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MNI US OPEN - Slow UK Earnings Not a Gamechanger for BOE


Figure 1: UK average weekly earning (% y/y) 3-month average shows signs of having peaked


US/ISRAEL (BBG): Biden to Visit Israel, Jordan to Keep War From Escalating

President Joe Biden will travel to Israel Wednesday, in a visit designed to signal US solidarity with its closest Middle East ally and help prevent the conflict from engulfing the region. “He’s coming here at a critical moment for Israel, for the region and for the world,” Secretary of State Antony Blinken said early Tuesday in Tel Aviv. Blinken said that Israel had agreed to develop a plan alongside the US “that will enable humanitarian aid from donor nations and multilateral organizations to reach civilians in Gaza” as soon as possible.

CANADA/CHINA (BBG): Canada Says Chinese Fighter Aggressively Buzzed Its Patrol Plane

A Canadian general criticized the Chinese air force over an incident off the coast of the Asian nation that apparently saw a fighter jet cut off a patrol plane and drop flares in its path. The episode on Monday was reported by Global News, which had journalists on the Canadian surveillance aircraft. Chinese fighters also flew within 5 meters (5.5 yards) of the plane, it added. “They became very aggressive and to a degree we would deem it unsafe and unprofessional,” Major-General Iain Huddleston told the Canadian news outlet.

UK (MNI): Borrowing Undershoot, No Room for UK Tax Cuts - IFS

UK public sector borrowing is on track to come in around GBP20 billion below the official forecasts in the 2023-24 fiscal year, but borrowing in subsequent years will be a little higher than predicted and there is no room for tax cuts in the UK budget next month, according to the Institute for Fiscal Studies. In the IFS's Green Budget, produced with economists at Citi, the central borrowing forecast is for GBP112 billion this year compared to the GBP132bn official forecast made in March by the Office for Budget Responsibility.

BOE (BBG): Dhingra reiterates view that domestic inflation should relent

BoE's Swati Dhingra speaks at a Royal Economic Society event, reiterating her view that the economy should see a relenting of domestic inflation. She adds that wage inflation is being overstated in the official data, and that she would have preferred a more moderate rates path after having such sharp tightening in a short space of time.

EU (MNI): French Fin Min Talks Up New Fiscal Rule Agreement Ahead of ECOFIN

French Finance Minister Bruno Le Maire stated ahead of today's Economic and Financial Affairs Council (ECOFIN) meeting in Luxembourg that "The EU needs new budget rules quickly - it's a question of credibility". Laying out the crucial issue in getting any deal - agreement with Berlin - Le Maire added, "We will continue to work with Christian Lindner in the coming weeks to try to reach a Franco-German accord that could serve as a basis for a wider deal."

RIKSBANK (MNI): Thedéen Strikes Familiar Tones

Thedéen's presentation does not contain much new information. The slides are based on those presented in the September Monetary Policy meeting press conference, but updated with the September data. Slides show that demand in Sweden has been higher than expected and the krona remains historically weak. While wage increases have been moderate in Sweden, there remains uncertainty on the inflation outlook. "The policy rate may need to be raised further". "New information and how it affects the outlook for the economy and inflation determines the monetary policy stance."

CHINA (BBG): Country Garden Bondholders Yet to Get Interest as Deadline Looms

The clock is ticking for Country Garden Holdings Co. to avert its first-ever public dollar bond default, as some creditors said they still hadn’t gotten an interest payment just hours before a deadline. Two holders of Country Garden’s dollar bond due 2025 said they had yet to receive the interest as of 12:00 pm Hong Kong-time on Tuesday. They requested anonymity as they’re not authorized to speak publicly.

CHINA (RTRS): China Tells Banks to Roll Over Local Government Debts

China has told state-owned banks to roll over existing local government debt with longer-term loans at lower interest rates, two sources with knowledge of the matter said, as part of Beijing's efforts to reduce debt risks in a faltering economy.
Debt-laden municipalities represent a major risk to the world's second-largest economy and possibly its financial stability, economists say, amid a deepening property crisis, years of over-investment in infrastructure and soaring costs to contain the COVID-19 pandemic.

