MNI US OPEN - Kashkari Pencils In One Additional Rate Hike This Year

NEWS

FED (MNI): Kashkari Penciled In One More Rate Hike This Year

Minneapolis Federal Reserve President Neel Kashkari said Monday his "dot plot" is for one more interest-rate hike this year, and suggested 2024 could see either high-for-long rates or a cut. “We’re going to take our time, see what happens to inflation before determining how high we need to go,” Kashkari said during at talk hosted by the University of Pennsylvania’s Wharton School, and audio of the talk was delayed by technical problems.

US (BBG): GOP Moderates Turn to Rare Maneuver to Avoid Lengthy US Shutdown

Moderate Republicans are working with Democrats on a rarely used procedure to shorten a near-certain US government shutdown and protect themselves from the anticipated political backlash from a federal funding lapse. The plan puts these vulnerable Republicans, including several from Democratic-friendly districts in New York, firmly at odds with hardliners in their own party. It could, however, limit a disruptive shutdown that threatens to stretch for a month or more to a little more than a week.

US (WaPo): Seven GOP Presidential Candidates Are Set to Debate Wednesday Night

Seven GOP presidential candidates have qualified for Wednesday night's debate at the Ronald Reagan Presidential Library in Simi Valley, Calif. Former Arkansas governor Asa Hutchinson did not make the stage after he failed to meet the polling and fundraising criteria set by the Republican National Committee. The RNC is raising the threshold required to qualify for each successive debate.

ECB (MNI): Bank Payouts Tighten Policy Stance - ECB Bulletin

Post-pandemic rises in bank payouts to equity investors could increase the tightening effect of monetary policy, a paper published as part of the ECB’s latest Economic Bulletin has argued, with estimates suggesting payouts on 2022 profits of around 1% higher than pre-pandemic standards were associated with a decrease of around 1% in loan volumes over the same period. Banking supervisors recommended that euro area banks restricted payouts from March 2020 to September 2021.

EU/CHINA (MNI): EU Concerned by China Trade Deficit - Dombrovskis

MNI (Beijing)The E.U. does not seek perfectly balanced trade with China but wants to address issues behind the trade deficit's rapid increase, according to Valdis Dombrovskis, E.U. trade commissioner. Speaking at a press conference in Beijing on Tuesday, Dombrovskis said he understood natural factors such as the division of labour and economic structure, had driven the trade deficits, but China must improve market access for European firms.

UK/EU (BBG): UK, EU to Discuss Post-Brexit EV Tariffs as Deadline Looms

British and European Union officials will meet Wednesday to discuss post-Brexit plans to slap a tariff on electric vehicles from the UK, as a deadline on whether to delay the move nears. EV rules of origin, which are due to be phased in for trade between Britain and the bloc and have become key area of contention in the ongoing relationship, are on the agenda for a half-day meeting of the UK-EU Trade Specialised Committee.

GLOBAL (MNI): Uncertain Times Require Flexible Rates Guidance

Central banks with more rigid guidance such as the Bank of Japan run a higher risk of “coming unstuck” and feeding volatility in times of high uncertainty than those like the Federal Reserve which opt for a more ambiguous approach, a former Reserve Bank of New Zealand assistant governor told MNI. While luck will play a significant role for global central banks over the next few quarters, the situation is fluid and it is reasonable for guidance to stress that future rate rises are "data dependent," John McDermott, executive director at Motu Economic and Public Policy Research, said in an interview.

CHINA (MNI): China to Launch Debt Swaps to Address Implicit Liabilities

MNI (Beijing) China is set to launch a swaps scheme for debt-laden local governments to move up to CNY1.5 trillion of off-balance-sheet liabilities onto their books with extended maturities and lower interest rates, while guiding state-owned banks to support debt restructuring, policy advisors and market analysts told MNI.

ASIA (MNI): China, Japan, SK Leaders to Hold Meeting at 'Convenient Time' - MoFA

MNI (London) Spox for China's Ministry of Foreign Affairs Wang Wenbin stated on 26 Sep that the leaders of China, Japan and South Korea agreed to hold a summit 'at a convenient time' for all three countries. Wang stated that 'The countries agreed that they should push forward new progress and make new contributions to regional peace, stability and prosperity via trilateral cooperation'. The three agreed that there would be a tripartite meeting of foreign ministers in the coming months, which is likely to serve as a precursor to any leaders' summit.

