MNI US OPEN - Soft Demand Remains the Theme in Eurozone PMIs

NEWS

US (BBG): House Republicans Plan Another Vote to Choose a New Speaker

House Republicans plan to try on Tuesday to choose a nominee for speaker after the party’s two previous candidates failed to secure enough support to win the job. The House has been paralyzed without a speaker since Kevin McCarthy was ousted on Oct. 3, unable to act on any legislation, including emergency aid for Israel and Ukraine or an agreement to avert an impending US government shutdown on Nov. 17.

US (BBG): Wall Street Chiefs Warn on Outlook of Global Economy

Top Wall Street bankers said they’re pessimistic about the outlook of the global economy next year with elections in the US, monetary policies and escalating Middle East tensions weighing on sentiment. “If you take the time horizon, the monetary policies that we are going to see will have greater effects on the world, it’s difficult to be optimistic about that,” Bridgewater Associates LP founder Ray Dalio said during a panel on the first day of Saudi Arabia’s Future Investment Initiative.

US/CHINA (BBG): US-China Economic Talks Start With First Working Group Meeting

US Treasury staff and counterparts from China held the first meeting of a new working group dedicated to discussing economic topics, yet another small sign of improving ties between the two powers. “The delegations met virtually for two hours and had a productive and substantive discussion on topics including domestic and global macroeconomic developments,” the Treasury Department said in a statement following the session, held by video conference on Monday evening in the US and Tuesday morning in Beijing.

MNI ECB PREVIEW - OCTOBER 2023: Hawks Back Down, ECB on Hold

The ECB is not expected to deliver any material policy changes at the October meeting. In addition to clearly indicating in September that policy rates are at (or least very near) peak levels, the ECB will remain on hold given the recent downside inflation surprise, weak growth, delayed impact of previous tightening and notable dilution of hawkish pressure on the GC.

ECB (MNI): ECB Likely to Cut By Late 2024 - Schularick

The European Central Bank is likely to start cutting rates around the end of 2024, as wages growth moderates and with monetary conditions already exerting a drag on investment, leading German economist Moritz Schularick told MNI, adding that over-tightening could raise risks of financial instability. The ECB is likely to pause on rates again later this week, said Schularick , president of the Kiel Institute for the World Economy and Professor of Economics at Sciences Po, Paris.

EUROZONE (MNI): Eurozone Credit Standards Tighten Further in Q3-ECB

Eurozone credit standards tightened more than expected by banks across all loan categories in Q3 according to the European Central Bank's latest Bank Lending Survey. Demand for loans by both firms and households continued to decrease strongly, the survey showed, pointing to "ongoing central bank balance sheet reduction contributing to the tighter lending conditions". According to the closely-watched survey, which will discussed at Thursday's Governing Council meeting, the positive impact of policy rate hikes on net interest margins is expected to gradually abate.

EUROPEAN COUNCIL (MNI): EU Aff. Mins Meet Today Ahead of 26-27 EUCO Summit

European Affairs ministers meet in Luxembourg today to discuss draft conclusions ahead of the upcoming European Council summit of member state leaders taking place 26-27 October. A number of topics of notable significance are set to be on the agenda for member state leaders, including the war in Ukraine, the EU's 2021-7 multi annual financial framework (long-term budget), the EU economy - with particular focus on competitiveness, industrial policy, and energy - and migration issues.

ISRAEL (MNI): Army Spox Says Military Ready for Gaza Offensive; Macron Warns Hezbollah

Wires carrying comments from an Israeli military spox. Says that "We have long weeks of fighting ahead of us," and that the "Military is ready, awaiting political instruction." While Israel has not launched a ground offensive into Gaza more than two weeks after the Hamas attack, it has engaged in significant aerial bombardment of the area and is amassing troops on the borders, suggesting that an incursion is more likely than not at some point in the near future.

CHINA (BBG): Xi Makes Unprecedented PBOC Visit in Sign of Focus on Economy

Xi Jinping made his first known visit to the nation’s central bank since he became Chinese president a decade ago, according to people familiar with the matter, underscoring the government’s increased focus on shoring up the economy and financial markets. Xi, along with vice premier He Lifeng and other government officials, visited the People’s Bank of China and the State Administration of Foreign Exchange in Beijing on Tuesday afternoon, said the people, asking not to be identified discussing private information. The vice premier also visited the nation’s sovereign wealth fund, the people added.

