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U.S. consumer spending increases; inflation eroding households' buying power 
Consumer spending surged in August, but outlays adjusted for inflation were weaker than initially thought in the prior month. The report from the Commerce Department showed consumer spending rebounded 0.8% in August. Consumer spending grew at a robust 12.0% rate in the April-June quarter. The Commerce Department also said construction spending increased 8.9% on a year-on-year basis in August. Separately, the University of Michigan's Consumer Sentiment Index rose to a final reading of 72.8 in September from 70.3 in August - the lowest since December 2011 - and from a preliminary September reading of 71.0. Meanwhile, the Institute for Supply Management said its index of national factory activity increased to a reading of 61.1 last month from 59.9 in August.

GLOBAL ECONOMY-Factories struggling as supply constraints hit, costs rise 
Global manufacturing activity took a big hit from supply chain bottlenecks and escalating costs, exacerbated by pandemic-induced factory shutdowns in Asia and signs of slowing Chinese growth, surveys showed. IHS Markit's final manufacturing PMI for the euro zone sank to 58.6 in September from August's 61.4 and Britain's PMI fell for a fourth month in a row, dropping to 57.1 from 60.3. Germany’s final PMI for manufacturing stood at 58.4, slightly lower than a flash reading of 58.5, and down from 62.6 in August. French manufacturing sector in September fell to 55.0 points from 57.5 in August. Manufacturing in Spain fell to 58.1 for September, from 59.5 in August. Italy’s manufacturing PMI rose to 53.7 in September from 52.3 in August. The final au Jibun Bank Japan manufacturing PMI in September slipped to 51.5 on a seasonally adjusted basis from 52.7 in the previous month.

EXCLUSIVE-Fed's Harker says economy close to achieving inflation goal for rate hikes 
The U.S. Federal Reserve may be close to meeting the inflation mandate set for raising interest rates, Philadelphia Fed Bank President Patrick Harker said, but it may be a year or longer before the central bank's employment goal is met to allow for an actual rate increase. After running high this year because of the pandemic, inflation is likely to come down closer to the Fed's 2% target over the next couple of years, Harker said in an interview with Reuters on Thursday. If the economy continues to improve as expected, it could potentially reach a point as soon as 2023 where the Fed's mandates for both inflation and maximum employment have been met, he said. Separately, Cleveland Fed Bank President Loretta Mester said the Federal Reserve's conditions for raising interest rates could be met by the end of 2022, adding that she expects inflation to come back down to the central bank's target next year.

Euro zone inflation jumps to 13-year high, worsening ECB headache 
Euro zone inflation hit a 13-year high last month and looks likely to jump higher still, further clouding the European Central Bank's benign view of the biggest price spike since before the global financial crisis. Consumer price inflation in the euro zone accelerated to 3.4% year on year in September from 3% a month earlier, the highest reading since September 2008 and just ahead of analyst expectations for 3.3%, data from Eurostat, the EU's statics agency showed. Prices rose predominantly on a surge in energy costs, mostly a reversal of the oil price crash that took place during the COVID-19 pandemic, but the impact from production and shipping bottlenecks was also showing as durable goods prices rose 2.3% from August. Core inflation excluding food and energy rose to 1.9% from 1.6%, as did a narrower measure that also excludes alcohol and tobacco.

Japan's business mood improves on solid demand, hopes of post-COVID recovery 
Japan's business mood improved for a fifth straight quarter in September with manufacturers perking up on robust global demand, a central bank survey showed. The headline index gauging big manufacturers' sentiment stood at plus 18 in July-September, up from plus 14 in the previous quarter and exceeding market forecasts for plus 13, the Bank of Japan's (BOJ) tankan survey showed. Big non-manufacturers' sentiment index improved to plus 2 from plus 1 in June, beating a median market forecast for a flat reading and posting a fifth straight quarter of improvement. Separately, a Reuters poll showed Japan’s household spending likely shed 1.5% in August from a year earlier, after a 0.7% increase in July.


COLUMN-Markets flash amber as they enter '2nd stage of interest rate grief' 
Rising bond yields are not always bad news for stocks and other "riskier" assets, but the current spike is giving investors justifiable cause for concern as they enter the fourth quarter.

ANALYSIS-Japan may sell more bonds to fund next premier Kishida's stimulus package
Japan's next Prime Minister Fumio Kishida may have little choice but to sell more government bonds to fund his pandemic-relief package worth hundreds of billions of dollars, even if it scrapes together money left over from previous stimulus programs.

GRAPHIC-Take Five: U.S. jobs & an OPEC oil gathering 
Five big themes likely to dominate thinking of investors and traders in the coming week.



