MNI US OPEN - "Higher-For-Longer" Remains Main Theme

NEWS

ECB (MNI): Growing Confidence Inflation at Target by 2025 - BdF

The Eurosystem had a “growing confidence” that it will achieve its primary 2% medium-term inflation target by 2025 and it would be much better if the ECB could achieve its 2% inflation target with a soft landing rather than a hard one, Bank of France Governor Francois Villeroy said Monday. In the speech, Villeroy said that the risks of doing too much versus that of doing too little are now “symmetric”.

ECB (BBG): ECB’s De Cos Says Rates at 4% Should Get Inflation to 2% Goal

Euro-area inflation should return to the European Central Bank’s goal if borrowing costs are maintained at their current state for some time, according to Governing Council member Pablo Hernandez de Cos. “If we keep rates at these levels long enough, there are very good chances that we will be able to reach our 2% target in a timely manner,” de Cos told a conference in Madrid on Monday.

ECB (MNI): Pay Growth May be Offset by More Workers - ECB Bulletin

Recent increases in the euro area labour force may have a mitigating effect on wage growth, a box from the latest ECB Economic Bulletin argues, as marginal workers coming back into the labour force help to constrain incumbents’ wage demands even as workers’ bargaining power strengthens. “On average, the newly employed are younger and have a lower level of education than incumbents (employed workers before the new transitions),” the bulletin note says.

EU/CHINA (MNI): EU to Push Fair Trade Relationship with China

MNI (Shanghai) The European Union will pursue “free and fair” trade relations with China, but it has no intention to decouple, said Valdis Dombrovskis, executive vice president at the European Commission on Saturday at the 2023 Bund Summit in Shanghai. “The EU needs to protect itself in situations when its openness is abused,” the EU trade chief said, noting the “unbalance” in the bilateral trade with China due to the €400 billion trade deficit last year.

EU/UK (MNI): Joint Financial Regulatory Forum to Meet for 1st Time 19 Oct - Treasury

Wires carrying comments from an unnamed senior UK Treasury official stating that the UK and EU are set to hold the first meeting of a joint financial regulatory forum on 19 October. The joint forum was established in June as part of a memorandum of understanding (MoU) regarding financial regulation cooperation between the two sides.

MNI BOE REVIEW - SEPTEMBER 2023: Are We There Yet? Probably...

The Bank of England left Bank Rate on hold, forward guidance unchanged and set a GBP100bln target for APF reduction in the 12-months beginning October 2023. Following the downside surprise to August inflation, the MNI Markets team had seen it as 50/50 as to whether there was a hike but had noted that there was an increased probability of dissent at this meeting. Indeed, the 5-4 vote showed just how close the decision was. The GBP100bln APF reduction was in line with the MNI Markets team’s expectation.

MNI SNB REVIEW - SEPTEMBER 2023: More Tightening May Be Needed

The SNB defied broad consensus and market expectations for a final rate hike to 1.75%, instead opting to keep policy unchanged, point to softer near-term economic activity and signal that rate hikes remain a possibility ahead. Nonetheless, markets and consensus have been quick to factor out any expectations of further hikes, leaving markets looking at a peak of the cycle at 1.75%.

CHINA (BBG): Evergrande Liquidation Risk Rises After Creditor Meet Scrapped

China Evergrande Group is running out of time to get what would be one of the nation’s biggest-ever restructurings back on track, after setbacks in recent days that raise the risk of liquidation. The string of surprise developments include scrapping key creditor meetings at the last minute, saying it must revisit its restructuring plan, detention of money management unit staff and an inability to meet regulator qualifications to issue new bonds.

CHINA (MNI): Room for Further Easing Limited - PBOC's Liu

MNI (Shanghai) The economy has less room for further expansionary monetary and fiscal policies as M2 has largely outpaced GDP growth and fiscal pressure from local governments has increased, said Liu Shijin, member of the monetary policy committee at the People’s Bank of China on Sunday at 2023 bund Summit in Shanghai.

CHINA (MNI): China to Further Lift Controls for Consumption

MNI (Shanghai) China will move to ease regulation that hinders consumption to boost the economy as some controls in big cities have restricted demand for house and car purchases, said Ning Jizhe, a former vice head at the National Development and Reform Commission (NDRC) on Saturday at the 2023 Bund Summit in Shanghai.

CHINA (MNI): China Needs to Balance Green Target with GDP Growth

MNI (Shanghai) China should not set overly aggressive carbon emission reduction goals at the initial stage of its net-zero campaign to balance green-transition targets, GDP expansion and employment, while monetary authorities must do further research on the introduction of medium and long-term tools for net-zero growth, said Wang Xin, head of the research bureau at the People’s Bank, on Saturday during 2023 Bund Summit in Shanghai.

BOJ (MNI): Yen Should Move Stably on Fundamentals - BOJ's Ueda

Bank of Japan Governor Kazuo Ueda said on Monday it is important for foreign exchange rates to move stably reflecting economic and financial fundamentals. “We continue to carefully watch forex moves and their impact on the economy and prices, while closely contacting with the government,” Ueda told business leaders in a Q&A session.

