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Morgan Stanley: We Are Approaching An Inflection Point In China Policy Easing

Morgan Stanley: We Are Approaching An Inflection Point In China Policy Easing By Chetan Ahya, Chief Economist and Global Head of Economics at Morgan Stanley The past two months have seen successive waves of headlines from China, first on the broad regulatory reset and then this week’s focus on property developers facing near-term funding pressures. The policy goals of these measures are first to ensure social stability and second to make economic growth more sustainable by reducing income inequality and addressing imbalances and excesses. However, they have raised concerns about a potential rise in systemic risks and a sharper slowdown in growth. Investors’ focus has shifted from tech to the property sector, which faces challenges on two fronts. First, property developers are required to adhere to the “three red lines” – maintaining healthy liabilities-to-assets, net gearing and cash-to-short-term debt ratios – which were announced in August 2020. What we are experiencing now is a direct effect of that regulatory action, which aimed to reduce systemic risks with benchmarks to curb excessive property sector borrowing. In addition, property demand in China has slowed in the last two months, as the front-loading of mortgage lending quotas in the first half of the year has weighed on property sales, increasing headwinds for property developers. As things stand, most property developers are on track to comply with the three red lines, but a number face challenges in meeting the mandated ratios. Our China property analyst estimates that the total debt exposure of property developers is around Rmb 18.4 trillion, which is now similar to annual sales. This indicates that leverage in aggregate is manageable – hence, so is the deleveraging process. Nonetheless, the pressure to reduce leverage means that defaults in China's property sector are likely to increase. From past experience, policy-makers have mechanisms in place to prevent systemic risks. For instance, debt restructuring will take place at the holding company level of property developers in default, while operating companies remain in business and construction projects move forward. Credit committees will oversee this process, with representation from the financial regulators, the central bank and local governments. Vis-à-vis the banking system, the property risk exposure of China's banks appears manageable. Development loans totaled 6.9% of banks' total loan balances, and individual developers' loan balances are limited to 0.3% of banks' total loan balance or less. NPL formation has also dropped to multi-year lows in 1H21. In addition, the risks related to peer-to-peer consumer loans and shadow banking credits have largely been addressed over the last three years. Hence, our China financials analyst sees ample room for the domestic banking system to deal with property sector risks this year. The exposure of global investors to the China property sector as holders of the debt or global banks as lenders to the sector is relatively small, which reduces the potential for global systemic risks. While we expect the restructuring process and immediate spillovers to the financial system to be orderly, we are mindful of potential knock-on effects in the broader economy. Although inventory levels are low, the economy will see some downside pressure from weaker housing starts in the near term. The property and adjacent sectors – residential property investment, related services and downstream goods consumption – account for ~15% of China’s GDP. Our chief China economist Robin Xing estimates that a 10pp slowdown in residential property activity could exert a ~1pp drag on GDP growth. Further spillovers could take the form of a negative wealth effect: reduced private consumption, the decline in property investment weighing on fixed asset investment in other upstream manufacturing sectors, and the impact on property sector employment exacerbating weaker consumption. These spillover effects are creating downward pressure on growth at the same time that production cuts to meet energy intensity targets are weighing on growth, the regulatory reset is weighing on corporate sentiment and consumption is softening because of intermittent Covid-related restrictions. We therefore see a risk that spillovers from the property sector would keep 4Q21 growth below 5% on a 2Y CAGR basis. This is a low starting point relative to next year’s growth target of 5.5%. Moreover, a sharper growth slowdown could increase the risk of a material impact on the labour market, which would run counter to the policy objective of ensuring social stability. It is in this context that we expect policy-makers to manage the process and pace of adjustment while providing meaningful countercyclical easing, just as they did in 2H15, 4Q18 and 2H19. Indeed, we think that we are approaching an inflection point in policy easing. Further measures in the pipeline include: faster fiscal spending to support infrastructure projects in September-December; another 50bp RRR cut in mid-to-late October; some easing of mortgage quotas and fine-tuning of production cuts to meet energy intensity targets in 4Q21; and front-loading of loan quotas and local government special bonds in January-February 2022. In the coming weeks, we will be watching for (1) communication from policy-makers on the details of the restructuring plan for property developers, and (2) policy easing signals and announcements. Tyler Durden Sun, 09/26/2021 - 22:00.....»»

