MNI US OPEN - PBOC Announces Cut to Key Policy Rate and RRR
EXECUTIVE SUMMARY
- PBOC ANNOUNCES CUT TO KEY POLICY RATE AND RRR
- RBA BOARD LEAVES CASH RATE AT 4.35%
- UEDA SAYS BOJ HAS AMPLE TIME TO STUDY DEVELOPMENTS
- SEPTEMBER IFO REAFFIRMS WEAK GERMANY GROWTH NARRATIVE
Figure 1: Germany GDP vs. IFO, PMIs
Source: MNI/Destatis/Bloomberg
NEWS
US (BBG): Biden’s Final UN Speech to Tout Alliances Even as Conflicts Brew
President Joe Biden will use his final address before world leaders gathered at the United Nations General Assembly to once again champion the value of alliance-building, even as collective efforts have been strained by the grinding war in Ukraine and a Middle East conflict threatening to envelop the region. Still, the American president will pitch collective action as the solution to emerging concerns, from climate change to artificial intelligence and synthetic drugs, according to senior administration officials who requested anonymity to detail his plans.
US (BBG): Trump to Offer Foreign Companies New Incentives, With a Warning
Donald Trump will pledge to personally recruit foreign companies and outline new incentives - including an offer of federal land - designed to lure operations to the US during an economic address on Tuesday in Savannah, Georgia. The Republican presidential nominee will outline a carrot-and-stick approach, according to a senior Trump adviser who requested anonymity to detail the proposal, luring those who sell into the US with a more favorable business climate while also threatening harsh tariffs on imports.
US/MEXICO (BBG): US and Mexico Brace for Storms Raging in Atlantic and Pacific
The US and Mexico are set to be hit by major hurricanes roaring out of the Atlantic and Pacific oceans within days as the tropics spring to life, threatening flooding rains, tree-snapping winds and damaging storm surge. The first hazard is Hurricane John that grew from a tropical storm to a Category 2 system in just hours in the Pacific on Monday, packing winds of 100 miles (160 kilometers) per hour as it bears down on Mexico, where it will make landfall Tuesday, the US National Hurricane Center said.
ISRAEL (MNI): Hezbollah Launches Rocket Strikes With Little Sign of De-Escalation
Following the deadliest day in cross-border attacks in nearly 20 years, this morning has seen over 65 rockets launched by Hezbollah towards targets in northern Israel. According to the Lebanese health ministry, at least 492 individuals were killed and 1,645 wounded in Israeli airstrikes that come as part of a major effort by Israeli forces to degrade Hezbollah as a fighting entity. Global focus is now turned squarely towards Israel and Lebanon amid the prospect of a wider escalation.
BOE (BBG): BOE’s Bailey Says He Doesn’t Expect Return to Very Low Rates
Bank of England Governor Andrew Bailey said interest rates were unlikely to fall back to ultra-low levels in the UK without another bout of economic crises on the scale of the financial crisis and the pandemic. Bailey said in an interview with the regional Kent Messenger newspaper on Tuesday that “very big shocks” would be necessary to push central banks to bring borrowing costs back to near zero. He reiterated his view that easing would continue “gradually” after the BOE’s Monetary Policy Committee decided last week to leave rates unchanged at 5.0%.
UK (BBG): Under-Fire Starmer to Tell Gloomy Britons Pain Is Worth It
Prime Minister Keir Starmer will try to reset the UK political narrative by promising “light at the end of this tunnel,” amid criticism that his Labour government’s gloomy economic messaging has made things worse. The premier will say at Labour’s annual conference in Liverpool on Tuesday afternoon that taking “tough, long-term decisions now” will allow the government to be able to deliver on its key objectives - including higher growth, repairing the National Health Service and a transition to clean power - far more quickly, according to extracts of his keynote speech leaked by his office.
FRANCE (BBG): French Finance Chief Plans New Taxes to Tackle Deficit Situation
The French government is studying targeted taxes on the wealthy and companies that aim to help repair the country’s public finances without hampering growth, newly appointed Finance Minister Antoine Armand said. His comments come as investors ditch French assets amid political turmoil, with the risk premium on French debt approaching its highest since the euro-area crisis. Armand reaffirmed that the administration of Prime Minister Michel Barnier would not increase the tax burden on working people and the middle classes but said a minimum tax on wealth is “an interesting avenue.”
