MNI US OPEN - Sentiment Subdued as US Gov't Shutdown Looms

NEWS

US (BBG): US Government Shutdown Nears as Lawmakers Make Incremental Gains

The US is on track for an Oct. 1 government shutdown despite incremental progress late Tuesday in the House and Senate on rival spending bills. Senate leaders introduced their own bill to avert a shutdown and cleared a procedural vote, while House Speaker Kevin McCarthy was able to start House debate on a series of conservative full-year spending bills. The Senate stopgap bill has no clear path to pass the House, while the speaker has yet to nail down support for his own stopgap measure, which he plans to have the House vote on after the other full-year bills.

MNI EUROZONE INFLATION PREVIEW – SEPTEMBER 2023: Starting to Separate the Signal from the Noise

September is expected to bring the first Y/Y eurozone HICP prints below 5% since November 2021 for headline, and for September 2022 for core. With consensus of 4.5% Y/Y for HICP (5.2% Aug), and 4.8% for core (5.3% Aug), however, readings will remain well above the ECB’s target. The next few months will play an essential role in the ECB’s path to 2% inflation, after a summer of significant “noise” distorting the “signal” when strong base effects from 2022, weighting changes, and atypical seasonal movements in core goods price categories all contributed to volatile readings.

ECB (MNI): ECB to Fine Banks Missing Climate Goals - Elderson

The European Central Bank needs to deliver on its inflation mandate to provide a stable backdrop for the green transition, Executive Board member and vice-chair of the Supervisory Board Frank Elderson told MNI. For the moment, tight labour markets, rising disposable incomes and upwards pressure on food and energy prices mean further monetary tightening cannot be ruled out, Elderson said. “Of course, there are upward risks to inflation [...] Since July we have been alluding in our monetary policy statement to the importance of weather and climate conditions in this respect.”

ECB (BBG): ECB’s Holzmann Says Shocks Could Force ECB to Raise Rates Again

It’s unclear whether the European Central Bank has lifted borrowing costs to their peak, with the persistence of inflation meaning further hikes can’t be excluded, according to Governing Council member Robert Holzmann. The hawkish Austrian official listed threats to the retreat in euro-zone consumer prices including wage negotiations and the rising cost of oil. “There are shocks out there which may force us to go higher,” Holzmann told a Bloomberg event Tuesday in Vienna. “Inflation needs to be kept under control and that’s what we’re here for.”

FRANCE (BBG): Macron’s Budget to Test Taxpayer Tolerance for Climate Spending

French President Emmanuel Macron’s government will present a 2024 budget on Wednesday that tests voter appetite for pouring public money into the climate transition at the same time as withdrawing support for inflation-hit households. The Finance Ministry will unveil the details of a plan to increase investment in green programs to €40 billion ($42.5 billion) next year from €33 billion in 2023. The budget will also delay previously promised tax cuts and withdraw measures that have shielded households from soaring energy prices.

ITALY (MNI): Gov’t Meets to Sign Off on Treasury Forecasts Ahead of 2024 Budget

Reuters reporting that the Italian cabinet meets at 1630CET (1030ET, 1530BST) to sign off on the Treasury's latest economic forecasts. This comes as PM Giorgia Meloni and her team look to put together a budget for 2024 that achieves two aims in both enacting tax cuts promised in her party's 2022 election manifesto while avoiding rattling financial market confidence amid sclerotic growth, a sizeable budget deficit, and recent memories of the windfall tax on banks that resulted in a backlash and eventual alterations to the legislation.

CHINA (BBG): Evergrande’s Billionaire Founder is Put Under Police Control

Hui Ka Yan, the billionaire chairman of beleaguered property developer China Evergrande Group, has been placed under police control, according to people with knowledge of the matter. Hui was taken away by Chinese police earlier this month and is being monitored at a designated location, the people said, asking not to be identified because the matter is private. It’s not clear why Hui is under so-called residential surveillance, a type of police action that falls short of formal detention or arrest and doesn’t mean Hui will be charged with a crime.

BOJ (MNI): Most Members Want More Flexibility - BOJ Minutes

Most Bank of Japan board members believe the Bank should allow greater flexibility in the conduct of yield curve control to sustain monetary easing amid high uncertainty for prices, according to the July 27-28 meeting minutes released Wednesday. “Some members were of the view that, if upward movements in prices continued, allowing to some extent a rise in long-term interest rates would enable the BOJ to maintain the positive effects of monetary easing through the channel of real interest rates, while alleviating, for example, a decline in the functioning of bond markets,” the minutes showed.

