MNI EUROPEAN OPEN: UK Fiscal Uncertainty Hurts GBP

Nov-14 05:48By: Jonathan Cavenagh

Europe

EXECUTIVE SUMMARY

STARMER, REEVES DITCH BUDGET PLAN TO RAISE INCOME TAX RATES - FT
TRUMP ADMINISTRATION PREPARES TARIFF EXEMPTIONS IN BID TO LOWER FOOD PRICES - NYT
JAPAN'S TAKAICHI PUSHES BACK AGAINST FOCUS ON SHAREHOLDERS - BBG
CHINA’S INVESTMENT DIPS FURTHER TO OVER 5-YEAR LOW - MNI BRIEF
CHINA ECONOMISTS/TRADERS SHARE OUTLOOK ON THE PBOC CGB OPERATIONS - MNI
FORMER RBA ECONOMIST SHARES CASH RATE OUTLOOK - MNI INTERVIEW

Fig 1: GBP/USD Implied Volatility - 2 week

Source: Bloomberg Finance L.P/MNI

FISCAL (FT/BBG): “UK Prime Minister Keir Starmer and Chancellor Rachel Reeves have ditched their plan to increase income tax rates ahead of the budget on Nov. 26, the Financial Times reports, citing officials briefed on the move.”

FISCAL (BBG): “UK Chancellor of the Exchequer Rachel Reeves is considering dropping plans to raise the headline rates of income tax and a slew of other levies at the coming budget, prompting questions over how she will make up for a revenue shortfall.”

WAGES (BBG): “UK wages barely grew last month, according to a closely watched survey that will offer the Bank of England more confidence that inflationary pressures are easing.”

UKRAINE (MNI BRIEF): The European Commission and EU states are looking at common borrowing as one alternative solution for Ukraine' urgent and looming financing needs, Economy Commissioner Valdis Dombrovskis confirmed Thursday.

GERMANY (BBG): "Germany plans to solicit bids to build 8 gigawatts of new gas-fired power plants next year, less than half than initially proposed, according to an agreement of Chancellor Friedrich Merz’s ruling coalition."

TARIFFS (NYT): “The Trump administration is preparing broad exemptions to certain tariffs in an effort to ease elevated food prices that have provoked anxiety for American consumers, according to three people briefed on the actions.”

FED (MNI BRIEF): Federal Reserve Bank of St. Louis President Alberto Musalem cautioned Thursday there's limited room to ease monetary policy after already lowering the central bank's benchmark overnight rate 150 bps since 2024.

FED (MNI BRIEF): The Federal Reserve must maintain a somewhat restrictive stance of monetary policy in order to dampen an inflation rate that is still well above the central bank's target and appears to be moving in the wrong direction, Cleveland Fed President Beth Hammack said Thursday.

FED (MNI BRIEF): Federal Reserve Bank of Minneapolis President Neel Kashkari said Thursday inflation pressures are running above the central bank's target at about 3%.

PRIVATE CREDIT (MNI INTERVIEW): A lack of transparency in the rapidly-expanding market for private credit raises risks to stability, particularly as it deepens links between different parts of the financial system, former Securities and Exchange Commission economist Samim Ghamami told MNI.

OTHER

JAPAN (BBG): "Japanese businesses are focusing too much on shareholders, Prime Minister Sanae Takaichi said Friday, in comments that flicked at her frustration with firms for not using more capital to raise wages."

AUSTRALIA (MNI INTERVIEW): A former RBA economist shares his cash rate outlook. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.

CANADA (MNI BRIEF): Canada's central bank said Thursday it will restart buying treasury bills as part of more normal balance sheet management on Dec. 16, while a similar move for federal bonds probably won't be needed until 2027.

CHINA

OCT ACTIVITY (MNI BRIEF): China’s fixed-asset investment growth fell further by 1.7% y/y in the first 10 months, expanding from the 0.5% fall in the Jan-Sep period and missing the -0.8% median forecast, also hitting the lowest level since Jun 2020, National Bureau of Statistics data showed Friday.

