MNI EUROPEAN OPEN: Hunt Quick To Enact Further Fiscal U-turns

EXECUTIVE SUMMARY

• FED’S BULLARD LEAVES OPEN POSSIBILITY OF LARGER DECEMBER HIKE (BBG)
• JEREMY HUNT DELAYS 1P INCOME TAX CUT, LEAVING TRUSS MANIFESTO IN TATTERS (TIMES)
• CHANCELLOR WARNS OF TAX RISES AND SQUEEZE ON SPENDING (BBC)
• INTEREST RATE RISE WILL BE HIGHER THAN EXPECTED NEXT MONTH, BANK OF ENGLAND CHIEF SUGGESTS (SKY)
• TORIES HOLD SECRET TALKS ON CROWNING NEW LEADER (TIMES)
• ECB IS DELIBERATELY VAGUE ON TARGET FOR INTEREST RATE, LANE SAYS (BBG)
• XI’S OPENING CPC CONGRESS ADDRESS PROVIDES NO CURVEBALLS IN MAJOR POLICY AREAS

Fig. 1: GBP/USD Vs. EUR/GBP

Source: MNI - Market News/Bloomberg

UK

BOE: Interest rates will have to be raised higher than initially hoped in the face of inflationary pressures, the Bank of England (BoE) governor has suggested. (Sky)

FISCAL: Difficult decisions will be needed "across the board" on tax and spending, the new chancellor has said. Jeremy Hunt told the BBC that some taxes will go up, while government spending may need to fall. (BBC)

FISCAL: Liz Truss is preparing to sign off Jeremy Hunt’s plans to defer a 1p cut in income tax until 2024. The prime minister met her new chancellor yesterday for an hour and a half at Chequers, her countryside retreat, to discuss their new plans to stabilise the nation’s finances. They were joined by their advisers and families for lunch afterwards. (The Times)

POLITICS: Jamie Wallis became the third Conservative MP to break ranks by calling for Liz Truss to quit Downing Street on Sunday night. (Telegraph)

POLITICS: Rebel Tory MPs are reportedly sending letters of no confidence in Liz Truss to the 1922 Committee in a bid to get rid of her as prime minister. The number of letters already sent in is said to be “substantial”, according to Sky News. (Independent)

POLITICS: Senior Conservatives will this week hold talks on a “rescue mission” that would see the swift removal of Liz Truss as leader, after the new chancellor Jeremy Hunt dramatically tore up her economic package and signalled a new era of austerity. (Observer)

POLITICS: Liz Truss will appeal to moderate Tory MPs to save her premiership tonight after it emerged that powerbrokers had held secret discussions about ousting her and arranging a “coronation”. (The Times)

POLITICS: He was a surprise absentee from the leadership race in July, but the defence secretary, Ben Wallace, is now being touted as a replacement for Liz Truss. (Guardian)

POLITICS: Senior Conservative MPs have warned that voters could desert the party “in droves” if Liz Truss drops her plans for post-Brexit reforms. (Telegraph)

POLITICS: Around 10 cabinet ministers including Jacob Rees-Mogg, Thérèse Coffey, Jeremy Hunt and Simon Clarke would lose their seats in a general election, according to a poll for the Trades Union Congress (TUC), which also shows voters are opposed to the removal of workers’ rights. (Guardian)

ECONOMY: Analysts at Goldman Sachs Group Inc. have downgraded their growth outlook for the UK, according to a report released Sunday, after Prime Minister Liz Truss removed Kwasi Kwarteng as chancellor and rowed back on canceling an increase in corporation tax. (BBG)

PROPERTY: More than 5 million British families face an increase of £1,200 ($1,340) in their annual mortgage payments as a direct result of the market turmoil unleashed by Prime Minister Liz Truss and her former Chancellor of the Exchequer Kwasi Kwarteng. That’s according to the Resolution Foundation, which said mortgage costs are set to surge by £5,100 on average between now and the end of 2024. A quarter of that is due to the tax-cutting mini budget announced last month. (BBG)

ENERGY: Ministers are in talks with major US-based producers of liquefied natural gas (LNG) in a bid to bolster Britain's energy security. (Sky)

EUROPE

ECB: The European Central Bank is being purposefully vague on how far interest rates will have to rise to ensure inflation returns to the 2% goal, according to Chief Economist Philip Lane. (BBG)

