MNI US OPEN - Markets Anticipate Limited Progress on Core CPI

NEWS

MNI US CPI PREVIEW - SEPTEMBER 2023: Limited Core Progress

Ex-food and energy (core) CPI is expected to print 0.3% M/M in September for the 2nd month in a row, still firmly higher than the unrounded 0.16% M/M readings in both June and July but well below 0.42% pace in the first 5 months of 2023.Headline CPI is expected to print 0.3% M/M, a deceleration from the energy-led jump up to 0.6% in August. A sharp decline in used car prices is seen keeping a lid on core goods prices, which are expected to deflate M/M once again. A large pullback in energy price inflation will keep overall headline and goods prices subdued.

MNI US QUARTERLY EARNINGS SCHEDULE - Big Banks Take Early Focus

Quarterly earnings season begins this week, with notable reports including JPMorgan Chase, Wells Fargo, UnitedHealth, Citigroup and BlackRock. Markets continue to look to gauge any further signs of an economic slowdown, or evidence of the effectiveness of the Fed’s tightening cycle so far. Commercial real estate dynamics will also take early focus, with a number of Fed speakers touching on the turbulent market and the potential impacts for monetary policy over the past quarter.

US (NYT): G.O.P. Nominates Steve Scalise for Speaker but Postpones Full Vote

Representative Steve Scalise of Louisiana narrowly scraped together enough Republican support on Wednesday to become his party’s choice to lead the House, but deep divisions in the G.O.P. ranks threatened to complicate his election as speaker. Mere minutes after a slim majority of Republicans voted in a closed-door party meeting to select him as the party’s candidate, Mr. Scalise’s fate was thrown into doubt.

ECB (BBG): ECB’s Centeno Says Current Stance Will Bring Inflation to Target

European Central Bank Governing Council member Mario Centeno said he’s confident that current monetary-policy settings will bring inflation back to the target. “With the current level of interest rates, we will be making a substantial contribution to the 2% objective,” the Portuguese central bank governor told Bloomberg TV. “We will get there with continuing this monetary-policy stance, holding on for a while until we are totally sure that inflation is coming down.”

ECB (BBG): Italy Bond Spread Will ‘Absolutely’ Focus ECB, Makhlouf Says

Italy’s bond-yield spread over peers will keep European Central Bank officials on alert, Governing Council member Gabriel Makhlouf said. The Irish governor, speaking in an interview on Wednesday at the International Monetary Fund meetings in the Moroccan city of Marrakech, said that he and his colleagues do have the tools to contain any problems should they occur.

ECB (BBG): ECB Should Discuss Ending PEPP Reinvestments Sooner, Wunsch Says

European Central Bank Governing Council member Pierre Wunsch said officials should consider a quicker start to rolling off almost €1.7 trillion ($1.8 trillion) in bonds bought during the pandemic — despite a recent jump in Italian bond yields. While the ECB has said it will reinvest any maturing securities from the so-called PEPP portfolio through end-2024, “I don’t think there is any any strong rationale for doing that today,” the Belgian central bank chief told Bloomberg TV.

ECB (RTRS): ECB Should Not Stop Bond Buys Early, Stournaras Says

The European Central Bank should not stop its bond purchases early because they may still need to calm jittery markets but it is down to governments, including Italy's, to keep bondholders on side, ECB policymaker Yannis Stournaras told Reuters. In the interview, Greece's central bank governor also warned about the risk of stagflation from a prolonged war in the Middle East and spoke against increasing the amount of reserves that banks must hold.

FRANCE (BBG): France Bolsters Energy-Saving Measures to Avoid Demand Rebound

France unveiled a series of measures, including subsidies for home thermostats and restrictions on store lighting hours, to ensure energy consumption maintains its downward trend. The steps supplement last year’s sweeping plan to cut heating and power use in the public and private sectors, after Russia squeezed gas deliveries to Europe and French nuclear reactors suffered prolonged outages. While energy prices have declined from last year’s record, the region is still struggling with elevated power bills, as it steps up the fight against climate change.