BOJ (MNI): BOJ Will Not Fall Behind the Curve - BOJ's Ueda

Bank of Japan Governor Kazuo Ueda said on Monday the inflation rate will rise temporarily above the target as a result of the Bank's risk management approach, but this will not mean the Bank will fall "behind the curve aggressively." He told reporters the BOJ will continue to conduct monetary policy based on the risk management approach and focus on downside risks to prices.

BOJ (MNI): Uncertainty Appears on Wages, Prices - BOJ's Ueda

Bank of Japan Governor Kazuo Ueda Monday noted a high degree of uncertainty existed over the spread of wage- and price-setting behaviour and the Bank will patiently continue with its easy policy. He said some changes were observed, "but there are extremely high uncertainties as to whether these changes will become widespread,” Ueda told business leaders in Osaka City. “Sustainable and stable achievement of the price stability target of 2%, accompanied by wage increases, has not yet come in sight.”

JAPAN (MNI): PM Says 'No Plan' for Snap Election

Wires reporting comments from Japanese PM Fumio Kishida saying that there is "no plan at the moment to call a snap election" This comes despite headlines announcing a 'new economic package". Kishida states that on 26 Sep he is to instruct ministers to compile a new economic package, with the aim of "moving from a cost cut-led economy to one with active investment". Kishida: the new economic package "aims to protect people's lives from rising prices" and that "private consumption and capital expenditure lack strength, being unstable".

AUSTRALIA/CHINA (BBG): Australia Warns of Impact if China Suffers Sharper Slowdown

The impact of a deeper economic deterioration in China will be mainly felt in Australia through weaker trade and reduced risk appetite in financial markets, Australian regulators said in a quarterly statement. “A sharp slowdown in China, were it to materialize, would principally transmit to Australia through trade channels and through an increase in risk aversion in global financial markets,” the Council of Financial Regulators said Monday.

NEW ZEALAND (MNI): Wildcard Data Raises Chances of RBNZ Nov Hike - Ex Staff

Stronger-than-expected employment or CPI data in October alongside Thursday’s solid GDP and elevated levels of government spending could force the Reserve Bank of New Zealand to raise its Official Cash Rate from 5.5% as soon as November, former Reserve officials told MNI. John McDermott, executive director at Motu Economic and Public Policy Research and former RBNZ assistant governor, said the central bank had failed to contain non-tradable inflation, while oil price spikes could again cause tradable and goods prices to rise.

RUSSIA (BBG): Russia Mulls Tweaks to Exempt Some Oil Products from Export Ban

Russia’s Energy Ministry has prepared draft amendments that exclude bunker fuel, gasoils and some middle distillates from the export ban imposed last week, according to documents seen by Bloomberg. The draft keeps the key restrictions that ban exports of most gasoline and diesel. Russia, the world’s single biggest seaborne exporter of diesel-type fuels, including gasoils, imposed a temporary ban on exports of motor fuels last Thursday amid a sharp hike in domestic prices.

DATA

GERMAN DATA (MNI): IFO Confirms Recessionary Conditions in Place in Q3

• GERMANY SEP IFO BUSINESS CLIMATE 85.7
• GERMANY SEP IFO EXPECTATIONS 82.9
• GERMANY SEP IFO CURRENT COND 88.7

September's German IFO survey confirmed weak economic conditions to round out a likely contractionary Q3, despite coming in above expectations. The overall Business Climate reading of 85.7 was a tick lower vs August's upwardly revised 85.8 but was above the expected 85.2. The current assessment slipped to 88.7 from 89.0 (but above the 88.0 expected). Expectations ticked higher to 82.9 from an upwardly revised 82.7, though a touch below the 83.0 expected.

FOREX: USD is on the Front Foot

• The Dollar is mostly in the Green across most of the majors, benefitting from the Risk Off tone and higher US Yields.
• Only the Scandies and the CAD are trading flat, given higher energy prices.
• The standout this morning, is the SEK, which is up 0.58% against the Dollar, despite the Risk Off tone and the broader base bid in the Dollar.
• The move in SEK has possibly been helped , after SBB's shares and bond rose, after the Swedish property group secured an 8 billion crown ($719 million) cash boost and said it would reorganise its business.
• USDJPY continues to make fresh 2023 high, and next resistance is at 148.85 High Oct 31 2022, before the 149.00 figure.
• Looking ahead, there's no tire 1 data out of the US, focus will be on speakers, with Lagarde, Schnabel and Fed Kashkari scheduled to speak.

EGBS: Curves Biased Cheaper & Steeper as Higher for Longer Reverberates

Higher for longer narratives from central banks on both sides of the Atlantic are seen as the major negative factor for core global FI markets at the start of the week.

