• European bourses saw a choppy start to the session, but have since titled to the upside; US equity futures trade on a firmer footing with the ES back above 3600
• GBP was volatile but currently stands as the outperformer, DXY is softer but off worst levels, USD/JPY to a fresh 2022 and multi-year best
• BoE said the bank has made it clear from the outset that its temporary and targeted purchases of gilts will end on October 14th
• Polish pipeline operator said it detected a leak in the Druzhba pipeline; Polish top official said there are no grounds to believe it was sabotage
• Looking ahead, US PPI Final Demand, FOMC Minutes, G20 Finance Ministers' meeting, Astana Summit, Speeches from BoE's Pill & Mann, ECB's Lagarde, Fed's Kashkari, Barr & Bowman Supply from US

12th October 2022

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EUROPEAN TRADE

EQUITIES

• European bourses saw a choppy start to the session, but have since titled to the upside as US traders prepare to enter the fray.
• Sectors are mixed with Consumer Products bolstered by luxury names after LVMH earnings, with Tech following whilst Banks and Real Estate lag.
• Stateside, US equity futures trade on a firmer footing with the ES back above 3600 as the index futures attempt to claw back some of the lost ground yesterday.
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FX

• DXY is softer but off worst levels after testing levels close to 113.00 to the downside.
• GBP was volatile but currently stands as the outperformer following speculation over the Government ‘ditching’ or ‘deferring’ more of the tax cut proposals.
• The USD extended its bull run against the JPY to a fresh 2022 and multi-year best beyond prior Japanese intervention levels and 146.00, with little resistance from officials other than the usual verbal interjections
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FIXED INCOME

• Bunds slipped to a fresh intraday low on Eurex at 135.64 for an 81 tick loss on the day having been 9 ticks above par at one stage.
• Gilts remain 100+ ticks adrift within extremes spanning 90.90-92.81 vs yesterday’s 92.83 Liffe close.
• US Treasuries are holding steady before PPI data, 10 year note supply, FOMC minutes and further Fed rhetoric.
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COMMODITIES

• WTI and Brent front-month futures are flat intraday but off the worst levels seen overnight.
• NHC said Tropical Storm Karl is expected to strengthen today as it moves slowly over the southwestern Gulf of Mexico.
• Polish pipeline operator said on Tuesday evening it detected a leak in the Druzhba pipeline; cause is unknown; leak detected in one of two lines, second line is working as normal. Russia's Transfneft said it has received notice from Polish operator PERN about the leak at Druzbha; oil pumping towards Poland continues, according to IFX. Polish top official for energy infrastructure said there are no grounds to believe leak in Druzhba pipeline was sabotage, adds leak was probably caused by accidental damage. Germany State of Brandenburg Economy Minister said there was a pressure drop in Druzhba's main pipeline No.2, according to dpa. Polish pipeline operator PERN said supply to German clients is continuing taking into account technical possibilities; Polish refineries are receiving oil in line with nominations.
• SGH Macro said the understanding in Beijing is that Saudi Crown Prince Mohammad bin Salman assured Russia’s President Vladimir Putin that OPEC+ will cooperate to ensure that global crude oil prices do not fall below USD 80/bbl at least until the end of the military conflict between Russia and Ukraine, even if there is a global economic crisis.".
• Spot gold is modestly firmer as the upside for the Buck remains capped for now, but the yellow metal remains under its 21DMA (USD 1,673.34/oz).
• LME metals are mixed with copper relatively flat but aluminium is underperforming following a large build in LME warehouse stocks.Click here for more detail.

NOTABLE EUROPEAN HEADLINES

• It was reported that the BoE signalled to lenders that it is prepared to prolong bond purchases with officials privately indicating a flexible approach if market volatility flares up, according to FT. It was later reported that BoE affirmed that its bond-buying scheme will end on Friday 14th October, via Bloomberg.
• BoE said the bank has made it clear from the outset its temporary and targeted purchases of gilts will end on October 14th, and beyond Oct 14th, a number of facilities are in place to ease liquidity pressures on LDIs.
• Pensions and Lifetime Savings Association said the announcement by the BoE to purchase index-linked Gilts is a positive additional intervention, while it noted that the concern of pension funds has been that the period of purchasing should not be ended too soon, according to Reuters.
• UK's trade deal with India is reportedly on the verge of collapse after Indian ministers reacted "furiously" to comments by Home Secretary Braverman, according to The Times.
• There is growing speculation that UK PM Truss "could ditch yet more aspects of the mini-budget", according to Politico's Courea, adds "Think we’re looking at “deferring” tax cuts and maybe a further windfall tax”". However, Downing St source said that despite claims, there's no delay to April income tax cut, former Chancellor Sunak's corporation tax hike still is cancelled, according to a Sun reporter.
• ECB's Villeroy said fears of a recession must not derail ECB normalisation and that the current level of inflation requires ECB determination, while he also noted that a short recession is less detrimental than stagflation and said discussion about a 50bps or 75bps hike in October is premature amid volatile markets. Furthermore, Villeroy said the ECB may move more slowly after reaching a neutral rate and the APP unwind could begin earlier than 2024 with partial reinvestments.

