MNI US OPEN - Midterms, CPI Top of Mind

NEWS

CHINA PRESS (MNI): China Underscores Commitment to Covid-Zero

China will continue to adhere to its Covid-Zero policy and will strictly implement various measures to quickly strengthen the control of local outbreaks, CCTV News reported, citing officials from National Health Commission at a press conference on Saturday.

EU-UK (MNI): Sunak Holds 1st Meeting w/EU's VdL as He Attempts to Boost EU Relations

There remain hopes in London and Brussels that early-stage technical talks on the Northern Ireland protocol can make progress to the point where the UK gov't can withdraw the Northern Ireland Protocol bill from parliament, given the threat it poses to the FTA between the EU and UK.

UK (MNI): FT-Chancellor Hunt Targets GBP54bn In Spending Cuts in Autumn Statement

The Financial Times is reporting that Chancellor of the Exchequer Jeremy Hunt is targeting GBP54bn in public spending cuts as part of the upcoming autumn statement on 17 November.

FT: "The final spending cuts total is yet to be decided, reflecting daily changes in gilt markets but is now higher than ministers expected a fortnight ago. The Treasury is aiming to overshoot the actual black hole of about 40bn in order to create additional fiscal headroom to allow for the possibility that economic conditions deteriorate more than currently expected." Click here for full article.

US (The Times): Presidents Fight for Every Vote in Pennsylvania, The State That Could Swing Midterms

The key issues are the economy and inflation, where the Republicans hold a clear advantage, according to a Washington Post-ABC News poll released at the weekend. It showed them poised to win a majority in the House, where they need a net gain of five seats. Intelligence agencies have warned of the prospect of political violence in the coming days as the votes are counted.

EU (BBG): Villeroy Urges ECB Hikes Until Underlying Inflation Has Peaked

The European Central Bank should keep raising interest rates, even at a reduced pace, until inflation excluding energy and food prices starts to ease, Governing Council member Francois Villeroy de Galhau said. “As long as underlying inflation has not clearly peaked, we shouldn’t stop on rates,” the Bank of France Governor said in an interview with the Irish Times.

RUSSIA (MNI): US Privately Asks Ukraine to Show It’s Open to Negotiate With Russia

The Biden administration is privately encouraging Ukraine leaders to signal an openness to negotiate with Russia and drop their public refusal to engage in peace talks unless President Putin is removed from power in an attempt to ensure Kyiv maintains support from other nations, The Washington Post writes according to people familiar with the discussions.

NORTH KOREA (MNI): N. Korea Threatens "Overwhelming" Military Action as S. Korea & Japan Close Ranks

Speculation is rife that Pyongyang could conduct its seventh nuclear test around the U.S. mid-term elections this week in order to magnify its psychological impact. North Korea is believed to have completed all necessary preparations.

JAPAN (MNI): Kingless Abe Faction Exacerbates Internal Chaos Within LDP

The faction's acting chairman Ryu Shionoya was widely perceived as the frontrunner to take the helm, but according to the Jiji report his leadership bid was blocked by middle-ranking and junior members of the group. While several political heavyweights associated with the faction could potentially throw their hats into the ring, none of them seems to have sufficient support to win a leadership contest. Some of the names mentioned by the press include Chief Cabinet Secretary Matsuno, METI Minister Nishimura, and Policy Research Council Chairman Hagiuda.

JAPAN (MNI): Approval Ratings of Kishida Cabinet Continue to Sink but Opposition Struggles to Make Gains

The approval ratings of Japan's Cabinet continued to fall in the latest round of opinion polls. Support for Prime Minister Kishida's administration fell 9pp to 36% in the latest Yomiuri survey, while a JNN poll indicated a 3.1pp decline to 39.6%.

The Cabinet's support levels fell below the 40% mark for the first time in both surveys. The disapproval rates rose by 4pp to 50% in the Yomiuri poll and by 3.8pp to 57.7% in the JNN poll. Continued deterioration in net ratings is a worrying sign for the ruling coalition, with the recently announced jumbo-sized fiscal package failing to restore public confidence in the administration.

DATA

EUROZONE OCT CONSTRUCTION PMI 44.9; SEP 45.3

GERMAN DATA (MNI): Industrial Production Sees Late Q3 Boost

• GERMANY SEP IND PROD SA +0.6% M/M (FCST +0.1%); AUG -1.2%r M/M
• GERMANY SEP IND PROD SA +2.6% Y/Y (FCST +2.0%); AUG +1.6%r Y/Y

German industrial production saw an upside surprise in September, expanding by +0.6% m/m and +2.6% y/y. Total production has remained below 2015 levels since February. In line with Friday's factory orders data, consumer goods recorded buoyant growth of +1.4% m/m. Capital goods production also expanded (+1.1% m/m) and only intermediate goods production fell (albeit modestly by -0.1% m/m).

Despite overall growth, energy-intensive production remains severely hampered by high energy prices and contracted by 9.7% y/y. Supply-chain easing is providing support to auto production, which alongside robust consumer goods boosted Germany's Q3 GDP. Whether this effect continues into Q4 is uncertain, as survey data continues to signal that the German economy teeters on the edge of a recession.

SWISS OCT UNEMPLOYMENT RATE +2.1%
SWISS OCT UNEMPLOYMENT +0.1% M/M, -23.2% Y/Y

CHINESE DATA (MNI): China's Exports Drop In Oct; First Fall Since 2020

• CHINA OCT TRADE SURPLUS +$85.15 BLN; SEP +$84.75 BLN
• CHINA OCT IMPORTS -0.7% Y/Y; SEP +0.3% Y/Y
• CHINA OCT EXPORTS -0.3% Y/Y; SEP +5.7% Y/Y

China's exports fell 0.3% y/y in October for the first decline since May 2020 due to slowing global growth and Covid disruptions, according to China Customs data released on Monday.

