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Figure 1: Net Favourability of PMs Boris Johnson and Liz Truss (Favourable Minus Unfavourable)


UK (FT): BoE Set to Further Delay Sales of Government Bonds Until Markets Calm

The Bank of England is set to delay the sale of billions of pounds of government bonds in a bid to foster greater stability in gilt markets following the UK’s failed “mini” Budget. The bank had already delayed the start of its sale of £838bn of gilts bought under its quantitative easing programme from October 6 to the end of this month. It is now expected to bow to investor pressure for a further pause until the market becomes calmer.

** Note – since the FT report, the Bank of England have released a statement claiming that the report of a possible delay to the start of quantitative tightening is inaccurate.

UK (MNI): PM Truss' Net Favourability Falls To -70%

Latest YouGov polling shows the net approval rating for PM Liz Truss falling to -70%. This is lower than her predecessor Boris Johnson at the height of the 'partygate' scandal (-51, Jan 2022), and worse than notably divisive former Labour leader Jeremy Corbyn's lowest ever score (-60, Oct 2019).

OIL (MNI): Nationwide French Strikes Add to Fuel Woes

French strikes have ratcheted up this week as other key sectors in France such as the transport and the public sectors join strikes that have been on-going in the energy sector for weeks and resulted in fuel shortages. Around a third of French fuels stations are facing fuel shortages because of the refinery action.

The French government is trying to force some employees back to work at Exxon and TotalEnergies sites to try and alleviate some of the fuel tightness but other sectors joining in now adds further pressure on Macrons government.

RUSSIA/UKRAINE (BBG): Zelensky says 30% of Ukraine’s power stations destroyed

Ukrainian President Volodymyr Zelenskiy said nearly a third of the country’s power stations have been destroyed in Russian strikes since Oct. 10, sparking massive blackouts. An energy facility that supplies Kyiv was hit Tuesday amid a fresh round of attacks on infrastructure. Ukraine said it shot down 38 of the 43 drones that Russia used to launch strikes on Monday, accusing Moscow of using Iranian-made devices to hit civilian targets. Zelenskiy expressed gratitude to troops who have intercepted attacking drones, saying “every destroyed drone is a life saved.”

CHINA (MNI): Fiscal, Credit Support to Drive China Growth Plans

China’s ambition to boost domestic investment and consumption to underwrite a “high quality” and “reasonable” expansion of the economy will require supportive fiscal and credit policies for priority areas like technology and growth of the middle class that are vital to delivering on President Xi Jinping’s vision, policy advisors told MNI.

JAPAN (MNI): BOJ's Kuroda Says He Has No Intention to Resign

Bank of Japan Governor Haruhiko Kuroda said on Tuesday that he had no intention to resign before his term ends in April 2023.An opposition lawmaker said the quantitative and qualitative monetary easing introduced by Kuroda, which had produced a weak yen, was a failure and he should resign. “(I) have no intention to resign,” Kuroda told lawmakers at the Lower House budget committee.

AUSTRALIA (MNI): RBA Can Move as Fast as Other Banks - Bullock

Reserve Bank of Australia Deputy Governor Michele Bullock said its monthly meetings allow it to raise rates as fast as other banks, warning rates would increase "further over coming months" in a speech on Tuesday. She said the ability to meet 11 times a year - there is no meeting in January - is an "advantage in uncertain times" as it allows more frequent evaluation of evidence and "recalibration if necessary."

AUSTRALIA (MNI): October Hike Was "Finely Balanced" - RBA Minutes

The Reserve Bank of Australia said its decision to hike a smaller-than-expected 25bp at its October meeting was "finely balanced", according to the board minutes released on Tuesday. The Board said a hike of 25bp to 2.6% following four consecutive 50bp rises was warranted as the cash rate had increased "substantially" in a short period of time and the full effect of that increase "lay ahead", whilst recognising the benefits of a smaller increase while incoming domestic and global data were assessed.

NEW ZEALAND (MNI): CPI Shock May Push 75 Bps Hike on to RBNZ Radar

The Reserve Bank of New Zealand could consider a more hawkish 75bp hike at its November meeting and ultimately drive its terminal rate to 5.25% after September quarter Consumers Price Index data printed hotter than expected.

