EU Mid-Market Update: BOE's landmark moment as its poised to begin QT

Zurich, Switzerland EU Mid-Market Update: BOE's landmark moment as its poised to begin QT

Tue, 01 Nov 2022 5:40 AM EST


-Global risk appetite ignited by reports China is constructing a "Reopening Committee' for their economy. News lifted Hang Seng 5% and carried momentum over to European indices and US futures. China Foreign Ministry commented on speculation and noted they 'were not aware of the situation', but did not specifically deny the rumors.

-ECB's Lagarde noted recession risk had increased, and stated inflation is too high (following record high Euro Zone CPI Estimate yesterday of 10.7% YoY)

-Ahead of BOE decision on Thurs, a reminder that BOE begin their Gilt sales today with first auction of £750M in short-term maturities

-All Saints Day holiday underway across parts of Europe with Croatia, Hungary, Poland, Slovakia and Slovenia closed.

-Asia closed higher with Hang Seng outperforming at +5.3%. EU indices are 0.6-1.7% high. US futures are +0.5% to +0.8%. Gold +0.5%, DXY -0.4%; Commodity: Brent +1.0%, WTI +0.9%, UK Nat Gas +9.9%; Crypto: BTC -0.5%, ETH +0.7%


- RBA raised Cash Rate Target by 25bps to 2.85% (as expected). Reiterated forward guidance that expected to continue increase rates for period ahead with size and timing of future hikes to be data determined. CPI to peak at 8.0% later this year (**Note: in-line with recent 2023 budget view from govt)

- China Oct Caixin PMI Manufacturing registered it’s (3rd straight contraction (49.2 v 48.5e)

- Japan Oct Final PMI Manufacturing confirmed 21 months of expansion (50.7 v 50.7 prelim)

- Australia Oct Final PMI Manufacturing confirmed 30th month of expansion (52.7 v 52.8 prelim)

- BOJ Gov Kuroda reiterated stance that must maintain easy policy to support economy in midst of recovery from pandemic

- Japan Fin Min Suzuki: Additional sharp weakening in the JPY is unfavorable in the current situation with Inflation as an issue

Ukraine Conflict:

Russia Defense Ministry stressed that Russia was suspending, not withdrawing from, the Black Sea grain initiative


- President Biden stated that energy companies had reported Q3 profits that were 'hard to believe' and 'outrageous', the result of 'profiteering'; Confirmed White House would work with Congress to address these excess profits



Indices [Stoxx600 +1.20% at 417.14, FTSE +1.43% at 7,196.30, DAX +0.93% at 13,377.27, CAC-40 +1.55% at 6,364.05, IBEX-35 +0.97% at 8,033.77, FTSE MIB +1.57% at 23,007.00, SMI +0.71% at 10,904.60, S&P 500 Futures +0.68%]

Market Focal Points/Key Themes: European indices open higher across the board and advanced further as session progressed; reduced trading across Europe due to holiday; all sectors start the day higher, with leaders including energy and consumer discretionary; lagging sectors include telecom and real estate; reportedly Lufthansa returns to bid for ITA Airways; earnings expected in the upcoming US session include AMD, Uber, Mondelez and Eli Lilly


- Consumer staples: ForFarmers [FFARM.NL] -13% (trading update)

- Energy: Uniper [UN01.DE] +5.5% (mild Nov forecast for Europe), BP [BP.UK] -1% (earnings; raises outlook; buyback)

- Healthcare: AstraZeneca [AZN.UK] +1.5% (full vaccine approval in EU)

- Technology: Prosus [PRX.NL] +7.5% (refutes article on Tencent)

- Materials: Ferrexpo [FXPO.UK] +4% (resume partial operations in Ukraine)


- ECB chief Lagarde reiterated stance that not yet reached destination on rates and stressed that ECB was committed to doing whatever it took to get inflation back to the 2% target

- ECB’s Schnabel (Germany) stated that needed to get a grip on inflation dynamics

- South Africa Central Bank (SARB) Gov Kganyago stated that must not loosen grip on inflation or fall behind our peers as rates normalize

- RBA Gov Lowe stated that not hiking would allow inflation become entranced. To ensure that inflation surge is temporary. Reiterated view that inflation was expected to increase further and peak at 8.00% by the end

- China's Zhengzhou (capital city of Henan Province) said to have loosened some COVID controls from today,

- China Foreign Ministry stated that was not aware of the situation when asked about social media reports that China was forming a reopening Committee

**Currencies/ Fixed Income**

- Some risk-on appetite saw the USD soften ahead of Wednesday’s FOMC decision. Overall the market expects the Fed to hike by 75bps with its narrative being focused on battling inflation

- EUR/USD steady at 0.9920. Recent EU data suggested inflation peak was not likely in near future with many countries likely to remain around double-digit levels in the coming months.

- GBP/USD at 1.1525 as BOE was poised to kick off active sales of Gilts following the recent turmoil of the former Truss mini-budget

- USD/JPY was back below 148 level as dealers remain wary of potential Japan FX intervention.

***Economic Data***

- (RU) Russia Oct Manufacturing PMI: 50.7 v 50.1e (6th straight expansion)

- (DE) Germany Sept Import Price Index M/M: -0.9% v +0.6%e; Y/Y: 29.8% v 31.0%e

- (UK) Oct Nationwide House Price Index M/M: -0.9% v -0.3%e; Y/Y: 7.2% v 8.2%e