September 25th Financial News

Daily News

Summary:

U.S. Republicans discuss revising a temporary funding bill, with a duration of 14 to 60 days extended from 30 days; Fed's Bowman favors raising rates again, probably more than once; Biden's disapproval rating hits the highest level during his term...

[Quick Facts]

1. Biden urges Republicans to live up to the budget deal.

2. French center-right keeps majority in Senate re-election.

3. U.S. poll: Biden's disapproval rating hits the highest level during his term.

4. Britain plans to lower inheritance tax.

5. U.S. Republicans discuss revising a temporary funding bill, with a duration of 14 to 60 days extended from 30 days.

6. Collins expects rates to stay higher and for longer than previous projections.

7. Fed's Bowman favors raising rates again, probably more than once.

8. Fed's Daly says more patience is needed for the policy path.

[News Details]

Biden urges Republicans to live up to the budget deal

The deal reached between congressional Republican leadership and the administration in May would have funded essential domestic and national security priorities and still cut the budget deficit by $1 trillion over the next 10 years, U.S. President Joe Biden said in a speech on Saturday. But now there's a small group of extreme Republicans who don't want to honor the deal.

A shutdown would harm food safety, cancer research, and children's programs, Biden said. Republicans need to take immediate steps to prevent a government shutdown ahead of a Sept. 30 deadline.

French center-right keeps majority in Senate re-election

On Sept. 24, local time, the French Senate (the upper house of the French Parliament) re-elected about half of its seats. According to results announced in each constituency, the center-right camp maintains its majority status in the Senate. Prior to the election, the right-wing Republican party was the top party in the Senate, and together with the center, it formed the majority in the Senate. The results of the reelection "reinforce the senatorial majority of the right and the center." The left-wing party in the Senate re-election gained more seats, the far-right party returned to the Senate.

U.S. poll: Biden's disapproval rating hits the highest level during his term

NBC News released the results of an opinion poll, in which 56% of respondents, the highest level during Biden's term, said they did not support Biden's re-election to the presidency, according to "The Hill" reported on Sept. 24 local time. In addition, the survey results showed that Biden's approval rate was 41%, falling from previous figures. Among them, the approval rate of voters aged 18 to 24 was 46%, Latino voters 43%, and independent voters 36%.

Britain plans to lower inheritance tax

British Prime Minister Rishi Sunak plans to cut the country's inheritance tax in an effort to win support ahead of the next general election, the Times reported. Negotiations over the tax are taking place at the highest levels of government, and Sunak could announce the plan before next month's Conservative Party conference. The U.K. currently carries out an inheritance tax rate of 40%, with inheritance tax being introduced on the total value of an individual's estate exceeding 325,000 pounds. The main residence will also receive an additional £175,000 tax-free allowance if the estate passes to children or grandchildren.

U.S. Republicans discuss revising a temporary funding bill, with a duration of 14 to 60 days extended from 30 days

Rep. Garret Graves, an ally of U.S. House Speaker Kevin McCarthy, said Republicans were considering a temporary funding bill with a duration of 14 to 60 days. House Republicans are set to advance four appropriations bills next week, but with just seven days until government funding runs out, lawmakers need to pass a short-term measure to avoid a government shutdown.

This came after Republicans had introduced a 31-day continuing resolution that would cut domestic spending and include a border bill, which was partially opposed. Now, House Republicans are racing to draft a new continuing resolution to gain enough support this week. The revised stopgap bill under discussion would temporarily cut domestic spending by 27 percent, compared to the initial package that would have cut it by 8 percent; it includes an immigration and border security bill and creates a debt commission to study entitlement cuts.

Collins expects rates to stay higher and for longer than previous projections

Boston Fed President Susan Collins said in a speech on Sept. 22 that inflation has moderated, but progress has been uneven, and more time is needed to be sure price gains are on a steady downward path. Recent inflation data is encouraging, but it is "too early" to declare victory, core inflation excluding the cost of housing is still very high.

It is expected that interest rates may have to remain higher than previously forecast for a longer period of time, and further policy tightening cannot be ruled out.

There is uncertainty about the economic outlook and Fed officials need to be patient as they assess economic data to formulate their next move.

The road to a soft landing has been widened, and the Fed's policy "is in a favorable position" to achieve a decline in inflation at the same time to avoid recession.

