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MNI US OPEN: 'Odds Against' Liz Truss Lasting Day as PM


Figure 1: USDJPY Touches Fresh Record-High 150.00


UK (MNI): Senior Conservative Backbencher - 'Odds Against' Truss Lasting the Day: ITV

Paul Brand at ITV tweets: "One member of 1922 executive tells me “odds are against" Liz Truss surviving the day as PM. Committee is expected to meet later to discuss the leadership crisis."A total of eight Conservative MPs have publicly called for Truss' resignation, with the widespread speculation that a much larger number have submitted letters of no confidence to the 1922 Committee chair in private. Political betting markets show little confidence in Truss' continued tenure, with data from Smarkets giving a 50% implied probability that former chancellor Rishi Sunak is PM on New Year's Day.

BOE (MNI): Broadbent subtly hints at downside risks to market pricing

Broadbent is describing the risks to market pricing as more to the downside here - but not directly saying market pricing isn't appropriate. So it's more on the dovish side - but I wouldn't say it's strongly dovish (although relative to most of this comments its more to the dovish side too). Some moves higher in gilts seem appropriate here, but we are already off the highs. "Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen."

CHINA (MNI): China Debates Cutting Quarantine Time - Media Report

China is considering cutting the mandatory quarantine period for people coming into the country, according to a report by Bloomberg News citing unnamed sources. Bureaucrats are debating a possible relaxation of the quarantine period to two days in a hotel and then five days at home, compared to the current rule of seven days confined to a hotel room following another three days at home. Markets rallied on the news as traders look for any signs of an easing in China's Covid policies.

US (MNI): Fed ‘Honing In’ on Appropriate Level of Rates - Evans

The Federal Reserve’s aggressive interest rate hikes put it closer to the appropriate level of monetary tightness needed to bring inflation down, Chicago Fed President Charles Evans said Wednesday, adding he still sees the September SEP as a good guide to the peak of rates

“As we keep going up 75 takes it much closer to what I think is the peak in the SEP, I’m not sure I would describe it at this point as frontloading, we’re moving towards more restrictiveness,” Evans told reporters in a briefing. “Now we’re honing in on what I think is an appropriate level of restrictiveness.”

JAPAN (MNI): Yen Breaks Y150; Triggers Talk of Intervention

The yen broke through Y150 on Thursday, marking a fresh 32-year low and increasing upward pressure on import prices as the currency weakens on the widening interest gap between the U.S. and Japan.

The weak currency comes as the BOJ maintains its easing guidance and defends its yield curve control policy that targets a maximum 10-year yield of 0.25% while other central banks aggressively lift rates. The yen hit 150.0822 against the U.S. dollar before retreating. The yen’s fall has stoked talk of possible forex intervention to prop up the currency as the weak yen will further push up the cost of living as wage hikes will not keep pace with price rises.

JAPAN (MNI): BOJ Fights Higher JGB Yields with Extra Bond Buying

The Bank of Japan announced an unscheduled bond buying operation on Thursday to curb upward pressure on Japanese government bond yields caused by the rise in U.S. Treasury bond yields.

The BOJ offered to buy JPY100 billion of JGBs with a remaining life of 5 to 10 years, JPY100 billion of JGBs with a remaining life of 10 to 25 years and JPY50 billion of JGBs with a remaining life of more than 25 years.

JAPAN (MNI): BOJ To Maintain Guidance on Covid Worries

The Bank of Japan is wary of the threat to Japan's economy from slower global growth but is unlikely to move away from a focus on Covid impacts in its forward guidance over the short-term, MNI understands.

The slowdown in overseas economics has gathered pace since the BOJ board considered its medium-term outlook in July, though worries about Covid outbreaks dampening Japanese and Chinese activity are expected to remain a top concern.

INDONESIA (BBG): Indonesia Raises Key Rate by Half-Point Again to Aid Rupiah

Indonesia’s central bank increased borrowing costs by 50 basis points for a second straight meeting, as authorities sought to front-load their actions to arrest a slump in the rupiah and check inflation. Bank Indonesia raised its seven-day reverse repurchase rate to 4.75% on Thursday, as seen by 19 of 31 economists in a Bloomberg survey.