BOJ (MNI): Members See High Chance of Wage Hikes - BOJ Minutes

Several Bank of Japan board members noted wages will likely rise next year, however, they stressed the Bank needed to clarify its wage-hike outlook, according to the July 27-28 meeting minutes released on Wednesday. “Members shared the recognition that, in projecting future price developments, it was important to determine whether changes in firms' wage- and price-setting behaviour would progress and wage hikes would continue next year and beyond,” the minutes showed.

THAILAND (BBG): Thailand Raises Key Interest Rate to 10-Year High of 2.50%

Thailand’s central bank raised its benchmark interest rate to the highest level in 10 years, as it moved preemptively to check inflationary pressures from the government’s proposed economic stimulus. The Bank of Thailand’s Monetary Policy Committee voted unanimously to increase the one-day repurchase rate by a quarter-point to 2.50% on Wednesday, as predicted by 10 of 21 economists in a Bloomberg survey. The rest had expected no change. Interest rates were last seen at this level in October 2013.

INDIA (BBG): India Plans to Sell 50-Year Bond on Growing Insurer Demand

India will sell 50-year bonds for the first time, introducing ultra-long maturity debt to cater to the growing demand from insurance and pension funds. The new bond adds to the 30-year and 40-year tenor debt sold, extending the nation’s yield curve, according to a borrowing plan released by the Reserve Bank of India on Tuesday.

BRAZIL (BBG): Lula to Meet Brazil Central Bank Chief Seeking End to Their Feud

President Luiz Inacio Lula da Silva and central bank chief Roberto Campos Neto are about to have their first face-to—face meeting since the leftist leader started his mandate in January and began a campaign to pressure Brazil’s monetary authority to lower interest rates to help boost growth in Latin America’s largest economy. Campos Neto reached out to Lula in a letter requesting a meeting, according to two people with knowledge of the matter. The president agreed, but asked Finance Minister Fernando Haddad to join.

DATA

FRANCE SEP CONSUMER SENTIMENT 83 (MNI)

SWEDEN DATA (MNI): Household and Business Confidence Remains Weak

The KI Economic Tendency Indicator printed at 85.8 points in September(slightly up from a revised 85.3 in August), but remaining below the 90 handle indicating "much weaker growth than usual". Confidence fell in all sectors other than manufacturing, with retail trade and services remaining below 90. The most worrying print though is consumer confidence, which reversed an August rise to fall back below 70 - printing at 69.1 (vs 70.6 prior).

AUSTRALIA DATA (MNI): Aussie Monthly CPI Rises to 5.2%

Australia’s monthly consumer price index (CPI) indicator rose 5.2% y/y in August, in line with market expectations and up from July’s 4.9%, according to Australian Bureau of Statistics data released Wednesday. CPI excluding volatile items and holiday travel rose 5.5%, down from the rise of 5.8% in July, while annual trimmed mean inflation printed at 5.6%, flat against July. “The most significant price rises were housing (+6.6%), transport (+7.4%), food and non-alcoholic beverages (+4.4%) and insurance and financial services (+8.8%),” the ABS said.

FOREX: Buoyant Brent Keeps Oil-Tied FX Pointed Higher

• NOK is the firmest performer in G10, gaining against all others as oil prices remain buoyant and provide a base for oil-tied currencies. WTI and Brent crude futures sit higher by ~1% at typing, well within range of last week's cycle highs posted on September 19th.
• EUR/NOK has subsequently broken lower, showing below the 50-dma to expose 11.3229, the 200-dma for direction. This level provided firm support for the cross in late July/early August, meaning markets could pay further attention to the level on any test.
• Equity markets are generally slightly firmer, with US futures pointing to a minor positive open. The USD is stable, sitting broadly mid-table, although the USD Index uptrend remains firmly intact for now, with the outlook firming on the break above the early March highs.
• AUD is the poorest performer so far, keeping AUD/USD within range of support at 0.6357, the early September low.
• Focus for the session ahead turns to preliminary durable goods orders data as well as appearances from ECB's Vujcic and Fed's Kashkari. The possibility of a government shutdown remains a hang over for market sentiment, with markets looking to gauge the potential economic impacts as well as market ramifications.
• The prior full government shutdown in 2013 provided an initial drag on GDP, but this subsequent reversal and gains for equities across that period kept any drop for risk sentiment in check.