BOJ (BBG): BOJ is Said to Watch Yields Till Last Minute to Decide YCC Tweak

Bank of Japan officials are likely to monitor bond yield movements until the last minute before making a decision on whether to adjust the yield curve control program at a policy meeting next week, according to people familiar with the matter. Officials see the possibility of adjusting the ceiling for 10-year bond yields among other options in response to rising pressure stemming from a selloff in US Treasuries, according to the people. Some feel it might be better to tweak YCC preemptively rather than wait until the policy comes under attack in the market, forcing the bank to undertake a massive amount of bond buying, the people said.

BOJ (BBG): BOJ Wades Back Into Bond Market to Curb Rising Japan Yields

The Bank of Japan announced yet another unscheduled bond-purchase operation to curb rising sovereign yields as traders challenge its resolve ahead of a policy decision next week. Tuesday marks the fifth time the central bank has stepped into the market with such buying since it adjusted its yield-curve control program in late July. It has also resorted to increasing purchase amounts in regular operations and loans to commercial banks that help them buy debt cheaply.

JAPAN (BBG): Japan to Extend Energy Subsidies Until April Amid Inflation Hit

The Japanese government plans to extend utility and gasoline subsidies through April as part of its latest set of economic support measures, in an attempt to keep a lid on prices for longer as Prime Minister Fumio Kishida seeks to revive his support levels. The government “will manage the policy with flexibility and agility, considering factors like growing international tensions, crude oil prices and energy-related developments,” according to a draft of the economic stimulus package obtained by Bloomberg.

RBA (MNI): Fresh Forecasts to Dictate RBA's Nov Decision - Bullock

The Reserve Bank of Australia board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation, RBA Governor Michelle Bullock noted in her first public speech on monetary policy. Speaking in Sydney Tuesday, the newly installed governor said the RBA board will have a range of fresh data and forecasts when it meets on Nov 7, which it will consider closely. “At the same time, the Board is mindful that growth in demand and the rate of inflation have been moderating, and that there are long lags in the transmission of monetary policy,” Bullock added.

PHILIPPINES (BBG): Philippines Flags Possible Rate Hike as Early as Thursday

The Philippine central bank may raise its key interest rate as early as Thursday if data points to inflation rising significantly, according to central bank Governor Eli Remolona. “If the data says inflation will go up very significantly and there’s a risk of affecting inflationary expectations, then we may go for an off-cycle hike as early as Thursday,” Remolona told reporters on Tuesday. He didn’t specify which data the central bank is looking at.

DATA

UK DATA (MNI): Adjusted UK Labour Market Data Suggests Further Loosening

• UK JUN-AUG UNRMPLOYMENT RATE 4.2% (EXPERIMENTAL MEASURE)

The remainder of the UK labour market statistics have been released, containing "adjusted" levels and rates for employment, unemployment and inactivity ("Table X10"). LFS estimates for these figures were not made available, and the ONS note that LFS estimates in this release "should be used with extreme caution". While it is difficult to compare the data to previous releases in an accurate manner, the data provided by the ONS in Table X10 suggests a continued gradual softening of the labour market.

UK DATA (MNI): Contractionary Theme Continues in October PMI

• UK OCT FLASH MANUF PMI 45.2 (FCST 44.7); SEP 44.3
• UK OCT FLASH SERV PMI 49.2 (FCST 49.3); SEP 49.3

UK flash October PMIs all printed in contractionary territory once again (services has been <50 for 3-consecutive months, while manufacturing has remained in contraction since August 2022). Services and composite readings were in line with expectations and broadly unchanged on the month, while the manufacturing print rose by almost 1 point to 45.2, just above expectations. "Lower output was seen in both the manufacturing and service sectors, with the former posting the sharper rate of decline".

