USD/JPY hits 150.0 – PM Truss on thin ice

(TradeTheNews.com Staff)

Notes/Observations

– JPY currency (Yen) weakened to test the 150 level for 1st time since 1990 with no sign of any intervention. Japan Fin Min Suzuki and Top FX Diplomat Kanda continued to decline comment on FX levels and reiterated to take action against speculative moves

– Focus on UK remains as BOE’s Broadbent noted it is not clear if rates must rise as much as market sees. Markets reduced the chance of 100bps hike by BOE on Nov 3rd to 17% from 25% following Broadbent’s comments. Political turmoil surrounds PM Truss as media and party members build on calls for resignation, noting she could have hours to save her job

– European current account data showed broad declines as Euro Zone, Italy, Greece and Portugal all registered lower accounts for Aug

– German PPI matched a 70-year high at 45.8%

– Russia deputy ambassador to the UN Polyanskiy said Russia might reconsider cooperation with the UN, in particular, the grain deal, if the UN engaged in the study of drones shot down in Ukraine; Current deal on the export of grain from Ukrainian ports expires on Nov 19th

– Indonesia Central Bank hiked by 50bps and provided color on future decisions, noting core CPI was softening

– Asia closed lower with Hang Seng underperforming at -1.4%. EU indices are 0.0% to -0.8% lower. US futures are -0.1% to -0.8%. Gold +0.1%, DXY -0.1%; Commodity: Brent +1.0%, WTI +1.4%, UK Nat Gas +14.1%; Crypto: BTC -0.4%, ETH -0.7%

Asia

– Australia Sept Employment Change: +0.9K v +25.0Ke; Unemployment Rate: 3.5% v 3.5%e

– China PBOC Monthly Loan Prime Rate (LPR) Setting left both 1-Year and 5-Year rates at 3.65% and 4.30% respectively (as expected)

– Japan Sept Trade Balance: -¥2.1T v -¥2.15Te; Exports Y/Y: 28.9% v 26.6%e; Imports Y/Y: 45.9% v 44.9%e

– BOJ announced an unscheduled bond buying as key yield moved above ceiling

– China said to be debating adjusting quarantine times to 7 days from 10, plans had not yet been presented to leaders

Europe

– BOE’s Cunliffe stated that did not want to be stuck supporting the Gilt market for longer than needed after the mini-budget and did not want to hold on to the bonds we bought after the mini-budget for a long time

– Prime Minister Truss accepts Braverman’s resignation. Reports later circulated that Truss Team was concerned of a Cabinet exodus following Braverman resignation

Americas

– Federal Reserve Beige Book noted that price growth remained elevated but some easing seen in several districts

– Fed’s Evans (non-voter) believed that starting rate hikes 6 months earlier would have made sense; Needed to ensure inflation pressures did not broaden further; If Inflation got worse then Fed must do more. Still saw policy rate of 4.5-4.75% policy rate in 2023 as appropriate after Sept data

– Fed’s Bullard (voter) noted that rate hikes would have an impact, such as in the housing sector. Must follow through on rate hikes we have signaled

– Fed’s Kashkari (non-voter) reiterates inflation is much too high; We are on an aggressive campaign to bring inflation into check

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.65% at 395.96, FTSE -0.12% at 6,916.54, DAX -0.58% at 12,667.20, CAC-40 +0.06% at 6,044.06, IBEX-35 +0.11% at 7,592.13, FTSE MIB -0.01% at 21,470.00, SMI -0.33% at 10,449.90, S&P 500 Futures -0.51%]

Market Focal Points/Key Themes: European indices open with a downward bias with the trend into the red continuing through the early part of the session; better performing sectors include consumer discretionary and energy; sectors leading the trend downward include real estate and telecom; telecom sector dragged by disappointing earnings from Nokia and Ericsson; luxury brands supported after Hermes results; oil & gas subsector supported after Brent approaches $94/bbl; Philip Morris confirms increased offer for Swedish Match; reportedly Unicredit to sell portfolio of NPL; earnings expected during the upcoming US session include Danaher, Fifth Third Bancorp, KeyCorp and Blackstone

Equities

– Consumer discretionary: Hermes [RMS.FR] +1% (earnings), Naked Wines [WINE.UK] +25% (trading update; new Chair), Aston Martin Lagonda Global Holdings [AML.UK] -4% (Geely’s stake), Bunzl [BNZL.UK] -1.5% (trading update)

– Consumer staples: Pernod Ricard [RI.FR] +0.5% (earnings)

– Industrials: Volvo AB [VOLVA.SE] -5% (earnings), ABB [ABBN.CH] -1% (earnings), Mercedes-Benz [MBG.DE] -1.5% (partnership)

– Materials: Akzo Nobel [AKZA.NL] -3% (earnings; withdraws outlook)

– Telecom: Ericsson [ERICB.SE] -15% (earnings), Nokia [NOKIA.FI] -4% (earnings)

Speakers

– BOE’s Braodbent stated that saw clear justification for tightening; MPC was set for prompt response to fiscal news. Most of CPI overshoot due to import prices. MPC to include the Oct 31st fiscal plan in its forecasts

