MNI EUROPEAN OPEN: BoJ's Ueda Avoids Oct Rate Hike Signal

EXECUTIVE SUMMARY

• BESSENT SEES CHINA PROGRESS AS SOY FIGHT ECHOES RARE-EARTH SPAT - BBG 
• DRONE SIGHTINGS DISRUPT MUNICH AIRPORT, HALT FLIGHTS AND IMPACT THOUSANDS - RTRS 
• BOJ’S UEDA AVOIDS OCTOBER RATE HIKE SIGNAL - MNI BRIEF 
• BOJ'S FORMER CHIEF ECONOMIC SHARES HIS POLICY RATE OUTLOOK - MNI INTERVIEW
• RBA’S FORMER INTERNATIONAL FINANCIAL MARKETS HEAD SHARES HIS CASH RATE OUTLOOK - MNI INTERVIEW

Fig 1: Japan's Labour Market Softened In August 

Source: Bloomberg Finance L.P/MNI 

UK 

DEBT (MNI INTERVIEW): The UK government needs to not only start running budget surpluses to keep debt-to-GDP steady but must come up with a credible strategy to get it on a downward trajectory, National Institute of Economic and Social Research director David Aikman told MNI, adding that markets will be disappointed if this is lacking from the upcoming budget.

EU

ECB (MNI BRIEF): The ECB is "very attentive" to the effects of a stronger euro exchange rate on inflation, Bank of France Governor Francois Villeroy said Thursday in a speech which was otherwise focused on ways to boost the international role of the euro. 

UKRAINE (MNI): Concluding a political agreement on EUR140 billion in reparations loans to Ukraine is likely to take more time in order to address legal and financial details, particularly regarding co-guarantees, officials told MNI. 

GERMANY (RTRS): “Germany's Munich airport said early on Friday that drone sightings on Thursday evening had forced air traffic control to suspend operations, leading to the cancellation of 17 flights and disrupting travel for nearly 3,000 passengers.” 

ITALY (BBG): “Italy’s cabinet approved a budget featuring a deficit at just 3% of output this year, allowing Premier Giorgia Meloni’s government to set aside more money for tax cuts and defense.” 

US

US/CHINA (BBG): “Treasury Secretary Scott Bessent predicted a “pretty big breakthrough” in the next round of trade talks with China, even as the Trump administration takes steps to support American farmers hurt by a decline in Chinese purchases.” 

TECH (WSJ): “A multibillion-dollar deal to send Nvidia's artificial-intelligence chips to the United Arab Emirates is stuck in neutral nearly five months after it was signed, frustrating Chief Executive Jensen Huang and some senior administration officials.” 

OTHER

JAPAN (MNI BRIEF): Bank of Japan Governor Kazuo Ueda said Friday the central bank will raise its policy interest rate if the outlook for economic activity and prices materialises as expected, while stopping short of signaling an imminent move.

JAPAN (MNI BRIEF): Bank of Japan Governor Kazuo Ueda on Friday highlighted three areas the central bank is closely monitoring when assessing Japan’s economic activity and price trends, underscoring both upside and downside risks.

JAPAN (MNI INTERVIEW): The BOJ's former chief economist shares his policy rate outlook. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.

AUSTRALIA (MNI INTERVIEW): The RBA’s former head of international financial markets shares his cash rate outlook. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.

CANADA (MNI): Slowdowns in property rents and the cost of materials to produce goods have given Bank of Canada officials confidence that trend inflation is slowing, Deputy Governor Rhys Mendes said Thursday, as they cut interest rates even while core indexes remain elevated. 

ARGENTINA (BBG): “Treasury Secretary Scott Bessent reiterated support for Argentina on Thursday, but later warned any aid wouldn’t involve outright US investment, triggering steep swings in bond prices.” 

CHINA 

BRAZIL/CHINA (BBG): "Brazil’s Development Bank and the Export-Import Bank of China agreed to create a $1 billion fund that will invest in sectors such as energy transition, infrastructure, mining, agriculture and artificial intelligence.

MARKET DATA

AUSTRALIA SEP F S&P PMI SERVICES 52.4; PRIOR 52.0
AUSTRALIA SEP F S&P PMI COMPOSITE 52.4; PRIOR 52.1

JAPAN AUG JOBLESS RATE 2.6%; MEDIAN 2.4%; PRIOR 2.3% 
JAPAN AUG JOB-TO-APPLICANT RATIO 1.20; MEDIAN 1.22; PRIOR 1.22
JAPAN SEP F S&P PMI SERVICES 51.3; PRIOR 51.1
JAPAN SEP F S&P PMI COMPOSITE 53.3; PRIOR 53.0

MARKETS

US TSYS: Slightly Cheaper As The Market Idles Through Shutdown

TYZ5 is dealing at 112-27+, -0-02 from closing levels in today's Asia-Pac session.

