MNI US OPEN - Soft European PMIs Point To Weak Demand

NEWS

BOJ (MNI): BOJ Keeps YCC; Policy Rates Forward Guidance

The Bank of Japan board on Friday decided unanimously to maintain yield curve control and pledged to continue patiently with monetary easing amid high uncertainties on economies and financial markets. The BOJ also decided to keep a cap of the 10-year interest rate at 1.0% and kept the forward guidance for the policy rates, committing to conduct additional easing measures if necessary.

BOJ (MNI): Ueda Downplays Speculation On Negative Rates

Bank of Japan Governor Kazuo Ueda on Friday brushed off market speculation that the BOJ is set to raise its overnight lending rate from negative levels by year-end and emphasised that the 2% inflation target is still not in sight. “The BOJ’s policy stance doesn’t change. There are high uncertainties over economy and prices,” Ueda told reporters after the Bank decided unanimously to maintain yield curve control and pledged to continue with monetary easing amid high uncertainty over the global economy and markets.

US (WaPo): House Republicans Falter on Funding Plans, as Shutdown Inches Closer

House Republicans for the second week in a row failed to move forward on any legislation related to funding the government, stunning many in their ranks as a government shutdown looms next week. The status of negotiations on both a short-term funding solution and long-term appropriations legislation declined so severely Thursday that lawmakers began to return home, with no votes scheduled for the rest of the week.

US (BBG): Biden Issues China Restrictions on Companies Getting Chip Funds

The Biden administration announced final restrictions Friday on expansion in China by semiconductor companies that will receive federal funds to build plants in the US. The Chips Program Office, which is preparing to give out $39 billion in grants and $75 billion in loans and loan guarantees, will bar firms that win that money from substantially growing their output or expanding their physical manufacturing space in China. They will be limited to a 5% increase for advanced chips and 10% for older technology of 28 nanometers or more mature.

US (BBG): Biden Tells Zelenskiy He’s ‘Determined’ to Get More War Aid

President Joe Biden vowed continued support for Ukraine as he met with President Volodymyr Zelenskiy at the White House amid concern that the country’s slow counteroffensive and opposition among conservative Republicans could threaten additional military assistance. “I’m counting on the good judgment of the United States Congress. There’s no alternative,” Biden said when asked if he was confident lawmakers would back more assistance for Kyiv.

ECB (BBG): ECB’s Lane Says Rates Will Be Restrictive as Long as Necessary

European Central Bank Chief Economist Philip Lane said interest rates have reached a level that could help inflation return to target if held for a sufficient amount of time, but stressed officials will be data dependent when assessing the restrictiveness of policy. “Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary,” Lane said in a speech in New York. “The high level of two-sided uncertainty around the baseline means that we will remain data dependent in determining the appropriate level and duration of restrictiveness in our monetary stance.”

UK (MNI): UK Consumer Struggling Despite Bright Spots - Gfk

UK consumer sentiment continued to improve in September, though it remained at depressed levels despite slowing inflation and higher wages, the head of a leading survey told MNI. “With falling inflation figures, growth in wages and high interest rates, UK consumer confidence rose this month to -21, the best recorded showing since January 2022," Joe Staton, Client Strategy Director at GfK said.

EU/CHINA (BBG): EU Trade Chief to Tell China That Retaliation is a Bad Idea

A typically routine forum for trade talks between China and the European Union this weekend becomes a high-stakes test of an economic relationship involving more than $900 billion in bilateral commerce. That’s because the EU’s ties with China are in a precarious state, and during high-level meetings over the coming days, the 27-nation bloc’s trade chief will tell Beijing concrete agreements are needed in an effort to reset the relationship. If not, things could get even worse.

PBOC (MNI): PBOC Will Act on Capital Outflow - MPC Member

MNI (Shanghai) China’s economy will experience limited effects from further U.S. Federal Reserve rate hikes as the People’s Bank of China will step in to stem any significant capital outflow, a PBOC Monetary Policy Committee member told MNI. Emerging markets will continue to suffer capital outflow pressure and currency depreciation as the Fed’s rate hikes strengthen the U.S dollar, which has attracted global funds into the American market, Wang Yiming told MNI on the sidelines of the 2023 Bund Summit in Shanghai.

