Original insights into market moving news

[PODCAST] European Open Rundown 14th October 2021

  • A constructive mood was seen across Asia-Pac stocks; US equity futures marginally gained overnight
  • The FOMC meeting minutes laid out the potential announcement timing and parameters of the QE tapering
  • China saw mixed inflation numbers; CPI printed below estimates but PPI topped forecasts for a record increase in factory gate prices
  • The EU is reportedly mulling a move that would restrict the European Court of Justice (ECJ) from policing the Northern Ireland Protocol.
  • Turkish President Erdogan dismissed three central bank monetary policy committee members and named replacements
  • Looking ahead, highlights include US IJC, IEA OMR, Fed's Bowman, Bostic, Bullard, Daly, Williams, Harker, Logan, ECB's Elderson, BoE's Tenreyro, Mann
  • Earnings include Bank of America, Wells Fargo, Citigroup. Morgan Stanley, Walgreens Boots


FOMC Minutes stated that the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December and that the illustrative tapering path was designed to be simple to communicate and entailed a gradual reduction in the pace of net asset purchases that, if begun later this year, would lead the Federal Reserve to end purchases around the middle of next year. Furthermore, the path featured monthly reductions in the pace of asset purchases by USD 10bln in Treasury securities and USD 5bln in mortgage-backed securities, while participants generally commented that the illustrative path provided a straightforward and appropriate template that policymakers might follow, and a couple of participants observed that giving advance notice to the general public of a plan along these lines may reduce the risk of an adverse market reaction to a moderation in asset purchases.

FOMC Minutes noted that participants reaffirmed the Committee's "substantial further progress" standard regarding its asset purchases was distinct from the criteria given in its forward guidance on the federal funds rate and that a policy shift toward a moderation of asset purchases provided no direct signal about its interest rate policy. The Committee had articulated a different, and more stringent, test concerning the conditions that would need to be met before it started raising the target range for the federal funds rate. Furthermore, some participants expressed concerns that elevated rates of inflation could feed through into longer-term inflation expectations of households and businesses or saw recent inflation data as suggestive of broader inflation pressures, while several other participants pointed out that the largest contributors to the recent elevated measures of inflation were a handful of COVID-related, pandemic-sensitive categories in which specific, identifiable bottlenecks were at play. This suggested that the upward pressure on prices would abate as the COVID-related demand and supply imbalances subsided.

NEWSQUAWK ANALYSIS: The September FOMC meeting put markets on notice that if progress on its economic goals continues as expected, a reduction in the pace of asset purchases may soon be warranted. The meeting minutes laid out the potential announcement timing and parameters; the process of tapering could commence in either mid-November or mid-December, the Committee said, and its illustrative tapering path would feature monthly reductions in the pace of asset purchases, by USD 10bln Treasuries and USD 5bln MBS; purchases would end around the middle of next year. This is largely in line with what the market has been guided to expect, and since Fed officials have not expressed any major concerns after the recent jobs data, it tees up for a possible tapering announcement at the 3rd November FOMC, with implementation possible when the NY Fed next announces its monthly purchases schedule, which we estimate will be released November 11th, 12th, 15th. The minutes stated that a policy shift toward a moderation of asset purchases provided no direct signal about its interest rate policy, as officials have recently tried to emphasise. While the minutes state staff continued to expect that this year's rise in inflation would prove to be transitory, they continued to judge that the risks around the inflation projection were tilted to the upside, as some participants have been talking about in recent commentary. There was no nod to any potential scenarios where rate hikes begin before the conclusion of the taper, nor was there any mention of quantitative tightening, as some hawkish members have already begun alluding to in recent weeks. The market reaction was muted.


US CDC Director Zients said the US is ready to roll out COVID-19 vaccines to children under 12 if authorized by regulators and has enough supply for them. (Newswires)

NIH preliminary study results showed mixing and matching COVID-19 vaccines bolsters antibodies as much or more than using the same shot. (Newswires)

FDA analysis suggested that Johnson & Johnson (JNJ) has not presented robust evidence for booster shots. (Newswires)


