GLOBAL CAPITAL MARKETS OVERVIEW:  

U.S. stocks reversed again late on Wednesday, giving up gains after the U.S. Federal Reserve raised the federal funds rate by 0.75 percentage points as expected while signaling more hikes in the coming months, thereby stepping up efforts to fight inflation. The top end of the federal funds rate is now projected at 4.6%, with policymakers expecting a rate cut in 2024 and an extension to 2025. Officials also slashed their growth forecasts for 2022, with GDP expected to grow just 0.2%, down from 1.7% in June. At its September 2022 meeting, the Fed raised the federal funds rate by 75 basis points to a range of 3%-3.25%, the third straight hike of three-quarters of a percentage point, and pushed borrowing costs back to 2008 highest level since. The decision is in line with market forecasts. Policymakers also expect that continued growth in the target range will be appropriate. The so-called dot plot shows rates could hit 4.4% by December, up from a forecast of 3.4% in June, before rising to 4.6% next year, up from 3.8% three months ago. Meanwhile, GDP growth forecasts were downgraded to show 0.2% growth this year, compared with 1.7% in June and 1.2% in 2023, down from 1.7% in June. Inflation will reach 5.4% in 2022 (5.2% expected in June) and 2.8% (2.6%) in 2023, as measured by PCE. The unemployment rate was also slightly higher at 3.8% (3.7%) this year and 4.4% (3.9%) next year. Russia's MOEX index closed at 2,129 on Wednesday, down nearly 4%, and fell as much as 10% during the session, extending yesterday's 9% drop as President Vladimir Putin ordered the country's first mobilization since World War II. Russia will recruit 300,000 soldiers and stress its readiness to use nuclear weapons to escalate the war further. The index fell yesterday after the Kremlin confirmed it was annexing Ukrainian territory and held a referendum to join Russia in the breakaway republics of Luhansk, Donetsk, Kherson, and Zaporizhia. Many see annexation as a serious escalation, so the Kremlin has reason to believe that Ukraine's latest counterattack is an aggression on Russian territory with Western weapons. Russia's announcement that it will impose a tax on exports to raise 3 trillion rubles to cover a looming budget deficit and rising war funding has also weighed on Russian financial markets. Energy and mining stocks led losses. European shares ended higher on Wednesday after much of the session was flat. Investors remained cautious ahead of the Federal Reserve's monetary policy decision due to the central bank's revised economic forecasts later in the day. With the world's largest economy battling stubbornly high inflation, the Fed could raise by 75 or even 100 basis points. Elsewhere, geopolitical concerns intensified after Russian President Vladimir Putin announced early that a "mobilization campaign" would begin on Wednesday by deploying economic and human resources to put the country on a firmer footing for war. Energy stocks led gains, with the DAX up 0.5% and the Stoxx 600 up 0.8%. German utility Uniper bucked the trend and fell more than 25% after the nationalization deal. The FTSE MIB index rose 1.2% on Wednesday to close at 22,035, outperforming its European peers, supported by the tech and industrial sectors, as investors monitored an escalating conflict in Russia and awaited the Federal Reserve's monetary policy decision after the close. In terms of military equipment, Leonardo led a gain of 6%, as the Russian government announced a partial mobilization of the public to formally annex Ukrainian territory, raising concerns about further military escalation. Elsewhere, the Federal Reserve plans to raise its funding rate by 75 basis points, with the Bank of England and the Swiss National Bank expected to follow suit. Tech stocks shrugged off expectations of tightening, rising more than 2.5% on average, with STMicroelectronics gaining 3.2%. On Wednesday, the CAC 40 rose 0.9% to close at 6,031 after six straight sessions of losses, with Thales (+4%), Worldline (+3.7%), STMicroelectronics (+3.2%), and Veolia Shares of companies such as Environment (+3%) rose strongly. Meanwhile, all eyes turned to the outcome of a two-day Fed meeting later in the day, where the market expects the Fed to raise interest rates by 75 basis points. Traders also weighed comments from President Vladimir Putin about an intensifying conflict in Ukraine, as the energy crisis increases Europe's risk of a recession. London stocks rallied on Wednesday, with the benchmark FTSE 100 rebounding from a near three-week low above 7,230, boosted by utilities, technology, and industrial gains. As the world's most powerful central bank prepares to announce a third straight 75 basis point rate hike, investors will brace for another big rate hike from the Federal Reserve. In Britain, analysts remained divided on whether the Bank of England would raise policy rates by 50 or 75 basis points, with a weaker currency and the government's new energy cost package clouding the rate outlook. Among individual stocks, Hargreaves Lansdown and Persimmons were the index's biggest gainers, up 5.8% and 4.6%, respectively. Canada's S&P/TSX Composite edged to 19,400 on Wednesday, rebounding slightly from sharp losses in the previous session. Strong support from the weighted energy sector offset tightening concerns ahead of the Fed's decision today. The U.S. central bank is expected to raise interest rates by 75 basis points for the third consecutive time, extending the path of interest rate hikes. The federal funds rate is expected to rise to 4.5% in March. Investors also continued to assess yesterday's domestic inflation data, adding to expectations of the Bank of China's slower pace of tightening, putting pressure on the Canadian dollar and bonds. On the corporate front, energy stocks were among the meeting leaders. Higher oil prices helped them amid supply risks following Russia's threat to escalate the military conflict in Ukraine by mobilizing its troops. On Wednesday, the Shanghai Composite fell 0.17% to close at 3,117. In comparison, the Shenzhen Composite fell 0.67% to 11,209, hitting a near four-month low during the session, as Wall Street closed weak overnight, with investors ahead of an expected rate hike by the Federal Reserve. become cautious. While the U.S. central bank is widely expected to announce a third straight 75-basis-point rate hike to fight inflation, investors are bracing themselves if Federal Reserve Chairman Jerome Powell takes a more hawkish view than the market expects. A day earlier, the People's Bank of China (PBoC) left its benchmark lending rate unchanged, suspending monetary easing measures to stem a rapid fall in the yuan and capital outflows that have widened policy differences with the United States. Growth-oriented tech and consumer stocks led losses, with Orient Monetary Information (-2.4%), Sanan Optoelectronics (-3.1%), and Kweichow Moutai (-1.5%) falling sharply. Australia S&P/ASX 200 index fell 1.56% to close at 6700, its lowest level in two months, as caution dominated sentiment ahead of an expected rate hike from the Federal Reserve, affected by weak overnight trading on Wall Street. Domestically, Reserve Bank of Australia deputy governor Michele Bullock reiterated that the central bank was looking for opportunities to slow rate hikes at some point, noting that domestic wage growth was not as robust as some other developed countries. Heavyweight iron ore miners led losses, including BHP Billiton (-3%), Fortescue Metals (-4%), and Rio Tinto (-30%). Tech stocks also fell, with Block Inc (down 4%), Xero Ltd (down 3%), and Seek Ltd (down 1%) falling sharply. New Zealand shares fell 71.5 points, or 0.62%, to settle at a more than three-week low of 11,499, reversing a modest gain the day before and reflecting losses on Wall Street after the Federal Reserve was expected to raise interest rates sharply to ease soaring inflation. In China, stocks fell to more than four-month lows on concerns that rising overseas interest rates would drain liquidity in the Chinese market and limit the central bank's room to ease monetary policy. Traders reviewed past data showing New Zealand's credit card spending jumped 29.4% in August, up from 5.1% in July, as the economy recovered from the anti-COVID measures' impact. By sector, non-energy mineral prices fell the most, followed by consumer, utilities, and financials. The biggest laggards are Metro Performance Glass (-8.9%), TruScreen Group (-6.3%), NZ King Salmon Investments (-4.4%), and ArborGen Holdings (-4.4%). Japan Nikkei 225 fell 1.36 percent to 27,311, closing at its lowest level in two months, tracking overnight losses on Wall Street as investors turned cautious ahead of an expected rate hike from the Federal Reserve. While the U.S. central bank is widely expected to announce a third straight 75-basis-point rate hike to fight inflation, investors are bracing themselves if Federal Reserve Chairman Jerome Powell takes a more hawkish view than the market expects. Investors are also awaiting a policy decision from the Bank of Japan this week, which is widely expected to keep interest rates ultra-low despite pressure from rising inflation and a weaker yen. Nearly all sectors fell on Wednesday, with index heavyweights falling sharply, including Toyota Motor (-2%), Tokyo Electron (-1%), SoftBank Group (-1-), Sony Group (-2-), and Daikin Industry (-4%).

