MNI ASIA OPEN - UK's Kwarteng Expected To Bring Forward Fiscal Statement

NEWS

US (MNI): Fed's Williams Warns Broad Inflation Could Prove Sticky
New York Fed President John Williams said on Monday tighter monetary policy has begun to cool demand and reduce inflationary pressures but the job is not yet done, adding lower commodity prices and receding supply-chain issues will not be enough by themselves to bring inflation back to the central bank's 2% inflation target.

US (MNI): U.S. Mfg Could Be On Path To Contraction - ISM
U.S. manufacturing could be on a path to a contraction in the first half of 2023 after activity grew at the slowest pace in more than two years in September, Institute for Supply Management chair Timothy Fiore told MNI Monday.

UK (BBG) Kwarteng Expected to Bring Forward UK Fiscal Statement - FT
Chancellor of the Exchequer Kwasi Kwarteng is expected to bring forward by a month his plans to unveil a medium-term fiscal statement, the Financial Times reported on Monday, citing several unidentified government officials. The plan, alongside a set of official economic forecasts, was due to be set out on Nov. 23 but will now be announced later this month, the FT said. It will set out a five-year plan to get the UK’s debt falling, the paper reported.

UK (MNI): UK Government Back Down From Controversial Tax Cut
The UK has abandoned plans to abolish the 45p rate paid by the country's top earners, Chancellor Kwasi Kwarteng announced Monday. The plans, attacked publicly by many Conservative MPs on Sunday, were announced as part of Kwarteng's 'mini-budget' laid out to Parliament on September 23.

UK (MNI): Kwarteng Speech Fails To Quell Internal Dissatisfaction With Truss Govt
A speech from Chancellor of the Exchequer Kwasi Kwarteng defending the "growth plan" of the Truss government at the Conservative Party conference has done little to dispel doubt about the Truss government within the Tory ranks.

EUROPE (MNI): German Energy Aid Prompts EU Disquiet
French Finance Minister Bruno Le Maire has called for a joint European strategy in response to surging energy prices following Germany’s announcement of EUR200 billion in support for companies and consumers. Le Maire told reporters that national energy packages should be coordinated among EU states in order to avoid fragmentation of the single market.

NEW ZEALAND (MNI): RBNZ Should Hike 50bps Says NZIER Shadow Board
The New Zealand Institute of Economic Research's Shadow Board recommended the Reserve Bank of New Zealand hike rates by 50bps to 3.5% at its Oct 5 meeting. The recommendation by the Shadow Board, which includes former RBNZ chairman Arthur Grimes, aligns with market pricing that sees the Official Cash Rate being raised for an eighth consecutive meeting to its highest level since 2015.

CLIMATE (MNI): Climate Change A Slow Pandemic For Central Banks
Central banks will find climate change disrupts the global economy in a way similar to the Covid pandemic, the head of the Toronto Centre that trains global financial supervisors told MNI.

BANKS (BBG): Credit Suisse Market Turmoil Heightens After Memo Backfires
Credit Suisse Group AG was plunged into fresh market turmoil after Chief Executive Officer Ulrich Koerner’s attempts to reassure employees and investors backfired, adding to uncertainty surrounding the bank. The stock, which had already more than halved this year before Monday’s sell-off, fell as much as 12% to a record low before clawing back most of those losses and closing Zurich trading about 1% lower. That was accompanied by a spike in the cost to insure the bank’s debt against default, which jumped to its highest ever.

DATA

MNI: US ISM SEP MANUF PURCHASING MANAGERS INDEX 50.9

• PRICES PAID INDEX 51.7
• NEW ORDERS INDEX 47.1
• EMPLOYMENT INDEX 48.7
• PRODUCTION INDEX 50.6
• SUPPLIER DELIVERY INDEX 52.4

US AUG CONSTRUCT SPENDING -0.7%

• PRIVATE CONSTRUCT SPENDING -0.6%
• PUBLIC CONSTRUCT SPENDING -0.8%

US TSYS: Treasuries Unwind ISM Hit But Still See Substantial Rally

• Cash Tsys have pulled back off session highs to unwind the additional rally on the ISM mfg miss.
• They still see a significant rally on the day though, with yields 17.5-21bps lower across 2-10Y tenors, led by the belly on what started as a fading of Friday’s quarter-end cheapening that accelerated with the US coming in and looking to large rallies in EU FI (European bank concerns, UK fiscal u-turns).
• Even larger declines in real yields (5YY -33bps) drive a large 3% gain in S&P whilst also seeing the breakeven pop higher (5Y +12bps). However, having fallen sharply since the Sep FOMC, the latter is still only at 2.29% and at levels last seen in Feb’21.
• TYZ2 at 113-07 holds onto its clearance of 113-00 from a high of 113-27+ that came close to testing the 20-day EMA of 113-30 in second resistance of the day before volumes petered away.

FOREX: Greenback Undermined by Weakness in ISM Employment

• GBP/USD held on to early gains and gained further through the London close as markets extended their response to the UK government U-turning on the unfunded abolition of the top rate of tax. While the move itself is a relatively small measure, the move has settled prices as it may show the government will heed market warnings in the future. GBP/USD headed through the London close just shy of the $1.13 level.
• Meanwhile, the USD was among the poorest performers in G10 following a sharp miss for ISM Manufacturing PMI, which dropped to 50.9 vs. Exp. 52.0. The employment sub-component was a particular source of weakness, slipping to 48.7 ahead of Friday's nonfarm payrolls.
• The downtick in the greenback helped alleviate pressure on USD/JPY, which had approached levels last seen just prior to formal intervention from the Japanese ministry of finance. USD weakness marked the pair lower, putting Friday's lows at 144.21 within range.
• The RBA rate decision takes focus going forward, with median consensus looking for a 50bps rate rise to 2.85% this month. Later in the Tuesday session, Fed's Logan, Williams, Mester, Jefferson & Daly are on the docket, with ECB's Lagarde also set to speak.

COMMODITIES: Oil Surges On OPEC+ Cuts Speculation and US Yields Sliding

• Commodities broadly see strong gains as Treasury yields slide and the USD loses some of its shine, with an additional boost for crude oil coming on speculation that OPEC+ could cut production by more than 1mbpd in what would be the largest reduction since the pandemic. A final decision is to be made on Wednesday.
• WTI is +4.8% at $83.29 with a session high of $84.56. It cleared the 20-day EMA of $87.26, opening the 50-day EMA of $87.26. Most active strikes in CLX2 today have been $90/bbl and then $100/bbl calls.
• Brent is +4.2% at $88.72 with a session high of $89.82. It cleared the 20-day EMA of $88.93 and moved closer to the 50-day EMA of $92.24.
• Gold is +2.2% at $1696.7 having cleared two resistance levels, the higher being $1688.0 (Sep 21 high) to leave $1707.1 (Sep 14 high) open, and in turn testing what was deemed only a short-term corrective bounce.