MNI US OPEN - Fed Moves Extend, With USD & Yields Higher Still

NEWS

US/EU (MNI): Fed Must Be Mindful of MonPol Spillovers - Lagarde

Global central banks have to be both “mindful of one another” and attentive to monetary policy spillovers at the same time they pursue their individual mandates, ECB president Christine Lagarde said Thursday.

Asked whether yesterday's 75bps Fed hike will be mean the ECB has to hike less as a result of reduced global demand, Lagarde said that would not be the appropriate conclusion. However differences in the US and euro area economies do mean that ECB and the Fed cannot raise rates at the same pace going forward, Lagarde told a central bank forum hosted by the National Bank of Latvia.

EU (MNI): Interest Rates Must Go 'Much Higher' - ECB's Kazaks

Eurozone interest rates will need to rise "much higher," Bank of Latvia governor Martins Kazaks said Thursday, as he noted the baseline scenario of a shallow euro area recession "insufficient to break the backbone of inflation."

There is no need to pause rate hikes at the turn of next year, Kazaks said, with further hikes clearly necessary until core inflation in particular is brought back to the ECB's 2% target -- albeit not necessarily at the same 75bps pace seen over the last two monetary policy meetings.

EU (MNI): Nagel Sees 50 or 75bps ECB Hike in December

The European Central Bank could raise interest rates by 50 or 75 basis points at its December meeting but it is too early to speculate about which of the two possibilities it will choose, Bundesbank President Joachim Nagel said in an event in Madrid on Thursday.

The German central banker said the decision will depend on economic data and pointed out that the ECB still has a “huge gap” to cover to bring inflation down to the 2% target, with real interest rates still negative.

EU (MNI): ECB's Panetta Says Overtightening A Risk

The European Central Bank must be careful not to overtighten as it seeks to contain inflation, Executive Board member Fabio Panetta said in a speech in Frankfurt. “A further policy adjustment is warranted in order to keep inflation expectations anchored and stave off second-round effects," Panetta said. “However, the calibration of our stance should not rely on a one-sided view of risks − especially as we continue normalising our monetary policy in a highly uncertain economic environment."

UK (MNI): Times-PM Sunak Plans To Extend Windfall Tax On O&G Profits

Steven Swinford at The Times: "[PM] Rishi Sunak and [Chancellor of the Exchequer] Jeremy Hunt are planning to extend windfall taxes on oil and gas companies to raise an estimated 40 billion over five years. They want tomaximise revenues from the windfall tax by increasing the rate from 25 per cent to 30 per cent, extending the levy until 2028 and expanding the scheme to cover electricity generators."

NORGES BANK (MNI): 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 include:

• 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.
• Click here for full statement

CHINA (MNI): A Sharply Weaker Yuan Looms as a Threat to China's Trade

China’s closely linked import and export industries confront higher raw material costs as the yuan continues to fall despite efforts by the central bank to slow its slide, highlighting the need for exporters to prepare for more two-way volatility, policy advisers and analysts told MNI.

The weakness in the yuan against the U.S. dollar - it fell to a near 15-year low of 7.32 on Nov 1 - risks reverberating through Chinese industry by raising the cost of imports like commodities, which then would have a knock-on effect on exporters who require these raw materials, or components made from these products, in their own production processes.

NORTH KOREA (MNI): N. Korean ICBM Launch Seems to Have Failed: Yonhap

The intercontinental ballistic missile (ICBM) fired by North Korea this morning appears to have failed in normal flight after the second stage separation, Yonhap News Agency reports citing South Korea's Joint Chiefs of Staff.

North Korea conducted its seventh ICBM test this year, firing the projectile off the Sunan area in Pyongyang. It also launched two short-range ballistic missiles (SRBMs) from Kaechon in South Pyongan Province. South Korean military believes that the ICBM used was a two-stage missile Hwasong 17, which was unveiled in 2020 and had its first successful flight on 24 March 2022. South Korea assessed that the North made some technological progress since previous tests.

HONG KONG (MNI): HKMA Tracks Fed, Lifts Base Rate 75bp

Hong Kong’s base interest rate was increased 75bp to 4.25% on Thursday, according to the Hong Kong Monetary Authority (HKMA).

The sixth hike this year follows the Federal Reserve's decision to lift U.S. interest rates by the same amount. The HKMA mirrors U.S. monetary policy moves to maintain its Linked Exchange Rate System that pegs the Hong Kong dollar to the U.S. dollar. The monetary tightening further dampens Hong Kong’s economic outlook, with Q3 GDP data released this week showing a contraction of 4.5%.

HONG KONG (MNI): HKMA Chief Warns of More Rate Hikes

Hong Kong Monetary Authority chief executive Eddie Yue on Thursday warned borrowers in the financial hub to brace for more rate hikes as the Federal Reserve telegraphed more tightening of U.S. monetary policy was coming.

