• APAC stocks traded cautiously following the soft handover from Wall Street post-PPI and FOMC minutes.
• FOMC minutes noted that officials judged they needed to move to and maintain a more restrictive policy stance, although several participants noted that risks could become more two-sided.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 future -0.5% after the cash market closed with losses of 0.3% yesterday.
• DXY is steady on a 113 handle with price action contained across major pairs, EUR/USD and Cable linger around 0.97 and 1.11 respectively.
• Looking ahead, highlights include German Final CPI, US CPI, US DoE, IEA OMR, Astana Summit, Speeches from ECB's de Guindos & BoE's Mann, Supply from Italy & US.

US TRADE

• US stocks finished mild losses as participants digested several key risk factors including the hotter-than-expected PPI report and as mixed FOMC minutes offered something for both the hawks and the doves. FOMC Minutes noted that officials judged they needed to move to and maintain a more restrictive policy stance, although several participants said that as policy moved into restrictive territory, risks would become more two-sided, while participants also observed that as the stance of monetary policy tightened further, it would become appropriate at some point to slow the pace of policy rate increases which resulted in a short-lived dovish reaction.
• SPX -0.33% at 3,577, NDX -0.05% at 10,785, DJIA -0.10% at 29,210, RUT -0.30% at 1,688.
• Click here for a detailed summary.

FOMC MINUTES

• FOMC Minutes stated that officials judged they needed to move to and maintain a more restrictive policy stance to meet the goal of bringing down elevated inflation and many participants raised their assessment of the Fed funds path needed to achieve committee goals. Many participants also indicated that once policy had reached a sufficiently restrictive level, it would be appropriate to maintain that level for some time and many emphasised that the cost of taking too little action to bring down inflation outweighed the cost of taking too much action.
• Several participants underlined the need to maintain a restrictive stance for as long as necessary and several said that as policy moved into restrictive territory, risks would become more two-sided. Furthermore, several participants noted it would be important to calibrate the pace of further tightening with an aim of mitigating the risk of significant adverse effects on the economic outlook, while participants observed that as the stance of monetary policy tightened further, it would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.

NOTABLE HEADLINES

• Fed's Bowman (voter) said sizeable rate hikes should remain on the table if they do not see signs that inflation is moving down and she fully supported Fed's 75bps hikes but also stated that a slower pace of rate hikes would be appropriate if inflation starts to decline. Bowman said it is not yet clear how high rates will need to go and inflation is much too high which they must bring down, as well as stated that the FFR will need to increase to a restrictive level and remain there for some time. Furthermore, she noted that significant uncertainty on the inflation outlook makes it challenging to provide precise guidance on the path of rates, while she added that the outlook for inflation and economic activity has significant two-sided risks, according to Reuters.
• US Treasury Secretary Yellen said the global economy faces significant headwinds but the US economy remains resilient, while she stated that they will also be attentive to the global repercussions of their policies, according to Reuters.

APAC TRADE

EQUITIES

• APAC stocks traded cautiously following the soft handover from Wall Street where markets ended the session marginally lower after hot PPI data and mixed FOMC Minutes which spurred a short-lived dovish reaction.
• ASX 200 was kept afloat by outperformance in its top-weighted financials sector and as earnings optimism provided a tailwind with Qantas shares flying high on expectations for a return to profit for the current 6-month period.
• Nikkei 225 was lacklustre following recent currency weakness and firm PPI data which climbed to a 5-month high.
• KOSPI underperformed after North Korean leader Kim guided a test firing of long-range strategic cruise missiles which hit a target 2,000km away and are capable of carrying nuclear weapons.
• Hang Seng and Shanghai Comp. were both subdued as China continued to advocate the strict zero-COVID approach with a Foreign Ministry spokesperson noting that China needs COVID security to achieve economic growth, although downside in the mainland was contained amid support for the property industry with China local governments to purchase houses as stimulus to help developers.
• US equity futures traded sideways (e-mini S&P -0.1%) as attention turned to the upcoming US CPI data.
• European equity futures are indicative of a lower open with the Euro Stoxx 50 future -0.5% after the cash market closed with losses of 0.3% yesterday.

