EXECUTIVE SUMMARY
- TENSIONS ON EDGE AMID WAIT FOR ISRAELI RESPONSE TO IRAN MISSILE BARRAGE
- VANCE SOFTENS TONE AS WALZ SEIZES ON ELECTION CLAIMS AT DEBATE
- BOJ'S UEDA SAYS MARKETS UNSTABLE, VIGILANCE NEEDED
- SAUDI MINISTER WARNS OF $50 OIL AS OPEC+ MEMBERS FLOUT PRODUCTION CURBS
Figure 1: HK-listed China real estate gauge surges over 150% off Sept lows
Source: MNI/Bloomberg
NEWS
MIDEAST (MNI): Region on Edge Amid Wait for Israeli Response to Iran Missile Barrage
Following the two waves of Iranian missiles fired at Israel on 1 October, Israeli PM Benjamin Netanyahu said that Iran has "made a big mistake tonight, and will pay for it". In the efforts to protect Israel, the US fired around 12 interceptor missiles at Iranian ballistic missiles, while it is believed that the UK also deployed jets to aid in the defensive efforts.
Israel's ground incursion and air strikes in Lebanon continue this morning, as do Hezbollah rocket launches into Israel. However, regional and international focus will remain squarely on the actions of Israel with regard to Iran. The Iranian barrages killed one Palestinian in the West Bank, hit a school in central Israel and a restaurant in Tel Aviv. There had been concerns that had Iran utilised its most advanced weapons it could cause widespread damage and casualties, proving significantly escalatory. Nevertheless, a direct Iranian strike on Israel will likely force some direct response from the Netanyahu gov't.
US (BBG): Vance Softens Tone as Walz Seizes on Election Claims at Debate
Republican JD Vance largely succeeded in sanding down his hardline reputation while Democrat Tim Walz’s nerves were on display as the vice presidential candidates battled over immigration, abortion, and climate change during Tuesday’s debate. Likely the final major set piece before voters head to the polls, the face-off was a last opportunity for both sides to frame their plans, policies and personalities before Election Day. The bout saw the two Midwesterners seek to maintain a personable veneer and policy focus as they delivered punishing attacks on each others’ running mates.
US (BBG): US Dockworkers Strike to Stop Automation Seen at Other Ports
Longshoremen at docks along the US East and Gulf coasts have gone on strike for the first time since 1977 as the union takes a hardline stance against automation found at other ports around the world. The International Longshoreman’s Association halted negotiations in June with the US Maritime Alliance, a group representing port operators and ocean carriers. The union said an Alabama port operator’s use of new gate technology that scans and processes containers without worker involvement violated their existing contract. The ILA said it wouldn’t return to the bargaining table until the “issue is resolved,” idling some 45,000 dockworkers who are also pressing for higher wages.
US/JAPAN (BBG): Japan’s Ishiba Touts Strength of US Alliance in Call With Biden
New Prime Minister Shigeru Ishiba said he agreed to continue strengthening the Japan-US alliance and further build ties with mutual allies in his first phone call with US President Joe Biden after taking over as national leader. “In addition to increased Japanese defense spending, we covered enhancing how we work together to boost the alliance,” Ishiba said in remarks to reporters after the call earlier Wednesday. A self-declared “defense nerd” and former defense minister, Ishiba is a strong supporter of the US-Japan alliance but has also raised novel ideas on ways to develop military ties, including by building bases for Japan’s military in the US.
ECB (BBG): ECB’s Kazaks Leans Toward October Cut But Warns Markets
The European Central Bank is likely to lower borrowing costs at this month’s meeting and beyond, but some investors’ and economists’ easing expectations appear exaggerated, according to Governing Council member Martins Kazaks. “We will discuss and decide when we meet next time and will get more information until then, but recent data clearly point in the direction of a cut,” the Latvian central-bank chief said in an interview in Riga. “The risks to the economy have become more pronounced and the risks of still sticky domestic, especially services, inflation and too-weak growth are increasingly balanced with some tilt towards weak growth.”
ECB (MNI): ECB's De Guindos Calls For EU Retail Saving Product
Europe needs a retail savings product offering tax incentives across the bloc and to harmonise insolvency, accounting and securities laws to boost productivity, European Central Bank Vice President Luis de Guindos said in a speech in Riga on Wednesday. Finalising the Capital Markets Union, combined with a more coordinated single market, is necessary but insufficient to reignite European productivity, de Guindos noted, calling for an “ambitious and comprehensive agenda.”