 

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: Existing-home sales in the U.S. edged down 0.4% in August 2022 to a seasonally adjusted annual rate of 4.8 million units, the lowest since May 2020, following a revised 5.7% decline in July. This marked the seventh straight month of declines in existing home sales, reflecting rising mortgage rates this year. The data is compared to a market forecast of 4.7 million. The median existing-home sale price rose 7.7% from a year ago to $389,500. After five straight months of gains, the unsold inventory of existing homes fell to 1.28 million units, equivalent to 3.2 months of the current monthly sales pace. Sales rose in the Northeast (1.6%) and West (1.1%) but were unchanged in the South and down 3.3% in the Midwest.

- US: Mortgage applications in the U.S. rose 3.8% in the week ended Sept. 16, the first increase in six weeks and the largest increase in three months. Applications for home loan refinancing rose 10.4%, while applications for home purchases rose 1%. Meanwhile, the average contract rate on 30-year fixed-rate mortgages with qualifying loan balances ($647,200 or less) increased from 6.01% to 6.25%, the highest level since October 2008. "Despite higher interest rates, the weekly increase in applications underscores the current overall volatility and the Labor Day-adjusted results in the week before," said MBA economist Joel Kan.

- GB: According to the latest monthly CBI Industrial Trends survey, the CBI's book balance of orders rose to -2 in September 2022, up five percentage points from -7 in the previous month and above market expectations of -11. In addition, export orders rose (-8 to -12 in August), although output growth is expected to slow significantly over the next three months (-17 to -2). Inventories of manufactured goods rose for the second month (+6 to +2), while expectations for inflationary pressures continued to grow (+59 to +57).

