EXECUTIVE SUMMARY
- GROUND ASSAULT INTO LEBANON UNDERWAY, 'HEAVY FIGHTING' TAKING PLACE
- STRIKE SHUTS US EAST COAST, GULF PORTS, THREATENING ECONOMY
- ECB’S REHN SAYS DIRECTION OF RATES IS CLEAR BUT DATA TO SET PACE
- AUTOMOTIVE INDUSTRY WEAKNESS CITED IN BOTH FRENCH AND GERMAN PMIS
Figure 1: September inflation dips below ECB's 2% target
Source: Eurostat
NEWS
ISRAEL/MIDEAST (MNI): Ground Assault Into Lebanon Underway, 'Heavy Fighting' Taking Place
A spox for the Israeli military has confirmed the ongoing ground operation into southern Lebanon, claiming that the raids "target Hezbollah strongholds along the border". Says that "Our war is with Hezbollah, not the people of Lebanon...Hezbollah turned Lebanese villages into bases ready for an attack on Israel". The ground operation got underway some time ago, with the IDF spox confirming 'low signature operations' were being undertaken by special forces before the main ground assault began overnight. The extent and longevity of the conflict will depend on a number of factors. The aims of the Israeli gov't are crucial. The administration of PM Benjamin Netanyahu made one of the 'war goals' the safe return of Israelis to northern border regions. The IDF claims that this ground assault will be "limited, localised and targeted" intended to destroy Hezbollah's ability to fire rockets and missiles across the border.
US/ISRAEL (BBG): Austin, Gallant Discussed Security Developments, Israeli Ops
US Secretary of Defense Lloyd Austin and his Israeli counterpart Yoav Gallant spoke via phone call to review security developments and Israeli operations, according to a readout from the Pentagon. Both sides “agreed on the necessity of dismantling attack infrastructure” along the border to ensure Hezbollah cannot conduct “October 7-style attacks” on Israel’s northern communities
US (BBG): Strike Shuts US East Coast, Gulf Ports, Threatening Economy
Dockworkers have walked out of every major port on the US East and Gulf coasts, marking the beginning of a strike that could ripple through the world’s largest economy and cause political turmoil just weeks before the presidential election. The affected ports have the combined capacity to handle as much as half of all US trade volumes, and the strike will halt container cargo and auto shipments. Energy supplies and bulk cargo won’t be affected. Some exceptions will be made to allow for the movement of military goods and cruise ships.
US (NYT): Hundreds Still Missing in Mountain Towns After ‘History-Making’ Helene
President Biden said he would visit the devastated region on Wednesday. The death toll from the hurricane has risen to at least 121 people across six states. National Guard units swarmed over the North Carolina mountains in helicopters, high-water vehicles and a cargo plane on Monday, joining the desperate effort to deliver food, water and emergency supplies to remote mountain communities hit hard by Hurricane Helene. Officials said that hundreds of residents remained missing along washed-out roads and in muddy ravines that couldn’t be reached by vehicle or by phone.
ECB (BBG): ECB’s Rehn Says Direction of Rates Is Clear But Data to Set Pace
The direction of the European Central Bank’s monetary policy is “clear” but any future decision on easing will hinge on data, according to Governing Council member Olli Rehn. “Interest-rate cuts have now started and the ECB’s monetary-policy stance is becoming less restrictive,” the Finnish central-bank chief said Tuesday, without specifying whether that means a reduction this month is on the cards. “The pace and scale of the rate cuts will depend on the Governing Council’s overall assessment on a meeting-by-meeting basis,” he said.
ECB (MNI): Few Surprises in de Guindos Speech on Expectations Surveys
Not too many surprises to note in de Guindos' opening remarks on a first glance, though the following excerpts are somewhat interesting (particularly in the context of the market reaction to last week's flash PMIs): "Survey data can be volatile and there is evidence of overreaction in both household and firm surveys of expectations". "For this reason, surveys may provide a noisy signal for policymaking in practice, which complicates how these data should feed into the policy reaction function".
