The OPEC+ alliance of oil-producing countries is not aiming for price control through its output cuts, but less volatility in the market, Saudi Arabia's Energy Minister has said.

The group wants to be "proactive" and "pre-emptive", Prince Abdulaziz bin Salman was quoted as saying at the World Petroleum Congress in Calgary, Alberta, on Monday.

He also said that the group's conduct was "benign" and no different from actions taken by global central banks to control inflation.

His remarks come as oil prices hover near $95 a barrel amid expectations of a large crude deficit in the fourth quarter and signs of economic recovery in China.

In its monthly oil market report last week, OPEC said it expected a supply deficit of 3.3 million barrels per day over the next three months.

The minister also said there was ongoing uncertainty regarding Chinese demand, European economic growth and interest rate actions.

China's post-coronavirus economic recovery lost momentum mainly as a result of a deepening property slump and weak consumer spending.

The country, which is the world's largest crude importer and second-largest economy, recently announced a string of stimulus measures, including halving the stamp duty on stock transactions and easing mortgage rates.

Earlier this month, Saudi Arabia and Russia said that they would extend supply cuts of a combined 1.3 million bpd to the end of the year.

As part of their voluntary cuts, the kingdom is extending its output reduction of 1 million bpd until December while Russia is rolling over its export cut of 300,000 bpd until the end of the year.

At its August meeting, OPEC+ agreed to stick to its current output policy.

The group has total production cuts in place of 3.66 million bpd, which includes a 2 million bpd reduction agreed on last year as well as voluntary cuts of 1.66 million bpd announced in April.

Brent crude has gained roughly a third in value since falling to a low of $71.84 a barrel in June this year.

Meanwhile, in a speech at the same event, Saudi Aramco's president and chief executive Amin Nasser said that the notion of peak oil demand is "wilting under scrutiny because it is mostly being driven by policies, rather than the proven combination of markets, competitive economics and technology".

"In oil, one widely publicised scenario calls for global demand to fall by more than 25 million bpd by 2030," he said.

"Yet oil consumption is projected to approach 103 million bpd in the second half of this year, which would be a record."

He also called for action to avert a more serious energy crisis and avoid a North-South transition divide.

"While much of the Global North is focusing on environmental sustainability, the priority for many in the Global South is economic survival," he said.

"Transition planning has not sufficiently recognised this clear need for distinctive solutions, and a widening divide is an inevitable result."

He called for an energy transition plan that is multi-source, multi-speed and multidimensional.

"The current transition shortcomings are already causing mass confusion across industries that produce and/or rely on energy," Mr Nasser said.

"Long-term planners and investors do not know which way to turn. It is increasing the risk of acute supply-demand imbalances in conventional energy, and therefore an even more serious energy crisis where countries and people, not just assets, are stranded."

He also called for a more realistic and robust energy transition plan that emphasises the continued deployment of new energy while recognising the need for conventional energy.

"We are talking about the complete transformation of a $100 trillion global economy today. One that is likely to roughly double in size by 2050, with close to an additional two billion energy consumers," Mr Nasser said.

"In short, the reinvention of our entire energy-based way of life in less than 30 years. Let us be inspired by that, but understand it means making history."

The Board considered both options but the case for on hold was clearly stronger. The Board is maintaining its options to hike again if inflation surprises to the upside.

The Minutes for the September meeting show that the Reserve Bank Board continued to consider two policy options.

The options are whether to hold the cash rate steady or to lift it by 0.25%.

As recently as June, the Board had described the final decision as "finely balanced". It is now describing the decision in terms of a clear winner: "in weighing up the two options, members agreed that the case to keep the cash rate target unchanged at this meeting was the stronger one." This choice of "stronger argument" has now been used since the July meeting when the Board first went on hold.

Since late last year the Board has considered its decision in the context of two issues. Firstly, to raise the cash rate due to concerns about taking more time than planned to return inflation to the target; or secondly, to hold steady because policy had already been tightened substantially, there were signs that the economy was slowing, conditions in the labour market were easing and inflation was coming down.

Whereas the former argument prevailed in May and June, the latter argument has now prevailed for the last three months and looks like being sustained for the remainder of the cycle.

The latter arguments are clearly to the fore in the September Minutes and it seems likely that the discussion around raising rates would have been quite short.