• A move higher in benchmark European gas futures will also be helping.
• Roughly in line to slightly better than expected German ifo data was seen.
• Bund futures are through key technical support as German 10-Year yields register an incremental fresh cycle high above 2.78%.
• The German curve runs steeper, with benchmark yields 1-5.5bp higher on the day.
• Core/semi-core EGB spreads are little changed to Bunds, generally bear steepening.
• Meanwhile, peripherals trade mixed vs. German 10s, spreads within ~1bp of Friday’s levels. Early BTP narrowing surrounding weekend reports on amendments to the Italian bank tax (BBG flagged a document noting that “lenders can opt out of the tax if they allocate 2.5x the amount owed to strengthening their common equity tier 1 ratio as non-available reserves”) has more than reversed, with equities pressured, Italian fiscal worry and outright selling in core global FI markets re-widening BTPs.
• Comments from ECB’s Lagarde and Schnabel headline the eurozone docket today.
• Elsewhere, the EU will come to market with 10- & 30-Year supply, with the presence of that issuance a likely source of pressure this morning.
• The €IG supply slate is also building.

GILTS: Cheaper and Steeper to Start

Impetus from wider core global FI markets has helped Gilts lower to start the week.

• Futures last show -45, a little off worst levels of the day but comfortably above Thursday’s low.
• Cash gilts sit 2.5-5.5bp cheaper across the curve, steepening alongside core global peers.
• As noted earlier, weekend domestic headline flow was dominated by political posturing and disagreements re: Crossrail, while the FT ran a piece flagging notable gilt short cover on the part of hedge funds.
• We haven’t had much in the way of UK-specific drivers to go off since markets opened.
• SONIA futures run flat to -5.0 through the blues, with a light steepening bias seen. Generally looking to gilts for direction.
• BoE-dated OIS sees some light twist steepening of the strip. ~9.5bp of tightening is showing for Nov, while ~16.5bp of tightening (2/3 odds of a hike) is priced through February’s MPC, as participants continue to reassess the monetary policy outlook in the wake of last week’s decision.
• There isn’t much of note on the UK domestic docket today, with lower tier data and long-dated active QT sales from the BoE the only points of note on the slate.

EQUITIES: Last Week's Sell-Off Reinforces Bearish Theme in E-Mini S&P

Eurostoxx 50 futures maintain a softer tone following last week’s move lower. Attention is on key near-term support at 4210.00, the Sep 8 low. This level has been pierced, a clear break would confirm a resumption of the downtrend that started late July and pave the way for a move towards 4163.00, a Fibonacci projection. Key short-term resistance has been defined at 4359.00, the Sep 15 high. A break would be bullish. A bear cycle in S&P E-minis remains in play and last week’s break lower reinforces current conditions. Last Thursday’s sell-off resulted in a break of support at 4397.75, the Aug 18 low. The breach reinforces bearish conditions and signals scope for a continuation lower near-term. Sights are on 4352.50, the Jun 8 low. Further out, scope is seen for a move to 4318.00, the Jun 2 low. Initial firm resistance is 4496.68, the 50-day EMA.

• Japan's NIKKEI closed higher by 276.21 pts or +0.85% at 32678.62 and the TOPIX ended 9.23 pts higher or +0.39% at 2385.5.
• Elsewhere, in China the SHANGHAI closed lower by 16.825 pts or -0.54% at 3115.607 and the HANG SENG ended 328.16 pts lower or -1.82% at 17729.29.
• Across Europe, Germany's DAX trades lower by 83.85 pts or -0.54% at 15472.85, FTSE 100 lower by 39.84 pts or -0.52% at 7643.9, CAC 40 down 38.87 pts or -0.54% at 7145.95 and Euro Stoxx 50 down 24.43 pts or -0.58% at 4182.73.
• Dow Jones mini down 28 pts or -0.08% at 34202, S&P 500 mini down 5.5 pts or -0.13% at 4355.25, NASDAQ mini down 36.75 pts or -0.25% at 14832.25.

COMMODITIES: WTI Futures Remain in Short-Term Bearish Corrective Cycle

The uptrend in WTI futures remains intact, however, the contract remains in a short-term bearish corrective cycle. The trend condition is overbought and a move lower would allow this to unwind. The first key support to watch lies at $86.90, the 20-day EMA and is a potential short-term objective. On the upside, clearance of $92.43, the Sep 19 high, would confirm a resumption of the uptrend and open $93.31, a Fibonacci projection. Gold traded higher last Wednesday but quickly pulled back from the session high. The recent breach of the 50-day EMA does highlight a possible developing bullish threat. Key resistance is at $1953.0, the Sep 1 high where a break is required to confirm a bullish theme. On the downside, $1901.1, the Sep 14 low, marks a key near-term support. A breach of this level would strengthen a bearish theme and expose $1884.9, the Aug 21 low.

• WTI Crude up $0.35 or +0.39% at $90.41
• Natural Gas down $0.02 or -0.57% at $2.622
• Gold spot down $1.67 or -0.09% at $1923.8
• Copper down $3.65 or -0.99% at $365.7
• Silver down $0.09 or -0.38% at $23.466
• Platinum down $8.37 or -0.9% at $922.26