CHINA (BBG): China Mulls Easing Foreign Stake Limits to Lure Global Funds

China is considering relaxing the rules that cap foreign ownership in domestic publicly traded firms, people familiar with the matter said, as it seeks to lure global funds back to its $9.4 trillion stock market. Authorities are pondering policy tweaks to boost overseas ownership in stocks listed in Shanghai, Shenzhen and Beijing as part of a push to open up the market and boost trading, the people said, asking not to be identified as the information is private. China currently caps total foreign ownership in locally listed firms at 30%, and subjects a single foreign shareholder to a 10% limit.

CHINA (MNI): China Needs Expansionary Fiscal and Monetary Moves

MNI (Shanghai) China needs to take bold expansionary fiscal and monetary measures to boost investment and consumption, a former PBOC MPC member said during 2023 Bund Summit on Friday, calling on the People’s Bank of China's yuan exchange rate policy to remain flexible. Yu Yongding, now senior fellow at Chinese Academy of Social Science, said China’s macro policymakers should create an easing environment for spending of business and household sectors to prevent a possible balance sheet recession.

JAPAN (MNI): Second-Tier LDP Nominations Suggest Kishida Seeks to Bolster His Position Within Party

Japan's ruling Liberal Democratic Party (LDP) announced some further adjustments to its executive line-up, replacing several second-tier officials in the wake of a wider shake-up implemented alongside the Cabinet reshuffle earlier this month. The LDP tapped Norihisa Tamura (recently joined the Kishida faction) to become acting chair of its Policy Research Council, while Akihiro Nishimura (Abe faction) will become acting chair of the Diet Affairs Committee.

DATA

EUROZONE DATA (MNI): Services PMI Less Weak Than Feared, But Demand Poor Overall

• EUROZONE SEP FLASH MANUF PMI 43.4 (FCST 44.0); AUG 43.5
• EUROZONE SEP FLASH SERVICES PMI 48.4 (FCST 47.6); AUG 47.9

The Eurozone September flash composite PMI was 47.1 (vs 46.7 prior; 46.5expected). Services printed at 48.4 (vs 47.9 prior; 47.6 expected) while manufacturing was 43.4 (vs 43.5 prior; 44.0 expected). Of particular note was the better than expected services print which followed the unexpected uptick in Germany's figures earlier, offsetting a French miss. "Central to the latest reduction in business activity was a further deterioration in customer demand, as highlighted by a fourth successive monthly decrease in new orders."

GERMANY DATA (MNI): PMIs Recover But Still Sub-50

• GERMANY SEP FLASH MANUF PMI 39.8 (FCST 39.5); AUG 39.1
• GERMANY SEP FLASH SERVICES PMI 49.8 (FCST 47.1); AUG 47.3

Germany September flash PMI was 46.2 (vs 44.6 prior). Services printed at 49.8(vs 47.3 prior; 47.1 cons). Manufacturing was 39.8 (vs 39.1 prior; 39.5 cons).The prints all remain in contractionary territory, but are off the low levels seen in August. "The downturn continued to be driven by a drop in demand for goods and services, with total inflows of new work falling for the fifth consecutive month in September."

FRANCE DATA (MNI): PMI Shows Further Deterioration

• FRANCE SEP FLASH MANUF PMI 43.6 (FCST 46.1); AUG 46.0
• FRANCE SEP FLASH SERVICES PMI 43.9 (FCST 46.0); AUG 46.0

France September flash services PMI printed at 43.9 (vs 46.0 prior and expected), representing a further deterioration in sentiment. Manufacturing PMI was 43.6 (vs 46.0 prior and 46.3 expected), while the composite figure was 43.5(vs. 46.0 prior). Key notes from the release are: "The contraction seen in factory output was the strongest since May 2020, while services activity fell to the greatest extent in nearly three years."