ECB: The European Central Bank must press ahead with raising interest rates and reducing its balance sheet to ensure inflation expectations don’t unanchor and demand a more aggressive policy response, according to Governing Council member Joachim Nagel. (BBG)

ECB: Europe's energy subsidies may reduce the current rate of inflation but only at the expense of future higher readings, potentially complicating the task of monetary policy, European Central Bank (ECB) policymaker Francois Villeroy de Galhau said on Saturday. (RTRS)

ECB: The European Central Bank should consider starting to shrink its oversized stock of assets once interest rates rise to a level that neither stimulates nor slows economic growth, Dutch Central Bank chief Klaas Knot said on Saturday. (RTRS)

ECB: The European Central Bank is likely to begin the process of shrinking its balance sheet next year, once it’s raised borrowing costs to a point that they no longer stimulate the economy, according to Governing Council member Olli Rehn. (BBG)

ECB: Governments’ efforts to ease the energy crisis risk forcing the European Central Bank to raise interest rates more aggressively as it battles record inflation, according to Governing Council member Pierre Wunsch. (BBG)

ECB: European Central Bank Governing Council member Martins Kazaks said interest rates should be raised beyond year-end -- a time when economists increasingly expect the euro zone to be in the midst of a recession. (BBG)

ECONOMY: The euro-area economy is expected to shrink next year as it battles surging energy costs and the risk of shortages following Russia’s invasion of Ukraine. (BBG)

EU/FISCAL: Brussels is ready to freeze payments of regional aid to Poland because of threats to judicial independence, as the stand-off over rule of law violations hangs over funding lines worth tens of billions of euros to Warsaw. (FTT)

FRANCE: French Prime Minister Elisabeth Borne called on striking refinery workers to return to work as fuel shortages worsened and left-wing politicians led a protest march against increased cost-of-living expenses. (BBG)

NETHERLANDS: The Dutch government on Friday said it will spend up to 3.1 billion euros ($3.02 billion) to support small businesses such as bakeries and greenhouses that have been hit hard by surging energy prices. (RTRS)

RATINGS: Czech Republic Affirmed At S&P On Friday

Sovereign rating reviews of note from after hours on Friday include:

• S&P affirmed {CZ} the Czech Republic at AA-; Outlook Stable

BANKS: Credit Suisse is preparing to sell parts of its Swiss domestic bank as it attempts to close a capital hole of around SFr4.5bn, according to people briefed on the discussions. (FT)

U.S.

FED: A "hotter-than-expected" September inflation report doesn't necessarily mean the Federal Reserve needs to raise interest rates higher than officials projected at their most recent policy meeting, St. Louis Fed President James Bullard said on Friday, though it does warrant continued "frontloading" through larger hikes of three-quarters of a percentage point. (RTRS)

FED: Federal Reserve Bank of St. Louis President James Bullard left open the possibility that the central bank would raise interest rates by 75 basis points at each of its next two meetings in November and December, while saying it was too soon to make that call. (BBG)

FED: The Federal Reserve is looking into trades that Raphael Bostic, the head of the central bank’s Atlanta district, made during restricted periods. (CNBC)

ECONOMY: The U.S. will enter a recession in the coming 12 months as the Federal Reserve battles to bring down persistently high inflation, the economy contracts and employers cut jobs in response, according to The Wall Street Journal’s latest survey of economists. (WSJ)

ECONOMY/DOLLAR: President Joe Biden dismissed the risks of a strong US dollar and instead blamed anemic growth and policy missteps in other parts of the world for dragging down the global economy. “I’m not concerned about the strength of the dollar, I’m concerned about the rest of the world,” Biden told reporters on Saturday during a campaign stop in Portland, Oregon. “Our economy is strong as hell.” (BBG)

ECONOMY: Treasury Secretary Janet Yellen told an international audience in Washington that fighting inflation was the Biden administration’s top priority, a message that won’t comfort countries feeling the pain from a strong dollar. (BBG)

ECONOMY: The Federal Reserve’s interest-rate hikes to bring inflation under control are starting to work, while President Joe Biden is doing everything possible to support the US central bank, two administration economic advisers said. (BBG)

TSYS: The U.S. Treasury Department is asking primary dealers of U.S. Treasuries whether the government should buy back some U.S. government bonds to improve liquidity in the $24 trillion market. (RTRS)

