MNI US OPEN - UK Yields Retreat as Pill Fuels '24 Cut Pricing

NEWS

FED (BBG): Fed’s Kashkari Says Too Soon to Declare Victory on Inflation

Federal Reserve Bank of Minneapolis President Neel Kashkari said it’s too soon to declare victory over inflation, despite positive signs that price pressures are easing. “Before we declare that ‘we’re absolutely done, we’ve solved the problem,’ let’s get more data and see how the economy evolves,” Kashkari said Monday in an interview on Fox News. Kashkari said that while there have been three months of promising data on inflation, it isn’t enough. “We need to let the data keep coming to us to see if we really have got the inflation genie back in the bottle so to speak,” he added.

US/CHINA (BBG): US Looks to Restart China Military Talks as Relations Improve

Secretary of Defense Lloyd Austin is making another attempt to meet with his Chinese counterpart this month as overall relations between the world’s biggest economies improve. Austin’s office formally requested that a sitdown be arranged at the upcoming Asean Defense Ministers Meeting-Plus in Jakarta, Indonesia, even though the Chinese position is vacant, a senior US defense official told reporters Monday. The previous minister, Li Shangfu, was ousted last month, and Beijing has yet to announce his replacement.

US (BBG): Five Candidates Qualify for Miami Debate as GOP Field Shrinks

A shrinking debate stage will give five presidential candidates more room to present themselves as a Republican alternative to Donald Trump, but the former president still won’t be joining them. Florida Governor Ron DeSantis, former United Nations Ambassador Nikki Haley, Ohio entrepreneur Vivek Ramaswamy, South Carolina Senator Tim Scott and former New Jersey Governor Chris Christie will participate at the third Republican presidential debate in Miami Wednesday.

US (BBG): GOP Senators Demand Border Curbs as Condition for Ukraine Aid

Senate Republicans predicted Monday that Democrats would be unable to pass fresh Ukraine aid without addressing their demands over the US border and immigration policies — increasing the odds of an impasse that could delay such assistance indefinitely. Senator John Thune of South Dakota, the No. 2 Senate Republican, called on Democrats and the White House to negotiate on border policies, warning that his GOP colleagues are “dead serious about having border security in the bill.”

BOE (BBG): UK Inflation Will Soon Match Rest of World, BOE’s Pill Says

Bank of England Chief Economist Huw Pill said UK inflation will soon fall in line with the lower rates seen in the rest of the world, reflecting a drop in energy bills. Pill said there will be a “sharp further fall” in the inflation rate to below 5% in October that will help partially bridge the gap between price increases in the UK and the US and the eurozone. The BOE kept interest rates unchanged at 5.25% for a second straight meeting last week, but the UK still has the highest inflation among the Group of Seven economies.

UK (MNI): King's Speech at ~1125GMT to Set Out Gov'ts Legislative Agenda

King Charles III is expected to deliver the first King's speech in over 70 years at around 1125GMT (0625ET, 1225CET), setting out the gov'ts legislative agenda for the coming 12-18 months. While a significant political event, the speech is likely to be light on developments that could affect financial markets. The most notable interest will be in the energy space, with oil and gas production licenses to be awarded on an annual basis. This is not likely to impact household bills, but the gov't argues it will boost the UK's energy security.

UK (BBG): UK House Prices Up for First Time in Months, Halifax Says

UK house prices rose for the first time in seven months after a lack of properties for sale bolstered the value of the places that did change hands, a major mortgage lender said. Halifax said property prices rose 1.1% in October to £281,974 ($347,350), which was also the biggest increase since February 2023. It confirmed a separate report last week from Nationwide Building Society, which also said prices rose last month, and bucked the trend toward weaker prices for much of this year.

GERMANY (BBG): Scholz Agrees to Ease Burden on Regions From Migrant Influx

German Chancellor Olaf Scholz’s ruling coalition agreed to help ease the burden on regional and local administrations struggling to cope with rising numbers of refugees and other migrants. After talks hosted by Scholz at the chancellery in Berlin that stretched into the early hours of Tuesday, his government said it had agreed to payments of €7,500 per asylum seeker starting next year. Together with other measures like curtailing benefit payments, that would reduce costs for Germany’s federal states and municipalities by about €3.5 billion ($3.7 billion), according to a joint statement.

