MNI US OPEN: Heightened Speculation Over UK U-Turn

NEWS

US (MNI INTERVIEW): Entrenched U.S. Inflation to Linger - Fed's Meyer

The surprisingly strong September U.S. CPI report reflects an environment in which high inflation has become entrenched, and it will take months if not another year for tighter monetary policy and supply-side relief to change those dynamics, Atlanta Fed economist Brent Meyer told MNI Thursday.

EU (MNI): ECB Downside Scenario Becoming Baseline - De Guindos

Europe faces a “very difficult” combination of low economic growth and high inflation, European Central Bank vice president Luis de Guindos said in an interview Friday, with the downside scenario outlined in September’s macroeconomic growth and inflation projections - according to which the euro are economy will shrink by almost 1% next year, with average inflation of 6.9% - coming closer to being the baseline.

UK (MNI): U-Turn Speculation Rife As Chancellor Set To Land In UK Within The Hour

Westminster remains abuzz with speculation on a potential U-turn by the government on the September 23 'fiscal event', following Chancellor of the Exchequer Kwasi Kwarteng's leaving a meeting of G20 finance ministers in Washington, D.C., early. The Chancellor is due to land in the UK within the hour, and with speculation turning to whether talks will take place between he and PM Liz Truss in Downing Street, or if Truss will announce a reversal before he reaches Westminster. There is no signal of timings for any potential announcement today.

GERMANY (MNI): Economy Set for 2023 Contraction: Economy Ministry

The German Federal Ministry for Economic Affairs October economic outlook report highlights weakened growth expectations into year-end as inflation soars and gas shortage risks climb. The government forecasts anticipate 2022 growth at 1.4%, slumping to a 0.4% contraction in 2023. Slowing demand will see declines in industry and retail.

SWEDEN (MNI): Moderates to Lead 3-Party Gov't, Sweden Democrats Support From Outside

Leader of the centre-right Moderates Ulf Kristersson has announced that he will lead a three-party minority government, propped up in a confidence and supply agreement by the right-wing populist Sweden Democrats. Parliament will vote on forming the government on Monday 17 Oct.

HUNGARY (BBG): Emergency Hike Triggers Biggest Forint Jump in 11 Years

Hungary delivered a major emergency interest rate hike to halt the free-fall of its currency, resuming the European Union’s steepest monetary tightening less than a month after vowing to end it. Minutes after Prime Minister Viktor Orban said he had asked his finance minister and the central bank to rein in inflation on Friday, the bank announced a new 1-day deposit facility and said it will provide 18% interest on it compared with the 13% base interest rate.

JAPAN (MNI): Sharp Decline in Cabinet Approval Rating Threatens Ruling Party Stability

Support for Prime Minister Kishida's Cabinet fell below the 30% threshold, entering "dangerous zone," as the administration struggles to contain fallout from the Unification Church scandal, the state funeral of Shinzo Abe and the rising costs of living.

NORTH KOREA (MNI): S. Korea Says North Violated Inter-Korean Military Accord

South Korea's presidential National Security Council condemned the barrage of North Korean military drills held overnight, while the Joint Chiefs of Staff called on Pyongyang to immediately stop provocations.

DATA

EUROZONE DATA (MNI): Spanish Price Acceleration Slows, France Unchanged

• FRANCE FINAL SEP HICP -0.5% M/M, +6.2% Y/Y (FLASH CONFIRMED)
• SPAIN FINAL SEP HICP -0.2%r M/M (FLASH 0.0%), +9.0%r Y/Y (FLASH +9.3%)

Compared to August, French prices are seeing a broad-based slowdown lead by energy prices. Service prices contracted by 1.5% m/m due to a marked seasonal decline in tourism and manufactured products and food price inflation slowed.

Spanish HICP saw downwards revisions to final September prints, by 0.2pp to-0.2% m/m and by 0.3pp to +9.0% y/y. This is also the second month of slowing headline inflation following the July peak of 10.7% y/y.

