MNI US OPEN - Markets Steady as US Gov't Shutdown Avoided

NEWS

US (BBG): Biden Vows Fix After US Drops Ukraine Aid to Avert Shutdown

President Joe Biden urged House Speaker Kevin McCarthy to follow up quickly with funding for Ukraine hours after Congress passed a spending bill without it to avoid a US government shutdown. The omission comes at a critical stage for Kyiv as it steps up efforts to repel Russia’s invasion and shows how domestic political debate in Washington is starting to affect support for Ukraine. Less than two weeks ago, Ukrainian President Volodymyr Zelenskiy visited Washington to plead for new weapons systems and urged allies to keep up their financial and military support for Kyiv.

US (NYT): McCarthy Faces Test as Gaetz Moves to Oust Him for Working With Democrats

A day after the Republican speaker turned to Democrats for help passing a stopgap spending bill to avert a shutdown, the far-right congressman promised to try to remove him from his post. Speaker Kevin McCarthy’s leadership position is in peril after his most outspoken Republican critic, Representative Matt Gaetz of Florida, said on Sunday he would follow through on threats to try to remove Mr. McCarthy from the job.

US (BBG): Newsom Picks Laphonza Butler to Replace Feinstein: Politico

California Governor Gavin Newsom will appoint EMILY’s List President Laphonza Butler to fill the seat of late Senator Dianne Feinstein, Politico reports, citing an unidentified person familiar with the decision.

UK (BBG): UK’s Hunt Sees No Room for Tax Cuts, Warns of Inflation Risk

Jeremy Hunt said he has no leeway to cut UK taxes at present, putting the Chancellor of the Exchequer on a collision course with Conservative colleagues who want to see tax cuts to boost their party’s electoral prospects. In a Bloomberg TV interview, Hunt warned that lowering taxes now would stoke inflation, which would hit the finances of ordinary Britons. He also said that the UK doesn’t have the fiscal power to fund such a move.

UK (BBG): UK’s Mortgage Crunch Is Easing as House Prices Stay Put

UK house prices held up better than forecast in September as the recent surge in mortgage rates showed signs of easing. The average price of a home was unchanged at £257,808 ($314,060) after two months of falls, mortgage lender Nationwide Building Society said in a statement Monday. Economists in a Bloomberg survey had predicted a drop of 0.4%. Prices fell 5.3% from a year earlier, the same pace as in August.

RIKSBANK (MNI): Riksbank Open to Further Tightening - Minutes

The Riksbank recognizes further tightening could well be needed, according to the minutes of the September monetary policy meeting, even as the key policy was hiked 25 basis points to 4.0%.The September rate path only partially priced in another 25 bps hike this year, with a 4.1% peak, but various board members highlighted upside inflation risks, the persistence of core inflation and concerns over krona weakness.

BOJ (MNI): BOJ Members Eye 2% Price Target, Wage Hikes

The Japanese economy can achieve the Bank of Japan's 2% price target if wage hikes continue in 2H one BOJ board member believes, while a separate member notes positive wage-setting behaviour has started to spread among firms, the September 21-22 meeting summary of opinions showed Monday. One member noted 2H of this fiscal year will be an important period to determine whether the price stability target will be achieved, while a separate member noted meeting the 2% price target in a sustainable and stable manner seems to have come in sight.

BOJ (MNI): BOJ to Conduct Extraordinary JGB Purchase Wednesday

The Bank of Japan said on Monday it will conduct an extraordinary purchase of Japanese government bonds with a remaining life of five-10 years on Wednesday. The purchase follows a similar operation on Sept. 29. The BOJ aims to curb the JGB selloff following the rise in U.S. Treasury bond yields.

JAPAN (BBG): Japan’s Kishida to Seek Asset Management, Pension Fund Reform

Japanese Prime Minister Fumio Kishida will prod asset managers to improve their skills and strengthen governance, as he tries to nudge households to shift their savings to investments. He will also lay out principles by summer 2024 defining the role of pension funds and insurers in making sure the funds they oversee bring appropriate returns to beneficiaries, he said in a speech as part of the “Japan Weeks” event aimed at promoting his country as a global financial center.

