Source: Poundsterlinglive

Israel’s intelligence service planted explosives in several thousand pagers that Hezbollah had ordered from Taiwan, Reuters has reported in the wake of deadly pager explosions that killed nine in Lebanon earlier this week.

Among those injured in the Tuesday explosions was Iran’s envoy to Lebanon, which might prompt another threat from Iran to Israel in what would be the latest step in a long escalation dance and one more bullish factor for oil amid a scarcity of bullish factors.

According to Reuters sources who remained unnamed, “The Mossad injected a board inside of the device that has explosive material that receives a code. It's very hard to detect it through any means. Even with any device or scanner.”

Such a code was sent to 3,000 of the low-tech devices that Hezbollah uses for communication and those exploded simultaneously, the Reuters sources said, with one noting that Mossad had concealed up to 3 grams of explosive material in each pager.

“This would easily be the biggest counterintelligence failure that Hezbollah has had in decades,” a former U.S. deputy national intelligence officer for the Middle East told Reuters.

Following the attack, Lebanese authorities and Hezbollah itself blamed it on Israel, even before the information about the pagers emerged, and Hezbollah said it would retaliate. The Lebanese authorities noted that there were civilians among the victims.

“It sends a significant message to Hezbollah leadership that, ‘We can get you anywhere,’” Randa Slim, a director at the Middle East Institute think tank in Washington, told the Wall Street Journal. “And it very much affects morale.”

“The war on the border is no longer on the border—with this attack it has expanded into their homes and shopping places around Lebanon,” Slim also said.

Israel has already signaled it does not mind using forceful means to return people evacuated from the northern part of the country, which borders Lebanon, to their homes, to which end Hezbollah attacks in the area must be stopped.

Source: OILPRICE

UK inflation held at just above the Bank of England (BOE)’s 2 per cent target in August, leaving the door open to further interest-rate cuts later this year.

Consumer prices rose 2.2 per cent from a year earlier, the same pace as in July and undershooting the BOE’s forecast, the Office for National Statistics said on Sep 18. The reading was in line with the median expectation of economists surveyed by Bloomberg. Downward pressures from motor fuels were offset by an upward push from air fares.

The figures are likely to keep the BOE on track for a further loosening in policy later this year after it cut rates for the first time since the pandemic on Aug 1, citing easing underlying inflation.

Services inflation, a key gauge being watched closely by the BOE, rose to 5.6 per cent in August from 5.2 per cent in July. However, a pickup had been widely anticipated and is expected to prove temporary. Both services inflation and the headline rate are running below levels forecast by the BOE in August.

While policymakers are expected to leave rates unchanged at 5 per cent at their decision on Sep 19, market expectations of further easing have been mounting. Traders are pricing in cuts for both November and December with five more to follow in 2025.

The BOE decision this week will be announced a day after the Federal Reserve is expected to kick off its own easing cycle amid fears about the health of the US economy.

Source: Straitstimes

USD: We expect a dovish 25bp cut today

Today’s Fed rate decision (1900 BST) is as close as it gets. Markets have recently leaned narrowly in favour (65%-35% implied probability) of a 50bp cut rather than 25bp. Our full preview of the September FOMC explains why we called for 25bp last week. Admittedly, after recent media reports and the market pricing in a greater chance of 50bp, this is now an exceptionally close call.

We discussed in yesterday’s FX Daily how a 50bp cut may well be the consequence of the market itself having given the Fed the last push to a larger reduction via dovish repricing. You can easily see the key risk for the Fed here: Chair Jerome Powell would need to provide solid macro justifications for a half-point move to avoid sounding too sensitive to market rate expectations. Incidentally, Powell would need to show the 50bp cut isn’t a “panic” move: i.e. the Fed is not overly worried about recession and the jobs market. Failing to offer such reassurance can cause turmoil in equities.

As discussed, we see 25bp as slightly more likely. However, we believe the Fed would accompany a more cautious cut with dovish messaging. That could include a few members voting for 50bp and Powell opening the door to larger cuts ahead. Dot Plot rate projections will be a major communication channel. We expect the median value to be revised to signal a total of 75bp of easing this year and a further 125bp next year. That would fall short of the 115bp and 135bp priced in by the markets for 2024 and 2025, but if paired with a dovish press conference, the projection will hardly prevent any dovish deviations moving on.

A 25bp cut will likely lead to a dollar rally due to a mechanical shift higher in the OIS curve. However, if we are right with our expectations of a dovish press conference by Powell, the dollar may well struggle to hold on to gains beyond the very short-term.

EUR: Correction today, but rebound later

There are no major data releases in the eurozone today, and we expect EUR/USD to trade in tight ranges until the FOMC announcement this evening. The transmission channels from the Fed cut to EUR/USD are the USD short-term rate impact first, and the equity reaction second. If the Fed cuts by 50bp and markets read that as a panic move, USD weakness may be channelled via EUR, JPY and CHF, while higher-beta currencies (like NOK and SEK) may take a hit.