“Manage your risks accordingly when making borrowing decisions” Yue said in a statement. He added that continued U.S. rate hikes “will not affect the financial and monetary stability of Hong Kong” and “our monetary and financial markets continue to operate in a smooth and orderly manner”.

DATA

UK OCT FINAL SERVICES PMI 48.8 (FLASH 47.5); SEP 50.0 (MNI)

SWISS OCT CPI +0.1% M/M, +3% Y/Y (MNI)

AUSTRALIA DATA (MNI): Aussie Trade Surplus Boost From Iron Ore, LNG Sales

• AUSTRALIA SEP TRADE BALANCE A$+12444

Strong export demand for iron ore and liquefied natural gas propelled Australia's trade surplus to AUD12.44 trillion in September, according to data from the Australian Bureau of Statistics. The trade surplus increased from AUD8.66 trillion in August as exports rose 7% m/m and imports increased 0.4% m/m. Tourism exports rose 12.3% to AUD3.2 billion. China is Australia's largest trading partner, with merchandise exports rebounding to AUD14.7 billion from AUD13.5 billion in August.

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.

BOND SUMMARY: Europe and US Govies extend their fall.

• EGBs and Bund were sold from the get go, on the Bund cash open, a follow through, following the Hawk Fed yesterday.
• Bund and BTP futures open gap lower, overnight for Bund and on the cash open for BTP.
• The Italian 10yr saw a 129 ticks lower gap, but futures are off their lows at the time of typing.
• Gilt saw similar move with just over 100 ticks opening gap.
• The Gilt/Bund spread continues to tighten, by just 1.5bps so far today, but the spread is at its tightest level since the 31st August.
• Support is at 1.20bps, now trading at 122.00bps.
• Treasuries have led lower with some notable clip seller on the European open.
• Next support in TYZ2 is seen further out, towards 109.13.
• Looking ahead, the main focus is on the BoE and an expected 75bps hike, as well as Bailey presser.
• Out of the US, on the data front, today include US Services PMIs, but final reading.
• US Factory orders and ISM Services Index are the notable data for this afternoon.

EQUITIES: Futures Consolidate Lower Following the Fed

A bullish EUROSTOXX 50 futures theme remains intact despite the pullback from Tuesday’s high of 3679.00. Recent gains have resulted in a print above resistance at 3678.00, the Sep 13 high. A clear break of this level would strengthen bullish conditions and pave the way for gains above the 3700.00 level. The next key resistance is at 3810.00, the Aug 17 high. Firm support is seen at the 50-day EMA. S&P E-Minis traded lower Wednesday, extending the pullback from 3928.00, the Nov 1 high. Despite the latest retracement, a bull cycle remains in play following the recovery from 3502.00, the Oct 13 low. A resumption of gains would refocus attention on 3502.00, where a break would confirm the bull theme and open 3981.25, the Sep 14 high. Key short-term support has been defined at 3641.50, the Oct 21 low. Initial firm support to watch is at 3736.50.

• In China the SHANGHAI closed lower by 5.564 pts or -0.19% at 2997.806 and the HANG SENG ended 487.68 pts lower or -3.08% at 15339.49.
• Across Europe, Germany's DAX trades lower by 128.93 pts or -0.97% at 13130.9, FTSE 100 lower by 41.1 pts or -0.58% at 7103.65, CAC 40 down 61.91 pts or -0.99% at 6213.52 and Euro Stoxx 50 down 39.69 pts or -1.1% at 3582.87.
• Dow Jones mini down 22 pts or -0.07% at 32147, S&P 500 mini down 4 pts or -0.11% at 3764, NASDAQ mini down 17.5 pts or -0.16% at 10924.5.

COMMODITIES: Gold Hits New Weekly Low as Wednesday Weakness Extends

The WTI futures outlook is bullish and the continued recovery from Monday’s low reinforces this theme. The contract has defined a key short-term support at $81.30, the Oct 18 low and has recently cleared resistance at $88.66, the Oct 12 high. The break of this hurdle signals scope for a climb towards $92.34, the Oct 10 high and a key resistance. On the downside, initial firm support lies at $85.30, the Oct 31 low. A downtrend in Gold remains intact and Wednesday’s weakness has fed through to Thursday morning to further highlight this theme. A bearish outlook follows the reversal from $1729.5, Oct 4 high and the move lower signals the end of the Sep 28 - Oct 4 bull phase. An extension lower would open key support and the bear trigger at $1615.0, Sep 28 low. On the upside, the next firm resistance is at $1681.1, the 50-day EMA.

• WTI Crude down $1.36 or -1.51% at $88.63
• Natural Gas down $0.21 or -3.3% at $6.059
• Gold spot down $9.78 or -0.6% at $1625.16
• Copper down $6 or -1.73% at $340.65
• Silver down $0.15 or -0.79% at $19.0624
• Platinum down $17.02 or -1.82% at $921.75