EXECUTIVE SUMMARY
- ISRAEL LAUNCHES ATTACKS AGAINST HEZBOLLAH ECONOMIC STRONGHOLDS
- ECB’S SIMKUS SAYS IT’S CLEAR THAT RATES WILL BE LOWERED FURTHER
- RACHEL REEVES WARNED INHERITANCE TAX PLANS WILL BACKFIRE
- CHINA OCTOBER LPR REDUCED BY 25BP
Figure 1: USD risk reversals (proxy via BBDXY series) rise in tandem with Trump election odds
Source: MNI/Bloomberg
NEWS
ISRAEL/MIDEAST (BBG): Israel Launches Attacks Against Hezbollah Economic Strongholds
Israel launched a military operation targeting Hezbollah economic strongholds in Lebanon, in particular a financial institution used by the Iran-backed militant group and its leadership. The Israeli military issued evacuation warnings to civilians as it sought to hit targets associated with the Al Qard Al Hassan Association, which serves as Hezbollah’s alternative banking system and allows the Shi’ite group to function. It operates outside of Lebanon’s legal banking system.
IRAN (MNI): Gov't Has Warned IAEA About Israeli Threats to Nuclear Sites - Spox
Wires carrying comments from Iranian Foreign Ministry spox Esmaeil Baghaei. Says that Tehran has warned the UN's nuclear watchdog, the International Atomic Energy Agency (IAEA), about Israeli threats against its nuclear sites. The two countries and the wider region have been in a state of 'wait and see' following Iran's ballistic missile barrage on 1 October, with some form of Israeli retaliation seen as all but inevitable, but the nature of such response having very different implications for regional security. Spox also says that Iran "will decide on how and when to respond to any Israeli attack." A strike on Iranian military facilities would be seen as less escalatory, while one on nuclear sites would risk a wider conflagration.
US (BBG): Harris, Trump Scrap for Few Undecided Voters as Race Tightens
For Donald Trump, the closing 15 days of the presidential campaign will see a frenetic blitz of splashy events and unconventional media appearances designed to reach voters who might not normally tune into politics. Kamala Harris, for her part, is zeroing in on defending the Democrats’ “Blue Wall” of Pennsylvania, Michigan, and Wisconsin, with new targeted messaging aimed at the few remaining persuadable voters who could make or break the 2024 election. She’ll hit all three states on Monday, part of a series of events in critical suburban counties.
CANADA (BBG): Canada to Raise Minimum Earnings for High-Wage Foreign Workers
Canada is planning to put new limits on a program that allows companies to recruit high-wage foreign labor by forcing firms to offer higher compensation, according to a senior government official with knowledge of the matter. Employment Minister Randy Boissonnault will announce Tuesday that businesses looking to hire workers from the high-wage stream of the temporary foreign worker program will need to offer pay that’s at least 20% higher than the median wage in each province, said the official, who asked not to be identified to discuss matters not yet public.
ECB (BBG): ECB’s Simkus Says It’s Clear That Rates Will Be Lowered Further
European Central Bank Governing Council member Gediminas Simkus said borrowing costs will be reduced further should the downtrend in inflation persist, though he wouldn’t predict the outcome of officials’ next meeting. “The direction is clear - less restrictive monetary policy,” the Lithuanian central-bank chief said Monday. “I can’t yet tell what will the decision be in December. But the direction is clear - down.”
EU (MNI): Moldova's EU Vote Closer Than Expected Amid Allegations of Interference
Preliminary results from the Central Electoral Commission of Moldova (CEC) showed that only a slim majority of voters (50.08%) backed the country's bid to join the European Union in a national referendum. The result is a setback for the country's pro-EU President Maia Sandu, who advanced to the run-off in a presidential election held alongside the referendum. The Eastern European nation was voting on a constitutional amendment which would add a commitment to join the EU to its basic law in order to give more weight to its pro-Western aspirations and prevent future governments from changing course.
