EU Mid-Market Update: US mid-term elections in focus;

Zurich, Switzerland EU Mid-Market Update: US mid-term elections in focus; Russia and US are said to be discussing holding in-person talks on strategic nuclear weapons

Tue, 08 Nov 2022 5:15 AM EST


-Market participants awaiting double barreled catalysts with US Mid-Terms today and US CPI on Thurs

- Russia and US are reportedly discussing holding in-person talks on strategic nuclear weapons (the first time since Ukraine war escalation started in Feb 2022); Talks may take place in the Middle East

-UK BOE's Pill alluded to finely nuanced MPC attitude change after recently balancing the risk of recession with lowering inflation, the Central Bank has previously declared complete focus to driving down inflation as first and only priority. New comments shed color that MPC stance to now incorporate economic outlook as a decision in future rate hikes. Reminder that last Thurs, BOE declared the UK to already be in a recession since Q3 and to remain for up to 2 years

-Asia closed mixed with NZX50 -1.2%. EU indices are mixed between -0.2% and +0.4%. US futures are +0.2%. Gold -0.4%, DXY +0.2%; Commodity: Brent -0.9%, WTI -1.1%, UK Nat Gas +5.1%; Crypto: BTC -4.4%, ETH -4.9%


- China leaders said to be considering steps towards reopening the economy, but no timeline set. A return to pre-pandemic level of activity not likely before end of 2023

- BOJ Summary of Opinions noted that domestic consumer inflation likely to continue accelerating as firms pass on higher costs

- Japan Govt said to be adding ~¥1.4T of loans for the second extra budget

- New Zealand Q4 Inflation Expectation Survey (2-year outlook): 3.6% v 3.1% prior

- Australia Oct Final PMI Services: 49.3 v 49.0 prelim (confirms move back into contraction)


- ECB chief Lagarde reiterated stance that must bring inflation back to 2% target in the medium term. Reiterated inflation remained much too high and inflation expectations needed to remain anchored

- ECB's Kazaks (Slovenia) stated that there was no pivot; and still believed inflation was a problem. To continue raising rates. Discussion about the size of the step was appropriate. There was no need to take a pause at the turn of the year and should continue hiking into next year’

- UK PM Sunak reportedly to increase pensions and benefits in line with inflation

- UK to announce a 'major' LNG gas purchase deal with the US after the COP27 climate summit


- Fed's Barkin (non-voter) stated that would have made sense if Fed had started tightening earlier; saw promising signs on inflation



Indices [Stoxx600 +0.21% at 419.22, FTSE -0.04% at 7,296.85, DAX +0.25% at 13,567.00, CAC-40 -0.13% at 6,408.49, IBEX-35 +0.20% at 7,978.38, FTSE MIB +0.14% at 23,525.00, SMI +0.42% at 10,795.80, S&P 500 Futures +0.18%]

Market Focal Points/Key Themes: European indices open lower across the board but later turned around to trade mixed; better performing sectors include telecom and financials; sectors leading into the red include consumer discretionary and industrials; Carrefour and Publicis enter retail media JV; IMI acquires Heatmiser; Volvo cars to divest its stake in Aurobay to Geely; earnings expected in the upcoming US session include Perrigo, Banco BPM, Clear Channel Outdoor and Walt Disney


- Consumer discretionary: Pandora [PNDORA.DK] +7% (earnings), Deutsche Post DHL [DPW.DE] -1% (earnings; raises outlook), Ubisoft Entertainment [UBI.FR] -4% (offering), Persimmon [PSN.UK] -7.5% (trading update)

- Consumer staples: Associated British Foods [ABF.UK] +5% (earnings), Carrefour [CA.FR] -1.5% (strategy update; JV)

- Financials: Hammerson [HMSO.UK] +10% (trading update)

- Healthcare: Bayer [BAYN.DE] -2.5% (earnings)

- Industrials: Schaeffler [SHA.DE] +8% (earnings; cost cuts), Renault [RNO.FR] -3% (strategy update; partnerships)


- ECB’s De Guindos (Spain) reiterated stance that would continue raising rates to level that ensured inflation to come back in line for price stability. Saw inflation hovering around 10.7% over next few months and the start to decline in H1 2023. To proceed with a lot of caution and prudence in regard to QT with the process to begin in 2023

- ECB’s Nagel (Germany) reiterated stance that size of rate hikes were data and outlook dependent; must continue normalizing policy but not let up too early. Believed that ECB should continue with tightening even if it weighed on growth

- BOE's Pill (chief economist) stated that most concern is whether inflation would persist in the country; could not declare victory over 2nd round effects. Needed to raise rates to tighten monetary policy but not set on any pre-set pace. Noted that gas price increase was a big shock for UK economy; Energy price increase was squeezing household income. Country was moving into a recession.

- SNB' President Jordan stated that the policy decisions were not based entirely on our inflation forecast but must be based on a firm commitment to the objective of price stability

- Russia Central Bank (CBR) Gov Nabiullina stated that was softening capital controls as situation stabilized but no need for further liberalization at this time. Current One-Week Auction rate level reflects raised level of uncertainty and high inflation expectations

- Japan Fin Min Suzuki stated that the Cabinet had approved the extra budget. Noted that the stimulus budget spending would make Japan's fiscal position even more severe, and it must seek an exit from such massive fiscal stimulus

**Currencies/ Fixed Income**

- USD was steady with US mid-term elections in mind. Dealers pondered whether gridlock outcome or even Republican sweep could occur and its implications on policy. Overall, the conclusion appeared to be a scenario where Congress would not have an easy time adding to fiscal stimulus through next year. The greenback rally could stall if the Fed could take its foot off the pace of recent rate hikes

Economic Data

- (SE) Sweden Oct Maklarstatistik Housing Prices Y/Y: -5% v -3% prior; Apartment Prices Y/Y: -6% v -6% prior

- (NL) Netherlands Oct CPI M/M: 1.1% v 2.4% prior; Y/Y: 14.3% v 14.5% prior

- (NL) Netherlands Oct Final CPI EU Harmonized M/M: 1.3% v 1.3% prelim; Y/Y: 16.8% v 16.8% prelim

- (FR) France Sept Trade Balance: -€17.5B v -€14.7Be; Current Account: -€7.3B v -€5.9B prior<