Traders sent longer-term Treasury yields lower as they repositioned for the year's fourth quarter, although Washington's budget battles sent up yields on soon-to-mature debt. The Democratic-controlled U.S. Congress struggled to advance President Joe Biden's agenda, with House progressives vowing to block a $1 trillion infrastructure bill without a deal on a larger social spending and climate change bill. Fitch Ratings said the United States' AAA sovereign credit rating could be pressured if federal lawmakers fail to address the debt ceiling in a timely manner. 30-year bonds jumped 1-7/32, yielding 2.04%. Benchmark 10-year notes were up 18/32 with a yield of 1.47%. 2-year notes edged up 2/32 to yield 0.27%. 

FOREX: The dollar fell for a second straight session, tracking declines in Treasury yields, as investors booked profits after recent sharp gains, though the decline was viewed as temporary. The dollar index was down 0.18% at 94.057. The euro gained 0.14% to $1.1597. Against the Japanese yen, the greenback lost 0.22% to 111.02 yen. Sterling rose 0.59% to $1.3551.

CORPORATES: Corporate bond spreads tightened with Wall Street sentiment boosted by positive economic data and drugmaker Merck announcing progress in the development of an oral COVID-19 drug. The CDX-IG.36 index tightened by 1 bps to 52 bps.

STOCKS: Wall Street stocks surged to a higher close, kicking off the fourth quarter in a buying mood boosted by positive economic data, progress in the battle against COVID, and Washington developments on the potential passage of an infrastructure bill. Merck surged 8.44% after it revealed that a recent study showed its experimental oral drug for COVID-19 cut risk of death and hospitalization by about 50%. Moderna tumbled 11.37% in the wake of the Merck news. The Dow rose 488.73 points, or 1.44%, to 34,332.65, the S&P 500 gained 49.88 points, or 1.16%, to 4,357.42 and the Nasdaq added 108.76 points, or 0.75%, to 14,557.34. For the week, Dow lost 1.35%, S&P 500 fell 2.21% and Nasdaq shed 3.2%.

C&E: Oil prices rose, within sight of this week's three-year high, supported by tight supplies due to OPEC+ supply curbs. The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, meets on Monday. The group is slowly unwinding record output cuts made last year, although sources say it is considering doing more to boost production. Brent was up 1.02% at $79.11 a barrel. U.S. crude gained 0.87% to $75.68 a barrel. Gold was up 0.17% to $1759.58 an ounce.



Mexico's factories contract for 19th straight month, outlook improves 
Mexico's manufacturing sector contracted for the 19th month in a row in September due to a challenging market environment and subdued demand, and as some factories were shut down because of heavy rains and the pandemic, a survey showed. The IHS Markit Mexico manufacturing PMI rose to 48.6 in September from 47.1 in August. PMI data for September underscored that order book volumes shrank further, which in turn led companies to reduce headcounts, even as the downturn in demand showed signs of abating. The survey pointed to revived hopes among goods producers that production could expand in the coming months, with the overall level of positive sentiment rising from August's four-month low.

Chile's economic activity jumps as government eases health restrictions 
Chile's economic activity jumped 19.1% in August year-on-year, the central bank said, as the world's top copper producer continued to recoup lost ground following a successful vaccination drive against the coronavirus. The bank's monthly IMACEC economic activity index encompasses about 90% of the economy tallied in gross domestic product figures. "This result was mainly explained by the greater opening of the economy, measures to support households, the partial withdrawals of pension funds and the lower comparison base from August of the previous year," the bank said in a statement. Chile's economy grew 1.1% versus July as health authorities continue to loosen restrictions on travel and movement, the bank added.



POLL-RBA to end bond-buying within a year; rates going nowhere soon 
Australia's central bank bond-buying program will be closed by this time next year, according to a majority of economists polled by Reuters, who also forecast no change to interest rates until at least 2024 given persistently sluggish wage growth. A solid majority of economists, 15 of 21, who answered an additional question said the RBA would have completely stopped its bond-buying program, which was introduced as a response to the pandemic, by the end of the third quarter next year. That includes eight who said by mid-2022. Part of the reason, say analysts, is because of pressure to not veer off too far from the U.S. Federal Reserve's own plans. Economists in the poll expected the cash rate to stay at 0.10%, where it has been since a cut last November, for years. 

India central bank may signal policy normalization on Oct. 8, StanChart says
The Reserve Bank of India is likely to signal the start of an unwinding of its accommodative monetary policy, introduced to cushion the economic impact of the pandemic, at a meeting next week, economists at Standard Chartered Bank wrote in a research note. The consensus view is that the RBI will leave interest rates unchanged at its Oct. 8 MPC meeting and only start to unwind its accommodative monetary policy by reducing the gap between the repo and reverse repo rates early next year. "We now expect India's Monetary Policy Committee (MPC) to hike the reverse repo rate by 40 basis points to 3.75% at the December 2021 and February 2022 policy meetings; we had earlier expected the hikes in February and April 2022," the Standard Chartered economists said.

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