The Minutes also address the argument that Australia's cash rate is too low relative to other countries: "Members noted that the average outstanding mortgage rate in Australia was now higher than in several other peer economies, despite the policy rate in Australia being somewhat lower; this reflects the higher share of variable-rate mortgages in Australia and shorter maturity of fixed rate loans." This is a clear rebuttal to those analysts that argue that the RBA's cash rate must rise to align with other developed countries, including the US, where the rate is 5.375% – well above Australia's 4.1%.

But despite these clear arguments, the Board still concludes that "some further tightening in policy may be required should inflation prove more persistent than expected." This statement compares with August: "members agreed that it was possible that some further tightening of monetary policy might be required to ensure that inflation returns to target in a reasonable timeframe."

That approach leaves the Board with options in the event of some unexpected and sustained lift in inflation, certainly putting the Q3 CPI report right to the fore. The Monthly CPI Indicators will also play a role in the decision but are unlikely to trigger a rate hike without confirmation from the quarterly report.

Based on our own forecasts, and the clear tone of the Minutes, we expect that the "hurdle" for an inflation induced rate hike at the November meeting is quite high.

It is also advantageous of the Board to maintain the tightening option to support the AUD. The sharp deterioration in the AUD over the last month is already putting some pressure on domestic fuel prices and further falls in AUD would be unhelpful to the Board.

Westpac maintains its call that the cash rate will remain on hold until the easing cycle can begin from the August meeting next year.

It is interesting that markets currently have around a 40% chance of another rate hike in this cycle and have now delayed their timing of the first cut to well beyond our August target.

Investor expectations for the Bank of England have come a long way since the start of July. Back then markets were pricing four more rate hikes, in addition to the one in August. Now it's less than two, and investors are toying with the idea of a pause from the Bank of England on Thursday. Investors are pricing a 20% chance of a 'no change' decision, and that follows a series of comments from BoE officials that appear to be laying the ground for a pause.

The Bank has made it abundantly clear that it thinks keeping rates elevated for a long period of time is now more important than how high they peak. Back in August, the BoE included a new line in its policy statement, saying that rates needed to stay "sufficiently high for sufficiently long". The Bank is now also formally describing policy as "restrictive". That may be a statement of the obvious with rates above 5%, but it's nevertheless significant that policymakers are now making a point of saying this.

To hammer home the message, Chief Economist Huw Pill said recently that he'd prefer a 'Table Mountain' profile for rates over a 'Matterhorn', or in other words a steadier path with a long period of no change, over a sharper pace of rate hikes and a swifter descent from the peak.

This is a simple reflection of the UK mortgage market, where roughly 85% of lending is fixed, albeit for a relatively short amount of time. The average rate being paid on outstanding mortgages has risen from 2% to 3% so far, and we expect that to rise above 4% next year even if the BoE doesn't hike rates any further.

That's why the Bank is making it its mission to convince investors that rates need to stay high for a long time, and any further rate hikes should be seen as a tool to meeting this end. It does feel like the Bank is actively trying to set the stage for a pause.

Could that happen this week? We wouldn't totally rule it out. Policymakers will have had a keen eye on the Federal Reserve, which has succeeded in pushing back rate cut expectations with the so-called "skip strategy". By drawing out its tightening cycle by pausing at every other meeting, the Fed has managed to keep the conversation about how many hikes we have left, rather than how long it will take before we get rate cuts. A similar strategy, whereby the BoE pauses in September but hints strongly that it could hike again in November, could be tempting for policymakers this week.

None of that is our base case though, and we're expecting one final hike on Thursday.

The reality is that both wage growth and services inflation, the two key metrics upon which the BoE is basing policy, are higher than forecast back in August. We also still have one round of CPI data due the day before the meeting, and we expect services inflation to nudge slightly higher again.

Still, look closely enough and there are signs that wage growth may be starting to ease. The jobs market is clearly cooling now too, while a range of surveys suggest that fewer firms are raising prices, not least because lower energy prices are taking pressure off service sector costs. We expect this to show more readily in the services CPI numbers over the next few months.

That means the Bank can probably afford to end its tightening cycle this week. Assuming though that the fall in services inflation and wage growth is pretty gradual, we think a rate cut is unlikely until at least the second quarter of next year.

The other decision the Bank will be making this week is on quantitative tightening as it decides whether to ramp up the pace over the next 12 months. The stock of gilts due to mature over the next year is roughly £10bn higher than over the last. The Bank has also completed its unwind of corporate bonds over the past year, and the implication is that it might boost gilt sales over the next 12 months to compensate. We therefore think the Bank will plan to reduce its gilt holdings by roughly £100bn over the next 12 months, up from £80bn over the last.