UKRAINE (MNI): European Commission Set to Signal Progress in EU Accession Bid

Wires reporting that the European Union is set to progress with Ukraine's accession bid, once a series of conditions have been made. Reuters reports that according to a senior official in Kyiv, the gov't there expects a 'positive' appraisal from the European Commission on its bid for membership. Foreign Minister Dmytro Kuleba is in Brussels today to hold talks with Commission VP Maroš Šefčovič,.

CHINA (MNI): No Inflation Impact From China Growth Revision - IMF

MNI (Beijing) Despite China growth likely coming in higher than initially expected this year and next, it is unlikely to have any meaningful impact on inflation worldwide in terms for demand for global commodities channel. IMF deputy managing director Gita Gopinath told MNI Tuesday,The IMF earlier upgraded its growth forecast to 5.4% from 5.0% off the back of stronger consumption demand and government stimulus. For next year, the growth outlook was raised to 4.6% from 4.2%

RBA (MNI): RBA Lifts to 4.35%, Eyes Future Data

The Reserve Bank of Australia board broke its four-month long hiking pause Tuesday to lift the cash rate 25bp to 4.35%, noting inflation had fallen slower than initially expected. Governor Michele Bullock in statement following the decision said, while the central forecast is for CPI to continue to decline, the RBA now expects it to land about 3.5% by the end of 2024 and at the top of the 2-3% target range by the end of 2025. The RBA had previously expected inflation to return to target by mid-2025. MNI reported last week the Reserve would strongly consider raising the cash rate.

RBA (MNI): RBA Hikes, Drops "Further Tightening" Language

The Reserve Bank of Australia pushed out its forecast for returning inflation to the 2-3% target to late 2025 and lowered its peak unemployment call 25bp to 4.25% today, moves some former RBA staff say signifies a more dovish stance, as it further raised rates but dropped a statement that further tightening may be necessary. The Reserve board increased the cash rate 25bp to 4.35%, snapping its four-month pause and pushing it to its highest level since November 2011.

MNI NBP PREVIEW - NOVEMBER 2023: Post-Election Fog

Following the delivery of relatively forceful monetary easing at the past two meetings (100bp in total), the NBP finds itself at a crossroads, having to decide whether to press ahead with further gradual cuts or pause and wait for a clearer picture of the economy and the post-election outlook. One must consider the policymaker’s perspective – which in this case is clouded by fresh uncertainties. We think that ultimately another 25bp rate cut is marginally more likely than an alternative scenario involving an on-hold decision.

DATA

EUROZONE DATA (MNI): Eurozone September PPI Printed Broadly In Line With Consensus

• EUROZONE SEP PPI +0.5% M/M, -12.4% Y/Y

Eurozone September PPI printed broadly in line with consensus, at -12.4% Y/Y(vs -12.5% forecast, -11.5% prior). On a monthly basis it rose +0.5% M/M (vs+0.5% forecast, +0.6% prior), a second successive monthly increase in producer prices (the only two increases in 2023). Y/Y falls look broad-based with each major subcategory lower in September. Excluding energy, Producer Prices have fallen from +1.0% Y/Y in August to +0.5% Y/Y in September, following successive falls from double digits growth earlier in 2023 and a peak in summer 2022. This is the lowest Y/Y ex-energy print since 2020.

EUROZONE OCT FINAL CONSTRUCTION PMI 42.7 ; SEP 43.6 (MNI)

UK BRC OCT BY VALUE SHOP SALES LFL +2.6% YY, TOTAL +2.5% YY (MNI)

SPAIN DATA (MNI): Better Than Expected IP, But Another Negative Y/Y Print

Spanish September industrial production printed firmer than expected, with only energy (-2.7% M/M) and non-durable consumer goods (-0.3% M/M) showing negative prints on the month. The overall index (in SA terms) was +1.1% M/M (vs +0.4%cons; a 0.1pp upwardly revised -0.7% prior). Capital goods (+3.6%), durable consumer goods (+3.3%) and intermediate goods (+3.1%) all rose on a monthly basis, with the tobacco pharmaceutical and metallurgy industries seeing the largest rises.

