MNI US OPEN - Modest Bounce in US Core CPI Expected

NEWS

MNI US CPI PREVIEW: Airfares And Seasonal Factors Seen Leading Modest Core Bounce

Released on Wednesday at 0830ET, consensus puts core CPI inflation at 0.2% M/M in August in what’s likely only a minor uptick from unrounded 0.16% M/M readings in both June and July. The main increase is seen coming from airfares after two particularly heavy declines, muddying implications for core PCE seeing as it leans on PPI airfares (to be released Thursday). The Fed’s closely watched core services ex housing measures should firm further, which despite the above could still catch headlines.

MNI ECB PREVIEW: SEPTEMBER 2023 - A Hawkish Hold

Conflicting data, limited insight from policymakers since the last meeting, and the very marginal nature of hiking by 25bp or holding following 425bp in policy hikes this cycle, make the September ECB rate decision a tough call. We assume that the ECB will leave policy rates unchanged at this meeting, while maintaining a tightening bias and stressing that rates could head higher at future meeting. However, this is a relatively low conviction call.

EUROZONE (MNI): Increased Recession Risk Makes ECB Decision Tough

The European Commission revised down its growth forecasts this week by 0.2pp in 2023 to 0.8% and by 0.4pp to 1.3% in 2024. The growth outlook for the euro area is certainly lackluster but there is increased talk again about a possible recession. One of our recession probability estimates is also signalling that there is a significant risk. The ECB meets on Thursday and it looks like the decision is going to be a difficult one with increased recession risk requiring a different response to persistently above target inflation.

EUROPE (MNI): EC to Probe China’s Electric Car Exports

European Commission President Ursula von der Leyen announced Wednesday that the EC would be opening an investigation into China’s subsidies for electric vehicles in her State of the European Union address today. “Europe is open for competition but not a race to the bottom,” she said in her annual State of the Union speech. The EC chief said that the EU would however maintain an “open dialogue” with China’s leadership and again reiterated the strategy of de-risking not decoupling from China would not be unchanged.

EUROPE (MNI): VDL: Labour Shortages "Most Significant Bottleneck" for EU Competitiveness

European Commission President Ursula von der Leyen, speaking at the European Parliament in Strasbourg, has called for more "qualified migration" to fill labour shortages, which she describes as, "the most significant bottleneck for EU competitiveness." VDL says, she will appoint an envoy to help small and medium enterprises, "cope with red tape to improve Europe's competitiveness."

US (BBG): Biden Hits New York’s Broadway as Fall Fundraising Blitz Begins

President Joe Biden’s reelection team is escalating its fundraising efforts, salting away cash as Republicans battle over whether Donald Trump should be their standard-bearer next year. Biden will headline at least nine fundraisers before month’s end. Starting Wednesday, top campaign leadership and major donors will meet in Chicago for a finance-focused retreat. Vice President Kamala Harris will attend, along with a flank of Biden advisers and allies, including Senators Chris Coons of Biden’s home state of Delaware and Amy Klobuchar of Minnesota.

CHINA (BBG): Country Garden Gets Respite as $1.4 Billion of Bonds Extended

Distressed Chinese developer Country Garden Holdings Co. won creditor support to extend repayment on 10.3 billion yuan ($1.4 billion) of local bonds, a significant respite that cuts debt due in coming months. Holders of the securities voted in favor of the company’s plan to stretch principal repayments by three years, people familiar with the matter said, asking not to be identified discussing a private matter. The result leaves just about 2 billion yuan of principal and interest for local notes with maturities or put options remaining in 2023.

BOJ (MNI): Weak Yen a Factor as BOJ Considers Policy Shift

Some Bank of Japan board members now believe their outlook report’s median forecast for core-core consumer price inflation of 1.8% in fiscal 2025 is sufficient to achieve their 2% target, with yen weakness fueling concerns over future price rises, though many members still want to ensure price and wage momentum is sustainable before raising interest rates, MNI understands. While the BOJ does not target the exchange rate, the weaker yen could add to arguments for adjusting real interest rates with some officials concerned that the Bank could fall behind the curve on inflation.

JAPAN (MNI): Cabinet Reshuffle Completed, Kishida to Hold Press Conference Tonight

Prime Minister Fumio Kishida unveiled his refreshed Cabinet and Liberal Democratic Party executive line-up overnight, vowing that his team will "overcome difficulties as one". The double reshuffle offered no surprises as the details were gradually leaked to the media the day before. The new Cabinet will be officially inaugurated after a certification ceremony at the Imperial Palace. The Prime Minister will then hold a press conference at11:00BST/19:00JST to explain the future direction of the revamped Cabinet.