On a trade-weighted basis, sterling has had a good year. It is still up over 5% year-to-date, although is now around 2% off the highs seen in July. Driving a large portion of that trend has been expected Bank of England rate policy. Most notably the recent repricing in the BoE terminal rate towards the 5.60% area from a peak near 6.50% has explained a large part of sterling's softness over the last couple of months.

As policy tightening cycles in the G10 (ex-Japan) policy space reach their conclusions, one could argue that 8-10bp adjustments in money market curves will contribute only noise not trend to FX markets. And certainly, an as-expected 25bp BoE rate hike Thursday amid some hawkish rhetoric looks unlikely to be a game-changer for sterling.

That said, a surprise pause would have a big impact on sterling. And while the BoE may try to market a pause like a Fed 'skip', the market would doubt that the BoE would be in a position to raise rates later in the year. The FX options market prices a 95bp GBP/USD range for the 24-hour event risk covering the Fed and BoE meetings this week. A BoE pause could well push cable below the May lows just above 1.2300.

Perhaps surprising to some has been sterling underperforming the euro too - despite very poor eurozone confidence figures and the European Central Bank pointing to the end of the tightening cycle. Again this looks largely down to the greater downside for expected UK interest rates - a factor which should weigh on sterling into 2024. Our year-end 2023 EUR/GBP forecast remains 0.8800.

The three Detroit automakers and the United Auto Workers (UAW) union appear to be far from ending the strike that has now entered its fourth day. It is clear that American car manufacturers, Ford (F), GM (GM), and Stellantis (STLA) will be having higher costs once a deal is reached. There has been some relief that onset of the strike won’t be as bad as initially thought. The longer the hold out, the greater the impact on the economy.

These negotiations might last a while as many autoworkers haven’t had a meaningful raise in over 15 years. The union is looking for wage increases of 36% over the next four years, which matches what chief executives have received. In addition to wage increases, they are also looking to bring back pensions. Over the weekend, the UAW rejected a 20% offer from both Ford and GM, while Stellantis proposed a 21% increase.

The longer this strike lasts, the greater the impact on the economy, which will eventually impact the FX market. An extended strike that lasts more than a couple weeks, will start to rattle markets. It seems, Wall Street has priced in a short strike already, but the risk that this lasts more than a couple weeks is growing.

The dollar-yen trade remains focused on the BOJ commitment to an ultra-easy monetary stance and US growth exceptionalism and rising risks of more Fed tightening. If this week’s central bank actions by the Fed and BOJ don’t lead to any surprises, the bullish trend could remain intact. Unless growth prospects start to take a turn for the worse in the US, the dollar might remain supported over the short-term.

Key upside targets the 148.25, while downside eyes the 147.00 region. Major support remains at the 144 level, while upside targets remain the 150-price barrier.

We believe the incoming economic news will dissuade the ECB from raising rates further in the months ahead. There are already some hints of a slowing in underlying inflation trends, and given indications of slower wage growth and a sharp deceleration in economic growth, we expect that both wage and price inflation will continue to move in a favorable direction in the months ahead.

That said, we expect ECB policymakers will want to see inflation much closer to their 2% target before considering rate cuts. We do not forecast an initial 25 bps Deposit Rate cut until the June 2024 announcement. We also expect only a gradual pace of rate cuts over the second half of next year, and see the Deposit Rate ending 2024 at 2.75%.

Given a likely end to ECB rate hikes and an underwhelming Eurozone economy, we are becoming less constructive on the euro than previously. We believe the risks for the euro remain tilted to the downside for the balance of 2023, while we also see risks as tilted to a more gradual euro rebound in 2024 than our current forecast.

The European Central Bank (ECB) delivered its tenth straight interest rate increase at its monetary policy announcement this week, raising its Deposit Rate by 25 bps to a record high 4.00%. In raising interest rates, the ECB said inflation is declining but is still expected to remain too high for too long, prompting ECB policymakers to tighten policy further even as the economy appears to be slowing sharply. Indeed, apart from the rate hike and the concerns about elevated inflation, we perceived most other elements of the ECB's announcement as dovish in nature:

The ECB lowered their GDP growth forecasts significantly, to 0.7% for 2023, 1.0% for 2024, and 1.5% for 2025.

