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MNI US OPEN - USD/JPY at New Highs on Spending Package Plans


Figure 1: UK Retail Sales Index Drops Below 100 for First Time in Over a Year


UK (BBG): Leadership Vote May Delay Oct. 31 Budget Plan, Officials Say

The UK Treasury may be forced to delay its long-awaited Oct. 31 fiscal plan because of the resignation of Prime Minister Liz Truss, adding a layer of political risk to an event that had become crucial for markets and the Bank of England.

Chancellor of the Exchequer Jeremy Hunt is still working toward delivering the statement on Oct. 31, but the final decision on scheduling the statement will be a matter for Truss’s successor, two people familiar with the matter said, speaking on condition of anonymity. It also relies on Hunt remaining as chancellor under a new leader.

UK (MNI): Conservatives Hit 14% Support in Latest Poll, Lowest Score Ever

The latest opinion poll from People Polling has the governing centre-right Conservative party securing just 14% support, the lowest level of backing ever recorded by the oldest political party in the world in a Westminster voting intention poll.

ITALY (MNI): Meloni - We Are Ready to Form Gov't as Quickly as Possible

Wires carrying comments from right-wing nationalist Brothers of Italy (FdI) party head Giorgia Meloni, in which she states that her name has been put forward by the election-winning centre-right coalition to serve as PM, and that the group is ready to form a gov't 'as quickly as possible'. President Sergio Mattarella likely to offer the mandate to Meloni given the prospective coalition commands a majority in both houses of the Italian parliament.

JAPAN (MNI): USD/JPY Surges to New High on Spending Package Headlines

USD/JPY breaks to new highs following Kyodo reports flagging a Y20trl spending package. The report sees the package subject to cabinet approval as soon as Oct 28th. The total spending looks to have been downsized after LDP officials saw "an economic stimulus package of ~30t yen" on Oct 18th.

JAPAN (MNI): BOJ Warns of Prolonged Stress Due to Rate Hikes

The Bank of Japan’s Financial System Report released on Friday warned of prolonged stress from rate hikes by central banks, although financial institutions were assessed to have sufficient capital and liquidity.

“The period of stress may be prolonged further as policy rate hikes by central banks are continued and concerns about a slowdown in foreign economies are spreading. Financial and capital markets have continued to be nervous,” the FSR said.

JAPAN (MNI): BOJ To Keep Easy Policy to Hit Price Target - Kuroda

Bank of Japan Governor Haruhiko Kuroda said on Friday that the BOJ will maintain easy policy in order to achieve the price stability target in a stable and sustainable manner accompanied with wage hikes. “Japan’s consumer price will increase the year-on-year rise toward the end of this year due to high prices of energy, food and durable goods,” said Kuroda at the general meeting of Shinkumi Bank.

JAPAN (MNI): BOJ Studies Inflation Risks; Wages in Focus

Bank of Japan officials currently view the upside risk to inflation as small, but they are focused on how corporate price-setting and the economy evolves from January as they seek to avoid making the same mistake as the Federal Reserve did in underestimating the threat of inflation, MNI understands.

If the BOJ gains confidence that inflation is edging higher, it may allow the bank to start considering a change in the outlook for monetary policy. Japan's core CPI rose at a 3% y/y pace in September.

CHINA (MNI): China Seen to Cut 5-Year LPR To Lift Property

China's key reference lending rate for loans of over five years is expected to be cut to help lower mortgage rates as the government steps up efforts to support the ailing property market.

The Loan Prime Rate, which is based on the People’s Bank of China’s Medium-term Lending Facility (MLF) rate and quotes submitted by 18 banks, remained at 3.65% for the one-year maturity and 4.3% for over-five-years on Thursday, which was in line with market expectations.

CHINA (MNI): APEC Should Coordinate on Inflation, Energy - China

Asia-Pacific Economic Cooperation members should deepen economic connections and insist on “real” multilateralism as economies across the region confront a slowdown in growth, said China's Minister of Finance Liu Kun at an APEC meeting on Thursday. Liu called for policy coordination between APEC members to jointly deal with the global challenges of inflation, grain and energy security, and regional financial risks, according to the Ministry of Finance website.


JAPAN (MNI): Sep Core CPI Rises 3%; Highest Since 1991

  • JAPAN SEP CORE CPI +3.0% Y/Y; AUG +2.8%
  • JAPAN SEP CPI ENERGY COST +16.9% Y/Y; AUG +16.9%

UK (MNI): Retail Sales Slump As Households Squeezed

  • UK SEP RETAIL SALES -1.4% M/M, -6.9% Y/Y
  • UK SEP RETAIL SALES EX-FUEL -1.5% M/M, -6.2% Y/Y


SOUTH KOREA (MNI): Export Growth to China Continues to Weaken

South Korea's first 20-days trade data for October still points to a softening external demand backdrop. Exports for the first 20-days of the month were -5.5%y/y, a slight improvement on last month's -8.7%. However, average daily exports were -9% lower in y/y terms. Note exports for the full month of September were +2.7% y/y.

FOREX: Greenback Looks Through Chinese FX Intervention as Yields Surge

  • The dollar trades firmer headed into Friday's NY session, reversing a brief bout of weakness that came just ahead of reports that China state banks were selling dollars to shore up the USD/CNY rate ahead of 7.25. The supposed intervention failed to reverse the tide, however, with the USD/CNY touching 7.2512. The currency fluctuations followed fixed income markets closely, with the intraday dollar high coinciding with the rise to 4.2886% in the US 10y yield.
  • For USD/JPY, the pair broke to new highs following Kyodo reports flagging a Y20trl spending package. The report sees the package subject to cabinet approval as soon as Oct 28th. The total spending looks to have been downsized after LDP officials saw "an economic stimulus package of ~30t yen" on Oct 18th. The rate took out resistance at 150.45 (3.618 proj of the Aug 2 - 8 - 11 price swing) and opens 151.20 next.
  • GBP is the poorest performer, with the acute political risk premium on the currency making itself evident in a rising yield environment. EUR/GBP is back above 0.8750, while GBP/USD touches new weekly lows of 1.1123. The moves also follow a dire set of retail sales data for September, which slipped well below expectations.
  • Data should play second fiddle to central bank speakers Friday, with Fed's Williams and Evans on the docket today ahead of the beginning of the media blackout at the end of play today. Canadian retail sales are on the docket, expected at +0.2% on the month.