ECB (BBG): Nagel Says ECB Bond Purchases to Be Limited to Exceptional Cases
Bundesbank President Joachim Nagel said that future purchases of government bonds by the European Central Bank should be reserved for special cases. “The extensive bond purchases contributed to price stability in an era of low inflation, but they were also associated with numerous side effects in financial markets,” he said on Tuesday. The ECB embarked on large-scale asset purchases in 2015 in a bid to revive inflation that had become too slow. It later launched a separate program during the Covid-19 pandemic. Holdings peaked at about €5 trillion ($5.6 trillion), mostly consisting of government debt.
RIKSBANK (MNI): Riksbank Minutes Show Focus on Inflation Undershoot
The minutes of the Riksbank Executive Board's September meeting showed plenty of discussion about the risks of inflation persistently undershooting the 2% target although there was some clear opposition to cutting by 50 basis points rather than pressing ahead with consecutive 25bps cuts. All five board members were broadly supportive of the lower rate profile in the September Monetary Policy Report and all voted for the 25 bps cut. Deputy Governor Anna Seim said that the issue she had been thinking about the most "is the risks of inflation being persistently lower going forward" and there was debate about "looking through" weak inflation outturns.
UK (BBG): Blinken, UK’s Lammy Discussed Mideast Tensions, Gaza Cease-Fire
US Secretary of State Antony Blinken spoke with UK Foreign Secretary David Lammy on Monday, according to a readout. The two discussed “the need to de-escalate tensions in the Middle East and the importance of ongoing diplomatic efforts.” On Gaza, both reaffirmed joint efforts to resolve the conflict by reaching a cease-fire and bringing the hostages home.
NATO (MNI): Rutte Formally Takes Over From Stoltenberg as Secretary General
Former Dutch Prime Minister Mark Rutte has formally taken over the position of NATO Secretary General from Jens Stoltenberg. The former Norwegian PM stepped down after 10 years in the role, which was extended due to the Russian invasion of Ukraine. In a handover presser, Rutte says he "Will work to keep the transatlantic bond in the alliance rock solid". Says "I am not worried about the outcome of the US election...I will be able to work with either of the candidates as president."
JAPAN (BBG): Japan’s Ishiba Becomes PM, Cabinet Signals Continuity
Shigeru Ishiba was confirmed as Japan’s new prime minister and named his cabinet lineup, as the pressure of managing the nation shifts onto the shoulders of a political idealist who has spent much of his long career offering critiques from the sidelines. Ishiba’s near-term focus will be a national election he has called for Oct. 27. By opting for a quick election for the more-powerful lower house of parliament, the 67-year-old Ishiba is seeking to turn his public support into a mandate to rule. The appointment Tuesday of party veterans to the highest profile cabinet roles may provide stability for his administration in its early days.
JAPAN (BBG): BOJ Should Weigh Rate Hikes With Caution, New Minister Warns
The Bank of Japan should exercise caution when considering further interest rate hikes to ensure the country truly defeats deflation, according to Japan’s new Minister for Economic Revitalization Ryosei Akazawa. Akazawa spoke to reporters right after new Prime Minister Shigeru Ishiba’s cabinet was officially announced. Akazawa is known for his close ties to Ishiba, who won the ruling party’s closely contested leadership race last week. “I want the BOJ to judge things with caution,” Akazawa said. “We absolutely mustn’t do anything to cool the economy in any way for the time being. My thinking is that defeating deflation should be the top priority.”