– Sweden Central Bank (Riksbank) Gov Ingves testified in Parliament that would do what is necessary to curb inflation – Parliament

– German Chancellor Scholz reiterated Putin was using energy and hunger as weapons; Biggest test for Germany and Europe in decades; Gas price cap could end up crimping supplies to Europe

– France Fin Min Le Maire stated that govt was aiming for 5% inflation at start of 2023 (**Reminder: France Sept CPI YoY reading was 5.6% which moved off of recent cycle highs (CPI hit 5.9% back in Aug)

– Japan Fin MIn Suzuki reiterated stance that could not comment on FX levels; Would take action against any speculative, excessive and sudden moves; No change in stance of acting against speculative moves

– Japan Top FX Diplomat Kanda reiterated no comment on FX levels; Various nations share understanding on FX volatility. Could take responses on FX as needed

– Indonesia Central Bank Policy Statement reiterated its stance that the decision to hike was a preemptive move to lower inflation and aim to strengthen IDR currency (Rupiah) amid global uncertainty. Rate hike needed to be front-loaded due to four quarter lag impact on inflation It sought to bring CPI back to 2.0-4.0% target in H1 2023

– Sweden PM Kristersson stated that NATO accession was the govt’s highest priority. o redouble out effects to work with Turkey on NATO application

– Indonesia Central Bank Gov Warjiyo pre-rate decision press conference noted that the domestic recovery continued with Q3 GDP seen improving. Core inflation remained low and under control with the impact of fuel-price hikes on food prices not a big as anticipated. Saw Q3 current account balance at a surplus and reiterated stance to stabilize IDR currency (Rupiah) to be in line with fundamentals. It saw the USD currency strengthening due to Fed rate hike cycle

– Indonesia Central Bank updated its Staff Projection which maintained 2022 GDP growth at upper end of 4.5-5.3% range and maintained 2022 CPI to be above target (prior view was above 6.0%)

Currencies/fixed income

– Japanese yen tested 150.00 level against US dollar for the first time since Aug 1990. Previous MOF intervention level to buy JPY was at 145.60 back in Sept 2022. Markets were on high alert for any signs of an intervention from Japanese authorities but none seen yet. Dealers noted that the 150 area was a big psychological level that could trigger intervention. The yen currency weakness triggered by the divergence in central bank policy. US yields have been driven higher as the Fed looked set to continue with its aggressive pace of interest rate hikes while BOJ reiterated its easy policy stance.

– EUR/USD at 0.9785 by mid-session

– GBP/USD drifting lower to probe 1.1190 as focus continued to be on the UK political situation. More calls from Tory members sought a confidence vote on PM Truss’s leadership.

Economic Data

– (NL) Netherlands Oct Consumer Confidence: -59 v -59 prior

– (NL) Netherlands Sept Unemployment Rate: 3.8% v 3.8%e

– (NL) Netherlands Aug Consumer Spending Y/Y: 4.1% v 6.5% prior

– (DE) Germany Sept PPI M/M: 2.3% v 1.5%e; Y/Y: 45.8% v 45.4%e (annual pace matched a 7 decade high)

– (CH) Swiss Sept Trade Balance (CHF): 4.0B v 3.3B prior; Real Exports M/M: 0.4% v 1.6% prior; Real Imports M/M: 0.9% v 1.7% prior; Watch Exports Y/Y: 19.1% v 14.8% prior

– (NO) Norway Q3 Industrial Confidence: -4.4 v +2.3 prior

– (FR) France Oct Business Confidence: 102# v 101e; Manufacturing Confidence: 103 v 100e; Production Outlook Indicator: -8 v -8e; Own-Company Production Outlook: 13 v 5e

– (FR) France Oct Overall Demand Business Survey: 13 v 5 prior

– Indonesia Central Bank (BI) raised the 7-day Reverse Repo Rate by 50bps to 4.75% (as expected)

– (EU) Euro Zone Aug Current Account: -€26.3B v -€20.0B prior

– (PL) Poland Sept Sold Industrial Output M/M: 9.8% v 8.8%e; Y/Y: 9.8% v 8.8%e

– (PL) Poland Sept PPI M/M: 0.2% v 0.9%e; Y/Y: 24.6% v 25.5%e

– (PL) Poland Sept Employment M/M: -0.1% v -0.1%e; Y/Y: 2.3% v 2.4%e

– (PL) Poland Sept Average Gross Wages M/M: 1.6% v 0.0%e; Y/Y: 14.5% v 13.4%e

– (TW) Taiwan Sept Export Orders Y/Y: -3.1% v -5.0%e

– (HK) Hong Kong Sept Unemployment Rate: 3.9% v 4.0%e

– (IT) Italy Aug Current Account Balance: -€5.3B v +€1.6B prior

– (GR) Greece Aug Current Account Balance: €0.5B v €1.1B prior

– (PT) Portugal Aug Current Account Balance: €0.1B v €0.4B prior

Fixed income issuance

– (LT) Latvia opened its book to sell EUR-denominated 4-year bond via syndicate; guidance seen +120bps to mid-swaps