- GB: UK public sector net borrowing excluding public sector banks was £11.8bn in August 2022, £2.6bn less than in July 2021 but £6.5bn more than in August 2019 before the coronavirus outbreak. The figures were compared with market forecasts for a deficit of £8.45bn. Compared to 2021, central government spending of £73.2bn remains largely unchanged, with interest payable increasing by £1.5bn, payments for goods and services by £1.7bn, and net social welfare payments by £1.1bn, but offset by other This was offset by a reduction in subsidy payments of £3.4bn. Interest on debt was 8.2 billion pounds, the highest figure for August since monthly records began in April 1997, largely due to changes in the retail price index on index-linked gilts. Meanwhile, government revenue was £69.6bn, up £5.6bn from a year ago; of this, tax revenue was £51.4bn, up £3.9bn from 2021.

- SW: Sweden's unemployment rate fell from 8.5% in the same month last year to 6.6% in August 2022, with the number of unemployed falling by 106,000 to 373,000. Employment rose 179,000 a year earlier, with the labor force participation rate rising to 70.2%. On a seasonally adjusted basis, the unemployment rate in July was 7.2%.

- IT: In July 2022, Italian construction output rose 5.9% year-on-year, down from 10.4% in the previous month. It marked the fifth straight period of slowing growth in the Italian construction sector and the slowest pace in 11 months, as a slowdown in the economy dented demand amid the coming period of prolonged restrictive monetary policy. At the same time, electricity prices have soared due to concerns about energy shortages, leading to the closure of several steel plants in Europe and insufficient construction investment. As a result, the seasonally adjusted monthly construction activity fell by 3%, the largest drop since December 2020.

- AU: The Reserve Bank of Australia will report significant losses in its 2021-2022 annual accounts due to its massive bond-buying program, Reserve Bank of Australia deputy governor Michelle Bullock said in a speech. It was in negative equity during this period. However, this will not affect the central bank's ability to operate. "While the board has not yet sought a capital injection, it has indicated to the government that it expects future profits to be retained until the bank's capital is restored," she added. The Treasurer endorsed this general approach, noting that allocations to the government are considered annually under the Reserve Bank Act. As part of a package of measures, the RBA has implemented a bond-buying scheme designed to insure against the bad economic consequences of the flu.

- AU: Australia's Westpac Melbourne Institute Leading Economic Index fell 0.1 percent year-on-year in August 2022, after falling 0.2 percent in the previous month, the fifth consecutive monthly decline. Meanwhile, the six-month annualized growth rate in the index, or the likely pace of economic activity compared to the trend over the next three to nine months, fell from 0.49% in July to -0.36% in August. It was the first negative report since the start of the year and the weakest record since the 2021 Delta lockdown. "The current loss of momentum reflects a combination of policy tightening, a less supportive global backdrop, and a cooling labor market," Westpac chief economist Bill Evans said. "Westpac expects Australia's economic growth to slow to 0.6 percent in December from a robust 1.1 percent in September."

 

LOOKING AHEAD:   

Today, investors will receive the following:

- JPY: Monetary Policy Statement, BOJ Policy Rate, BOJ Core CPI y/y, and BOJ Press Conference.

- NZD: Westpac Consumer Sentiment and Trade Balance.

- CHF: SNB Monetary Policy Assessment, SNB Policy Rate, and SNB Press Conference.

- GBP: MPC Official Bank Rate Votes, Monetary Policy Summary, MPC Member Tenreyro Speaks, and Official Bank Rate.

- EUR: ECB Economic Bulletin and Consumer Confidence.

 

KEY EQUITY & BOND MARKET DRIVERS:

- GE: Germany's 10-year bond yield fell below 1.9 percent from an 8-1/2-year high of nearly 2 percent earlier this week. Investors flocked to the safety of government debt as the war in Russia escalated. Russian President Vladimir Putin announced a partial mobilization of 300,000 reservists, pledged to annex territories his forces had already occupied and vowed to use all necessary means to defend Russia. Meanwhile, the U.S. Federal Reserve raised interest rates by 75 basis points for the third time, heralding sharp hikes ahead. Meanwhile, European Central Bank President Christine Lagarde said in a speech on Tuesday that eurozone policymakers will continue to raise interest rates further in the next few meetings to curb the rising Inflation, even if these moves ultimately limit economic growth. Following a 50 basis point hike in July, the ECB raised rates by an unprecedented 75 basis points in September and is expected to increase rates by 50 to 75 basis points in October.

- US: The 10-year U.S. Treasury bond yield exceeded the 3.61 percent mark for the first time since April 2011, after the Federal Reserve raised the federal funds rate by 0.75 percentage points, intensifying its anti-inflation efforts. The top end of the federal funds rate is now projected at 4.6%, with policymakers expecting a rate cut in 2024 and an extension to 2025. Officials also slashed their growth forecasts for 2022, with GDP expected to grow just 0.2%, down from 1.7% in June.

