European PMI manufacturing readings near pandemic low level, focus on FOMC decision and rate path

Notes/Observations

- Major European manufacturing PMI's miss and hit pandemic lows for Spain, Italy, France, Germany and Euro Zone. Previous recession fears coming to bear fruit.

- Market direction in a holding pattern as sentiment awaits Fed rate decision where FOMC are expected to hike by 75bps with markets pricing in 90% chance. Focus on commentary during press conference on future sizes of hikes and timing of possible pivot in rate slowdown, as Central Banks keep one eye on recession.

- Russian military leaders said to have had conversations in mid-Oct on when and how Russia might use a tactical nuclear weapon in Ukraine.

- Asia closed mixed with NZX50 underperforming at -0.3%. EU indices are mixed between -0.4% and +0.3%. US futures are 0.1% to 0.2%. Gold +0.5%, DXY -0.2%; Commodity: Brent +0.5%, WTI +0.6%, UK Nat Gas +9.9%; Crypto: BTC -0.6%, ETH -1.3%.

Asia

- New Zealand Q3 Unemployment Rate: 3.3% v 3.2%.

- New Zealand Q3 Employment Change Q/Q: 1.3% v 0.5%e; Y/Y: 1.2% v 0.3%e.

- South Korea Oct CPI M/M:0.3% v 0.4%e; Y/Y: 5.7% v 5.6%e; CPI Core Y/Y: 4.8% v 4.5%e (fastest annual core pace since Dec 2008). (**Insight: Higher inflation data boosting the case for accelerated tightening by BOK).

- RBNZ Hawkesby noted that the extend of economic downturn was highly uncertain; Country had a very hot labor market and needed to ensure demand slowed.

- Japan Fin MIn Suzuki noted that a gradual JPY currency weakening was a concern. Reiterated stance that govt would respond appropriately to excessive FX moves, and could not tolerate excessive FX moves by speculation.

- BOJ Gov Kuroda reiterated stance that was not considering of rate hikes or changing YCC at this time Yield curve was on slight rise due to global interest rates.

- PBOC Gov Yi Gang reiterated that domestic economy broadly on track with potential growth to remain in within a reasonable range.

- China Fin Min Liu Kun stated that would deepen VAT tax reform and improve tax rebate system.

- China CBIRC banking regulator Official: Property sector now stable in China, Banks have low exposure to property sector in China.

- China announced a 7 day lockdown around the Zhengzhou region (**Note: location of Foxconn’s iPhone main facility).

- North Korea said to have fired at least 10 missiles on Wed.

Europe

- ECB's Nagel (Germany) noted that inflation was persistent and still a long way to go on rates hikes. Bond portfolio reduction should commence at beginning of 2023.

- ECB’s de Cos (Spain) noted that nobody knew just how far we had to go on rate hikes. Long term inflation expectations remained firmly anchored.

Americas

- BOC Gov Macklem noted that just how much further rates needed go up to depend on how well monetary policy was working, how supply challenges were resolving and inflation was responding to tightening cycle. Stressed that was not seeing a generalized decline in price pressures yet.

Energy

- Weekly API Crude Oil Inventories: -6.5M v +4.5M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.06% at 414.86, FTSE -0.12% at 7,177.30, DAX -0.23% at 13,308.69, CAC-40 +0.06% at 6,332.22, IBEX-35 -0.46% at 7,962.14, FTSE MIB +0.03% at 22,802.00, SMI +0.34% at 10,820.70, S&P 500 Futures +0.02%].

Market Focal Points/Key Themes: European indices open higher across the board but later slipped to trade generally mixed; health care and consumer discretionary are the sectors pushing higher; while real estate and utilities trended lower; Veralia acquires Allied Glass; Hurricane Energy receives uninvited takeover offer; reportedly Qatar Investment Authority planning to take stake in Credit Suisse; focus on FOMC decision later in the day; earnings expected during the upcoming US session include Axa, Ferrari, Qualcomm and Ebay.

Equities

- Consumer discretionary: Next [NXT.UK] +3% (trading update), TomTom [TOM2.NL] +5.5% (CMD), Wizz Air [WIZZ.UK] -8% (earnings).

- Healthcare: GSK [GSK.UK] +1% (earnings), Novo Nordisk [NOVOB.DK] +5% (earnings).

- Industrials: Maersk [MAERSKB.DK] -5.5% (earnings; market view cut), Aston Martin Lagonda Global Holdings [AML.UK] -12% (earnings).

- Technology: TeamViewer [TMV.DE] +17.5% (earnings), Infineon [IFX.DE] -1% (AMD results), ams Osram [AMS.CH] -6% (earnings; cuts targets).

Speakers

- Sweden Central Bank (Riksbank) Business Survey noted that c: Costs accelerating while the domestic economy was slowing down.

- Hungary Central Bank Dep Gov Virag reiterated that current Base Rate level sufficient to reach CPI target; To use all tools to reach price stability. BMPC focused on reaching CPI goal and saw scope for more non-rate tightening.

- Poland Central Bank member Kotecki stated that CPI could hot 24% in Feb.

- German Association of Chambers of Trade and Industry (DIHK) saw 2022 GDP at 1.2% and then contracting by 3% in 2023.

- German VDMA Engineering association: Sept orders +5% y/y.

- NYT published the piece citing conversations that took place among White House officials few weeks ago over intelligence that some senior Russian military leaders in mid-Oct had conversations to discuss when and how Russia might use a tactical nuclear weapon in Ukraine; Pres Putin said to have not participated in such discussions.

Currencies/fixed income

- USD steady in a quest session ahead of the fed rate decision. Overall markets see FOMC hiking by 75bps and to look for hints at Fed’s future trajectory of policy. Dealers noted that the US Dollar index has surged more than 15% so far this year.

