MNI US OPEN - Vote Breakdown Key in BoE Rate Decision

NEWS

US/CHINA (BBG): US, China to Hold Nuclear Arms Talks Before Xi-Biden Meeting

The US is set to hold rare nuclear arms control talks with China amid growing concerns over Beijing’s accelerated push to build up its arsenal of atomic weapons, according to an administration official. The objective of the low-level discussions, scheduled to begin next week, is not to reduce the size of China’s arsenal. Instead, their purpose is to give the Biden administration a better understanding of China’s plans weeks after the Pentagon issued a report saying that the country was manufacturing nuclear weapons faster than expected.

US/ISRAEL (BBG): Biden Says Israel, Hamas Should ‘Pause’ for Hostage Release

President Joe Biden said Wednesday that Israel and Hamas militants ought to “pause” fighting in order to allow time to free hostages held in the Gaza Strip, but stopped short of supporting a full ceasefire. Biden made the comments while replying to a protester during a political fundraiser in Minneapolis. The president had traveled to Minnesota to garner support for his economic policies and raise money for his reelection.

MNI BOE PREVIEW - NOVEMBER 2023: On Hold

There is a unanimous expectation that the MPC will vote to keep rates unchanged at 5.25% at its November policy meeting. The MNI Markets team (as well as the majority of the sell-side) expect a 6-3 vote breakdown with Mann, Haskel and Greene continuing to vote for a 25bp hike and Cunliffe’s replacement Sarah Breeden likely voting with the other internal MPC members and preferring rates to remain on hold. Forward guidance is likely to remain unchanged.

NORGES BANK (MNI): Norges Bank Pauese; Dec Hike Likely But 'May' Hold

The Norges Bank left the policy rate on hold at 4.25% Thursday and while repeating that a December hike was likely it added that if the evidence grew that underlying inflation was falling, it could leave policy on hold. The Monetary Policy and Financial Stability Committee's decision -- with a full forecast round only due next month -- opens up a possibility of the policy rate peaking at 4.25%, with the guidance given a dovish twist from September's highlighting of a likely December hike.

ECB (MNI): ECB Rates at Good 'Cruising Altitude' - DNB's Knot

The ECB’s current level of interest rates are at a “good ‘cruising altitude’” Dutch central bank governor Klaas Knot said in a speech Thursday, adding that policymakers should “be a little patient and not raise rates too much to prevent choking off the economy,” although risks that high inflation could become entrenched remain.

FRANCE (BBG): Macron Flexes Protectionist Muscle to Shield Vulnerable Firms

Emmanuel Macron is beefing up France’s arsenal of strategic tools to protect vulnerable firms against foreign buyers with deep pockets, with a particular eye on the US and China. The government will soon set in stone tighter rules on takeovers by non-European Union investors, the Finance Ministry told Bloomberg. The threshold for triggering a review will be lowered and the number of protected areas extended to include critical raw materials, as well as French units of foreign companies.

CHINA (BBG): China’s 2024 Growth May Even Beat 2023, Ex-PBOC Adviser Says

China’s economy could expand at a faster pace next year than in 2023 even as big questions remain about the eventual return of investor confidence, according to a former central bank adviser. “My own sense is that the trend of growth potential at the moment is probably at around five or five-and-a-half” percent, Huang Yiping, a former member of the Monetary Policy Committee of the People’s Bank of China, told Bloomberg TV on Thursday. “If things do well next year, I think the growth can continue at the current pace and probably go up a little bit.”

JAPAN (BBG): Japan’s Kishida Unveils Stimulus Package as Support Sags

Japanese Prime Minister Fumio Kishida and his cabinet approved a larger-than-expected economic stimulus package that aims to boost growth and help households hit by inflation, as Kishida’s administration tries to shore up falling support. The cabinet approved measures that will be worth more than ¥17 trillion ($113 billion) including the impact from tax cuts and other costs. Around ¥13.1 trillion of spending will be funded through an extra budget, according to the cabinet office.

