EU Mid-Market Update: BOE states that report of QT delay as ‘inaccurate’; German ZEW indicator hits record low; Russia continues drone strikes on Ukraine.
– Global risk appetite ignited by FT report that states Bank of England (BoE) to further delay QT via bond sales until Gilt markets calm. BOE has since stated that the press reports on QT were ‘inaccurate’ which caused pull back in UK equity morning gains.
– German ZEW Current Situations Survey came in all-time low at -72.9 to mark 8th consecutive monthly decrease. Expectations Survey slightly better than expected at -59.2.
– UK political undermining continues as ministers and press pile on pressure for PM Truss resignation following fiscal plan U-turn. Alternative leadership plans have been drafted within the conservative party.
– EU Commission reportedly to present details on gas price capping mechanism later today. EU said to propose €40B to mitigate energy inflation. Expectations for a dynamic intra-day price spike cap mechanism to quell volatility and a limit on transactions related to Dutch TTF.
– Asia closed mixed with Hang Seng outperforming at +1.8%. EU indices are broadly higher +0.4% to +1.5%. US futures are +0.8% to +1.2%. Gold -0.4%, DXY +0.1%; Commodity: Brent -0.4%, WTI -0.5%, UK Nat Gas -6.6%, EU Nat Gas (TTF) -9.9%; Crypto: BTC +1.5%, ETH +0.5%.
– New Zealand Q3 CPI Q/Q: 2.2% v 1.5%e; Y/Y 7.2% v 6.6%e.
– RBA Oct Minutes noted that 25bps and 50 bps rate hike arguments were finally balanced; smaller rate hike warranted as interest rates had risen sharply, impact of prior rate hikes still lay ahead.
– RBA Dep Gov Bullock noted that the 25bps increase was warranted in Oct when taking data into consideration; Reiterated would do what was necessary to return CPI to target.
– China data delayed indefinitely.
– China Pres Xi said to be positioning to load Politburo standing committee with allies.
– Bank of England (BOE) said to delay quantitative Tightening (QT) until Gilt markets calm. **Reminder: Back on Sept 28th BOE announced it would carry out temporary purchases of long-dated Gilts and pushed back quantitative Tightening (QT) until Oct 31st.
– ECB’s Nagel (Germany) stressed that ECB must withdraw support quickly and not stop too early. A premature stop could result in a more prolonged period of high inflation that will require an even tighter monetary policy later and could then result in an even more severe recession.
– ECB’s Villeroy (France) stated that ECB would carry on going quickly to 2% rates by the end of year and then embark on a slower and more flexible pace after that.
– UK 1922 Committee Chair Brady said to be planning to meet PM Truss to convey Tory concerns over turmoil. The week Prime Minister’s Questions later this week (held on Wed) being eyed as a “make or break” moment.
– Treasury Dept said to be asking primary dealers whether the gov’t should buy back some of its bonds in ways to improve market liquidity.
– Biden Presidential Administration said to be planning an oil reserve release announcement during the week ahead of the November elections; to release another 10-15M barrels.
– EU to propose €40B fund to mitigate energy inflation. EU Commission to offer governments the ability to tap existing cohesion funds to support small- and medium sized companies as well as set up national programs to help consumers.
Indices [Stoxx600 +1.02% at 402.54, FTSE +1.29% at 7,009.40, DAX +1.55% at 12,844.66, CAC-40 +1.17% at 6,111.47, IBEX-35 +1.34% at 7,658.60, FTSE MIB +1.77% at 21,698.00, SMI +0.76% at 10,578.00, S&P 500 Futures +1.56%].
Market Focal Points/Key Themes: European indices open higher across the board and advanced into the green as the session progressed; sectors among those leading to the upside are technology and industrials; lagging sectors include energy and materials; oil & gas subsector underperforming following reports of further releases from US SPR; Axa in exclusive talks to buy Credit Mutuel’s Spanish unit; reportedly Iberdrola selling minority stake in UK offshore windfarm for Allianz; Rio Tinto cut production outlook due to waning demand; earnings expected during the upcoming US session includes Johnson & Johnson, Goldman Sachs, State Street and Netflix.
– Consumer discretionary: Jet2 [JET2.UK] -1% (order).
– Consumer staples: Eurofins Scientific [ERF.FR] -4% (sales).
– Financials: Swiss Re [RUKN.CH] +2.5% (Hurricane Ian impact).
– Healthcare: Roche [ROG.CH] -1% (sales).
– Materials: Rio Tinto [RIO.UK] -0.5% (production; outlook cut).
– Technology: Wise [WISE.UK] +1% (earnings).
– Telecom: Telecom Italia [TIT.IT] +4.5% (merger speculation), Publicis [PUB.FR] +4% (earnings; raises outlook).
– Bank of England (BOE) spokesman declined to comment on press reports on QT delay.
– EU’s Dombrovskis: General help for households could fuel inflation.
– Poland Central Bank Member Tyrowicz stated that the MPC had scope to raise rates by 100bps at the Nov policy meeting.
– Turkey Central Bank (CBRT) stated that further steps as part of liraization strategy to be taken for the rest of 2022 and in 2023.
– Sweden incoming PM Kristersson Fiscal policy could not fan inflation.