Quarterly inflation accelerated to 2.2% q/q in the September quarter, up from 1.7% q/q the prior quarter, even as the year-on-year rate dipped to 7.2% from 7.3% in June, according to StatsNZ. Non-tradable inflation hit a record high of 6.6% y/y. Housing-related costs and food prices were the main driver of the CPI increase. The RBNZ's August Monetary Policy Statement had forecast annual CPI inflation of 6.4% for the September quarter.


GERMAN DATA (MNI): ZEW Survey Expectations Improve, But From Very Low Base


The ZEW survey recorded a modest 2.7-point improvement in the German economic expectations index for October, beating expectations after nearing historic 2008 lows last month. Current conditions plunged 11.7 points to -72.2, the lowest since 2003. Both indicators remain deeply pessimistic and imply a deterioration in assessments.

Anticipated energy shortages ahead of winter remain a key downwards driver for German industry outlooks as energy-intensive production sees further cuts. Pessimistic outlooks regarding growth in China add to lower export demand. On Oct 28 flash GDP data will signal a contraction of the German economy, expected to kick off a Winter recession after almost stalling in Q2. This adds to a slew of worsened growth outlooks for the ECB, which looks set to tighten policy by a further 75bp next week.

FOREX: Price Action Highlights Remaining Two-Way Risk in USD/JPY

  • Volatile price action in the JPY followed a gradual grind higher in USD/JPY to new highs of Y149.29 - with a quick correction lower prompting speculation of intervention from the Japanese authorities - with a headline detailing a planned meeting between the BoJ and the FSA potentially triggering the price action. The pair dropped over 100 pips in a sharp move lower, touching 148.19 before recouping almost all the losses.
  • The price action continues to point to a fragile market, with the trend higher in USD/JPY still subject to acute moves lower.
  • NZD and SEK are the outperformers for the session so far, with New Zealand's Q3 CPI coming in well ahead of expectations (2.2% Q/Q vs. Exp, 1.5%) and fuelling potential for a further 75bps move at the November 23rd RBNZ decision.
  • Early strength in GBP faded through the NY crossover, with GBP/USD slightly lower on the day as the Bank of England released a statement claiming that a likely delay to their active Gilt sales plan is 'inaccurate'. This put GBP from the top to the bottom of the G10 pile, with EUR/GBP now within range of the Monday high at 0.8722.
  • Tier one data releases are few and far between Tuesday, although some attention may be paid to industrial production data for September and the October NAHB housing market index. The central bank speakers slate is busier, with ECB's Herodotou, Makhlouf, Schnabel and Nagel on the docket as well as Fed's Bostic and Kashkari.

BOND SUMMARY: BOE denies active sales plan is postponed, destroying calm in gilt market

  • We had been seeing (by recent standards at least) a relatively benign session for core FI. However, just before 10:00BST the BOE officially denied the FT story this morning. This caused gilt futures to fall almost 100 ticks from 96.96 to a low of 95.97. Over half of this move has since been retraced but this still leaves 10-year gilt yields 6bp higher on the day.
  • Bund and Treasury futures had been slowly trending lower through the European morning session with both below their lows of yesterday (but still above Friday's lows). The moves in Treasuries simply retraced the moves higher in Asian trading.
  • Looking ahead we have US industrial production data at 14:15BST / 9:15ET.
  • We also have speeches from ECB's Makhlouf, Schnabel and Nagel as well as Fed's Bostic.
  • TY1 futures are down -0-3 today at 110-19+ with 10y UST yields up 0.9bp at 4.021% and 2y yields up 0.8bp at 4.453%.
  • Bund futures are down -0.54 today at 136.34 with 10y Bund yields up 5.8bp at 2.323% and Schatz yields up 3.9bp at 1.981%.
  • Gilt futures are down -0.64 today at 965.59 with 10y yields up 6.2bp at 4.029% and 2y yields up 5.5bp at 3.594%.

