MNI US OPEN: Putin/Erdogan Meeting, US Inflation Data in Focus

NEWS

US (MNI): MNI US CPI Preview: Upside Risks to Solid Core CPI Consensus

Core CPI inflation is seen slowing only moderately to 0.4% M/M after the surprise jump to 0.57% in August, and with analysts seeing some upside risk. A large part of this expected relative slowing is from used car prices with underlying strength in core services expected to remain a key trend, especially in shelter before rent growth begins to cool.

US (MNI): Fed’s Bowman Sees Sizable Hikes If Inflation Doesn’t Ebb

The Federal Reserve should keep hiking interest rates aggressively unless unacceptably quick inflation shows signs of receding, and policy must remain tight for a while after that, Governor Michelle Bowman said Wednesday.

“If we do not see signs that inflation is moving down, my view continues to be that sizable increases in the target range for the federal funds rate should remain on the table,” she said in prepared remarks to the Money Marketeers of New York University.

RUSSIA (MNI): Moscow Expects Erdogan To Offer Mediation On Ukraine In Putin Meeting

Wires reporting comments attributed to an unnamed Kremlin aide stating that, 'many say that the Turkish delegation are going to present initiatives to resolve the conflict in Ukraine' and that they 'cannot rule out that President Recep Tayyip Erdogan will touch on this during talks with President Vladimir Putin'.

OPEC+ (BBG): Cuts Risk Oil-Price Spike and World Recession, IEA Warns

The OPEC+ decision to sharply curtail oil production threatens to push prices to levels that tip the global economy into recession, the International Energy Agency warned.

“The massive cut in OPEC+ oil supply increases energy security risks worldwide,” with “resulting higher price levels exacerbating market volatility,” the IEA said in its monthly report. “Oil prices may prove the tipping point for a global economy already on the brink of recession.”

UK (MNI): Foreign Sec-Ditching PM Would Be Disastrous to Economy & Country

Speaking to the BBC, Foreign Secretary James Cleverly states that removing PM Liz Truss and replacing her "would be a disastrously bad idea for the economy and the country". Cleverly: “We are going to stick with the plan to grow the economy… We are seeing the start of improvements we want to see [in bond markets].'

AUSTRALIA (MNI): New Home Sales Slide 15% As RBA Hikes Bite

Australia's new home sales suffered their worst quarter since June 2020 as the Reserve Bank of Australia's cumulative 250bp of hikes since May sapped potential buyers' borrowing power.

New home sales slumped 15.7% in the September quarter according to data released by the Housing Industry Association on Thursday, with home sales in the month of September declining 4.2%. The HIA said the most "acute" tightening cycle in 30 years is occurring at the same time as builders are experiencing the fastest rise in costs in almost 50 years.

AUSTRALIA (MNI): RBA Rate Hikes Subdue Aussie Inflation Expectations

Melbourne Institute survey suggests consumer pay and price expectations weighed by RBA hikes.

Australian consumer inflation expectations continue to moderate in the wake of the Reserve Bank of Australia's 6 consecutive rate hikes, according to the Melbourne Institute survey released Thursday, with the outlooks for both pay and prices over the coming year stabilising. The Survey of Consumer Inflationary and Wage Expectations showed the expected inflation rate steady at 5.4% in October, while total pay was expected to grow by 0.9% over the next 12 months. Inflation expectations peaked at 6.7% in June.

NEW ZEALAND (MNI): Food Cost Surge Underlines RBNZ Inflation Fears

The Reserve Bank of New Zealand's concerns about high domestic food prices feeding into elevated inflation were underscored by the 8.3% y/y increase in the food price index to a 13-year high, driven by a 7.7% increase in grocery prices and a 16% increase in fruit and vegetable prices, according to StatsNZ data released Thursday. Seasonally adjusted food prices rose 0.9% m/m for a second month, extending the run of consecutive months of rising food prices to 18.