BOJ (MNI): BOJ's Ueda Says Markets Unstable, Vigilance Needed
Bank of Japan Governor Kazuo Ueda said on Wednesday financial markets remain unstable, while uncertainties over overseas economies remained high, which will require the BOJ to monitor their developments with utmost vigilance. “As the risk factor, the uncertainties over Japanese economy remain high, including the outlook for overseas economies, prices, resources prices and corporate price-setting behaviours,” Ueda said at the general meeting of the Japan Securities Dealers Association.
JAPAN (BBG): Ishiba Ally Sends Signal to Warn BOJ Against Rate Hike Too Soon
Japan’s new Prime Minister Shigeru Ishiba doesn’t unconditionally support the raising of interest rates, one of his closest allies said, underscoring the view that the new cabinet is unlikely to want the Bank of Japan to rush into further rate hikes. “It’s not necessarily accurate to say Prime Minister Ishiba is pro-rate hikes,” Ryosei Akazawa, the minister for economic revitalization in Ishiba’s new cabinet, told reporters in Tokyo on Wednesday. “There are various conditions that need to be met for a hike. The top priority is overcoming deflation.”
JAPAN (MNI): New Ministers Kick 'Asian NATO' Idea Into Long Grass
New Foreign Minister Takeshi Iwaya has said that an 'Asian NATO' is "one idea for the future,". Speaking as a presser, Iwaya said "It's difficult to immediately set up a mechanism that would impose mutual defence obligations in Asia, so it's more of a vision for the future." Asked if such a framework would be targeting China, Iwaya said "The best way would be for a defence and security co-operation relationship that spans the Indo-Pacific without excluding any specific nation." New Defence Minister Gen Nakatani said separately that PM Shigeru Ishiba has not asked him to pursue the 'Asian NATO' proposal. Nakatani also said that US nuclear deterrence 'should be maintained and strengthened to ensure its reliability'.
CHINA (BBG): Chinese Stocks Soar More Than 7% in Hong Kong on Stimulus Bets
Chinese shares listed in Hong Kong jumped the most in almost two years as stimulus-induced euphoria swept through the city’s $5.8 trillion market. The Hang Seng China Enterprises Index climbed as much as 8.5% before closing up 7.1%, a 13th straight day of gains. Property developers led the rally, with a gauge of the sector surging as much as 47%, while an index of brokerage shares jumped 35%, both record intraday moves. Mainland Chinese markets remain shut until Oct. 8 for a week-long holiday.
UKRAINE (RTRS): Russian Forces Fully Control Bastion of Vuhledar in East Ukraine, War Bloggers Say
Russian troops have taken complete control of the eastern Ukrainian town of Vuhledar, a bastion that had resisted intense Russian attacks since the beginning of the 2022 war, Russian war bloggers and media said on Wednesday. Russian Telegram channels published video of troops waving the Russian tricolour flag over shattered buildings. The town, which had a population of over 14,000 before the war, has been devastated, with Soviet-era apartment buildings smashed apart and scarred.
MEXICO (BBG): Sheinbaum to Continue AMLO’s Path as She Takes Over Mexico
Claudia Sheinbaum was sworn in as Mexico’s first female president Tuesday, pledging to continue her political mentor’s efforts to improve the lives of Mexico’s poorest people. Sheinbaum, who took over for partymate and outgoing leader Andres Manuel Lopez Obrador, also promised in her inaugural address to congress to safeguard foreign investment as she builds on the legacy of a popular predecessor who wasn’t always friendly to business interests.
OIL (WSJ): Saudi Minister Warns of $50 Oil as OPEC+ Members Flout Production Curbs
The Saudi oil minister has said that prices could drop to as low as $50 per barrel if so-called cheaters within OPEC+ don’t stick to agreed-upon production limits, according to delegates in the cartel. The statements were interpreted by other producers as a veiled threat from the kingdom that it is willing to launch a price war to keep its market share if other countries don’t abide by the group’s agreements, they said.