UK DATA (MNI): Soft PMIs Reflect Weak Demand

• UK SEP FLASH MANUF PMI 44.2 (FCST 43.2); AUG 43.0
• UK AUG FLASH SERV PMI 47.2 (FCST 49.4); AUG 49.5

The UK September flash composite PMI was 46.8 (vs 48.6 prior; 48.7 expected) -a 32-month low. Services printed at 47.2 (vs 49.5 prior; 49.4 expected) - also a 32-month low - while manufacturing was 44.2 (vs 43.0 prior; 43.2 expected). The BoE MPC noted in its September meeting minutes that they had access to these flash figures prior to public release. The miss in the services print may have been a contributing factor to their decision to hold rates yesterday.

UK AUG RETAIL SALES +0.4% M/M, -1.4% Y/Y (MNI)
UK AUG RETAIL SALES EX-FUEL +0.6% M/M, -1.4% Y/Y (MNI)
UK SEP GFK CONSUMER CONFIDENCE INDEX -21 (MNI)

SPAIN Q2 FINAL GDP +0.5% Q/Q (MNI)
SPAIN Q2 FINAL GDP +2.2% Y/Y (MNI)

JAPAN DATA (MNI): Japan Aug Core CPI Rises 3.1%, Flat Against July

• JAPAN AUG CORE CPI +3.1% Y/Y; JULY +3.1%
• JAPAN AUG CORE-CORE CPI +4.3% Y/Y; JULY +4.3%
• JAPAN AUG CPI FOOD EX-PERISHABLES +9.2% Y/Y; JULY +9.2%

Japan's annual core consumer inflation rate rose 3.1% y/y in August, unchanged from July’s 3.1%, but above the Bank of Japan’s 2% target for the 17th consecutive month, data released by the Ministry of Internal Affairs and Communications showed on Friday. August’s core CPI remained above 3% for the 12th consecutive month, although the y/y increase was unchanged despite lower energy prices. The underlying inflation rate measured by the core-core CPI (excluding fresh food and energy) rose 4.3% y/y in August, also unchanged from July's 4.3%.

RATINGS: Friday’s Ratings Slate

Potential sovereign rating reviews of note scheduled for after hours on Friday:

• Moody’s on Estonia (current rating: A1; Outlook Stable) & Poland (current rating: A2; Outlook Stable)
• S&P on Germany (current rating: AAA; Outlook Stable)
• DBRS Morningstar on Finland (current rating: AA (high), Stable Trend) & France (current rating: AA (high), Stable Trend)

FOREX: BBDXY a Touch Firmer Post European & UK PMIs, Antipodeans Outperform

The BBDXY sits a little higher on the day, although a French PMI-driven move to session bests failed to test yesterday’s multi-month peak in the index, as the German and Eurozone PMI readings provided some counter.

• USD is mid-pack in G10 FX.
• EUR/USD only managed a shallow look through yesterday’s multi-month low on the French data, before rebounding, although bulls have failed to retake pre-data levels.
• GBP/USD is threatening to break yesterday’s worst levels, with a softer-then-expected UK services PMI, pointing to increased recession worry and continued loosening in the labour market.
• JPY was pressured as BoJ Governor Ueda stuck to a dovish script in his post-meeting address, although USD/JPY has failed to test yesterday’s high as of yet, backing away from best levels in recent trade.
• The Antipodeans outperform G10 FX peers, probably looking to firmer Chinese equities as a source of support.
• U.S. flash PMIs, Canadian retail sales, comments from ECB’s de Guindos and the first round of post-FOMC Fedspeak (Cook, Cook, Collins, Daly & Kashkari) are slated ahead of the weekend.

BONDS: Core FI Regains Some Ground Amid Mixed European PMIs

Global core FI is a little stronger in early trade Friday in a partial reversal of Thursday's selloff, with the BoJ decision overnight and mixed European PMIs providing most of the interest.