UK (BBG): Future UK Rate Decisions ‘Finely Balanced,’ BOE’s Pill Says

Bank of England Chief Economist Huw Pill said interest-rate decisions are becoming “finely balanced” and officials may have already “done enough.” Speaking at the Marrakesh Economic Festival in Morocco, Pill said inflation “remains too high” but there is “still a lot” of monetary tightening that has yet to take effect after 14 successive rate increases since the end of 2021.

UK (MNI): UK Companies Struggling With Labour Shortages - CBI

Labour shortages continued to be a strain on UK businesses in the last 12 months, a Confederation of British Industry survey shows, with more than 70% of respondents reporting problems hiring staff. Nearly eight in 10 companies responding believe access to skills has been a threat to competitiveness over the last year, the CBI's latest annual Employment Trends Survey -- conducted with Pertemps Network Group -- showed.

CHINA (BBG): China State Fund Buys Bank Shares, Fueling Rescue Hopes

China’s sovereign wealth fund increased its stake in the nation’s biggest banks for the first time since 2015, stoking speculation authorities will intensify efforts to prop up the sinking stock market. State-owned Central Huijin Investment Ltd. bought about $65 million of shares in Bank of China Ltd., Agricultural Bank of China Ltd., China Construction Bank Corp. and Industrial and Commercial Bank of China Ltd., according to filings Wednesday. Huijin, a unit of the $1.4 trillion China Investment Corp., plans to further increase holdings over the next six months, the filings show.

BOJ (MNI): More Flexibility on Rising Inflation - BOJ Noguchi

Bank of Japan board member Asahi Noguchi said on Thursday that the BOJ will need to increase the flexibility of easy policy to continue yield curve control when the expected inflation rate begins rising. “If the 2% price rise is settled and rising the policy interest rate is to set, long-term interest rates will rise, incorporating future policy rate path into the rates,” Noguchi, a dovish board member, told business leaders in Niigata City.

BOJ (MNI): BOJ Encouraged by Tankan Inflation Expectations

Bank of Japan officials have been heartened by the resilience of companies’ medium-to-long-term inflation views in September’s Tankan survey, as the BOJ continues to gather evidence of what it hopes could be a solid and sustainable rise in domestic inflation ahead of key wages data early next year, MNI understands.

ISRAEL (BBG): Israel Ups Ante, Vows to Wipe Hamas ‘Off Face of the Earth’

Prime Minister Benjamin Netanyahu, hours after forming an emergency government and wartime cabinet, foreshadowed a major ground attack on Gaza by promising to destroy Hamas. “Every Hamas terrorist is a dead man,” Netanyahu said at a late-night briefing, flanked by Defense Minister Yoav Gallant and Benny Gantz, the leader of an opposition party.

MIDEAST (MNI): Saudi Crown Prince, Iranian Pres. Hold First Call Amid Israel-Hamas War

Saudi Crown Prince Mohammed bin Salman and Iranian President Ebrahim Raisi have held their first phone call amid the escalation in regional tensions due to the ongoing Israel-Hamas war. During the 11 October call the two discussed the "need to end war crimes against Palestine," according to Iranian state media, while Saudi media reported that MBS "affirmed that the Kingdom is making all possible efforts in communicating with all international and regional parties to stop the ongoing escalation".

COMMODITIES (BBG): Oil Price Pullback Reflects Demand Destruction, IEA Says

Oil’s retreat from almost $100 a barrel shows that prices climbed high enough to start eroding demand in the US and elsewhere, according to the International Energy Agency. “Supply fears gave way to deteriorating macroeconomic indicators and signs of demand destruction in the United States, where gasoline deliveries plunged to two-decade lows,” the IEA said in its monthly market report. “Demand destruction has hit emerging markets even harder, as currency effects and the removal of subsidies have amplified the rise in fuel prices.”