DATA

GERMANY FINAL SEP CPI +1.9% M/M, + 10.0% Y/Y (MNI)
GERMANY FINAL SEP HICP +2.2% M/M, +10.9% Y/Y (MNI)

SWEDEN SEP CPIF +9.7% Y/Y (MNI)

JAPAN (MNI): Sept CGPI Quickens to 9.7% Y/Y, Up From 9.4%

JAPAN SEP CORP GOODS PRICE INDEX +9.7% Y/Y; AUG REV +9.4%
JAPAN SEP CORP GOODS PRICE INDEX +0.7% M/M; AUG REV +0.4%

The year-on-year rise in Japan's corporate goods price index accelerated to 9.7% in September compared to 9.4% in August, underlining the solid pass-through of high costs predicted by Bank of Japan officials, data released by the BOJ on Thursday showed

It was the 19th consecutive y/y rise in September, driven mainly by higher prices for beverage and foods ( up 6.4% in Sept compared to 6.2% in Aug) and for plastic products (up 9.2% compared to 8.2%), although prices for petroleum and coal products slowed.

JAPAN (MNI): BOJ Survey Shows Sentiment Drop, Prices To Rise

High costs of living led 85.7% of respondents in the Bank of Japan's quarterly consumer survey to predict higher prices next year, a modest decline from 87.1% in June's survey, according to data released on Thursday. Just 2.2% of respondents said prices would fall next year, up from 1.5% three months earlier. The proportion of those expecting little change 12 months ahead rose to 11% from 9.7%. The median CPI forecast stood at 5%, unchanged from 5% in June.

FOREX: The British Pound reverses early weakness

• The Dollar moves back in the red against G10s, led by the bounce in Govies and Equities.
• Volumes and Turnovers are still on the low side, with most Investors and market participants waiting on the US inflation data.
• The NOK is in the lead against the Greenback, 0.60%, but price action for the Dollar has mostly been mixed.
• Nothing too surprising with ALL EYES on the US CPI.
• The British Pound was the early worst performer, but has fully reversed and is on the front foot across most G10s.
• SEK weakened so far this morning, and despite a beat on the CPI headline, the headline CPIF was in line with the Riksbank forecast. And CPIF ex energy was below both the Riksbank and market expectation.
• So SEK sits in the red against G10, besides versus the USD and the CHF, although just up 0.08% at the time of typing.
• Looking ahead, it's all about the US CPI, and the only speaker is ECB Nagel.

BOND SUMMARY: Gilts lead the way ahead of US CPI

• Gilts have been leading the rally today, continuing their moves higher as the market continues to take favour from the BOE accepting all offers submitted in yesterday's long-dated purchase operation. 10y gilt yields are 14bp lower on the day while the curve has flattened with 30-year yields down almost 20bp on the day at the time of writing.
• EGBs (particularly BTPs) have also moved higher today.
• The focus is now quickly shifting to US CPI at 13:30BST / 8:30ET. Core CPI inflation is seen slowing only moderately to 0.4% M/M after the surprise jump to 0.57% in August, and with analysts seeing some upside risk. An extremely large miss is required to knock the Fed off course from a fourth 75bp hike on Nov 2 (74bp priced). There are greater implications for Dec and Feb meetings, which currently show a broad scaling back to 50bp and 25bp hikes, along with current pricing of a rate cut in 2H23. For the full MNI US CPI preview see here.
• TY1 futures are down -0-3+ today at 111-12 with 10y UST yields up 1.1bp at 3.908% and 2y yields up 1.9bp at 4.311%.
• Bund futures are up 0.84 today at 136.68 with 10y Bund yields down -2.2bp at 2.287% and Schatz yields up 2.8bp at 1.832%.
• Gilt futures are up 2.00 today at 939.97 with 10y yields down -13.9bp at 4.289% and 2y yields down -9.0bp at 3.867%.

BOE: Have the goalposts moved again?