RUSSIA/NORTH KOREA (BBG): Kim, Putin Meet at Russian Space Center for Possible Arms Deal

North Korean leader Kim Jong Un and President Vladimir Putin met for their first summit in four years, which the US said could focus on weapons deals that help the Kremlin’s assault on Ukraine. Putin and Kim held talks Wednesday at the Vostochny Cosmodrome space center in the Amur region. They shared a handshake when Kim stepped out of his limousine and then toured the space center, visiting exhibitions on Angara rockets — a family of launch vehicles.

CORPORATE (BBG): China Flags ‘Security Incidents’ With Apple’s iPhones

China flagged security problems with iPhones while saying it isn’t barring purchases, the government’s first comments on the topic after news reports that authorities are moving to restrict the use of Apple Inc. products in sensitive departments and state-owned companies. “We noticed that there have been many media reports about security incidents concerning Apple phones,” Chinese Foreign Ministry spokeswoman Mao Ning said Wednesday at a regular press briefing in Beijing, without elaborating.

DATA

UK DATA (MNI): UK Economy Contracts as Industrial Action Weighs

• UK JUL GDP -0.5% M/M, +0.2% 3MM/3MM

UK GDP fell a bigger than expected 0.5% in July, as bad weather and a string of industrial action weighed on the economy, the Office for National Statistics said Wednesday. City analysts had expected the economy to contract 0.2% in the month. "Industrial action by healthcare workers and teachers negatively impacted services and it was a weaker month for construction and retail due to the poor weather. Manufacturing also fell back following its rebound from the effect of May’s extra Bank Holiday," Darren Morgan, the ONS Director of Economic Statistics said.

EUROZONE JUL IP -1.1% M/M, -2.2% Y/Y (MNI)

JAPAN DATA (MNI): Japan Aug CGPI Rise Slows to 3.2% vs. July 3.4%

• JAPAN AUG CORP GOODS PRICE INDEX +3.2% Y/Y; JULY REV
• JAPAN AUG CORP GOODS PRICE INDEX +0.3% M/M; JULY UNREV -0.1%

The y/y rise in Japan's corporate goods price index slowed to 3.2% in Aug from July's revised 3.4%, the eighth straight monthly deceleration and the lowest level since March 2021 (1.0%), indicating a slower pace of continued pass-through of cost increases, data released by the Bank of Japan showed on Wednesday. Pass-through of cost increases continued downstream, such as beverages and foods, as a time lag exists between firms transfering high costs to retail prices.

JAPAN DATA (MNI): PPI Y/Y Momentum Still Tracking Lower, Corporate Sentiment Mixed

Japan's August PPI was a touch stronger than expected m/m at 0.3%, versus 0.2%forecast and 0.1% prior. The y/y was still below expectations though at 3.2%,versus 3.3% forecast and 3.4% prior (originally reported as a 3.6% rise). PPI y/y momentum is still tracking lower. Note we didn't peak until December 2022 for this metric, so base effects are likely to remain favorable as we progress through H2. M/M moves are recovering though after seeing a number of negative prints in the first half of the year. Import prices were still down -0.9% m/m, while -15.9% in y/y terms close to July's -16.0%.

AUSTRALIA DATA (MNI): CBA Index Shows Spending Soft But Holding Up

CBA's Household Spending Insights (HSI) series based on its card transaction data rose 0.7% m/m in August to be up 2.3% y/y after rising an upwardly-revised0.6% m/m and 1.9% y/y the previous month, but growth remains below inflation. The most recent 3-month period has shown better spending growth than the previous three. HSI has a very close correlation with nominal retail sales of around 90% but August sales would also need to rise 0.7% m/m for the annual rate to hold steady at 2.1%.

FOREX: Cable Recovers from the Lows, US CPI in Focus

• It is a positive European morning session for the Dollar, in the Green against all G10s, after Equities fell and US Yield rose, mostly led by Europe, following report that the ECB said that they expect the EU inflation to remain elevated next year.
• The early mover on the open, was the Pound, after UK GDP miss consensus, and Cable fell towards the highlighted level at 1.2446, the September low and lowest level since the start of June.
• Despite printing a 1.2442 low, that area has held and Cable is now circa 20 pips of the low, at the time of typing.
• Looking across G10, the Pound is still mixed, leading gains against the SEK, up 0.23%, and now just down 0.14% vs the Dollar.
• EURUSD stays in that 6 sessions range of 1.0686/1.0769, as market participants await the ECB Tomorrow.
• Given the lack of risk events and data, large options expiry may have played a role in keeping the pair within ranges.
• Initial resistance will be at that top range.
• There's 3.39bn at 1.0730/1.0775 for today's option expiry in EURUSD.
• Looking ahead, main focus is on US CPI and Earnings.

EGBS: Under Pressure, ECB Sources Dominate

A fresh wave of selling knocks Bunds through previous session lows, before a recovery from worst levels. Bears continue to breach intermediate support levels, a continuation would expose 129.72, the Aug 15 low and a key support.