CHINA (MNI): Belt and Road Entering New Phase - Expert

MNI (Beijing) China's belt and road initiative is entering a new phase of high-quality development with a focus on green transition and digitalization, according to Ren Hong Bing Chairman of the China Council For Promotion of International Trade. Speaking at the Belt and Road forum in Beijing on Tuesday, Ren said China wants to establish new platforms to expand global trade and commerce whilst keep debt risks under control.

BOJ (MNI): BOJ to Avoid Inflation Signal as Wage Data Awaited

The Bank of Japan wants to avoid sending a message about the timing of any move away from ultra-easy policy with its upcoming Outlook Report inflation forecast, and even if its core projection is raised it will stress growing uncertainty over wages and the global economy, MNI understands. A decision to raise its fiscal 2025 core inflation forecast in October from July’s 1.6% would emphasise that the BOJ is still unsure the Japanese economy can achieve its 2% price target on a sustainable basis.

JAPAN (BBG): Poor Result of Japan’s Bond Sale Signals Weak Demand From Banks

The weak outcome of Japan’s 20-year bond auction is pointing to a lack of demand from domestic banks and life insurers. The ¥1.2 trillion ($8 billion) sale of sovereign debt Tuesday indicated poor investor appetite by three major measures, including the bid-cover ratio, amid expectations of higher yields at home and abroad. Japanese major banks and regional lenders have dumped super-long Japanese government bonds for nine straight months through August, according to official data.

RBA (MNI): Data, Staff Forecasts Key to November - RBA Minutes

The Reserve Bank of Australia Board noted updated data on economic activity, inflation and the labour market, alongside a set of revised staff forecasts, will factor heavily into its Nov 4 cash rate decision, according to the minutes of its Oct 3 meeting published Tuesday. The board noted September’s monthly CPI print, which rose 5.2%, suggested progress to lower services price inflation remained slow, while petrol prices would underpin inflation over coming months and influence households’ inflation expectations.

BOK (MNI): Pause at 3.5% Expected as Economy Slows

The Bank of Korea will likely keep its policy rate unchanged at 3.50% at Thursday’s policy-decision meeting for the sixth straight time despite higher inflation, as concern grows over a slower economy, observers told MNI. BOK policymakers, however, will likely maintain a hawkish tone thanks to September's recent sticky inflation read and keep the door open to future rate hikes to prevent market expectations of a premature rate cut.


UK DATA (MNI): UK Earnings Slow, But No Gamechanger for BOE


UK average weekly earnings slowed in the 3 months to August, data released by the Office for National Statistics on Tuesday showed, but still remain at levels that will offer discomfort to policymakers at the Bank of England. Annual growth in regular pay (excluding bonuses) was 7.8% in June to August 2023, still one of the highest regular annual growth rates since comparable records began in 2001.


NEW ZEALAND DATA (MNI): NZ CPI Slows Below RBNZ, Market Expectations

New Zealand’s Consumer Price Index rose 5.6% y/y in the September quarter, down from Q2’s 6%, and below the market’s 5.9% expectation, and the Reserve Bank of New Zealand’s 6.0% forecast published in its last Monetary Policy Statement, Stats NZ data showed Tuesday. CPI rose 1.5% q/q, while annual non-tradable inflation grew 6.3%. Annual tradable inflation rose 4.7%.