UK (Telegraph): Rachel Reeves Warned Inheritance Tax Plans Will Backfire
Rachel Reeves has been warned that her planned inheritance tax raid will not raise money and will increase bureaucracy for thousands of bereaved families. The Chancellor is understood to be considering extending the current “seven year” rule, under which gifts can be passed on free of inheritance tax, to 10 years. However, economists from across the political spectrum and analysis from within the Treasury itself, say the move would entail much higher levels of administration which would lower the amount that could be raised for the Treasury. One said the move was “unlikely to raise additional revenues”.
UK (BBG): Reeves to Boost UK Health Service Funding Amid Reform
UK Chancellor of the Exchequer Rachel Reeves will set aside billions of pounds for the National Health Service in her budget next week as the institution kicks off an extensive program of reform. Reeves is planning to announce real-term increases to the NHS’s day-to-day budget in this tax year and the next, anonymous government sources told the Times newspaper, though detailed allocations have yet to be agreed. The Treasury did not respond to a request for comment Sunday.
CHINA (MNI): China Oct LPR Reduced by 25bp
MNI (Beijing) China's Loan Prime Rate fell 25 basis points on Monday according to a People's Bank of China statement, an expected move after the central bank cut the 7-day reverse repo rate by 20bp last month. The one-year LPR was reduced to 3.1% from 3.35%, while the five-year plus maturity fell to 3.6% from 3.85%. Both rates were unexpectedly reduced in July by 10bp after the central bank lowered the 7-day reverse repo rate by the same level.
CHINA (MNI): China's Investment to Rebound in 2025 - Advisor
MNI (Beijing) China’s fixed-asset investment is likely to rebound to 7-8% y/y next year as property investment improves on recent stimulus and the issuance of ultra-long-term special treasuries drives infrastructure construction, said Lu Zhongyuan, former deputy director at the Development Research Center of the State Council on Saturday. Speaking at the Financial Street Forum, Lu noted consumption may perform better in 2025, but slower income growth remains a constraint, emphasising the need to increase the intensity of subsidising lower incomes, and expand the trade-in programme of consumer goods.
RBA (MNI): RBA Surprised by Jobs Growth - Hauser
Reserve Bank of Australia Deputy Governor Andrew Hauser says the strong labour market has surprised the central bank, noting supply and demand continue to remain unbalanced. Resilient employment, about 64,000 jobs were created while the unemployment rate tightened 10 basis points to 4.1% over September, showed supply remained weak, while demand continued to be strong, he told an industry conference in Sydney.
COMMODITIES (BBG): IEA Says Oil Demand Growth Weakness to Continue on China, EVs
Global oil demand growth will continue to weaken due to China’s economic slowdown and the rapid uptake of electric vehicles, according to the International Energy Agency. “This year, global oil demand is very weak, much weaker than previous years, and we expect this will continue because of one word - China,” Fatih Birol, the executive director of the IEA, said in an interview with Bloomberg television on Monday. He reiterated that crude supply and spare capacity was ample.
DATA
GERMANY DATA (MNI): September PPI Dragged Lower by Energy
- GERMANY SEP PRODUCER PRICES -1.4% Y/Y
- GERMANY SEP PRODUCER PRICES -0.5% M/M
German September PPI came in 0.3pp lower than expected at both the yearly and monthly measure, at -1.4% Y/Y (vs -0.8% prior) and -0.5% M/M (vs +0.2% prior). Consistent with German CPI developments in September, energy moved further into deflationary territory, at -6.6% Y/Y (vs -4.6% prior). That leaves ex-energy PPI unchanged vs August, at +1.2% Y/Y - the joint highest rate since August 2023. Looking at the non-energy categories, non-durable and consumption goods both ticked up to +1.5% Y/Y (vs +1.0% prior). Their yearly rates also both run at their respectively highest rate since December 2023.
FOREX: Greenback on Cusp of Resuming Uptrend
- The greenback is reversing a decent part of Friday's pullback, keeping the broad dollar rally underpinned and the upside argument alive. The USD Index traded a new cycle high last week at 103.874, and a rally through here would resume the primary uptrend. We've written that better-than-expected US data is not the only driver of dollar strength, with domestic equity strength also playing a large part, raising the focus on the earnings schedule this week, across which 15% of the S&P 500 are set to report.