DATA
EUROZONE DATA (MNI): September EZ HICP Y/Y In Line W/ Revised Consensus
- EUROZONE SEP FLASH HICP +1.8% Y/Y
- EUROZONE SEP FLASH CORE HICP +2.7% Y/Y
Eurozone September flash headline, on a rounded basis, came in in line with consensus on the yearly rate at 1.8% Y/Y (vs 1.7% MNI tracking, 1.8% cons; 2.2% prior). Note that consensus was downwardly revised by 0.1pp following soft French and Spanish data. This is the first time headline HICP prints below the ECB's 2% target since June 2021. On a monthly basis, inflation came in at -0.1% M/M (vs 0.0% cons; 0.1% prior). On an unrounded basis, headline HICP was 1.77% Y/Y and -0.07% M/M. Core HICP printed in line with consensus, at 2.7% Y/Y (vs 2.8% prior; unrounded: 2.68% Y/Y, 0.08% M/M).
EUROZONE DATA (MNI): Automotive Industry Weakness Cited in Both French and German PMIs
- EUROZONE SEP MANUFACTURING PMI 45.0 (FLASH 44.8, AUG 45.8)
- FRANCE SEP MANUFACTURING PMI 44.6 (FLASH 44.0, AUG 43.9)
The German and French September manufacturing PMIs saw upward revisions of 0.3 and 0.6 points respectively, but remain comfortably in contractionary territory, As such, the Eurozone-wide PMI was revised slightly higher to 45.0 (vs 44.8 flash).
Key excerpts on output/demand:
- France: "Scarce client interest was a result of generally weak market demand. Some panellists attributed lower sales to challenging automotive industry conditions and fewer new export opportunities".
- Germany: "A range of headwinds to demand that included market uncertainty, investment reticence, customer destocking and weakness in the automotive sector".
- EZ: "The latest drop in new orders was sharp and the fastest since December last year. Sales performances were also adversely impacted by conditions overseas, with the latest survey data signalling an accelerated decrease in new business from abroad"
SPAIN DATA (MNI): Sep Manufacturing PMI Much Stronger Than Consensus
- SPAIN SEP MANUFACTURING PMI 53.0 (FCAST 50.2, AUG 50.5)
The Spanish manufacturing PMI was much stronger than expected at 53.0 (vs 50.2 cons, 50.5 prior). This was the highest reading since May, and cements Spain's status as the outperformer across the Eurozone this year. Alongside strong output metrics, the PMI notes that competitive forces prompted firms to lower output charges in September.
ITALY DATA (MNI): Subdued Demand Weighs on Sep Manufacturing PMI
- ITALY SEP MANUFACTURING PMI 48.3 (FCAST 49.0, AUG 49.4)
In contrast to Spain, the Italian manufacturing PMI was weaker than expected at 48.3 (vs 49.0 cons, 49.4 prior). The index has been in contractionary territory since March, consistent with the subdued development of industrial production this year. The inflationary implications were somewhat similar to Spain though, with raw material prices increasing input costs, but competitive pressures limiting passthrough to output charges.
UK DATA (MNI): Manufacturing PMI Hints at Further Core Goods Price Increases in CPI
- UK SEP MANUFACTURING PMI 51.5 (FLASH 51.5, AUG 52.5)
Not a huge amount of extra detail in the manufacturing PMI press release vs the flash. A little more colour on prices - and being passed on through higher selling prices. Note that core goods prices within the CPI in the UK have moved into positive territory Y/Y the past couple of months, so that pattern looks set to continue.
UK DATA (MNI): Annual Shop Prices Fall for the Second Consecutive Month - BRC-NielsenIQ
- UK SEP BRC SHOP PRICES -0.2% M/M, -0.6% Y/Y
BRC-NielsenIQ Shop Prices fell further printing -0.6% Y/Y in September, (vs -0.3% in August) the second consecutive negative year-on-year print. On a monthly basis, Shop Prices also fell by 0.2% M/M (vs 0.0% prior). The Non-Food component remained in deflation for the sixth consecutive month at -2.1% Y/Y, after -1.5% in August, whilst Food price inflation firmed to 2.3% Y/Y after sixteen months of moderation (2.0% prior). On a monthly basis, the food component rose 0.2% (0.2% prior), whilst the non-food component fell 0.5% M/M from -0.1% in August.
