MNI ASIA OPEN: Hawkish Fedspeak Takes Centre Stage

NEWS

North America

FED (MNI): Fed's Brainard: Supply Shocks Call for Tighter Policy
A long series of supply shocks call for tighter monetary policy to keep inflation expectations anchored, and longer run shifts in demographics, supply chains and Earth's climate may mean inflation will be more volatile in the future, Federal Reserve governor Lael Brainard said Monday. A long series of supply shocks call for tighter monetary policy to keep inflation expectations anchored, and longer run shifts in demographics, supply chains and Earth's climate may mean inflation will be more volatile in the future, Federal Reserve governor Lael Brainard said Monday.

FED (MNI): Fed Peak Rate 'Modestly Higher' Vs Sept SEP - Williams
"Stronger demand in the economy than I previously thought and then somewhat higher underlying inflation suggest a modestly higher path for for policy relative to September, but not a massive change," he told reporters on a conference call.

FED (MNI): Williams Says Fed Could Cut Rates In 2024
New York Fed President John Williams said Monday his baseline view is that interest rates will rise further from where they are today and will likely not be brought down until 2024. "When I think about the future path, I do see a point, probably in 2024, that we'll start bringing down nominal interest rates because inflation is coming down and and we would want to have real interest rates appropriately positioned based on where the economy is," he said in Q&A after a speech to the Economic Club of New York.

FED (BBG): Bullard Says Markets Underestimate Odds of Higher Fed Rates
Federal Reserve Bank of St. Louis President James Bullard said financial markets are underestimating the chances that policymakers will need to be more aggressive next year in raising interest rates to curb inflation. “There is still a heavy degree” of expectations that inflation will go away naturally, Bullard said Monday in a webcast interview with MarketWatch and Barron’s.

FED (FT): Mester Says Fed Isn’t Near a Policy Pause in Inflation Fight
"We had one good October CPI report. I would need to see several more of those and more moderation and perhaps even a reduction in core services prices. And we also have to see better balance in the labour market."

BOC (MNI): BOC Pausing Soon To Assess Lags- Ex-Adviser
The Bank of Canada will pause interest-rate hikes early next year to assess the drag from past tightening, academic and former BOC adviser Thorsten Koeppl told MNI. “We see the first signs that some cooling is taking place," said Koeppl, an economics professor at Queen's University in Kingston, Ontario, who has also done research for the ECB, the New York Fed and the RBNZ. “If I were in the shoes of the Bank of Canada, I think I would be less aggressive.”

Crypto (WPT): BlockFi Files for Chapter 11 Bankruptcy in New Jersey
BlockFi Inc. and eight of its affiliates commenced voluntary cases under Chapter 11 of the U.S. Bankruptcy Code in the US Bankruptcy Court for the District of New Jersey.

Europe

ECB (MNI): HICP Inflation Unlikely To Have Peaked - Lagarde
"I would like to see inflation having peaked in October, but I'm afraid I would not go as far as that," Lagarde told the European Parliament's Committee on Economic and Monetary Affairs, adding that she would be "surprised" if it had. Headline inflation touched a euro-era record high 10.6% y/y last month, with core inflation at 5.0%.

Global

Oil (BBG): Oil Rises With OPEC+ Seen Considering Cuts Amid Faltering Market
OPEC+ will meet Sunday to decide on its next output level, while European Union nations debate whether to set a price cap as low as $62 a barrel on exports of Russian crude oil. Several countries demanded a level that could put more pressure on Moscow, but the talks remain stuck, diplomats said.

Oil (BBG): EU Debates Russian Oil Price Cap as Low as $62 as Talks Slow
European Union states debated whether to set a price cap as low as $62 a barrel on exports of Russian crude oil after several countries demanded a level that could put more pressure on Moscow, but the talks remain stuck, diplomats said.

Global (BBG): Ex-IMF Chief Economist Sees ‘Pretty Dismal’ Global Outlook
The combination of possible recessions in the US and Europe, as well as an economic slowdown in China and worsening emerging market debt loads, is creating a “pretty dismal” global economic outlook, according to a former chief economist at the International Monetary Fund. The odds of a US recession next year is “better than 50-50” at this point and the economy is showing signs of slowing, Maurice Obstfeld, who left the IMF at the end of 2018, said in an interview with Bloomberg TV.

Global (BBG): WTO Sees Weaker Trade Growth Amid Slump in Export Orders
Global trade growth is likely to slow heading into 2023 as slumping exports and cooling business sentiment weigh on the outlook for cross-border commerce, the World Trade Organization said. The WTO’s periodic goods barometer fell to 96.2 from the previous reading of 100 announced in August, according to a report published Monday. The baseline of 100 indicates growth over the next quarter that’s in line with medium-term trends.