Housing and transport saw significant year-on-year price deceleration due to falling energy and fuel prices. French and Spanish core inflation prints saw September relief, stepping down by 0.2pp to 4.5% y/y and 6.2% y/y respectively.

EUROZONE DATA (MNI): Energy Costs Drag Trade Deficit to Fresh Low in August

• EUROZONE AUG TRADE BALANCE SA EUR -47.3 BLN; JUL -40.5r BLN
  

The euro area's trade deficit grew by E6.8bln to -47.3bln in August (seasonally adjusted), implying the tenth consecutive month of deficit.* Exports expanded by 3.5% m/m, yet this was outpaced by the 5.5% m/m jump in imports underpinned by soaring energy costs. Imports were recorded at a hot 53.6% higher than in August 2021.

The ytd trade deficit with Russia had over tripled in August as gas and oil prices jumped and exports to Russia were cut. Imports from Norway jumped due to alternative gas supply and China imports expanded substantially, boosted by the base effects of 2021 lockdowns.

CHINA (MNI): Sep CPI Rises 2.8%; Highest Since April 2020

• CHINA SEP CPI +2.8% Y/Y VS +2.5% Y/Y AUG
• CHINA SEP CPI +0.3% M/M VS -0.1% M/M AUG
• CHINA SEP PPI +0.9% Y/Y VS +2.3% Y/Y AUG
• CHINA SEP PPI -0.1% M/M VS -1.2% M/M AUG

China's September consumer price index rose 2.8% y/y, accelerating from August's 2.5% to hit the highest level since April 2020, data from the National Bureau of Statistics on Friday showed.

Increases in food prices quickened with pork prices rising by 13.6pp to a 36% y/y pace on growing seasonal demand and pig farmers' reluctance to sell due to expectations for higher prices in the future. Core CPI, which excludes food and energy prices, rose 0.6% y/y to hit the lowest since March 2021, slowing from the previous 0.8%. On a monthly basis, CPI rose 0.3%, reversing the prior month's 0.1% fall. The y/y rise of 2.8% was in line with market expectations.

FOREX: Big focus on the UK

• The Dollar has reversed its overnight weakness during the early European session, following some pullbacks from the highs in Equities.
• Although still in the green, Equities are drifting lower, underpinning the USD.
• ALL EYES are on the USDJPY, with the latter making a new print to 147.74, highest since August 1990.
• Yesterday saw a 167 pips drop after the pair tested 147.67, no such move so far.
• The USD is up against all G10, besides the NOK, and after being one of the best performer overnight, the British Pound is now the worst performer, down 0.43%.
• GBP remains the key focus for investors, especially given the imminent early return of the Chancellor from the G20 finance ministers meeting in Washington. With markets eagerly awaiting developments over a potential U-turn in policy, GBP volatility set to remain heightened as we approach the weekend close. GBP is the worst performer against the greenback with immediate support residing at 1.1215, the 20-day EMA.
• Looking ahead, US Retail Sales, but more focus on the Prelim Michigan.
• Speakers, include, ECB Holzmann, Fed George, Cook, Waller.

