINA (MNI): China, U.S. Discuss Currency, Financial Stability

MNI (Beijing) China and the U.S. had a “professional, pragmatic, candid and constructive” communication at the first meeting of a new financial working group on Wednesday, where currency and financial stability, supervision, and regulation were discussed, the People’s Bank of China said in a statement on Friday. The discussion also included sustainable finance, anti-money laundering, counter-terrorist financing and global financial governance. Both parties agreed to maintain communication, the statement said.

US/CHINA (BBG): China, US Release Dueling Videos With Accusations of Provocation

The US and China each released video footage that accused the other of provocative or unprofessional actions by military craft in and around the South China Sea, escalating the rhetoric by both countries in the disputed body of water. The Chinese clip said that on Aug. 19, the USS Ralph Johnson “conducted close-in harassment” against a Chinese navy task group doing routine training in the South China Sea.

G7 (BBG): G-7 Trade Chiefs Set to Tackle Supply Chains, Economic Coercion

Trade ministers from the world’s most advanced economies will seek strategies to make global supply chains more resilient and governments less vulnerable to economic coercion from the likes of China when they gather in Osaka this weekend. Group of Seven trade ministers convene on Saturday and Sunday against a backdrop of soaring geopolitical risk due to the Middle East and Ukraine conflicts and diplomatic relations frayed by sanctions and trade barriers meant to enhance industrial security.

ECB (MNI): ECB SPF Shows Slight Downward Inflation Shift

Headline inflation is expected to fall from 5.6% in 2023 to to 2.7% in 2024 and 2.1% in 2025, according to the latest ECB Survey of Professional Forecasters, with longer-term expectations unchanged at 2.1% for 2028. Expectations for core inflation were unchanged for 2023 at 5.1%, but were revised down by 0.2% to 2.9% and by 0.1% to 2.2% in 2024 and 2025, respectively.

ECB (MNI): EZ Firms Predict Weak Start to 2024 - ECB Survey

The squeeze on incomes from high inflation and interest rates means many leading euro area firms are pessimistic about the outlook for 2023 and 2024 despite easing supply constraints, the ECB reported Friday, with wage growth expected to moderate in coming months. The survey of 56 non-financial companies carried out between 25 September and 5 October found most reporting weakening activity consisted with a mild decline in output in Q3 and Q4 2023.

ECB (BBG): Euro Area in Stagnation, Not Deep Economic Crisis, Muller Says

“When describing the euro area’s economic situation, it’s more accurate to speak of stagnation and a sluggish recovery, not a deep economic crisis,” according to European Central Bank Governing Council Member Madis Muller. “Getting inflation under control doesn’t necessarily require the central bank to trigger a deep recession with high interest rates,” Muller, who also heads Estonia’s central bank, says in blog post after ECB on Thursday kept borrowing costs unchanged for the first time in more than a year.

ECB (BBG): ECB’s Vasle Says Inflation Easing But Still Above Target

European Central Bank Governing Council member Bostjan Vasle said inflation is gradually decreasing, but remains above the 2% target.

EU (MNI): Leaders Call for 'Pauses' in Israel-Hamas War; EUCO Turns to Migration & MFF

In the first day of the European Council summit in Brussels, lengthy negotiations into the night saw an eventual agreement emerge among member state leaders regarding the bloc's stance towards the Israel-Hamas conflict. After five hours of behind-closed-doors talks, leaders agreed to calling for "pauses for humanitarian needs" in the conflict. Reports allege Spain had been a hold-out, calling for a singular pause (in effect a cease-fire), but won the concession of the text calling for an 'international peace conference', much like the one Spain hosted in 1991.

ISRAEL (BBG): Israel Soldiers Carry Out Another Raid in Gaza Strip: Army Radio

Israel soldiers carried out another raid in Gaza overnight that lasted several hours, Army Radio says in a post on X. Soldiers form the 36th division entered Gaza Strip and attacked Hamas targets and are “expected to leave soon.”

CHINA (MNI): China to Push for Formal Belt & Road Structure

MNI (Beijing) China wants eventually to develop its Belt and Road Initiative into a common market, with shared external tariffs, starting with framework treaties to open up trade further in a similar pattern to that followed by ASEAN, a leading Chinese international affairs expert told MNI. China announced a new round of BRI investment last week in Beijing, with China Development Bank and the Export-Import Bank of China each providing a CNY350 billion financing window, with plans to inject CNY80 billion into the Silk Road Fund.

CHINA (MNI): Former Premier Li Keqiang Dead at 68

MNI (Beijing) Former Chinese Premier Li Keqiang has died at the age of 68, China Xinhua News Agency has reported. Li was in Shanghai when he suffered a sudden heart attack on Oct 26 and, after efforts to revive him failed, was pronounced dead at 00.10 hours on Oct 27. Li was China's Premier from 2013-2023. He stepped down in March and was replaced by Premier Li Qiang.