• According to MNI's technicals team, initial firm resistance to watch is at 113-00, the Sep 24 high. A break would be bullish with next levels to watch at: 113-12/29 (High Sep 18 / High Sep 11 and the bull trigger).
• Cash bonds are dealing ~1bp cheaper in today's Aia-Pac session.
• US tsys saw small ranges on Thursday as US economic data began facing delays on the second day of the federal government shutdown, leaving investors without labour market readings for signals on the Federal Reserve's next steps.
• Friday's September employment report from the BLS most likely will NOT be released today despite Sen Warren (Dem) telling CNN the "labor data has been collected and is likely ready to be released". "Let's be clear," Warren added, "the jobs data scheduled to come out this Friday has undoubtedly been collected, and the President must release it."

JGBS: Long End Leads Rally, BOJ Ueda Fails To Signal Oct Hike

JGB futures are stronger, +12 compared to settlement levels.

• (MNI Brief) The BOJ will carefully weigh both upside and downside risks when judging the likelihood its baseline scenario will be realised, he added, stressing that decisions will be made "as appropriate and without any preconceptions." Bank of Japan Governor Kazuo Ueda on Friday highlighted three areas the central bank is closely monitoring when assessing Japan's economic activity and price trends, underscoring both upside and downside risks.
• "The first point concerns developments in overseas economies," Ueda told business leaders in Osaka. He noted that while global growth is expected to return to a moderate pace, the outlook could shift significantly depending on economic and policy developments in major economies, particularly the U.S.
• The second factor is how U.S. trade policies will affect Japanese firms' profits as well as their wage- and price-setting behaviour, Ueda said.
• Cash US tsys are cheaper in today's Asia-Pac session, with yields flat to 1bp higher.
• Cash JGBs are flat to 2.5bps richer across benchmarks. The benchmark 10-year yield is 0.4bp lower at 1.665% versus the cycle high of 1.674%, set yesterday following the poor auction.
• Swap rates are ~1bp lower.
• On Monday, the local calendar will be empty.

AUSSIE BONDS: Little Changed, Markets In A Wait & See Mode

ACGBs (YM -0.5 & XM -0.5) are little changed on a data light session.

• (Bloomberg) "Australia's official data out Friday showed the federal government's budget deficit came in at A$11.6b over the first two months of the 2025-26 financial year, some 21% narrower than forecast. That adds to the air of prudence when compared with data at the start of this week showing the measure at only 0.4% of GDP in the fiscal year ended June 2025, rather than the 1% forecast. That's a stark contrast to the US, which is running a 6.3% shortfall."
• Cash US tsys are ~1bp cheaper in today's Asia-Pac session after modest gains.
• Cash ACGBs are unchanged with the AU-US 10-year yield differential at +24bps.
• The latest ACGB May-32 supply achieved a weighted average yield that printed 0.58bp through prevailing mids. Moreover, the cover ratio increased significantly, falling to 3.3850x from 2.9267x.
• The bills strip is -1 to -2 across contracts.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in November is given a 40% probability, with a cumulative 14bps of easing priced by year-end.
• On Monday, the local calendar will see Melbourne Institute Inflation.
• Next week, the AOFM plans to sell A$1200mn of the 4.25% 21 March 2036 bond on Wednesday.

BONDS: NZGBS: Modestly Cheaper, Subdued Session As Markets Monitor US Lockdown

NZGBs closed 2bps cheaper after a relatively subdued data-light session.

• NZGBs have once again underperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials 2-3bpswider on the day.
• US tsys are dealing ~1bp cheaper in today's Asia-Pac session.
• (Bloomberg) -- New Zealand and Australia are seeking to accelerate plans for a more ambitious Single Economic Market, Trade Minister Todd McClay says in an emailed statement ahead of a meeting with his Australian counterpart Don Farrell.
• Swap rates are flat.
• RBNZ dated OIS pricing is little changed across meetings. 33bps of easing is priced for October, with a cumulative 61bps by November 2025.
• The local calendar will see ANZ Commodity Prices on Monday.

FOREX: USD/JPY Rebounds As Ueda Doesn't Give Oct Hike Hint, Steady Elsewhere

Outside of some modest yen losses, the G10 FX backdrop has been relatively steady in the first part of Friday trade. The BBDXY index is little changed last near 1202. 

• USD/JPY is back above 147.60, while session highs rest at 147.77. Current levels are close to the 50-day EMA (near 147.60), which we broke under earlier this week. Earlier data showed a softer tone to Japan's August labor market figures. The jobless rate rose by 0.3ppts to 2.6%, while the job to applicant ratio fell to fresh multi year lows.
• The bigger shift from USD/JPY came as BoJ Governor Ueda spoke. He stated the central bank will raise its policy interest rate if the outlook for economic activity and prices materialises as expected, while stopping short of signaling an imminent move. With about a month until the next policy meeting, Ueda gave no indication the BOJ was preparing to raise rates in October. The MNI Policy team reported this week better than expected September Tankan results raised the chances of a move at the Oct 29-30 meeting.
• For USD/JPY, holding above the 50-day EMA, could refocus attention on resistance at 149.69, the Sep 26 high and a bull trigger.       
• Note as well we have the LDP leadership election tomorrow, where Koizumi is the firm favorite.  
• Elsewhere, news and data flow has been quite light. EUR/USD sits near 1.1720/25, up a touch on end Thursday levels.
• AUD/USD remains under 0.6600, while NZD/USD is near 0.5820.
• Looking ahead, with the US government still shut (and therefore no payrolls release), the focus may rest with private sector surveys with the ISM services print out. 