SWISS OCT UNEMPLOYMENT RATE +2.1% (MNI)
SWISS OCT UNEMPLOYMENT +3% M/M, +4.4% Y/Y (MNI)

CHINA DATA (MNI): China October Exports Dip Further; Imports Up

• CHINA OCT TRADE SURPLUS +$56.53 BLN; MEDIAN +$82.0 BLN
• CHINA OCT EXPORTS -6.4% Y/Y VS MEDIAN -3.5% Y/Y
• CHINA OCT IMPORTS +3.0% Y/Y VS MEDIAN -5.0% Y/Y

MNI (Beijing) China's exports decreased further in October, falling 6.4% to mark sixth straight monthly fall The decline was worse that the consensus looking for a 3.5% decrease and beat September's 6.2% decline. The slide was driven mainly by the unstable external demand, data released by Customs Tuesday showed. Exports in the first ten months of 2023 totaled USD2.79 trillion. ASEAN countries -- accounting for 15.1% of total exports -- decreased by 5.3% y/y over the Jan-Oct period while those to the EU decreased 10.6%. U.S. still ranked the biggest export market, although exports growth declined 15.4% y/y.

JAPAN DATA (MNI): Japan Real Wages Dip For 18th Straight Month In Sept

Japan's inflation-adjusted wages, a barometer of households' purchasing power, narrowed to 2.4% y/y in September, down from a 2.8% fall in August, data released by the Ministry of Health, Labour and Welfare showed on Tuesday. Real wages stayed in negative territory for the 18th straight month in September even the as the consumer price index rise slowed, underlining the fact that household incomes still haven't caught up with price rises. That is particularly impeding low-income household and senior citizen spending patterns.

FOREX: AUD Sinks as RBA Move to Temper Hawkish Outlook Post-Hike

• The greenback is the strongest performer in G10, helping the USD Index post a second consecutive session of gains to partially reverse Friday's sharp pull lower. The USD Index remains below the 50-dma resistance at 105.727, which provides the first upside level.
• Equity futures are a touch lower, with the e-mini S&P off by 7 points or so and pointing to a lower cash open on Wall Street later today. This has helped aide the USD strength, while AUD sits as the poorest performer after the RBA's 25bps rate hike (as expected) was accompanied by a switch to data-dependency, moderating the tightening message from the bank. AUD/USD erased Friday's rally in response, with 0.6394 marking the next support (50-dma).
• Meanwhile, NOK/SEK has plumbed new multi-month lows, with the March 21 low of 0.9725 the next downside level to watch. Moves coincide with a further weakening in the oil price, as Brent and WTI crude futures both post multi-week lows early Tuesday. Focus for Scandi currencies turns to Friday's inflation release (one of only 2 remaining CPI prints before the December policy meeting and fresh set of path projections). A lower than expected October CPI could result in markets pricing out a December hike, posing renewed risks to NOK.
• US and Canadian trade balance data takes focus Tuesday, while the speakers schedule is long: Kashkari, Goolsbee, Barr, Waller, Williams and Logan are all set to speak as well as ECB's Nagel.

EGBS: Benefitting From Positive Risk Environment

Core EGBs bull flatten as markets continue to benefit from an improvement in risk sentiment and a near 2% fall in Brent futures.

• Bund futures are up 0.28 today at 129.96 with generic 10y Bund yields down -4.9bp at 2.690% and the 2s10s curve -2.5bp flatter today at -30.9bp. OATS perform similarly with futures up 0.32 today at 124.50 and 10Y OAT yields down -5.5bp at 3.283%.
• Last night's dovish hike from the RBA may have provided a ceiling to yields in European trade, though sentiment appears to be the main driver of the moves this morning.
• German industrial production signalled continued weakness in the Eurozone's largest economy, while ECB-speak from de Guindos did not provide much new information. Eurozone September PPI printed in line at -12.4% Y/Y, which was not a surprise as most of the national-level data had already been available.
• Periphery spreads to Bunds trade tighter, with Spain underperforming. The 10-Yr BTP/Bund spread is currently 2.1bps tighter at 188.4bps while the Spain/Bund spread is 0.2bps tighter at 105.6bps. Spanish industrial production was better than expected this morning, but still provided a sixth consecutive negative Y/Y print.
• The remainder of the local docket is light today, with ECB's Nagel scheduled to speak after hours again at 1930 GMT.