BONDS: Flattening Bias Seen Early Wednesday

The early rounds of Wednesday trade have seen yields in core EGBs and UK gilts tick away from recent multi-year highs, with equities stabilising and little in the way of fresh, meaningful news flow to digest.

• Eurozone money supply data saw a slightly larger than expected fall in Y/Y terms, as the impact of the ECB’s tightening cycle continue to bite.
• Bunds sit +20, just shy of best levels, sticking within yesterday’s range. German cash benchmarks show 0.5-2.0bp richer, with a light flattening impulse seen.
• Core EGBs are little changed to a touch tighter in spread terms vs. Bunds.
• Peripherals are mostly tighter, with BTPs outperforming after yesterday’s notable widening, aided by the stabilisation in broader FI and equities (spread 2.5bp narrower today).
• €IG issuance has continued to build at the corporate/semi level, while an RFP from the EFSF has been seen. Note that Germany will come to market with E4URbn of the 10-year 2.60% Aug-33 Bund shortly.
• Gilts also flatten, with cash benchmarks showing 1.5-6.5bp richer. Futures show +40, sticking within yesterday’s range. There was a smooth tender result for the 50-year 1.125% Oct-73 gilt, with a tight tail and decent premium to the prevailing market price.
• French & Italian fiscal optics are eyed today, with worry about deterioration in the Italian fiscal outlook a key driver of the recent BTP widening.

EQUITIES: Bear Cycle in E-Mini S&P Remains in Play

Eurostoxx 50 futures maintain a softer tone following last week’s move lower and this week’s extension reinforces current conditions. Key support at 4210.00, the Sep 8 low, has been breached. The clear break confirms a resumption of the downtrend that started late July and paves the way for a move towards 4109.90, a Fibonacci projection. Key short-term resistance has been defined at 4359.00, the Sep 15 high. A break would be bullish. A bear cycle in S&P E-minis remains in play and the contract traded lower Tuesday, extending the current downleg. Last Thursday’s sell-off resulted in a break of support at 4397.75, the Aug 18 low. This breach reinforced bearish conditions and signals scope for a continuation lower. Sights are on 4300.62, a Fibonacci retracement point. Initial firm resistance is 4485.10, the 50-day EMA. Short-term gains would be considered corrective.

• Japan's NIKKEI closed higher by 56.85 pts or +0.18% at 32371.9 and the TOPIX ended 7.59 pts higher or +0.32% at 2379.53.
• Elsewhere, in China the SHANGHAI closed higher by 5.043 pts or +0.16% at 3107.316 and the HANG SENG ended 144.97 pts higher or +0.83% at 17611.87.
• Across Europe, Germany's DAX trades higher by 29.86 pts or +0.2% at 15285.68, FTSE 100 higher by 7.91 pts or +0.1% at 7633.57, CAC 40 up 26.49 pts or +0.37% at 7100.51 and Euro Stoxx 50 up 20.9 pts or +0.51% at 4150.08.
• Dow Jones mini up 108 pts or +0.32% at 33979, S&P 500 mini up 18.25 pts or +0.42% at 4332.25, NASDAQ mini up 65.25 pts or +0.44% at 14778.25.

COMMODITIES: Recovery in WTI Futures Early Indication of Resumption of Uptrend

The uptrend in WTI futures remains intact. The contract has recovered from yesterday’s low and this appears to be an early indication of a resumption of the uptrend. Support at the 20-day EMA, at $87.47, remains intact. A break of this average is required to signal scope for a deeper corrective pullback. On the upside, clearance of $92.43, the Sep 19 high, would confirm a resumption of the uptrend and open $93.31, a Fibonacci projection. Gold is trading lower again today as the yellow metal extends the latest bear cycle that started off the Sep 20 high of $1947.5. Support at $1901.1, the Sep 14 low, has been breached and this signals scope for an extension towards the next key support at $1884.9, the Aug 21 low. On the upside, initial firm resistance is seen at $1926.3, the 50-day EMA. A clear break of this average would highlight a possible reversal.

• WTI Crude up $0.96 or +1.06% at $91.36
• Natural Gas up $0.02 or +0.6% at $2.672
• Gold spot down $3.81 or -0.2% at $1896.83
• Copper down $0.3 or -0.08% at $364.65
• Silver down $0.03 or -0.12% at $22.8245
• Platinum down $0.7 or -0.08% at $906.93