MNI US OPEN - McCarthy Ousted as House Speaker in Unprecedented Vote

NEWS

US (MNI): McCarthy Ouster Sets up Search for Replacement amid Uncertain Process

On the evening of 3 October, Kevin McCarthy (R-CA) became the first-ever Speaker of the House of Representatives to be removed from office via a 'motion to vacate', engendering significant uncertainty within the US political system. It is unclear who on the Republican side could be best placed in replacing McCarthy, while the historic nature of the Speaker's removal could gum up the workings of Congress until a new Speaker can be voted in.

US (BBG): Biden Cancels $9 Billion More in Student Debt as Payments Resume

President Joe Biden is canceling an additional $9 billion in student-loan debt, his latest action to aid borrowers after the Supreme Court blocked his debt-relief plan and as payments resume for millions of Americans. Biden on Wednesday will detail the efforts, which will bring relief for 125,000 borrowers through changes to programs intended to aid public servants, Americans with disabilities and low-income borrowers, according to the White House.

US/UKRAINE (NYT): U.S. and World Leaders Pledge Support for Ukraine ‘for as Long as It Takes’

President Biden, in a conference call with world leaders amid tumult in Congress, insisted that U.S. aid would not be interrupted. President Biden has told his counterparts in a number of allied countries that he remains confident that Congress will approve military and humanitarian assistance for Ukraine “for as long as it takes” in spite of opposition among some Republicans that blocked funding over the weekend, a national security spokesman said on Tuesday.

CANADA/INDIA (BBG): Canada in Talks With India Over Diplomats as Dispute Grows

Canada’s government is still in discussions with India about its diplomatic presence in the South Asian country as a dispute rages over the murder of a Sikh separatist leader in a Vancouver suburb. Foreign Minister Melanie Joly said Tuesday that Canada is in “constant cooperation and dialogue with India” after reports that Canada has been instructed to cut the number of diplomats by two-thirds — a move that would send dozens of staff home and significantly reduce its contingent in New Delhi.

UK (MNI): PM to Deliver Conference Speech 1115BST

Prime Minister Rishi Sunak is expected to deliver his keynote speech to the Conservative party conference in Manchester at 1115BST (0615ET, 1215CET), with the PM expected to announce the controversial cancellation of the northern leg of the HS2 high-speed rail line. The conference, initially billed as an opportunity for Sunak to cement his position as party leader ahead of the general election expected next year, has been instead dominated by speculation over the future of HS2 and internal party divisions.

UK (BBG): BOE Governor Says Brexit Has Created Opportunities for UK

Bank of England Governor Andrew Bailey said Brexit has “created opportunities” for Britain’s financial regulators and has less of an impact on the City of London than expected but warned that the UK faces “further large shocks” following the pandemic and war in Ukraine. In an interview with Prospect magazine, he acknowledged that leaving the European Union will have negative economic effects in the short run, but stressed he was an inherent optimist on the UK.

JAPAN (BBG): Japan’s Kanda Declines to Confirm if Conducted Intervention

Japan’s top currency official Masato Kanda declines to comment on whether intervention was conducted Tues. night when the foreign exchange rate moved sharply against the US dollar. Says excess moves are not desirable; doesn’t rule out any options against such moves. Also declines to comment on whether Tues. night move was excessive or not.

BOJ (MNI): BOJ Yield Curve Move Possible in January - Kameda

The Bank of Japan should be able to determine the pace of next year’s wage hikes by as early as January and could move to adjust its easy policy stance that same month, probably by loosening its yield curve control framework or dropping it altogether, former BOJ Chief Economist Seisaku Kameda told MNI.

BOJ (MNI): BOJ Ups JGB Buying Scale to Fight Higher Yields

The Bank of Japan on Wednesday increased the scale of its extraordinary purchase of Japanese government bonds with a remaining life of five-10 years to JPY675 billion, up from its similar Sept. 29 JPY300 billion operation. The larger amount illustrated the bank’s commitment to curb a rise in JGB yields following the rapid increase in U.S. Treasury yields.

MNI RBA REVIEW - OCTOBER 2023: Pause, Forecasts Key to November Decision

The RBA left rates unchanged at 4.1% for the fourth consecutive time. This was Michele Bullock’s first meeting as Governor and the little changed statement says something in itself - for now it is business as usual. Fuel prices were mentioned in the September minutes but this month they appeared in the statement too having “risen noticeably”. Another addition to the statement was the recognition that H1 growth had been stronger than projected but the RBA still expects it to be below trend.

