Israel strikes, muted reaction from Iran

Asia market update: Israel strikes, muted reaction from Iran; JP LDP loses majority; USD/JPY continues up while Nikkei outperforms; CN FDI keeps falling; CN NPC dates Nov 4-8, while PBOC debuts new tool; Big data week.

General trend

- Israel struck Iran on Friday night in several attacks over a period of around 12 hours, concentrating damage to only military targets that included several sites around Tehran. Warned Iran that any retaliation would see further strikes. Follow on reports indicate that Israel took out a critical component in Iran's ballistic missile program that may deter further missile strikes against Israel while also degrading Iran’s own air defense capabilities, making it even more vulnerable to any further attacks. Oil down -4.5% from the open to the 68 handle.

- Japan's ruling Liberal Democratic Party (LDP) and its coalition partner Komeito lost their majority in the lower house of parliament elections. Local media speculate that the outcome could lead to the resignation of PM Ishiba, who has only been in power for one month. It would be a new record for shortest-serving PM Japan (formerly 54 days) and even shorter than the 50 days served by UK PM Liz Truss in 2022.

- USD/JPY rose to 153.88, beating last week’s high and the highest since July 30th.

- Perhaps in concert with the weaker Yen and suppressed stock prices last week heading into the election, today Nikkei outperformed +2.0%. Semi-relateds in Japan +4-7%.

- China Industrial Profits for September showed accelerating collapse on a y/y basis, -27.1%, even worse than the -17.8% prior which itself was the largest decline in 18th months, going back to the period when Chinese companies painfully emerged from the late 2022 lockdowns in China.

- China also saw a slight bounce in the YTD pace in of FDI declines for the year, but is still off -30% y/y.

- China announced the National People's Congress to be Nov 4-8, no doubt strategically timed to be able to absorb the US election result on Nov 5th.

- China PBOC “new tool” announced and to be conducted from today; Monthly Outright Reverse Repo with primary dealers in tenors of 3 and 6 months, to increase short and medium-term liquidity, reducing some of emphasis on MLF rates. This ‘should’ steepen the curve (in addition to bond selling programs). CN 2 yr yield -2.5bps, while 10-year flat.

- Joe Rogan’s 3 hour interview with Donald Trump in terms of business saw Trump say he would consider entirely replacing income taxes with tariffs, reiterated lowering the corporate tax rate to 15%, and enact larger tariffs on foreign vehicles coming into the US.

- It is a big week for data, with US and EU Q3 GDP, 5 of the Magnificent Seven stocks reporting, BOJ rate decision, AU + JP Retail Sales, CN PMIs, EU CPI, and capped off by US Core PCE on Thursday followed by US Non-Farm Payrolls Friday night.

Note European clocks fell back one hour on Sunday (British Standard Time is now also the same time again as UTC and GMT. GMT/ET time difference remains +4 hrs).

- Equity FUTS take JP elections and Iran attack in stride.

Looking ahead (Asian time zone)

- Tue Oct 29th (US Mon A/H earnings: Ford FQ3), JP Sept jobless, (Tue night US Sept JOLTS).

- Wed Oct 30th (US Tues A/H earnings: GOOG FQ3, AMD FQ3), AU Q3 CPI, JP Consumer Conf, (Wed eve various Q3 Europe GDP, US Q3GDP).

- Thu Oct 31st (US Wed A/H earnings: META FQ3, MSFT FQ3), JP Sept prelim Industrial Prod + Retails Sales, AU Sept Retail Sales, CN Oct govt PMIs, BOJ rate decision, TW Q3 advance GDP, (Thu eve EU Sept advance CPI, US Core Sept PCE).

- Fri Nov 1st (US Fri A/H earnings: (AAPL FQ4, AMZN FQ4, INTC FQ3, UBER FQ3), JP + AU final Oct Mnfg PMIs, KR Oct Exports, CN Caixin Mnfg PMI (Fri night US Oct Non-Farm Payrolls, US Oct ISM Mnfg).

Holidays in Asia this week

- Mon Oct 28th New Zealand.

- Thu Oct 31st Malaysia, Singapore.

- Fri Nov 1st India, Philippines.

Headlines/economic data

Australia/New Zealand

- ASX 200 opens flat at 8,211.

- Australia sells A$700M vs. A$700M indicated in 2.75% Nov 2028 bonds; Avg Yield: 3.9629% v 3.7831% prior; bid-to-cover: 4.52x v 3.09x prior.

China/Hong Kong

- Hang Seng opens flat at 20,592; Shanghai Composite opens flat at 3,300.

- China PBOC to conduct outright Reverse Repo on Monday (today) with ; And "in principle" every month thereafter, in tenors of <1 Year; [includes 3-month and 6-month tenors].

- US and China to hold working group meeting on Mon at 11:15 AM ET; US Treasury Sec Yellen to 'drop by' the meeting - financial press.

- PBOC-backed supervisory body said to have surveyed Chinese banks on interbank deposits - financial press (update).

- China Sept Industrial Profits Y/Y: -27.1% v -17.8% prior.