EQUITIES: European, US Futures Target Bull Trigger with Prices Above 50-Day EMA

EUROSTOXX 50 futures are firmer as price extends the recovery from 3251.00, Oct 13 low. Note that price has traded above the 50-day EMA, at 3472.00 - a positive development. Attention is on resistance at 3492.00, the Oct 6 high and bull trigger and trendline resistance drawn from the Aug 17 high, which intersects at 3504.30 today. Clearance of 3492.00 and 3504.30 would highlight a strong S/T bullish development. Initial support is at 3352.00. S&P E-Minis are firmer this week. A volatile session last Thursday resulted in a strong bounce from the day low as well as the trend low of 3502.00. The subsequent recovery suggests the contract has entered a corrective phase. The 20-day EMA has been breached, reinforcing a bullish theme and opening 3820.00, the Oct 5 high and a bull trigger. Key support lies at 3502.00.

  • Japan's NIKKEI closed higher by 380.35 pts or +1.42% at 27156.14 and the TOPIX ended 21.88 pts higher or +1.16% at 1901.44.
  • Elsewhere, in China the SHANGHAI closed lower by 3.984 pts or -0.13% at 3080.958 and the HANG SENG ended 284.06 pts higher or +1.71% at 16895.32.
  • Across Europe, Germany's DAX trades higher by 175.44 pts or +1.39% at 12820.25, FTSE 100 higher by 73.65 pts or +1.06% at 6993.46, CAC 40 up 66.58 pts or +1.1% at 6105.35 and Euro Stoxx 50 up 43.12 pts or +1.25% at 3483.54.
  • Dow Jones mini up 447 pts or +1.48% at 30687, S&P 500 mini up 63.5 pts or +1.72% at 3754.25, NASDAQ mini up 219.75 pts or +1.98% at 11334.

COMMODITIES: WTI Trades at 2-Week Low Monday, Reinforces Bearish Theme

WTI futures traded lower again Monday. This reinstates a near-term bearish theme and highlights potential for a continuation lower. An extension would open $82.89, a Fibonacci retracement level. On the upside, a resumption of gains would instead suggest scope for a climb towards the key short-term resistance at $93.64, the Oct 10 high. Gold maintains a softer tone following the recent reversal from $1729.5, the Oct 4 high. The move lower signals the end of the bull phase between Sep 28 - Oct 4 and note that price has moved below the trendline resistance drawn from the Mar 8 high. An extension lower would expose the key support and bear trigger at $1615.0, the Sep 28 low. On the upside, a break of $1729.5 is required to reinstate a bullish theme.

  • WTI Crude up $0.52 or +0.61% at $85.84
  • Natural Gas down $0.08 or -1.4% at $5.905
  • Gold spot up $6.85 or +0.42% at $1656.84
  • Copper up $0.7 or +0.2% at $342.15
  • Silver up $0.24 or +1.31% at $18.894
  • Platinum up $8.44 or +0.92% at $925.26

18/10/20220900/1000**UKGilt Outright Auction Result
18/10/20220900/1100***DEZEW Current Conditions Index
18/10/20220900/1100***DEZEW Current Expectations Index
18/10/20221215/0815**CACMHC Housing Starts
18/10/20221255/0855**USRedbook Retail Sales Index
18/10/20221315/0915***USIndustrial Production
18/10/20221400/1000**USNAHB Home Builder Index
18/10/20221600/1800EUECB Schnabel Alumni Event at Uni Mannheim
18/10/20221800/1400USAtlanta Fed's Raphael Bostic
18/10/20222130/1730USMinneapolis Fed's Neel Kashkari
19/10/20220600/0700***UKConsumer inflation report
19/10/20220600/0700***UKProducer Prices
19/10/20220830/0930*UKONS House Price Index
19/10/20220900/1100***EUHICP (f)
19/10/20220900/1000**UKGilt Outright Auction Result
19/10/20220900/1100**EUConstruction Production
19/10/20221100/0700**USMBA Weekly Applications Index
19/10/20221230/0830*CAIndustrial Product and Raw Material Price Index
19/10/20221230/0830***USHousing Starts
19/10/20221430/1030**USDOE weekly crude oil stocks
19/10/20221500/1600UKBOE Mann Panels Webinar on ERM Crisis
19/10/20221700/1300USMinneapolis Fed's Neel Kashkari
19/10/20221700/1300**USUS Treasury Auction Result for 20 Year Bond
19/10/20221800/1400USFed Beige Book
19/10/20222230/1830USSt. Louis Fed's James Bullard
19/10/20222230/1830USChicago Fed's Charles Evans

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