- EU: The euro fell more than 1 percent to below $0.99, hovering at its lowest level since 2002, after the U.S. Federal Reserve raised interest rates by a third straight 75 basis points, widening the gap with the eurozone. The European Central Bank raised interest rates by an unprecedented 75 basis points in September and is expected to increase rates by 50 to 75 basis points in October despite recession risks. The eurozone has been dealing with an unprecedented energy crisis, and analysts see a recession as all but inevitable, although the central bank has not signaled a possible tightening. In addition, the region is under increased pressure after President Vladimir Putin announced a partial military mobilization in Russia, a move seen by the West as an escalation.

- RU: Yields on Russia’s 10-year free-trade zone surged above 10.6 percent in September, the highest since April, as the Kremlin escalated during the war amid falling government revenue, threatening Russia’s fiscal stability. President Vladimir Putin has announced that 300,000 people will be part of the mobilization of the Russian population to join the Russian ranks in eastern Ukraine ahead of a planned referendum. To fund the work, the government will collect more than 3 billion rubles over the next three years through higher export taxes on goods, as falling energy prices and disruption to energy flows to Europe offset Russia's previous sources of revenue. As a result, concerns about Russia's fiscal stability have emerged along with dwindling revenues, leading to a sharp drop in Moscow's budget balance in August and an extraordinary deficit. Previously, the Kremlin approved a decree to use half of its $210 billion emergency fund to buy OFZ bonds, something it had never done before.

 

 

 

STOCK MARKET SECTORS:

- High: Industrials, Consumer Staples, Utilities, Real Estate.

- Low: Communication Services.

 

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- CAD: The Canadian dollar fell below 1.34 per dollar, its lowest level since August 2020, after the Federal Reserve raised its rate forecast by 75 basis points and foreshadowed sharp hikes ahead. At home, weaker-than-expected inflation slightly eased expectations for how aggressively the Bank of Canada will extend its path to rate hikes. Consumer prices in Canada rose 7% on a yearly basis in August, below expectations for a 7.3% increase and well below the 39-year peak of 8.1% two months ago. In addition, disappointing employment data for August, with Canadians' unemployment rate rising to 5.4 percent from a projected 5 percent, added incentive to slow rate hikes.

- JPY: The yen crossed the 144 mark against the dollar on Wednesday, again approaching a fresh 24-year high, as the monetary policy divergence between the Bank of Japan and the Federal Reserve became more pronounced. As expected, the Fed raised its main policy rate by 75 basis points for the third time but heralded a larger hike in the new forecast. On the other hand, the Bank of Japan is expected to maintain ultra-low interest rates to support a fragile economic recovery. Meanwhile, authorities are now ready to intervene in currency markets, if necessary, without waiting for the U.S. to nod in favor of the yen, Tatsuo Yamasaki, the former head of currency at the Treasury Department, told Bloomberg in an interview. Still, questions remain about the effectiveness of the intervention, with senior LDP member Sagi Sakayama warning that "monetary intervention alone will not be as effective" to stem the yen's sharp decline.

- USD: The U.S. dollar index soared above 111.5 on Wednesday, its highest level since June 2002, after the Federal Reserve raised its benchmark interest rate by another three-quarter of a percentage point and said it would remain well above current levels. At the same time, GDP growth forecasts were lowered, while inflation and unemployment were raised. Today, the currency received an additional boost from safe-haven flows after President Putin announced a partial military mobilization in Russia and a sharp escalation in the Ukraine conflict.

- OIL: According to the EIA's latest report, U.S. crude oil inventories rose by 1.142 million barrels on September 16, below market expectations of 2.161 million barrels. This was largely due to another massive release of oil from the U.S. Strategic Reserve, which reached 6.9 million barrels last week. In addition, crude oil inventories at Cushing, Oklahoma, rose by 343,000 barrels, while gasoline inventories rose by 1.569 million barrels, compared with a forecast of 431,000. Meanwhile, distillate stockpiles, including diesel and heating oil, surged by 1.231 million barrels, beating estimates of 420,000 barrels.

- AUD: The Australian dollar fell to $0.665, its lowest level since June 2020, as Reserve Bank of Australia deputy governor Michele Bullock reiterated that the central bank is looking for opportunities to slow the pace of rate hikes at some point, noting Domestic wage growth has not been as robust as in some other developed countries. After raising the cash rate by a cumulative 225 basis points to a seven-year high of 2.35%, markets remain divided on whether the RBA will raise rates by 50 or 25 basis points next month. The Aussie remains under pressure as the U.S. Federal Reserve is expected to continue its aggressive response to inflation and a weakening global economic outlook, dampening commodity demand and hurting related assets.

 

CHART OF THE DAY:

The euro rallied after Russian President Vladimir Putin announced a partial military mobilization in Russia. The U.S. Federal Reserve would raise interest rates for the third time by 75 basis points, widening the interest rate gap with the eurozone. It continued to fall below the $1 parity level, hovering at its lowest level since 2002. Meanwhile, European Central Bank President Christine Lagarde said in a speech on Tuesday that policymakers will continue to raise interest rates further in the next few meetings to curb rising inflation, even if these measures ultimately limit economic growth. Following a 50-basis point hike in July, the ECB raised rates by an unprecedented 75 basis points in September and is expected to increase rates by 50 to 75 basis points in October. 