GERMANY (MNI): No Respite For Industry From Soaring Costs

  • GERMANY SEP PPI +2.3% M/M (FCST +1.5%); AUG +7.9% M/M
  • GERMANY SEP PMI +45.8% Y/Y (FCST +45.4%); AUG +45.8% Y/Y

FRANCE (MNI): French Manufacturing Confidence Boosted by Auto Industry


JAPAN (MNI): Sept Exports Rise; Automobile Exports Surge

  • JAPAN SEPT EXPORTS +28.9% Y/Y; AUG +22.0%
  • JAPAN SEPT IMPORTS +45.9% Y/Y; AUG +49.9%

CHINA (MNI): China's Oct Loan Prime Rate Unchanged


AUSTRALIA (MNI): Aussie Sept Jobs Data Stalls; RBA On Track for 25bp


FOREX: Political Risk Premium Conspires Against GBP

  • Risk appetite has stabilised, however equities remain below the better levels of the Wednesday session, keeping the e-mini S&P near support of 3677.00. Government bond yields continue to creep higher, however, with the US 10yy hitting a new cycle high of 4.1778% in early European trade.
  • Meanwhile, GBP remains heavy given the overwhelming political risk premium, with reports suggesting the UK could have a new Prime Minister by the end of the day. Reports are conflicting, with some seeing Truss forced out of office as soon as today, while others argue for a stay of execution until October 31st in order to press on with the much-needed fiscal policy U-turn. GBP is the poorest performer in G10, with GBP/USD narrowing the gap with weekly lows of 1.1148 just ahead of the NY crossover.
  • Adding to GBP pressure were somewhat dovish comments from BoE's Broadbent, who commented that "Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen."
  • At the other end of the table, EUR trades well, higher against most others as the currency continues to benefit from the downdraft in energy prices. European natural gas prices remain under pressure, close to the lowest levels since June and confirming the late summer price-spike has likely concluded.
  • Focus turns to the US weekly jobless claims data as well as existing home sales for September. Fed's Harker, Jefferson, Cook and Bowman are all on the docket.

BOND SUMMARY: US Yields Off Fresh Cycle Highs, Housing Data Eyed Again

Bear flattening has been the general theme in early European trade, with German instruments underperforming globally.

  • An improvement in risk sentiment overnight on possible easing of China Covid quarantines for inbound travelers helped boost equities and weaken the USD, putting downward pressure on core FI.
  • Since then though, US yields have retraced after hitting new cycle highs, with 2Y yields reaching 4.6100% and 10Y 4.1778%.
  • Amid political uncertainty (with probability rising of PM Truss' departure from office), UK yields have been underpinned by comments from BoE's Broadbent who described the risks to market rate hike pricing as more to the downside (though he stopped short of directly saying pricing isn't appropriate).
  • Italian spreads are marginally tighter, a combination of the Bund weakness and a modest BTP rally.
  • More US housing data today in focus with existing home sales, alongside Philly Fed and initial jobless claims. FOMC speakers include Bowman, Cook, and Jefferson. Overnight, Chicago's Evans said he hoped the latest Dot Plot's hikes would be "enough".

Latest yields:

  • US: 2Y yield up 2.8bps at 4.5844%, 5Y up 1.4bps at 4.3712%, 10Y up 1.5bps at 4.1485%, 30Y up 1.9bps at 4.144%.
  • DE: 2Y yield up 6bps at 2.155%, 5Y up 6.5bps at 2.278%, 10Y up 5bps at 2.426%, 30Y up 4.4bps at 2.391%.
  • UK: 2Y yield up 2.9bps at 3.535%, 5Y up 4.2bps at 3.914%, 10Y up 4.8bps at 3.926%, 30Y down 0.3bps at 3.986%.
  • Italy / German 10Y spread 1.9bps tighter at 237.8bps