CHINA (MNI): PBOC Announces Cut to Key Policy Rate and RRR
MNI (Beijing) The People’s Bank of China will cut its 7-day reverse repo rate by 20 basis points to 1.5% and the reserve requirement rate by 50bp to support the economy, Governor Pan Gongsheng told reporters on Tuesday. The 7-day rate cut will also guide down the Loan Prime Rate by 20bp and MLF by 30bp, representing the first reduction since July when the Bank reduced the key rate by 10bp, Pan said. The RRR cut will unlock CNY1 trillion of long-term liquidity into the interbank market, and is also the first cut since February when the Bank reduced the rate 50bp, he continued. The Bank plans to cut the RRR another 25bp-50bp later this year if necessary, he said, noting it will maintain accommodative policy to strengthen and support the economy.
CHINA (MNI): PBOC Eyes Stock Market Stabilisation Tools
MNI (Beijing) The People’s Bank of China will look to create two new targeted tools to help stabilise the stock market, an unprecedented move by the central bank, PBOC Governor Pan Gongsheng told reporters on Tuesday. This includes a CNY500 billion swap facility for qualified securities, funds and insurance companies, which will allow them to use their own bonds, stock ETFs, and CSI 300 constituent equity as collateral to exchange high-liquid assets such as treasury bonds and central-bank bills.
CHINA (MNI): Depreciation Pressure on Yuan Eases - Pan
MNI (Beijing) Recent major central bank interest rate cuts have eased depreciation pressure on the yuan, People's Bank of China Governor Pan Gongsheng told reporters on Tuesday. Speaking with reporters, Pan noted the dollar's future trend remained uncertain given diverging macro trends, U.S. elections and other geopolitical shifts. However, the yuan exchange rate had a solid foundation with the domestic economy improving under the recently announced monetary policy easing, Pan added.
BOJ (MNI): Ueda Says BOJ Has Ample Time to Study Developments
Bank of Japan Governor Kazuo Ueda on Tuesday repeated his dovish tone on additional rate hike, saying the BOJ has ample time to examine evolving overseas economies and unstable financial markets. “The BOJ needs to monitor with utmost vigilance developments in overseas economies, particularly the U.S. economy, and those in financial and capital markets, which have remained unstable,” Ueda told business leaders in Osaka City. However, he maintain his basic policy stance, saying “the BOJ considers that, if underlying inflation rises in line with its outlook, it will be appropriate to accordingly raise the policy interest rate and adjust the degree of monetary accommodation.
RBA (MNI): Changed Messaging Considered in Hawkish Hold
The Reserve Bank of Australia Board considered a change to its messaging on the future path of its cash rate and did not explicitly discuss hiking, Governor Michele Bullock told reporters on Tuesday following the Board’s call to hold at 4.35%. “The Board did discuss whether or not the messaging should change,” she said. “We didn't explicitly consider an interest rate rise, because the framing of the discussion was what has changed since last time and the assessment was not enough, and it was mixed enough, for us not to change our view from last time.” The Board was clear that it did not see interest-rate cuts in the near term, despite the meeting’s altered format, she added. “So there wasn't an explicit alternative in the sense that I've talked about in the past,” she said.
MNI NBH PREVIEW - SEPTEMBER 2024: Easing Cycle Resumes
The National Bank of Hungary is expected to resume its easing cycle with a 25bp cut to the base rate, taking it to 6.50%, following a pause in August. Since the previous meeting, the Fed has begun its easing cycle with a bold 50bp cut while the latest domestic inflation data has come in below expectations, offering NBH officials greater room for manoeuvre. The Council is likely to stick to a relatively cautious tone, but could signal the possibility of another rate cut before year-end.
COMMODITIES (BBG): Copper and Iron Ore Climb After China Unveils Stimulus Boost
Commodities pushed higher after China announced a series of major measures to boost growth and shore up its beleaguered property market, with iron ore spiking and copper advancing to the highest since July. Central bank governor Pan Gongsheng said policymakers would help banks boost lending to consumers, cut the key short-term interest rate and lower mortgage rates. Futures for the steel-making staple rallied as much as 6% in Singapore, while copper and other metals rose in London.