In our base case (dovish 25bp cut), EUR/USD moves back below 1.110, but gradually recovers ground in the coming days. By the time the next big things happen in markets (US PCE, US jobs report), EUR/USD may be back at 1.11-1.12.

On the ECB side, another hawkish-leaning Governing Council member, Gediminas Simkus, said that an October cut is unlikely. Markets are only pricing in 7bp, and we also expect the next reduction in December. That said, if the Fed cuts by 50bp today, there will be growing pressure on the ECB to frontload some easing as well.

GBP: Inflation confirms no cut tomorrow

UK inflation for August came in perfectly in line with consensus this morning. Headline CPI was unchanged at 2.2% YoY, while the core index accelerated from 3.3% to 3.6% as expected. The closely-monitored services inflation also accelerated in line with consensus, from 5.2% to 5.6%.

This morning’s numbers all but confirm that the Bank of England should keep rates on hold tomorrow. There is a residual 6bp of easing priced though for the meeting, suggesting a bit more room for short-dated Sonia swap rates to readjust higher, after falling throughout September.

The pound is trading on the front foot after CPI data and may find a bit more support tomorrow. That said, the FOMC event today may be a bigger event for GBP markets. A 25bp cut can send GBP/USD back below 1.3100, but if Powell is as dovish as we expect, Cable may well find good support before touching the recent 1.3015 lows.

CEE: More cuts discussion

The rather quiet atmosphere of this week should continue today in the CEE region. The calendar has nothing to offer but we have several speakers scheduled in the region today. The Czech National Bank (CNB) blackout period will start this afternoon ahead of next week's Wednesday's meeting. Potentially we may hear something from board members, however it seems that a 25bp rate cut to 4.25% is a safe call. The question remains what to expect next?

Our economists are on the hawkish side with a pause in the cutting cycle in December and February with 3.75% at the end of the first quarter while the market is pricing in 3.25%. Still, in the short term, we find market pricing justifiable given the weaker economic numbers. On the other hand, the terminal rate at 2.75% priced in goes against the CNB's main tone at the moment. We think this could be a source of support for the CZK next week. EUR/CZK bounced down from 25.150 yesterday, although this was our view, our reasons have not yet materialised and the rate differential remains rather lower. So the real trigger is more likely to be the CNB meeting next week.

In Hungary, the prime minister is scheduled to address the European Parliament today, which may trigger some headlines. EUR/HUF is almost fully back to pre-fiscal headlines levels from last week and although we still see some room to the downside, the main potential is gone. On the other hand, next week's National Bank of Hungary meeting is scheduled which will significantly hinge on the Fed's decision today in our view. However, our economists see a 25bp rate cut as the baseline, which, if the Fed is dovish, could promise more rate cuts in the future, leaving the HUF exposed.

Canada August CPI

US Vice President Kamala Harris understands natural gas prices will rise if fracking is banned, industry executives said on Tuesday, explaining their confidence that the Democratic candidate will not ban the production method if she becomes president.

Fracking, a major industry in battleground state Pennsylvania, has become a big issue in the presidential campaign. Harris opposed fracking as a US senator from California, but now, she says she would not ban it on federal lands as president.

"I think she is changing her views," Baker Hughes oil field services chief executive officer Lorenzo Simonelli said on the sidelines of the GasTech conference in Houston, when asked about Harris.

A spokesperson for Harris said she would not ban fracking, and referred to her comments in a recent debate where she said: "I was the tie-breaking vote on the Inflation Reduction Act, which opened new leases for fracking. My position is that we have got to invest in diverse sources of energy, so we reduce our reliance on foreign oil."

Harris' Republican rival, former president Donald Trump, supports fracking and says he believes Harris would seek to ban it.

The head of the largest US liquefied natural gas (LNG) exporter, in a separate conversation at GasTech, said Harris had to pivot to being more open to fracking, because natural gas prices would be much higher without it.

Cheniere Energy chief executive officer (CEO) Jack Fusco, whose Sabine Pass facility in Louisiana is the largest US LNG export plant, said he trusts Harris' support of fracking unless proven otherwise, and wants cooler heads to prevail on the energy transition debate.

Woodside CEO Meg O’Neill, whose Australian energy company is buying US LNG plant developer Tellurian, voiced the same rationale.

"If you stop fracking in the US, it will be devastating for the economy," O’Neill said. "I suspect the statements she made earlier were made without full understanding of the benefit and potential consequences."

Harris is locked in a tight race with Trump, and both are campaigning hard in Pennsylvania, one of the nation’s largest producers of natural gas.

Several executives at the conference also called on the Biden administration to make it easier for US companies to export LNG. The White House in January paused new LNG permits to consider the environmental impact.

"You gotta stop this crazy LNG pause from going forward," said ConocoPhillips CEO Ryan Lance. A debate over whether one is pro or against fracking "is not the right question", he added.

Source: Theedgemarkets