Category: personnelSource: nytSep 26th, 2021

Morgan Stanley: We Are Approaching An Inflection Point In China Policy Easing

Morgan Stanley: We Are Approaching An Inflection Point In China Policy Easing By Chetan Ahya, Chief Economist and Global Head of Economics at Morgan Stanley The past two months have seen successive waves of headlines from China, first on the broad regulatory reset and then this week’s focus on property developers facing near-term funding pressures. The policy goals of these measures are first to ensure social stability and second to make economic growth more sustainable by reducing income inequality and addressing imbalances and excesses. However, they have raised concerns about a potential rise in systemic risks and a sharper slowdown in growth. Investors’ focus has shifted from tech to the property sector, which faces challenges on two fronts. First, property developers are required to adhere to the “three red lines” – maintaining healthy liabilities-to-assets, net gearing and cash-to-short-term debt ratios – which were announced in August 2020. What we are experiencing now is a direct effect of that regulatory action, which aimed to reduce systemic risks with benchmarks to curb excessive property sector borrowing. In addition, property demand in China has slowed in the last two months, as the front-loading of mortgage lending quotas in the first half of the year has weighed on property sales, increasing headwinds for property developers. As things stand, most property developers are on track to comply with the three red lines, but a number face challenges in meeting the mandated ratios. Our China property analyst estimates that the total debt exposure of property developers is around Rmb 18.4 trillion, which is now similar to annual sales. This indicates that leverage in aggregate is manageable – hence, so is the deleveraging process. Nonetheless, the pressure to reduce leverage means that defaults in China's property sector are likely to increase. From past experience, policy-makers have mechanisms in place to prevent systemic risks. For instance, debt restructuring will take place at the holding company level of property developers in default, while operating companies remain in business and construction projects move forward. Credit committees will oversee this process, with representation from the financial regulators, the central bank and local governments. Vis-à-vis the banking system, the property risk exposure of China's banks appears manageable. Development loans totaled 6.9% of banks' total loan balances, and individual developers' loan balances are limited to 0.3% of banks' total loan balance or less. NPL formation has also dropped to multi-year lows in 1H21. In addition, the risks related to peer-to-peer consumer loans and shadow banking credits have largely been addressed over the last three years. Hence, our China financials analyst sees ample room for the domestic banking system to deal with property sector risks this year. The exposure of global investors to the China property sector as holders of the debt or global banks as lenders to the sector is relatively small, which reduces the potential for global systemic risks. While we expect the restructuring process and immediate spillovers to the financial system to be orderly, we are mindful of potential knock-on effects in the broader economy. Although inventory levels are low, the economy will see some downside pressure from weaker housing starts in the near term. The property and adjacent sectors – residential property investment, related services and downstream goods consumption – account for ~15% of China’s GDP. Our chief China economist Robin Xing estimates that a 10pp slowdown in residential property activity could exert a ~1pp drag on GDP growth. Further spillovers could take the form of a negative wealth effect: reduced private consumption, the decline in property investment weighing on fixed asset investment in other upstream manufacturing sectors, and the impact on property sector employment exacerbating weaker consumption. These spillover effects are creating downward pressure on growth at the same time that production cuts to meet energy intensity targets are weighing on growth, the regulatory reset is weighing on corporate sentiment and consumption is softening because of intermittent Covid-related restrictions. We therefore see a risk that spillovers from the property sector would keep 4Q21 growth below 5% on a 2Y CAGR basis. This is a low starting point relative to next year’s growth target of 5.5%. Moreover, a sharper growth slowdown could increase the risk of a material impact on the labour market, which would run counter to the policy objective of ensuring social stability. It is in this context that we expect policy-makers to manage the process and pace of adjustment while providing meaningful countercyclical easing, just as they did in 2H15, 4Q18 and 2H19. Indeed, we think that we are approaching an inflection point in policy easing. Further measures in the pipeline include: faster fiscal spending to support infrastructure projects in September-December; another 50bp RRR cut in mid-to-late October; some easing of mortgage quotas and fine-tuning of production cuts to meet energy intensity targets in 4Q21; and front-loading of loan quotas and local government special bonds in January-February 2022. In the coming weeks, we will be watching for (1) communication from policy-makers on the details of the restructuring plan for property developers, and (2) policy easing signals and announcements. Tyler Durden Sun, 09/26/2021 - 22:00.....»»

Category: personnelSource: nytSep 26th, 2021

Futures Tumble As Nat Gas Prices Explode, Stagflation Fears Surge