Fed's Bowman favors raising rates again, probably more than one

Although good progress has been made in reducing inflation, but rising energy costs brings risks to achieving the inflation target, said Fed Governor Michelle Bowman in a speech. I see a continuing risk that energy prices could rise further and reverse the inflationary progress achieved in recent months. The battle against inflation is expected to proceed slowly, so further policy tightening may be needed.

If inflation is too high, it may just be appropriate for the FOMC to continue raising rates. After all, there is no preset model for monetary policy.

Fed's Daly says more patience is needed for policy path

We are closer to the destination, but it is too early to declare victory in the fight against inflation, said San Francisco Fed President Mary C. Daly in a speech on Sept. 22, adding that we need to slow down and collect information to determine whether it is necessary to take more tightening measures. Patience is a prudent strategy.

There is no sign that inflation expectations are rising and there is more confidence in a soft landing. The economy is proving that the risk of stagflation is less important, and we will see if higher energy prices will push up short-term inflation expectations.

[Focus of the Day]

UTC+8 15:00 ECB Governing Councilor Villeroy delivers a speech

UTC+8 21:00 European Central Bank President Christine Lagarde makes an introductory statement at a hearing of the European Parliament's Economic and Monetary Affairs Committee

UTC+8 06:00 Next Day: Minneapolis Fed President Kashkari delivers a speech

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FXOpen

Forex

Central Bank

Economic

The USD/CAD pair consolidates its recent gains below the 1.3500 barrier during the early Asian session on Monday. The weakening of the U.S. Dollar (USD) and a decline in the U.S. Treasury bond yields weigh on the pair. As of writing, USD/CAD is trading around 1.3476, losing 0.05% on the day.

Statistics Canada revealed on Friday that Canadian Retail Sales for July rose by 0.3% from the 0.1% in the previous reading, below the market consensus of 0.4%. While, the Core Retail Sales climbed 1.0% from a 0.7% drop in the previous reading, beating the market expectation of 0.5%. Additionally, a rally in oil prices underpins the commodity-linked Loonie and might cap the upside for the USD/CAD pair as the country is the leading oil exporter to the United States.

On the other hand, Presidents of the Federal Reserve Banks of Boston and San Francisco, Susan Collins and Mary Daly, emphasized that although inflation is cooling down. However, further rate hikes would be necessary. That said, the higher-for-longer rate narrative has propelled the U.S. Dollar against its rivals and might act as a tailwind for the USD/CAD pair.

On Friday, the U.S. S&P Global Manufacturing PMI improved to 48.9 in September from 47.9 in August, indicating an ongoing contraction in the manufacturing sector's business activity. Meanwhile, the Services PMI fell to 50.2 from 50.5 in the previous month. Finally, the Composite PMI dropped to 50.1, down marginally from 50.2 in August.

Looking ahead, market participants will keep an eye on the Canadian Gross Domestic Product (GDP) for July due on Friday. The key event this week will be the U.S. Core Personal Consumption Expenditure (PCE) Price Index, the Fed's preferred measure of consumer inflation. The annual figure is expected to drop from 4.2% to 3.9%. These figures could give a clear direction to the USD/CAD pair.

To stay updated on all economic events of today, please check out our Economic calendar

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Owen Li

Commodity

Energy

Energy - Speculative appetite grows

The oil market has held relatively steady in recent days with tightness in the physical market coupled with Russia's recent export ban on diesel and gasoline offset by a fairly hawkish FOMC meeting last week. As a result, Brent continues to hold above US$93/bbl. Speculators continue to become more constructive towards the market with the speculative net long in ICE Brent growing by 17,904 lots over the last reporting week to 265,531 lots as of last Tuesday. This is the largest net long speculators have held since March, and the increase over the week was predominantly driven by short covering. Similarly, speculators increased their net long in NYMEX WTI by 15,084 lots over the reporting week to 294,396 lots - the largest position held since February last year.

However, speculators cut their net long in ICE gasoil, which fell by 6,940 lots over the week to 59,359 lots as of last Tuesday. The current net long is likely somewhat larger than this, given the move seen in the gasoil market following Russia's ban on diesel and gasoline exports. As we mentioned in our note last week, while the ban only reinforces our supportive view on middle distillates, we do not believe it will remain in place for long, given the domestic storage constraints that will be soon faced by not allowing roughly 1MMbbls/d of diesel exports.