GILTS: Gilts Outperform as BoE's Pill Fails to Push Back on Idea of Summer '24 Rate Cut

Gilt futures have shown above Monday’s high on a few occasions, although bulls haven’t managed to get near closing Monday’s opening gap lower.

• Futures last +60, just shy of best levels, with bulls eying the October high (95.66) as the next level of meaningful resistance.
• Cash gilt yields are 6.5-9.5bp lower, bull steepening.
• Gilts have outperformed core global FI peers across most of the curve.
• The main factor driving the outperformance has been the delayed digestion of late Monday comments from BoE chief economist Pill.
• A quick reminder that Pill gave a bit of a green light to market pricing of 25bp rate cut come the end of August ’24.
• Elsewhere, his words on inflation and the latest slowing in the domestic Kantar food price inflation metric (which fell into single digits in Y/Y terms) also provided support.
• More widely, weaker oil prices will have also helped the bid.
• The presence of the bidding deadline for the latest round of 10-Year supply helped futures away from best levels, before the clearance of the auction above prevailing mid prices, with a reasonably strong cover ratio, provided fresh support.
• SONIA futures are flat to +11.5 through the blues, with the front of the reds outperforming on the strip.
• BoE-dated OIS is 0.5-12bp softer through the liquid contracts, with terminal policy rate pricing ~6bp above current effective SONIA levels. Pill’s comments have allowed markets to fully discount a 25bp cut come the end of the Aug ’24 MPC.

EQUITIES: E-Mini S&P Holds Onto Recent Gains Though Recovery Still Appears Corrective

Eurostoxx 50 futures traded higher last week as the correction from recent lows extends. Price has traded through resistance at both the 20- and 50-day EMAs. The broader trend condition is bearish, however, a clear break of the 50-day average, at 4184.10, would signal scope for a stronger bull cycle and open 4256.00, the Oct 12 high. On the downside, key support and the bear trigger lies at 4001.0, the Oct 27 low. S&P e-minis traded higher last week and the contract is holding on to its recent gains. The latest recovery still appears to be a correction, however, price has cleared the 20- and 50-day EMAs. The break of the 50-day average - a key short-term pivot level - has strengthened bullish conditions. Sights are on 4430.50, the Oct 12 high. Key support and the bear trigger has been defined at 4122.25, the Oct 27 low.

• Japan's NIKKEI closed lower by 436.66 pts or -1.34% at 32271.82 and the TOPIX ended 27.55 pts lower or -1.17% at 2332.91.
• Elsewhere, in China the SHANGHAI closed lower by 1.14 pts or -0.04% at 3057.27 and the HANG SENG ended 296.43 pts lower or -1.65% at 17670.16.
• Across Europe, Germany's DAX trades lower by 30.27 pts or -0.2% at 15104.55, FTSE 100 lower by 6.29 pts or -0.08% at 7410.83, CAC 40 down 25.03 pts or -0.36% at 6987.45 and Euro Stoxx 50 down 10.09 pts or -0.24% at 4147.89.
• Dow Jones mini down 70 pts or -0.2% at 34098, S&P 500 mini down 9.5 pts or -0.22% at 4375.5, NASDAQ mini down 26.75 pts or -0.18% at 15206.

COMMODITIES: WTI Futures Breach Support at $80.20

The medium-term trend condition in WTI futures remains bullish and the recent move lower still appears to be a correction. However, the contract has breached support at $80.20, the Oct 6 low. The break highlights a stronger short-term reversal. A continuation lower would pave the way for a move towards $77.03, the Aug 24 low. On the upside, a break of resistance at $85.90, the Oct 27 high, is required to reinstate a bullish theme. The trend condition in Gold is unchanged - the uptrend remains intact and the latest pullback appears to be a correction. Price has recently breached key resistance at $1953.0, the Sep 1 high, and $1987.5, the Jul 20 high. The continuation higher strengthens a bullish theme and opens $2022.20 next, May 15 high. Initial firm pivot support lies at $1935.3, the 50-day EMA. Clearance of this level is required to signal a short-term top.

• WTI Crude down $1.75 or -2.17% at $79.09
• Natural Gas down $0.03 or -0.95% at $3.232
• Gold spot down $10.39 or -0.53% at $1967.44
• Copper down $4.35 or -1.17% at $367.5
• Silver down $0.28 or -1.2% at $22.7471
• Platinum down $9.52 or -1.05% at $899.8