MNI US OPEN - Global Markets Remain Sensitive to Israeli Headlines

NEWS

FED (MNI): Fed's Daly Says Neutral Rate Could Be Higher

The neutral rate of interest could be higher than pre-pandemic, San Francisco Fed President Mary Daly said Tuesday, weighing into a lively debate within the Federal Reserve system about what level of interest rates neither stimulates nor slows economic growth.

FED (MNI): Fed's Bowman Sees Risk of Impaired Treasury Market

Federal Reserve Governor Michelle Bowman warned Wednesday Treasury market functioning is at risk of again becoming impaired, especially as Fed QT continues and Treasury auction volumes expand to meet issuance needs, and that can disrupt central bank plans. "U.S. Treasury market stress events -- including the repo-market stress in September 2019 and the March 2020 dash for cash -- have raised concerns about the resiliency of U.S. Treasury markets," she said in remarks prepared for The Reinventing Bretton Woods Committee and Policy Center for the New South Marrakech Economic Festival in Marrakesh, Morocco.

ISRAEL (MNI): Any Escalation on Lebanese Border Depends on Scale of Hezbollah Attacks

Following on from reports of an anti-tank missile being fired towards an Israeli Defence Force (IDF) observation post on the border with Lebanon, the main question with regards to the scope for this fueling a wider escalation is likely to come in the form of who carried out the attack. Wires report that Hezbollah has stated that it has targeted an Israeli army post with guided missiles. This is not the first incident on the Israeli-Lebanese border during the current conflict. However, so far the attacks by both Palestinian Islamic Jihad (PIJ) and Hezbollah have been seen as coming in solidarity with Hamas rather than as the launching of an all-out assault on Israel's northern border.

US (BBG): House GOP Tries to Pick Speaker With ‘2%’ Chance of Quick Choice

House Republicans head into a speaker election Wednesday without clarity on how long it will take to agree on a new leader, sowing uncertainty about funding the US government and aid to Ukraine and Israel. Representative Tom Massie of Kentucky emerged from a closed-door meeting of House Republicans Tuesday evening putting the chances that his fractious party settles on a nominee for speaker in the Wednesday vote at “2%” because many members have entrenched views about their preferred candidate.

US/EU/RUSSIA (BBG): Yellen Backs EU Windfall Tax on Frozen Russian Assets

US Treasury Secretary Janet Yellen gave her strongest backing yet for a European Union plan to impose a windfall tax on profits generated by frozen Russian sovereign assets, offering a key endorsement to a measure that would raise fresh funds to support Ukraine. Speaking at a press conference in Marrakech, Morocco, at the start of annual meetings of the International Monetary Fund and the World Bank, Yellen said she supported “harnessing windfall proceeds from Russian sovereign assets immobilized in particular clearinghouses and using the funds to support Ukraine.”

EUROZONE (MNI): Eurozone Consumer Inflation Expectations Edge Up

Inflation expectations amongst eurozone consumers edged higher again in August, the ECB's latest survey showed, with the outlook for prices three years ahead rising to 2.5%. Median expectations for inflation over the next 12 months edged up to 3.5%, from 3.4%. The three -years ahead expectation rose for the second consecutive month, up from 2.4% in July. Inflation expectations remained well below the perceived past inflation rate, particularly at the three-year horizon.

FRANCE (BBG): France Signs 27-Year LNG Supply Deals With QatarEnergy

France’s TotalEnergies SE has agreed to buy liquefied natural gas from Qatar for 27 years, cementing the European nation’s commitment to fossil fuels beyond 2050. QatarEnergy will deliver as much as 3.5 million tons of LNG annually to TotalEnergies SE under two long-term agreements, the Qatari energy giant said in a statement. France needs to cut emissions to reach net zero by 2050 so burning gas will need technology like carbon capture and storage to fit with that target.

CHINA (MNI): Scope for China Fiscal, Monetary Stimulus Seen as Limited

MNI (Beijing) China will continue to face economic headwinds this year as consumption remains soft, the property sector fails to rebound and monetary and fiscal easing remains limited in its scope despite market positioning for further accommodative policies, economists and advisors told MNI.