JAPAN (BBG): World’s Largest Pension Fund Has $4.5 Billion Quarter Loss

Japan’s state pension fund, the world’s largest, posted a loss of ¥683.2. billion ($4.5 billion) on total assets during the three months through September as its holdings of domestic debt had a record slump. The Government Pension Investment Fund lost 0.3% during the quarter, the fund said in Tokyo Thursday. Total assets rose slightly to ¥219.32 trillion due to a transfer of funds from the government’s account that manages its pension, according to a spokesperson.

MNI BOJ REVIEW - OCTOBER 2023: An Increase in YCC Flexibility

During the Bank of Japan's (BOJ) Monetary Policy Meeting (MPM) held on October 30-31, the widely expected decision to keep the policy rate at -0.1% was unanimously endorsed. However, the BOJ introduced a new level of flexibility to its yield curve control (YCC) by suspending the daily fixed rate operation on 10-year JGBs. The BOJ's decision to define the 1% upper YCC limit as a "reference" suggests the potential for it to slightly exceed this threshold.

TURKEY (BBG): Turkey Signals Tighter Policy With Inflation Seen Heading to 75%

Turkey’s central bank signaled it plans to tighten monetary policy further after lifting inflation forecasts for the next two years, with a peak expected next May at as high as 75%. Governor Hafize Gaye Erkan announced a new end-2023 estimate of 65%, up from a previous forecast 58%, and said price growth will finish next year at 36% in a revision from 33%. Speaking at an event in Ankara, Erkan said she expects disinflation from the second half of next year.

DATA

EUROZONE OCT FINAL MANUF PMI 43.1 (FLASH 43.0); SEP 43.4 (MNI)

GERMANY FINAL OCT MANUF PMI 40.8 (FLASH 40.7); SEP 39.6 (MNI)
GERMANY OCT UE RATE (SA) 5.8% (FCST 5.8%); SEP 5.7% (MNI)

FRANCE OCT FINAL MANUF PMI 42.8 (FLASH 42.6; SEP 44.2 (MNI)

ITALY DATA (MNI): Manufacturing Sector Remains Weak

• ITALY FINAL OCT MANUF PMI 44.9 (FCST46.3); SEP 46.8

Italy October manufacturing PMI was 44.9 (vs 46.3 cons; 46.8 prior) and signalled similar weak demand conditions to Spain. Key notes from the release are: "Both output and new orders fell for a seventh consecutive month and to steeper degrees compared to September". "Uncertainty and weak demand conditions were cited as the main reasons behind the latest downturn [in incoming business]".

SPAIN DATA (MNI): Further Manufacturing Deterioration

• SPAIN FINAL OCT MANUF PMI 45.1 (FCAST 47.0); SEP 47.7

Spain October manufacturing PMI was 45.1 (vs 47.0 cons; 47.7 prior),highlighting further deterioration in the Spanish manufacturing demand outlook, though indicates continued softening for core goods prices ahead. Key notes from the release are: The decline was "linked to concurrent declines in both output and new orders", with firms noting "market conditions were increasingly challenging, both at home and abroad (new export orders deteriorated markedly as well in October".

SWISS OCT CPI +0.1% M/M, +1.7% Y/Y (MNI)

FOREX: Greenback Carrying Bulk of Post-Fed Weakness

• The greenback is carrying the bulk of the post-Fed losses, and remains weaker against all others in G10 headed through to the NY crossover. The USD Index has shed around 0.75% from the week's highs, however the bearish engulfing candle pattern posted on Oct24 continues to weigh on EUR/USD. The 50-dma resistance for the pair sits ahead at 1.0639, a break above which is needed to ignite any more positive momentum.
• EUR/NOK trades back to flat having reversed a brief post-Norges Bank rate decision (kept rates unchanged at 4.25%, as expected) spike as markets retain the view that a December rate hike is most likely, despite a moderation in language pointing to a potential hold later this year should inflation moderate faster than expected.
• The Bank of England decision takes focus going forward, with the MPC seen keeping rates unchanged, with the main driving factor likely to be the vote breakdown. If there are less than three hawkish dissenters we could see a small dovish reaction in markets. If Dhingra votes for a cut, we could also see a small dovish reaction. Conversely if there is another 5-4 split this could see a hawkish market outcome (amplified even further if it was someone other than Breeden switching their voting intention).
• The weekly US jobless claims data, September factory orders and the final durable goods orders mark the data highlights for the day. BoE's Bailey holds a post-decision press conference, with speeches also scheduled from Fed's Paese and ECB's Schnabel.