The latest data from Baker Hughes shows that the US oil rig count fell by 8 over the last week to 507. This is the first weekly decline in 3 weeks and sees a resumption in the fall we have seen for much of this year. The number of active oil rigs has fallen by 114 rigs since the start of the year. The fall in rig count this year is what has given OPEC+ the confidence to cut output without having to worry too much about losing market share to non-OPEC producers.

European natural gas prices managed to settle more than 9% higher over the course of last week. This is despite strike action at Australian LNG facilities coming to an end, along with Norwegian gas flows continuing to recover as capacity at the Troll field returns following maintenance. With EU storage almost 95% full and supply risks subsiding, we would expect to see some downward pressure on the front end of the curve.

Metals – Exchange inventories decline in China

Recent data from the Shanghai Futures Exchange (ShFE) shows that weekly inventories for all base metals fell over the last week. Copper stocks fell by 10,981 tonnes over the week to 54,165 tonnes, aluminium fell 14,377 tonnes to 90,293 tonnes, while nickel inventories declined by 11.8% WoW to 4,900 tonnes.

The latest LME data shows that total on-warrant stocks for aluminium reported outflows of 26,475 tonnes - the largest daily decline since 18 August. The majority of the outflows were reported in Gwangyang, South Korea and Port Klang, Malaysia warehouses. Meanwhile, cancelled warrants for aluminium rose by 25,225 tonnes for a second straight session to 277,625 tonnes at the end of last week, signalling potential further outflows.

The latest positioning data from the CFTC shows that managed money net longs in COMEX gold increased by 16,843 lots over the last week to 66,639 lots as of 19 September. The move higher was predominantly driven by short covering with the gross short falling by 11,419 lots. Meanwhile, speculators increased their net short in COMEX copper by 2,068 lots to 5,836 lots.

Agriculture–Ukraine's grain harvest grows

The latest data from Ukraine's Agriculture Ministry show that the domestic grain harvest for the season rose 14% year-on-year to 29.8mt as of 22 September. The Ministry said that the corn crop stood at 182.5kt (twice as much as the previous season), while the wheat harvest rose 16% YoY to 22.2mt. However, Ukraine is having difficulty in exporting this supply following the suspension of the Black Sea Grain Initiative. In a separate data release, Ukraine's Agriculture Ministry reported that total grain exports for the season fell 17% YoY to 6mt as of 22 September. These shipments include 2.5mt (-39% YoY) of corn and 2.9mt (-19% YoY) of wheat.

China is planning to release 1.3mt of sugar from its reserves, primarily to increase domestic supplies and stabilise prices. Extreme weather conditions have reduced domestic output, and this has come at a time of high global prices.

The latest CFTC data shows that money managers increased their net short in CBOT corn by 9,906 lots to 144,815 lots as of 19 September. Meanwhile, speculators reduced their net long in CBOT soybeans by 27,983 lots to 45,832 lots. The move was fueled by a drop in gross longs. Finally, speculators increased their net short in CBOT wheat by 12,666 lots to 96,805 lots.

Source: ING

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Warren Takunda

Economic

Traders' Opinions

United States

PCE Price Index: The focus will be on the Personal Consumption Expenditures (PCE) Price Index, with a keen eye on core PCE prices, which are expected to rise by 0.2% in August, maintaining July's pace. The annual rate is projected to ease to 3.8%, offering insights into inflation trends.

Personal Income and Spending: Data for August is expected to show a 0.5% increase in consumer spending and a 0.4% gain in income, reflecting the health of the U.S. economy.

Durable Goods Orders: August's durable goods orders figures will provide insights into manufacturing and economic activity.

Q2 GDP Growth Rate: The final reading of the Q2 GDP growth rate will be released, offering a comprehensive view of the U.S. economy's performance.

Housing Market: Data on Case-Shiller home prices and new and pending home sales figures will provide insights into the housing market, a critical driver of the U.S. economy.

Consumer Sentiment: The Michigan consumer sentiment index for September will offer insights into consumer outlooks and spending intentions.

Wholesale Inventories: Advance estimates of wholesale inventories will be published, shedding light on inventory dynamics.

Goods Trade Balance: The goods trade balance figures will be closely watched for their implications on international trade.

