The Opening Belle

 European Opening Calls:#FTSE 5900 +1.21%#DAX 12727 +1.05%#CAC 4822 +1.03%#AEX 546 +1.05%#MIB 19090 +1.03%#IBEX 6710 +0.92%#OMX 1793 +0.62%#STOXX 3197 +1.02%#IGOpeningCall— IGSquawk (@IGSquawk) September 23, 2020 

"The latest PMI data showed signs of stabilisation in Australia's private sector business conditions during September, with activity and sales increasing marginally after falling in August amid tightening containment measures to contain a surge in new infection cases.

However, other survey indicators suggest that the rebound may lack legs going forward.

The absence of capacity pressure led to a further and sharper decline in workforce numbers, highlighting the prospect of rising unemployment.

"The survey also showed a divergence in the sectors participating in the economic recovery.

Services business activity remained subdued, coinciding with weak sales as the sector was more adversely hit by COVID-19 restrictions.

Meanwhile, manufacturing output continued to increase, supported by renewed growth in export sales.

"Government spending on public works and expectations of an eventual easing of containment measures, including crossborder restrictions, boosted business sentiment, which rose to the highest for just over two years."

NAB now sees significant risk of the RBA easing policy further by cutting the cash rate, 3-year yield target and TFF rate by 15bps to 0.10% (from 0.25%).

The remuneration on ES balances which is already at 0.10% is likely to be either unchanged, or cut slightly, so as to remain positive.

We also expect the RBA to announce outright QE purchases in the 5-10 year area of the curve, so as to lower longer-dated rates to provide stimulus via the portfolio rebalance effect/a lower $A.

Different to YCC, this would likely require a nominated quantum of bond purchases per period to be announced.

Output contracted at a faster pace for the first time in four months, weighing on the headline index, which remained below the 50.0 threshold that separates contraction from expansion for a 17th month.

“New order inflows continued to fall in September, reflecting subdued demand,” said Bernard Aw, principal economist at IHS Markit, which compiles the survey.

“That said, the picture of the economy remained much improved when compared to the height of the pandemic during the second quarter.”

...further stimulus may be needed and that it was prepared to use additional tools like a Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign assets.

“Members agreed that monetary policy will need to provide significant economic support for a long time to come to meet the inflation and employment remit, and promote financial stability,”