INFLATION (MNI BRIEF): The 0.2% y/y rise of China's CPI in October reflected a positive trend, Fu Linghui, spokesperson and chief economist at the National Bureau of Statistics, told reporters Friday, but he cautioned that overall prices remain low and demand in the economy is still weak.

PROPERTY (MNI BRIEF): China needs to maintain expansionary fiscal and monetary policies to offset the long-term drag from the real-estate slowdown, former Finance Minister Lou Jiwei said Friday at the Caixin Summit 2025.

BONDS (MNI): Chinese economists and traders share their outlook on the PBOC's CGB operations. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.

GOLD (CSJ): “Chinese investors should be aware of risks in gold price volatility and avoid making singular bets on the bullion market, according to a report in the China Securities Journal. “

MNI: PBOC Net Injects CNY71.1 Bln via OMO Friday

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY212.8 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net injection of CNY71.1 billion after offsetting maturities of CNY141.7 billion today, according to Wind Information.

The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.4167% at 09:28 am local time from the close of 1.4782% on Thursday.
The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 52 on Thursday, compared with the close of 50 on Wednesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium

MNI: PBOC Sets Yuan Parity Lower At 7.0825 Fri; +2.04% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 7.0825 on Friday, compared with 7.0865 set on Thursday. The fixing was estimated at 7.0989 by Bloomberg survey today.

MARKET DATA

NEW ZEALAND OCT BUSINESSNZ MANUFACTURING PMI 51.4; PRIOR 50.1

JAPAN SEP TERTIARY INDUSTRY INDEX M/M 0.3%; MEDIAN 0.3%; PRIOR 0.1%

CHINA OCT NEW HOME PRICES M/M -0.45%; PRIOR 0.41%
CHINA OCT USED HOME RICES -0.66%; PRIOR 0.64%
CHINA OCT RETAIL SALES Y/Y 2.9%; MEDIAN 2.8%; PRIOR 3.0%
CHINA OCT INDUSTRIAL PRODUCTION 4.9%; MEDIAN 5.5%; PRIOR 6.5%
CHINA OCT FIXED ASSET INVESTMENT YTD Y/Y -1.7%; MEDIAN -0.8%; PRIOR -0.5%
CHINA OCT PROPERTY INVESTMENT YTD Y/Y -14.7%; MEDIAN -14.5%; PRIOR -13.9%
CHINA OCT SURVEYED JOBLESS RATE 5.1%; MEDIAN 5.2%; PRIOR 5.2%

SOUTH KOREA OCT EXPORT PRICE Y/Y 4.8%; PRIOR 2.1%
SOUTH KROEA OCT IMPORT PRICE Y/Y 0.5%; PRIOR 0.7%

MARKETS

US TSYS: UST Yields Modestly Higher on the Week

US bond futures were flat to modestly down in the Asia trading day, failing to take the overnight lead. Stuck below a key technical, the 10-Yr TYZ5 if flat on the day at 112-24+ having traded below the 50-day EMA of 112-26+ overnight.

Cash was better bid, having tried to move higher throughout the morning. All maturities out to 10-Yr are down -0.4 - 0.8bps whilst longer bonds are still suffering from the overnight weak 30-Yr auction.

The 2-Yr is at 3.58% (+2bps for the week)
The 5-Yr is at 3.70% (+2bps for the week)
The 10-Yr is at 4.10% (+1bps for the week)
The 30-Yr is at 4.71% (+1bps for the week)

A story in the New York Time suggests that President Trump is preparing tax exemptions in a bid to lower food prices, which have been a cause of anxiety for consumers. If successful, this could lower inflation, and bring rate cuts in 2026 back on the agenda.

We saw a sizeable block curve steepener going through in Asia trading: BUY 8600 of TUZ5 traded at 104-04 1/4, post-time 13:10:10 AEST (DV01 $320,084). The contract is currently trading at 104-04 3/8, unchanged from closing levels. SELL 3600 of UXYZ5 traded at 115-13+, post-time 13:10:10 AEST (DV01 $322,756). The contract is currently trading at 115-14+, -0-02 from closing levels.