RBNZ (MNI): MPC Pauses, Says Rates to Stay High for Longer

The Reserve Bank of New Zealand’s Monetary Policy Committee left the Official Cash Rate unchanged at 5.5% Wednesday – its third consecutive pause – and downgraded concerns over economic strength, lowering chances of a November hike, while indicating that rates could remain at restrictive levels for longer. The overnight index swaps market responded quickly, lowering rate expectations 2-3bp across meetings beyond October. The market had priced in a 58% chance of a November hike before today’s meeting, but that dropped to 49% after the publication of the minutes. The RBNZ-dated OIS had priced in a 17% chance of a move higher today.

NEW ZEALAND (MNI): Nationals Ahead But May Need Two Coalition Partners

The latest 1News/Verian poll is showing that there is a high probability that NZ will see a change of government following elections on October 14. The poll released today shows the incumbent Labour Party steady on 26% and their partner the Greens on 13%, while the opposition National Party continues to hold 36%. Its ally ACT is down 2pp to 10%, which could mean that the election is a lot closer than the percentages suggest.

COMMODITIES (BBG): Saudis and Russia Continue Oil Supply Cuts as Prices Falter

Saudi Arabia and Russia said they will stick with oil supply curbs of more than 1 million barrels a day to the end of the year as a rally in prices falters. The leaders of the OPEC+ coalition announced the plans in separate official statements on Wednesday. Riyadh has slashed crude production by 1 million barrels a day, and Moscow is curbing exports by 300,000 a day, on top of earlier cuts made with fellow OPEC+ nations.

DATA

EUROZONE DATA (MNI): Energy M/M PPI Rises in August

Eurozone August PPI printed in line with consensus, showing a first sequential monthly increase in producer prices since December 2022. The M/M print was +0.6% (vs +0.6% cons; -0.5% prior). This was driven by energy prices (+2.5% M/M vs -0.9% prior), as expected given the rise in oil prices over summer. Other major sub-components were either flat or negative on the month, with PPI ex-energy falling -0.2% M/M (vs -0.4% prior). The Y/Y print was -11.5% (vs -11.6% cons; -7.6% prior), aided by energy base effects (-30.6% vs -24.2% prior) though all other major subcomponents also showed disinflation. PPI ex-energy was +1.0% Y/Y (vs +1.6% prior).

EUROZONE AUG RETAIL SALES -1.2% M/M, -2.1% Y/Y (MNI)
EUROZONE FINAL SEP SERVICES PMI 48.7 (FLASH 48.4); AUG 47.9 (MNI)

SPAIN DATA (MNI): Small Improvement in Services PMI

• SPAIN SEP SERVICES PMI 50.5 (FCST 49.8); AUG 49.3

Spanish services PMI was 50.5 (vs 49.8 expected; 49.3 prior). The composite print was 50.1 (vs 49.2 expected; 48.6 prior). "Panellists noted that underlying demand conditions remained soft. This was especially the case for foreign business". "Latest data showed a second successive monthly fall in work outstanding. The solid decline was also supported by an expansion of employment".

ITALY SEP SERVICES PMI 49.9 (FCST 50.2) AUG 49.8 (MNI)

UK DATA (MNI): PMI Services Upward Revision

• UK FINAL SEP SERVICES PMI 49.3 (FLASH 47.2); AUG 49.5

There's not a lot that stands out amongst the UK PMI services upward revision to 49.3 relative to the flash (note that this is a 2.1 point upward revision so the "actual" number only fell 0.2 points from the August print). However, it is important to bear in mind that the MPC requested to see the flash data ahead of their September decision to leave rates on hold, and a number of MPC members did sound more concerned about the growth outlook.

GERMANY FINAL SEP SERVICES PMI 50.3 (FLASH 49.8); AUG 47.3 (MNI)

FRANCE SEP FINAL SERVICES PMI 44.4 (FLASH 43.9); AUG 46.0 (MNI)

JAPAN DATA (MNI): Japan Q1 Output Gap Narrows to -0.07% - BOJ

The Bank of Japan estimates the country's Q2 output gap at -0.07%, narrowing from -0.41% in Q1 – the 13th straight quarterly negative gap – indicating upward pressure on prices continues to increase with a time lag, BOJ data released Wednesday showed. The Bank expects the gap to turn positive about the middle of fiscal 2023 and to expand moderately toward the end of the projection period to March 2026.