Consumer Confidence: The Conference Board's consumer confidence data will be released, offering insights into consumer sentiment.

Economic Indices: The Chicago Fed National Activity Index and the Dallas Fed Manufacturing Index are scheduled, providing comprehensive insights into economic activity.

Canada

Monthly GDP Figures: Canada will release its monthly GDP figures, reflecting economic performance.

Mexico

Unemployment and Foreign Trade Data: Updates on Mexico's unemployment and foreign trade data will provide insights into the country's economic landscape.

Europe

Flash CPI Report: Eurozone, Germany, France, Italy, and Spain will release their flash CPI reports, offering insights into inflation trends.

Business and Consumer Sentiment: Germany's Ifo Business Climate indicator and GfK Consumer Climate Indicator will provide insights into economic sentiment. German retail sales figures will also be watched.

Other Data: Other data to follow includes the Euro Area's business survey, Germany's unemployment rate, Italy's consumer and business survey, France's jobless data and consumer morale, Switzerland's KOF Leading indicators, and Turkey's business confidence.

United Kingdom

Second-Quarter GDP Growth: The United Kingdom will publish the final estimate of second-quarter GDP growth, providing insights into economic performance.

Economic Indicators: Other data includes the current account, Bank of England's monetary indicators, CBI distributive trades, and Nationwide house price index, offering insights into various aspects of the UK economy.

Asia

Bank of Japan Minutes

Minutes from the Bank of Japan's latest policy meeting will provide insights into potential shifts in monetary policy.

Japan

Data from Japan includes industrial production, retail sales, and the unemployment rate for August, offering insights into the nation's economic health.

India

India will focus on the current account for the second quarter, reflecting trade dynamics.

South Korea

South Korea will release business and consumer confidence figures for September, offering insights into sentiment.

Bank of Thailand

The Bank of Thailand's monetary policy decision will provide insights into the central bank's stance.

Singapore

Singapore's inflation rate is expected to ease, reflecting price stability.

Australia

Australia will report the monthly inflation rate, retail sales data, and credit figures, offering insights into economic trends.

New Zealand

New Zealand will release forward-looking confidence indicators, offering insights into economic sentiment.

To stay updated on all economic events of today, please check out our Economic calendar

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Chandan Gupta

Forex

Traders' Opinions

During Thursday's trading session, USD/JPY showed notable volatility.

This chaos is not entirely unexpected, given the Bank of Japan's ongoing efforts to influence market dynamics.

The Bank of Japan is the next among the central banks scheduled to announce its interest rate decision this week.

Given the Japanese government's concerns about the devaluation of the yen, it is entirely conceivable that they will take steps to change the trajectory of the currency pair.

Technical Analysis

According to today's chart below, the general trend of the USD/JPY currency pair is still bullish.

The opportunity to move towards the 150.

00 psychological resistance level is present as long as the divergence between the US Federal Reserve Bank and the Bank of Japan with negative interest rates persists.

We must be wary of Japan's impending intervention in the market to avoid a further decline in the price of the Japanese yen.

If this happens, the dollar/yen pair could be heavily sold.

A move below the 145.00 level is a break in the overall uptrend.

Today, the currency pair will react to the announcement of the US economic data results, which will be dominated by weekly jobless claims, the Philadelphia industrial index and existing home sales.in the United States.

Tomorrow will take place the most important event for the Japanese yen, where the Bank of Japan will announce an update to its monetary policy.

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Samantha Luan

Central Bank

Economic

Bond

Asia kicks off the last week of the quarter on Monday, with markets badly bruised by the surge in U.S. bond yields following the Federal Reserve's hawkish pause last week and investors looking to get through the week without any further whiplash.

They will be hoping for some sort of bounce, even if it's only of the dead cat variety, from the most turbulent week since the U.S. regional banking shock in March.