Futures Tumble As Nat Gas Prices Explode, Stagflation Fears Surge In our market comments on Tuesday we were stunned by the resilient surge in tech names and the broader market, even as yields soared on the biggest jump in breakevens since the presidential election, noting that something is very broken with this picture. Well, one day later normalcy is back: US stock index futures tumbled as much as 1.3% on Wednesday before paring some losses, after soaring oil and gas prices (rising as much as 40% in Europe today alone) fed into fears of higher inflation and fueled concerns of sooner-than-expected tapering, which in turn pushed 10Y yields just shy of 1.57%. At 730 a.m. ET, Dow e-minis were down 309 points, or 0.9%, S&P 500 e-minis were down 49 points, or 1.12%, and Nasdaq 100 e-minis were down 181 points, or 1.23%, to the lowest level since June 25 on a closing basis, signaling more downside for tech shares after Tuesday’s short reprieve Up to Tuesday’s close, the S&P 500 index logged its fourth straight day of 1% moves in either direction. According to Reuters, the last time the index saw that much volatility was in November 2020, when it rose or fell 1% or more for seven straight sessions. The selloff was much more severe in Europe, with the Stoxx 600 falling as much as 2% to a 2 month low, with every industry sector firmly in the red as the region’s natural gas prices soared to catastrophic levels... ... even as the European Union pledged swift action to ensure the spiking costs don’t stifle the economy (it just didn't explain precisely what it would do). Asian stocks also dropped amid continued China property contagion fears. The 10-year TSY yield touched their highest since June, slamming shares of mega-cap FAAMGs; tech shares led the stocks selloff Apple (AAPL US -1.5%), Facebook (FB US -1.6%), Microsoft (MSFT US -1.6%), Tesla (TSLA US -1.4%) down in U.S. premarket trading. Economy-sensitive parts of the market also came under pressure, with lenders such as Bank of America Corp , JPMorgan Chase & Co and Morgan Stanley shedding more than 1% each. Boeing and industrial conglomerates Caterpillar Inc and 3M Co dropped between 0.8% and 2.0%. Ironically, even though Brent remained well above $82, energy names also slumped with Exxon sliding 1% on what appears to be profit taking to plug margin holes elsewhere. American Airlines’ shares fell 3.7% in U.S. premarket session after Goldman cut its recommendation for the stock to sell. Meanwhile, Palantir Technologies extended its gains to rise 9.3% as the company said it won a U.S. Army contract to supply data and analytics services. Here are some of the other notable market movers: Gogo (GOGO US) drops 5.3% in U.S. premarket trading after Morgan Stanley downgrades to underweight, with competitive landscape expected to pressure valuation and free cash flow over coming year American Airlines (AAL US) slides 3.6% in U.S. premarket trading on Goldman Sachs downgrade, according to Bloomberg data U.S. Steel (X US) down more than 5% in U.S. premarket trading on Goldman Sachs downgrade, according to Bloomberg data Calyxt (CLXT US) shares jump 5.4% premarket after the company said it will focus on engineering synthetic biology solutions for customers across the nutraceutical, cosmeceutical, pharmaceutical, advanced materials, and chemical industries Indus Realty Trust (INDT US) fell postmarket Tuesday after launching a 2 million stock offering Noodles & Co. (NDLS US) shares rose 2% in Tuesday postmarket trading after Stephens started coverage with an overweight rating, saying the restaurant chain is poised for strong growth that should lead to higher multiples Allison Transmission (ALSN US) is accelerating the development of electrification technology for integration into the U.S. Army’s ground combat vehicle fleet Palantir (PLTR US) shares rise 14% in U.S. premarket trading after the the software company said Tuesday it was selected by the U.S. Army to provide data and analytics for the Capability Drop 2 program "Right now you’re seeing inflation risk really start to percolate and I do think that you’re going to see that really eat into margins as we go through the fourth quarter into 2022,” Erin Browne, multi-asset portfolio manager at Pimco, said on Bloomberg Television. “The energy crisis that’s starting to loom in Europe is a real risk that is being underestimated by the market right now." “The spike in energy prices continue fueling expectations of higher inflation for longer. Therefore, central banks will be forced to cool down the overheating in inflation rather than trying to boost recovery,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Any weakness in the jobs figure could send the U.S. equities back below their 100-dma levels, as soft economic data could no longer revive the central bank doves." As such, all eyes will be on the U.S. private payrolls data, due at 8:15 a.m. ET. The numbers come ahead of the more comprehensive non-farm payrolls data on Friday, which is expected to cement the case for the Federal Reserve’s slowing of asset purchases. Meanwhile, a stalemate over Republicans and Democrats about the debt limit showed no sign of abating, with President Joe Biden saying that his Democrats might make an exception to a U.S. Senate rule to allow them to extend the government’s borrowing authority without Republican help. European stocks fell even more, with the Stoxx Europe 600 index plunging 2% to lowest since July 20; Travel, autos and retail names are the weakest sectors although all Stoxx 600 sub-indexes are off at least 1%, tech was also underperforming. As noted above, gas prices remain a focal pressure point with several measures hitting record levels. Here are some of the biggest European movers today: Adler shares extend decline to 21% in Frankfurt after Viceroy Research publishes a report saying it is short Adler Group SA and its listed subsidiaries. Deutsche Telekom shares fall 4%, close to the level at which Goldman Sachs offered about EU1.5b worth of shares, as part of a deal to swap some of Softbank’s T- Mobile stake for one in Deutsche Telekom. Ambu shares fall as much as 8.1%, most since Aug. 17, after company cut its FY financial outlook. IP Group shares drop as much as 8.1%, their worst day in nine months, after CEO Alan Aubrey and CIO Mike Townend retire. GN Store Nord shares rise as much as 7.5% as it agrees to buy SteelSeries, a maker of software-enabled gaming gear, from Nordic private equity company Axcel for an enterprise value of DKK8b on a cash and debt-free basis. Tesco shares rise as much as 4.6% to an eight-month high after Britain’s biggest supermarket operator said it will buy back GBP500m of stock and raised its FY profit forecast. HSBC rises as much 2.5% as UBS upgrades the Asia-focused lender to buy from neutral, saying the market is taking a risk by being underweight. PageGroup shares jump as much as 6.9%, most since April, as the staffing firm boosts its profit forecast. Peer Hays also gains. Dustin shares jump as much as 11%, most since April 13, after the IT solutions provider’s Ebit for the fourth quarter beat the average analyst estimate. Atlantic Sapphire gains as much as 15% as Pareto sees improvements ahead. Asian stocks headed for their longest losing streak since August as a selloff in the heavyweight tech sector deepened amid rising Treasury yields. The MSCI Asia Pacific Index declined as much as 0.8%, in its fourth day of decline, with Samsung and Tencent among the biggest drags. A benchmark tracking Chinese technology stocks in Hong Kong closed at a record low. Japan’s Nikkei 225 and South Korea’s Kospi were the biggest losers, sliding more than 1% each. China Tech Stock Gauge Falls to Test Record Low as Yields Rise Investors have yet to digest issues such as the inflation outlook, among other concerns including gridlock over the U.S. debt ceiling and higher global energy prices. The MSCI Asia Pacific Index is approaching year-to-date lows seen in August.  “At the moment, given all the uncertainties regarding the growth, inflation and policy outlooks, we are still in the middle of the tempest, so to speak,” Kyle Rodda, an analyst at IG Markets, said by email.  Indonesian, Malaysian and Philippine stock benchmarks were among the region’s best performers. In Japan, the Topix closed 0.3% lower while the Nikkei225 capped its worst daily losing streak since July 2009 and entered a technical correction, as Japanese equities tumbled while Treasury yields climbed. Fast Retailing Co. and Tokyo Electron Ltd. were the largest contributors to a 1.1% loss in the Nikkei 225, which fell for an eighth-straight day. The gauge, which had risen as much as 1.4% earlier in the day, closed more than 10% down from its September high. The broader Topix dipped 0.3%, erasing an early 1.6% advance, driven by losses in automakers. Banks climbed on the spike in Treasury yields. Japanese stocks had opened the day higher, following a rebound in U.S. shares. Both major gauges fell for a seventh day Tuesday amid market disappointment with the new government and a host of threats to global economic growth. ‘Kishida Shock’ Hits Japan Markets Wary of Redistribution Plan “Technicals such as RSI and Bollinger are showing that these moves may have been overdone in the short term, but Japan is hostage to the continued global concerns regarding inflation, supply chains and Chinese credit along with PM Kishida’s ‘new capitalism’ concept,” said Takeo Kamai, head of execution services at CLSA Securities Japan Co Australia's S&P/ASX 200 index fell 0.6% to close at 7,206.50, reversing an earlier advance of as much as 0.4%. Banks contributed the most to the benchmark’s decline after Australia’s banking regulator raised loan buffers in a bid to cool the nation’s booming housing market. a2 Milk was the worst performer after a class action lawsuit was filed against the company. Whitehaven was the top performer, rising for a fourth straight day.  In New Zealand, the S&P/NZX 50 index fell 0.3% to 13,166.44. The nation’s central bank raised interest rates for the first time in seven years and signaled further increases will likely be needed to tame inflation. The RBNZ lifted the official cash rate by a quarter percentage point to 0.5%. In rates, Treasuries were off their worst levels of the day after the 10Y yield rose briefly topped 1.57%, and remained cheaper by more than 2bps across long-end. The 10-year yield was around 1.55%, cheapest since June 17; U.K. 10-year cheapens by further 1.8bp vs U.S., German 10-year by 0.5bp. In the U.K., the 10-year breakeven rate climbed above 4%, twice the Bank of England’s target, spurred by soaring energy costs. Money markets have almost fully priced a rate hike as soon as December, in what would be the central bank’s first increase in over three years. Peripheral spreads widen to core with long-dated BTPs widening ~3bps to Germany. In FX, USD is well bid with risk assets trading poorly. Bloomberg dollar index rises 0.5%, pushing through last Friday’s highs. NZD, NOK and AUD are the weakest in G-10. Crude futures trade a narrow range near Asia’s opening levels. WTI is down 0.4% near $78.60, Brent briefly trades above $83 before dipping into the red. Spot gold extends Asia’s weakness to print fresh lows for the week near $1,745/oz. Base metals are in the red. LME copper the worst performer, dropping 1.9% to trade near the $9k mark. In commodities, crude futures trade a narrow range near Asia’s opening levels. WTI is down 0.4% near $78.60, Brent briefly trades above $83 before dipping into the red. Spot gold extends Asia’s weakness to print fresh lows for the week near $1,745/oz. Base metals are in the red. LME copper the worst performer, dropping 1.9% to trade near the $9k mark Elsewhere, Bitcoin traded around the $51,000 mark. Looking at the day ahead, data releases include German factory orders for August, the German and UK construction PMIs for September, Euro Area retail sales for August, and the ADP’s September report on private payrolls from the US. From central banks, we’ll also hear from the ECB’s Centeno. Market Wrap S&P 500 futures down 0.9% to 4,294.75 STOXX Europe 600 down 1.5% to 449.34 MXAP down 0.7% to 191.25 MXAPJ down 0.8% to 622.40 Nikkei down 1.1% to 27,528.87 Topix down 0.3% to 1,941.91 Hang Seng Index down 0.6% to 23,966.49 Shanghai Composite up 0.9% to 3,568.17 Sensex down 0.2% to 59,596.78 Australia S&P/ASX 200 down 0.6% to 7,206.55 Kospi down 1.8% to 2,908.31 Brent Futures up 0.1% to $82.67/bbl Gold spot down 0.7% to $1,747.69 U.S. Dollar Index up 0.32% to 94.28 German 10Y yield up 2 bps to -0.168% Euro down 0.3% to $1.1560 Top Overnight News from Bloomberg Boris Johnson’s insistence that higher pay for U.K. workers is worth the pain of supply chain turmoil is generating buzz among Conservative Party members that he’s planning to raise the minimum wage in a keynote speech on Wednesday European energy prices extend their blistering rally as the supply crunch shows no sign of easing and the European Union pledged a quick response to keep the crisis from damaging the economy Chinese Fantasia Holdings Group Co., which develops high-end apartments and urban renewal projects, failed to repay a $205.7 million bond that came due Monday. That prompted a flurry of rating downgrades late Tuesday to levels signifying default. The stumble stirred broader angst in volatile markets amid public holidays in China and