BOND SUMMARY: Talk of a U-turn keeps gilts bid

• Volatility continues in gilt markets with 10-year gilts yields down more than 20bp at writing. The biggest moves have been seen at the 5-year part of the curve with 2-year yields having moved a bit less. These moves follow building expectations of a U-turn on the tax cuts included in the "Growth Plan" and also come amid chatter of how long the PM and Chancellor will remain in their posts.
• Bunds moved higher in sympathy with gilts but Treasuries have been less affected - staying closer to their close of yesterday.
• Looking ahead we will have US retail sales, import / export prices, inventory data and the first print of the Michigan survey. The inflation expectations component in the latter will be particularly watched.
• The Bank of England will also conduce the last of its temporary purchase ops today with linkers at 14:45BST / 9:45ET and long conventionals at 15:45BST / 10:45ET. The size of those operations are set at GBP5bln each, but may be revised up to 11:00BST / 6:00ET by the BOE.
• TY1 futures are up 0-6+ today at 111-07 with 10y UST yields down -2.3bp at 3.923% and 2y yields down -2.9bp at 4.436%.
• Bund futures are up 1.55 today at 137.77 with 10y Bund yields down -8.6bp at 2.195% and Schatz yields down -7.2bp at 1.832%.
• Gilt futures are up 2.57 today at 970.09 with 10y yields down -19.9bp at 3.993% and 2y yields down -9.8bp at 3.647%.

EQUITIES: Index Futures Stage Sharp Rebound Amid Significant Volatility Thursday

EUROSTOXX 50 futures traded in a volatile manner Thursday, rebounding sharply from the day low of 3251.00. The contract is higher today and price has traded above the 20-day EMA. This highlights a short-term reversal and the start of a bull cycle. The focus is on the 50-day EMA at 3476.80 and resistance at 3492.00, the Oct 6 high. On the downside, the key support zone to watch is at 3251.00-3236.00.

A volatile session on Thursday in S&P E-Minis resulted in a strong bounce from the day low as well as the trend low of 3502.00. The recovery suggests that the contract has entered a corrective phase and if correct, this will allow an oversold trend condition to unwind. Attention is on 3737.94, the 20-day EMA. A break would reinforce a bullish theme and open 3820.00, the Oct 5 high. Key support and the bear trigger lies at 3502.00. bearish conditions resumed today - the contract has cleared support at 3571.75, the Oct 3 low and bear trigger. This signals scope for a move towards 3453.78 next, a Fibonacci projection. Key short-term resistance has been defined at 3820.00, the Oct 5 high.

• Japan's NIKKEI closed higher by 853.34 pts or +3.25% at 27090.76 and the TOPIX ended 43.58 pts higher or +2.35% at 1898.19.
• Elsewhere, in China the SHANGHAI closed higher by 55.631 pts or +1.84% at 3071.987 and the HANG SENG ended 198.58 pts higher or +1.21% at 16587.69.
• Across Europe, Germany's DAX trades higher by 138.57 pts or +1.12% at 12491.55, FTSE 100 higher by 76.83 pts or +1.12% at 6926.68, CAC 40 up 78.72 pts or +1.34% at 5956.18 and Euro Stoxx 50 up 45.86 pts or +1.36% at 3407.19.
• Dow Jones mini up 27 pts or +0.09% at 30120, S&P 500 mini up 3.25 pts or +0.09% at 3685.5, NASDAQ mini down 5 pts or -0.05% at 11079.5.

COMMODITIES: WTI Rebound Undermines Recent Bearish Theme

The reversal higher in WTI futures on Thursday undermines the bearish theme that developed earlier this week. A key short-term support has been defined at $85.56, yesterday’s low, where a break would confirm a resumption of bearish activity. On the upside, a continuation higher would expose resistance at $93.64, the Oct 10 high. A break of this level would strengthen bullish conditions. Gold traded in a volatile manner Thursday but maintains a softer tone. The recent recovery stalled at $1729.5, Oct 4 high. The reversal signals the end of the climb between Sep 28 - Oct 4 and note that price has moved below the trendline resistance drawn from the Mar 8 high. A continuation lower would expose the key support and bear trigger at $1615.0, the Sep 28 low. On the upside, a break of $1729.5 is required to reinstate a bullish theme.

• WTI Crude down $0.5 or -0.56% at $89.15
• Natural Gas down $0.11 or -1.66% at $6.625
• Gold spot down $3.27 or -0.2% at $1661.68
• Copper up $1.7 or +0.49% at $346.8
• Silver down $0.02 or -0.08% at $18.8565
• Platinum up $2.02 or +0.22% at $904.53