- USD/JPY at 147.15 as Japanese officials continued to talk rhetoric that FX movements should not be one-sided. Markets have seen Japanese authorities likely have intervene several time last month to help yen move off recent 32-year lows.

- GBP/USD hovering around the 1.15 area with BOE rate decision on Thursday.

- EUR/USD under the 0.99 level as numerous EU PMI Manufacturing data stayed in contraction territory and near pandemic lows.

Economic data

- (DE) Germany Sept Trade Balance: €3.7B v €1.4Be; Exports M/M: -0.5% v +0.5%e; Imports M/M: -2.3% v -0.6%e.

- (FR) France Sept YTD Budget Balance: -€146.6B v -€149.9B prior.

- (PL) Poland Oct PMI Manufacturing: 42.0 v 42.6e.

- (HU) Hungary Oct Manufacturing PMI: 56.4 v 49.0e (moved back into expansion).

- (HU) Hungary Aug Final Trade Balance: -€1.6B v -€1.3B prelim.

- (ES) Spain Oct Manufacturing PMI: 44.7 v 47.5e (4th straight contraction and lowest since May 2020).

- (IT) Italy Oct Manufacturing PMI: 46.5 v 46.9e (4th straight contraction and lowest since May 2020).

- (FR) France Oct Final Manufacturing PMI: 47.2 v 47.4 prelim (confirmed 2nd straight month of contraction and lowest since May 2020).

- (DE) Germany Oct Final Manufacturing PMI: 45.1 v 45.7 prelim (confirmed 4th straight contraction and lowest since May 2020).

- (DE) Germany Oct Net Unemployment Change: +8.0K v +12.5Ke; Unemployment Claims Rate: 5.5% v 5.5%e.

- (EU) Euro Zone Oct Final Manufacturing PMI: 46.4 v 46.6 prelim (confirmed 4th straight contraction and lowest since May 2020).

Fixed income issuance

- (IN) India sold total INR220B vs. INR220B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK2.63B in 2024, 2034 and 2052 DGB bonds.

Looking ahead

- (IL) Israel Sept Leading “S” Indicator M/M: No est v 0.1% prior.

- 05:50 (EU) ECB alloment in 7-day and 3-month USD Liquidity Tender.

- 06:00 (EU) Daily Euribor Fixing.

- 06:00 (EU) ECB, BOE and SNB hold weekly 7-day USD Liquidity Tender.

- 06:25 (EU) Daily ECB Liquidity Stats.

- 06:30 (DE) Germany to sell €1.0B in 0.0% Aug Green 2031 Bunds.

- 06:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 06:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 13-week Bills.

- 06:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 07:00 (US) MBA Mortgage Applications w/e Oct 28th: No est v -1.7% prior.

- 07:00 (UK) Weekly PM Question time in House.

- 07:30 (CL) Chile Sept Economic Activity Index (Monthly GDP) M/M: -0.4%e v 0.6% prior; Y/Y: -1.1%e v 0.0% prior.

- 07:30 - (CL) Chile Central Bank Traders Survey.

- 07:30 (EU) ESM to sell €1.5B in 3-month Bills.

- 07:45 (US) Daily Libor Fixing.

- 08:00 (RU) Russia OFZ Bond auction (if any).

- 08:15 (US) Oct ADP Employment Change: +185Ke v +208K prior.

- 09:00 (SG) Singapore Oct Purchasing Managers Index (PMI): 49.8e v 49.9 prior; Electronics Sector Index: No est v 49.4 prior.

- 09:00 (UK) Daily Baltic Dry Bulk Index.

- 10:00 (FR) ECB’s Villeroy (France).

- 10:30 (US) Weekly DOE Oil Inventories.

- 12:00 (RU) Russia Sept Unemployment Rate: 3.9%e v 3.8% prior; Aug Real Wages Y/Y: -2.9%e v -3.2% prior.

- 12:00 (RU) Russia Sept Real Retail Sales Y/Y: -9.0%e v -8.8% prior.

- 12:00 (DK) Denmark Oct Foreign Reserves (DKK): No est v 554.2B prior.

- 13:00 (IT) Italy Oct New Car Registrations Y/Y: No est v 5.4% prior.

- 14:00 (US) FOMC Interest Rate Decision: Expected to raise Target Range by 75bps to 3.75-4.00%.

- 14:00 (DE) ECB’s Nagel (Germany).

- 14:30 (US) Fed Chair Powell post rate decision press conference.

- 16:00 (NZ) RBNZ Gov Orr testifies in Parliament.

- 17:00 (KR) South Korea Oct Foreign Reserves: No est v $416.8B prior.

- 18:00 (AU) Australia Oct Final PMI Services: No est v 49.0 prelim; PMI Composite: No est v 49.6 prelim.

- 20:00 (NZ) New Zealand Oct ANZ Commodity Price M/M: No est v -0.5% prior.

- 20:30 (HK) Hong Kong Oct PMI (Whole Economy): No est v 48.0 prior.

- 20:30 (SG) Singapore Oct PMI (Whole economy): No est v 57.5 prior.

- 20:30 (AU) Australia Sept Trade Balance (A$): 8.8Be v 8.3B prior; Exports M/M: +1%e v +3% prior; Imports M/M: +3%e v +4% prior.

- 21:01 (IE) Ireland Oct PMI Services: No est v 54.1 prior; PMI Composite: No est v 52.2 prior.

- 21:45 (CN) China Oct Caixin PMI Services: 49.oe v 49.3 prior; PMI Composite: No est v 48.5 prior.