GLOBAL (MNI): IMF Sees Growth "Limping Along, Not Sprinting"

The IMF published its updated World Economic Outlook from Morocco on Tuesday. It painted a picture of soft but not collapsing growth but with inflation remaining "uncomfortably high". IMF Director Research Gourinchas said "the global economy is limping along, not sprinting". Global growth projections were unchanged from July for 2023 but down for 2024 but they hide significant variations.

GLOBAL (MNI): IMF Tells Central Banks to "Avoid Premature Easing"

While global growth remains lacklustre, inflation remains too high and the IMF warned in its October World Economic Outlook that most countries won't return to their inflation targets until 2025. They noted that inflation expectations need to come down. It still expects that inflation can fall to target while still ensuring a soft landing, but it warned central banks to "avoid premature easing" and noted that they still had more to do.

RBA (MNI): RBA Very Data Dependent While Uncertainty So High

The RBA Assistant Governor Kent has spoken on the "Channels of Transmission". He gave details on how monetary tightening feeds through to the economy. His comments on the central bank's monetary stance were consistent with the latest meeting statement including that "some further tightening" may be needed and the RBA remains very data dependent.

NEW ZEALAND (MNI): Inflation Main Voter Concern by Far

NZ votes on Saturday and polls continue to show that there is likely to be a change of government after 6 years of Labour and that the party could post its worst result. An Ipsos poll shows that cost of living, crime, healthcare and housing remain the key issues concerning voters and are all areas where the government has been perceived to have underperformed. As a result, the survey shows that people believe the opposition Nationals are best able to deal with these concerns but Labour has narrowed the gap.

COMMODITIES (BBG): Novak Says Russia, Saudi Arabia to Discuss Oil Market: Tass

Russia and Saudi Arabia will discuss oil market and prices on Wednesday, Deputy Prime Minister Alexander Novak said, according to Tass. Saudi Energy Minister Prince Abdulaziz bin Salman will participate in Russian Energy Week forum, which takes place in Moscow Oct. 11-12, Tass reported on Tuesday. Russia-Saudi intergovernmental commission will meet on the sidelines of the forum.

COMMODITIES (BBG): India Set to Restrict Sugar Exports in Threat to Global Supply

India is expected to impose restrictions on its sugar exports after dry weather parched cane crops in the world’s second-biggest grower, a move that will tighten global supplies of the sweetener. The South Asian nation is likely to curb shipments during the new season that started Oct. 1, and a decision will be made soon, said people familiar with the matter who asked not to be identified as the talks are confidential. Quotas for some overseas sales can be issued if domestic supply improves, they said.

DATA

AUSTRALIA DATA (MNI): CBA Spending Indicator Points to Resilience but Falling Volumes

CBA's household spending insights (HSI) for September showed that consumption is holding up in value terms with Q3 seeing stronger growth than Q2 as consumers continue to spend savings and labour income remains robust. The HSI rose 0.5% m/m to be up 1.8% y/y following a downwardly-revised +0.5% and 2.1%, suggesting that spending volumes are still contracting. The series is based on the bank's electronic transaction data and is seasonally adjusted. It has a very high correlation with the ABS retail sales data and is suggesting a small rise for September.

FOREX: USD Hampered by Further Pullback in US Yields

• Markets trade with a risk-off feel, as prices remain sensitive around Israeli headlines and any potential for escalation. US Treasury futures rallied on the back of headlines confirming an exchange of fire between Israel and Lebanon, with US 10y yields coming under pressure and undermining the greenback. The subsequent pullback in the USD saw more weight go through on comments from Fed's Bowman, who moderated her language on rates, stating that the Fed "may need" to raise rates further, potentially becoming less prescriptive on the need for further tightening.
• The moves in the USD helped nudge EUR/USD (briefly) to a new daily high at 1.0628. This further narrowed the gap with next notable resistance of 1.0674 - the Sep 21 high. More broadly, EUR/USD is beginning to show some signs of bottoming out - the pair closed above the 20-day EMA yesterday for the first time since late August - another possible signal of stabilisation in the price.
• Haven flows are evident in the strength in CHF, which is the best performing currency in G10 at the NY crossover. Fittingly, risk proxy currencies including AUD and NZD are performing more poorly.
• US PPI data takes focus Wednesday, with the final demand headline expected to slow to 0.3% on the month, 1.6% on a Y/Y basis. Ex food and energy data is expected broadly unchanged. The Fed minutes for their September rate decision also cross, with markets looking to gauge the FOMC's appetite for further hikes later this year.
• Outside of data, speeches are scheduled from ECB's de Cos & Villeroy as well as Fed's Waller, Bostic and Collins.