FOREX: NZD, GBP Slide as Disinflationary Themes Build

  • The greenback is favoured in early Tuesday trade, tipping the USD Index back within range of the week's highest levels. Equities trade in negative territory despite the positive close on Wall Street Monday, adding to a general risk-off theme. Headlines from Iran's Khamenei may have added to the downside bias, as the Iranian leader threatened that opposition countries could unit against Israel if the the Gaza strikes do not stop immediately.
  • NZD trades under pressure, with NZD/USD showing below the 0.5900 handle following the below-forecast NZ CPI, which saw the Q3 Y/Y rate slow to 5.6% from 5.9% previously. Initial focus for the pair is on 0.5859, the September low and lowest since November of last year.
  • Elsewhere, GBP trades poorly following this morning's pay data: average weekly earnings for August came in below expectations at +8.1% vs. Exp. +8.3%, raising the focus on Wednesday's inflation release. Markets expected headline Y/Y CPI to step lower, but for services CPI to remain stubbornly at 6.8%.
  • GBP/USD is offered headed into NY hours, with the pair shedding ~70 pips off the Monday evening recovery high. 1.2143 is expected to provide scant support ahead of pullback lows at 1.2123. Weakness through that mark would prove bearish, opening the bear trigger at 1.2037.
  • Focus Tuesday turns to the September US retail sales and industrial production releases as well as inflation data from Canada. The central bank speaker slate is busy, with BoE's Dhingra, Fed's Williams, Bowman, Barkin & Kashkari and ECB's Knot, Centeno, de Guindos, Holzmann and Nagel.

BONDS: Burden of Supply Helps Apply Pressure, Gilts Outperform on Cooling Labour Market Data

A poorly received Japanese 20-Year auction and the latest ACGB long end syndication provided pressure in Asia-Pac hours.

  • The burden of a heavy European & UK sovereign supply slate also helps keep any rallies in check.
  • Signs of continued cooling in partial UK labour market data provided some counter as gilts opened, while a block buy in TY futures (+2.5K/~157K DV01) also lent short-term support.
  • Core global FI metrics generally trade closer to session lows than session highs.
  • Tsy yields sit 1.0-4.5bp cheaper, bear steepening. TY futures are through last week’s lows, leaving bears focused on the month-to-date base from a technical perspective.
  • The German curve bear flattens, with benchmarks running 0.5-2.0bp cheaper. Firmer than expected German ZEW data provided some fresh headwinds in recent trade. Bund futures last -20.
  • EGB spreads are generally little changed to a touch wider vs. Bunds. PGBs the exception, a touch tighter at 10-Year point.
  • Gilts twist steepen, with the previously flagged domestic labour market data providing some insulation from the wider core global FI sell off as BoE pricing moves in a dovish manner (markets still price greater than 50/50 odds of one further BoE hike in the coming months, just). Cash benchmarks last show 2.5bp richer to 0.5bp cheaper, while futures are +5. Long end gilt supply saw mixed metrics. Initial rhetoric from BoE’s Dhingra was typically dovish.

CHINA STOCKS: Monday’s Recovery in Risk & SOE News Helps Chinese Benchmarks Higher

Chinese equities looked to the positive lead from the U.S. benchmarks, after U.S. efforts to mitigate tensions in the wider Middle East region and a lack of weekend intensification in the Israeli-Hamas conflict helped the broader risk dynamic on Monday.

  • That allowed the benchmark mainland CSI 300 to add 0.4% on Tuesday, while Hong Kong’s Hang Seng added 0.8%.
  • More granularly, SOEs benefitted from ten more names in the space disclosing share buybacks or increased state exposure plans on Monday,
  • Conversely, names linked to weight loss drugs struggled after one company apologised for misleading investors re: the related treatments.
  • HK-China Stock Connect flows were still tilted towards net selling of mainland equities (albeit at a more tepid pace of CNY3.1bn today).
  • Q3 GDP and monthly economic activity data headline the Chinese data docket on Wednesday.

EQUITIES: E-Mini S&P Resistance at 50-Day EMA Remains Intact

A bearish theme in Eurostoxx 50 futures remains in play and last week’s reversal from 4256.00, the Oct 12 high, signals the end of the recent corrective cycle. Note too that resistance at the 50-day EMA, at 4249.70, remains intact. A clear break of this average is required to signal scope for a stronger correction. The bear trigger lies at 4082.00, the Oct 4 low. Clearance of this level would confirm a resumption of the downtrend.S&P e-minis found resistance last week at 4430.50 (Oct 12 high). The pullback means that - for now - resistance at the 50-day EMA, at 4426.42, remains intact. A clear breach of this average is required to strengthen bullish conditions and this would open 4492.88, trendline resistance drawn from the Jul 27 high. On the downside, a deeper pullback would refocus attention on 4235.50, the Oct 4 low and bear trigger.