A constructive mood was seen across Asia-Pac stocks with the region building on the mild positive bias stateside where the Nasdaq outperformed as tech and growth stocks benefitted from the curve flattening, with global risk appetite unfazed by the firmer US CPI data and FOMC Minutes that suggested the start of tapering in either mid-November of mid-December. The ASX 200 (+0.8%) traded higher as tech stocks found inspiration from the outperformance of US counterparts and with the mining sector buoyed by gains in underlying commodity prices. The Nikkei 225 (+1.3%) was the biggest gainer amid currency-related tailwinds and with the latest securities flow data showing a substantial shift by foreign investors to net purchases of Japanese stocks during the prior week. The KOSPI (+1.0%) conformed to the brightening picture amid signs of a slowdown in weekly infections, while the Singapore’s Straits Times Index (+0.3%) lagged for most of the session following weaker than expected Q3 GDP data, and after the MAS surprisingly tightened its FX-based policy by slightly raising the slope of the SGD nominal effective exchange rate (NEER). The Shanghai Comp. (+0.2%) was also kept afloat but with gains capped after slightly softer than expected loans and financing data from China and with participants digesting mixed inflation numbers in which CPI printed below estimates but PPI topped forecasts for a record increase in factory gate prices, while there was also an absence of Stock Connect flows with participants in Hong Kong away for holiday. Finally, 10yr JGBs were higher after the recent curve flattening stateside and rebound in T-notes with the US longer-end also helped by a solid 30yr auction, although gains for JGBs were capped amid the outperformance in Tokyo stocks and mostly weaker metrics at the 5yr JGB auction.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a CNY 90bln net daily drain. (Newswires)PBoC set USD/CNY mid-point at 6.4414 vs exp. 6.4372 (prev. 6.4612)

Monetary Authority of Singapore slightly raised the slope of the SGD NEER policy band from previous 0% which was a surprise policy tightening, while it maintained the width and level of the policy band unchanged. MAS said the appreciation path of the policy band will ensure price stability over the medium-term, while recognising risks to the economic recovery. (Newswires)

  • Chinese CPI MM (Sep) 0.0% vs. Exp. 0.3% (Prev. 0.1%)
  • Chinese CPI YY (Sep) 0.7% vs. Exp. 0.9% (Prev. 0.8%)
  • Chinese PPI YY (Sep) 10.7% vs. Exp. 10.5% (Prev. 9.5%)
  • Singapore GDP QQ (Q3 A) 0.8% vs. Exp. 1.1% (Prev. -1.8%)
  • Singapore GDP YY (Q3 A) 6.5% vs. Exp. 6.6% (Prev. 14.7%)


G20 Finance Leaders endorsed the OECD pact to adopt 15% global minimum corporation tax and endorsed reallocating taxing rights for large multinationals, according to the draft communique. It was also stated that central banks will act as needed to ensure price stability while looking through inflation pressures where they are transitory and they reaffirmed resolve to use all tools for as long as required to address COVID and its impact. (Newswires)


The EU is reportedly mulling a move that would restrict the European Court of Justice (ECJ) from policing the Northern Ireland Protocol. (Times)

The EU is proposing to remove most checks on goods from Britain to Northern Ireland in a bid to ensure smoother trade with the UK, which would cut 80% of checks on animal and plant-based products, as well as halve the customs paperwork. EU’s Sefcovic said there will not be a next package after this one and believes EU package on Northern Ireland trade ticks all the boxes, while he added the EU will not threaten Britain but plans for all eventualities. Furthermore, he stated It would be good for a change if Britain reciprocated the constructive spirit and set no deadline for agreement on NI trade rules with UK but hopes for a new arrangement in the new year. (Newswires/FT)

Northern Ireland's DUP said the EU proposal on the protocol is a starting point but falls far short of the fundamental change needed. (Newswires)

UK supply chain disruptions seen at Felixstowe port are starting to spread to other container ports as large vessels are facing difficulties offloading cargo, threatening Christmas supplies. (FT)

The lorry driver crisis could worsen amid a strike at the UK Driving and Vehicle Licensing Agency (DVLA). (Telegraph)

US officials are said to be hopeful of reaching an agreement with EU regarding steel tariff dispute by month-end, according to a source. (Newswires)

  • UK RICS Housing Survey (Sep) 68 vs. Exp. 68 (Prev. 73, Rev. 72)


In FX, the DXY remained subdued and briefly retreated beneath the 94.00 level following yesterday’s underperformance amid the continued flattening of the yield curve and decline in real yields. EUR/USD was buoyed by the softer Dollar and GBP/USD also held on to the prior day’s gains, with the EU proposing to remove most checks on goods from Britain to Northern Ireland in a bid to ensure smoother trade with the UK. USD/JPY was supported by the upbeat risk mood which also kept antipodeans afloat due to their high-beta statuses, although there was some indecision in AUD/USD following the mixed Australian jobs data which showed a slightly larger than expected decline in headline Employment Change which was solely due to a reduction in part-time work and the Unemployment Rate printed lower than forecast, but coincided with a fall in the participation rate. Elsewhere, the SGD strengthened on the surprise tightening by the Monetary Authority of Singapore. The TRY was at the other end of the spectrum whereby it weakened to a record low after Turkish President Erdogan dismissed three monetary policy committee board members and announced replacements including a new Deputy Governor.