DATA
EUROZONE AUG UNEMPLOYMENT RATE 6.4% (MNI)
FRANCE DATA (MNI): French Budget Deficit Widens In Line With Seasonal Norms in Aug
The French YTD general government budget deficit widened in August, but this dynamic is in line with seasonal norms. The YTD deficit stood at E171.9bln in August (vs E156.9bln in July). The YTD deficit was lower than the August 2023 outturn of E187.9bln. However, it has still grown at a much faster rate than in 2018/2019. Relative to August last year, expenditure was E304.1bln (vs 306.1bln prior) and revenue was E205.2bln (vs193.4bln). The higher revenue was primarily due to a E7.5bln EU Recovery and Resilience Plan payment in July '24. In Q1, the 4Q rolling sum of the general government budget deficit was 5.5% of GDP.
JAPAN DATA (MNI): Japan Sept Consumer Confidence Index Rises
Japan's consumer confidence index rose 20 basis points to 36.9 in September as three out of four components increased over the previous month, but the government left its assessment noting consumer confidence is marking time, results from the latest Consumer Survey released by the Cabinet Office on Wednesday showed. The index linked to overall economic well-being fell but the indexes linked to income conditions, the labour market and the willingness to buy durable goods rose. The sub-index on asset prices, not included in calculating overall consumer confidence, stood at 40.2 in September, up from 40.0 in August.
FOREX: JPY Hits Reverse as Ishiba Doubles Down on Defeating Deflation
- Having held as the best performer across G10 FX on Tuesday, the JPY is weaker against all others headed into the Wednesday crossover, however EUR/JPY remains below both yesterday's highs and the down-trending 50-dma crossing today at Y160.60. Following Ishiba's formal ascension to the premiership Tuesday, today he has conducted meetings with BoJ's Ueda and reiterated his focus on defeating deflation - backed up by reports that the new cabiinet is unlikely to want the BoJ to rush into further tightening.
- The volley of rockets from Iran to Israel hurt risk appetite in Tuesday trade, but markets have adopted the view that broader risk remains regionally contained - albeit with the still-elevated oil price. Brent crude futures remains north of $75/bbl - up over $3/bbl on the week, which continues to lend support to oil-tied FX including NOK and CAD. EUR/NOK has broken to weekly lows, nearing next support at the 11.6616 100-dma.
- Today's ADP Employment Change stats will provide the latest look at the labour market ahead of Friday's payrolls release. Markets expect the ADP headline at +125k, an uptick from the prior of a similar magnitude to what consensus expects on Friday.
- A litany of central bank speakers should also keep markets busy. ECB's Kazaks, Lane, Simkus, Elderson and Schnabel are all set to make appearances - and are likely to keep an October rate cut on table, echoing the near-universal view shift among the sell-side to a 25bps rate cut step on the 17th. Appearances from Fed's Bowman, Barkin and Musalem should also provide headline risk. Hammack of Cleveland is also due to make welcoming remarks, but policy-relevant commentary is unlikely.
EGBS: Weaker as Global Core FI Pulls Back From Yesterday’s Highs
Global core FI has pulled back from yesterday’s highs, with Bund futures -50 ticks today at 135.38. There hasn’t been an obvious catalyst for the move, with markets seemingly deeming yesterday’s rally as overdone, and waiting for further updates on the Israel/Iran situation.
- Impending 10-year Bund supply is likely weighing on German bonds, with regional headline flow otherwise light.
- The German cash curve has bear steepened, reversing much of yesterday’s bull flattening. 5 to 30-year German yields are 4 to 5bps higher at typing.
- The 10-year OAT/Bund spread has widened back to 79bps (vs a low of 74bps yesterday), after PM Barnier’s Parliamentary address did little to ease existing fiscal concerns.
- The Italian August unemployment rate reached its lowest level since September 2007 at 6.2%, but the BTP/Bund spread was little moved (currently +1bp wider at 134bps).
GILTS: Soft Demand at Auction Adds to Early Weakness
Soft demand at the latest 5-Year gilt auction allows early weakness to extend a little further.
- Gilt widener interest vs. Bunds and set up ahead of the supply added to a sell off in core global FI markets early today, with the latter seemingly driven by an unwind of geopolitical risk premium.
- Futures trade as low as 98.36, initial support at Monday’s low (98.30) still untested. A break there would deepen the bearish threat and expose key support at the September 2 low (98.11).
- Yields 6-7bp higher, 10s lead the move.
- BoE-dated OIS 0.5-6.5bp more hawkish through mid-’25 contracts. 23bp of cuts priced through November, 36bp priced through December and 114bp of cuts showing through June ’25.