BOND SUMMARY: Core Fixed Income Under Pressure

  • Core fixed income is lower across the board this morning. Once again gilts have led the way lower with yields up around 10bp across the curve as the market remains jittery about the outcome of the Conservative party leadership contest. Sunak is currently favourite, ahead of Johnson with Mordaunt the other most viable candidate. It is unclear whether any of the candidates can bring unity to the party and also unclear exactly what this means for the 31 October fiscal plan and OBR forecasts. UK terminal rates have risen back to around 5.18% and are driving the moves in the wider gilt market.
  • The German curve is also lower, partially pulled lower by gilts and partially by headlines that the German parliament has voted to suspend the debt break. This was widely expected but caused a knee jerk market reaction nonetheless with 10-year Bund yields rising above 2.50% for the first time since 2011.
  • A big risk later will see both the S&P and Moody's review their ratings for the UK. S&P (at AA but with a negative outlook) currently rates the UK a notch above Moody's (at Aa3 with a stable outlook). There are risks to both of these from the increase in borrowing costs, political stability and slowing economic growth.
  • US 2s30s continues to uninvert: the spread is 10bp higher today amid long-end Treasury underperformance (this is a twist steepening: cash 2s are actually a touch stronger). the current -29.6bp level would be the least inverted close since Sep 13.
  • Long-end weakness is widespread across global core FI (German and UK 30Y are underperforming US), but the German and UK short-ends are also weakening.
  • TY1 futures are down -0-6 today at 109-05+ with 10y UST yields up 4.2bp at 4.271% and 2y yields down -1.4bp at 4.598%.
  • Bund futures are down -1.28 today at 134.42 with 10y Bund yields up 9.4bp at 2.493% and Schatz yields up 8.2bp at 2.186%.
  • Gilt futures are down -1.60 today at 973.34 with 10y yields up 9.5bp at 3.999% and 2y yields up 9.5bp at 3.627%.

EQUITIES: Equity Futures Dip From Week's Highs

Despite early Friday weakness, EUROSTOXX 50 futures maintain a firmer tone this week following the recent recovery from 3251.00, Oct 13 low. The move higher has resulted in a break of the 50-day EMA and resistance at 3492.00, the Oct 6 high and a bull trigger. Initial firm support is at 3352.00, the Oct 14 low. Similarly, recent weakness in S&P E-Minis has done little to damage the firmer short-term tone. A bullish theme follows last week’s reversal from 3502.00, the Oct 13 low. The recovery suggests the contract has entered a corrective phase and if correct, this is allowing an oversold trend condition to unwind. Attention is on resistance at 3820.00, the Oct 5 high and a bull trigger. Key support is unchanged at 3502.00. Initial support is at 3590.50, the Oct 17 low.

  • Japan's NIKKEI closed lower by 116.38 pts or -0.43% at 26890.58 and the TOPIX ended 13.43 pts lower or -0.71% at 1881.98.
  • Elsewhere, in China the SHANGHAI closed higher by 3.879 pts or +0.13% at 3038.929 and the HANG SENG ended 69.1 pts lower or -0.42% at 16211.12.
  • Across Europe, Germany's DAX trades lower by 198.23 pts or -1.55% at 12566.71, FTSE 100 lower by 45.62 pts or -0.66% at 6898.82, CAC 40 down 103.49 pts or -1.7% at 5982.96 and Euro Stoxx 50 down 56.09 pts or -1.61% at 3436.41.
  • Dow Jones mini down 117 pts or -0.39% at 30247, S&P 500 mini down 19.25 pts or -0.52% at 3657, NASDAQ mini down 85 pts or -0.77% at 11011.25.

COMMODITIES: WTI, Gold Fail to Hold Thursday Gains

WTI futures failed to hold on to yesterday’s gains. The outlook remains bearish and a resumption of weakness would open $79.63 a Fibonacci retracement and potentially $75.70 further out, the Sep 26 low. On the upside, a stronger reversal higher would instead expose the key short-term resistance at $92.34, the Oct 10 high. Initial firm resistance to watch is at $88.66, Oct 12 high. Gold is trading lower. The yellow metal maintains a bearish tone following the recent reversal from $1729.5, Oct 4 high. The move lower signals the end of the bull phase between Sep 28 - Oct 4 and note that price has moved below the trendline resistance drawn from the Mar 8 high. Sights are on the key support and bear trigger at $1615.0, the Sep 28 low. On the upside, clearance of $1729.5 is required to reinstate a bullish theme.

  • WTI Crude down $1.01 or -1.2% at $83.51
  • Natural Gas down $0.17 or -3.21% at $5.187
  • Gold spot down $6.94 or -0.43% at $1621.05
  • Copper down $2.8 or -0.82% at $338.2
  • Silver down $0.25 or -1.34% at $18.413
  • Platinum down $6.46 or -0.71% at $909.56

21/10/20221230/0830**CARetail Trade
21/10/20221310/0910USNew York Fed's John Williams
21/10/20221400/1600**EUConsumer Confidence Indicator (p)
21/10/20221530/1130USSan Francisco Fed's Mary Daly
21/10/20221600/1200**USTreasury Budget

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