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Early Morning Call: BoE to delay start of quantitative tightening until markets calm

The FTSE 100 closed higher after the new Chancellor of the Exchequer, Jeremy Hunt, scrapped almost all of the mini budget. The pound rose on the news to near two-week highs against the dollar.

Equity market overview

APAC equity markets closed mostly higher, following yesterday’s rebound on the US stock market.

In Europe, indices show gains this morning, building on Monday’s positive session. In the UK, the FTSE 100 closed higher after the new Chancellor of the Exchequer, Jeremy Hunt, scrapped almost all of the mini budget. The pound rose on the news to near two-week highs against the dollar.

According to the FT, the Bank of England (BoE) is set to delay the start of its quantitative tightening until markets calm.

Macro overview

A couple of weeks ago the Reserve bank of Australia (RBA) decided to raise its interest rate by 'only' 25 basis points (bps) to 2.6%, when consensus was going for 50 basis points. According to its minutes published earlier this morning, the RBA said that inflation in the country was too high, and that a further increase in prices is expected over the months ahead.

The RBA sees 2022 consumer price inflation (CPI) around 7.75%, a little above 4% in 2023, and around 3% in 2024.

Besides the minutes, several Australian bankers shared their views is the last few hours. RBA assistant governor, Luci Ellis, said Australia's neutral interest rate is at least 2.5% but emphasised the neutral rate was a moving target and hard to determine at any stage of time. RBA deputy governor, Michele Bullock, expects to raise interest rates further over the coming months.

New Zealand's consumer inflation beat expectations in the third quarter (Q3). Consumer price index rose 2.2% quarter-on-quarter (QoQ), following a 1.7% increase in the second quarter. It beat expectations of a 1.6% rise, prompting analysts to bet on a more aggressive central bank rate hike next month.

In Germany, economists see ZEW economic sentiment for October falling to -66, lower that the 2008 financial crisis lows.

In the US, industrial production is forecast to rise by 0.1% in September monht-on-month (MoM), while NAHB housing market index is expected to fall for a tenth straight month to 44 in October.

Rio Tinto expects annual iron ore shipments at the lower end of its guidance. This morning the miner said iron ore deliveries fell in the third quarter as global demand weakens, particularly in top metals consumer, China.

The world's biggest iron ore producer shipped 82.9 million tonnes (mt) of the steel-making commodity compared with 83.4 mt a year earlier. It now expects annual iron ore shipments at the low end of its forecast range of 320 million tonnes to 335 million tonnes.

Yesterday, Vale reported third quarter iron ore production up slightly from the previous year to 89.7 million tonnes.

BHP Group is expected to report its first quarter production results tomorrow.

Earnings

Bellway posted a 13.3% increase in revenue for the full-year (FY). Pretax profit rose 22.5% to £650.4 million. The group says it started the new financial year with a strong forward order book. However, it notes demand has moderated since the beginning of August and anticipates an average selling price around £300 000 in FY2023, down from 314,399 in FY 2022. House builders are increasingly under scrutiny, as mortgage rates are rising and house prices are predicted to fall.

Last week, its competitor Barratt Developments reported a fall in private reservations.

In the US, Goldman Sachs is scheduled to report Q3 earnings before the market opens. Analysts anticipate earnings of $7.80 per share, roughly 50% lower than the same quarter a year ago. Revenue is expected to reach $11.39 billion. The bank, according to the Wall Street Journal yesterday, plans to combine its investment banking and trading divisions, and merge asset and wealth management.

Also expected before market open is Johnson & Johnson . Analysts expect earnings of $2.52 per share. Revenue is seen little changed at $24.46bn. Operating margins are expected to face headwinds from inflationary pressure and increased marketing expenses.

Tonight after the close of the US markets, Netflix is expected to post earnings of $2.18 per share and $7.85nn revenue. Maybe more importantly, analysts await the latest subscriber figures.

Last quarter Netflix revealed a 970 000 subscriber loss, lower than the two million anticipated. Last Thursday, Netflix announced a new ad-supported subscription plan of $6.99 per month. For comparison, Disney+ charges $7.99 at its budget end with ads.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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