EUROZONE DATA (MNI): Higher Oil Prices Outweighed by Softer Demand Outlook

• EUROZONE OCT FLASH MANUF PMI 43.0 (FCST 43.7); SEP 43.4
• EUROZONE OCT FLASH SERVICES PMI 47.8 (FCST 48.6); SEP 48.7

Eurozone PMI printed below expectations in both services and manufacturing, likely driven by the weakness in the German prints released earlier. Some select notes from the release include similar themes to the French/German prints, though there is some indication that weakening demand is offsetting the inflationary impulse from higher oil prices in the last months: "Despite reports of higher oil prices having added to firms' costs over the month, the average cost of inputs into factories fell sharply in October amid discounting as supply exceeded demand"

GERMAN DATA (MNI): Services Re-Enter Contractionary Territory

• GERMANY OCT FLASH MANUF PMI 40.7 (FCST 40.1); SEP 39.6
• GERMANY OCT FLASH SERVICES PMI 48.0 (FCST 50.0); SEP 50.3

Germany October flash PMI saw services re-enter into contractionary territory at 48.0, printing below expectations. Manufacturing was a touch above expectations but still remains close to multi-year lows at 40.7. Some key notes from the release are: "Overall inflows of new business posting the steepest decline since May 2020", "services firms reported their worst sales performance for almost three-and-a-half years, which they attributed in part to client hesitancy and tighter financial conditions."

FRANCE DATA (MNI): October PMI Shows Diverging Sector Performance

• FRANCE OCT FLASH MANUF PMI 42.6 (FCST 44.5); SEP 44.2
• FRANCE OCT FLASH SERVICES PMI 46.1 (FCST 45.0); SEP 44.4

France October flash composite PMI printed above expectations at 45.3 (vs 44.6 cons; 44.1 prior). Services were also better than expected at 46.1 (vs 45.0cons; 44.4 prior) while manufacturing slipped further into contraction at 42.6(vs 44.5 cons; 44.2 prior). Some key notes from the release are: "Trends [between services and manufacturing] diverged as a softer (albeit solid) fall in services activity contrasted with the sharpest fall in factory production since May 2020. Companies in both sectors cited weak demand as a reason for lower output".

JAPAN DATA (MNI): Services PMI Momentum Cools, Composite PMI Back Under 50.0

Japan's October preliminary PMIs saw softer momentum relative to September. The Jibun Bank manufacturing PMI was unchanged at 48.5. The services print fell back to 51.1 from 53.8 prior. This dragged the composite index back into contractionary territory at 49.9, from 52.1 prior. Note there are no consensus estimates for these prints. The detail on the manufacturing side showed output falling to 47.6 from 48.7 prior. New orders rose. For the headline manufacturing PMI, we remain above earlier 2023 lows, but only modestly.

FOREX: EUR Dented by PMIs, JPY Eyes Further BoJ Reports

• The Greenback is mixed, with EUR the underperformer on the back of a poor set of PMI numbers for October - and Germany in particular. Services and composite PMIs came in below forecast, putting the economy on a particularly soft footing headed into Q4. EUR/USD reversed off recovery highs of 1.0694, but support is seen scant into 1.0616 and 1.0571.
• AUD/USD looked through a speech from RBA's Bullock, despite a step-up in rhetoric on inflation. Nonetheless, this messaging resulted in only a marginal 5 pip move in AUD/USD as the base message on policy ("Our focus remains on bringing inflation back to target within a reasonable timeframe, while keeping employment growing") was broadly unchanged.
• Similarly, inflation is expected to soften further in the coming quarter, leaving markets to only partially price one further 25bps hike this cycle (peak rates priced for the May'24 meeting). Next RBA decision due on November 7th.
• USD/JPY trades lower, but recovered around 15-20 pips off the lows, on the back of a Bloomberg report citing sources in reporting that the BoJ are said to be waiting until the last minute, watching global yield curves in any decision to tweak yield curve control due to concerns over US yields. The report adds that the BoJ see little need to change forward guidance at this stage. Speculation of a potential tweak at the upcoming meeting on Oct31 has ramped up in recent days/weeks, given expectations for inflation projection alterations and broader market moves in wider core global FI markets.
• Preliminary October S&P PMI data comes just ahead of the Richmond Fed manufacturing index, marking the only tier one releases left during the Tuesday session. Central bank speak is unsurprisingly light with both the ECB and the FOMC inside their pre-decision media blackout periods. This keeps focus on the machinations across the US yield curve, with the un-steepening of the curve since the open on Monday helped partially stabilise markets across equities and bonds this week.

