MNI US MARKETS ANALYSIS - Higher Fed Peak Pricing Props Yields, USD

US TSYS: Extend Post-FOMC Sell-Off

• Bonds extended lows as Fed Chairman Powell discusses the risk of entrenched inflation and not hiking enough to get it under control. Follow-up comment "It's very premature in my view to be thinking about or talking about pausing our rate hike. We have a ways to go" spurring rate sell-off.
  
• Yield curves flatter, mid-Oct levels (2s10s -54.817 overnight low), stocks weaker (ESZ2 -21.5 at 3747.25), USD gaining.
• Next up, markets anticipating 75bp hike from the BoE at 0800ET that includes release of the Monetary Policy Report.
• Flurry of US Data kicks off at 0830ET w/ weekly claims (220k est), Unit Labor Costs (4.0% est); S&P PMIs at 0945ET, Durable Goods orders (0.4% est) at 1000.
• Main focus on Fri's employment read for October: +200k estimated vs. +263k prior.

STIR FUTURES: Higher Peak Priced Post-FOMC

US futures are showing an elevated path of implied rates in after a volatile FOMC, which initially looked dovish with the Statement changes but turned in a hawkish direction with the Powell Q&A.

• While OIS is still unsure on a 50bp vs 75bp hike at the December meeting, the terminal Funds rate is now seen well above 5%. That is consistent with Powell's message that the FOMC will likely raise its terminal rate estimates at the next meeting, and that it's "very premature to be thinking about pausing".
• With a 75bp fully priced in just ahead of the November FOMC, and the Fed delivering on that, here is how rate hike prospects changed, pre-FOMC vs current:
• Dec 2022: 61bp further cumulative hikes to 4.44%. Unchanged
• Feb 2023: 98bp cumulative hikes to 4.81%. Now 102bp to 4.85%
• Mar 2023: 115bp cumulative hikes to 4.97%. Now 125bp to 5.09%
• May 2023: 121bp cumulative hikes to 5.04% (the peak). Now 134bp to 5.17%.
• Peak now split between May and June 2023.

Bank Raises Rates by 25bps to 2.50%, Signaling End to Front-Loading

Norges Bank hikes rates by 25bps to 2.50%, a smaller hike than seen by many.

Statement highlights:

• The policy rate will most likely be raised further in December.
• There are signs that some areas of the economy are cooling down, and prospects for lower-than-expected freight and energy prices may curb inflation ahead.
• The policy rate has been raised markedly over a short period, and monetary policy is beginning to have a tightening effect on the economy. This may suggest a more gradual approach to policy rate setting.
• Full statement here: https://www.norges-bank.no/en/topics/Monetary-poli...

This is dovish development and signals a return to gradualism for the Norges Bank. Likely means the end of front-loading from the board and a return to a normal clip of 25bps rate steps going forward.

• EUR/NOK spikes to new daily highs of 10.3710 before moderating slightly. Press conference starts in 30 mins

Pullback in Electricity Prices a Key Part of Norway Decision

• Press conference with Governor Bache begins in Norway, following a slower pace of tightening this morning. Governor discloses that the rate decision was unanimous, and that the board are seeing signs of cooling in the housing market.
• The monetary policy statement accompanying this morning's decision showed a focus on the decline in commodities prices, and therefore their input into inflation:

Sliding consumer confidence was also a key factor:

NORTHERN IRELAND: UUP Head Calls For NI Protocol Art. 16 Triggering To Pause Snap Election

Leader of the moderate Ulster Unionist Party (UUP) Doug Beattie has called on the UK gov't to trigger Article 16 of the Northern Ireland Protocol (NIP) in order to pause the snap election due to take place within the next 12 weeks and allow for continued talks between the EU and UK on the future of the protocol.

• Beattie: "Something needs to change. The opportunity exists to pause the calling of an election and allow negotiations between [...] the UK and EU to continue in earnest. We believe that the time is right for the UK to trigger Article 16 of the Northern Ireland Protocol to facilitate this."
• Article 16 allows the unilateral disapplication of the protocol if it "...leads to serious economic, societal, or environmental difficulties that are liable to persist."
• The UK Secretary of State for Northern Ireland Chris Heaton-Harris is legally bound to call a snap election for the NI Assembly within the next 12 weeks following the failure of parties to form a new power-sharing executive.

FOREX SUMMARY: Greenback Adds to Post-Fed Gains

• The greenback is extending post-Fed rate hike strength, with markets continuing to bring forward expectations of another 75bps rate hike at December's meeting. EUR/USD is through 0.9800 and GBP/USD has taken out support at 1.1300. On a technical basis, the greenback has room to rally further, with the RSI still well short of any overbought signal.
• This has put EUR/USD back below key support at 0.9812 today (0.9821 yesterday). This marks the top of the bear channel that was breached last week. A clear break of this support would undermine the recent bullish outlook and signal scope for a deeper pullback.
• NOK is among the poorest performers in G10 so far Thursday, with the Norges Bank decision delivering a smaller-than-forecast 25bps hike. The move signals the end of the bank's front-loading approach to policy, effectively committing the bank to a smaller pace of tightening going forward. EUR/NOK spiked to 10.3710 before moderating.
• Focus turns to the Bank of England rate decision, at which the MPC are seen raising rates by 75% to put the bank rate at 3.00%. Nonetheless, there remains uncertainty and downside risk to the decision today given recent acute financial market fragility.
• Weekly US jobless claims, the ISM services index and the final October PMI are the data highlights.

FX OPTIONS: Expiries for Nov03 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9750(E1.0bln), $0.9775(E614mln), $0.9850-55(E790mln), $0.9900-05(E2.2bln), $1.0000(E1.1bln)
• USD/JPY: Y144.00-25($1.6bln), Y147.60($1.1bln)
• GBP/USD: $1.1290-00(Gbp870mln), $1.1700(Gbp536mln)
• EUR/GBP: Gbp0.8625-30(E584mln), Gbp0.8695-00(E521mln)
• EUR/JPY: Y144.00(E504mln)
• AUD/USD: $0.6325(A$520mln)
• NZD/USD: $0.5835-38(N$584mln)
• USD/CNY: Cny7.2450($935mln), Cny7.2500($555mln)