MNI US OPEN - RBA Tap the Brakes

NEWS

AUSTRALIA (MNI): RBA Taps Brakes, Sees Slower Pace Of Hikes

The Reserve Bank of Australia has become the first major central bank to slow its pace of tightening by declaring its frontloading of monetary policy was over through a smaller-than-expected 25bps hike to 2.6%. The sixth consecutive rate hike since its May meeting has delivered a cumulative 250bps of tightening and leaves the Cash Rate Target at its highest level since 2013, with the Bank justifying the slowing in its tempo to a business-as-usual 25bps increase by noting rates had "increased substantially" in a "short period of time."

NEW ZEALAND (MNI): MNI RBNZ Preview – October 2022: Another 50bp Hike in Store

There is broad consensus that the RBNZ will raise the Overnight Cash Rate by 50bp in the fifth consecutive move of that magnitude, pouring more cold water on domestic price pressures at this week’s interim (non-MPS) Monetary Policy Review. Inflation pressures remain acute despite some preliminary signs of reprieve on that front and employment remains above the maximum sustainable level. A sharp depreciation in the exchange rate will amplify to imported inflation, raising pressure on the Monetary Policy Committee to keep tightening at pace.

NORTH KOREA (MNI): Pyongyang May Have Fired IRBM In Further Escalation of Tensions

North Korea appears to have fired one ballistic missile, which flew over Japan and landed outside of Japan's EEZ, Japan's Chief Cabinet Secretary Matsuno said during a press briefing. Tokyo has lodged protest "of strongest wording" to North Korea through diplomatic channels.

DATA

EUROZONE DATA (MNI): August Energy Shock Pushes PPI to 43.3% y/y

• EUROZONE AUG PPI +5.0% M/M (FCST +5.0%); JUL +4.0% M/M
• EUROZONE AUG PPI +43.3% Y/Y (FCST 43.2%); JUL +38.0%r Y/Y

Euro area factory-gate inflation accelerated to a fresh record high of +43.3% y/y in August, surging +5.0% m/m alone. This was largely in line with expectations, flagged by national PPIs following the renewed commodity price jump in August which has cooled again into September. August energy sector prices jumped a massive 11.8% m/m, whilst PPI ex. energy increased a more modest 0.3% m/m.

RBA HIKES RATES 25BPS TO 2.60% (MNI)

AUSTRALIA SEP BUILDING APPROVALS +28.1% M/M, -9.5% Y/Y (MNI)

JAPAN (MNI): Sep Tokyo CPI Rises 2.8%; Highest Since 2014

• JAPAN SEP TOKYO CORE CPI +2.8% Y/Y; AUG +2.6%
• JAPAN SEP TOKYO CORE-CORE CPI +1.7% Y/Y; AUG +1.4%

The year-on-year rise in Tokyo's core inflation rate accelerated to 2.8% in September from August’s +2.6%, indicating that nationwide core CPI will likely rise to near 3.0% in September, data from the Ministry of Internal Affairs and Communications showed on Tuesday.

The September’s +2.8% is the highest since June 2014 when it also rose 2.8%. It was the 13th consecutive rise. The inflation data underscores concerns among Bank of Japan officials that inflation is accelerating across the nation.

FOREX: Risk-On Backdrop Tilts USD Index to Lower Low

• JPY is the poorest performing currency in G10 so far Tuesday, helping keep USD/JPY uncomfortably close to the weekly highs and levels last seen when the MoF intervened in currency markets on Sep 22. This leaves 145.30 as the first upside level.
• Equities are trading well, with US stock futures in firm positive territory as the e-mini S&P extends the recovery off the Monday lows to 150 points. European indices are similarly strong, with the tech sector a particular source of positivity - the Stoxx600 tech sector sits higher by over 3% at typing.
• The USD Index sits lower, touching a lower low for the fifth consecutive session. US curves have steepened slightly, with the front-end led lower, prompting 2y yields to shed as much as 10bps.
• Meanwhile, AUD trades softer following the RBA rate decision, at which the bank raised rates by 25bps to 2.60%, against expectations for a 50bps move. AUD/USD traded a low of 0.6451, leaving Monday's 0.6402 as support.
• Final durable goods data crosses later today but is unlikely to move the needle ahead of the larger releases later in the week, most notably the September jobs report. Central bank speakers due Tuesday include Fed's Logan, Williams, Mester, Jefferson and Daly. ECB's Lagarde is also on the docket, speaking at a central bank of Cyprus event.