BONDS: Firmer & Flatter on Geopolitical Tension, U.S. Matters & Decent Demand at Gilt Auction

Two-way missile fire between Israel and Lebanon has been at the fore thus far, which allowed the early London core global FI bid to develop further.

• Flattener flow in U.S. Tsy futures and Fedspeak also provided support.
• The latest ECB consumer survey revealed a modest mark higher in inflation expectations, although there wasn’t a tangible market reaction given other drivers.
• Elsewhere, ECB Governing Council member Knot provided familiar rhetoric.
• Bund futures tag fresh session highs in recent trade, with bulls now eying 130.40, the 50-dma. German cash benchmarks are little changed to 9bp richer. Supply results will cross imminently.
• EGB spreads to Bunds are generally tighter on the day, with Portugal the exception (0.5bp wider).
• Gilt futures have also broken initial technical resistance levels, as flagged elsewhere, with a solid launch of the new 10-year 4.625% Jan-34 gilt helping support prices in recent dealing. Cash benchmarks run flat to 9bp richer.
• Overnight REC/KPMG labour market data revealed that starting salaries and pay for temporary workers saw the slowest increase in two and a half years during September, while a swifter rate of job cuts was also flagged in the survey. This is the latest sign of a cooling domestic labour market.

EQUITIES: Recent Recovery in Eurostoxx 50 Futures Deemed Corrective

Eurostoxx 50 futures trend conditions remain bearish, with Friday’s rally and the follow through early this week deemed corrective in nature. The contract has traded below 4128.00, the Sep 27 low. This confirms a resumption of the downtrend that started late July and signals scope for a move towards 4055.40, a Fibonacci retracement point. Initial firm resistance is at 4270.80, the 50-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, despite Friday’s sharp corrective rally and the follow through this morning. The contract traded lower last Wednesday, confirming a resumption of the bear leg once again. This maintains the price sequence of lower lows and lower highs and signals scope for weakness towards 4194.75, the May 24 low. Pivot resistance is 4441.61, the 50-day EMA.

• Japan's NIKKEI closed higher by 189.98 pts or +0.6% at 31936.51 and the TOPIX ended 4.35 pts lower or -0.19% at 2307.84.
• Elsewhere, in China the SHANGHAI closed higher by 3.72 pts or +0.12% at 3078.956 and the HANG SENG ended 228.37 pts higher or +1.29% at 17893.1.
• Across Europe, Germany's DAX trades lower by 14.18 pts or -0.09% at 15404.72, FTSE 100 higher by 8.69 pts or +0.11% at 7635.84, CAC 40 down 48.88 pts or -0.68% at 7109.23 and Euro Stoxx 50 down 19.5 pts or -0.46% at 4183.28.
• Dow Jones mini up 28 pts or +0.08% at 33970, S&P 500 mini up 4.75 pts or +0.11% at 4397, NASDAQ mini up 24.5 pts or +0.16% at 15299.

COMMODITIES: Bearish Theme in Gold Remains on Pause Following Latest Gains

WTI futures traded lower last week, but started the week on a stronger footing. The recent bearish price action resulted in a break of support at $88.19, the Sep 26 low. The contract has also cleared support at the 50-day EMA, at $84.46. This signals scope for a deeper retracement towards the $80.00 handle and $79.57, a Fibonacci retracement point. Initial firm resistance is at $87.71, the 20-day EMA. A break would signal a possible reversal. A bearish theme in Gold was put on pause Monday after a second session of gains. Monday’s bounce put prices back above $1850. Nonetheless, 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. The focus is on $1804.9, the Feb 28 low and a key support. On the upside, firm resistance is at $1878.2, the 20-day EMA.

• WTI Crude up $0.02 or +0.02% at $86.02
• Natural Gas up $0.06 or +1.69% at $3.435
• Gold spot up $9.04 or +0.49% at $1869.74
• Copper up $0.3 or +0.08% at $363.8
• Silver up $0.26 or +1.19% at $22.102
• Platinum up $3.85 or +0.43% at $889.88