 

- EURUSD - D1, Resistance (consolidation) around ~ 1.01956,  Support (target zone) around  ~ none

GLOBAL CAPITAL MARKETS OVERVIEW:   U.S. stocks reversed again late on Wednesday, giving up gains after the U.S. Federal Reserve raised the federal funds rate by 0.75 percentage points as expected while signaling more hikes in the coming months, thereby stepping up efforts to fight inflation. The top end of the federal funds rate is now projected at 4.6%, with policymakers expecting a rate cut in 2024 and an extension to 2025. Officials also slashed their growth forecasts for 2022, with GDP expected to grow just 0.2%, down from 1.7% in June. At its September 2022 meeting, the Fed raised the federal funds rate by 75 basis points to a range of 3%-3.25%, the third straight hike of three-quarters of a percentage point, and pushed borrowing costs back to 2008 highest level since. The decision is in line with market forecasts. Policymakers also expect that continued growth in the target range will be appropriate. The so-called dot plot shows rates could hit 4.4% by December, up from a forecast of 3.4% in June, before rising to 4.6% next year, up from 3.8% three months ago. Meanwhile, GDP growth forecasts were downgraded to show 0.2% growth this year, compared with 1.7% in June and 1.2% in 2023, down from 1.7% in June. Inflation will reach 5.4% in 2022 (5.2% expected in June) and 2.8% (2.6%) in 2023, as measured by PCE. The unemployment rate was also slightly higher at 3.8% (3.7%) this year and 4.4% (3.9%) next year. Russia's MOEX index closed at 2,129 on Wednesday, down nearly 4%, and fell as much as 10% during the session, extending yesterday's 9% drop as President Vladimir Putin ordered the country's first mobilization since World War II. Russia will recruit 300,000 soldiers and stress its readiness to use nuclear weapons to escalate the war further. The index fell yesterday after the Kremlin confirmed it was annexing Ukrainian territory and held a referendum to join Russia in the breakaway republics of Luhansk, Donetsk, Kherson, and Zaporizhia. Many see annexation as a serious escalation, so the Kremlin has reason to believe that Ukraine's latest counterattack is an aggression on Russian territory with Western weapons. Russia's announcement that it will impose a tax on exports to raise 3 trillion rubles to cover a looming budget deficit and rising war funding has also weighed on Russian financial markets. Energy and mining stocks led losses. European shares ended higher on Wednesday after much of the session was flat. Investors remained cautious ahead of the Federal Reserve's monetary policy decision due to the central bank's revised economic forecasts later in the day. With the world's largest economy battling stubbornly high inflation, the Fed could raise by 75 or even 100 basis points. Elsewhere, geopolitical concerns intensified after Russian President Vladimir Putin announced early that a "mobilization campaign" would begin on Wednesday by deploying economic and human resources to put the country on a firmer footing for war. Energy stocks led gains, with the DAX up 0.5% and the Stoxx 600 up 0.8%. German utility Uniper bucked the trend and fell more than 25% after the nationalization deal. The FTSE MIB index rose 1.2% on Wednesday to close at 22,035, outperforming its European peers, supported by the tech and industrial sectors, as investors monitored an escalating conflict in Russia and awaited the Federal Reserve's monetary policy decision after the close. In terms of military equipment, Leonardo led a gain of 6%, as the Russian government announced a partial mobilization of the public to formally annex Ukrainian territory, raising concerns about further military escalation. Elsewhere, the Federal Reserve plans to raise its funding rate by 75 basis points, with the Bank of England and the Swiss National Bank expected to follow suit. Tech stocks shrugged off expectations of tightening, rising more than 2.5% on average, with STMicroelectronics gaining 3.2%. On Wednesday, the CAC 40 rose 0.9% to close at 6,031 after six straight sessions of losses, with Thales (+4%), Worldline (+3.7%), STMicroelectronics (+3.2%), and Veolia Shares of companies such as Environment (+3%) rose strongly. Meanwhile, all eyes turned to the outcome of a two-day Fed meeting later in the day, where the market expects the Fed to raise interest rates by 75 basis points. Traders also weighed comments from President Vladimir Putin about an intensifying conflict in Ukraine, as the energy crisis increases Europe's risk of a recession. London stocks rallied on Wednesday, with the benchmark FTSE 100 rebounding from a near three-week low above 7,230, boosted by utilities, technology, and industrial gains. As the world's most powerful central bank prepares to announce a third straight 75 basis point rate hike, investors will brace for another big rate hike from the Federal Reserve. In Britain, analysts remained divided on whether the Bank of England would raise policy rates by 50 or 75 basis points, with a weaker currency and the government's new energy cost package clouding the rate outlook. Among individual stocks, Hargreaves Lansdown and Persimmons were the index's biggest gainers, up 5.8% and 4.6%, respectively. Canada's S&P/TSX Composite edged to 19,400 on Wednesday, rebounding slightly from sharp losses in the previous session. Strong support from the weighted energy sector offset tightening concerns ahead of the Fed's decision today. The U.S. central bank is expected to raise interest rates by 75 basis points for the third consecutive time, extending the path of interest rate hikes. The federal funds rate is expected to rise to 4.5% in March. Investors also continued to assess yesterday's domestic inflation data, adding to expectations of the Bank of