MNI ASIA OPEN - Queen Elizabeth II Dies Aged 96

NEWS

UK (BBG): Queen Elizabeth, Britain’s Longest-Reigning Monarch, Dies at 96
Queen Elizabeth II, whose reign took Britain from the age of steam to the era of the smartphone, and who oversaw the largely peaceful breakup of an empire that once spanned the globe, has died. She was 96.

EUROPE (MNI): Ministers Seen Backing ECB's Energy Operator Scheme
EU energy ministers look set to back credit line support for energy market participants facing high margin calls, as well as a reduction of consumer demand for gas, a senior EU official said. But a mooted capping of Russian gas prices -- although supported by some member states -- looks a less likely option, the official added.

EUROPE (MNI): EC Fears Govts Undermining ECB Inflation Fight - Officials
The European Commission is likely to scold eurozone finance ministers at their meeting over the weekend, telling them that measures to help consumers cope with soaring energy prices are not only expensive but untargeted and likely to prejudice the European Central Bank's fight against inflation, EU officials told MNI.

ECB (MNI): ECB Frontloads With 75bp Hike, More Coming
The European Central Bank raised all three key interest rates by an unprecedented 0.75% on Thursday, with president Christine Lagarde arguing that a "major step" was necessary to bring inflation back to the Governing Council's medium-term target of 2% by early 2023 and that more hikes were on the way in coming meetings.

ECB (BBG): ECB Officials Leave Open Chance of Another Jumbo Rate Hike
European Central Bank officials are prepared to deliver another jumbo interest-rate increase at their October meeting if the inflation outlook warrants an additional big step, according to people familiar with the debate. The appetite for a potential repeat of Thursday’s unprecedented monetary-policy tightening is shared among hawks and doves on the Governing Council, said the people, who asked not to be identified commenting on private talks.

FED (MNI): Powell: Price Expectations Need To Stay Anchored
Keeping firms' and households' inflation expectations anchored at 2% is the top priority for the Federal Reserve, and the Fed will keep tightening monetary policy until inflation is under control, Chair Jerome Powell said Thursday.

FED (MNI): NY Fed Official Sees On RRP Usage Declining Over Time
The Federal Reserve anticipates take-up of its overnight reverse repo facility to decline over time as money market interest rates rise relative to the Fed's rate, the New York Fed's market chief pro tem Patricia Zobel said Thursday.

FED (MNI): Fed Evans Sees Rates Topping Out At 4% 'Before Too Long'
Federal Reserve Bank of Chicago President Charles Evans said Thursday he's "open-minded" about the size of the September interest rate hike while awaiting CPI data next week, but added he expects rates to top out at around 4% "before too long" next year.

BOC (MNI): BOC Says Curbing CPI Will Take Time, Slower Growth Needed
Canada faces strong inflation pressure even as gasoline prices tumble and the economy needs a phase of slower growth to pull things back into balance, top central bank deputy Carolyn Rogers said the day after hiking 75bps.

BOC (MNI): BOC Says CPI Buffer From Higher CAD Would Be Nice
Bank of Canada Senior Deputy Governor Carolyn Rogers said Thursday a stronger Canadian dollar could be helpful in slowing inflation, a rare comment from a central bank that normally avoids jawboning the currency.

UK (MNI): UK Govt Energy Plan To Also Cap Peak CPI Rate
New UK Prime Minister Liz Truss announced a price cap that would curb the expected rise in average yearly household energy bills to GBP2,500, well below the level the Bank of England had previously assumed in its inflation projections. Truss said the plan could knock as much as 5 percentage points off of assumed near-term peak inflation.

DATA

**MNI: US JOBLESS CLAIMS -6K TO 222K IN SEP 03 WK
*US CONTINUING CLAIMS +0.036M TO 1.473M IN AUG 27 WK
*US PREV JOBLESS CLAIMS REVISED TO 228K IN AUG 27 WK

MNI INSIGHTS - 8th September 2022

CANADA: MNI BoC Review, Sep'22: Maintaining Optionality

• The Bank hiked 75bps as expected to an above-neutral 3.25%, signalling further rate hikes ahead but also assessing how much higher they have to go as the effects of tightening feed through.
• https://marketnews.com/mni-boc-review-sep-22-maint...

SONIA: 34bps of hikes over 12-month removed from the peak this week

• Pricing for next week's MPC meeting is currently 64bp (down from 65bpyesterday and after spiking to 73bp following Mann's comments on Monday). 180bp is priced by year-end (from a high of 199bp post-Mann).
• https://marketnews.com/34bps-of-hikes-over-12-mont...

GILTS: How soon can we get an increase in the remit?

• An increase in the gilt remit could be imminent (MNI expects we will probably get an update this month). Remit revisions normally occur alongside Budgets or formal fiscal statements, and the DMO tends to base its estimates on OBR forecasts.
• https://marketnews.com/how-soon-can-we-get-an-incr...

