MNI US OPEN - RBA Signals Tightening Pace Could Slow

NEWS

ECB (MNI): Lagarde's comments echo those from last week's press conference

Some focus on Lagarde's comments this morning in an interview with Delfi Bizness. See link here.

She notes that inflation is too high and the ECB hasn't reached its destination on rates yet and that the growth outlook has weakened versus the September forecasts with a higher probability of a recession. Her comments echo those from the Q&A of last week's press conference where she said the ultimate destination is the rate that will deliver the 2% inflation target in the medium term and that the ECB has made progress on normalisation, but still has ground to cover. She also said in the press conference that the ECB will take a decision meeting-by-meeting and that it "might well be several meetings" before rates peak.

EUROPE (BBG): Europe Set for Mild Month as Forecasters See Winter on Hold

Europe is set for a mild November, easing pressure on natural-gas storage as the region’s energy crunch restricts supplies ahead of winter. Long-range outlooks from forecasters Maxar Technologies LLC and Marex show no cold spells for the month -- a relief for households worried about the cost of heating and for governments keen to preserve gas stocks following a slump in Russian supply.

“In terms of energy demand, the warm start to November would be a welcome sign given the current state of global energy,” said Matthew Dross, a meteorologist at Maxar. “Still, occasional bouts of cold air cannot be ruled out for November and the winter 2022-2023 season as a whole.”

NATO (MNI): New Swedish PM To Visit Turkey As Accession Process Continues

Speaking at the Nordic Council summit in Helsinki, Finland, Sweden's new PM Ulf Kristersson has confirmed that he will travel to the Turkish capital Ankara for talks with gov't officials as the accession process of his country and Finland to the NATO alliance continues. Kristersson also states that it is 'natural for Sweden and Finland to act jointly in the NATO process'.

AUSTRALIA (MNI): RBA Hikes 25bp; Sees Inflation Peak 'Around' 8%

The Reserve Bank of Australia raised rates 25bp to 2.85%, warning inflation will peak at "around" 8% later this year as it cut its growth forecasts out to 2024. The seventh consecutive hike in rates has seen the Bank lift rates by a cumulative 275 bp since it started hiking rates in May from a low of 0.1%.

The RBA expects to increase interest rates "over the period ahead" but the most aggressive tightening cycle in three decades isn't expected to dampen inflation yet as it forecast a peak of "around" 8% compared to the 7.75% outlined in August's Statement on Monetary Policy. "The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market."

AUSTRALIA (MNI): RBA Ready To Step Up Hikes, Hold Steady If Required - Lowe

Reserve Bank of Australia Governor Philip Lowe telegraphed the path for interest rates in 2023 will depend on how growth and inflation perform over the summer in a speech on Tuesday, following the seventh consecutive policy tightening since May earlier in the day.

He said the RBA's base case is that "interest rates will need to go higher still" following a 25bps hike to 2.85% on Tuesday, but underscored a flexible approach to policy making as the Bank seeks to stay on the "narrow path" of reining in inflation and underwriting growth.

JAPAN (MNI): BOJ Must Support Economy with Easy Policy - Kuroda

Bank of Japan Governor Haruhiko Kuroda said on Tuesday that the BOJ needs to support the economy with easy policy as it recovers from Covid-19. Kuroda told lawmakers that high prices caused by rising import costs is seeing income flow out of Japan, putting downward pressure on the economy.

He also said that the BOJ aims to achieve price stability on the back of wage hikes in a stable manner. The Bank of Japan maintained its policy settings and easing guidance after last week's two-day meeting.

DATA

UK FINAL OCT MANUF. PMI 46.2 (FLASH 45.8); SEP 48.4 (MNI)

CHINA (MNI): Caixin China Oct Mfg PMI Stays in Contraction Zone

• CHINA OCT CAIXIN MANUFACTURING PMI 49.2 VS 48.1 IN SEP

China's October Caixin manufacturing PMI edged up 1.1 points to 49.2 , remaining in the contraction zone below 50 for a third consecutive month amid measures to curb renewed Covid-19 outbreaks, the financial publisher said Tuesday. Both the production and new orders sub-indices stayed in contraction territory for a second and third month, respectively. The new export orders sub-index also contracted for a third month amid a slowing global economy, with some exporters reporting difficulties in transportation, Caixin said.