DATA

UK DATA (MNI): UK GDP Bounce in August as Services Sector Recovers

• UK AUG GDP +0.2% M/M, +0.3% 3MM, +0.7% 3M Y/Y
• UK AUG TRADE BALANCE GBP -3.42BN
• UK AUG IND PROD -0.7% M/M, +1.3% Y/Y
• UK AUG MANUF OUTPUT -0.8% M/M, +2.8% Y/Y
• UK AUG SERVICES INDEX +0.4% M/M, +0.1% 3MM

The UK economy bounced modestly in August, recovering some of the ground lost in the previous month, helped by a better than expected recovery in the services sector, data released by the Office for National Statistics on Thursday showed. Monthly real GDP is estimated to have grown by 0.2% in August, following a fall of 0.6% in July 2023, revised down from a provisional 0.5% fall. Following recent revisions to the early pandemic years GDP, the economy now stands 2.1% larger than in Feb 2020 on a monthly basis.

JAPAN DATA (MNI): Japan Sep CGPI Rise Slows to 2.0% vs. Aug 3.3%

• JAPAN SEP CORP GOODS PRICE INDEX +2.0% Y/Y; AUG REV +3.3%
• JAPAN SEP CORP GOODS PRICE INDEX -0.3% M/M; AUG UNREV +0.3%

The y/y rise in Japan's corporate goods price index slowed to 2.0% in September from August's revised 3.3% for the ninth straight deceleration, indicating that pass-through of cost increases continued but at a slower pace, data released by the Bank of Japan showed Thursday. Pass-through of cost increases downstream continued, slowing the pace of the consumer price index's fall, while the number of Bank of Japan board members who expect upside risks to prices increased.

FOREX: Markets More Sanguine, Awaiting CPI Risk

• Currency markets are more sanguine early Thursday, with markets awaiting the key releases later today, with US CPI due, as well as the unofficial beginning of US earnings season. Delta Airlines, Walgreens and Fastenal are among the key reports due today.
• NZD sits softer against all others, with NZD/USD offered for a second session. The price has faded after a failed test of the 100-dma earlier this week at 0.6060, opening lower levels into the 0.5955 50-dma. Event risk includes the general election due this weekend, at which expectations are for the main parties to struggle to form a government without help from other parties.
• Oil prices have steadied after yesterday's rout, but hold close to the week's lower levels. There remains a small premium on the week following the beginning of the Israeli conflict, but the price action over the past few sessions has confirmed oil prices will be two-way for now. This keeps the likes of USD/CAD off the week's best levels, but unable to follow through with a test of key support at the 1.3546 50-dma.
• US CPI data takes focus going forward, with markets wary over the potential for another higher-than-expected reading after the Wednesday PPI release. Both the Y/Y and core Y/Y headlines are seen posting sequential declines, dropping to 3.6% and 4.1% respectively.
• The speaker slate is busy with an economic forum in Marrakech dominating the headlines. ECB members are out in full force, with Villeroy, Holzmann, Knot, Vujcic, Vasle, Panetta all making appearances today, as well as Fed's Logan, Bostic and Collins.

EGBS: Off Best Levels as Crude & Equities Move Higher

EGBs have moved away from best levels, with the uptick in crude oil futures and equities helping unwind the early richening move.

• Bund futures last show -10, with German cash benchmarks 1-2bp cheaper across the curve, in what has been a fairly parallel shift.
• EGB spreads to Bunds are generally little changed to tighter.
• Various rounds of ECB speak have been noted, with most pointing to the “appropriate” nature of current monetary policy settings given the current economic outlook. Some kept the door open to another hike if the data evolves in a manner that would warrant such a moie.
• The usually dovish Centeno noted the need to be nimble re: adjusting policy settings based on data flow, while stressing the need to predictable re: policy settings.
• Makhlouf suggested that BTP spreads will “absolutely focus” the Bank.
• Finally, Holzmann once again flagged his support for a higher MRR re: banks late on Wednesday.
• This morning’s BTP supply saw smooth enough digestion, although auction sizes were more modest than the recent norms.