• The goalposts appeared to move in yesterday's long-dated conventional gilt purchase operations by the Bank of England.
• In the early days of the operations, the Bank appeared to be buying at the operations at a reasonable bid-ask spread above the mid-price. At operations at the beginning of last week, the Bank started only accepting offers that were a little below mid-price. It then confirmed on Friday 7 October the best unallocated offer "was at a spread of -0.1bps to market-mid yields at the close of the auction". On Tuesday 11 October, it was confirmed that this spread had changed to -0.2bps.
• Yesterday's operation saw the Bank reject no offers and saw some offers accepting at a decent premium to the mid-price. This may well entice further offers to be submitted today - which would likely help market sentiment further if the vast majority of offers were accepted again.
• Today's operation was set with an upper size limit of GBP5bln again and there has been no official guidance released from the Bank regarding the offers that will/won't be accepted.
• Note also that today's linker operation will be set with a limit of GBP5bln again too. The Bank announced this morning that it will "not allocate offers for index-linked gilts at real yields below the mid-levels observed, as quoted by Tradeweb, at close of business on 10 October 2022." However, real yields are currently trading below these levels, so linker offers may not see a substantial increase - but if there is demand from pension funds to delver there will likely still be some usage at least.

EQUITIES: Index Futures Consolidating Close to Recent Lows

EUROSTOXX 50 futures remain below last week's high of 3492.00 on Oct 6. The 50-day EMA, at 3481.50, remains intact and continues to provide resistance. The broader trend direction is down and a continuation lower would open the key support and bear trigger at 3236.00, the Oct 3 low. For bulls, a move above the 50-day EMA is required to highlight a stronger reversal. S&P E-Minis are consolidating. The contract remains below last week’s high of 3820.00 on Oct 5. This level marks a key resistance, where a break is required to reinstate a short-term bullish theme. The broader trend remains down and attention is on the bear trigger at 3571.75, the Oct 3 low. A break of this level would confirm a resumption of the broader downtrend and open 3558.97, a Fibonacci projection.

• Japan's NIKKEI closed lower by 159.41 pts or -0.6% at 26237.42 and the TOPIX ended 14.39 pts lower or -0.77% at 1854.61.
• Elsewhere, in China the SHANGHAI closed lower by 9.15 pts or -0.3% at 3016.356 and the HANG SENG ended 311.92 pts lower or -1.87% at 16389.11.
• Across Europe, Germany's DAX trades higher by 26.71 pts or +0.22% at 12202.04, FTSE 100 lower by 32.61 pts or -0.48% at 6793.71, CAC 40 down 17.47 pts or -0.3% at 5803.19 and Euro Stoxx 50 down 9.36 pts or -0.28% at 3323.38.
• Dow Jones mini up 43 pts or +0.15% at 29300, S&P 500 mini up 3.25 pts or +0.09% at 3591.25, NASDAQ mini down 10.75 pts or -0.1% at 10827.75.

COMMODITIES: WTI Futures and Gold Steady After Firm Reversal Lower

The reversal in WTI futures this week threatens the recent bullish theme. The contract has traded below the 50-day EMA and attention is on the 20-day EMA at $86.25. A continuation lower would open $89.94 and $82.89 - the 50.0% and 61.8% retracement points of the Sep 26 - Oct 10 rally. On the upside, key resistance is at $93.64, Oct 10 high where a break is required to reinstate a bullish theme. Gold maintains a softer tone. The recent recovery stalled at $1729.5, the Oct 4 high. A continuation lower would expose the key support and bear trigger at $1615.0, the Sep 28 low. On the upside, a break of $1729.5 is required to reinstate a bullish theme.

• WTI Crude up $0.32 or +0.37% at $87.74
• Natural Gas up $0.12 or +1.93% at $6.558
• Gold spot down $0.89 or -0.05% at $1671.35
• Copper down $0.5 or -0.15% at $341.8
• Silver down $0 or 0% at $19.004
• Platinum down $4.69 or -0.53% at $881.76