MNI US OPEN - ECB Could Change TLTRO Terms This Week

NEWS

ECB (MNI): MNI SOURCES: ECB Seen Changing TLTRO Terms
The European Central Bank’s Executive Board will present the Governing Council with a proposal to retroactively modify conditions on cheap TLTRO loans to banks and expects it to be approved this Thursday, sources told MNI. Higher interest rates have made it profitable for banks to plough money received from Targeted Longer-Term Refinancing Operations into deposits at the ECB, raising the prospect of substantial losses for some Eurosystem national banks.

UK (MNI): Sunak Set To Take Over As PM From Truss Later This Morning
A series of formal procedures take place this morning ahead of incoming Prime Minister Rishi Sunak officially assuming office. Outgoing PM Liz Truss at 0900BST began her final Cabinet meeting, and at 1015BST will deliver her final address from 10 Downing Street. She will then travel to Buckingham Palace to meet with King Charles III to offer her resignation and recommend Sunak as the individual most able to form a majority gov't in the Commons.

CHINA (MNI): China’s New Leaders Face Challenges in Reform Push
President Xi Jinping’s recruitment of loyalists to head China’s new generation of leaders could deliver faster policy making, but they face domestic and external challenges in pushing the reforms needed to carry out the Party’s “dual circulation” strategy that will accelerate once new heads of the central bank and financial regulators take office in March, MNI understands.

CHINA (MNI): PBOC Eases Capital Inflow Controls As Yuan Slides
The People’s Bank of China has eased controls on capital inflows as it steps up efforts to curb weakness in the yuan, which dropped to its lowest level against the U.S. dollar since early 2008. The central bank announced on its website on Tuesday that it had raised the macro-prudential adjustment parameter for cross-border financing of companies and financial institutions from 1 to 1.25.

JAPAN (RTRS): Japan likely spent around $6 bln for Oct 24 suspected FX intervention
Japan likely spent up to 900 billion yen ($6 billion) on its second straight day of suspected currency intervention on Monday, bringing the total for yen-buying action since last month to as much as 9.2 trillion yen, according to market estimates on Tuesday.

JAPAN (MNI): Japan's Sumitomo Life To Buy 30-Year JGBs As Yields Rise
Japan's Sumitomo Life Insurance will increase its purchases of 30-year Japanese government bonds if yields climb above 1.5%, but it will reduce the balance of hedged low-coupon foreign bonds in the second half of this fiscal year, the company’s chief fund manager said on Tuesday.

EU (MNI): Ministers Meeting On Energy; Commission Seeks To Nix 'Iberian Model'
EU member state energy ministers are currently meeting to try and finalise a deal on the proposed gas package to ensure security of supply and avoid crippling price rises this winter. Last weeks' EUCO summit failed to reach a final agreement, with ministers looking to do so today. Presser set to come after the session finishes around 1530CET (0930ET, 1430BST).

DATA

GERMAN DATA (MNI): Ifo Survey Flags Weak Start to Q4
BUSINESS CLIMATE 84.3 (FCST 83.5); SEP 84.4r
CURRENT ASSESSMENT 94.1 (FCST 92.5); SEP 94.5
EXPECTATIONS 75.6 (FCST 75.0); SEP 75.3r

• The German business climate continued to remain deeply pessimistic in the October data, edging down for the fifth successive month to a fresh 2020 low. Expectations saw a minor 0.3-point improvement, edging up from near initial 2020 pandemic lows. As such, the index is likely to have bottomed out for now.
• Manufacturing, services, trade and construction continue to see gloomy outlooks as the survey continued to flag recession fears. Manufacturing capacity utilisation in manufacturing dipped from 85.3% to 84.6% as new orders fell.
• Acute concerns regarding inflation and gas/energy supply shortages persist. Yesterday's PMIs saw German business activity contract again at a concerningly faster rate as new orders dropped. High energy prices are choking both demand and profit margins.
• The German Q3 GDP flash release is due on Friday and a contraction of around -0.2% q/q is anticipated, kicking off a Winter recession.

FOREX: GBP Makes Furtive Gains as Sunak Heads to No. 10

• G10 FX price action has been more muted so far Tuesday, with GBP making furtive gains as incoming PM Sunak looks to take the reins from outgoing PM Truss later today. Nonetheless, GBP holds below weekly highs printed against USD and EUR so far, making 1.1409 key intraday resistance for GBP/USD today.
• PM Sunak is expected to announce the first positions in his cabinet later today, with Chancellor, Home Secretary, Foreign Secretary and Defence Secretary expected to be confirmed.
• Meanwhile, CHF is the poorest performer in G10, extending the quiet near-term uptrend in EUR/CHF that's put the cross at a multi-month high today at 0.9901. This narrows the gap with 0.9962 - the 50% retracement of the June - September downleg and a break above here puts the cross on course for a test of the 1.0072 200-dma.
• Greenback trade has been more muted, with the USD Index either side of the 112.00 handle, keeping the USD toward the lower-end of the recent range.
• Tier one data releases are few and far between Tuesday, with US consumer confidence the highlight. Both Fed and ECB remain in their pre-rate decision media blackouts, leaving CB speaker risk very low for now. BoE's Pill is on the docket, speaking on ONS statistics.

BONDS: Bunds and USTs both move more than gilts

• Gilt futures hit a new high of 101.74 shortly after the open this morning - the highest since the Truss/Kwarteng "Growth Plan" mini-budget. However, gilts moves are smaller than those seen in both Bunds and Treasuries this morning.
• Curves have flattened this morning and Bunds and US Treasuries have both seen 10-year yields fall more than 5bp this morning. This is despite a better than expected German IFO. Markets are already starting to look ahead to Thursday's ECB meeting. For the full MNI preview click here.
• TY1 futures are up 0-11+ today at 110-03 with 10y UST yields down -5.3bp at 4.191% and 2y yields down -2.7bp at 4.480%.
• Bund futures are up 0.81 today at 136.97 with 10y Bund yields down -4.8bp at 2.279% and Schatz yields up 0.5bp at 1.996%.
• Gilt futures are up 0.50 today at 100.73 with 10y yields down -3.2bp at 3.705% and 2y yields down -0.2bp at 3.369%.