There are no major auctions in the calendar tonight and data releases remain uncertain. Key will be whether investors follow on from last night's lead.

JGBS: 10YY Back At Cycle Highs

JGB futures are slightly weaker, -4 compared to settlement levels, after trading in a narrow range.

The local calendar was light today. The Tertiary Industry Index is due shortly.
Cash US tsys are 2-5bps cheaper in today's Asia-Pac session after yesterday's bear-steepener. Renewed scepticism over prospects of a Fed cut in December received a boost from recent commentary from Fed officials.
Cash JGBs are little changed across benchmarks out to the 7-year and 1-2bps cheaper beyond. The benchmark 10-year yield is 0.5bp higher at 1.701% versus the cycle high of 1.709%. (see chart)
Swap rates are flat to 1bp higher.
On Monday, the local calendar will see Q3 GDP (P), Capu (Sep) and IP (sep) alongside 10-year Inflation-Linked supply.
(Bloomberg) "Japan's real gross domestic product is forecast to contract by 2.4% in the three months through September on an annualised basis, the first decline in six quarters. The Takaichi government is looking to approve its first economic package in the coming week, with analysts predicting fresh spending to reach around 15 trillion, according to a median estimate in the Bloomberg poll."

Source: Bloomberg Finance LP

AUSSIE BONDS: Twist-Steepener, Dec Cut Gone But Hopes Remain For 2026

ACGBs (YM +1.5 & XM -3.0) are mixed as the short-end consolidates yesterday's post-jobs sell-off while the long-end follows global yields higher.

Cash US tsys are 2-5bps cheaper in today's Asia-Pac session.
Cash ACGBs have twist-steepened, with yields 2bps lower to 3bps higher. Yields remain 8-9bps higher than yesterday’s pre-jobs levels.
The AU-US 10-year yield differential is at +33bps. At this level, the differential is through the top of its well-defined +/- 30bps trading range. However, with the market still pricing in a 40% chance of a 25bps cut by mid-2026, AU-US 10-year differential narrowing trades may still be premature.
RBA-dated OIS pricing is showing a 25bp rate cut in December at a 1% probability (see chart), with a cumulative 10bps of easing priced by mid-2026.
The bills strip is flat to +4 across contracts, with a flattening bias.
On Monday, the local calendar will be empty.
Next week, the AOFM plans to sell A$300mn of the 4.75% 21 June 2054 bond on Tuesday, A$1000mn of the 2.75% 21 June 2035 bond on Wednesday and A$700mn of the 1.25% 21 May 2032 bond on Friday.

Figure 1: RBA-Dated OIS – Cash Rate Vs. Priced Change Next Meeting

Source: Bloomberg Finance LP / MNI

BONDS: NZGBS: Bear-Flattens But Outperforms $-Bloc

NZGBs closed showing a modest bear-flattener, with benchmark yields flat to 2bps higher.

Cash US tsys are 2-5bps cheaper in today's Asia-Pac session after yesterday's bear-steepener. Renewed scepticism over prospects of a Fed cut in December received a boost from recent commentary from Fed officials.
NZGBs did, however, outperform their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials 4bps and 2bps tighter, respectively. At -28bps, the NZ-AU differential hovers just shy of its cyclical low of -30bps, the most negative since 2020. (see chart)
Swap rates closed with rates flat to 3bps higher, with the 2s10s curve flatter.
RBNZ dated OIS pricing closed slightly firmer across meetings. 25bps of easing is priced for November, with a cumulative 35bps by February 2026.
Interest rate expectations across the $-bloc out to mid-2026 have firmed over the past week, with Australia (+9bps), Canada (+9bps), the US (+5bps) and NZ (+2bps).
(Bloomberg) “The RBNZ will ease mortgage loan-to-value restrictions, effective Dec. 1.”
On Monday, the local calendar will see the Performance Services Index.