BANKS: The U.S. Federal Reserve announced on Friday it was soliciting feedback on potentially imposing new requirements on how to resolve large regional banks should they falter, including requiring firms to hold more long-term debt. (RTRS)

OTHER

GLOBAL TRADE: The EU must toughen up its attitude towards China and see the country as an all-out competitor with limited areas of potential engagement, the bloc’s ministers have been advised ahead of talks on recalibrating Brussels’ strategy towards Beijing. (FT)

G20: Finance chiefs of the world’s biggest economies clashed in Washington over a variety of issues, including Russia’s invasion of Ukraine, complicating efforts to coordinate policies to cope with rising risks to global growth. (BBG)

U.S./CHINA: Chinese President Xi Jinping pledged his nation will prevail in its fight to develop strategically important tech, underscoring Beijing’s concern over a US campaign to separate it from cutting-edge chip capabilities. (BBG)

U.S./CHINA: Chinese government officials are stonewalling U.S. efforts to solidify a long-planned face-to-face meeting between President Joe Biden and Chinese President Xi Jinping on the sidelines of the G-20 meeting in Bali next month. (POLITICO)

TAIWAN: China will never renounce the right to use force over Taiwan, President Xi Jinping has declared at the opening of a major party meeting. (Sky)

TAIWAN: Taiwan will not back down on its sovereignty or compromise on freedom and democracy, and its people clearly oppose Beijing's idea of "one country, two systems" management for Taiwan, the self-ruled island's presidential office said on Sunday. (RTRS)

HONG KONG: China has achieved comprehensive control over Hong Kong, turning it from chaos to governance, Chinese President Xi Jinping said in a speech on Sunday at the opening of the once-in-five-year Communist Party congress in Beijing. (RTRS)

GEOPOLITICS: Western countries this week ratcheted up their criticism of China, the world's largest bilateral creditor, as the main obstacle to moving ahead with debt restructuring agreements for the growing number of countries unable to service their debts. (RTRS)

BOJ: Bank of Japan Governor Haruhiko Kuroda said on Monday that Japan’s core consumer price index will fall below a 2% year-on-year pace in fiscal 2023 and it’s appropriate for the bank to maintain easy policy to achieve its price stability target accompanied by wage hikes. (MNI)

BOJ: The yen's recent fluctuations were "clearly too rapid and too one-sided," Bank of Japan Deputy Gov. Masazumi Wakatabe said on Saturday, signaling caution over the potential economic damage from the currency's slump to 32-year lows against the dollar. (RTRS)

BOJ: The BOJ should continue its easy monetary policy stance to ensure the 2% inflation target can be achieved durably, but the Japanese government's intervention in the foreign exchange market is not likely to have a lasting effect in supporting the yen's level on currency markets, Sanjaya Panth, deputy director of the International Monetary Fund's Asia-Pacific Department, told Nikkei in an interview. (Nikkei)

BOJ: Japanese Prime Minister Fumio Kishida said on Monday he would pick the most appropriate person to take up the governorship of the central bank next April, suggesting the decision could wait until just before the current governor's term ends on April 8. (RTRS)

JAPAN: Japan's top currency diplomat Masato Kanda on Friday said authorities are ready to take decisive action in the currency market if excessive moves in the yen continue. (RTRS)

JAPAN: There are no changes to Japan's position that it will act resolutely in case of volatility in the currency market, the Kyodo news agency quoted Japan's Finance Minister Shunichi Suzuki as saying on Saturday. (RTRS)

JAPAN: Increasing Japan's corporate tax rate is an option to fund a defense budget that could double in the next few years, Yoichi Miyazawa, head of tax policy in the ruling Liberal Democratic Party, told Nikkei. (Nikkei)

AUSTRALIA: Increasingly dire forecasts for the global economy will see last-minute downgrades to Australia’s economic figures in next week’s federal budget, with the treasurer, Jim Chalmers, warning of “an increasingly perilous path” for world markets and key trading partners. (Guardian)

AUSTRALIA: Prime Minister Anthony Albanese has revealed $9.6 billion of infrastructure spending across Australia, with Victoria’s Labor government set to be the greatest beneficiary. (Sky)

BOK: South Korea's central bank governor said on Saturday that external factors, such as aggressive U.S. policy tightening buoying the dollar and driving the won currency sharply down, made providing forward guidance on policy difficult. (RTRS)