BONDS: UK 2y Yield Plumbs New Multi-Month Low Pre-BoE

• Core EGBs are firmer headed into the NY crossover, buoyed by the QRA-inspired Treasury rally yesterday, and the supportive tone from the Fed decision, at which the Fed chair acknowledged the tightening of financial conditions and its follow through impact on monetary policy.
• The follow-through theme in Bund futures is evident in the show above the 130.00 handle overnight, which came amid heavy volumes: Bunds traded ~34k ahead of the cash open, with signs of strong activity across the ERZ3/ERH4 spread helping prop up participation. The spread was bought in 11.3k outright, having printed its lowest level since mid-June Yesterday.
• The UK curve sits lower, pressing the front-end to fresh multi-month lows. The 2y yield has slipped to 4.70%, the lowest level since June, as focus turns to the BoE decision at 1200GMT. Market reaction will likely hinge on the vote split among the MPC, with markets on watch for a potential minority vote for a rate cut as soon as today's decision. Nonetheless, markets expect a 6-3 vote for unchanged rates at 5.25% with largely unchanged guidance.
• The weekly US jobless claims data, September factory orders and the final durable goods orders mark the data highlights for the day. BoE's Bailey holds a post-decision press conference, with speeches also scheduled from Fed's Paese and ECB's Schnabel.

EQUITIES: E-Mini S&P Trades Close to Resistance at 20-Day EMA

Eurostoxx 50 futures are trading higher as the correction from recent lows extends. Price is through resistance at the 20-day EMA and this signals scope for a test of the 50-day EMA, at 4184.40. The broader trend condition is bearish, however, a break of the 50-day average would signal scope for a stronger bull cycle. This would open 4256.00, the Oct 12 high. On the downside, key support and the bear trigger lies at 4001.0, the Oct 27 low. The trend condition in S&P e-minis is bearish and this week’s move higher is considered corrective. The contract traded to a fresh cycle low last week. The recent breach of support at 4235.50, Oct 4 low and bear trigger, confirmed a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. MA studies are in a bear-mode position too. The focus is on 4100.00. Initial firm resistance is at 4276.29, the 20-day EMA.

• Japan's NIKKEI closed higher by 348.24 pts or +1.1% at 31949.89 and the TOPIX ended 11.71 pts higher or +0.51% at 2322.39.
• Elsewhere, in China the SHANGHAI closed lower by 13.67 pts or -0.45% at 3009.406 and the HANG SENG ended 128.81 pts higher or +0.75% at 17230.59.
• Across Europe, Germany's DAX trades higher by 170.09 pts or +1.14% at 15091.05, FTSE 100 higher by 77.18 pts or +1.05% at 7419.13, CAC 40 up 89.44 pts or +1.29% at 7018.9 and Euro Stoxx 50 up 51.58 pts or +1.26% at 4141.47.
• Dow Jones mini up 91 pts or +0.27% at 33443, S&P 500 mini up 19 pts or +0.45% at 4275, NASDAQ mini up 88.5 pts or +0.6% at 14833.

COMMODITIES: WTI Futures Extend Pullback from Oct 20 High Wednesday

WTI futures traded lower again Wednesday as the pullback from $89.85, the Oct 20 high, extends. The medium-term trend condition is bullish and the recent move lower still appears to be a correction. A resumption of gains would expose the bull trigger at $92.48, the Sep 28 high. Clearance of this hurdle would confirm a resumption of the medium-term uptrend. For bears, a move through $80.20, the Oct 6 low, would instead highlight a short-term top. The Gold trend condition is unchanged - the uptrend remains intact and a short-term pullback is considered corrective. 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, the May 15 high. Initial firm pivot support lies at $1928.9, the 50-day EMA. Clearance of this level is required to signal a short-term top.

• WTI Crude up $1.14 or +1.42% at $81.57
• Natural Gas down $0.04 or -1.14% at $3.452
• Gold spot up $4.39 or +0.22% at $1986.79
• Copper up $3.15 or +0.86% at $368.25
• Silver up $0.08 or +0.34% at $23.0247
• Platinum up $7.84 or +0.85% at $935.25