This may hinge largely on whether the U.S. bond market regains its footing. Benchmark two- and 10-year Treasury yields are the highest since 2006-07, 10-year real yields have broken above 2%, and asset markets around the world are buckling under the higher-for-longer U.S. rate outlook. Bond Yield Surge Casts Dark Quarter-End Shadow_1

Bond Yield Surge Casts Dark Quarter-End Shadow_1

The dollar is strengthening as a result, and as emerging market investors are all too aware, the combination of high U.S. debt servicing costs and a strong dollar are rarely a welcome combination. Financial conditions across emerging markets are the tightest in 11 months, according to Goldman Sachs. Bond Yield Surge Casts Dark Quarter-End Shadow_2

Bond Yield Surge Casts Dark Quarter-End Shadow_2

In some ways, the global market sell-off after the Fed's new rate projections were released on Wednesday was remarkable, and highlights the power of the U.S. central bank over all others.

Yes, the Fed sent out a hawkish signal. But the Bank of England, Swiss National Bank and Bank of Japan last week were surprisingly dovish, the euro zone and Chinese central banks are also leaning dovish, Brazil's is slashing rates, and many others have stopped hiking.

On balance, the global policy picture is pretty dovish, with one notable exception. Yet markets still cratered.

The MSCI Asia ex-Japan Index lost 2.3%, its biggest fall in five weeks, the MSCI World Index's 2.67% slide was its steepest fall since March, the 10-year U.S. Treasury yield's 12-basis point rise was its biggest weekly rise since July and it has now risen eight weeks out of the last 10.

The MSCI Asia ex-Japan Index is on track for a 3% loss over the July-September period, its second quarterly loss in a row and seventh out of the last nine.

The Asian economic and policy calendar on Monday is relatively light with a batch of indicators from Vietnam - including inflation, trade and third-quarter GDP - and Singapore inflation the main data points.

The Bank of Thailand's latest policy decision is on Wednesday, and activity really picks up on Friday with a heavy slew of data from across the region which spills into the weekend with China's official and non-official purchasing managers index reports for September.

Here are key developments that could provide more direction to markets on Monday:

- Singapore inflation (September)

- Vietnam inflation, trade, industrial production (September)

- Vietnam GDP (Q3)

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

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Thomas

Commodity

Stocks

Economic

Pain at the pump has made an unwelcome return, with gas prices rapidly rising across the United States. The national average recently climbed to $3.88 per gallon, while some states now face prices approaching or exceeding $6 per gallon.

In California, gas prices have spiked to $5.79 on average, up 31 cents in just the past week. It’s even worse in metro Los Angeles where prices hit $6.07, a 49 cent weekly jump. Besides California, drivers in 11 states now face average gas prices of $4 or more.

This resurgence complicates the Federal Reserve’s fight against high inflation. Oil prices are the key driver of retail gas costs. With oil climbing back to $90 per barrel, pushed up by supply cuts abroad, gas prices have followed.

West Texas Intermediate crude rose to $93.74 on Tuesday, its highest level in 10 months, before retreating below $91 on Wednesday. The international benchmark Brent crude hit highs above $96 per barrel. Goldman Sachs warned Brent could reach $107 if OPEC+ nations don’t unwind production cuts.

For consumers, higher gas prices add costs and sap purchasing power, especially for lower-income families. Drivers once again face pain filling up their tanks. Households paid an average of $445 a month on gas during the June peak when prices topped $5 a gallon. That figure dropped to $400 in September but is rising again.

Politically, high gas also causes headaches for the Biden administration. Midterm voters tend to blame whoever occupies the White House for pain at the pump, whether justified or not. President Biden has few tools to immediately lower prices set by global markets.

However, economists say oil and gas prices must rise significantly further to seriously jeopardize the U.S. economy. Past recessions only followed massive oil price spikes of at least 100% within a year. Oil would need to double from current levels, to around $140 per barrel, to inevitably tip the economy into recession, according to analysis.

Nonetheless, the energy resurgence does present challenges for the Fed’s inflation fight. While core inflation has cooled lately, headline inflation has rebounded in part due to pricier gas. Consumer prices rose 0.1% in August, defying expectations of a drop, largely because of rising shelter and energy costs.

This complicates the Fed’s mission to cool inflation through interest rate hikes. Some economists believe the energy volatility will lead the Fed to pencil in an additional quarter-point rate hike this year to around 4.5%. However, a dramatic policy response is unlikely with oil still below $100 per barrel.

In fact, some argue the energy spike may even inadvertently help the Fed. By sapping consumer spending power, high gas prices could dampen demand and ease price pressures. If energy costs siphon purchases away from discretionary goods and services, it may allow inflation to fall without more aggressive Fed action.