ASIA STOCKS: Most Markets Higher Led By Tech, China & South Korea Out

Most Asia Pac equity markets are trading with a positive tone in the first part of Friday trade. Note that China remains out, returning next Thursday, while South Korean markets are also closed today, returning next Friday. US equity futures have ticked higher, up 0.15-0.20%, with tech slightly outperforming. We remain close to benchmark highs for Eminis and Nasdaq futures. The US government shutdown has done little to upset sentiment in this space so far. 

• Japan equities have been among the better performers in Friday trade. Both the Topix and Nikkei 225 are up over 1%. We are off recent record highs from Sep for both markets, but sentiment has likely been aided today by a BoJ speech from Governor Ueda, who didn't give any hints rates would be raised in Oct. USD/JPY has risen in response, although only by 0.30%. We also have the LDP leadership election tomorrow, with Koizumi, the current Agriculture, Forestry and Fisheries Minister the firm favorite. He is seen largely continuing Ishiba's tone around fiscal and monetary policy.
• A partnership for local tech company Hitachi with OpenAI has also boosted local tech related sentiment today.  
• The surge higher in the US SOX index has provided further positive impetus to Taiwan's Taiex, which has risen a further 0.90% so far today. This puts the index at fresh record highs. Offshore investors added strongly to Taiwan stocks yesterday (although inflows into South Korea were stronger).
• Hong Kong is bucking these broader trends, with the HSI down 0.90%, although this follows a strong run up in late Sep/early Oct.
• In South East Asia, the tone is less positive, with Malaysia down slightly so far today. This follows a solid gain yesterday though. The index couldn't sustain earlier highs above 1650. Indonesian stocks are up modestly, while Thailand is close to flat. 

COMMODITIES: Oil Set For Large Weekly Fall Ahead Of OPEC Meeting, Gold Off Highs

Benchmark oil prices have pared Thursday losses, but only marginally in the first part of Friday dealings. We sit comfortably lower for the week, with OPEC expected to continue to unwind previous output reductions when it meets. Gold is also lower, but still up for the week. 

• The front month Brent contract was last near $64.40, up close to 0.50% so far today, but still down (over 8% at this stage). Current levels last prevailed in early June of this year (lows then were at $63/bbl).
• OPEC, which meets on Sunday, increased the October target by 137kb/d and at least that amount is likely in November although with conflicting reports on the size of a potential hike. Following the G7 finance ministers meeting, meanwhile, an agreement on substantial additional sanctions on Russia’s means to finance its war in Ukraine is close, Bloomberg said.
• WTI was last at $60.80/bbl. We haven't tested sub $60/bbl yet, but a clear break of this level would reinstate the downtrend, opening $57.50, the May 30 low.
• Gold is down around 0.4% at this stage, last near $3841. We look to be consolidating after breaking to fresh record highs yesterday ($3896.85). A steadier USD backdrop may be encouraging some short term profit taking in bullion. 

UP TODAY (TIMES GMT/LOCAL) 

Date	GMT/Local	Impact	Country	Event
03/10/2025	0645/0845	*	FR	Industrial Production
03/10/2025	0700/0300	*	TR	Turkey CPI
03/10/2025	0715/0915	**	ES	S&P Global Services PMI (f)
03/10/2025	0715/0915	**	ES	S&P Global Composite PMI (final)
03/10/2025	0745/0945	**	IT	S&P Global Services PMI (f)
03/10/2025	0745/0945	**	IT	S&P Global Composite PMI (final)
03/10/2025	0750/0950	**	FR	S&P Global Services PMI (f)
03/10/2025	0750/0950	**	FR	S&P Global Composite PMI (final)
03/10/2025	0755/0955	**	DE	S&P Global Services PMI (f)
03/10/2025	0755/0955	**	DE	S&P Global Composite PMI (final)
03/10/2025	0800/1000	*	IT	Retail Sales
03/10/2025	0800/1000	**	EU	S&P Global Services PMI (f)
03/10/2025	0800/1000	**	EU	S&P Global Composite PMI (final)
03/10/2025	0830/0930	**	GB	S&P Global Services PMI (Final)
03/10/2025	0830/0930	***	GB	S&P Global/ CIPS UK Final Composite PMI
03/10/2025	0900/1100	**	EU	EZ PPI
03/10/2025	0940/1140		EU	ECB Lagarde Speech At Knot Farewell Symposium
03/10/2025	1000/0600		US	NY Fed's John Williams
03/10/2025	1320/1420		GB	BOE Bailey Keynote At Knot Farewell Symposium
03/10/2025	1345/0945	***	US	S&P Global Services Index (final)
03/10/2025	1345/0945	***	US	S&P Global US Final Composite PMI
03/10/2025	1350/1550		EU	ECB Schnabel In Panel At Knot Farewell Symposium
03/10/2025	1400/1000	***	US	ISM Non-Manufacturing Index
03/10/2025	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly
03/10/2025	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly
03/10/2025	1740/1340		US	Fed Vice Chair Philip Jefferson