BOK: Bank of Korea Governor Rhee Chang-yong told reporters in Washington that there’s a board member who believes the central bank’s terminal rate should be higher than 3.5%, Edaily reports. (BBG)

BOK: Economists surveyed by Bloomberg see the Bank of Korea reaching the end of its hiking cycle early next year, a view that largely tallies with a central bank projection that the terminal interest rate may rise to around 3.5%. (BBG)

SOUTH KOREA: South Korea's finance minister said the government will scrap taxes on foreigners' income from investments in treasury bonds and monetary stabilization bonds from Monday. (RTRS)

BOC: Bank of Canada Governor Tiff Macklem on Friday hammered home the message interest rates must keep rising to bring inflation back to target, saying there's still a narrow path to slowing down an overheated economy without a hard landing. (MNI)

BRAZIL: Brazil’s Luiz Inacio Lula da Silva and incumbent Jair Bolsonaro exchanged insults and corruption allegations during a tense televised debate as they sought to sway voters ahead of a runoff election on Oct. 30. (BBG)

BRAZIL: Brazil’s three consecutive months of falling consumer price indexes aren’t reason to celebrate yet, said central bank chief Roberto Campos Neto. (BBG)

RUSSIA: Russia should be finished calling up reservists in two weeks, President Vladimir Putin said on Friday, promising an end to a divisive mobilization that has seen hundreds of thousands of men summoned to fight in Ukraine and huge numbers flee the country. (RTRS)

RUSSIA: China is urging its citizens to evacuate from war-torn Ukraine. Beijing's Ministry of Foreign Affairs and the Chinese Embassy in Ukraine announced on Saturday that all Chinese citizens should evacuate the country, according to the Global Times, a Chinese state news agency. The embassy said it would assist its citizens in this capacity. (Washington Examiner)

RUSSIA: Chrystia Freeland is calling for Russia to be kicked out of the Group of 20 countries and the International Monetary Fund over its invasion of Ukraine, saying the war is to blame for current turbulence in the global economy. (RTRS)

SOUTH AFRICA: South Africa’s energy utility company says it will limit power cuts to the evenings as it seeks to manage emergency generation reserves to bolster capacity. (BBG)

SOUTH AFRICA: Workers from South Africa’s Transport and Allied Workers Union have rejected a compromise pay deal aimed at ending a days-long dispute that threatens to curb the nation’s exports, Johannesburg-based News24 reported. (BBG)

SAUDI ARABIA: President Joe Biden’s options for re-evaluating US-Saudi relations include “changes to our approach to security assistance to Saudi Arabia,” White House National Security Adviser Jake Sullivan said. (BBG)

OIL: Saudi King Salman said on Sunday the kingdom was working hard to support stability and balance in oil markets, including by establishing and maintaining the agreement of the OPEC+ alliance. (RTRS)

ENERGY: The European Union’s executive arm plans to propose a mechanism to curb price volatility on the bloc’s biggest gas marketplace and prevent extreme price spikes in derivatives trading to rein in the region’s energy crisis. (BBG)

ENERGY: The European Union’s planned package to curb surging natural-gas prices must avert an increase in the use of the fuel amid an unprecedented supply crunch, EU energy chief Kadri Simson said. (BBG)

ENERGY: Measures by European Union countries to shield households and companies from the energy price surge should be temporary and targeted but, crucially, encourage lower consumption by not distorting price signals, the International Monetary Fund said on Friday. (RTRS)

ENERGY: Sweden has rejected plans to set up a formal joint investigation team with Denmark and Germany to look into the recent ruptures of the Nord Stream 1 and 2 pipelines, a Swedish prosecutor investigating the leaks, said. (RTRS)

OIL: OPEC Secretary General Haitham al-Ghais said on Sunday that the group, alongside other producers that form the OPEC+ alliance, took purely technical decisions and that oil output cuts were a pre-emptive measure. (RTRS)

OIL: OPEC Secretary General Haitham Al Ghais said on Sunday that "oil markets are going through a stage of great fluctuations" during his two-day visit to Algiers. (RTRS)

OIL: Saudi King Salman said on Sunday the kingdom was working hard to support stability and balance in oil markets, including by establishing and maintaining the agreement of the OPEC+ alliance. (RTRS)

