Focus on BOE and whether its decides to hike rates

Notes/Observations

- Mixed PMI Services data from EU in session but remaining in expansion territory (Beats: none, Misses: Euro Zone, Italy; in-line: France, Germany).

- Fed not rush to raise interest rates; focus turns to Friday’s release of US non-farm payroll data.

- Global yields edge lower in post Fed decision environment.

- BOE rate decision in focus - question of a rate hike today or hints of an increase to come in December.

Asia

- Japan Oct Final PMI Services confirmed 1st expansion in 21 months (50.7 v 50.7 prelim).

- BOJ Gov Kuroda stated that had reaffirmed joint statement between the Govt and BOJ, To continue YCC even after COVID died down, no talks on stimulus package.

- China President XI stated that would deepen international cooperation on shipping; China to ensure smooth global industry and supply chains.

Americas

- Fed left Interest Rate Target unchanged between 0.00-0.25% (as expected). Announced that tapering to begin in November with monthly reductions of $15B from the $120B/month purchases. Decision was unanimous. Continued to see elevated inflation as transitory.

- Fed Chair Powell post rate decision press conference noted Inflation was running well above 2% goal and Fed did understand difficulties of high inflation on families . Our tools could not ease supply constraints; Very difficult to predict future of supply issues on inflation. If saw signs inflation was moving persistently beyond levels the would adjust. Taper would cease by mid-2022 and did not imply any direct signal on rate policy.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

Indices [Stoxx600 +0.55% at 483.88, FTSE +0.39% at 7,276.40, DAX +0.39% at 16,022.25, CAC-40 +0.45% at 6,982.05, IBEX-35 +0.54% at 9,080.00, FTSE MIB +0.46% at 27,504.00, SMI +0.81% at 12,483.80, S&P 500 Futures +0.10%].

Market Focal Points/Key Themes: European indices open generally higher and consolidated in the green as the session wore on; sectors leading to the upside include financials and technology; while laggards include telecom and materials; Russia closed for holiday; Roche buybacks stake from Novartis; Alstria receives takeover offer from BAM; takeover of Zooplus reaches threshold; focus on upcoming BOE interest rate decision; earnings expected during the upcoming US session include Air Products, Becton Dickenson, Domtar, and AmerisourceBergen.

Equities

- Consumer discretionary: Deutsche Post [DPW.DE] +2.5% (earnings), Hugo Boss [BOSS.DE] +1% (earnings), Sainsbury [SBRY.UK] -5% (earnings).

- Financials: Commerzbank [CBK.DE] +4% (earnings; raises outlook), Societe Generale [GLE.FR] +3.5% (earnings; new CFO).

- Healthcare: Novartis [NOVN.CH] +1.5%, Roche [ROG.CH] +2.5% (~$20B share sale deal), Credit Suisse Group [CSGN.CH] -1% (earnings).

- Telecom: BT Group [BT.A.UK] +6% (earnings), Telefonica [TEF.ES] +1.5% (earnings).

Speakers

- Norway Central Bank (Norges) Policy Statement reiterated its forward guidance that most likely to raise Deposit Rate further in Dec. Economic upturn was continuing broadly as expected. Supply chain disruptions could damper economic upturn and add to inflation pressures. Higher electricity prices have resulted in high CPI. Underlying inflation was lower that inflation target but could be lifted by higher economic activity and rising wage growth. NOK currency (Krona) appreciation could curb the rise in prices.

- German Association of Chambers of Trade and Industry (DIHK): German firms are more optimistic about business conditions abroad than they were in the spring.

- Philippines Central Bank (BSP) Gov Diokno stated that CPI pressures were stemming from supply-side issues; believed pickup in inflation was transitory. To be vigilant against possibility second round' effects of inflation.

- OPEC+ Delegate noted that US was asking OPEC+ to increase oil output by 600-800K bpd.

Currencies/Fixed Income

- USD was firmer in the session as traders noted a buoyant US economy and higher yields would support the currency. Fed in no rush to raise rates but market attention turning to how long the Fed could defer rate rises, given fears that high inflation could last longer than the Fed had initially projected. US payroll data in focus for Friday.

- GBP/USD at 1.3625 ahead of the BOE rate decision. Markets are seeing a potential rate hike.

- JPY currency was softer as risk sentiment improved after the Fed showed a cautious stance toward raising interest rates.

- Major bond yields were lower in the session as central banks deflect market expectations for rate hikes. Fed Chair Powell and ECB Lagarde have been preaching patience and both continued to believe that inflation pressures would wane over time.

Economic data

- (NL) Netherlands Oct CPI M/M: 1.3% v 0.1% prior; Y/Y: 3.4% v 2.7% prior.

- (NL) Netherlands Oct CPI EU Harmonized M/M: 1.6% v -0.2% prior; Y/Y: 3.7% v 3.0% prior.

- (DE) Germany Sept Factory Orders M/M: 1.3% v 1.8%e; Y/Y: 9.7% v 11.3%e.

- (ZA) South Africa Oct PMI (whole economy): 48.6 v 50.5e (moved back into contraction).

- (ES) Spain Oct Services PMI: 56.6 v 55.8e (7th month of expansion; Composite PMI: 56.2 v 56.0e.

- (IT) Italy Oct Services PMI: 52.4 v 54.5e (6th month of expansion and lowest since Apr); Composite PMI: 54.2 v 55.6e.

- (FR) France Oct Final PMI Services: 56.6 v 56.6e (confirmed 7th straight expansion); PMI Composite: 54.7 v 54.7e.