JAPAN (MNI): Ruling Parties Begin Talks on Proposed Tax Cuts

Jiji Press reports that the respective tax panels of the two governing parties - PM Fumio Kishida's conservative Liberal Democratic Party (LDP) and its junior partner Komeito - have begun discussions on the tax cut proposals outlined by Kishida on 26 October. Jiji: The talks come as Kishida "...unveiled plans to reduce tax by 40,000 yen per person in June next year. [...]The tax reduction will require financial resources totaling some 3.5 trillion yen, equivalent to the tax revenue increase in the past two years."

RBA (MNI): CPI Bakes in RBA November Rate Rise - Ex Staff

This week’s higher inflation figures will force the Reserve Bank of Australia to steepen its forecasts for the projected path of prices and to hike the cash rate a further 25bp to 4.35% at its Nov 7 meeting, former RBA staff and advisors told MNI. “This week’s CPI numbers have baked in an interest rate rise and I would have to revise my mental models if the RBA did not raise rates,” noted Martin Eftimoski, head of research and acquisitions at property development and construction company Eternal Homes Projects and a former RBA economist.

BSP (MNI): Gov Remolona Says If There Is Nov Hike, It Would Likely Be 25bp

Wires run comments from BSP Governor Eli Remolona, who says that the Monetary Board could raise interest rates again at the regular rate review in November, following yesterday's off-cycle hike. The official says that a 25bp move is more likely if the Board decides to tighten policy in November, while 50bp would be "a bit of a stretch". The Governor adds that he doesn't think that Bangko Sentral ng Pilipinas has been intervening in FX markets recently.

DATA

GERMANY DATA (MNI): Brandenburg/Berlin Oct CPI Consistent With National Disinflation

The Brandenburg / Berlin CPI release today came well ahead of expectations - German state (and national) Oct flash CPI is due out Monday. The 4.6% Y/Y reported by Brandenburg is a deceleration from 5.6% in Sept, led by energy prices (-3.2% Y/Y). Berlin came in at 4.2%, vs 5.1% prior (3.8% ex-food and energy vs 4.1% prior). Berlin makes up around 6% of the national German weighting, with Brandenburg a further 3%. The figures are in line with expectations for the national print to soften vs September. German headline CPI consensus is 4.0% Y/Y vs last month's 4.5% with core 4.6%.

SPAIN Q3 FLASH GDP +0.3% Q/Q, +1.8% Y/Y (MNI)

ITALY OCT CONSUMER CONFIDENCE 101.6 (MNI)
ITALY OCT BUSINESS CONFIDENCE 103.9 (MNI)

FRANCE OCT CONSUMER SENTIMENT 84 (MNI)

SWEDEN SEP RETAIL SALES -3.8% Y/Y (MNI)

CHINA DATA (MNI): PBOC Drains Net CNY329bln Via OMO Fri; Rates Unchanged

MNI (Beijing) The People's Bank of China (PBOC) conducted CNY499 billion via 7-day reverse repo on Friday, with the rate unchanged at 1.80%. The operation has led to a net drain of CNY329 billion after offsetting the maturity of CNY828 billion reverse repos today, according to Wind Information.

JAPAN DATA (MNI): Japan Oct Tokyo Core CPI Rise 2.7% vs. Sept 2.5%

• JAPAN OCT TOKYO CORE CPI +2.7% Y/Y; SEPT +2.5%
• JAPAN OCT TOKYO CORE-CORE CPI +3.8% Y/Y; SEPT +3.9%

The y/y rise in the Tokyo core inflation rate accelerated to 2.7% in October from September’s 2.5% due to slower negative contributions from energy and solid food prices excluding perishable food, for the first rise in four months, data from the Ministry of Internal Affairs and Communications showed on Friday. The data indicated the nationwide October CPI read will likely rise from September’s 2.8% and increase the chance that the Bank of Japan board will revise up its median inflation view this fiscal year from July’s 2.5% to circa 3%.