• Early trade was constructive with the BoJ and Governor Ueda delivering a dovish hold and communications, followed by weak French flash September PMIs which saw Bund / Gilt futures jump to session highs, dragging Treasuries higher with them
• But gains were pared on stronger-than-expected German readings shortly thereafter.
• The dovish impact of a 32-month low in Composite UK PMI on Gilts was limited, with yesterday's semi-surprise BoE hold in part informed by the PMI data which the MPC had in advance. But Gilts are easily outperforming peers overall.
• Curves are mixed: UK's bull steepening, Germany's twist steepening, and Tsys leaning bull flatter.
• US PMIs are the only 1st tier item left on the data docket for the week, but we get some Fed speakers from across the hawk-dove spectrum in the wake of Wednesday's hold: Cook, Daly, and Kashkari.

Latest levels:

• Dec US 10Y futures (TY) up 1.5/32 at 108-15 (L: 108-9 / H: 108-19.5)
• Dec Bund futures (RX) up 3 ticks at 129.63 (L: 129.50 / H: 130.19)
• Dec Gilt futures (G) up 20 ticks at 96.07 (L: 95.65 / H: 96.37)
• Italy / German 10-Yr spread 0.9bps tighter at 179.5bps

EQUITIES: Recent Break Lower in E-Mini S&P Signals Continuation of Bear Cycle

Eurostoxx 50 futures maintain a softer tone following this week’s move lower. Attention is on key near-term support at 4210.00, the Sep 8 low. This level has been pierced, a clear break would confirm a resumption of the downtrend that started late July and pave the way for a move towards 4163.00, 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 this week’s break lower reinforces current conditions. Thursday’s sell-off has resulted in a break of support at 4397.75, the Aug 18 low. The breach reinforces bearish conditions and signals scope for a continuation lower near-term. Sights are on 4352.50, the Jun 8 low. Further out, scope is seen for a move to 4318.00, the Jun 2 low. Initial firm resistance is 4502.22, the 50-day EMA.

• Japan's NIKKEI closed lower by 168.62 pts or -0.52% at 32402.41 and the TOPIX ended 7.14 pts lower or -0.3% at 2376.27.
• Elsewhere, in China the SHANGHAI closed higher by 47.731 pts or +1.55% at 3132.432 and the HANG SENG ended 402.04 pts higher or +2.28% at 18057.45.
• Across Europe, Germany's DAX trades lower by 43.01 pts or -0.28% at 15501.56, FTSE 100 higher by 22.08 pts or +0.29% at 7687.07, CAC 40 down 49.41 pts or -0.68% at 7148.64 and Euro Stoxx 50 down 17.97 pts or -0.43% at 4186.09.
• Dow Jones mini up 14 pts or +0.04% at 34343, S&P 500 mini up 8 pts or +0.18% at 4379, NASDAQ mini up 57.75 pts or +0.39% at 14916.25.

COMMODITIES: Gold Trades Within Close Proximity of 50-Day EMA

The uptrend in WTI futures remains intact, however, the contract remains in a short-term bearish corrective cycle. The trend condition is overbought and a move lower would allow this to unwind. The first key support to watch lies at $86.58, the 20-day EMA and is a potential short-term objective. On the upside, clearance of Tuesday’s $92.43 high would confirm a resumption of the uptrend and open $94.66, a Fibonacci projection. Gold traded higher Wednesday but quickly pulled back from the session high. The recent breach of the 50-day EMA does highlight a possible developing bullish threat. Key resistance is at $1953.0, the Sep 1 high where a break is required to confirm a bullish theme. On the downside, $1901.1, the Sep 14 low, marks a key near-term support. A breach of this level would strengthen a bearish theme and expose $1884.9, the Aug 21 low.

• WTI Crude up $0.66 or +0.74% at $90.08
• Natural Gas up $0.03 or +1.03% at $2.635
• Gold spot up $6.64 or +0.35% at $1927.27
• Copper up $4.4 or +1.19% at $373.8
• Silver up $0.31 or +1.33% at $23.7364
• Platinum up $10.08 or +1.09% at $934.26