JAPAN (MNI): Gov't Considers Cash Payouts to Low Income Homes in Econ Package - Kyodo

Kyodo News reporting that as part of the new economic package announced on 25 September, the Japanese gov't is considering making cash or coupon payouts to low income households. Kyodo: "The recipients of the benefits are likely to be households exempt from [income] tax. The details of the payment method will be worked out keeping in mind things such as cash or coupons that can be used within a certain range."

JAPAN (MNI): Japan Govt Keeps Overall Economy; Ups Corp Profits

Japan's government kept its main economic assessment from the previous month in September for the fifth straight month but upgraded its view on corporate profits for the first time since March 2022, the Cabinet Office said on Tuesday. However, the office lowered the assessment on housing investment for the second straight month.

DATA

SWEDEN DATA (MNI): Continued PPI Deflation

Sweden producer and trade price data for August showed further Y/Y declines, the latter aided by a slightly stronger SEK through August than in months prior. PPI printed at -5.9% Y/Y (vs -2.1% prior) and was driven by beneficial energy price base effects. Excluding energy products, PPI was 3.0% Y/Y (vs 4.8% prior). PPI saw a second sequential monthly fall at -0.7% M/M (vs -0.6% prior), as import and export prices fell.

JAPAN DATA (MNI): August Trimmed Mean Flat at 3.3% - BOJ

Japan's trimmed mean measure of underlying inflation rose 3.3% y/y in August, unchanged from July's 3.3%, showing pass-through of cost increases continued, although the import prices fell y/y for the fifth straight month, data released by the Bank of Japan showed on Tuesday. Data released on Friday showed Japan's annual core consumer price index rose 3.1% in August, unchanged from July's 3.1% but above the Bank's 2% target for the 17th straight month.

JAPAN AUG SERVICES PPI +2.1% Y/Y; July UNREV +1.7% (MNI)
JAPAN AUG SERVICES PPI +0.1% M/M: JULY REV +0.6% (MNI)

FOREX: Paring Gains Going Into the US Session

• After being in the green across the board, following the early Risk Off tone and higher Yields, the Dollar is now more mixed against G10s, after Equities and Govie futures recover from their lows.
• The yen had a brief small bid following Japan Suzhki's comment, but USDJPY continues to unwind Suzuki's earlier headline: "Watching FX moves with high sense of urgency", now back at the 149.00 handle.
• Resistance noted at 149.10 High Oct 25 2022, has held, although did print a 149.19 high.
• Further out, sees 149.71 High Oct 24 2022, but the whole world is watching the big Psychological 150.00.
• The SEK is the best performer and looking to test the 11.00 support after USDSEK traded as high as 11.1022 earlier.
• EURUSD has seen a two way price action, initially falling on the USD bid, but now back at 1.0600 at the time of typing.
• There's 1.56bn worth of option expiry at 1.0600 in EURUSD for today.
• Looking ahead, there's no tier 1 data for today.
• Speakers, include Riksbank Jansson, ECB Holzmann, and Fed Bowman.

EGBS: Off Relief Rally Bests, Spreads to Bunds Widen on Day, Knee-Jerk DFA Reaction Fades

The relief rally in EGBs, which came alongside some weakness in crude oil/global equity futures and the DFA’s Q4 funding announcement, has faded from extremes. The presence of EUR sovereign supply will have helped cap the rally, as will some stabilisation in crude/equity futures.

• Bund futures haven’t revisited early session lows, last -10. German cash benchmarks are little changed across the curve.
• The cuts in the DFA’s Q4 issuance plan were a little more sizable than estimates we had seen, although the EUR31bn reduction in issuance was tilted heavily towards bills (EUR23bn) as opposed to Bunds (EUR8bn), as expected.
• German ASWs widened a little on the issuance reduction (collateral scarcity feedthrough), but the moves there were relatively contained, moving back from extremes, with focus apparently on longer term narrowing drivers. As a reminder, Commerzbank had flagged their preference to add to ASW shorts on widening around the release.
• Still, the DFA announcement has helped biased EGBs wider to vs. Bunds. Peripherals lead that move, with Italian 10s widening by 4bp on the day.
• BTPs continue to struggle, with Italian fiscal headwinds and ECB QT discussions at the fore.
• The 10-Year Bund/BTP spread has hit multi-month wides. 10-Year BTP yields are moving towards YtD highs, with futures hitting fresh session lows in recent trade.
• ECB’s Muller (usually a hawk) once again noted that he is not expecting further rate hikes at present.