OIL: Polish pipeline operator PERN said on Saturday that the pumping of crude oil in the damaged Druzhba pipeline has been restored. (RTRS)

OIL: Gazprom CEO Alexei Miller on Sunday said plans to cap the price of Russian gas exports would cause supplies to be halted, echoing a similar threat from President Vladimir Putin. (RTRS)

FOREX: U.S. Treasury Secretary Janet Yellen said that she does not see another allocation of International Monetary Fund Special Drawing Rights reserves to member countries as appropriate at this time, when more existing reserves need to be channeled to poorer countries. (RTRS)

CHINA

CORONAVIRUS: China's President Xi Jinping signalled there would be no immediate loosening of his controversial zero-Covid strategy as a historic Communist Party congress opened in Beijing. (BBC)

ECONOMY: China will unwaveringly support the private economy and let the market play decisive role in resource allocation, President Xi Jinping said in a speech on Sunday at the opening of the once-in-five-year Communist Party Congress in Beijing. (RTRS)

ECONOMY: China will focus on smoothing the domestic cycle of supply and demand to boost economic growth, wrote Zhang Wenkui, researcher at the Development Research Center of the State Council in a commentary published by Caixin after President Xi Jinping's speech at the 20th CPC National Congress on Sunday. (MNI)

ECONOMY: The Chinese economy has posted a notable trend of recovery in the third quarter of this year, an official said Monday. (China Daily)

BANKS/ECONOMY: Six major state-owned banks all issued statements late Sunday pledging their support for the economy after President Xi Jinping’s speech at the 20th CPC National Congress, National Business Daily reported. (MNI)

YUAN: China's major state-owned banks were spotted swapping yuan for U.S. dollars in the forwards market and selling those dollars in the spot market on Monday morning, six banking sources said. (RTRS)

EQUITIES: The China Securities Regulatory Commission is working on a system to allow foreign investors to trade their positions within six months to facilitate investment in A shares, 21st Century Business Herald reported citing sources from regulatory departments. (MNI)

CHINA MARKETS

PBOC NET DRAINS CNY19 BILLION VIA OMOS MONDAY

The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos and CNY500 billion 1-year medium-term lending facilities with the rate unchanged at 2.00% and 2.75%, respectively, on Monday. The operation has led to a net drain of CNY19 billion after offsetting the maturity of CNY21 billion repos and CNY500 MLFs today, according to Wind Information.

• The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.
• The 7-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.0000% at 09:25 am local time from the close of 1.4751% on Friday.
• The CFETS-NEX money-market sentiment index closed at 45 on Friday vs 49 on Thursday.

PBOC SETS YUAN CENTRAL PARITY AT 7.1095 MON VS 7.1088 FRI

The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.1095 on Monday, compared with 7.1088 set on Friday.

OVERNIGHT DATA

JAPAN AUG, F INDUSTRIAL PRODUCTION +3.4% M/M; PRELIM +2.7%
JAPAN AUG, F INDUSTRIAL PRODUCTION +5.8% Y/Y; PRELIM +5.1%

JAPAN AUG CAPACITY UTILISATION +1.2% M/M; JUL +2.4%

JAPAN AUG TERTIARY INDUSTRY INDEX +0.7% M/M; MEDIAN +0.3%; JUL -0.6%

NEW ZEALAND SEP BNZ-BUSINESSNZ PERFORMANCE SERVICES INDEX 55.8; AUG 58.6

Expansion levels for New Zealand's services sector eased off in September, according to the BNZ - BusinessNZ Performance of Services Index (PSI). (BNZ)

UK OCT RIGHTMOVE HOUSE PRICE INDEX +0.9% M/M; SEP +0.7%
UK OCT RIGHTMOVE HOUSE PRICE INDEX +7.8% Y/Y; SEP +8.7%

MARKETS

UP TODAY (Times GMT/Local)

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17/10/2022	0800/1000	**		IT	Italy Final HICP
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17/10/2022	1230/0830	**		US	Empire State Manufacturing Survey
17/10/2022	1430/1030	**		CA	BOC Business Outlook Survey
17/10/2022	1500/1700			EU	ECB Lane at Bocconi Uni & Deutsche Bank Roundtable
17/10/2022	1530/1130	*		US	US Treasury Auction Result for 13 Week Bill
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17/10/2022	2000/1600			CA	BOC Deputy Rogers panel talk at Toronto Centre