  • Japan's NIKKEI closed higher by 381.26 pts or +1.2% at 32040.29 and the TOPIX ended 18.54 pts higher or +0.82% at 2292.08.
  • Elsewhere, in China the SHANGHAI closed higher by 9.683 pts or +0.32% at 3083.496 and the HANG SENG ended 132.98 pts higher or +0.75% at 17769.23.
  • Across Europe, Germany's DAX trades lower by 45.15 pts or -0.3% at 15283.28, FTSE 100 higher by 12.71 pts or +0.17% at 7668.53, CAC 40 down 11.66 pts or -0.17% at 7048.83 and Euro Stoxx 50 down 13.06 pts or -0.31% at 4162.05.
  • Dow Jones mini down 73 pts or -0.21% at 34138, S&P 500 mini down 9 pts or -0.2% at 4401.25, NASDAQ mini down 33.25 pts or -0.22% at 15291.75.

COMMODITIES: WTI Futures Continue to Hold on to Majority of Friday's Gains

WTI futures traded higher Friday and the contract is holding on to its recent gains. The latest recovery has highlighted a key support at $81.50, the Oct 6 low. The medium-term trend condition remains bullish and an extension higher would expose the bull trigger at $95.03, the Sep 28 high. Clearance of this hurdle would confirm a resumption of the uptrend. For bears, a move through $81.50, would instead highlight potential for a stronger bear cycle. Gold traded sharply higher last Friday, clearing both the 20- and 50-day EMAs. The rally strengthens the recent reversal and exposes the next key resistance at $1953.0, the Sep 1 high. Clearance of this level would further strengthen a bullish theme. Note that moving average studies still highlight a broader bear trend condition, however, prices would need to trade below Friday's low of $1868.8 to signal a reversal.

  • WTI Crude down $0.13 or -0.15% at $86.82
  • Natural Gas up $0 or +0.06% at $3.115
  • Gold spot down $0.91 or -0.05% at $1920.11
  • Copper down $4 or -1.12% at $355.2
  • Silver down $0.01 or -0.04% at $22.5956
  • Platinum down $0.57 or -0.06% at $898.47

17/10/20231200/0800USNew York Fed's John Williams
17/10/2023-EUECB's de Guindos attends Luxembourg Ecofin meeting
17/10/20231230/0830*CAInternational Canadian Transaction in Securities
17/10/20231230/0830***USRetail Sales
17/10/20231255/0855**USRedbook Retail Sales Index
17/10/20231315/0915***USIndustrial Production
17/10/20231320/0920USFed Governor Michelle Bowman
17/10/20231400/1000**USNAHB Home Builder Index
17/10/20231400/1000*USBusiness Inventories
17/10/20231445/1045USRichmond Fed's Tom Barkin
17/10/20231530/1130*USUS Treasury Auction Result for Cash Management Bill
17/10/20231700/1900EUECB's De Guindos Speech at Conference
17/10/20232100/1700USMinneapolis Fed's Neel Kashkari
18/10/20232301/0001*UKXpertHR pay deals for whole economy
18/10/20230200/1000***CNFixed-Asset Investment
18/10/20230200/1000***CNRetail Sales
18/10/20230200/1000***CNIndustrial Output
18/10/20230200/1000**CNSurveyed Unemployment Rate M/M
18/10/20230600/0700***UKConsumer inflation report
18/10/20230600/0700***UKProducer Prices
18/10/20230900/1100***EUHICP (f)
18/10/20230900/1100**EUConstruction Production
18/10/20231100/0700**USMBA Weekly Applications Index
18/10/20231215/0815**CACMHC Housing Starts
18/10/20231230/0830***USHousing Starts
18/10/20231430/1030**USDOE Weekly Crude Oil Stocks
18/10/20231600/1200USFed Governor Christopher Waller
18/10/20231630/1230USNew York Fed's John Williams
18/10/20231700/1300**USUS Treasury Auction Result for 20 Year Bond
18/10/20231700/1300USFed's Tom Barkin, Michelle Bowman
18/10/20231800/1400USFed Beige Book
18/10/20231915/1515USPhiladelphia Fed's Pat Harker
18/10/20232255/1855USFed Governor Lisa Cook

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