FX

• DXY remained confined to a tight range ahead of the looming US CPI and following the mixed FOMC Minutes which spurred a short-lived dovish reaction.
• EUR/USD was indecisive with price action stuck around the 0.9700 level despite the latest bout of hawkish central bank rhetoric from ECB’s Holzmann and Knot.
• GBP/USD marginally pulled back after its outperformance in the prior session where it briefly reclaimed the 1.1100 handle following speculation about a potential extension of BoE intervention and additional U-turns or postponements of tax cuts which were all refuted by either the BoE or Downing Street.
• USD/JPY took a breather after it recently approached just shy of the 147.00 handle which prompted familiar jawboning from the government.
• Antipodeans were contained alongside the cautious mood in stocks and commodities.
• PBoC set USD/CNY mid-point at 7.1101 vs exp. 7.1248 (prev. 7.1103)
• Chile Central Bank raised its overnight rate by 50bps to 11.25%, as expected, with the decision unanimous. Chile Central Bank stated that it estimates monetary policy has reached the maximum level in the current cycle and it will maintain rates at the current level for as long as needed to bring inflation to its target, according to Reuters.

FIXED INCOME

• 10yr UST futures were subdued with prices choppy in reaction to the mixed FOMC Minutes and with comments from Fed’s Bowman somewhat two-sided as she noted sizeable rate hikes should remain on the table if they do not see signs inflation is moving down but added that a slower pace of hikes would be appropriate if inflation starts to decline.
• Bund futures bounced off the prior day’s lows and reclaimed the 136.00 level, while sources noted that ECB policymakers are close to a deal to change the terms of the TLTRO in which a decision could be made on October 27th.
• 10yr JGB futures were steady after BoJ Governor Kuroda reaffirmed the dovish script and with the central bank only in the JGB market under its fixed rate operations today which failed to attract any takers yesterday.

COMMODITIES

• Crude was lacklustre after the prior day's declines owing to the bearish demand growth forecasts in the OPEC MOMR and EIA STEO report, while prices were also contained after the larger-than-expected build in headline crude stockpiles and comments from Saudi which pushed back against the criticism regarding the OPEC+ output cut.
• US Private Inventory (bbls): Crude +7.1mln (exp. +2.1mln), Cushing -0.75mln, Gasoline +2mln (exp. -1.9mln), Distillate -4.6mln (exp. -2.2mln).
• US EIA STEO cut forecast for 2023 world oil demand by 490k BPD and now sees 1.48mln BPD Y/Y increase, while it raised 2022 forecast by 20k BPD to 2.12mln BPD Y/Y.
• Saudi Arabia fully rejected statements criticising the kingdom after the OPEC+ output cut decision, while it said that statements critical of the kingdom are not based on facts and set the OPEC+ decision outside its economic context. Saudi said the OPEC+ decision was unanimous which took into account the balance of supply and demand and aims at curbing market volatility. Furthermore, Saudi said it emphasised through consultations with the US administration that postponing the oil cut for a month would have negative economic consequences and Saudi rejects any attempts to divert it from the goal of protecting the global economy from oil market fluctuations, according to a statement from the Foreign Ministry cited by Reuters.
• US Deputy Energy Secretary Turk said the US has millions of barrels of oil within the SPR and will try to use those barrels responsibly where it makes sense to stabilize markets, while Turk stated that President Biden has not taken any tools off the table when asked about a fuel export ban, according to Reuters.
• US officials are concerned the Russian oil price cap will fail as a result of the OPEC+ cut, according to Bloomberg.
• EU's energy chief said regarding gas prices that they need to develop an alternate benchmark and expect it to be in place by the next heating season, while any intervention in the gas market requires a decrease in gas demand. Furthermore, they will propose an EU electricity market reform early next year and will see over the weekend how they proceed with price capping for the October 18th proposal, according to Reuters.
• Polish PM noted it is too early to say whether the leak in the Druzhba pipeline was an act of sabotage or accidental damage, while the signs point to the Kremlin although everything has to be checked before final conclusions, according to Reuters.
• Spot gold was indecisive after mixed FOMC Minutes and with the dollar flat as US CPI data looms.
• Copper traded sideways with participants tentative ahead of upcoming key risk events.

GEOPOLITICS

RUSSIA-UKRAINE

• Sites in Ukraine's capital of Kyiv were targeted by shelling early today, according to the administration in Kyiv cited by Sky News Arabia. Furthermore, Ukrainian President Zelensky's office later said that a critical infrastructure facility was hit by drone strikes in the Kyiv region, according to Reuters.
• United Nations General Assembly voted overwhelmingly to condemn Russia's annexation of regions in Ukraine with the resolution supported by 143 countries. Furthermore, nearly 3 dozen countries abstained from the vote including China and India, while 5 countries voted against it which were Russia, Belarus, North Korea, Syria and Nicaragua, according to BBC.
• US President Biden said after the UN vote on Ukraine that by attacking the core tenets of the UN Charter, Russia is tearing at the very foundations of international peace and security, according to Reuters.
• UK Defence Minister Wallace announced the UK will donate air defence missiles to Ukraine, according to Reuters.
• French President Macron said they are working on additional Caesar Howitzer shipments to Ukraine with Denmark and will also deliver radar and air defence systems in the upcoming weeks. Macron added the intensity of Russian strikes against Ukraine has changed which is why we need to step up military presence in Eastern Europe.