The weak Chinese yuan did little to help exports, which decelerated from the 5.7% y/y growth pace recorded in September as external demand for China's exports was hurt by aggressive rate hikes by the world's leading central banks and as domestic production was disrupted by Covid measures. Economists had expected a 4.5% y/y increase, according to a Bloomberg survey.

FX SUMMARY: USD Index Through Last Week's Lows

• The greenback is generally softer across G10 early Monday, with the USD Index through last week's lows and eyeing 109.535, the near-term support posted at the Oct 27 low. For now, the USD pullback looks corrective in nature, with prices still tied to the medium-term uptrend. The 50-dma continues to trend higher, crossing today at 111.213.
• GBP trades more favourably, with GBP/USD now erasing the entirety of the post-BoE decision move lower. For now, a stronger reversal higher and a break of 1.1645, Oct 27 high, is required to reinstate the recent bull cycle.
• Antipodean and commodity-tied currencies are moderately lower, with NZD and AUD lower as China doubled-down on their Zero COVID Strategy. There had been some speculation that rules could be eased over the weekend - rumours that had driven local asset prices higher. These hopes are fading early Monday, putting CNH, AUD and NZD lower at the NY crossover.
• Datapoints are few and far between Monday, keeping focus instead on the central bank speaker slate. Fed's Collins, Mester and Barkin are all due to speak. This week, however, focus rests on the US inflation release due Thursday. Consensus looks for 0,6% M/M and 7.9% Y/Y.

BOND SUMMARY: Round Trip For Core FI

• Core fixed income started the European session on the back foot but quickly recovered its losses and is now a little higher than Friday's close, although moves are generally limited to a couple of basis points.
• Today will see the BoE's first medium-dated (7-20 year) active gilt sales operations in what is a heavy week for both gilt and EGB issuance in general.
• In terms of today's speakers we have heard from both ECB's Lagarde and Panetta this morning at an EC/ECB conference on the digital euro. Later we will hear from the Fed's Mester and Collins on women in economics and after the US close we will hear from Barkin as he takes part in a "Demystifying Inflation" event aimed at the general public.
• TY1 futures are up 0-2 today at 110-03+ with 10y UST yields down -2.3bp at 4.137% and 2y yields up 2.0bp at 4.680%.
• Bund futures are up 0.26 today at 136.98 with 10y Bund yields down -1.8bp at 2.274% and Schatz yields up 0.8bp at 2.128%.
• Gilt futures are up 0.05 today at 101.46 with 10y yields down -0.2bp at 3.530% and 2y yields down -1.5bp at 3.007%.

EQUITIES: Eurostoxx Futures Print Fresh Monthly High After Friday Rally

A bullish EUROSTOXX 50 futures outlook remains intact and Friday’s rally reinforces this condition. The break to a fresh short-term trend high confirms a resumption of the bull cycle that started Oct 3. The break has paved the way for gains above the 3700.00 level. The next key resistance is at 3810.00, the Aug 17 high. Firm support is seen at the 50-day EMA.S&P E-Minis traded lower last week following the reversal from 3928.00, Nov 1 high. Despite the latest retracement, a bull cycle remains in play following the recovery from 3502.00, Oct 13 low. However, an extension lower would undermine this theme. Initial firm to watch lies at 3641.50, the Oct 21 low. A break would strengthen any developing bearish threat. For bulls, a strong resumption of gains would refocus attention on 3928.00, the bull trigger.

• Japan's NIKKEI closed higher by 327.9 pts or +1.21% at 27527.64 and the TOPIX ended 18.69 pts higher or +0.98% at 1934.09.
• Elsewhere, in China the SHANGHAI closed higher by 7.021 pts or +0.23% at 3077.817 and the HANG SENG ended 434.77 pts higher or +2.69% at 16595.91.
• Across Europe, Germany's DAX trades higher by 92.7 pts or +0.69% at 13556.71, FTSE 100 higher by 3.2 pts or +0.04% at 7339.32, CAC 40 up 16.26 pts or +0.25% at 6434.32 and Euro Stoxx 50 up 24.67 pts or +0.67% at 3713.83.
• Dow Jones mini up 103 pts or +0.32% at 32534, S&P 500 mini up 12 pts or +0.32% at 3792.5, NASDAQ mini up 39.5 pts or +0.36% at 10931.5.

COMMODITIES: Gold, WTI Maintain Bullish Theme Close to Friday Highs

WTI futures traded higher Friday. The outlook is bullish. The contract has pierced resistance at $92.34, the Oct 12 high. A clear break of this hurdle would strengthen a bullish theme and signal scope for a climb towards resistance at $95.55. Moving average studies are beginning to display a bull mode position, reinforcing the current positive outlook. The contract has defined a key short-term support at $81.30, the Oct 18 low. Gold found support Friday and ended the week on a bullish note, closing at the day's high. The rally Friday resulted in a print above the 50-day EMA at $1679.2. A clear breach of the 50-day EMA would signal a short-term reversal and suggests potential for further gains near-term. This would open $1714.8, the Oct 7 high. Key support is unchanged at $1615.0, the Sep 28 low. A break of this support would resume the recent downtrend.

• WTI Crude down $0.58 or -0.63% at $91.81
• Natural Gas up $0.54 or +8.42% at $6.924
• Gold spot down $2.91 or -0.17% at $1678.64
• Copper down $3.85 or -1.04% at $364.75
• Silver down $0.07 or -0.34% at $20.7885
• Platinum up $6.67 or +0.69% at $970.46