SWISS AUG RETAIL SALES +0.4% M/M, +3.2% Y/Y (MNI)
JAPAN DATA (MNI): BOJ Tankan Sees Key Sentiment Rise, Solid Capex Plans
- BOJ TANKAN LARGE NON-MFG INDEX +34; JUNE +33; MEDIAN +32
- BOJ TANKAN LARGE MFG INDEX +13; JUNE +13; MEDIAN +14
- BOJ DEC TANKAN LARGE MFG INDEX FORECAST AT +14
- BOJ DEC TANKAN LARGE NON-MFG INDEX SEEN AT +28
Japanese benchmark business sentiment remained unchanged over Q3, despite sentiment among major non-manufacturers posting its first rise in two quarters, the Bank of Japan’s September Tankan business sentiment survey released Tuesday showed. The Tankan results revealed capital investment plans by major firms and smaller firms this fiscal year remained firm and above historical averages, supporting the BOJ's view the virtuous cycle from income to spending continued to work.
JAPAN DATA (MNI): August Jobs Data Mixed, U/E Rate Back Close to Cycle Lows
- JAPAN AUG JOBLESS RATE FALLS TO 2.5% FROM JULY 2.7%
Japan's August labour market data was mixed, with the job to applicant ratio ticking down to 1.23, from 1.24 prior (which was also the consensus expectation). This indicates the trend remains skewed towards a softer a labour market trend. Total applicants were flat in the month in y/y terms, while job offers fell to -4.5% y/y. The employment rate still ticked down though, suggesting reasonably tight labour market conditions persist. At 2.5% the unemployment rate is close to recent cycle lows (2.4% at the start of this year).
AUSTRALIA DATA (MNI): Retail Sales Stronger Than Forecast, Aided by Weather/Tax Cuts
- AUSTRALIA AUG RETAIL SALES +0.7% M/M
Australian August retail sales were above expectations. We rose 0.7%m/m, against a 0.4% forecast, while the prior month was revised up to +0.1%m/m, versus flat initially. The August rise was the strongest since Jan of this year (+1.0%). At face value the data suggests some positive impact coming through from the government's tax cuts/costs of living relief measures. The ABS also noted that: "This year was the warmest August on record since 1910, which saw more spending on items typically purchased in spring. This included summer clothing, liquor, outdoor dining, hardware, gardening items, camping goods and outdoor equipment."
AUSTRALIA JUL BUILDING APPROVALS -6.1% M/M, +3.6% Y/Y (MNI)
FOREX: Risk-Off Footing Favours USD & JPY
- Markets underwent a broad, but shallow, phase of risk-off alongside the European open Tuesday, with a dip in the belly of the US yield curve helping trigger a phase of equity selling and USD buying. As a result, EUR/USD has opened a >100 pip gap with the recent cycle high, aided by building expectations of a back-to-back 25bps rate cut at the ECB's October meeting. Eurozone CPI estimate came in alongside expectations for the Y/Y and Y/Y core reading, but downside risks were present in the monthly reading, which came in negative (-0.1% M/M) for the first time since January.
- NOK is among the session's poorest intraday performers, slipping alongside general weakness in core global equity markets, and as the dollar strength and risk-off theme weighs on oil prices. WTI and Brent crude futures are off by over 2% apiece at typing, limiting any intraday bounce in commodity-tied FX.
- GBP trades poorly as markets cap recent sharp gains - EUR/GBP yesterday crossed to new pullback lows, hitting 0.8313 before today's very modest bounce. The broader technical theme remains lower for the cross as the 100- and 50-dmas diverge further from the 200-dma. This indicates building short-term negative momentum, which exposes support at 0.8311 and the bear trigger further out at 0.8203.