- Running in tandem with the US curve, the greenback is further clawing back some of the modest USD losses posted Friday, easing EUR/USD off highs and tipping GBP/USD to new intraday lows in recent trade, characterised by very light volumes. This keeps GBP among the poorest performers of the day so far, while firmer core US yields keep USD/JPY pressed toward Y150.00.
- 15min candle chart exposes weakness through 1.3023 support, exposing 1.3000/04 resistance. Any slip through 1.2961/74 would be a bearish signal and mark new monthly lows ahead of next week's budget release (Weds 30th) - through which FX could be more sensitive to volatility in bond prices given the upscaled focus on the release.
- Datapoints are few and far between Monday, leaving focus on the central bank speaker schedule. Fed's Logan speaks before the open, Kashkari during cash equity trade, and then Schmid and Daly follow after the close. Schmid's appearance will likely be the most consequential - addressing the US economy and monetary policy outlook directly, with a released text.
EGBS: Bunds Pierce Friday’s Low as Sovereign and Corp Supply Weighs
Bund futures have pierced Friday’s low as this morning’s selloff in core FI extends, currently -58 ticks at 133.61.
- First support in Bund futures is 133.30 (Oct 15 low), shielding the key support and bear trigger at 132.75 (Oct 10 low).
- Today’s sovereign/IG supply has weighed on EGBs, with an uptick in crude oil/natural gas futures also applying pressure at the margin.
- Sovereign supply has included an Italian exchange and SlovGB auction, while EU-bond and Belgian OLO results are due at 1030BST and 1100BST respectively.
- ECB-dated OIS price a 30% implied probability of a 50bp cut in December, though Bank of Lithuania Governor Simkus said he does not see the need for cuts larger than 25bps at this stage.
- The German cash curve has bear steepened, helping 2s10s extend multi-year steeps at 9.5bps.
- 10-year peripheral spreads to Bunds are little changed, with BTPs and OATs seeing limited reaction to Friday’s ratings action (see our earlier post for more colour).
- The remainder of today’s global macro calendar is light, with focus on scheduled and ad-hoc central bank speak as the IMF/World Bank annual meetings begin.
GILTS: Broader Bond Weakness & NHS Spending Speculation Weighs, Curve Steepens
Spill over from weakness in EGBs, upticks in energy futures and speculation surrounding real spending increases for the NHS weigh on gilts this morning.
- Futures -27 at 97.65, lows of 97.59.
- Technicals remain bearish. Initial support not seen until the Oct 15 high (96.97).
- Yields 1.5-4.5bp higher, curve steepens.
- 2s10s hit fresh multi-month highs at 8.6bp, 5s30s comfortably within recent range at 70.0bp.
- Outperformance seen vs. Bunds, 10-Year spread ~1bp tighter at 186bp.
- Spread sticks within recent range after the pullback from cycle highs above 195bp. J.P.Morgan issued a spread narrower recommendation for that strategy late Friday.
- Little of note on the UK calendar today, outside of GBP750mln of long dated gilt sales from the BoE’s APF, due this afternoon.
- Calendar picks up tomorrow, with BoE’s Bailey, Greene & Breeden all set to speak, while public spending data will also cross.
- Further out, flash PMI data (Thursday) will be eyed, as well as additional BoE communique.
EQUITIES: Fresh Cycle Highs for E-Mini S&P Bolsters Bullish Conditions
Eurostoxx 50 futures traded sharply lower on Oct 15. The contract has recently pierced support around the 50-day EMA, at 4947.10. A clear break of this average would undermine a recent bullish theme and highlight a stronger reversal. This would open 4884.06, a Fibonacci retracement. The contract has recovered from its recent lows. Key resistance and the bull trigger is unchanged at 5106.00, the Sep 30 high. A break of it resumes the uptrend. S&P E-Minis trend conditions are unchanged and bulls remain in the driver’s seat. Fresh cycle highs confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows. Note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend. Sights are on 5961.00, a Fibonacci projection. Initial support to watch is 5816.87, the 20-day EMA.