uncertainty about Evergrande President Emmanuel Macron nominated Bank of France Governor Francois Villeroy de Galhau for a second term, opting for stability in one of the most important appointment decisions on European Central Bank policy making for years to come The German Green Party is seeking to start exploratory talks with the SPD and liberal FDP party on forming a governing coalition, Green Party co-leader Annalena Baerbock said Saudi Arabia reduced oil prices for its main buyers, a day after OPEC+ sent crude futures surging by sticking to a plan for slow and steady supply increases A more detailed look at global markets courtesy of Newsquawk: Asia-Pac bourses traded mostly lower after failing to sustain the initial momentum from Wall St, where all major indices gained as investors bought back into tech and with sentiment helped by better-than-expected ISM services PMI, while continued upside in oil prices and a higher yield environment also underpinned energy and financials. This initially lifted the overnight benchmark indices although gains in the ASX 200 (-0.6%) were later reversed as the strength in energy and tech was overshadowed by weakness in the broader market including underperformance in the top-weighted financials sector after the regulator announced a loan curb measure targeting mortgage lending. Nikkei 225 (-1.1%) faded its opening gains and brief foray into 28k territory with auto names among the laggards amid ongoing production disruptions and with PM Kishida’s new cabinet beginning on shaky ground as polls showed his approval rating was at just 55% heading into the upcoming election, which was also the lowest for a new leader in 13 years, while KOSPI (-1.8%) gave up initial spoils with firmer than expected CPI data supporting the case for another hike by the BoK this year. Hang Seng (-0.6%) conformed to the soured mood amid weakness in property and biotech with participants also focusing on Chief Executive Lam’s final policy address of her current term where she proposed measures to address the housing issue, although this failed to lift the property sector as Evergrande concerns lingered after Hong Kong property agencies sued the Co. to recover overdue commissions and with shares in its New Energy Vehicle unit suffering double-digit percentage losses. Finally, 10yr JGBs were lower on spillover selling from T-notes and despite the downturn in stocks, while the absence of BoJ purchases in the market today added to the lacklustre demand with the central bank instead offering to buy JPY 125bln in corporate bonds from October 11th with 1yr-3yr maturities. Top Asian News China Tech Stock Gauge Falls to Record Low as Yields Rise Top Glove Says Cooperating in Investigation Over Worker’s Death China Resources Unit Said to Be in Talks for JLL China Business Asian Stocks Drop as Tech Selloff Deepens Amid Rising Yields Stocks in Europe have extended on the losses seen at the cash open (Euro Stoxx 50 -2.4%; Stoxx 600 -1.8%) with risk aversion intensifying from a downbeat APAC session as markets grapple with the prospect of stagflation, the energy crunch, Evergrande woes, and geopolitics. US equity futures have conformed to the losses across stocks with the ES (-1.3%) RTY (-1.5%), NQ (-1.5%) and YM (-1.0%) all softer, whilst the former two dipped under 4,300 and 2,200 respectively. From a news-flow standpoint, fresh catalysts have been light. Euro-bouses see broad-based losses whilst the FTSE 100 (-1.6%) is somewhat cushioned (albeit under 7k) by a softer sterling alongside some heavyweight individual stocks including HSBC (+3.3%) following a broker move, and Tesco (+4.5%) after topping H1 forecasts, raised guidance and a GBP 500mln share buyback scheme. Sectors in Europe are all in the red. Banks are the best of the bunch amid the favourable yield environment. On this note, SocGen suggested that the banking sector should benefit from the rise in yields and limited exposure to China, higher energy and supply-chain bottlenecks, while that market consolidation offers some opportunities in the European tech and industrial sectors. Back to sectors, the downside sees some of the more cyclical sectors including Travel & Leisure and Auto names. In terms of some individual movers, Deutsche Telekom (-5.6%) is hit after a bookrunner noted a share offering of some 90mln shares priced at a discount to yesterday’s close. Top European News German Greens Seek Talks With SPD, FDP on Post-Merkel Government European Industry Buckles Under a Worsening Energy Squeeze Polish Central Bank Unbowed Despite Price Spike: Decision Guide Bayer Shares Turn Lower After Initial Gains on Roundup Win In FX, the Dollar is firmly back in the driving seat and the index is eyeing YTD highs having reclaimed 94.000+ status amidst another sharp downturn in risk appetite just a day after what some pundits were dubbing as a ‘turnaround Tuesday’. Instead, Asia-Pacific bourses were reluctant to pick up the baton from Wall Street and the failure to keep the ball rolling against the backdrop of ongoing strength in gas and oil prices has rattled EU equities to the extent that the Dax has lost grip of the 15k handle and FTSE is down below 7k regardless of the fact that the UK benchmark has some positive impulses beyond the obvious revenue implications for the energy sector. Back to the DXY 94.448 is the best so far ahead of 94.500 for sentimental reasons and the current y-t-d peak just a fraction above at 94.504. In terms of fundamentals, next up for the Greenback is ADP as one of the usual pointers for NFP, while Fed speak comes from Bostic who is down to talk twice today. NZD/AUD - Ironically perhaps, the Kiwi is underperforming even though the RBNZ matched market expectations with a 25 bp OCR hike overnight, and this could well be described as a classic ‘buy rumour, sell fact’ reaction given that the move was all priced in. Moreover, the accompanying statement has not altered expectations for further measured tightening and this could compound the inclination to re-position/take profit/cut longs to the detriment of the Nzd. Indeed, the Kiwi has retreated from around 0.6980 vs its US rival to circa 0.6878 and is struggling to tread water on the 1.0500 mark against the Aussie that is also losing out to its US rival on the aforementioned risk dynamic, as Aud/Usd hovers towards the bottom end of 0.7295-0.7227 parameters ahead