GILTS: Two-Way Trade Sees Curve Steeper, Futures Unchanged

Gilts have been happy to look to wider markets for direction for most of the day.

• The initial show below 95.00 was relatively limited and short-lived, as a bid off session cheaps in EGBs (on German issuance matters, alongside lower crude and equity index futures) helped the space to recover.
• That move has since waned, leaving gilt futures unchanged on the day, showing around 95.20.
• Cash gilts twist steepen on the day, with yields 1bp richer to 2bp higher, only 30+-Year benchmarks are cheaper on the day.
• 2s10s are still above -50bp, within reach of August’s highs, while 5s30s eye early June steeps, moving above 40bp.
• On the local supply front, we saw a relatively weak auction for the 10-year 0.875% Jul-33 Green gilt with a tail of 1.3bp and the LAP of 72.564 below the pre-auction mid-price of 72.614. Note that this followed a relatively weak 10-year conventional gilt auction 2 weeks ago.
• The relatively weak demand details at today’s auction would have some pressure for gilts.
• Looking ahead, the remainder of today’s domestic docket is empty.
• Thursday, will see us (MNI) host a speech and Q&A session with Andrew Hauser, Executive Director for Markets at the Bank of England.

EQUITIES: Recent Move Lower Reinforces Bearish Conditions in Eurostoxx 50 Futures

Eurostoxx 50 futures maintain a softer tone following last week’s move lower, and Monday's extension reinforces current conditions. Key support at 4210.00, the Sep 8 low, has been breached. The clear break confirms a resumption of the downtrend that started late July and paves 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 the price traded lower Monday. Last Thursday’s sell-off resulted in a break of support at 4397.75, the Aug 18 low. This breach reinforces bearish conditions and signals scope for a continuation lower. Sights are on 4318.00 next, the Jun 2 low. Initial firm resistance is 4492.05, the 50-day EMA. Short-term gains would be considered corrective.

• Japan's NIKKEI closed lower by 363.57 pts or -1.11% at 32315.05 and the TOPIX ended 13.56 pts lower or -0.57% at 2371.94.
• Elsewhere, in China the SHANGHAI closed lower by 13.334 pts or -0.43% at 3102.273 and the HANG SENG ended 262.39 pts lower or -1.48% at 17466.9.
• Across Europe, Germany's DAX trades lower by 50.07 pts or -0.33% at 15355.33, FTSE 100 higher by 14.63 pts or +0.19% at 7638.63, CAC 40 down 39.41 pts or -0.55% at 7084.47 and Euro Stoxx 50 down 22.34 pts or -0.54% at 4145.03.
• Dow Jones mini down 122 pts or -0.36% at 34149, S&P 500 mini down 19 pts or -0.43% at 4359.75, NASDAQ mini down 77 pts or -0.52% at 14857.5.

COMMODITIES: Today's Move Lower Highlights the Short-Term Corrective Cycle in WTI Futures

The uptrend in WTI futures remains intact, however, the contract has entered a short-term bearish corrective cycle. Today’s move lower reinforces this theme. Note that the trend condition is overbought and a move lower would allow this to unwind. The first key support to watch lies at $87.17, 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. Gold traded higher last Wednesday but quickly pulled back from the session high. The yellow metal maintains a bearish theme and this week’s move lower reinforces this. Attention is on $1901.1, the Sep 14 low. This level marks a key near-term support and a breach would strengthen a bearish theme and expose $1884.9, the Aug 21 low. Resistance is at $1947.5, the Sep 20 high.

• WTI Crude down $1.16 or -1.29% at $88.58
• Natural Gas down $0.03 or -0.99% at $2.613
• Gold spot down $2.2 or -0.11% at $1913.85
• Copper down $1.25 or -0.34% at $365.9
• Silver down $0.1 or -0.43% at $23.0435
• Platinum down $4.66 or -0.51% at $910.55