Bloomberg Finance LP

JPY: Asia-Pac: USD/JPY - Drifts Off 154.75 As Yen Bought As A Safe Haven

The USD/JPY range today has been 154.31 - 154.74 in the Asia-Pac session, it is currently trading around 154.45, -0.10%. The pair stalled around the 154.75 area in the Asian session and has drifted lower. Considering the move lower in risk USD/JPY has actually held up ok, probably because the market is starting to question another US cut in December. The overweight positioning in risk looking for a year-end rally is being squeezed across the board, if this has more to play out then Cross-Yen will experience headwinds and the demand for Yen in the crosses should keep the 155.00 area heavy for now. On the day I would be skewed towards looking for some sort of a retracement lower. A sustained break above 155.00 though and the market will start getting excited for another push toward 160.

"JAPAN PRIME MINISTER TAKAICHI: HARD TO SET NUMERICAL TARGET FOR MINIMUM WAGE NOW, GOVT'S JOB IS TO CREATE ENVIRONMENT THAT ALLOWS FOR FIRMS TO OFFER PAY THAT EXCEEDS PACE OF INFLATION - [RTRS]"
"JAPAN FINANCE MINISTER KATAYAMA: PLANNED ECONOMIC STIMULUS WILL BE IN LINE WITH TAKAICHI ADMINISTRATION'S PROACTIVE FISCAL POLICY, WHEN ASKED ABOUT SIZE OF STIMULUS - [RTRS]"
Options : Close significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 155.00($978m Nov17) - BBG.
The USD/JPY Average True Range(ATR) for the last 10 Trading days: 99 Points

Fig 1 : USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

AUD: Asia-Pac: AUD/USD Drifts Toward 0.6550, Look To Fade A Bounce Initially

The AUD/USD has had a range today of 0.6524 - 0.6550 in the Asia- Pac session, it is currently trading around 0.6540, +0.20%. The AUD/USD has drifted higher in our session as Bitcoin finds bids below 100k and US Equity futures managed to lift off their lows. Tough market at the moment but this pull back in US stocks overnight looks to be about positioning with a lot of people set for the supposed “year-end rally.” The AUD/USD put in an ugly shadow on the Daily chart albeit within its recent ranges, on the day though this would suggest to me that this bounce toward 0.6550-0.6560 would be a fade initially looking for a retest below the 0.6500 area.

MNI INTERVIEW: Spare Capacity Risks 2026 H2 RBA Hike - Fabo. On MNI Policy MainWire now, for more details please contact sales@marketnews.com.
Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6600(AUD670m), 0.6750(AUD2.17b). Upcoming Close Strikes : 0.6400(AUD913m Nov 18), 0.6500(AUD629m Nov 19), 0.6600 (AUD679m Nov 18) - BBG
The AUD/USD Average True Range for the last 10 Trading days: 45 Points

Fig 1: AUD/USD spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

FOREX: Asia-Pac USD: BBDXY Drifts Lower With USD/JPY

The BBDXY has had a range today of 1215.09 - 1217.11 in the Asia-Pac session; it is currently trading around 1215, -0.05%. The USD has drifted off its overnight highs as Asia sells the USD in sympathy with the move lower in USD/JPY, I feel the market will differentiate and buy it against risk currencies into the London open. The USD fell back toward the 1210-1215 support overnight where it found some demand first up. Risk took an ugly turn last night and the USD was late to react, we have seen periods this year where the USD has not traded like a safe haven. Yet the Risk-Reward around this support area for me says this is the side I would be skewed towards. I expect we do some more work around these levels but I would be looking for signs of a base forming from which to move higher again if risk stays under pressure. Short-term the 1221-1222 area remains the pivot on the topside and we would need a move back above there to build for a retest of the 1230-35 area.