Turkish President Erdogan dismissed three central bank monetary policy committee members and named replacements including Taha Cakmak as the Deputy Governor. (Newswires)

  • Australian Employment (Sep) -138.0k vs. Exp. -137.5k (Prev. -146.3k)
  • Australian Full Time Employment (Sep) 26.7k (Prev. -68.0k)
  • Australian Unemployment Rate (Sep) 4.6% vs. Exp. 4.8% (Prev. 4.5%)
  • Australian Participation Rate (Sep) 64.5% vs. Exp. 64.7% (Prev. 65.2%)


WTI crude futures eventually gained amid the upbeat risk tone to test the USD 81/bbl level and breakaway from the prior day's choppy rhythm. The private sector inventories data was somewhat inconclusive with the bearish headline build in crude stockpiles offset by a wider draw in the gasoline and distillate components. Elsewhere, gold prices were steady as it took a breather from yesterday's gains which were helped by a weaker greenback coupled and declining real yields, while copper was lifted alongside the gains in stocks.

US Private Energy Inventories (bbls): Crude +5.2mln (exp. +0.7mln), Cushing -2.3mln, Gasoline -4.6mln (exp. -0.1mln), Distillate -2.7mln (exp. -0.9mln). (Newswires)

EIA STEO raised 2021 world oil demand growth forecast by 90k BPD to 5.05mln BPD Y/Y increase but cut 2022 forecast by 150k BPD to 3.48mln BPD increase. Furthermore, it sees US crude output to fall 260k BPD to 11.02mln BPD in 2021 (prev. fall of 200k BPD) and to rise 710k BPD to 11.73mln BPD in 2022 (prev. rise of 640k BPD), while US petroleum consumption to rise 760k BPD in 2022 to 20.43mln BPD (prev. 890k BPD rise). (Newswires)

The White House had conversations with US oil and gas producers in recent days to see how the industry can help bring down prices, according to sources. (Newswires)


US Secretary of State Blinken said time is running short for Iran returning to compliance in nuclear talks and they will look at every option to deal with the challenge posed by Iran. Blinken added that Iran's responses to US willingness to return to talks have not been encouraging, while they are watching Iran's comments and posture very carefully and are prepared to turn to other options if Iran's course doesn't change. (Newswires)

EU Diplomats said the Iran nuclear situation is worsening and they consider the trip by EU coordinator not "business as usual", but critical. (Newswires)


The Treasury curve flattener showed no easing (2s30s -8.5bps) amid CPI and another stellar 30yr auction. By settlement, 2s +1.8bps at 0.366%, 3s +1.8bps at 0.659%, 5s +1.3bps at 1.087%, 7s -1.0bps at 1.378%, 10s -3.1bps at 1.549%, 20s -5.8bps at 1.998%, 30s -6.3bps at 2.042%; TYZ1 volumes above avg. at over 2mln contracts. 5yr TIPS +1.5bps at -1.667%, 10yr TIPS -6.5bps at -0.963%, 30yr TIPS -10.7bps at -0.310%. 5yr BEI +3.5bps at 2.786%, 10yr BEI +2.7bps at 2.491%, 30yr BEI +2.1bps at 2.361%. The long-end continued its bid and in the wake of the more-or-less in line CPI (Sep) report, the curve flattener saw the 5s30s spread extend further beneath the 100bps figure to lows of 96, but not reaching the Sep low of 93.8bps, while Eurodollars and Fed Funds continued to bake in more hike pricing. It was choppy trade as the dust settled from the CPI report in Treasuries, however, with two-way trade present in what was seemingly position closing – 5s30s found support at 97bps into the NY afternoon. The spread extended to new lows for the day sub 96bps after the solid 30yr Treasury auction. The long bond offering was the second consecutive strong one from the Treasury, stopping-thru 1.3bps vs avg. tail of 0.5bps, while the 2.36x cover ratio sits firmer than avg. 2.31x. The breakdown was also solid, with Dealers taking 12.3%, a new record low and vs avg. 18.1%, with stronger than avg. takedowns in both the Directs and Indirects cohorts. Following on, the September FOMC minutes saw little market reaction as they all but confirmed what markets already knew, that a November taper announcement is imminent. T-note (Z1) futures settle 2+ ticks higher at 131-07.

Fed's Bowman (voter) said she is very comfortable with beginning tapering bond purchase this year, preferably in November, and stated that benefits from Fed's asset purchases are now likely outweighed by costs. Bowman noted she is particularly concerned asset purchases are pushing up valuations or that continued easy policy poses risks to inflation expectations, while she suggested Fed's tools are not well suited to addressing labour supply issues although expects steady progress towards Fed's inflation and employment goals in approaching months. (Newswires)

US President Biden said he will direct federal support for supply chains when needed and that an infrastructure bill needs to pass to help supply chains. Biden added they need to make more products within the US and don't want to have to rely on one country or firm, particularly when they don't share US labour or environmental standards. (Newswires)