FOREX: Early USD Support Fades, Putting Greenback Weaker into NY Crossover

• Currency markets are relatively steady heading into the US crossover, with the greenback edging lower in recent trade as the relentless rise in US yields abates off the cycle high. The US sovereign curve has traded higher and steeper again in Europe, putting the 30y yield briefly at 5% and tipping the 10y yield to a fresh cycle best.
• The greenback initially saw support, tipping the likes of EUR/USD and GBP/USD to new pullback lows of 1.0451 and 1.2037 respectively. This impact faded following the cash equity open on the continent, helping both pairs spill back into positive territory.
• Resultingly, the greenback is among the poorer performers in G10, with NZD similarly weak. EUR, GBP and AUD are faring better, running in contrast to their poor performance earlier this week.
• Markets are no clearer on whether the Japanese authorities formally intervened in currency markets yesterday after the sharp pullback after prices showed above Y150.00. The Japanese finance minister, top currency official and a government spokesman declined to comment, leaving traders waiting until the end of the month for any official confirmation from the BoJ.
• The US labour market takes focus going forward, with the September ADP employment change and ISM services data set for release. Markets expect ADP gains to slow to 150k from 177k, while ISM services is also seen lower this month. Markets remain on watch for any further clues on the labour market ahead of Friday's NFP release, at which consensus looks for job gains of 170k.

BONDS: Early Sell Off Moderates After Bears Probe Round Numbers/Tech Support

Momentum from Tsys in Asia-Pac hours spilled over in the early rounds of London trade, with a fresh wave of cheapening pressure seen.

• Still, bears couldn’t hold the move above 3.00% in German 10-Year yields (last 2.96%), nor the move above the 5.00% mark in 30-Year Tsys (last 4.93%). Technical support in gilt futures held.
• The failure of bears to consolidate moves through round numbers, coupled with the scale of the recent cheapening and lack of meaningful headline flow, allowed bonds to rebound from worst levels.
• Lighter net long positioning in Tsys (as outlined by the latest J.P.Morgan client survey) may give some scope to add to longs when such round numbers (roughly) hold, while the usual talk of profit taking also does the rounds given the speed and scope of the recent moves.
• A block buy in TY futures also helped the stabilisation.
• The German curve twist flattens on the day, while gilts and Tsys twist steepen.
• Bund, gilt & TY futures operate comfortably off session cheaps.
• EGBs are little changed to a touch wider vs. Bunds.
• Comments from ECB President Lagarde and BoE Governor Bailey failed to add to the respective policy debates.

EQUITIES: Recent Move Lower in E-Mini S&P Confirms Resumption of Bear Leg

Eurostoxx 50 futures trend conditions remain bearish and the latest bounce has been corrective. The contract has traded below 4128.00, the Sep 27 low. This confirms a resumption of the downtrend that started late July and signals scope for a move towards 4055.40, a Fibonacci retracement point. Initial firm resistance is at 4226.20, the 20-day EMA. A break of this average would signal a possible short-term base. A bear cycle in S&P E-minis remains in play. The contract traded lower yesterday, confirming a resumption of the bear leg and maintaining the price sequence of lower lows and lower highs. This signals scope for weakness towards 4242.15, a Fibonacci retracement point. A break of this level would open 4194.75, the May 24 low. Pivot resistance is 4453.89, the 50-day EMA. Ahead of the 50-day average is resistance at 4401.10, the 20-day EMA.

• Japan's NIKKEI closed lower by 711.06 pts or -2.28% at 30526.88 and the TOPIX ended 56.58 pts lower or -2.49% at 2218.89.
• Across Europe, Germany's DAX trades lower by 42.46 pts or -0.28% at 15043.62, FTSE 100 higher by 5.13 pts or +0.07% at 7475.32, CAC 40 down 1.39 pts or -0.02% at 6995.66 and Euro Stoxx 50 down 2.43 pts or -0.06% at 4093.16.
• Dow Jones mini up 9 pts or +0.03% at 33208, S&P 500 mini down 3.25 pts or -0.08% at 4261, NASDAQ mini down 32.25 pts or -0.22% at 14679.25.

COMMODITIES: Gold Remains Close to its Lowest Levels Since March

WTI futures started the week on a bearish note and a corrective cycle is in play. The contract has traded through support at $88.19, the Sep 26 low. The breach highlights a short-term top and signals scope for a move towards the 50-day EMA, which intersects at $84.56 today. A clear break of this average would strengthen a bearish condition. On the upside, key short-term resistance has been defined at $95.08, the Sep 28 high. Gold started this week’s session on a bearish note and the metal is trading just above this week’s low. 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 $1890.9, the 20-day EMA.

• WTI Crude down $0.62 or -0.69% at $88.58
• Natural Gas up $0.03 or +1.15% at $2.983
• Gold spot down $0.19 or -0.01% at $1822.48
• Copper down $1.6 or -0.44% at $360.5
• Silver down $0.07 or -0.33% at $21.0956
• Platinum down $0.95 or -0.11% at $870.45