of AIG’s services sector index. CAD/GBP - Also somewhat perverse, though a measure of the degree that the market mood has changed since yesterday, the Loonie and Sterling are both struggling to derive much from the latest advances in WTI or Brent. In fact, Usd/Cad approached 1.2650 having breached the 50 DMA (1.2626) and pulling away from a cluster of decent option expiries that start at 1.2520-25 (1 bn) and continue through 1.2550-60 (2.1 bn) to 1.2600 (1 bn) and end between 1.2720-30 (1.5 bn, while Cable has reversed through 1.3600 and the 10 DMA (1.3592) with little assistance from a sub-consensus UK construction PMI. EUR/CHF/JPY - All unable to escape the Buck’s clutches, with the Euro down to a minor new 2021 low and probing barriers at 1.1550, while the Franc is treading water around 0.9300 and the Yen is thriving to keep tabs on 111.50 due to its renowned safe-haven properties, and with the prop of JGB yields reaching multi-month peaks, albeit in catch-up trade with US Treasuries and other global bonds. SCANDI/EM - Little solace for the Nok via Brent almost touching Usd 83.50/brl at one stage, though it is holding a firm line following its ascent beyond 10.0000 vs the Eur, while the Sek has largely taken mixed Swedish data and Riksbank rhetoric from Skingsley in stride (caution warranted and now is not the time to change monetary policy), but EM currencies are all floundering with the Try sliding to yet another record trough and on course to hit 9.0000. Ahead, the Zar will be looking for something supportive from SARB Governor Kganyago via a webinar on the economy, jobs and growth. RBNZ hiked the OCR by 25bps to 0.50% as expected and the committee noted further removal of monetary policy stimulus is expected over time. RBNZ added that it is appropriate to continue reducing the level of stimulus and that future moves are contingent on the medium term outlook for inflation and employment, while policy stimulus will need to be reduced to maintain price stability and maximum sustainable employment over the medium term. Furthermore, it noted that cost pressures are becoming more persistent and capacity pressures are still evident, but added that demand shortfalls are less of an issue than the economy hitting capacity constraints and that economic activity will rebound quickly as alert level restrictions ease. (Newswires) In commodities, WTI and Brent front month futures are choppy in early European trade with a downside bias amid the risk tone, but ultimately, prices remain near recent highs with the WTI Nov contract north of USD 78.50/bbl (78.25-79.78/bbl) and Brent Dec around 82/bbl (vs USD 81.92-83.47/bbl range) at the time of writing. Nat gas has once again been the focus in the energy complex, with the UK Nat Gas future surging some 40% intraday at one point, although its US counterpart has lost some steam. A lot of attention has been the Nord Stream 2 pipeline to alleviate some of the supply/demand imbalances in the gas market heading into the winter period. Yesterday, an EU lawmaker suggested that the pipeline does not comply with EU rules, although an EU court adviser noted that Nord Stream 2 could challenge the energy rule and the decision is not final. European natural gas futures climbed to a fresh all-time high. Back to crude, it’s worth being cognizant of the underlying demand that could be fed via the higher gas prices as other energy sources are more sought after, including diesel generators for electricity usually produced by Nat Gas. Over to metals, spot gold and silver are pressured by the firmer Buck with the former back under USD 1,750/oz and at session lows at the time of writing. The downbeat tone has also taken a toll on the base metals complex, with LME copper again dipping below the USD 9,000/t from a USD 9,135/t intraday peak. US Event Calendar 7am: Oct. MBA Mortgage Applications, prior -1.1% 8:15am: Sept. ADP Employment Change, est. 430,000, prior 374,000 DB's Jim Reid concludes the overnight wrap Risk appetite returned to markets yesterday, but not without some astonishing moves in commodities and inflation markets alongside a selloff in bonds. On top of that, we also had a fresh round of signals that supply-chain issues and inflation were beginning to have real economic impacts, thanks to the global September PMI readings. The most eye catching stat of the last 24 hours is probably that the UK’s index linked bonds are now implying that the April 2022 YoY UK RPI print will be c.7%. Thanks to DB’s Sanjay Raja for pointing this out to me. That’s the point in time where Ofgem next updates its price cap for utility bills. This comes after further astonishing moves in natural gas. In the UK, gas prices were up +19.54%, marking the biggest daily percentage increase in over a year and a +183.3% move since the start of August. 10 year UK breakevens closed at an incredible 3.979% (+9.6bps on the day). To be fair this is based on RPI not the CPI that other index linked markets are. As of early next year the UK is moving to a CPI-H benchmark so these numbers will come down but it’s still an astonishing reflection on expectations for 10-year average inflation numbers. Benchmark European natural gas futures weren’t much different and were up by +20.04% to a record €116.02 per megawatt hour. That’s also the biggest daily percentage increase in over a year, and the absolute increase of €19.37 is actually more than the level at which natural gas was trading as recently as Q1 this year! That leaves natural gas prices up more than six-fold since the start of the year, and up more than three-fold since the start of July. In comparison the US gas future was “only” up +9.20%, but still reached its highest closing level since December 2008. And oil itself saw another round of gains, with Brent Crude (+1.60%) rising to its highest in almost 3 years, at $82.56/bbl, whilst WTI was up +1.69% to $78.93/bbl, its highest since 2014. This fresh round of price surges has led to another spike in inflation expectations across multiple countries even in 10 year markets, so way beyond the transitory stage. We’ve already highlighted the UK number but the 10yr German breakeven (+7.6bps) saw its biggest daily increase in nearly a year, hitting a fresh 8-year high of 1.796%. Its Italian counterpart (+8.3bps) hit a new high for the decade at 1.715%. Even in the US, where breakevens have been trading in