The ECB sees higher headline CPI inflation for 2023 and 2024, at 5.6% and 3.2% respectively, but revised its headline inflation forecast for 2025 lower to 2.1%. CPI inflation forecasts excluding energy and food have been revised slightly lower, to 5.1% for 2023, 2.9% for 2024 and 2.2% for 2025.

Perhaps most importantly, the ECB gave its clearest indication that rate hikes might have reached an end. The ECB said:

“Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”

The comments around that declaration were somewhat nuanced. In the post-meeting press conference, ECB President Lagarde said “we cannot say that we are now at the peak.” In subsequent comments, however, ECB policymaker de Guindos said we “believe that with the latest increase the level of interest rates, if kept there for some time, may be enough for inflation to converge to the 2% target.” ECB policymaker Muller said central bankers had “made it clear that, to the best of our knowledge, no further interest rate hikes are expected in the coming months.”

Clearly the bar for further interest rate increases has now moved higher, and we believe the incoming economic news will dissuade the ECB from raising rates further at upcoming meetings. We anticipate more progress on the inflation front on the months ahead, including a deceleration in the core and services inflation measures that ECB policymakers are focused on. The latest inflation readings have already hinted at some deceleration in underlying inflation trends. Based on seasonally adjusted figures published by Eurostat for August, CPI inflation ex food and energy rose at a 4.2% three-month annualized pace, while services inflation rose at a 4.3% three-month annualized pace.

Moreover, there are now some signs of a slowing in wage growth, as growth in the Eurozone hourly labor cost index slowed to 4.5% year-over-year in Q2, from 5.2% in Q1. Focusing on the wages and salaries component of those hourly labor costs growth also slowed, to 4.6% in Q2 from 4.9% in Q1. The slowing in labor costs points to a further deceleration in underlying CPI inflation trends over time and, indeed, the consensus forecast is for Eurozone headline and core inflation to slow to a 3.0%-3.5% year-over-year range by early 2024. So long as wage and price inflation continue to trend in a favorable direction, which is our expectation, that should be enough for the ECB to keep its Deposit Rate on hold at 4.00% at its upcoming monetary policy meetings.

In addition to progress on the inflation front, there is growing evidence of a sharply decelerating Eurozone economy. Following declines over the past several months, the Eurozone services and manufacturing PMIs have both returned to contraction territory. We currently forecast the Eurozone economy to come to a standstill during the second half of this year, and anticipate zero GDP growth in both the third and fourth quarters of 2023. That said, the risks are clearly tilted towards a renewed contraction, especially with Eurozone money growth having turned modestly negative and with private sector loan growth also decelerating sharply. We also note that the slowdown in Eurozone economic activity has been broad-based, with growth in both consumer spending and investment barely in positive territory on a year-over-year basis in Q2. As a result, while Eurozone Q2 GDP grew a meager 0.5% year-over-year in Q2, we estimate that underlying final domestic demand grew by an even more tepid 0.3%.

This underwhelming growth outlook for the Eurozone will likely contribute to a modest rise in unemployment, as well as reducing demand-based inflation pressures. That will, in our view, reinforce the trend for slower wage and price inflation over time, and push underlying inflation pressures closer to the ECB's 2% inflation target. That said, the consensus forecast is that it might not be until Q2-2024 that both Eurozone headline and core inflation fall to 3.0% or below, and it might not be until Q4-2024 that headline and core inflation fall 2.5% or below. Even with an underwhelming growth outlook and inflation trends moving in a favorable direction, we expect the ECB will be cautious about reducing interest rates until inflation is much closer to its target. As a result we do not expect an initial 25 bps rate cut until June 2024 meeting, which would lower the Deposit Rate to 3.75%. Moreover, we expect the ECB to reduce rates at a gradual 25 bps per meeting pace through the second half of next year, which would see the Deposit Rate end 2024 at 2.75%.

Given the likely end to ECB rate hikes and underwhelming Eurozone growth performance, the risks to our euro forecast, which envisaged a low around $1.0600 during Q4-2023, are clearly—and perhaps significantly—tilted to downside. Our forecast also envisages a recovery in the euro to around $1.1100 by Q4-2024, although that rebound has much more to do with a turn in U.S. economic fortunes than any emphatic recovery in the Eurozone economy. We expect that mild U.S. recession and relatively pronounced Federal Reserve rate cuts should see the U.S. dollar weaken versus the euro. However, if the U.S. economy continues to display surprising resilience and the Fed adopts a more gradual approach to monetary easing, we also view the risks as tilted towards a more gradual euro rebound than our current outlook.