- ISM Manufacturing data set for release later today should be the highlight going forward, and is expected to continue to point to decelerating economic activity - mimicking the patterns laid out in yesterday's MNI Chicago PMI numbers.
EGBS: OATs Outperform as Markets Await PM Barnier’s Address
OATs have led this morning’s rally in major EGB futures, with PM Barnier expected to announce measures to tighten fiscal policy at today’s parliamentary address (1400BST/1500CET).
- The 10-year OAT/Bund spread has tightened ~3.5bps today to 75.5bps, its tightest since Sep 20.
- OAT futures are +102 ticks at 127.86, with round number resistance (128.00) shielding the Sep 17 high at 128.14.
- Bund futures briefly reached intraday highs of 135.72, piercing the bull trigger at 135.66 (Aug 5 high), but have since retraced a little to 135.61 (still +69 ticks today).
- National-level data released over the past three sessions meant Eurozone September flash inflation was not a market mover, with headline and core meeting consensus estimates at 1.8% and 2.7% Y/Y respectively.
- ECB-dated OIS continue to price almost a 90% implied probability of an October cut.
- 10-year Bund yields reached their lowest level since early January this morning (2.054%) prompting the German 2s10s curve to flatten almost 4bps.
- 10-year peripheral spreads to Bunds are generally biased tighter, with the exception of Greece. 10-Year BTP yields are sub 3.40% for the first time since ’22
- Today’s US ISM manufacturing and JOLTS data headline the remainder of today’s macro calendar.
GILTS: Following EGB Rally
Gilts followed EGBs higher this morning as heightened prospects of imminent French fiscal tightening took hold.
- Futures trade as high as 99.15 before backing off to ~99.05, Bulls will look to break first meaningful resistance at the 20-day EMA (99.40) to start reasserting themselves and negate some of the growing bearish technical threat.
- Yields 3.5-6.0bp lower, curve bull flattens.
- Short 20-Year gilt supply was well received, extending the run of strong demand at auctions of the 4.75% Oct-43 gilt, with RV appeal (both on the curve and vs. swaps) aiding digestion.
- No real impact from Monday’s late comments from BOE MPC member Greene, who intimated that further rate cuts were likely despite still “worrisome” services inflation, as broader inflation is on the right path.
- BoE-dated OIS unwinds the early hawkish moves derived from Fed chair Powell’s late Monday comments, last printing little changed through mid-’25 contracts.
- 23.5bp of cuts priced for Nov, 37bp of easing priced through year-end and ~119bp of cuts showing through June ’25.
- SONIA futures flat to +7.0bp.
EQUITIES: Bull Cycle in E-Mini S&P Remains Intact, Focus on $5868.50
Eurostoxx 50 futures traded sharply higher last week resulting in a clear break of 5024.00, the Sep 3 high. This confirms a resumption of the bull leg that started Aug 5 and cancels a recent bearish theme. Scope is seen for a continuation of the trend with sights on 5138.24, a Fibonacci projection, and the 5200 handle further out. On the downside, key short-term support is seen at 4917.56, the 50-day EMA. A bull cycle in S&P E-Minis remains intact and last week’s fresh cycle highs, reinforce this theme. Moving average studies are in a bull-mode setup and this highlights a dominant uptrend. Scope is seen for a climb towards 5868.50, a Fibonacci projection, and 5900.00 further out. On the downside, initial support to watch is 5709.39, the 20-day EMA. Key support lies at 5641.58, the Sep 27 low.
- Japan's NIKKEI closed higher by 732.42 pts or +1.93% at 38651.97 and the TOPIX ended 44.84 pts higher or +1.69% at 2690.78.
- Across Europe, Germany's DAX trades higher by 63.44 pts or +0.33% at 19387.96, FTSE 100 higher by 24.5 pts or +0.3% at 8261.61, CAC 40 down 9.47 pts or -0.12% at 7626.28 and Euro Stoxx 50 up 6.12 pts or +0.12% at 5006.57.