a fairly tight band recently, we saw a +6.8bps rise to 2.460%, which is its highest closing level in 4 months. With breakevens moving sharply higher, this was clearly bad news for sovereign bonds, which sold off on both sides of the Atlantic across different maturities. Yields on 10yr Treasuries were up +4.7bps to 1.53%, with the entirety of that move resulting from higher inflation expectations rather than real rates, which actually fell on the day (-2.0bps). Over in Europe, gilts saw the biggest declines as investors continue to anticipate a potential BoE rate hike in the coming months, with 10yr yields rising by a further +7.3bps, whilst the spread of UK 10yr yields over bunds actually widened to its biggest level since the day of the Brexit referendum in 2016. That said, yields were also moving higher on the continent, with those on 10yr bunds (+2.6bps), OATs (+2.5bps) and BTPs (+3.0bps) all moving to their highest level in 3 months. The case for inflation was given further support by the September PMI releases, which pointed to supply-chain issues across multiple countries. In the Euro Area, the composite PMI was revised up a tenth to 56.2, but the release said that input prices were rising at the joint-fastest on record. Over in the US, the composite PMI was also revised up half a point from the flash reading to 55.0, but the release similarly mentioned labour shortages and capacity constraints holding back growth. The US composite PMI of 55.0 was its lowest level in a year, albeit still above the 50-mark that separates expansion from contraction. The September US ISM services reading rose 0.2 to 61.9 (59.9 expected) with the report suggesting that delta variant concerns are easing as 17 of the 18 industries reported growth over the last month. However, there were still comments in the report highlighting supply chain issues and some inability to retain or hire labour. In spite of the renewed inflation concerns clouding the Q4 outlook, the major equity indices managed to post a decent rebound from Monday’s losses, although it’s worth noting that many were only recouping those declines rather than advancing to new heights. The S&P 500 was up +1.05%, so still just beneath where it started the week after Monday’s -1.30% decline, whilst the NASDAQ was up +1.25% and the FANG+ recovered +2.23%. It was the 4th straight day that the S&P 500 moved more than 1% in either direction, the longest such streak since November 2020. While yesterday saw a broad-based rally with 21 of the 24 S&P 500 industries gaining, financials were the big outperformer thanks to higher yields. The US Financials sectors added +1.78%, whilst in Europe the STOXX Banks index (+3.99%) hit a post-pandemic high, well outpacing the broader STOXX 600 (+1.17%). Overnight in Asia, most markets continued to slide with the Nikkei (-1.00%), Kospi (-1.00%), Hang Seng (-0.71%) and Australia’s ASX (-0.68%) all moving lower on the back of higher energy prices and inflation concerns. In Japan the Nikkei extended losses for an eighth consecutive session on concerns that new PM Fumio Kishida could be outlining a redistribution plan that includes higher taxes, including on capital gains, although he’s yet to outline the specifics of the policy. Separately the Reserve Bank of New Zealand joined the club of central banks raising rates, hiking by 25bps in a move that was the first rate rise in seven years, as they also indicated more hikes might be warranted. In terms of the latest on Evergrande, the firm is still yet to release details of the “major transaction” we mentioned on Monday, with the company’s shares still suspended, whilst Fantasia saw its long-term rating cut to selective default by S&P yesterday, down from CCC. US futures are pointing to further declines later with those on the S&P 500 down -0.39%. Turning to the ongoing debt ceiling saga, the US Senate has a cloture vote scheduled for today to suspend the ceiling, but Republican leadership are confident they can block the measure and force the Democrats to raise the debt ceiling unilaterally using the budget reconciliation process (which only requires a simple majority of votes in the Senate). So this would tie a move on the debt ceiling into the reconciliation bill that includes President Biden’s “Build Back Better” economic plan. However, the Democrats are maintaining that the reconciliation process takes too long, with the Treasury estimating it will run out of funding around October 18, and have made the case that both parties have a duty to raise the ceiling, since it reflects debts racked up under administrations of both parties rather than just the Democrats. Irrespective of the debt ceiling though, it does continue to sound like there’s movement toward a deal amongst Congressional Democrats on the size of the plan, withSenator Manchin (a key Democratic moderate) reportedly not ruling out a $1.9-2.2 trillion spending plan price tag, which is also the level that President Biden had been floating to House Democrats last week. Speaking of the Senate, yesterday Senator Elizabeth Warren had yet more strong words for Fed Chair Powell. Warren has already said she opposes giving Powell a second term as the Fed Chair, and yesterday’s speech criticised him for his lack of oversight of the trading activity of Federal Reserve officials. She said Powell has “failed as a leader” and that there are “legitimate questions about conflicts of interest and insider trading” around the actions of certain Fed Officials. This follows her actions on Monday, when she called the SEC to investigate Federal Reserve officials for insider trading. At the same time, Chair Powell asked its inspector general to conduct a review of trades made by Federal Reserve members to ensure they complied with the law and Fed rules. While a White House spokesperson said yesterday that President Biden continues to have confidence in Chair Powell, Senator Warren may be setting up to float an alternative candidate for Chair in the coming weeks ahead of Powell’s term ending early next year. To the day ahead now, and data releases include German factory orders for August, the German and UK construction PMIs for September, Euro Area retail sales for August, and the ADP’s September report on private payrolls from the US. From central banks, we’ll also hear from the ECB’s Centeno. Tyler Durden Wed, 10/06/2021 - 08:07.....»»