BOND SUMMARY: Rally Extends As Terminal Hike Pricing Fades Further

Yields are down across the major curves early Tuesday, with the short end outperforming in a (mostly) bull-steepening move.

• The RBA's decision to scale down rate hikes in its decision overnight (25bp vs 50bp expected) has kept downward pressure on central bank terminal rate expectations. Fed rates are seen getting to a peak of just below 4.4% in March, vs closer to 4.5% at end-Sept and 4.8% highs early last week.
• This has helped risk assets rally with the USD remaining under pressure; periphery EGB spreads are tighter too.
• Once again it's the UK long end underperformance that sticks out: today, a very weak Oct-61 Gilt auction (widest tail since 2018) pushed 30Y yields above 3.90%.
• Up later today are US durable goods data, Fed speakers including Daly, Jefferson, Logan, Mester, and Williams, with ECB's Lagarde appearing as well.

Cash yield update:

• US: 2-Yr down 8.7bps at 4.0266%, 5-Yr down 7.4bps at 3.8039%, 10-Yr down 4.7bps at 3.5913%, 30-Yr down 2.1bps at 3.6576%.
• DE: 2-Yr down 13.1bps at 1.489%, 5-Yr down 14.4bps at 1.623%, 10-Yr down 10.5bps at 1.812%, 30-Yr down 5.6bps at 1.866%.
• UK: 2-Yr down 19.7bps at 3.856%, 5-Yr down 17.9bps at 4.047%, 10-Yr down 12.8bps at 3.836%, 30-Yr up 1.7bps at 3.905%.
• Italy / German 10-Yr spread 4.2bps tighter at 228.7bps

EQUITIES: S&P Minis Bounce Off Yesterday's Low

S&P E-Minis are trading higher this morning and extending Monday’s reversal from the session low. Yesterday’s candle pattern is a bullish engulfing line and this highlights an important short-term reversal. EUROSTOXX 50 futures have established a bullish short-term bullish tone following yesterday’ climb and today’s gains. The strong recovery suggests the contract has entered a corrective cycle and this is allowing an oversold trend condition to unwind. Note Chinese markets remain closed for Golden Week.

• Japan's NIKKEI closed higher by 776.42 pts or +2.96% at 26992.21 and the TOPIX ended 59.31 pts higher or +3.21% at 1906.89.
• Across Europe, Germany's DAX trades higher by 278.23 pts or +2.28% at 12492.17, FTSE 100 higher by 101.1 pts or +1.46% at 7004.81, CAC 40 up 156.61 pts or +2.7% at 5953.33 and Euro Stoxx 50 up 87.75 pts or +2.63% at 3433.46.
• Dow Jones mini up 361 pts or +1.22% at 29906, S&P 500 mini up 51 pts or +1.38% at 3744, NASDAQ mini up 188.75 pts or +1.67% at 11489.5.

COMMODITIES: WTI Trades Above 20-Day EMA

WTI futures are trading closer to recent highs. The latest move higher has resulted in a print above the 20-day EMA. A continuation higher would expose a key resistance at the 50-day EMA. Gold traded sharply higher yesterday and has established a short-term bull cycle. The rally resulted in a break of the 20-day EMA and note that the yellow metal is trading above a trendline resistance, drawn from the Mar 8 high.

• WTI Crude up $0.27 or +0.32% at $83.9
• Natural Gas up $0.01 or +0.15% at $6.48
• Gold spot up $7.01 or +0.41% at $1706.92
• Copper up $6.25 or +1.83% at $347.1
• Silver up $0.25 or +1.21% at $20.9547
• Platinum up $9.46 or +1.05% at $912.76