- China Jan-Sept Fiscal Revs Y/Y: -2.2% v -2.6% prior; Expenditures +2.0% v +1.5% prior – MOF.

- China Commerce Ministry (MOFCOM): Minister held video meeting with EU trade head Dombrovskis; To establish bilateral mechanism for communications for execution and oversight of price commitments based on mutual trust.

- China Cabinet: China to evaluate and optimize policies in timely manner; Continue to do a good job in the implementation of policy basket – press.

- China and EU reportedly looking at possible minimum price commitments from Chinese producers or investments in Europe as an alternative to EV tariffs [**Note: EU Commission to decide whether to apply final/definitive duties by Nov 2nd].

- China Sept YTD Foreign Direct Investment (FDI) (CNY-denominated) Y/Y: -30.4% v -31.5% prior (first bounce in annual drop pace in 9 months).

- China PBOC sets Yuan reference rate: 7.1307 v 7.1090 prior.

- China PBOC Open Market Operation (OMO): Injects CNY242B in 7-day reverse repos; Net injects CNY33B v net injects CNY184B prior.

Japan

- Nikkei 225 opens -0.4% at 37,757.

- Japan PM Ishiba: Not considering broader coalition right now; Liberal Democratic Party (LDP) received a very difficult verdict from voters; LDP must take this result to heart and be reborn.

- TTN Research Alert: Japan ruling party LDP and coalition partner Komeito confirmed to have lost a majority in parliament; with the combined opposition parties winning more than half of the 465 seats; Leaving Japanese politics as well as fiscal and monetary policy uncertain going forward.

- Senior IMF Official: BOJ should remain cautious and gradual in raising interest rates; Should keep assessing impact of huge FX swings on inflation.

- Bank of Japan (BOJ) announcement related to outright bond buying operations: : 3-5 Years, 5-10 Years and 10-25 Years, plus inflation-indexed bonds (Inline with prior purchases).

Korea

- Kospi opens -0.2% at 2,588.

- South Korea Fin Min Choi: South Korea to counter market volatility if needed - comments in meeting.

- South Korea Finance Ministry to use up to KRW16T in state funds [foreign exchange equalization funds] amid large tax revenue shortfall- South Korea press.

Other Asia

- Taiwan Semi Founder Chang: Co is facing "It's most severe challenge" due to free trade concerns for cutting-edge chips (update).

- Philippine Central Bank (BSP) Gov Remolona: Philippine peso may weaken to 59/$ over time; May reach that level if risks persist.

- (TW) US approves potential $828M radar turnkey systems sale to Taiwan – press.

North America

- Follow up: Boeing said to plan over $15B capital raise as soon as Monday - financial press.

- Elon Musk says he thinks he can cut $2.0T from US govt annual spending (time frame uncertain} - US financial press.

- McDonalds Follow up: Said to rule out quarter-pounder patties as being e.coli source; Says the issue appears to be contained to a particular ingredient and geography - US financial press.

- (US) Joe Rogan has released a nearly 3 hour interview with Trump on YouTube; Trump said he'd consider entirely replacing income taxes with tariffs; Reiterated calling for lowering the corporate tax rate to 15%, enacting bigger tariffs on foreign vehicles into the US.

- (US) Atlanta Fed GDPNow: Cuts Q3 GDP forecast from 3.4% to 3.3% (final Q3 estimate).

- (US) Oct final University of Michigan confidence: 70.5 V 69.1E; 1-year inflation expectations 2.7% (lowest since Dec 2020).

- (US) Sept preliminary Durable Goods orders: -0.8% V -1.0%E; Durable (ex-transportation): +0.4% V -0.1%E.

Europe

- (UK) Oct Lloyds Business Barometer: 44 v 47 prior.

- (IR) Reportedly Israel's retaliatory strike against Iran took out a critical component in Iran's ballistic missile program; It could deter Iran from further massive missile strikes against Israel - Axios.

- (IR) Israel reportedly sent a message to Iran on Oct 25th ahead of its retaliatory airstrikes warning the Iranians not to respond; Israeli message was conveyed to the Iranians through several third parties – Axios.

- (IR) Iran State TV: Sounds of several ‘strong’ explosions heard around Tehran; cause of blasts in Tehran 'unknown'.

- (EU) ECB chief Lagarde: Disinflation process is well on track; Looking ahead, we expect inflation to temporarily increase again in the fourth quarter of this year as the previous sharp falls in energy prices drop out of the annual rates [weekend update].

Levels as of 01:20 ET

- Nikkei 225 +2.0%, ASX 200 +0.1%, Hang Seng +0.1%; Shanghai Composite +0.2%; Kospi +1.0%.

- Equity S&P500 Futures +0.5%; Nasdaq100 +0.7%; Dax +0.3; FTSE100 +0.2%.

- EUR 1.0782-1.0802; JPY 152.67-153.88; AUD 0.6579-0.6618; NZD 0.5957-0.5990.

- Gold -0.3% at $2,745/oz; Crude Oil -4.7% at $68.44/brl; Copper -0.5% at $4.3457/lb.