– Philippines President Marcos stated that would continue to use interest rates to mitigate effects of inflation; Might have to defend PHP currency (Peso) in coming months.
– USD continued to consolidate recent gains as risk appetite received fresh tailwinds. Dealers believed that its correction would be temporary as the Fed remained committed to tighter policy. Dealers also noted that concerns over a hard economic landing for the global economy remained in focus.
– GBP/USD initially tested above the 1.14 level as the session began after reports circulated that BOE would likely delay quantitative Tightening (QT) until Gilt markets calmed. Focus turning to Wed’s UK CPI data. Dealers noted that economic fundamentals should limit the GBP currency scope for further gains as financial conditions to remain tighter than prior to the mini-budget. BOE later commented that the press reports on QT were inaccurate which saw most of the price action retrace by mid-day.
– EUR/USD probing the 0.9850 area as continued hawkish ECB speak circulates. Dealers now have expectations of ECB tightening by 75bps in the meeting coming up next week
USD/JPY tested its highest level since 1990 despite continued rhetoric from Japanese officials that they are watching the market closely. Some volatility did ensure after MOF and FSA announced a cooperation meeting on financial stability.
– Hotter NZ CPI data saw the swap market pricing in over an80% chance of 75bps RBNZ rate hike at the Nov 23rd meeting.
– (EU) EU27 Sept New Car Registrations: 9.6% v 4.4% prior (2nd straight monthly rise).
– (IT) Italy Aug Total Trade Balance: -€9.6B v -€0.5B prior; Trade Balance EU: -€1.8B v +€2.4B prior.
– (ES) Spain Aug Trade Balance: -€7.9 v -€6.6B prior.
– (DE) Germany Oct ZEW Current Situation Survey: -72.2 v -68.5e (record low); Expectations Survey: -59.2 v -66.6e.
– (EU) Euro Zone Oct ZEW Expectations Survey: No est v -60.7 prior.
Fixed income issuance
– (ID) Indonesia sold total IDR1.9T vs. IDR5.0T target in Islamic bills and bonds (sukuk).
– (UK) DMO sold £2.5B in 1.25% July 2051 Gilts; Avg Yield: 4.409% v 2.360% prior; bid-to-cover: 2.13x v 2.52x prior; Tail: 1.5bps v 0.2bps prior.
– (AT) Austria Debt Agency (AFFA) sold total €2.25B vs. €2.25B indicated in 3-month bills.
– (CH) Switzerland sold CHF668.6M in 3-month Bills; Avg Yield: 0.396% v 0.238% prior;.
– 05:25 (EU) Daily ECB Liquidity Stats.
– 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.
– 05:30 (DE) Germany to sell €4.0B in new 2.10% Nov 2029 Bunds.
– 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO) (prior €3.62B with 19 bids recd).
– 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2031, 2032 and 2035 bonds.
– 06:00 (IL) Israel to sell combined ILS1.05B in 2024, 2028, 2031, 2032 and 2051 bonds.
– 06:00 (FI) Finland to sell combined €2.0B in 2032 and 2052 bonds.
– 06:30 (EU) ESM to sell €1.1B in Bills.
– 06:45 (US) Daily Libor Fixing.
– 07:00 (BR) Brazil Oct FGV Inflation IGP-10 M/M: -1.0%e v -0.9% prior.
– 08:00 (UK) Daily Baltic Dry Bulk Index.
– 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).
– 08:15 (CA) Canada Sept Annualized Housing Starts: 265.0Ke v 267.4K prior.
– 08:30 (CA) Canada Aug Int’l Securities Transactions (CAD): No est v 14.8B prior.
– 08:55 (US) Weekly Redbook LFL Sales data.
– 09:15 (US) Sept Industrial Production M/M: +0.1%e v -0.2% prior; Capacity Utilization: 80.0%e v 80.0% prior; Manufacturing Production: 0.3%e v 0.1% prior.
– 09:40 (SE) Sweden Central Bank (Riksbank) Jansson.
– 09:40 (IE) ECB’s Makhlouf (Ireland).
– 10:00 (US) Oct NAHB Housing Market Index: 43e v 46 prior.
– 12:00 (CO) Colombia Aug Economic Activity Index (Monthly GDP) Y/Y: 7.4%e v 6.4% prior.
– 12:00 (DE) ECB’s Schnabel (Germany).
– 14:00 (US) Fed’s Bostic.
– 15:00 (AR) Argentina Aug Capacity Utilization: No est v 67.6% prior.
– 16:00 (US) Aug Net Long-Term TIC Flows: No est v $21.4B prior; Total Net TIC Flows: No est v $153.5B prior.
– 16:30 (US) Weekly API Oil Inventories.
– 17:30 (US) Fed’s Kashkari (non-voter).
– 19:30 (AU) Australia Sept Westpac Leading Index M/M: No est v -0.1% prior.
– 21:30 (CN) China Sept New Home Prices M/M: No est v -0.3% prior; Y/Y: No est v -1.3% prior.
– 21:30 (JP) BOJ’s Adachi.
– 22:35 (CN) China to sell CNY 2-year and 10-year Upsized Bonds.
– 23:30 (JP) Japan to sell 12-Month Bills.