MEXICO: Banorte Acknowledge Slight Banxico Guidance Tweak, Maintains Dovish Tone

• The greenback is higher against all others in G10 headed through to the NY crossover, however the further fade for the US 10y yield across the European morning has contained further strength. The RBNZ 50bps rate cut, further political uncertainty in Japan & France, and a tax collection revision in the UK have been the primary market drivers.
• NZDUSD hit the lowest levels since April and is eyeing a test of next support at 0.5728, the 61.8% retracement of the April/July range as the RBNZ stated “the Committee remains open to further reductions in the OCR” following their outsized cut to prop up the lacklustre domestic economy.
• Meanwhile, JPY weakness continues to run further than market expectations, boosting USDJPY for a fifth consecutive session to hit 152.89. Market moves follow the softer real wages data - which endorse Takaichi's preference for slower rate hikes, however government formation is still the active driver as coalition talks with Komeito continue, delaying the reconvening of the Diet. For USDJPY, this week’s gains reinforce current bullish trend conditions, with technical breaches paving the way for an extension towards 154.39, a Fibonacci retracement point. Initial support to watch lies at 150.92, the Aug 1 high.
• EURGBP meanwhile is edging to new daily lows, despite the tightening of the French-German bond yield spread and seeming optimism of PM Lecornu that a budget agreement can be reached in the near-term. This has pressed through the 50-dma of 0.8676, which had successfully provided intraday support on three occasions over the past month, putting attention on 0.8597, the Aug 14 low. The break lower here stems from the reduction in UK borrowing estimates following ONS VAT revisions this morning - adding to the view that the worst may be behind us for the longer-end of the UK Gilt market headed into November's Budget.
• Focus turns to the Fed meeting minutes, which should shed light on the FOMC's pre-shutdown thoughts on the US economy and policy into year-end. Speakers still due include ECB's Elderson, BoE's Pill and Fed's Musalem, Barr, Goolsbee & Kashkari.

Russian Deputy Foreign Minister Sergei Rybakov has stated that the “impetus for Ukrainian settlement” that emerged after Russian President Vladimir Putin and US President Donald Trump met in Alaska “has proven to be exhausted,” per Reuters.

• Rybakov adds Russia, “urges US leadership to take a sober and responsible approach to possible transfer of Tomahawks to Ukraine,” referring to the long-range missiles the Trump administration is weighing selling to Kyiv.
• The Telegraph reported yesterday, according to 'Ukrainian national security figures', “Deliveries of US Tomahawk missiles to Ukraine could take months and they might never leave their launchers, but that doesn’t mean they won’t have an impact on Moscow.” The report notes that incrementally increasing Ukraine’s ability to strike within Russia will ratchet up pressure on the Kremlin.
• Trump told reporters in the Oval Office on Monday that he’s “sort of” made a decision on Tomahawks, but he wants to know what Kyiv plans to do with them before approving their sale. “I am not looking to see an escalation," he said.
• In a statement on X yesterday, Ukrainian President Volodymyr Zelenskyy said “Russians are utilising tankers of their ‘shadow fleet’ – not only to finance the war, but also for sabotage and various destabilisation attempts in Europe.”
• If Zelenskyy’s accusation is substantiated, it could accelerate efforts by the European Union to enact harsher sanctions on the so-called ‘shadow’ trade of Russian oil. Politico reported October 6 Brussels has “blacklisted” 444 of 1,300 tankers known to ship Russian oil, with limited effectiveness. 

The 10-year OAT/Bund spread is 3bps tighter on the session at 83bps, amid hopes that French caretaker PM Lecornu will be able to gain enough support to pass a budget in last minute talks today.

• Lecornu is meeting with the Socialist and Green parties this morning. Reports overnight suggested that some in the Macronist bloc may be willing to suspend recent pension reforms as a concession to the left. A deal with the left would reduce near-term political uncertainty in France, but suspension of pension reform would keep domestic public finances on a damaging trajectory. Medium-term risks to OAT/Bund may still be skewed wider.
• EGB curves have bull flattened as a result of the cautious political optimism, with OAT 5s30s down 1bp to 155bps and German 5s30s down 0.5bps to 99bps.
• Futures volumes have been healthy, with ASML equity weakness also supporting the broader FI bid around the European cash equity open. German industrial production was much weaker-than-expected earlier (-4.3% M/M vs -1.0% cons, 1.3% prior)
• Bund futures are +25 ticks at 128.77, with initial resistance of 128.82 containing early upside. OAT futures are +48 ticks at 121.48.
• Germany will hold a 15-year Bund auction at 1030BST, while the ESM has sent an RFP for an upcoming transaction. We pencil in a transaction early next week of around E1.75bln (E1.5-2.0bln.
• Headlines from ECB’s Escriva were broadly consistent with the median Governing Council view (i.e. rates are appropriate at current levels for now, meeting-by-meeting approach with no forward guidance) and his previous comments.