MNI RBA PREVIEW - OCTOBER 2023: Extended Pause, Watch November

The RBA is likely to leave rates at 4.1% again at its October 3 meeting, as the economy is developing broadly as the bank expects. The tightening bias will probably be retained to keep the central bank's options open going forward and the accompanying statement may again be little changed. The RBA is expecting headline inflation of 4.1% and trimmed mean of 3.9% by year end, and the Q3 CPI data due on October 25 should indicate whether these forecasts may need to be revised in early November.

RBNZ (MNI): MPC to Eye Further OCR Pause at 5.5%

The Reserve Bank of New Zealand is likely to keep its Official Cash Rate on hold at 5.5% for a third consecutive meeting on Oct 4, despite signs that stronger-than-expected inflation over the short term could warrant future increases. While the market has priced in minimal risk of a hike next Wednesday, strong immigration, GPD and increasing oil prices have driven the peak rate call higher, with the overnight index swaps market pricing in a 5.75% OCR by February from the 5.6% expected before the August meeting.

COMMODITIES (BBG): Citi Says Oil to Collapse to Low $70s in 2024 as Surplus Returns

Brent crude will collapse to the low $70s/bbl next year as the global market swings back to a surplus, according to Citigroup Inc. Balance to swing from 1.5m bpd draw in 3Q 2023 to minimum 0.2m bpd build this quarter, and over full year of 2024, 1.1m bpd rise. The shift reflects “more oil coming into the market,” analysts including Ed Morse said in a global commodities quarterly report. Brent to average $82/bbl in 4Q, 2023, followed by $80/bbl in 1Q 2024, $73 in 2Q, $74 n 3Q and $68 in 4Q

DATA

EUROZONE FINAL SEP MANUF PMI 43.5 (MNI)
EUROZONE AUG UNEMPLOYMENT RATE 6.4% (MNI)

CHINA DATA (MNI): China's Sep PMI Rises to 50.2

MNI (Beijing) China's manufacturing Purchasing Managers' Index rose by 0.5 points to 50.2 expansionary level in September, above the breakeven 50 mark for the first time in six months, data from the National Bureau of Statistics showed Saturday. The production and new orders sub-indices recorded 52.7 and 50.5, up 0.8 and 0.3 pp from the previous month, indicating accelerated manufacturing activities as demand gradually recovers. Manufacturers have increased purchasing to meet production needs, with the purchasing sub-index rising for the second month to 50.7.

CHINA DATA (MNI): Caixin China Sept Manufacturing PMI Falls to 50.6

MNI (Beijing) China's Caixin manufacturing PMI edged down 0.4 points to register 50.6 in September from August, staying in the expansionary zone above the breakeven 50 mark for the fourth time in the past five months, the financial publisher said Sunday. The production sub-index rose further above the 50 mark. The new orders sub-index fell but remained in the expansion range, but the new export orders sub-index was still rising in the contraction territory, indicating that improved domestic demand acted as the driving force.

JAPAN DATA (MNI): Sentiment Rises, Solid Capex Plans - BOJ Tankan

• BOJ SEP TANKAN LARGE MFG INDEX +9; JUN +5; MEDIAN +6
• BOJ DEC TANKAN LARGE MFG INDEX FORECAST AT +10
• BOJ DEC TANKAN LARGE NON-MFG INDEX SEEN AT +21

Japanese benchmark business sentiment rose over Q3 for the second straight quarter due to eased supply-side restrictions and slowing cost, and pass-through of cost increases despite growing uncertainty over global demand, the Bank of Japan's September Tankan business sentiment survey showed Monday. The major manufacturer diffusion index (DI) – calculated by subtracting the percentage of companies reporting deteriorating business conditions from those reporting an improvement – stood at +9 in the September quarter, up from +5 in Q2, the highest level since June 2022.

FOREX: Markets Becalmed as Government Shutdown Can Kicked

• Markets trade on a steadier footing following the avoidance of a fully fledged government shutdown, after a last minute deal was struck in the House and Senate over the weekend. Perhaps most importantly, the deal means the NFP release this Friday and the Oct 12 September CPI will go ahead as planned (as will the MNI previews), giving the Fed all planned data releases for the November 1st rate decision.
• That said, the can-kicking element is very present, with November 17th the new crunch date that markets will narrow in on for the coming month or so. Should no funding deal be secured by then, it's likely markets go through another bout of short-term uncertainty leading in to that date.
• EURCHF is rolling over to keep CHF the strongest performing currency in G10, with the moves following the failed test of the 0.97 handle last week. This marks a bearish development for the cross and longs are likely taking profit on the late September recovery. EUR/CHF eyes support at 0.9609 and 0.9589 - with both levels marking retracements off the September rally.
• Focus Monday turns to Fedspeak, with Fed's Powell, Harker and Williams all set to make appearances. The Fed chair speaks at a roundtable alongside Harker to participate in discussions with workers, business owners and community leaders. ISM Manufacturing data also crosses, expected to improve very slightly to 47.9 from 47.6.
• Markets remain on watch for any clues within the data for this Friday's Nonfarm Payrolls release, for which markets expect job gains of 165k and an lower unemployment rate at 3.7%.