EUR/USD - Asian range 1.1623 - 1.1645, Asia is currently trading 1.1640. The pair has moved into some decent resistance toward the 1.1650-1.1700 area. This has been the pivot within the larger 1.1400-1.1900 range over the past few months. On the day watch for any signs of topping out to express a short looking for a pullback.
GBP/USD - Asian range 1.3136 - 1.3199, Asia is currently dealing around 1.3150, -0.35%. This morning's FT report that "Starmer and Reeves ditch Budget plan to increase income tax rates, has seen Cable play catch up to the risk-off move. I continue to favor fading rallies though as GBP looks to have put in a medium term top. If this move lower in risk builds then I suspect rallies on the day back toward 1.3175-1.3200 could be faded, a sustained move back below 1.3080-1.3100 support would see the momentum lower reinstated and focus turn back toward the 1.3000 area.
Cross asset : SPX -0.05%, Gold $4200, US 10-Year 4.118%, BBDXY 1215, Crude Oil $59.57
Data/Events : France CPI, EZ GDP/Trade Balance/Unemployment Rate, Spain CPI, Italy Trade Balance/General Government Debt

Fig 1: BBDXY Spot 4H Chart

Source: MNI - Market News/Bloomberg Finance L.P

NZD: Asia-Pac: NZD/USD Retraces Overnight losses

The NZD/USD had a range today of 0.5645 - 0.5687 in the Asia-Pac session, going into the London open trading around 0.5685, +0.55%. The NZD has ignored the global woes and retraced all its losses and even breaking the overnight highs, reacting to local inputs. The NZD does stand out as a vehicle to express a short, and if this washout in risk expands it should again be a market favourite. This morning's move could be pointing to positioning with everyone bearish. On the day though should the move in risk build on this correction in the US session I would be skewed to play from the short-side, a move back below 0.5630-40 could see the downtrend reinstated. This would see the focus once again return back toward the 0.5500 lows. Next resistance now back toward the 0.5750 area.

The Reserve Bank of New Zealand will ease mortgage loan-to-value restrictions, effective Dec. 1, according to a statement. RBNZ will continue to closely monitor housing-related risks and impact of changes.
MNI AU - PMI Rise Points To Recovery, But Index Short Of 2025 Highs: New Zealand's BusinessNZ Manufacturing PMI rose to 51.4 in Oct, from a revised 50.1 outcome in Sep (originally reported as 49.9). The index has been above the 50.0 benchmark since July of this year, but we remain sub earlier 2025 cycle highs (53.6 recorded in Feb). We don't get Q3 GDP until Dec 18. Given the y/y decline in Q3 last year was -1.7%, base effects should help y/y momentum for Q3 this year, but broader evidence around the economic recovery remains patchy.
Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5730(NZD308m Nov 19), 0.5835(NZD300m Nov19) - BBG
The NZD/USD Average True Range for the last 10 Trading days: 40 Points

Fig 1: NZD/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

ASIA STOCKS: JP PM Spooks Markets, Rotation out of Tech Growing

In what could be a sign of things to come, Japanese PM Takaichi essentially warned Japanese businesses focus too little on wealth distribution to employees and too much on shareholders. The overnight lead in was weak as investors feel less confident as to a FED rate cut in December as key officials shared their doubts. Equities will have one eye on bond yields to see if they are to stay elevated as a potential lead into next week's opening. This naturally fed into the part of the market that had run the most, the tech sector, with key companies in this sector now down over 5% over the last week and sector rotation a driving theme.

The NIKKEI finished the week with heavy falls of -1.6% and is barely holding onto weekly gains, following the PMs comments. The NIKKEI and the KOSPI have both benefited from the huge tech upswing and the downward pressure on the NIKKEI translated to the biggest daily fall for the KOSPI since mid-week last week. The KOSPI is down -2.6% today but holds onto weekly gains of +2.6%.
China's major bourses are all down today with the CSI 300 now negative for the week. Losses were led by the Hang Seng, down -1.2% yet it retains a +1.8% weekly gain, outperforming the onshore bourses.
Taiwan's TAIEX is down -1.1% today to give back all gains of the week, for modest losses.
Despite confirming stronger than expected 3Q GDP, and a currency outperforming regional peers, the FTSE Malay KLCI is down today by -0.3% and holding onto weekly gains of +0.50% whilst the Jakarta Composite's fall of -0.10%, tipped it just into red figures for the week.
In India, markets are watching for the outcome from the election in Bihar as a key test for PM Modi with the NIFTY 50 down -0.14% at the open Friday, whilst holding onto a weekly gain of +1.3%