GILTS: Curve Bear Flattens, Futures Move Lower After Technical Resistance Holds

Gilt futures run 25 ticks cheaper on the day, after the early data-aided rally (which was driven by soft monthly production metrics) unwound.

• Technical resistance in gilt futures capped the rally, before a move away from best levels in wider core global FI and an uptick in crude oil prices helped apply pressure.
• Cash gilts are 2-5bp cheaper, bear flattening.
• BoE dove Dhingra provided familiar tones in a BBC interview overnight.
• More recently, comments from BoE chief economist Pill stressed that inflation remains too high, although he noted the debate re: the need for further tightening is “finely balanced,” with a lot of already enacted policy tightening still to work through the system.
• The BoE’s credit survey pointed to familiar areas of worry re: the domestic housing market.
• SONIA futures sit unchanged to 3bp cheaper through the blues, with the early bid more than unwound alongside the move in gilts.
• BoE-dated OIS is essentially unchanged across the curve.

EQUITIES: Bear Cycle in E-Mini S&P Still in Play, Despite Recent Recovery

Eurostoxx 50 futures continue to push back against the recent bearish trend condition. Friday’s rally and the follow through early this week is, for now, deemed corrective in nature. Signs of further strength and a bottoming of prices would follow a break back above the 50-day EMA - a key level on Thursday at 4257.70. A break of this average would signal a possible short-term base, opening levels last seen in mid-September. The E-mini S&P trades higher for a fifth consecutive session, with the index holding just below the week’s highs ahead of the Wednesday cash open. Overall, a bear cycle remains in play, however downside momentum has paused in favour of a corrective rally. Pivot resistance remains above at the 50-day EMA at 4432.24, with the medium-term outlook remaining bearish the longer price holds below this level.

• Japan's NIKKEI closed higher by 558.15 pts or +1.75% at 32494.66 and the TOPIX ended 34.65 pts higher or +1.5% at 2342.49.
• Elsewhere, in China the SHANGHAI closed higher by 28.945 pts or +0.94% at 3107.901 and the HANG SENG ended 345.11 pts higher or +1.93% at 18238.21.
• Across Europe, Germany's DAX trades higher by 79.59 pts or +0.51% at 15541.52, FTSE 100 higher by 47.94 pts or +0.63% at 7669, CAC 40 up 28.79 pts or +0.4% at 7161.21 and Euro Stoxx 50 up 22.26 pts or +0.53% at 4224.35.
• Dow Jones mini up 61 pts or +0.18% at 34065, S&P 500 mini up 10.5 pts or +0.24% at 4421.5, NASDAQ mini up 40 pts or +0.26% at 15424.

COMMODITIES: Bearish Theme in Gold Remains on Pause

The stronger start to the week for WTI futures has faded into the Wednesday close. Recent bearish price action resulted in a break of support at $88.19, the Sep 26 low. The contract has also cleared support at the 50-day EMA, at $84.46. This signals scope for a deeper retracement towards the $80.00 handle and $79.57, a Fibonacci retracement point. Initial firm resistance is at $87.71, the 20-day EMA. A bearish theme in Gold was put on pause Monday after a second session of gains. Monday’s bounce put prices back above $1850. Nonetheless, the recent sell-off resulted in a break of support at $1901.1 and this was followed by a breach of $1884.9, the Aug 21 low. This confirmed a resumption of the downtrend that started early May. The focus is on $1804.9, the Feb 28 low and a key support. On the upside, firm resistance is at $1878.2, the 20-day EMA.

• WTI Crude up $0.75 or +0.9% at $84.27
• Natural Gas down $0.04 or -1.04% at $3.348
• Gold spot up $5.88 or +0.31% at $1880.92
• Copper up $2.4 or +0.66% at $363.55
• Silver up $0.12 or +0.52% at $22.167
• Platinum up $0.99 or +0.11% at $892.46