DATA

*US NOV. DALLAS FED GENERAL BUSINESS ACTIVITY AT -14.4 (bbg vs -22.0 expected)

*CANADA'S 3Q CURRENT ACCOUNT DEFICIT AT C$11.1 BILLION (bbg vs $4.0B expected)

US TSYS: Fedspeak Helps Drive Intraday Cheapening

• Cash Tsys have held onto much of their intraday cheapening, more than reversing an overnight bid on China covid worries from first hawkish ECB language, then hawkish Fedspeak pushing back on 2023 rate cuts (Bullard and Williams, plus earlier from Mester on the need to see several good CPI prints) and at the margin a surprise improvement for the Dallas Fed mfg survey.
• The latest addition to Fedspeak has been unscheduled updated remarks from Brainard which includes a point that the drawn-out sequences of negative supply shocks can call for tighter policy, although there has been surprisingly little net reaction in front yields.
• With the curve trading 1-3.5bps cheaper, 2s10s at -76.6bps have nudged off new multi-decade lows
• TYZ2 trades just 2+ ticks lower at 112-30+ off a session low of 112-28 and overnight high of 113-17, the latter now forming resistance. Further moves lower could see support at the 50-day EMA of 112-14 after which lies key short-term support at 112-04 (Nov 21 low).
• House prices and consumer confidence are in focus tomorrow with no scheduled Fedspeak but potential further pop-ups after two today in Mester and Brainard.

FOREX: Risk Backdrop Filters Through To Greenback Recovery

• A volatile start to the week across currency markets as reports emanating from China surrounding rising covid cases and bouts of social unrest dampen global risk sentiment. Despite the greenback initially opening on the front foot, two substantial reversals have occurred during Monday’s European and US trading sessions.
• Weighing on the greenback as Europe sat down was the significant move lower in USDJPY, which reached fresh three-month lows at 137.50. Filtering through to the broader USD complex, currencies such as the Euro that had gapped lower at the open saw swift reversals as those gaps were bridged. Short-term positioning then accentuated the dollar weakening over the course of the European morning.
• Looking at Euro in particular, marginal hawkish ECB rhetoric provided and additional tailwind which saw EURUSD rise to fresh recent highs of 1.0497 and given the poorer risk profile, Euro crosses such as EURAUD saw significant upside, at one point rising as much as 1.5%.
• However, the overall USD index weakness was short-lived as the continued grind lower for equities filtered through once again to safe haven demand for the greenback. The index currently sits around 1.3% off the lows, up 0.7% on the day approaching the APAC crossover. This late dollar demand was also aided by continued hawkish rhetoric from Fed officials focusing around the central bank having “more work to do”.
• On Tuesday, markets will see German and Spanish CPI data as well as Canadian GDP and US consumer confidence. Eurozone CPI data and US employment remain the key data points in focus later this week.

STOCKS: Fedspeak, BlockFi and Apple Production Issues Weigh

• US stocks are increasingly weighed on by a collection of drivers today, including Fedspeak on restrictive policy helping push real yields higher, BlockFi’s Chapter 11 filing and idiosyncratic factors such as Apple’s iPhone production issues and Twitter spat.
• S&P sits -1.5% to eat into last week’s gains, with broadly similar-sized declines across other major indices.
• ESA trades at 3971.5 off a session low of 3967.25 although the recent bullish trend structure means that support is still a way off at 3924.36 (20-day EMA). To the upside, the bull trigger sits at 4050.75 (Nov 15 high).
• Canadian equities see an extension of recent outperformance, with the TSX 60 limiting declines to -0.8%.

COMMODITIES: Oil Gains As OPEC+ Seen Considering Cuts

• Crude oil reversed earlier losses on headlines that OPEC+ is seriously considering new cuts at its meeting next week according to Eurasia, with Brent underperforming WTI after EU diplomats say talks on the Russian price cap have stopped for the day with no deal and that it has discussed a cap as low as $62/bbl.
• WTI is +1.0% at $77.06, having come close to testing support at $73.38 (1 proj of Aug 30 – Sep 28 – Nov 7 price swing) before retracing higher. Resistance is seen at $79.9 (Nov 25 high).
• Brent is -0.7% at $83.03, off an intraday low of $80.61 that now forms initial support after which sits the round $80.
• Gold is -0.8% at $1740.41 after a reversal in dollar strength and higher Treasury yields through the session. It moves closer to support at the 20-day EMA currently of $1729.2.