BONDS: Monday’s Recovery Extends Before BoJ Speculation Helps Cap Rally

Monday’s recovery from cheaps extended across the wider core global FI sphere, with momentum, UK labour market data, block buys in TY futures and Eurozone PMI readings all factoring into the rally.

• BoJ YCC tweak speculation has helped cap the bid for now, while reports of Israel being willing to delay a ground invasion of Gaza by “days” to allow talks on releasing a large number of the hostages Hamas is holding (per Axios sources) had little impact.
• Bund futures last show 80 ticks higher on the day, while German cash benchmarks are 4-8bp richer, with the curve flatter.
• EGB spreads to Bunds are little changed to a touch wider in the main, with the periphery giving back some of yesterday’s tightening.
• Note that the latest ECB bank lending survey revealed that credit standards tightened more than expected by banks across all loan categories in Q3. This may have factored into peripheral widening.
• Gilt futures are +75 on the day, with a marginally better than expected (but still contractionary) domestic flash manufacturing PMI print and perhaps the presence of I/L supply helping the space further away from best levels. Cash gilts last show 1-5bp richer across the curve, flattening.
• German Bobl & U.S. 2-Year Tsy supply, as well as flash U.S. PMI data, provide the scheduled highlights for the remainder of the day.

EQUITIES: Bearish Start to Week Confirms Resumption of Downtrend in E-Mini S&P

A bearish theme in Eurostoxx 50 futures remains in play and last week’s move lower reinforces current conditions. The contract has cleared support at 4082.00, the Oct 4 low and a bear trigger. This break confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. The focus is on the 4000.00 handle. Initial firm resistance is at 4155.50, the 20-day EMA.S&P e-minis maintain a softer tone and the contract started the week on a bearish note. Support at 4235.50, the Oct 4 low and bear trigger, has been breached. The break of this support confirms a resumption of the downtrend and opens 4197.75, the May 24 low. Price remains below resistance at the 50-day EMA, at 4404.28. A clear breach of this average is required to strengthen bullish conditions. Initial resistance is at 4348.88, the 20-day EMA.

• Japan's NIKKEI closed higher by 62.8 pts or +0.2% at 31062.35 and the TOPIX ended 1.92 pts higher or +0.09% at 2240.73.
• Elsewhere, in China the SHANGHAI closed higher by 22.953 pts or +0.78% at 2962.244 and the HANG SENG ended 180.6 pts lower or -1.05% at 16991.53.
• Across Europe, Germany's DAX trades lower by 33.98 pts or -0.23% at 14766.89, FTSE 100 lower by 42.04 pts or -0.57% at 7333.89, CAC 40 down 10.23 pts or -0.15% at 6841.95 and Euro Stoxx 50 down 11.28 pts or -0.28% at 4031.31.
• Dow Jones mini up 41 pts or +0.12% at 33106, S&P 500 mini up 9.75 pts or +0.23% at 4251.5, NASDAQ mini up 46.5 pts or +0.32% at 14759.25.

COMMODITIES: Recent Move Lower in WTI Futures Likely Corrective

WTI futures traded higher last week and the contract remains in bull-mode condition. The move lower from recent highs appears to be a correction. Key support is at $80.20, the Oct 6 low. The medium-term trend condition is bullish and an extension higher would expose the bull trigger at $92.48, the Sep 28 high. Clearance of this hurdle would confirm a resumption of the uptrend. For bears, a move through $80.20, would highlight a short-term top. Gold traded higher last week, extending the reversal from $1810.5, the Oct 6 low. The yellow metal has breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The break strengthens a bullish theme and opens $2003.4, a Fibonacci retracement point. Initial firm pivot support lies at $1907.7, the 50-day EMA. Clearance of this level is required to signal a short-term top and a potential reversal.

• WTI Crude down $0.21 or -0.25% at $85.2
• Natural Gas down $0.04 or -1.3% at $2.888
• Gold spot down $0.28 or -0.01% at $1972.34
• Copper down $0.6 or -0.17% at $358.15
• Silver down $0.02 or -0.08% at $22.945
• Platinum down $5.31 or -0.59% at $893.29