NOTABLE EUROPEAN DATA

• UK GDP Estimate YY (Aug) 2.0% vs. Exp. 2.4% (Prev. 2.3%)
• UK GDP Estimate MM (Aug) -0.3% vs. Exp. 0.0% (Prev. 0.2%)
• UK GDP Estimate 3M/3M (Aug) -0.3% vs. Exp. -0.2% (Prev. 0.0%)
• EU Industrial Production MM (Aug) 1.5% vs. Exp. 0.6% (Prev. -2.3%)
• EU Industrial Production YY (Aug) 2.5% vs. Exp. 1.2% (Prev. -2.4%, Rev. -2.5%)

NOTABLE US HEADLINES

• US President Biden said a recession in the US is possible but any downturn would be “very slight” and that the US economy is resilient enough to ride out the turbulence.
• Intel (INTC) is said to plan thousands of job cuts due to the PC slowdown, while its sales and marketing could see a 20% reduction in staff.

CRYPTO

• Bitcoin remains steady above USD 19,000, Ethereum trades on either side of 1,300.

GEOPOLITICS

RUSSIA-UKRAINE

• US President Biden told CNN that he doesn't think Russian President Putin will use a tactical nuclear weapon.

OTHER

• US President Biden said the Saudis face consequences after the OPEC+ production cut, according to Bloomberg.
• Two delegations of US congressmen led by Republican Brad Wenstrup and Democrat Seth Moulton have arrived in Taiwan and will stay until Thursday, according to Sputnik.

APAC TRADE

EQUITIES

• APAC stocks were subdued with price action indecisive as the region took its cue from the choppy performance and late selling stateside after BoE Governor Bailey rejected industry calls for an extension to Gilt purchases, although a report from FT overnight suggested the contrary.
• ASX 200 was rangebound with strength in the real estate and the top-weighted financials sector offsetting the losses in tech, utilities and mining-related stocks, while there were also comments from RBA’s Assistant Governor Ellis who suggested nominal rates have already passed neutral and that policy was no longer expansionary.
• Nikkei 225 lacked conviction following the disappointing Machinery Orders data although the downside was contained with Japan reportedly to draw up economic measures before month-end.
• Hang Seng and Shanghai Comp. were the worst hit despite the jump in loans and financing data in China with markets constrained by lockdown concerns after China's Xi'an announced to suspend onsite classes for some students and shut other venues, while the Shenzhen Metro suspended three stations due to coronavirus.

NOTABLE APAC HEADLINES

• US permitted at least two non-Chinese chipmakers in China to receive goods and support that are restricted under new US export rules, according to industry sources. It was later reported that SK Hynix (000660 KS) received authorisation from the US Commerce Department to receive equipment for a chip production facility in China for a year without seeking a separate permit from the US, according to Reuters.
• China will be declared an official threat in a new strategic review of Britain's enemies, according to The Sun.
• RBA Assistant Governor Ellis said the neutral rate is a guide rail for policy not a destination and that the real neutral rate is uncertain but should be positive even if low which implies a nominal neutral rate of at least 2.5% for Australia, while Ellis added that policy is no longer in an expansionary place, according to Reuters.
• BoK hiked the base rate by 50bps to 3.00%, as expected and said inflation will remain high in the 5%-6% range for a considerable time. BoK Governor Rhee said board members Joo Sang-Yong and Shin Sung-Hwan dissented at Wednesday's rate decision, while he added that the board's views on the rate hike pace in November differ but added that a majority of board members see the BoK's terminal rate at 3.5%.

DATA RECAP

• Japanese Machinery Orders MM (Aug) -5.8% vs. Exp. -2.3% (Prev. 5.3%)
• Japanese Machinery Orders YY (Aug) 9.7% vs. Exp. 12.6% (Prev. 12.8%)