FX SUMMARY: Greenback Erases Monday Bounce as Conviction Low Pre-Fed

• After a strong start to the week, the greenback has reversed course to trade lower against all others to mark the beginning of a new month - just one session ahead of the Fed rate decision on Wednesday. The USD price action concides with a step lower across the UK yield curve, led by the belly to put 10yu yields off 7bps.
• The RBA raised rates by 25bps, alongside expectations, with AUD fading slightly following the decision as the bank failed to commit to a sharp tightening pace going forward, suggesting the bank could be more patient in approaching their peak policy rate. AUD/NZD touched new weekly lows of 1.0951 in response.
• NOK is the firmest performancing currency in G10 so far, benefiting from the bounce in the Brent crude price off Monday's lows, with the price action coming ahead of Thursday's Norges Bank release. Markets remain divided over the viability of a 25bps or 50bps hike this month, with the bank signalling rates could be raised at a slower pace in September.
• Focus turns to JOLTS job openings data later today as well as the October ISM manufacturing. The latter release will be wached for clues ahead of this Friday's NFP release.

BOND SUMMARY: Curves Bull Flatten Ahead of ISM and First BOE Active Gilt Sales Op

• Gilt futures jumped higher on the open this morning but helped pull Treasuries and Bunds higher. However, the moves in 10-year gilt yields today are now similar to those seen in other core fixed income markets. Curves are bull flattening.
• Markets had been focused on various UK media reports pointed to further tightening of fiscal policy in the Autumn Statement.
• Looking ahead to today's events we have US ISM and JOLTs data - with both likely to be closely watched ahead of tomorrow's FOMC decision.
• We will also have the first active gilt sales operation from the Bank of England with GBP750mln of short-dated (3-7 year) gilts on offer to the market, with the results shortly after the operation concludes at 14:45BST.
• TY1 futures are up 0-18+ today at 111-05+ with 10y UST yields down -6.3bp at 3.987% and 2y yields down -5.2bp at 4.433%.
• Bund futures are up 0.90 today at 139.34 with 10y Bund yields down -6.7bp at 2.072% and Schatz yields down -4.2bp at 1.885%.
• Gilt futures are up 0.89 today at 103.02 with 10y yields down -6.8bp at 3.438% and 2y yields down -6.1bp at 3.186%.

EQUITIES: Equity Futures Targeting Mid-September Highs

A bullish EUROSTOXX 50 futures theme remains intact. This follows the recent breach of trendline resistance drawn from the Aug 17 high and the break of the 50-day EMA. Scope is seen for an extension higher near-term and sights are on 3678.00, the Sep 13 high and a key short-term resistance. Firm support is seen at the 50-day EMA. The average intersects at 3498.10. S&P E-Minis maintains a bullish tone and Friday’s resumption of the short-term uptrend reinforces current conditions. Last week’s climb resulted in a break of the 3820.00 hurdle, Oct 5 high. Furthermore, price has traded above the 50-day EMA, at 3836.32. Sights are on 3981.25 next, the Sep 14 high. On the downside, key short-term support has been defined at 3641.50, the Oct 21 low. Initial firm support to watch is at 3757.50, the Oct 27 low.

• Japan's NIKKEI closed higher by 91.46 pts or +0.33% at 27678.92 and the TOPIX ended 9.07 pts higher or +0.47% at 1938.5.
• Elsewhere, in China the SHANGHAI closed higher by 75.716 pts or +2.62% at 2969.199 and the HANG SENG ended 768.25 pts higher or +5.23% at 15455.27.
• Across Europe, Germany's DAX trades higher by 147.55 pts or +1.11% at 13411.46, FTSE 100 higher by 108.53 pts or +1.53% at 7206.27, CAC 40 up 103.37 pts or +1.65% at 6370.44 and Euro Stoxx 50 up 50.71 pts or +1.4% at 3669.3.
• Dow Jones mini up 201 pts or +0.61% at 32981, S&P 500 mini up 33 pts or +0.85% at 3917, NASDAQ mini up 117.5 pts or +1.03% at 11565.5.

COMMODITIES: Gold, WTI Paring Yesterday's Losses

The WTI futures outlook improved for bulls last week and the short-term condition remains positive. The contract has defined a key short-term support at $81.30, the Oct 18 low. Note that resistance at $88.66, the Oct 12 high, has been breached. The break of this hurdle signals scope for gains towards $92.34, the Oct 10 high and a key resistance. On the downside, a move through support at $81.30 is required to undermine the current bull theme. A downtrend in Gold remains intact. A bearish theme follows the reversal from $1729.5, Oct 4 high. A continuation lower would open key support and a bear trigger at $1615.0, Sep 28 low. On the upside, the next firm resistance is at $1684.4, the 50-day EMA. A break of the average would signal scope for a stronger correction.

• WTI Crude up $1.48 or +1.71% at $88.02
• Natural Gas down $0.18 or -2.77% at $6.168
• Gold spot up $13.73 or +0.84% at $1646.78
• Copper up $8 or +2.37% at $346.05
• Silver up $0.55 or +2.89% at $19.7085
• Platinum up $14.7 or +1.58% at $945.2