China's slower pace of tightening, putting pressure on the Canadian dollar and bonds. On the corporate front, energy stocks were among the meeting leaders. Higher oil prices helped them amid supply risks following Russia's threat to escalate the military conflict in Ukraine by mobilizing its troops. On Wednesday, the Shanghai Composite fell 0.17% to close at 3,117. In comparison, the Shenzhen Composite fell 0.67% to 11,209, hitting a near four-month low during the session, as Wall Street closed weak overnight, with investors ahead of an expected rate hike by the Federal Reserve. become cautious. While the U.S. central bank is widely expected to announce a third straight 75-basis-point rate hike to fight inflation, investors are bracing themselves if Federal Reserve Chairman Jerome Powell takes a more hawkish view than the market expects. A day earlier, the People's Bank of China (PBoC) left its benchmark lending rate unchanged, suspending monetary easing measures to stem a rapid fall in the yuan and capital outflows that have widened policy differences with the United States. Growth-oriented tech and consumer stocks led losses, with Orient Monetary Information (-2.4%), Sanan Optoelectronics (-3.1%), and Kweichow Moutai (-1.5%) falling sharply. Australia S&P/ASX 200 index fell 1.56% to close at 6700, its lowest level in two months, as caution dominated sentiment ahead of an expected rate hike from the Federal Reserve, affected by weak overnight trading on Wall Street. Domestically, Reserve Bank of Australia deputy governor Michele Bullock reiterated that the central bank was looking for opportunities to slow rate hikes at some point, noting that domestic wage growth was not as robust as some other developed countries. Heavyweight iron ore miners led losses, including BHP Billiton (-3%), Fortescue Metals (-4%), and Rio Tinto (-30%). Tech stocks also fell, with Block Inc (down 4%), Xero Ltd (down 3%), and Seek Ltd (down 1%) falling sharply. New Zealand shares fell 71.5 points, or 0.62%, to settle at a more than three-week low of 11,499, reversing a modest gain the day before and reflecting losses on Wall Street after the Federal Reserve was expected to raise interest rates sharply to ease soaring inflation. In China, stocks fell to more than four-month lows on concerns that rising overseas interest rates would drain liquidity in the Chinese market and limit the central bank's room to ease monetary policy. Traders reviewed past data showing New Zealand's credit card spending jumped 29.4% in August, up from 5.1% in July, as the economy recovered from the anti-COVID measures' impact. By sector, non-energy mineral prices fell the most, followed by consumer, utilities, and financials. The biggest laggards are Metro Performance Glass (-8.9%), TruScreen Group (-6.3%), NZ King Salmon Investments (-4.4%), and ArborGen Holdings (-4.4%). Japan Nikkei 225 fell 1.36 percent to 27,311, closing at its lowest level in two months, tracking overnight losses on Wall Street as investors turned cautious ahead of an expected rate hike from the Federal Reserve. While the U.S. central bank is widely expected to announce a third straight 75-basis-point rate hike to fight inflation, investors are bracing themselves if Federal Reserve Chairman Jerome Powell takes a more hawkish view than the market expects. Investors are also awaiting a policy decision from the Bank of Japan this week, which is widely expected to keep interest rates ultra-low despite pressure from rising inflation and a weaker yen. Nearly all sectors fell on Wednesday, with index heavyweights falling sharply, including Toyota Motor (-2%), Tokyo Electron (-1%), SoftBank Group (-1-), Sony Group (-2-), and Daikin Industry (-4%).   REVIEWING ECONOMIC DATA:  Looking at the last economic data: - US: Existing-home sales in the U.S. edged down 0.4% in August 2022 to a seasonally adjusted annual rate of 4.8 million units, the lowest since May 2020, following a revised 5.7% decline in July. This marked the seventh straight month of declines in existing home sales, reflecting rising mortgage rates this year. The data is compared to a market forecast of 4.7 million. The median existing-home sale price rose 7.7% from a year ago to $389,500. After five straight months of gains, the unsold inventory of existing homes fell to 1.28 million units, equivalent to 3.2 months of the current monthly sales pace. Sales rose in the Northeast (1.6%) and West (1.1%) but were unchanged in the South and down 3.3% in the Midwest. - US: Mortgage applications in the U.S. rose 3.8% in the week ended Sept. 16, the first increase in six weeks and the largest increase in three months. Applications for home loan refinancing rose 10.4%, while applications for home purchases rose 1%. Meanwhile, the average contract rate on 30-year fixed-rate mortgages with qualifying loan balances ($647,200 or less) increased from 6.01% to 6.25%, the highest level since October 2008. "Despite higher interest rates, the weekly increase in applications underscores the current overall volatility and the Labor Day-adjusted results in the week before," said MBA economist Joel Kan. - GB: According to the latest monthly CBI Industrial Trends survey, the CBI's book balance of orders rose to -2 in September 2022, up five percentage points from -7 in the previous month and above market expectations of -11. In addition, export orders rose (-8 to -12 in August), although output growth is expected to slow significantly over the next three months (-17 to -2). Inventories of manufactured goods rose for the second month (+6 to +2), while expectations for inflationary pressures continued to grow (+59 to +57). - GB: UK public sector net borrowing excluding public sector banks was £11.8bn in August 2022, £2.6bn less than in July 2021 but £6.5bn more than in August 