From Marc Chandler at Bannockburn Global Forex:
Overview: It is mostly a quiet start to the new month. Most of Europe is closed for the All -Saints holiday and the week's key events start tomorrow with the Reserve Bank of Australia meeting. News that the Liberal Democrats retained a majority in the lower chamber of the Diet helped lift Japanese indices by 2%. Most of the large regional markets gained, though China and Hong Kong markets fell. US index futures are trading with a higher bias after eking out minor gains ahead of the weekend. The 10-year US Treasury yield is up a couple of basis points to 1.57%. Australian and New Zealand yields pared the pre-weekend surge. Australia's 10-year yield is off 16 bp, and the two-year yield is down 6 bp. New Zealand rates eased five and four basis points, respectively, for the 10-year and 2-year yields. The dollar is a little firmer against most currencies. The yen and Australian dollar are off 0.3%-0.4%, whereas most other majors are off less than 0.1%. Emerging market currencies are also mostly lower. The Turkish lira is trading higher, and ahead of this week's central bank meeting, the Czech koruna is posting small gains. The Polish zloty gave back its initial gains. The markets are less sure that the Polish central bank will hike this week. Gold is consolidating in the middle of last Friday's range. Key support is seen near $1770. December WTI is hovering around $84, and copper is heavy but holding near last week's lows when it lost almost 3%.
Asia Pacific
The Liberal Democratic Party in Japan lost about 15 seats but held on to its majority in the lower chamber of parliament. Its coalition partner, Komeito gained three seats. Together the coalition has 293 of the 465 seats, according to reports. The issue now is the implication of the narrower majority. Some suggest the risk of a series of short-lived governments as Japan experienced previously. We suspect a cabinet reshuffle and, if anything, a larger fiscal stimulus. Separately, the October manufacturing PMI rose to 53.2 from the 53.0 initial estimate. This is the highest since March. September stood at 51.5.
China's official PMI disappointed. The manufacturing PMI eased to 49.2 from 49.6. Power shortages and rising commodity prices weighed on activity and limited the holiday spending. Output fell to 48.4 (from 49.5), the lowest outside of the initial Covid weakness. Seasonal factors did not help. The Caixin manufacturing PMI was slightly better than expected at 50.6, up from 50.0. The official service PMI eased to 52.4 from 53.2. The composite fell to 50.8 from 51.7. Today's report will encourage economists to revise down Q4 growth forecasts. The weaker PMI has rekindled speculation that the PBOC may cut reserve requirements.
The Reserve Bank of Australia meeting concludes first thing tomorrow in Canberra. The lack of much official guidance after not defending its yield curve control unsettled the debt markets last week. Although yields fell today, the wider spread between bid and offer shows that activity has not normalized. The swaps market is pricing in about 80 bp of tightening over the next 12 months. The issue is the extent that the RBA capitulates to the market. Until now, Governor Lowe has argued that the key is wages, and he does not see the conditions for a rate hike until 2024....
....Although France and the UK say they want to de-escalate the fishing row, it is not clear that they will manage to do so. The UK claims that 98% of the fishing license applications have been granted. The French say it is only 90%, and nearly all the rejected applications are for French boats. If this is not rectified by tomorrow, France has threatened to tighten restrictions on goods crossing the Channel and prevent British boats from unloading the catches as they do in France. The UK says France has to move first.
Germany reported dismal September retail sales. Economists surveyed by Bloomberg had a median forecast for 0.4% after a 1.2% gain in August. Instead, retail sales tumbled 2.5% and brought the year-over-year pace back below zero. The German government and the Bundesbank recently revised this year's GDP projections down. Separately, the UK's manufacturing PMI edged up to 57.8 from the flash reading of 57.7. It is the first gain since May and stood at 57.1 in September.....
....MUCH MORE