– (ES) Spain Debt Agency (Tesoro) sold total €5.43B vs. €4.5-5.5B indicated range in 2025, 2026 and 2029 SPGB bonds

– Sold €1.750B in 0.00% May 2025 SPGB bonds; Avg Yield: 1.808% v 1.416% prior; Bid-to-cover: 2.05 v 1.94x prior

– Sold €1.218B in 1.95% Apr 2026 SPGB bond; Avg Yield: +2.669% v -0.018% prior; Bid-to-cover: 1.92x v 2.44x prior

– Sold €2.458B in 0.80% July 2029 SPGB bond; Avg Yield: 3.247% v 1.552% prior; bid-to-cover: 1.86x v 1.60x prior

– (FR) France Debt Agency (AFT) sold total €9.997B vs. €9.0-10.0B indicated range in 2025, 2026 and 2028 Bonds

– Sold €3.268B in 0.00% Feb 2025 Oat; Avg Yield: 2.38% v 1.00% prior; Bid-to-cover: 2.70x v 2.31x prior (July 21st 2o22)

– Sold €2.302B in 0.50% May 2026 Oat; Avg Yield: 2.46% v 0.20% prior; Bid-to-cover: 2.70x v 2.20x prior (Mar 17th 2022)

– Sold €4.427B in 0.75% Feb 2028 Oat; Avg Yield: 2.65% v 1.96% prior; Bid-to-cover: 2.25x v 2.65x prior

Looking ahead

– (EU) European Council Meeting

– (AR) Argentina Sept Budget Balance (ARS): No est v -210.1B prior

– (MX) CitiBanamex Survey of Economists

– 05:25 (EU) Daily ECB Liquidity Stats

– 05:30 (HU) Hungary Debt Agency (AKK) to sell 5-year, 10-year and 15-year bonds

– 05:50 (FR) France Debt Agency (AFT) to sell €1.0-1.5B in inflation-linked 2036 and 2053 bonds (Oatei) (3 tranches)

– 06:00 (IL) Israel Aug Chain Store Sales Y/Y: No est v 1.0% prior

– 06:00 (CZ) Czech Republic to sell 3-month bills; Avg Yield: % v 6.55% prior, bid-to-cover: x v 1.87x prior

– 06:45 (US) Daily Libor Fixing

– 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to cut One-Week Repo Rate by 100bps to 11.00%

– 07:00 (UR) Ukraine Central Bank (NBU) Interest Rate Decision: Expected to leave Key Rate unchanged at 25.00%

– 08:00 (UK) Daily Baltic Dry Bulk Index

– 08:30 (US) Oct Philadelphia Fed Business Outlook: -5.0e v -9.9 prior

– 08:30 (US) Initial Jobless Claims: 230Ke v 228K prior; Continuing Claims: 1.38Me v 1.368M prior

– 08:30 (US) Weekly USDA Net Export Sales

– 09:00 (RU) Russia Gold and Forex Reserve w/e Oct 14th: No est v $548.7B prior

– 09:00 (NO) Norway Central Bank (Norges) Gov Bache

– 10:00 (US) Sept Existing Home Sales: 4.69Me v 4.80M prior

– 10:00 (US) Sept Leading Index: -0.3%e v -0.3% prior

– 10:30 (US) Weekly EIA Natural Gas Inventories

– 11:30 (US) Treasury to sell 4-Week and 8-Week Bills

– 12:00 (CA) Canada to sell 3 Year Bonds

– 13:00 US) Treasury to sell 5-Year TIPS

– 13:30 (US) Fed’s Jefferson

– 13:45 (US) Fed’s Cook

– 14:05 (US) Fed’s Bowman

– 15:00 (AR) Argentina Aug Economic Activity Index (Monthly GDP) M/M: No est v 0.0% prior; Y/Y: No est v 5.6% prior

– 15:00 (AR) Argentina Sept Trade Balance: No est v -$0.3B prior

– 17:00 (KR) South Korea Sept PPI Y/Y: No est v 8.4% prior

– 17:45 (NZ) New Zealand Sept Trade Balance (NZ$): No est v -2.4B prior; Exports: No est v 5.5B prior; Imports: No est v 7.9B prior

– 19:01 (UK) Oct GfK Consumer Confidence: -52e v -49 prior

– 19:30 (JP) Japan Sept National CPI Y/Y: 2.9%e v 3.0% prior; CPI Ex-Fresh Food (Core) Y/Y: 3.0%e v 2.8% prior; CPI Ex-fresh food/energy (Core-Core) Y/Y: 1.8%e v 1.6% prior

– 20:00 (KR) South Korea Oct 1-20 Exports Y/Y: No est v -8.7% prior; Imports Y/Y: No est v 6.1% prior

– 22:00 (NZ) New Zealand Sept Credit Card Spending M/M: No est v 5.1% prior; Y/Y: No est v 29.4% prior

– 23:30 (JP) Japan to sell 3-Month Bills

Read Higher bond yields weighing upon risk appetite in session, safe haven flows dominate