MNI US OPEN - Propensity to Pivot?

NEWS

MNI FED PREVIEW:Keeping Year-End Options Open

MNI BOE PREVIW: Downside Risks to 75bp

MNI NORGES BANK PREVIEW: The Return of Gradualism?

MNI RBA REVIEW: Balancing Inflation & Growth

CHINA (MNI): China to Push CPTTP Trade Talks in Export Drive

Beijing will accelerate efforts to join the Trans-Pacific trade bloc and a regional digital agreement, as China’s new leadership team seeks to deliver on its ambitious plans to increase high-quality exports, said a former adviser to China's State Council.

China will provide more access to its markets following the 20th National Party Congress, with Beijing to step up efforts to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade bloc at a time when relations with the U.S. have become increasingly hostile, said Henry Huiyao Wang, founder and president of the Center for China and Globalisation.

CHINA (MNI): China's Bank Regulator Confident Amid Property Woes

China’s banking regulator is concerned about the property sector but is confident the exposure of its banks is low, said Xiao Yuanqi, Vice Chairman of the China Banking and Insurance Regulatory Commision. Exposure to property accounts for 26% of banking sector loans and is mainly home mortgage loans, which are of high quality and have a rate of default of around 0.1%, Xiao said, speaking at an event in Hong Kong.

BRAZIL (NYT): Bolsonaro Agrees to Transition, Two Days After Losing Brazil Election

Breaking his silence, President Jair Bolsonaro did not admit defeat or repeat his baseless claims about election fraud, but his administration signaled that the transfer of power would proceed. Two days after losing Brazil’s presidential election, President Jair Bolsonaro agreed to a transition of power on Tuesday, easing fears that the far-right leader would contest the results after warning for months that the only way he would lose would be if the vote were stolen.

JAPAN (MNI): BOJ's Kuroda Says Easy Policy Most Appropriate

Bank of Japan Governor Haruhiko Kuroda said on Wednesday that it is most appropriate for the BOJ to maintain easy policy judging from current economic and price conditions. “Increasing the flexibility of yield curve control policy is a future option should the achievement of 2% price target come in sight. But the BOJ now must support the economy with easy policy,” Kuroda told lawmakers. When asked whether he intends to resign, Kuroda said he has no intention to resign.

JAPAN (MNI): BOJ Minutes Show Some Worry Over Weak Yen Impact

Some Bank of Japan board members voiced concern over the impact of the weak yen on households at the September 21-22 policy-setting meeting, the minutes released on Wednesday showed. However, the board members agreed the BOJ needed to maintain easy policy to achieve its 2% inflation target and that it should not target foreign exchange rates.

ISRAEL (BBG): Netanyahu Set for Return in Coalition with Israeli Far Right

Israel’s fifth election in four years looked set to return Benjamin Netanyahu to power, with exit polls suggesting his strategy of forming an alliance with the nation’s far right has succeeded. All three exit polls published by Israeli television stations found the pro-Netanyahu bloc in the lead with between 61 and 62 seats in parliament, enough to form a slim majority in the 120-member body. Results could change in coming hours or days before official results are tallied.

NORTH KOREA (MNI): S. Korea Fires Three Missiles in Retaliation Against N. Korean Launch

South Korean fighter jets fired three aid-to-ground missiles into international waters north of the Northern Limit Line (LNN) in response to North Korean launch which violated the inter-Korean maritime boundary in the first such incident since the division of the peninsula.

CANADA (MNI): BOC's Macklem Says QE Was Nothing Special

Governor Tiff Macklem said there was nothing special about hundreds of billions of dollars of federal bonds the BOC purchased during the Covid pandemic, saying the country's first use of QE was another part of a toolkit deployed to boost the economy.

QE was used as interest rates were cut to about zero and other tools such as forward guidance were deployed, he told a Senate banking committee hearing Tuesday night. “Many central banks around the world used QE, and we all did it for the same reason,” he said. “There’s nothing that special about QE,” Macklem said, “it’s just part of the way we lowered interest rates.”

HONG KONG (MNI): HK To Continue Lifting Covid Restrictions - CEO Lee

Hong Kong will continue lifting Covid restrictions and increase efforts to attract top talent to cement its role as a regional hub, Hong Kong SAR Chief Executive John Lee said on Wednesday. “We will retain our place as a major international finance hub and our links to both the mainland and international economies offer us unique advantages,” Lee said in a speech to the Global Investment Summit in Hong Kong.

DATA

EUROZONE FINAL MANUF. PMI 46.4r (FLSH 46.6); SEP 48.4

GERMANY FINAL MANUF. PMI 45.1r (FLSH 45.7); SEP 47.8
GERMANY OCT UE RATE (SA) 5.5% (FCST 5.5%); SEP 5.5%
GERMANY SEP TRADE BALANCE EUR 3.7 BN VS AUG EUR 1.2 BN (MNI)
GERMANY SEP EXPORTS -0.5% M/M, IMPORTS -2.3% M/M (MNI)

FRANCE FINAL MANUF. PMI 47.2r (FLSH 47.4); SEP 47.7

ITALY OCT MANUF. PMI 46.5 (FCST 46.9); SEP 48.3

SPAIN OCT MANUF. PMI 44.7 (FCST 47.5); SEP 49.0 (MNI)

UK NOV BRC SHOP PRICES +1.3% M/M, +6.6% Y/Y (MNI)

AUSTRALIA OCT BUILDING APPROVALS -5.8% M/M, -13% Y/Y (MNI)
AUSTRALIA SEP DWELLING APPROVALS -13% Y/Y (MNI)
AUSTRALIA SEP DWELLING APPROVALS -5.8% M/M (MNI)