- SONIA futures flat to -7.5,
EQUITIES: Shallow Pullback in E-Mini S&P Considered Corrective
Eurostoxx 50 futures traded sharply higher last week resulting in a clear break of 5024.00, the Sep 3 high. This confirms a resumption of the bull leg that started Aug 5 and cancels a recent bearish theme. It also suggests that the latest outback is likely a correction. Scope is seen for a continuation of the trend with sights on 5138.24, a Fibonacci projection, and the 5200 handle further out. Key short-term support to watch is 4919.85, the 50-day EMA. A bull cycle in S&P E-Minis remains intact and the latest shallow pullback is considered corrective. Last week’s fresh cycle highs reinforce a bullish theme and note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend. Scope is seen for a climb towards 5868.50, a Fibonacci projection, and 5900.00 further out. On the downside, initial support to watch is 5723.22, the 20-day EMA. Key support lies at 5652.72, the 50-day EMA.
- Japan's NIKKEI closed lower by 843.21 pts or -2.18% at 37808.76 and the TOPIX ended 38.82 pts lower or -1.44% at 2651.96.
- Across Europe, Germany's DAX trades higher by 30.21 pts or +0.16% at 19243.36, FTSE 100 higher by 42.7 pts or +0.52% at 8319.09, CAC 40 up 48.67 pts or +0.64% at 7622.74 and Euro Stoxx 50 up 28.76 pts or +0.58% at 4982.91.
- Dow Jones mini down 99 pts or -0.23% at 42380, S&P 500 mini down 5 pts or -0.09% at 5754, NASDAQ mini down 18.75 pts or -0.09% at 19954.
Time: 09:50 BST
COMMODITIES: WTI Futures Respect Resistance at 50-Day EMA
WTI futures traded in a volatile manner Tuesday and the contract has recovered from its recent lows. Resistance at the 50-day EMA, at $71.69, remains intact. A clear breach of this EMA is required to highlight a stronger reversal that would open $76.40, the Aug 26 high. A reversal lower would refocus attention on the key support and bear trigger at $64.61, the Sep 10 low. Clearance of this level would resume the downtrend. Gold is unchanged and bulls remain in the driver’s seat. Recent gains confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull-mode set-up, highlighting a clear uptrend and positive market sentiment. The focus is on $2690.2 next, a Fibonacci projection. Firm support lies at $2596.8, the 20-day EMA.
- WTI Crude up $1.55 or +2.22% at $71.37
- Natural Gas up $0.03 or +1.17% at $2.928
- Gold spot down $11.21 or -0.42% at $2651.93
- Copper up $2.4 or +0.52% at $461.4
- Silver up $0.03 or +0.09% at $31.4818
- Platinum up $2.85 or +0.29% at $996.92
Time: 09:50 BST
| Date | GMT/Local | Impact | Country | Event |
| 02/10/2024 | 1100/0700 | ** |  US | MBA Weekly Applications Index |
| 02/10/2024 | 1200/1400 |  EU | ECB's Elderson participates in European Affairs Webinar | |
| 02/10/2024 | 1215/0815 | *** | US | ADP Employment Report |
| 02/10/2024 | 1300/0900 | US | Cleveland Fed's Beth Hammack | |
| 02/10/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 02/10/2024 | 1500/1100 | US | Fed Governor Michelle Bowman | |
| 02/10/2024 | 1615/1215 | US | Richmond Fed's Tom Barkin | |
| 02/10/2024 | 1645/1845 | EU | ECB's Schnabel Walter Eucken Lecture | |
| 03/10/2024 | 0130/1130 | ** |  AU | Trade Balance |
| 03/10/2024 | 0630/0830 | *** |  CH | CPI |
| 03/10/2024 | 0700/1700 | AU | MNI Connect Video Conference on Australian Economic & Policy Developments | |
| 03/10/2024 | 0700/0300 | * |  TR | Turkey CPI |
| 03/10/2024 | 0830/0930 |  GB | BOE's Decision Maker Panel | |
| 03/10/2024 | 0900/1100 | ** | EU | PPI |
| 03/10/2024 | 1230/0830 | *** | US | Jobless Claims |
| 03/10/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 03/10/2024 | 1400/1000 | *** | US | ISM Non-Manufacturing Index |
| 03/10/2024 | 1400/1000 | ** | US | Factory New Orders |
| 03/10/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 03/10/2024 | 1440/1040 | US | Fed's Raphael Bostic, Neel Kashkari | |
| 03/10/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 03/10/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |