Japan elects hawkish PM supportive of recent BoJ rate hikes – Inflation breaks down in Europe

Notes/observations

- Japan LDP party elects hawkish former defense min Ishiba as its new leader (hence next PM); Previously expressed support for BOJ rate hikes. Ishiba won in knockout round against dovish Takaichi. Japanese Yen heavily strengthened, moving USD/JPY to 143 from 146.4 earlier. Nikkei futures down >1000 points since cash close. Just prior to final results, first round voting actually indicated that Takaichi was ahead, leading to the rally in the close for Nikkei and weakness in yen, before whipsawing as mentioned above.

- Inflation collapses well below ECB target for France and Spain; French headline YoY was lowest since Aug 2021 while Spain was lowest since Mar 2021. ECB continually notes decisions are data dependent and with little data between Sept and Oct decisions, markets have ramped up bets on ECB cutting another 25bps in Oct. Important to remember inflation typically acts in a stubborn fashion at lower levels, therefore today’s miss is even more noteworthy. Also adding to momentum are dovish comments from typically hawkish ECB member Schnabel about softening labor market and stagnating economy.

- Italian local press report revives speculation of potential Stellantis-Renault merger under new French govt.

- US retail giant CostCo after reporting results noted it prepared contingency plans for potential US East Coast ports strike next week; It added that some food items still experienced inflation during last quarter.

- Asia closed higher with Hang Seng outperforming +3.6%. EU indices are +0.2-0.6%. US futures are -0.1% to -0.2%. Gold -0.4%, DXY +0.1%; Commodity: Brent +0.3%, WTI +0.4%; Crypto: BTC +3.2%, ETH +1.8%.

Asia

- Japan Sept Tokyo CPI Y/Y: 2.2% v 2.2%e; CPI (ex-fresh food) Y/Y: 2.0% v 2.0%e.

- China Aug Industrial Profits Y/Y: -17.8% v +4.1% prior.

- South Korea Oct Business Manufacturing Survey: 73 v 73 prior; Non-Manufacturing Survey: 71 v 71 prior.

- New Zealand Sept ANZ Consumer Confidence: 95.1 v 92.2 prior.

- China PBoC cut the 14-Day Reverse Repo Rate by 20bps to 1.65%.

- China PBoC delivers on easing pledge and enacted the previously announced RRR and 7-Day Reverse Repo cuts (**Reminder Sept 24th: China PBoC stated that it would cut the Broad RRR by 50bps 'soon' and cut 7-day Reverse Repo by 20bps to 1.50%).

Americas

- Fed's Cook (voter) whole-heartedly supported the rate decision to cut by 50bps.

- Mexico Central Bank (Banxico) cut Overnight Rate by 25bps to 10.50% (as expected). Board was not unanimous in cutting by 25bps (4-1), De Gov Heath dissented with a hold vote.

- Hurricane Helene slammed into Florida panhandle.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.21% at 526.72, FTSE +0.30% at 8,310.01, DAX +0.56% at 19,328.25, CAC-40 +0.27% at 7,762.98, IBEX-35 +0.14% at 11,970.27, FTSE MIB +0.29% at 34,508.00, SMI +0.21% at 12,223.38, S&P 500 Futures -0.07%].

Market focal points/key themes: European indices open modestly higher across the board and remained upbeat through the early part of the session; among sectors trending higher are consumer discretionary and technology; underperforming sectors include financials and industrials; tech sector supported following earnings from Micron overnight; LVMH takes stake in Moncler’s shareholder Double R; focus on US PCE price index to be released later in the day; no major earnings expected in the upcoming Americas session.

Equities

- Consumer discretionary: Moncler [MONC.IT] +9.5% (LVMH acquires indirect stake), H&M [HMB.SE] +1.0% (Danske cuts to hold).

- Consumer staples: Cranswick [CWK.UK] +5.5% (trading update).

- Industrials: Stellantis [STLA.NlL] +4.0%, Renault [RNO.FR] +3.5% (renewed Stellantis-Renault merger speculation), Forvia [EO.FR] +5.0% (cuts guidance citing car inventory and production), Hella [HLE.DE] -2.0% (cuts guidance due to weaker light vehicle production - post close).

Speakers

- Japan Ruling Liberal Democratic Party (LDP) Leadership Race saw Ishiba win the knockout round (215-194).

- Japan Incoming PM Ishiba stated that needed to make sure deflation is defeated; wages must continue to beat inflation.

Currencies/fixed income

- JPY FX action was quite volatile as it awaited the outcome of the Japanese LDP Leadership race to determine the next PM. Heading into the knockout round the USD/JPY tested 146.50 as Security Min Takaichi initially received the most votes (she was said to be an advocate for easing policy and against raising rates). However the final vote gave ex-Defense Min Ishiba the victory. USD/JPY plummeted 300 pips in the aftermath to test below 143.50.

- EUR/USD drifted lower as various EU inflation data highlighted the potential that CPI could undershoot ECB target. Markets see 75% change that ECB cuts rates by 25bps at the Oct meeting following French & Spanish inflation readings.

Economic data

- (NL) Netherlands Sept Producer Confidence: -1.7 v -1.9 prior.

- (FI) Finland Sept Consumer Confidence: -8.1 v -7.2 prior; Business Confidence: -12 v -8 prior.

- (FI) Finland Final July Trade Balance: €0.0B v €0.1B prelim.

- (NO) Norway Aug Retail Sales (ex-auto) M/M: 0.1% v 1.2% prior.

- (DK) Denmark Aug Retail Sales M/M: +0.4% v -0.1% prior; Y/Y: 3.1% v 3.7% prior.

- (HU) Hungary Aug Unemployment Rate: 4.2% v 4.2%e.

- (FR) France Sept Preliminary CPI M/M: -1.2% v -0.7%e; Y/Y: 1.2% v 1.6%e.

- (FR) France Sept Preliminary CPI EU Harmonized M/M: -1.2% v -0.8%e; Y/Y: 1.5% v 1.9%e.

- (FR) France Aug PPI M/M: 0.2% v 0.3% prior; Y/Y: -6.3% v -5.7% prior.

- (FR) France Aug Consumer Spending M/M: +0.2% v -0.1%e; Y/Y: 0.0% v -0.6%e.

- (ES) Spain Q2 Final GDP Q/Q: 0.8% v 0.8% prelim; Y/Y: 2.9% v 2.9% prelim.

- (ES) Spain Sept Preliminary CPI M/M: -0.6% v -0.1%e; Y/Y: 1.5% v 1.9%e.

- (ES) Spain Sept Preliminary CPI EU Harmonized M/M: -0.1% v +0.1%e; Y/Y: 1.7% v 1.9%e; CPI Core Y/Y: 2.4% v 2.8%e.

- (ES) Spain July Total Mortgage Lending Y/Y: 25.8% v -8.3% prior; Mortgage Approvals Y/Y: +23.5% v -5.5% prior.

- (TR) Turkey Sept Economic Confidence: 95.0 v 93.1 prior.

- (TR) Turkey Aug Trade Balance: -$5.0B v -$4.9Be.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 140.4K v 164.9K tons prior.

- (TH) Thailand May Foreign Reserves w/e Sept 20th: $240.9B v $238.9B prior.

- (DE) Germany Sept Net Unemployment Change: +17.0K v +13.5Ke; Unemployment Claims Rate: 6.0% v 6.0%e.

- (TW) Taiwan Aug Leading Monitoring Indicator: 39 v 35 prior.

- (EU) Euro Zone Aug Consumer Expectation Survey: 1 Year CPI Expectations: 2.7% v 2.7%e; 3 Year CPI Expectations: 2.3% v 2.3%e.

- (NO) Norway Sept Unemployment Rate: 2.0% v 2.0% prior; Unemployment Rate (seasonally adj): 2.1% v 2.0%e.

- (RU) Russia Narrow Money Supply w/e Sept 20th (RUB): 18.39T v 18.37T prior.

- (IT) Italy July Industrial Sales M/M: -0.4% v -0.4% prior; Y/Y: -4.7% v -4.4% prior.