• Benchmark German cash benchmarks run 2-4bp cheaper, with a light flattening bias.
• Yesterday’s hawkish ECB sources piece from RTRS continues to reverberate, with related OIS pricing titled higher, albeit off hawkish extremes (around 17bp of tightening is now showing for tomorrow).
• Initial glances at the Eurozone IP data suggest that Irish data may have skewed the release once again.
• Core/semi-core spreads little changed to a touch wider vs. Bunds.
• Most peripherals widen by 1-2bp vs. Bunds given the ECB repricing/presence of supply.
• Greece provides the exception, narrowing at the margin after yesterday’s widening (some sell-side names remain constructive on GGBs ahead of Moody’s scheduled sovereign rating review of Greece on Friday).
• A quick reminder that our policy team has flagged its understanding that “the ECB is only likely to begin in-depth discussions over its balance sheet reduction after the conclusion of its operational framework review due by the end of the year.”
• Also note that the ECB has suggested that the Italian banking tax may create problems re: legal uncertainty, as well as pose headwinds re: bank funding.

GILTS: Wings Outperform, Supply Disappointing

The breach of 95.00 in gilt futures is short-lived and limited on spillover from the latest round of Bund weakness. Contract last +5, 25 ticks shy of best levels.

• Still, the softer than expected round of domestic GDP data means that pullbacks are limited.
• Cash benchmarks run flat to 2.5bp richer, with intermediates lagging the wings owing to the presence of/relatively tepid demand at today’s Jan-33 Gilt auction.
• SONIA futures are -1.0bp to +5.5bp with the late reds/early greens leading the general bid.
• BoE-dated OIS sits little changed to a touch softer on the day, showing 21bp of tightening for this month, while terminal policy rate pricing is 40bp above prevailing SONIA levels.
• While CPI & wage growth levels keep a hike firmly on the table at this month’s MPC, the recent run of economic activity & labour market data has started to promote questions re: the likelihood of further hikes.
• Local headline flow has been dominated by continued unease re: pension triple lock commitment among the ruling Conservative Party, as well as another round of slightly easier mortgage rates becoming available.

EQUITIES: Bear Cycle in Eurostoxx 50 Futures Remains in Play

A bear cycle in Eurostoxx 50 futures remains in play and the recent recovery is considered corrective. Price has recently pierced key support at 4187.00, the Aug 18 low and a bear trigger. A clear break of this level would strengthen bearish conditions and open 4177.40 next, a Fibonacci retracement. Key resistance has been defined at 4358.00, the Aug 30 high. Initial firm resistance is seen at 4278.60, the 20-day EMA. For now, gains in the E-mini S&P contract are considered corrective and a bear cycle remains in play. Key resistance has been defined at 4597.50, the Sep 1 high where a break is required to reinstate the recent bullish theme. A stronger resumption of weakness would signal scope for a move towards the key support and bear trigger at 4397.75, the Aug 18 low. Clearance of this support would strengthen a bearish case.

• Japan's NIKKEI closed lower by 69.85 pts or -0.21% at 32706.52 and the TOPIX ended 1.27 pts lower or -0.05% at 2378.64.
• Elsewhere, in China the SHANGHAI closed lower by 13.992 pts or -0.45% at 3123.067 and the HANG SENG ended 16.67 pts lower or -0.09% at 18009.22.
• Across Europe, Germany's DAX trades lower by 67.82 pts or -0.43% at 15655.57, FTSE 100 lower by 6.22 pts or -0.08% at 7523.83, CAC 40 down 32.82 pts or -0.45% at 7223.57 and Euro Stoxx 50 down 24.74 pts or -0.58% at 4219.8.
• Dow Jones mini down 31 pts or -0.09% at 34640, S&P 500 mini down 2.25 pts or -0.05% at 4463.25, NASDAQ mini down 3.25 pts or -0.02% at 15303.75.

COMMODITIES: Yesterday's Gains in WTI Futures Reinforce Uptrend

The uptrend in WTI futures remains intact and yesterday's gains reinforce this condition. The break higher confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows. Note too that moving average studies are in a bull-mode position, highlighting a rising trend. The focus is on the psychological $90.00 handle. On the downside, initial firm support to watch lies at $83.91, the 20-day EMA. Gold traded lower yesterday. Key support to watch lies at $1903.9, the Aug 25 low. A break of this level would be viewed as a bearish development and highlight the fact that the recovery between Aug 21 - Sep 1 has been a correction. This would expose $1884.9, the Aug 21 low. On the upside, initial firm resistance is seen at $1929.5, the 50-day EMA. Key resistance is at $1953.0, the Sep 4 high.

• WTI Crude up $0.69 or +0.78% at $89.57
• Natural Gas down $0.01 or -0.33% at $2.732
• Gold spot down $1.34 or -0.07% at $1912.36
• Copper up $0.8 or +0.21% at $380.4
• Silver down $0.11 or -0.5% at $22.9535
• Platinum down $7.14 or -0.78% at $906.37