OTHER

• North Korean leader Kim guided a test firing of long-range strategic cruise missiles which hit a target 2,000km away and are capable of carrying nuclear weapons, while North Korean leader Kim said focus should be on developing nuclear forces, according to Yonhap and KCNA.
• North Korea reportedly cancelled a meeting with the EU diplomatic service, while the reason was unclear but followed two recent statements from Brussels that may have impacted DPRK decision-making, according to NK News citing sources.
• Japan's Defence Minister said North Korea has likely achieved the capability of mounting a nuclear warhead on a ballistic missile that could reach Japan, according to Reuters.
• US National Security Adviser Sullivan said US President Biden will hold bipartisan, in-person consultation with members of Congress on the US/Saudi reset but there are no specific arms deals pending, so a decision will not be imminent, according to CNBC. Furthermore, Sullivan said the USTR continues its formal review which will last several more months when asked about tariffs on China.
• US isn’t currently planning any significant changes to the number of US forces stationed in Saudi Arabia but some aspects of the two nations’ defence cooperation could be affected following US President Biden’s decision to reassess relations, according to WSJ.

CRYPTO

• Bitcoin traded marginally lower although remained above the 19,000 level.
• Fed's Vice Chair for Supervision Barr said crypto is unlikely to replace traditional money and banks should manage heightened risks from deposits by crypto firms.

ASIA

NOTABLE APAC HEADLINES

• China Semiconductor Industry Association said it opposes the US Commerce Department's export control regulations and hopes the US government can correct wrong practices in a timely manner, while it was separately reported that TSMC (2330 TT) received a 1-year US licence for China chip expansion.
• Chinese local governments are to purchase houses as stimulus to support developers, according to China Securities Times.
• Japanese Finance Minister Suzuki said excess FX volatility and disorderly moves can hurt the economy and financial stability, while he told the G20 that Japan is deeply worried about recent sharp FX volatility and explained that recent intervention was prompted by excess moves by speculators. Furthermore, Suzuki said they cannot tolerate excess FX moves by speculators and will take decisive action on speculative FX moves in which they are focused on FX volatility rather than the yen level regarding intervention, according to Reuters.

DATA RECAP

• Japanese Corp Goods Price MM (Sep) 0.7% vs. Exp. 0.2% (Prev. 0.2%, Rev. 0.4%)
• Japanese Corp Goods Price YY (Sep) 9.7% vs. Exp. 8.8% (Prev. 9.0%, Rev. 9.4%)

EU/UK

NOTABLE EU/UK HEADLINES

• BoE's Mann said UK labour market inactivity is a drag on the economy and that tackling inflation will hurt the UK more than others. Mann added that when inflation expectations are drifting, front-loading rate hikes creates less severe trade-offs for central banks.
• UK PM Truss has been told by senior advisers to "rip up" last month's mini-budget and increase corporation tax in order to restore confidence in her government, according to The Times
• Several UK companies are reportedly facing calls to provide emergency loans to their employee pension schemes in the latest bid for those funds to raise cash. Funds have reportedly been looking for more ways to rebuild cash buffers to cover margin calls on derivative positions in case of another sell-off in Gilts and are trying to avoid getting rid of prized assets, according to Bloomberg citing advisers and pension fund consultants.
• London Stock Exchange is widening its maximum spread requirements to 5% for all Gilt-edged securities trading on its order book.
• UK Chancellor Kwarteng rejected calls for a new tax on UK banks after strong opposition from the industry, according to FT.
• ECB's Holzmann (hawk) said a 100bp hike would be more than what is needed but a 75bp hike in October and a 50bp move in December would take the ECB to neutral. Holzmann said the ECB will evaluate QT once at neutral and that a shallow recession will not prevent the ECB from hiking, while he noted all indicators point to stagnation or a slight recession. Furthermore, he said markets have a good sense of the next ECB meeting and that markets are spot on, with markets currently implying another 75bp hike.
• ECB policymakers are close to a deal to change the terms of the TLTRO in which a decision could occur on October 27th, while the TLRO change could include amended terms, tiering or remuneration on part with mandatory reserves, according to sources cited by Reuters.

DATA RECAP

• UK RICS Housing Survey* (Sep) 32 vs. Exp. 45.0 (Prev. 53.0, Rev. 51), while RICS said 12-month price expectations have now turned slightly negative.