2019 before the coronavirus outbreak. The figures were compared with market forecasts for a deficit of £8.45bn. Compared to 2021, central government spending of £73.2bn remains largely unchanged, with interest payable increasing by £1.5bn, payments for goods and services by £1.7bn, and net social welfare payments by £1.1bn, but offset by other This was offset by a reduction in subsidy payments of £3.4bn. Interest on debt was 8.2 billion pounds, the highest figure for August since monthly records began in April 1997, largely due to changes in the retail price index on index-linked gilts. Meanwhile, government revenue was £69.6bn, up £5.6bn from a year ago; of this, tax revenue was £51.4bn, up £3.9bn from 2021. - SW: Sweden's unemployment rate fell from 8.5% in the same month last year to 6.6% in August 2022, with the number of unemployed falling by 106,000 to 373,000. Employment rose 179,000 a year earlier, with the labor force participation rate rising to 70.2%. On a seasonally adjusted basis, the unemployment rate in July was 7.2%. - IT: In July 2022, Italian construction output rose 5.9% year-on-year, down from 10.4% in the previous month. It marked the fifth straight period of slowing growth in the Italian construction sector and the slowest pace in 11 months, as a slowdown in the economy dented demand amid the coming period of prolonged restrictive monetary policy. At the same time, electricity prices have soared due to concerns about energy shortages, leading to the closure of several steel plants in Europe and insufficient construction investment. As a result, the seasonally adjusted monthly construction activity fell by 3%, the largest drop since December 2020. - AU: The Reserve Bank of Australia will report significant losses in its 2021-2022 annual accounts due to its massive bond-buying program, Reserve Bank of Australia deputy governor Michelle Bullock said in a speech. It was in negative equity during this period. However, this will not affect the central bank's ability to operate. "While the board has not yet sought a capital injection, it has indicated to the government that it expects future profits to be retained until the bank's capital is restored," she added. The Treasurer endorsed this general approach, noting that allocations to the government are considered annually under the Reserve Bank Act. As part of a package of measures, the RBA has implemented a bond-buying scheme designed to insure against the bad economic consequences of the flu. - AU: Australia's Westpac Melbourne Institute Leading Economic Index fell 0.1 percent year-on-year in August 2022, after falling 0.2 percent in the previous month, the fifth consecutive monthly decline. Meanwhile, the six-month annualized growth rate in the index, or the likely pace of economic activity compared to the trend over the next three to nine months, fell from 0.49% in July to -0.36% in August. It was the first negative report since the start of the year and the weakest record since the 2021 Delta lockdown. "The current loss of momentum reflects a combination of policy tightening, a less supportive global backdrop, and a cooling labor market," Westpac chief economist Bill Evans said. "Westpac expects Australia's economic growth to slow to 0.6 percent in December from a robust 1.1 percent in September."   LOOKING AHEAD:    Today, investors will receive the following: - JPY: Monetary Policy Statement, BOJ Policy Rate, BOJ Core CPI y/y, and BOJ Press Conference. - NZD: Westpac Consumer Sentiment and Trade Balance. - CHF: SNB Monetary Policy Assessment, SNB Policy Rate, and SNB Press Conference. - GBP: MPC Official Bank Rate Votes, Monetary Policy Summary, MPC Member Tenreyro Speaks, and Official Bank Rate. - EUR: ECB Economic Bulletin and Consumer Confidence.   KEY EQUITY & BOND MARKET DRIVERS: - GE: Germany's 10-year bond yield fell below 1.9 percent from an 8-1/2-year high of nearly 2 percent earlier this week. Investors flocked to the safety of government debt as the war in Russia escalated. Russian President Vladimir Putin announced a partial mobilization of 300,000 reservists, pledged to annex territories his forces had already occupied and vowed to use all necessary means to defend Russia. Meanwhile, the U.S. Federal Reserve raised interest rates by 75 basis points for the third time, heralding sharp hikes ahead. Meanwhile, European Central Bank President Christine Lagarde said in a speech on Tuesday that eurozone policymakers will continue to raise interest rates further in the next few meetings to curb the rising Inflation, even if these moves ultimately limit economic growth. Following a 50 basis point hike in July, the ECB raised rates by an unprecedented 75 basis points in September and is expected to increase rates by 50 to 75 basis points in October. - US: The 10-year U.S. Treasury bond yield exceeded the 3.61 percent mark for the first time since April 2011, after the Federal Reserve raised the federal funds rate by 0.75 percentage points, intensifying its anti-inflation efforts. The top end of the federal funds rate is now projected at 4.6%, with policymakers expecting a rate cut in 2024 and an extension to 2025. Officials also slashed their growth forecasts for 2022, with GDP expected to grow just 0.2%, down from 1.7% in June. - EU: The euro fell more than 1 percent to below $0.99, hovering at its lowest level since 2002, after the U.S. Federal Reserve raised interest rates by a third straight 75 basis points, widening the gap with the eurozone. The European Central Bank raised interest rates by an unprecedented 75 basis points in September and is expected to increase rates by 50 to 75 basis points in October despite recession risks. The eurozone has been dealing with an unprecedented energy crisis, and analysts see a recession as all but