- Japan's NIKKEI closed lower by 27.15 pts or -0.07% at 38954.6 and the TOPIX ended 9.07 pts lower or -0.34% at 2679.91.
- Elsewhere, in China the SHANGHAI closed higher by 6.547 pts or +0.2% at 3268.11 and the HANG SENG ended 325.65 pts lower or -1.57% at 20478.46.
- Across Europe, Germany's DAX trades lower by 44.72 pts or -0.23% at 19603.7, FTSE 100 higher by 27.69 pts or +0.33% at 8382.43, CAC 40 down 18.14 pts or -0.24% at 7587.41 and Euro Stoxx 50 down 8.62 pts or -0.17% at 4973.11.
- Dow Jones mini up 28 pts or +0.06% at 43547, S&P 500 mini down 2.75 pts or -0.05% at 5903, NASDAQ mini down 36.5 pts or -0.18% at 20443.25.
Time: 09:50 BST
COMMODITIES: WTI Futures Remain Softer Following Last Week’s Sell-Off
WTI futures remain softer following last week’s sell-off. An extension lower would threaten the recent bullish theme and expose support at $66.33, the Oct 1 low, and $64.61, the Sep 10 low and a key support. For bulls, a resumption of gains would instead refocus attention on the key short-term resistance at $78.46, the Oct 8 high. Clearance of this level would resume to the recent uptrend. Initial resistance is at $72.12, the 50-day EMA. Gold continues to appreciate. Last week’s gains resulted in a break of $2685.6, the Sep 26 high, confirming a resumption of the primary bull trend. The yellow metal has also cleared $2700.0, reinforcing current trend conditions. Sights are on $2737.8, a Fibonacci projection. Firm support is $2645.1, the 20-day EMA. A clear break of the EMA would signal scope for a deeper retracement.
- WTI Crude up $0.88 or +1.27% at $70.01
- Natural Gas up $0.01 or +0.44% at $2.262
- Gold spot up $9.63 or +0.35% at $2732.77
- Copper up $5.95 or +1.36% at $444.5
- Silver up $0.33 or +0.98% at $34.059
- Platinum up $3.36 or +0.33% at $1020.58
Time: 09:50 BST
| Date | GMT/Local | Impact | Country | Event |
| 21/10/2024 | - |  EU | ECB's Lagarde and Cipollone participate in IMF/World Bank Meetings | |
| 21/10/2024 | 1255/0855 |  US | Dallas Fed's Lorie Logan | |
| 21/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 21/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 21/10/2024 | 1700/1300 | US | Minneapolis Fed's Neel Kashkari | |
| 21/10/2024 | 2105/1705 | US | Kansas City Fed's Jeff Schmid | |
| 21/10/2024 | 2240/1840 | US | San Francisco Fed's Mary Daly | |
| 22/10/2024 | 0600/0700 | *** |  GB | Public Sector Finances |
| 22/10/2024 | 0900/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 22/10/2024 | 1230/0830 | * |  CA | Industrial Product and Raw Material Price Index |
| 22/10/2024 | 1230/0830 | ** | US | Philadelphia Fed Nonmanufacturing Index |
| 22/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 22/10/2024 | 1325/1425 | GB | BOE's Bailey address at Bloomberg Global Regulatory Forum | |
| 22/10/2024 | 1345/1445 | GB | BOE's Greene fireside chat with Josh Lipsky | |
| 22/10/2024 | 1400/1000 | ** | US | Richmond Fed Survey |
| 22/10/2024 | 1400/1600 | EU | ECB's Lagarde in conversation with Francine Lacqua | |
| 22/10/2024 | 1500/1700 | EU | ECB's Lane in fireside chat at Seminar of Bank of New York | |
| 22/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 22/10/2024 | 1915/2115 | EU | ECB's Large in panel discussion on cross border payments | |
| 22/10/2024 | 2000/2200 | EU | ECB's Lane at Columbia University seminar | |
| 22/10/2024 | 2015/2115 | GB | BOE's Breeden panellist at G20 cross-border payments event |