BONDS: Gilts Keep the Pressure on EGBs

• Bund initially closed its opening gap up to 128.45 in early trade, printed a 128.50 high.
• The contract has since fallen back towards 128.00, which at the time of typing has held, printed a 128.00 low. Gilt is leading Bond lower this morning, helping, the Gilt/Bund spread wider.
• After testing its tightest level since May on the 22th September, Desks have favoured fading just ahead of the 150.00bps Psychological support, now back above 160.00bps.
• Core and semi core spread are mixed against the German 10yr, Portugal is 0.6bp wider, while Greece is 1.6bps tighter.
• US Treasuries have mostly traded in line with EGBs, albeit 1bp wider the US/German 10yr spread.
• Focus in the Tnotes/Bund spread is at the 176.45bps resistance, the September high, and the widest print since November 2022, now trading at 174.3bps.
• Looking ahead, US final Manufacturing PMI and US ISM are the notable data.
• Speakers include, BoE Mann, Fed Powell, Harker, Williams.

EQUITIES: Short-Term Gains in E-Mini S&P Considered Technically Corrective

Eurostoxx 50 futures trend conditions remain bearish and the latest bounce is considered corrective. Last week’s extension lower reinforces the current trend condition and key support at 4210.00, the Sep 8 low, has been breached. The clear break confirmed a resumption of the downtrend that started late July and opens 4109.90, a Fibonacci projection. Initial firm resistance is at 4245.60, the 20-day EMA. A bear cycle in S&P E-minis remains in play and short-term gains are considered corrective. The recent break of support at 4397.75, the Aug 18 low, reinforced bearish conditions and signals scope for a continuation lower. Sights are on 4242.15, a Fibonacci retracement point. Initial firm resistance is 4467.07, the 50-day EMA. Ahead of the 50-day average is resistance at 4399.00, the Sep 22 high, and 4425.05, the 20-day EMA.

• Japan's NIKKEI closed lower by 97.74 pts or -0.31% at 31759.88 and the TOPIX ended 8.95 pts lower or -0.39% at 2314.44.
• Across Europe, Germany's DAX trades higher by 47.89 pts or +0.31% at 15434.48, FTSE 100 higher by 5.52 pts or +0.07% at 7613.35, CAC 40 up 30.08 pts or +0.42% at 7163.92 and Euro Stoxx 50 up 15.89 pts or +0.38% at 4189.82.
• Dow Jones mini up 168 pts or +0.5% at 33895, S&P 500 mini up 25.75 pts or +0.6% at 4351.5, NASDAQ mini up 120.25 pts or +0.81% at 14987.5.

COMMODITIES: Gold Starts the Week on a Bearish Note

The uptrend in WTI futures remains intact and last week’s climb confirmed a resumption of the trend - resistance at $92.43, Sep 19 high, was cleared. This maintains the bullish price sequence of higher highs and higher lows and note that MA studies are in a bull-mode position, reflecting the market's positive sentiment. Sights are on $97.08 next, a Fibonacci projection. Key support is $88.19, Sep 2 low. A break would highlight a possible S/T top. Gold sold off sharply last week and the yellow metal is starting this week’s session on a bearish note. The recent move lower resulted in a break of support at $1901.10 and this was followed by a breach of $1884.9, the Aug 21 low. This confirmed a resumption of the downtrend that started off the early May high. Attention is $1839.0, a Fibonacci retracement point. On the upside, initial firm resistance is at $1905.5, the 20-day EMA.

• WTI Crude up $0.29 or +0.32% at $91.05
• Natural Gas down $0 or -0.1% at $2.925
• Gold spot down $7.86 or -0.43% at $1840.75
• Copper down $0.5 or -0.13% at $373.15
• Silver down $0.41 or -1.85% at $21.7711
• Platinum down $1.87 or -0.21% at $906.19