US TSYS: Treasuries Continue A Week Of Swings With ECB-Led Cheapening

• Cash Treasuries have seen a reasonable bear flattening today (2YY +5.6bps, 10YY +2.3bps) with nearly all of the cheapening coming from the ECB 75bp hike announcement and then press conference.
• They only edged out further moves with Powell doing little to push back on market pricing nearing a 75bp hike (currently 71.5bps, and with GS late yesterday and Barclays today joining calls for a 75bp hike). The main hurdle remains Tuesday’s US CPI prior to the Sep 21 FOMC decision.
• TYZ2 trades 6 ticks lower at 115-31+ having rallied pre-ECB, continuing to build on its vulnerability to the downside from a technical perspective having breached the bear trigger at 115-23. Support is seen at 115-13+ (Sep 7 low).
• Fedspeak highlights an otherwise light US docket tomorrow, with appearances from Governor Waller and ’22 voter George plus Evans again (today said see’s topping out at 4% “before too long” before pausing). The media blackout will kick in at Friday midnight.

2Y Tsy yield fluctuations ever since the mixed payrolls report, Sep 2Source: Bloomberg

EGBs-GILTS CASH CLOSE: ECB Hikes 75bp, But Intrigue Lies Elsewhere

The ECB delivered a record 75bp hike today, but with that priced in beforehand, most reaction came on the non-rate intrigue.

• German Schatz yields rose sharply as the ECB surprised by removing the 0% interest rate ceiling for remuneration of government deposits. That move was seen as easing recent bond collateral shortage fears, especially at the short end.
• The usual round of post-meeting sources stories began with a BBG piece right on the cash close that saw BTPs fall sharply: ECB officials "don't exclude" another 75bp raise in October, with "QT expected to be discussed" at the Oct meeting and beyond.
• BTPs had been seen benefiting from the apparent lack of discussion of QT today, so futures sold off after the sources story.
• Overshadowed was the pullback in BoE pricing in the afternoon from session highs, as analysts dropped their inflation forecasts on gov't energy cost mitigation plans.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is up 22.9bps at 1.334%, 5-Yr is up 18.1bps at 1.555%, 10-Yr is up 14bps at 1.717%, and 30-Yr is up 9.8bps at 1.779%.
• UK: The 2-Yr yield is up 6.7bps at 3.068%, 5-Yr is up 9bps at 3.007%, 10-Yr is up 11.3bps at 3.147%, and 30-Yr is up 12.9bps at 3.498%.
• Italian BTP spread down 3.4bps at 225.7bps / Greek down 6.7bps at 251.2bps

FOREX: Euro Little Changed Following ECB, CHF Tops G10 Leaderboard

• Despite the unanimous decision to hike all three key interest rates by an unprecedented 0.75%, the ECB’s lower growth projections weighed on the Euro in the latter half of Thursday trade.
• It is worth noting that the Euro was trading at elevated levels following a firm bounce on Wednesday ahead of the meeting and despite a move down to 0.9931 during President Lagarde’s press conference, EURUSD has risen back towards parity as we approach the APAC crossover.
• The pair had a notable amount of expiries at parity for Thursday’s NY cut and the lack of any game changing guidance from the ECB has kept the daily adjustment at a subdued -0.1%.
• Outperforming on Thursday was the Swiss franc, with EURCHF down 0.68%. While the bolder action from the ECB may prompt analysts to expect a more aggressive approach from the SNB, senior members of the SNB board reiterated their decision will be determined by the developing data. SNB officials did, however, credit the strong Swiss franc for helping keep the nation’s inflation rates lower than the rest of the euro zone, underpinning the relative CHF strength on Thursday.
• Little new information from Fed Chair Powell leaves the greenback at close to unchanged levels for the session. Markets will instead turn their focus to next week’s US CPI print, which may prove pivotal in determining the next stage of the Fed’s policy strategy.
• Chinese CPI/PPI data is due overnight and Canadian employment data will headline tomorrow’s North American docket.

EU OPTIONS: Limited Activity Around ECB Decision

Thursday's Europe rates / bond options flow included:

• DUV2 107.90/107.70ps vs 109c, bought for 1 and 1.5 in 9k total
• DUV2 108.50/108.70cs, bought for 6.5 in 3k
• RXV2 139.00/136.50ps 1x1.5, sold at 6.5 in 4
• ERV2 98.00/97.875/97.75 put fly bought for for 1.75 in 10k

COMMODITIES: Oil Firms Despite Weak EIA Report, SDR Release Consideration

• Crude oil has rebounded today despite the EIA reporting a much bigger crude inventory build than expected (+8.8mln bbls vs. Exp. -667k bbls) and with soft implied demand figures at the end of the US driving season.
• Gains extended further despite talk of additional SPR releases from Biden officials, with increases potentially hinging on the fact that whilst Bloomberg sources say a release could be made in “November, December or January but no decision has been reached, the people said. The potential size of any additional SPR drawdown isn't known”, indicating a lack of advanced proceedings.
• WTI is +1.6% at $83.27, having briefly traded through yesterday’s low of $81.5 to open $79.83 (Feb 18 low) before retracing. Resistance seen at $85.37 (Aug 16 low).
• Brent is +1.1% at $88.94, also having just cleared yesterday’s low of $87.40 to open key support at $86.54 (Mar 9 low).
• Gold is -0.65% at $1707.34, continuing the week’s swings with the dollar and Tsy yields, with a bearish threat still present as it eyed the bear trigger at $1681.0 (Jul 21 low).