DATA
GERMANY DATA (MNI): September IFO Reaffirms Weak Growth Narrative
- GERMANY SEP IFO BUSINESS CLIMATE INDEX 85.4
Germany's IFO Business Climate Index fell for the fourth consecutive month in September to 85.4 (lowest value since January; August 86.6), also missing expectations of 86.0. This was a similar miss to yesterdays' September's German flash PMIs (where both services and manufacturing were lower than expected). The print affirms the narrative of further deterioration of German business sentiment, and increases downside risks to analyst estimates for the remainder of the year (MNI consensus curerntly standing at -0.1% Y/Y for Q3, and +0.4% for Q4). The fall compared to August's print was predominantly driven by the current assessment figure, which came in at 84.4 (vs 86.0 cons; 86.5 August which was revised a tenth lower). Expectations also declined, but less so and more broadly in line with expectations, to 86.3 (vs 86.4 cons; 86.8 August). Both measures remain on a downtrend.
FOREX: PBOC Stimulus Boosts Equity Sentiment & Recovery for EURJPY
- Despite today’s poor German IFO data adding to the weaker-than-expected flash PMIs on Monday, the Chinese stimulus announcement overnight has boosted sentiment in equity markets, which in turn has provided support for the single currency, and in particular EURJPY (+0.80%).
- The cross briefly traded back above 161.00 in recent trade, from a 159.24 low overnight, and is now approaching the 50-day EMA at 161.73, an average we have not traded above since late July.
- EURUSD (+0.28%) has also been steadily grinding higher, rising back towards the US session highs from yesterday. Above here, 1.1169 is the high this week and a resumption of gains would refocus the market’s attention on 1.1202, the Aug 26 high and bull trigger.
- Countering the narrative is EURGBP, which continues to consolidate at depressed levels, following a range breakout to the downside during yesterday’s session. Alongside the breach of key support at 0.8383, we have also breached 0.8340 overnight, the Aug 2 ’22 low, placing the pair at the lowest level since April 2022.
- AUD would usually have thrived with today’s developments, however, with the RBA not discussing a rate hike at today’s meeting, the AUD (-0.04%) underperforms on the modestly dovish tilt.
- The USD index is little changed on the session, with just US consumer confidence on the data calendar. Potential comments from hawkish Fed dissenter Bowman will be monitored, while BoC Gov. Macklem participates in a fireside chat.
BONDS: China Stimulus Weighs, Curves Steepen
The overnight Chinese monetary stimulus package has supported equities and crude oil this morning, weighing on core FI markets.
- Bund futures are -22 ticks today at 134.28. First support is 133.92, the Sep 20 low.
- The German September IFO survey was weaker than expected, but this was telegraphed by yesterday’s soft flash PMIs, so did not move markets.
- Yesterday’s dovish repricing in EUR STIRs has nonetheless extended, with ECB-dated OIS now showing a ~50% implied probability of cut in October (vs 40% at yesterday’s close).
- This has insulated the short-end, with German 2-year yields little changed despite impending E4.5bln supply. The German 2s10s curve has steepened 3.8bps to 4.2bps at typing.
- 10-year peripheral spreads to Bunds are biased tighter alongside the equity strength.
Gilt bears have forced futures through initial support levels (99.06 & 98.92).
- Fresh extension lower would turn focus to key support at the September 2 low (98.11).
- Yields are 4-6bp higher across the curve, steepening seen alongside European peers.
- Hawkish adjustments seen in BoE-dated OIS, 123bp of cuts priced through June ’25 vs. ~128bp late yesterday.
- Impending comments from PM Starmer shouldn’t be market moving.
EQUITIES: E-Mini S&P Remains Close to Recent Highs and Above Major Resistance
Eurostoxx 50 futures traded higher last week as the contract extended the recovery from the Sep 10 low. It is still possible that recent gains are corrective. MA studies are in a bear-mode position and this highlights a downtrend. A reversal lower would refocus attention on key support at 4757.00, the Sep 6 / 10 lows. Key resistance is 5024.00, the Sep 3 high. A break would cancel a bearish theme and strengthen bullish conditions. A bull cycle in S&P E-Minis remains in play and last week’s gains reinforce the current bullish condition. The contract has traded through a key and major resistance at 5785.00, the Jul 16 high and a bull trigger. A clear break of this hurdle would confirm a resumption of the long-term uptrend. Sights are on the 5800.00 handle next. First key support is 5615.51, the 50-day EMA. Initial support lies at 5668.73, the 20-day EMA.