inevitable, although the central bank has not signaled a possible tightening. In addition, the region is under increased pressure after President Vladimir Putin announced a partial military mobilization in Russia, a move seen by the West as an escalation. - RU: Yields on Russia’s 10-year free-trade zone surged above 10.6 percent in September, the highest since April, as the Kremlin escalated during the war amid falling government revenue, threatening Russia’s fiscal stability. President Vladimir Putin has announced that 300,000 people will be part of the mobilization of the Russian population to join the Russian ranks in eastern Ukraine ahead of a planned referendum. To fund the work, the government will collect more than 3 billion rubles over the next three years through higher export taxes on goods, as falling energy prices and disruption to energy flows to Europe offset Russia's previous sources of revenue. As a result, concerns about Russia's fiscal stability have emerged along with dwindling revenues, leading to a sharp drop in Moscow's budget balance in August and an extraordinary deficit. Previously, the Kremlin approved a decree to use half of its $210 billion emergency fund to buy OFZ bonds, something it had never done before.       STOCK MARKET SECTORS: - High: Industrials, Consumer Staples, Utilities, Real Estate. - Low: Communication Services.   TOP CURRENCY & COMMODITIES MARKET DRIVERS:  - CAD: The Canadian dollar fell below 1.34 per dollar, its lowest level since August 2020, after the Federal Reserve raised its rate forecast by 75 basis points and foreshadowed sharp hikes ahead. At home, weaker-than-expected inflation slightly eased expectations for how aggressively the Bank of Canada will extend its path to rate hikes. Consumer prices in Canada rose 7% on a yearly basis in August, below expectations for a 7.3% increase and well below the 39-year peak of 8.1% two months ago. In addition, disappointing employment data for August, with Canadians' unemployment rate rising to 5.4 percent from a projected 5 percent, added incentive to slow rate hikes. - JPY: The yen crossed the 144 mark against the dollar on Wednesday, again approaching a fresh 24-year high, as the monetary policy divergence between the Bank of Japan and the Federal Reserve became more pronounced. As expected, the Fed raised its main policy rate by 75 basis points for the third time but heralded a larger hike in the new forecast. On the other hand, the Bank of Japan is expected to maintain ultra-low interest rates to support a fragile economic recovery. Meanwhile, authorities are now ready to intervene in currency markets, if necessary, without waiting for the U.S. to nod in favor of the yen, Tatsuo Yamasaki, the former head of currency at the Treasury Department, told Bloomberg in an interview. Still, questions remain about the effectiveness of the intervention, with senior LDP member Sagi Sakayama warning that "monetary intervention alone will not be as effective" to stem the yen's sharp decline. - USD: The U.S. dollar index soared above 111.5 on Wednesday, its highest level since June 2002, after the Federal Reserve raised its benchmark interest rate by another three-quarter of a percentage point and said it would remain well above current levels. At the same time, GDP growth forecasts were lowered, while inflation and unemployment were raised. Today, the currency received an additional boost from safe-haven flows after President Putin announced a partial military mobilization in Russia and a sharp escalation in the Ukraine conflict. - OIL: According to the EIA's latest report, U.S. crude oil inventories rose by 1.142 million barrels on September 16, below market expectations of 2.161 million barrels. This was largely due to another massive release of oil from the U.S. Strategic Reserve, which reached 6.9 million barrels last week. In addition, crude oil inventories at Cushing, Oklahoma, rose by 343,000 barrels, while gasoline inventories rose by 1.569 million barrels, compared with a forecast of 431,000. Meanwhile, distillate stockpiles, including diesel and heating oil, surged by 1.231 million barrels, beating estimates of 420,000 barrels. - AUD: The Australian dollar fell to $0.665, its lowest level since June 2020, as Reserve Bank of Australia deputy governor Michele Bullock reiterated that the central bank is looking for opportunities to slow the pace of rate hikes at some point, noting Domestic wage growth has not been as robust as in some other developed countries. After raising the cash rate by a cumulative 225 basis points to a seven-year high of 2.35%, markets remain divided on whether the RBA will raise rates by 50 or 25 basis points next month. The Aussie remains under pressure as the U.S. Federal Reserve is expected to continue its aggressive response to inflation and a weakening global economic outlook, dampening commodity demand and hurting related assets.   CHART OF THE DAY: The euro rallied after Russian President Vladimir Putin announced a partial military mobilization in Russia. The U.S. Federal Reserve would raise interest rates for the third time by 75 basis points, widening the interest rate gap with the eurozone. It continued to fall below the $1 parity level, hovering at its lowest level since 2002. Meanwhile, European Central Bank President Christine Lagarde said in a speech on Tuesday that policymakers will continue to raise interest rates further in the next few meetings to curb rising inflation, even if these measures ultimately limit economic growth. Following a 50-basis point hike in July, the ECB raised rates by an unprecedented 75 basis points in September and is expected to increase rates by 50 to 75 basis points in October.    - EURUSD - D1, Resistance (consolidation) around ~ 1.01956,  Support (target zone) around  ~ none