- (DE) Germany Oct Final PMI Services: 52.4 v 52.4e (confirmed 6th month of expansion); PMI Composite: 52.0 v 52.0e.

- (EU) Euro Zone Oct Final PMI Services: 54.6 v 54.7e (confirms 7th month of expansion); PMI Composite: 54.2 v 54.3e.

- (NO) Norway Central Bank (Norges) left Deposit Rates unchanged at 0.25% (as expected).

- (UK) Oct New Car Registrations Y/Y: -24.6% v -34.4% prior.

- (IS) Iceland Q3 Unemployment Rate: 4.0% v 7.9% prior.

- (IS) Iceland Oct Preliminary Trade Balance (ISK): -12.5B v -18.4B prior.

- (UK) Oct Construction PMI: 54.6 v 52.0e (9th month of expansion).

Fixed income Issuance

- (ES) Spain Debt Agency (Tesoro) sold total €4.32B vs. €3.5-4.5B indicated range in 2028, 2031 and 2046 bonds.

- Sold €1.99B in 0.00% Jan 2028 SPGB bonds; Avg yield: +0.044% v -0.025% prior; Bid-to-cover: 1.39x v 1.99x prior.

- Sold €1.32B in 0.50% Oct 2031 SPGB bonds; Avg Yield: 0.483% v 0.466% prior; bid-to-cover: 1.32x v 1.43x prior.

- Sold €1.01B in 2.90% Oct 2046 SPGB; Avg Yield: 1.124% v 2.677% prior; Bid-to-cover: 1.41x v 1.43x prior.

- (ES) Spain Debt Agency (Tesoro) sold €700M vs. €1.0-1.5B indicated range in 1.00% Nov 2030 inflation linked bonds (SPGBi); Real Yield: -1.335% v -1.333% prior; Bid-to-cover: 1.54x v 1.62x prior.

Looking ahead

- (CH) Swiss Q3 Real Estate Bubble Index: # v 1.9 prior.

- 05:50 (FR) France Debt Agency (AFT) to sell €9.0-10.B in 2031, 2039 and 2053 bonds.

- OPEC+ meeting.

- 06:00 (EU) Euro Zone Sept PPI M/M: 2.3%e v 1.1% prior; Y/Y: 15.4%e v 13.4% prior.

- 06:00 (CY) Cyprus Oct CPI M/M: No est v 4.1% prior; Y/Y: No est v -0.1% prior.

- 06:00 (EU) Daily Euribor Fixing.

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

- 06:30 (HU) Hungary Debt Agency (AKK) to sell bonds.

- 07:00 (ZA) South Africa Sept Electricity Production Y/Y: No est v 2.0% prior; Electricity Consumption Y/Y: No est v 2.2% prior.

- 07:30 (US) Oct Challenger Job Cuts: No est v 17.9K prior Y/Y: No est v -84.9% prior.

- 07:30 (TR) Turkey Oct Real Effective Exchange Rate (REER): No est v 63.09 prior.

- 07:45 (US) Daily Libor Fixing.

- 08:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.10% and maintain Total Asset Purchases at £695B (Corporate Bond Target at £20B; Gilt Purchase Target: £875B).

- 08:00 (BR) Brazil Sept Industrial Production M/M: -0.2%e v -0.7% prior; Y/Y: -4.0%e v -0.7% prior.

- 08:00 (MX) Mexico Oct Vehicle Domestic Sales : No est v 76.9K prior.

- 08:30 (US) Q3 Preliminary Nonfarm Productivity: -3.1%e v +2.1% prior; Unit Labor Costs: 7.0%e v 1.3% prior.

- 08:30 (US) Sept Trade Balance: -$80.2Be v -$73.3B prior.

- 08:30 (US) Initial Jobless Claims: 275Ke v 281K prior; Continuing Claims: 2.15Me v 2.243M prior.

- 08:30 (CA) Canada Sept Int'l Merchandise Trade: 1.6Be v 1.9B prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (BR) Brazil Oct PMI Services: No est v 54.6 prior; PMI Composite: No est v 54.7 prior.

- 09:00 (EU) ECB chief lagarde at conference.

- 09:30 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to raise 2-Week Repurchase Rate by 75bps to 2.25%.

- 09:55 (NO) Norway Central Bank (Norges) Wolden.

- 10:00 (RU) Russia Gold and Forex Reserve w/e Oct 29th: No est v $621.6B prior.

- 10:00 (NL) ECB’s Elderson (Netherlands, SSM).

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 13:00 (CA) Canada to sell 50-year bonds.

- 13:50 (UK) BOE’s Cunliffe.

- 14:15 (DE) ECB’s Schnabel (Germany).

- 19:00 (KR) South Korea Sept Current Account Balance: No est v $7.5B prior; Balance of Goods (BOP): No est v $5.6B prior.

- 19:30 (JP) Japan Sept Household Spending Y/Y: -3.5%e v -3.0% prior.

- 20:30 (AU) RBA Statement on Monetary Policy (SOMP).

- 21:00 (PH) Philippines Oct CPI Y/Y: 4.9%e v 4.8% prior.

- 21:00 (PH) Philippines Sept Trade Balance: -$3.7Be v -$3.6B prior; Exports Y/Y: 6.4%e v 17.6% prior; Imports Y/Y: 18.9%e v 30.8% prior.

- 22:30 (JP) Japan to sell 3-Month Bills.

- 23:00 (ID) Indonesia Oct Foreign Reserves: No est v $146.9B prior.