FX SUMMARY: USD Index Oscillating Either Side of 50-dma

• The greenback is modestly softer, but well within recent ranges, ahead of the Wednesday Fed decision, with markets looking beyond a likely 75bps rate hike today for any guidance on whether a pivot for policy could come as soon as December. Markets are partially pricing such an eventuality, with a roughly 50/50 split in pricing for a 50bps vs. 75bps hike at the final meeting of the year. The USD Index continues to oscillate on either side of the 50-dma at 111.0479, a key support Wednesday.
• At the top of the G10 table, JPY is outperforming all others, with USD/JPY testing the Tuesday low of 146.99 ahead of the Fed rate decision later today. The move lower for the pair during Asia-Pac hours is notable ahead of the market holiday for Japan on Thursday, with traders possibly positioning for the risk of a hawkish Fed prompting another wave of direct intervention from the Japanese authorities a strong background possibility.
• The EUR is middle-of-the-pack, with PMI data out across the morning confirming a marked slowdown in manufacturing across the Eurozone in October. The EZ release slowed to 46.4 for the final reading, just below expectations of 46.6. EURUSD trend conditions remain bullish and the recent pullback is still considered corrective. Last week's key technical development was the break of the top of a bear channel drawn from the Feb 10 high and highlights a stronger bull reversal. The focus is on 1.0198 next, the Sep 12 high.
• Ahead of the much-watched Fed decision, markets will also digest ADP employment change for October ahead of this Friday's NFP release. A number of ECB speakers are due, with Makhlouf, Villeroy and Nagel on the docket.

BOND SUMMARY: USTs and gilts twist steepen ahead of the FOMC meeting

• USTs and gilts have seen curves twist steepen ahead of today's FOMC meeting with markets paring back expectations of the Fed's terminal rate by 3-4bp since yesterday's highs (with around 195bp of hikes priced to the May peak because the money market curve inverts). The German curve in contrast has marginally bear flattened (but moves have been much more limited).
• The FOMC meeting is the clear highlight of the day. Markets are pricing in 75bp and sell-side analysts are unanimous in looking for a 75bp hike this week. The signaling of future moves is therefore likely to be the bigger market mover. In a close call, we expect only limited changes to the Statement – but anticipate that Chair Powell will signal that the Committee is currently eyeing either 50bp or 75bp in December, with the decision to be data-dependent. If there are substantive changes to the Statement, the risks are almost certainly that they lean dovish, with either an overt nod to slowing the pace of increases, or a reference to the impact of cumulative hikes on the economy. For the full MNI Fed Preview click here.
• TY1 futures are up 0-1+ today at 110-20 with 10y UST yields down -0.3bp at 4.041% and 2y yields down -4.4bp at 4.504%.
• Bund futures are down -0.18 today at 138.66 with 10y Bund yields up 0.3bp at 2.132% and Schatz yields up 1.4bp at 1.946%.
• Gilt futures are down -0.13 today at 102.75 with 10y yields down -0.4bp at 3.460% and 2y yields down -5.2bp at 3.083%.

EQUITIES: Eurostoxx Futures Target Key 3678.00 Resistance Level

A bullish EUROSTOXX 50 futures theme remains intact and the contract is trading at this week’s highs. Resistance at 3678.00, the Sep 13 high has been pierced. A clear break of this level would strengthen bullish conditions and pave 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. The S&P E-Minis trend condition remains bullish and last Friday’s resumption of the short-term uptrend has reinforced current conditions. Last week’s extension higher resulted in a break of 3820.00, Oct 5 high. Furthermore, price is again above the 50-day EMA, at 3836.32. Sights are on 3981.25, the Sep 14 high. Key short-term support has been defined at 3641.50, the Oct 21 low. Initial firm support to watch is at 3757.50, the Oct 27 low.

• Japan's NIKKEI closed lower by 15.53 pts or -0.06% at 27663.39 and the TOPIX ended 1.96 pts higher or +0.1% at 1940.46.
• Elsewhere, in China the SHANGHAI closed higher by 34.171 pts or +1.15% at 3003.37 and the HANG SENG ended 371.9 pts higher or +2.41% at 15827.17.
• Across Europe, Germany's DAX trades higher by 49.82 pts or +0.37% at 13394.47, FTSE 100 higher by 12.41 pts or +0.17% at 7198.53, CAC 40 up 47.68 pts or +0.75% at 6374.33 and Euro Stoxx 50 up 22.51 pts or +0.62% at 3674.62.
• Dow Jones mini up 74 pts or +0.23% at 32767, S&P 500 mini up 12.5 pts or +0.32% at 3879.5, NASDAQ mini up 48 pts or +0.42% at 11383.

COMMODITIES: WTI, Gold Price Action Tuesday Reinforces Bullish Theme

The WTI futures outlook is bullish and the recovery from Monday’s low reinforces this theme. The contract has defined a key short-term support at $81.30, the Oct 18 low. Note that resistance at $88.66, the Oct 12 high, has been breached. The break of this hurdle signals scope for gains towards $92.34, the Oct 10 high and a key resistance. On the downside, initial support lies at $85.30, the Oct 31 low. A downtrend in Gold remains intact despite this week’s gains. A bearish theme follows the reversal from $1729.5, Oct 4 high and the move lower signals the end of the Sep 28 - Oct 4 bull phase. A resumption of weakness would open key support and a bear trigger at $1615.0, Sep 28 low. On the upside, the next firm resistance is at $1683.0, the 50-day EMA.

• WTI Crude up $0.64 or +0.72% at $88.99
• Natural Gas up $0.2 or +3.47% at $5.885
• Gold spot up $5.38 or +0.33% at $1653.6
• Copper up $2.55 or +0.73% at $349.8
• Silver up $0.06 or +0.3% at $19.6954
• Platinum up $9.02 or +0.95% at $957.56