- Japan's NIKKEI closed higher by 216.68 pts or +0.57% at 37940.59 and the TOPIX ended 14.38 pts higher or +0.54% at 2656.73.
- Elsewhere, in China the SHANGHAI closed higher by 114.207 pts or +4.15% at 2863.125 and the HANG SENG ended 753.45 pts higher or +4.13% at 19000.56.
- Across Europe, Germany's DAX trades higher by 159.33 pts or +0.85% at 19006.28, FTSE 100 higher by 33.93 pts or +0.41% at 8293.72, CAC 40 up 120.19 pts or +1.6% at 7628.27 and Euro Stoxx 50 up 63.93 pts or +1.31% at 4949.5.
- Dow Jones mini up 79 pts or +0.19% at 42583, S&P 500 mini up 14.75 pts or +0.26% at 5791.75, NASDAQ mini up 82.25 pts or +0.41% at 20164.
Time: 09:50 BST
COMMODITIES: Bullish Structure in Gold Intact, Hits Fresh Record High
WTI futures are holding on to their recent gains. The recovery since Sep 9, appears - for now - to be a correction. The 20-day EMA, at $70.28, has been pierced. The next key resistance to watch is $72.38, the 50-day EMA. Note that moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. A reversal lower would refocus attention on $64.61, the Sep 10 low and bear trigger. A bullish structure in Gold remains intact and the metal has traded, once again, to a fresh all-time high. The move higher confirms a resumption of the primary uptrend and maintains the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus is on $2642.7 next, a Fibonacci projection. Firm support lies at $2547.5, the 20-day EMA.
- WTI Crude up $1.34 or +1.9% at $71.64
- Natural Gas up $0.03 or +1.26% at $2.648
- Gold spot down $0.25 or -0.01% at $2628.78
- Copper up $10.1 or +2.32% at $444.8
- Silver up $0.2 or +0.66% at $30.907
- Platinum up $9.21 or +0.96% at $969.72
Time: 09:50 BST
Date | GMT/Local | Impact | Country | Event |
24/09/2024 | 1230/0830 | ** | US | Philadelphia Fed Nonmanufacturing Index |
24/09/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
24/09/2024 | 1300/0900 | ** | US | S&P Case-Shiller Home Price Index |
24/09/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
24/09/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
24/09/2024 | 1300/1500 | ** | BE | BNB Business Sentiment |
24/09/2024 | 1300/0900 | US | Fed Governor Michelle Bowman | |
24/09/2024 | 1400/1000 | *** | US | Conference Board Consumer Confidence |
24/09/2024 | 1400/1000 | ** | US | Richmond Fed Survey |
24/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
24/09/2024 | 1655/1255 | CA | BOC Governor Macklem fireside chat on "Growth During Uncertainty" | |
24/09/2024 | 1700/1300 | * | US | US Treasury Auction Result for 2 Year Note |
24/09/2024 | 2210/1810 | US | New York Fed's Roberto Perli | |
25/09/2024 | 2301/0001 | * | GB | Brightmine pay deals for whole economy |
25/09/2024 | 0130/1130 | *** | AU | CPI Inflation Monthly |
25/09/2024 | 0600/0800 | ** | SE | PPI |
25/09/2024 | 0600/1400 | ** | CN | MNI China Money Market Index (MMI) |
25/09/2024 | 0645/0845 | ** | FR | Consumer Sentiment |
25/09/2024 | 0700/0900 | ** | ES | PPI |
25/09/2024 | 0730/0930 | *** | SE | Riksbank Interest Rate Decison |
25/09/2024 | 0800/0900 | GB | BOE's Greene Speech on Consumption | |
25/09/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
25/09/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
25/09/2024 | 1300/1500 | EU | MNI Connect Video Conference on ‘The EU and Global Trade Challenges’ | |
25/09/2024 | 1400/1000 | *** | US | New Home Sales |
25/09/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
25/09/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
25/09/2024 | 1700/1300 | * | US | US Treasury Auction Result for 5 Year Note |
25/09/2024 | 2000/1600 | US | Fed Governor Adriana Kugler |