- (EU) Euro Zone Sept Economic Confidence: 96.2 v 96.5e; Industrial Confidence: -10.9 v -9.9e; Services Confidence: 6.7 v 6.1e; Consumer Confidence (final): -12.9 v -12.9 advance.

- (IT) Italy Aug PPI M/M: 1.2% v 2.0% prior; Y/Y: -1.1% v -1.6% prior.

- (IS) Iceland Sept CPI M/M: -0.2% v +0.1% prior; Y/Y: 5.4% v 6.0% prior.

Fixed income issuance

- (IN) India sold total INR340B vs. INR340B indicated in 2029, 2039 and 2054 bonds.

- (DK) Denmark sold total DKK in 3-month and 6-month Bills.

- (IT) Italy Debt Agency (Tesoro) sold total €7.0B vs. €5.75-7.0B indicated range in 5-year and 10-year BTP bonds.

- (IT) Italy Debt Agency (Tesoro) sold €1.75B vs. €1.25-1.75B indicated range in Oct 2030 floating rate bonds (CCTeu).

Looking ahead

- (BE) Belgium Sept CPI M/M: No est v 0.0% prior; Y/Y: No est v 2.9% prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:40 (EU) ECB's Cipollone (Italy) on CBDCs in Vienna.

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2033, 2043 and 2050 Bonds.

- 06:00 (UK) Sept CBI Retailing Reported Sales: -18e v -27 prior; Total Distribution: No est v -20 prior.

- 06:00 (IE) Ireland Aug PPI M/M: No est v 0.2% prior; Y/Y: No est v 5.4% prior.

- 06:00 (PT) Portugal Sept Consumer Confidence: No est v -14.3 prior; Economic Climate Indicator: No est v 1.7 prior.

- 06:00 (UK) DMO to sell £4.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.5B and £2.5B respectively).

- 07:00 (BR) Brazil Sept FGV Inflation IGPM M/M: 0.5%e v 0.3% prior; Y/Y: 4.4%e v 4.3% prior.

- 07:15 (DE) ECB’s Nagel (Germany).

- 07:30 (BR) Brazil Aug Total Outstanding Loans (BRL): No est v 6.046T prior; M/M: No est v 0.2% prior; Personal Default Rate: No est v 5.5% prior.

- 07:30 (IN) India Forex Reserve w/e Sept 20th: No est v $689.5B prior.

- 08:00 (MX) Mexico Aug Trade Balance: -$0.2Be v -$0.1B prior.

- 08:00 (BR) Brazil Aug National Unemployment Rate: 6.7%e v 6.8% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (ES) Spain Debt Agency (Tesoro) announcement on upcoming issuance.

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:30 (US) Aug Personal Income: 0.4%e v 0.3% prior; Personal Spending: 0.3%e v 0.5% prior; Real Personal Spending (PCE): 0.2%e v 0.4% prior.

- 08:30 (US) Aug PCE Deflator Index M/M: 0.1%e v 0.2% prior; Y/Y: 2.3%e v 2.5% prior.

- 08:30 (US) Aug Core PCE Deflator M/M: 0.2%e v 0.2% prior; Y/Y: 2.7%e v 2.6% prior.

- 08:30 (US) Aug Advance Goods Trade Balance: -$100.5Be v -$102.8B prior (revised from $102.7B).

- 08:30 (US) Aug Preliminary Wholesale Inventories M/M: 0.2%e v 0.2% prior; Retail Inventories M/M: 0.6%e v 0.8% prior.

- 08:30 (CA) Canada July GDP M/M: 0.1%e v 0.0% prior; Y/Y: 1.4%e v 1.2% prior.

- 09:30 (US) Fed’s Collins.

- 10:00 (US) Sept Final University of Michigan Confidence: 69.3e v 69.0 prelim.

- 11:00 (US) Sept Kansas City Fed Services Activity: No est v 5 prior.

- 11:00 (EU) Potential sovereign ratings after European close.

- 13:00 (US) Baker Hughes Rig Count.

- 15:00 (AR) Argentina Q2 Current Account Balance: $3.2Be v $0.2B prior.

- 15:00 (AR) Argentina July Wages M/M: No est v 6.2% prior.