MNI US OPEN - ECB Rate Rise Expected, With TLTRO Terms Up for Debate

NEWS

ECB PREVIEW (MNI): 75bps now, 75bps in December
While President Lagarde may indicate that discussions on QT are advancing and that this would naturally follow the normalisation in policy rates, it seems premature at this stage for the ECB to unveil an explicit roadmap for shrinking the balance sheet. With no let-up in inflation surprises, policy rates still a long way off neutral (and further away from being restrictive), and the relatively low bar to ‘jumbo’ policy rate hikes following the September move, we expect the ECB to go again in December with a 75bp hike.

ITALY (MNI): Stiff Resistance To Italy's Push For EU Funds-Officials
A drive by Italy at last week’s eurozone summit for more European funding to help economies cope with the energy price shock has met with strong resistance from the Netherlands and Nordic states, with EU officials telling MNI that finance ministers wary of high inflation and rising bond costs saw no mandate for a new funding tool.

JAPAN (MNI): BOJ Sees Yen's Direction Steered By Fed Outlook
Bank of Japan Governor Haruhiko Kuroda and his colleagues have no intention to tweak monetary policy to fight a weak yen, instead they intend waiting for a slowing in the Federal Reserve's aggressive rate hiking cycle later this year or early 2023, MNI understands.

JAPAN (MNI): BOJ Eyes Banks' Dollar Funding Costs As Rates Rise
The Bank of Japan is monitoring the risk that further hikes and a prolonged period of high U.S. rates will increase U.S. dollar funding costs for Japanese banks in the U.S. and make it difficult for them to raise funds, MNI understands.

NEW ZEALAND (MNI): RBNZ's Orr Warns Of Stress Risk As Rates Rise
Reserve Bank of New Zealand Governor Adrian Orr warned of stresses in businesses and amongst households as interest rates rise and asset prices adjust in a speech on Thursday. He said New Zealand's financial system was "well placed" to support the economy given strong bank capital and liquidity positions, while profitability and asset quality were high. Orr said of "critical importance" to financial stability will be the "robustness" of the labour market.

DATA

AUSTRALIA (MNI): Aussie Export Prices Drop; First Time in 8 Quarters
Australia's Export Price Index dropped for the first time in eight quarters in Q3, slowing as Chinese demand for iron ore weighed on exports, according to data released by the Australian Bureau of Statistics Thursday. The Export Price Index fell 3.6%, paced by a 16.9% decline in prices for metalliferous ores and metal scrap fell 16.9% as a slowdown in China's housing market sapped demand for iron ore. Coal, coke and briquettes fell 6.2% in the quarter as weaker steel demand weighed on metallurgical coal prices. Despite the decline in the September quarter, the Export Price Index rose 25.9% y/y.

MNI: ITALY OCT CONSUMER CONFIDENCE 90.1
* BUSINESS CONFIDENCE 104.5

FOREX: USD Index Off the Mat, But Still Much Lower on the Week

• Markets trade with a broad risk-off backdrop - the USD is making furtive gains to stage a minor bounce off the week's lows. Nonetheless, the USD Index remains well below the 50-dma support that had contained price action earlier in the week.
• Month-end models continue to point to moderate USD sales for October, with flows likely to pick up in NY hours as Thursday marks month-end value date for FX rebalancing purposes.
• JPY trades well, boosted by general weakness across global equity markets and a break below the Monday low for USD/JPY. Support at 145.57 has given way, but there are few signs of official intervention at this stage, with the price action more leisurely relative to recent bouts of JPY strength.
• Elsewhere, the CNH is among the poorest performing currencies globally, putting USD/CNH back toward 7.25 to partially erase Wednesday's move lower. The moves come despite a brief move higher in the Chinese currency, with markets clearly remaining wary of state-run Chinese banks selling USD to shore up the exchange rate. 7.25 had previously been a closely watched level for USD/CNY.
• Focus turns to the ECB rate decision, with the bank expected to raise rates by 75bps and lay the groundwork for matched move higher of another 75bps in December. TLTRO terms are also a hot topic, with reports circulating this week that the ECB could change borrowing terms on TLTROs in order to reduce the payments due to the banking system for parking liquidity at the central bank.

BONDS: Looking ahead to the ECB and US GDP

• Despite a generally risk-off tone to equity markets this morning, core fixed income has move lower, albeit remaining within yesterday's trading ranges. The market is looking ahead to the ECB policy decision and press conference later today, as well as the first print of US Q3 GDP.
• Bund and Treasury curves have both bear steepened this morning with moves in the German market of a greater magnitude ahead of the ECB. Gilts have seen the smallest moves in core FI today with the curve seeing a largely parallel shift.
• The ECB meeting is the highlight of the day ahead. Markets are pricing in around 72bp (so almost fully pricing 75bp) while the MNI Markets team and the vast majority of analysts also look for 75bp. Reverse tiering or changes to the TLTRO conditions are expected to be discussed, with the MNI Policy Team noting that changes to the TLTRO interest rate were being considered ahead of reserve tiering (full piece available here). While President Lagarde may indicate that discussions on QT are advancing and that this would naturally follow the normalisation in policy rates, it seems premature at this stage for the ECB to unveil an explicit roadmap for shrinking the balance sheet. The full MNI ECB Preview is available here
• Across the pond, the first print of Q3 GDP will be released today with the Bloomberg median looking for 2.4% Q/Q annualised, but analyst estimates are relatively split with a standard deviation of 0.68% and just under 2/3 analysts looking for a print in the 2.0-3.0% range. The Atlanta Fed GDPNow model looks for 3.1%. We will also receive US weekly claims data.
• TY1 futures are down -0-13 today at 110-22 with 10y UST yields up 6.0bp at 4.065% and 2y yields up 3.9bp at 4.445%.
• Bund futures are down -0.79 today at 138.08 with 10y Bund yields up 7.0bp at 2.179% and Schatz yields up 6.2bp at 1.998%.
• Gilt futures are down -0.15 today at 101.70 with 10y yields up 3.1bp at 3.602% and 2y yields up 3.3bp at 3.273%.