OIL: Firmer On Russian Supply Concerns, WTI Still Sub Late Oct Highs

Oil benchmarks have built on Thursday gains in the first part of Friday trade. Brent was last around $64/bbl, up close to 1.3% from end Thursday levels, and modestly higher for the week. Session highs rest at $64.87/bbl. WTI is back around $59.70/bbl, up 1.7% but tracking close to flat for the week (earlier session highs were at $60.65/bbl).

The potential impact of US sanctions on Russian oil flows is being cited as a reason for bounce (with these sanctions kicking in over the next few days). Via BBG: "On Thursday, the International Energy Agency warned of “considerable downside risk” to its outlook for Russian output from the moves." Risks of US military action against Venezuela, has also been cited as risk factor (per BBG) and may be helping drive short covering ahead of the weekend.
The broader backdrop still look like oversupply concerns will dominate from a medium term standpoint.
From a technical perspective, Wednesday's sell-off in WTI futures strengthens a bearish theme. A continuation lower would pave the way for a move towards key support and the bear trigger at $55.96, the Oct 20 low. Resistance to watch is $62.59, the Oct 24 high.

Gold on Track For Best Weekly Return in a Month

Gold's fall overnight was short lived with buyers stepping in today during the Asia trading day, to rally above last night's closing.
Up +0.82%, gold stands to finish the week over 5% higher assuming the trajectory remains throughout the EU / US trading days.
The China Securities Journal reports that " Chinese investors should be aware of risks in gold price volatility and avoid making singular bets on the bullion market, " with comments from an analyst suggesting that "Gold price is still supported by its safe-haven status and central bank buying, but trading has already become very crowded due to rapid gains in short term, increasing the risk of market volatility,." (per BBG).
Central Banks globally have increased their holdings of gold this year as it rises over 60% year to date in what some see as a diversification away from the USD.
Gold retains its position above all major moving averages, with the trend for the EMAs upward sloping. This suggests that the positive momentum in gold prices could have more to run.

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Country	Event
14/11/2025	0700/0800	**	SE	Unemployment
14/11/2025	0745/0845	***	FR	HICP (f)
14/11/2025	0800/0900	***	ES	HICP (f)
14/11/2025	0900/1000		IT	Foreign Trade
14/11/2025	1000/1100	*	EU	Trade Balance
14/11/2025	1000/1100	***	EU	EZ GDP 2nd (Flash)
14/11/2025	1030/1130		EU	ECB Elderson Keynote at ECB Banking Supervision Forum
14/11/2025	1330/0830	**	CA	Monthly Survey of Manufacturing
14/11/2025	1330/0830	**	CA	Wholesale Trade
14/11/2025	1330/0830	***	US	Retail Sales
14/11/2025	1330/0830	***	US	PPI
14/11/2025	1330/0830	***	US	PPI
14/11/2025	1330/1430		EU	ECB Elderson Remarks at COP30 Finance Day
14/11/2025	1500/1000	*	US	Business Inventories
14/11/2025	1500/1600		EU	ECB Lane Panel at Workshop on International Macroeconomics and Finance
14/11/2025	1530/1030	**	US	Natural Gas Stocks
14/11/2025	1800/1300	**	US	Baker Hughes Rig Count Overview - Weekly
14/11/2025	1800/1300	**	US	Baker Hughes Rig Count Overview - Weekly
14/11/2025	1800/1300	**	US	Baker Hughes Rig Count Overview - Weekly
14/11/2025	1930/1430		US	Dallas Fed's Lorie Logan
14/11/2025	2020/1520		US	Atlanta Fed's Raphael Bostic
15/11/2025	1330/1430		EU	ECB Schnabel Chairs Panel at Econ/FinStab Conference