- Dow Jones mini down 86 pts or -0.2% at 42559, S&P 500 mini down 4.75 pts or -0.08% at 5810.25, NASDAQ mini up 8.25 pts or +0.04% at 20271.
Time: 09:50 BST
COMMODITIES: WTI Futures Close to Recent Lows, MA Studies in Bear Mode
WTI futures have reversed a large part of their recent gains. This affirms the strength of resistance at the 50-day EMA of $71.77, which remains the key upside hurdle for bulls. The latest sell-off also highlights the fact that the recovery since Sep 9 is likely a correction. Note that moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. A continuation lower would refocus attention on $64.61, the Sep 10 low and bear trigger. Gold bulls remain in the driver’s seat and the yellow metal is trading just below its recent all-time high. Recent gains confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus is on $2690.2 next, a Fibonacci projection. Firm support lies at $2589.8, the 20-day EMA.
- WTI Crude down $1.52 or -2.23% at $66.7
- Natural Gas down $0.03 or -0.89% at $2.896
- Gold spot up $10.11 or +0.38% at $2644.6
- Copper down $0.45 or -0.1% at $454.8
- Silver up $0.2 or +0.64% at $31.3597
- Platinum up $3.02 or +0.31% at $984.38
Time: 09:50 BST
| Date | GMT/Local | Impact | Country | Event |
| 01/10/2024 | - | *** |  US | Domestic-Made Vehicle Sales |
| 01/10/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 01/10/2024 | 1300/1500 |  DE | MNI Connect Video Conference on German & Eurozone Economic & Policy Developments | |
| 01/10/2024 | 1345/0945 | *** | US | S&P Global Manufacturing Index (final) |
| 01/10/2024 | 1400/1000 | *** | US | ISM Manufacturing Index |
| 01/10/2024 | 1400/1000 | * | US | Construction Spending |
| 01/10/2024 | 1400/1000 | *** | US | JOLTS jobs opening level |
| 01/10/2024 | 1400/1000 | *** | US | JOLTS quits Rate |
| 01/10/2024 | 1400/1500 |  GB | BOE's Pill Speech at Q3 Confederation of British Industry Economic Growth Board | |
| 01/10/2024 | 1430/1030 | ** | US | Dallas Fed Services Survey |
| 01/10/2024 | 1500/1100 | US | Atlanta Fed's Raphael Bostic | |
| 01/10/2024 | 1510/1110 | US | Fed Governor Lisa Cook | |
| 01/10/2024 | 1530/1730 |  EU | ECB's Schnabel lecture at Joint BoC - ECB - NY FED Conference | |
| 01/10/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 01/10/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 52 Week Bill |
| 01/10/2024 | 2215/1815 | US | Fed's Bostic, Barkin, Collins | |
| 02/10/2024 | 0715/0915 | EU | ECB's De Guindos speech at SUERF and Latvijas Bankas conference | |
| 02/10/2024 | 0730/0930 | EU | ECB's De Guindos in panel discussion on financial architecture | |
| 02/10/2024 | 0900/1100 | ** | EU | Unemployment |
| 02/10/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 02/10/2024 | 0930/1130 | EU | ECB's Lane chairing policy panel at Joint BoC - ECB - NY FED Conference | |
| 02/10/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 02/10/2024 | 1200/1400 | EU | ECB's Elderson participates in European Affairs Webinar | |
| 02/10/2024 | 1215/0815 | *** | US | ADP Employment Report |
| 02/10/2024 | 1300/0900 | US | Cleveland Fed's Beth Hammack | |
| 02/10/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 02/10/2024 | 1500/1100 | US | Fed Governor Michelle Bowman | |
| 02/10/2024 | 1615/1215 | US | Richmond Fed's Tom Barkin | |
| 02/10/2024 | 1645/1845 | EU | ECB's Schnabel Walter Eucken Lecture |