EQUITIES: US, European Futures Consolidating After Recent Recovery

EUROSTOXX 50 futures maintain a firmer tone following the recent recovery from 3251.00, Oct 13 low. The move higher has resulted in a break of the 50-day EMA and resistance at 3492.00, the Oct 6 high and a bull trigger. Price has also arrived at a trendline resistance drawn from the Aug 17 high. Initial firm support is at 3352.00, the Oct 14 low. Despite the pullback, S&P E-Minis maintains a firmer tone following last week’s reversal from 3502.00, the Oct 13 low. The latest recovery suggests the contract has entered a corrective phase and if correct, this is allowing an oversold trend condition to unwind. The 20-day EMA has been breached. The break reinforces a bullish theme and opens 3820.00, the Oct 5 high and a bull trigger. Key support is unchanged at 3502.00.

  • Japan's NIKKEI closed lower by 250.42 pts or -0.92% at 27006.96 and the TOPIX ended 9.65 pts lower or -0.51% at 1895.41.
  • Elsewhere, in China the SHANGHAI closed lower by 9.328 pts or -0.31% at 3035.05 and the HANG SENG ended 213.84 pts lower or -1.3% at 16313.65.
  • Across Europe, Germany's DAX trades lower by 99.15 pts or -0.78% at 12656.81, FTSE 100 lower by 10.08 pts or -0.15% at 6920.33, CAC 40 up 4.61 pts or +0.08% at 6056.31 and Euro Stoxx 50 down 14.07 pts or -0.41% at 3462.9.
  • Dow Jones mini down 92 pts or -0.3% at 30372, S&P 500 mini down 25.5 pts or -0.69% at 3682, NASDAQ mini down 119.5 pts or -1.07% at 11032.75.

COMMODITIES: WTI at Best Levels of the Week, Gold Hits New Monthly Low Overnight

WTI futures have recovered from Tuesday’s low of $82.09 to trade at the best levels of the week. Nonetheless, the outlook remains bearish and a resumption of weakness would open $80.35, a Fibonacci retracement and potentially $76.25 further out, the Sep 26 low. Initial firm resistance to watch is at $90.07, Oct 12 high. Gold traded lower Wednesday, with weakness persisting in Asia-Pac trade. The yellow metal maintains a softer tone following the recent reversal from $1729.5, 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. The focus is on the key support and bear trigger at $1615.0, the Sep 28 low. On the upside, a breach of $1729.5 is required to reinstate a bullish theme.

  • WTI Crude up $1.31 or +1.53% at $86.86
  • Natural Gas up $0.07 or +1.3% at $5.537
  • Gold spot up $4.69 or +0.29% at $1630.84
  • Copper up $3.7 or +1.12% at $334.55
  • Silver up $0.05 or +0.27% at $18.4702
  • Platinum up $2.33 or +0.26% at $887.33

20/10/20221100/0700*TRTurkey Benchmark Rate
20/10/20221230/0830**USJobless Claims
20/10/20221230/0830**USPhiladelphia Fed Manufacturing Index
20/10/20221230/0830**USWASDE Weekly Import/Export
20/10/20221400/1000***USNAR existing home sales
20/10/20221430/1030**USNatural Gas Stocks
20/10/20221530/1130**USUS Bill 04 Week Treasury Auction Result
20/10/20221530/1130*USUS Bill 08 Week Treasury Auction Result
20/10/20221600/1200USPhiladelphia Fed's Patrick Harker
20/10/20221630/1230USFed Governor Lisa Cook
20/10/20221700/1300**USUS Treasury Auction Result for TIPS 5 Year Note
20/10/20221730/1330USFed Governor Philip Jefferson
20/10/20221745/1345USFed Governor Lisa Cook
20/10/20221805/1405USFed Governor Michelle Bowman
21/10/20222301/0001**UKGfk Monthly Consumer Confidence
21/10/20220600/0700***UKRetail Sales
21/10/20220600/0700***UKPublic Sector Finances
21/10/20221230/0830**CARetail Trade
21/10/20221310/0910USNew York Fed's John Williams
21/10/20221400/1600**EUConsumer Confidence Indicator (p)
21/10/20221600/1200**USTreasury Budget

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