FOREX: Sizeable USD/JPY Expiry Proves Magnetic

• USD/JPY faded further off the week's cycle high of 150.78 across Asia-Pac hours, with prices narrowing in on the Y150.00 handle. A sizeable option strike at the handle ($4.4bln rolling off at Y150.00 - comprised of $2.95bln in calls and $1.4bln in puts).
• Equity markets sit higher ahead of the Friday open, with US futures pointing to a positive open at the bell. A more reassuring set of corporate earnings after-market on Thursday have steadied sentiment, with Amazon's solid cloud unit results driving a 5.3% rally in the shares pre-market.
• Firmer stock markets have provided a supportive backdrop for growth-proxies, putting AUD higher than all others in G10. AUD/USD has recouped around 80 pips off the cycle lows posted on Thursday, but markets need to top the 50-dma resistance of 0.6396 (a level that held on Sep29, Oct11 and Oct12).
• The EUR shrugged off a sharp deceleration in Brandenburg CPI to 4.6% Y/Y from 5.6% prior, led by energy prices of -3.2%. EUR/USD is flat on the day, but remains at the lower-end of the week's range, leaving 1.0524 as intraday support and 1.0609 a near-term resistance - the 50% retracement for the pullback from 1.0694.
• Data focus Friday rests on the September US personal income/spending release as well as the final University of Michigan sentiment survey for October. Fed's Barr is the sole central bank speaker, but the Fed's pre-decision media blackout period means he'll be steering clear of monetary policy.

BONDS: German Yields Lower Following Early Regional CPI Releases

• The earlier-than-expected releases of Brandenburg / Berlin CPI (German regional CPI data that had been expected to be released on Monday) looks to be the biggest driver of the German curve so far this morning. The numbers look lower than the early consensus for the national print would imply, but we caution against reading too much into these numbers as they haven't the strongest correlation with movements in the national print.
• Nevertheless, over the past hour or so Schatz and Bund yields have been moving lower, with Schatz yields down over 2bp and below yesterday's intraday lows. At the time of writing, yields were around 2.2bp above the 9 October low of 3.030% while Euribor futures are also outperforming SONIA and SOFR futures on the day.
• Gilts have moved higher this morning but the moves were generally before the German regional data and largely catching up with moves seen in USTs yesterday following the more-successful 5-year UST auction (relative to other recent UST auctions).
• USTs have largely traded sideways this morning.
• US Core PCE and US personal income / spending data remain the highlights for the rest of the day with Fed's Barr also due to speak (but in the blackout period so not on monpol).
• TY1 futures are down -0-3+ today at 106-07+ with 10y UST yields up 1.9bp at 4.865% and 2y yields up 0.7bp at 5.048%.
• Bund futures are up 0.18 today at 128.65 with 10y Bund yields down -2.9bp at 2.830% and Schatz yields down -2.3bp at 3.046%.
• Gilt futures are up 0.16 today at 924.48 with 10y yields down -1.9bp at 4.577% and 2y yields down -2.6bp at 4.786%.

EQUITIES: E-Mini S&P Remains Close to Thursday's Lows

A bearish theme in Eurostoxx 50 futures remains in play and price is trading closer to its recent lows. Support at 4082.00, the Oct 4 low and a bear trigger, has recently been cleared. This confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. The focus is on the 4000.00 handle. Initial firm resistance is at 4134.70, the 20-day EMA. S&P e-minis maintain a softer tone and the contract traded lower Thursday. This week’s breach of support at 4235.50, the Oct 4 low and bear trigger, confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position too. The focus is on 4166.25, a Fibonacci projection. Initial firm resistance is at 4312.52, the 20-day EMA.

• Japan's NIKKEI closed higher by 389.91 pts or +1.27% at 30991.69 and the TOPIX ended 30.4 pts higher or +1.37% at 2254.65.
• Elsewhere, in China the SHANGHAI closed higher by 29.485 pts or +0.99% at 3017.784 and the HANG SENG ended 354.12 pts higher or +2.08% at 17398.73.
• Across Europe, Germany's DAX trades higher by 69 pts or +0.47% at 14798.88, FTSE 100 higher by 23.52 pts or +0.32% at 7378.51, CAC 40 down 40.23 pts or -0.58% at 6848.47 and Euro Stoxx 50 up 2.05 pts or +0.05% at 4051.48.
• Dow Jones mini up 108 pts or +0.33% at 32987, S&P 500 mini up 25.5 pts or +0.61% at 4182.5, NASDAQ mini up 134.5 pts or +0.95% at 14330.75.

COMMODITIES: Gold Holds on to the Bulk of Recent Gains

WTI futures have traded lower this week as the pullback from $89.85, the Oct 20 high, extends. The medium-term trend condition is bullish and the recent move lower 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 uptrend. For bears, a move through $80.20, the Oct 6 low, would instead highlight a short-term top. Gold conditions are unchanged - the metal remains firm and is holding on to the bulk of its recent gains. Price has breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The break strengthens a bullish theme and opens $2003.4, a Fibonacci retracement point. Initial firm pivot support lies at $1915.3, the 50-day EMA. Clearance of this level is required to signal a short-term top and a potential reversal.

• WTI Crude up $1.63 or +1.96% at $84.85
• Natural Gas up $0.11 or +3.42% at $3.324
• Gold spot up $2.28 or +0.11% at $1986.58
• Copper up $3.3 or +0.92% at $361.7
• Silver up $0.04 or +0.2% at $22.831
• Platinum up $2.85 or +0.31% at $908.85