1. UAW reportedly cuts wage raise demands to 36%.

2. McCarthy's stopgap funding proposal is opposed by hard-line members of his party, and the risk of a U.S. government shutdown remains high.

3. U.S. homebuilder sentiment falls to a five-month low.

4. Yellen doesn't see any signs that the U.S. economy is at risk of a downturn.

5. Timiraos says the soft landing goal faces four threats.

The United Auto Workers (UAW) said that it was still waiting for new counter-proposals from Detroit's Big Three automakers on Monday. September 16, Stellantis updated the progress of the offer, which the media referred to as a "new offer." According to a person familiar with the contract negotiations, the latest offer on the table was made by the UAW. Stellantis said on Monday it had resumed talks. The company said it would offer a nearly 21% raise and was committed to finding a solution to problems at its Illinois plant. In addition, Ford and General Motors have both offered 20% raises. The UAW declined to give details of its latest offer, but the companies said the UAW had reduced the wage raise demand from 40% to 36%.

U.S. House of Representatives Speaker Kevin McCarthy's latest proposal to avert a U.S. government shutdown has faced stiff opposition from ultra-conservative Republicans whose support is indispensable to the passage of the proposal. McCarthy was struggling on Monday to salvage the plan he announced on Sunday night. Under the plan, the budgets of domestic government agencies would be cut by 8% and the construction of a wall on the southern border would resume. At least 10 hard-line lawmakers have already announced their opposition to the plan. Conservative critics have called for changes, including deeper spending cuts, stopping funding for investigations into former President Trump and blocking spending on previous Ukraine aid packages. Those changes are likely to draw opposition from moderate Republicans. Facing unanimous opposition from Democrats, McCarthy could lose by up to four Republican votes. "It's frustrating. I don't know what the problem is here," Moderate California Republican Mike Garcia said on Monday. "We need to give our leadership a package to negotiate with the Senate."

U.S. homebuilder sentiment fell to a five-month low in September as rising mortgage rates continued to deter many potential buyers. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) slipped 5 points to 45, the largest two-month decline in nearly a year, following a 6-point decline in August.

High mortgage rates are clearly hurting builder confidence and consumer demand as more buyers are choosing to put off purchasing a home until long-term interest rates fall. Many builders have been offering incentives to attract buyers. According to the NAHB, nearly one-third (the highest share since late 2022) of respondents said they cut prices to boost sales. The share of builders offering various types of incentives rose to a four-month high. All indices tracked by NAHB fell in September. Both current and expected sales measures fell to multi-month lows. A gauge of prospective buyer traffic dropped to the lowest since February.

I don't see any signs that the U.S. economy is at risk of a downturn, U.S. Treasury Secretary Janet Yellen said on Monday. It is still in a "healthy" state. Industrial output is rising, and inflation is falling.

Yellen thinks that the U.S. labor market is good and strong, and business demand for workers is high. At the same time, she acknowledged that the labor market has softened and is cooling. But she noted that the U.S. labor market has not seen large-scale layoffs and job openings remain high, suggesting that the job market is healthy, just not as hot as it has been.

When asked about the U.S. auto strike, Yellen said the Biden administration expects the two sides to be negotiating against the clock to get a settlement. It's too early to tell what impact the event might have on the economy, and it will depend much on how long the strike lasts and who exactly is affected.

Although the possibility of achieving a soft landing has risen, but it is by no means easy, and the Federal Reserve is still skating on thin ice, written by Nick Timiraos, chief economics correspondent for The Wall Street Journal responsible for covering the Federal Reserve, on Monday.

On the eve of the 1990, 2001, and 2007 recessions, many Wall Street economists claimed that the U.S. was on the verge of a soft landing, where interest rates would be raised to curb inflation without triggering a recession.

Similarly, signs of slowing inflation and a cooling labor market this summer have made economists and Fed officials more optimistic that this tough goal could be achieved.

However, the goal faces four threats: the Fed holds rates too high for too long, economic growth accelerates, energy prices rise or a financial crisis erupts.

UTC+8 20:30 European Central Bank executive member Elderson delivers a speech

UTC+8 20:30 Canada CPI (Aug)