Category: dealsSource: nytOct 6th, 2021

Futures Slide On Growing Stagflation Fears As Treasury Yields Surge

Futures Slide On Growing Stagflation Fears As Treasury Yields Surge US index futures, European markets and Asian stocks all turned negative during the overnight session, surrendering earlier gains as investors turned increasingly concerned about China's looming slowdown - and outright contraction - amid a global stagflationary energy crunch, which sent 10Y TSY yields just shy of 1.50% this morning following a Goldman upgrade in its Brent price target to $90 late on Sunday. At 745 a.m. ET, S&P 500 e-minis were down 4.75 points, or 0.1% after rising as much as 0.6%, Nasdaq 100 e-minis were down 83 points, or 0.54% and Dow e-minis were up 80 points, or 0.23%. The euro slipped as Germany looked set for months of complex coalition talks. While the market appears to have moved beyond the Evergrande default, the debt crisis at China's largest developer festers (with Goldman saying it has no idea how it will end), and data due this week will show a manufacturing recovery in the world’s second-largest economy is faltering faster. A developing energy crisis threatens to crimp global growth further at a time markets are preparing for a tapering of Fed stimulus. The week could see volatile moves as traders scrutinize central bankers’ speeches, including Chair Jerome Powell’s meetings with Congressional panels. “Most bad news comes from China these days,” Ipek Ozkardeskaya, a senior analyst at Swissquote Group Holdings, wrote in a note. “The Evergrande debt crisis, the Chinese energy crackdown on missed targets and the ban on cryptocurrencies have been shaking the markets, along with the Fed’s more hawkish policy stance last week.” Oil majors Exxon Mobil and Chevron Corp rose 1.5% and 1.2% in premarket trade, respectively, tracking crude prices, while big lenders including JPMorgan, Citigroup, Morgan Stanley and Bank of America Corp gained about 0.8%.Giga-cap FAAMG growth names such as Alphabet, Microsoft, Amazon.com, Facebook and Apple all fell between 0.3% and 0.4%, as 10Y yield surged, continuing their selloff from last week, which saw the 10Y rise as high as 1.4958% and just shy of breaching the psychological 1.50% level. While growth names were hit, value names rebounded as another market rotation appears to be in place: industrials 3M Co and Caterpillar Inc, which tend to benefit the most from an economic rebound, also inched higher (although one should obviously be shorting CAT here for its China exposure). Market participants have moved into value and cyclical stocks from tech-heavy growth names after the Federal Reserve last week indicated it could begin unwinding its bond-buying program by as soon as November, and may raise interest rates in 2022. Here are some other notable premarket movers: Gores Guggenheim (GGPI US) shares rise 7.2% in U.S. premarket trading as Polestar agreed to go public with the special purpose acquisition company, in a deal valued at about $20 billion. Naked Brand (NAKD US), one of the stocks caught up in the first retail trading frenzy earlier this year, rises 11% in U.S. premarket trading, extending Friday’s gains. Among other so-called meme stocks in premarket trading: ReWalk Robotics (RWLK) +6.5%, Vinco Ventures (BBIG) +18%, Camber Energy (CEI) +2.9% Pfizer (PFE US) and Opko Health (OPK US) in focus after they said on Friday that the FDA extended the review period for the biologics license application for somatrogon. Opko fell 3.5% in post-market trading. Aspen Group (ASPU) climbed 10% in Friday postmarket trading after board member Douglas Kass buys $172,415 of shares, according to a filing with the U.S. Securities & Exchange Commission. Seaspine (SPNE US) said spine surgery procedure volumes were curtailed in many areas of the U.S. in 3Q and particularly in August. Tesla (TSLA US) and other electric- vehicle related stocks globally may be active on Monday after Germany’s election, in which the Greens had their best-ever showing and are likely to be part of any governing coalition. Europe likewise drifted lower, with the Stoxx Europe 600 Index erasing earlier gains and turning negative as investors weighed the risk to global growth from the China slowdown and the energy crunch. The benchmark was down 0.1% at last check. Subindexes for technology (-0.9%) and consumer (-0.8%) provide the main drags while value outperformed, with energy +2.4%, banks +2% and insurance +1.3%.  The DAX outperformed up 0.5%, after German election results avoided the worst-case left-wing favorable outcome.  U.S. futures. Rolls-Royce jumped 12% to the highest since March 2020 after the company was selected to provide the powerplant for the B-52 Stratofortress under the Commercial Engine Replacement Program. Here are some of the other biggest European movers today IWG rises as much as 7.5% after a report CEO Mark Dixon is exploring a multibillion-pound breakup of the flexible office-space provider AUTO1 gains as much as 6.1% after JPMorgan analyst Marcus Diebel raised the recommendation to overweight from neutral Cellnex falls as much as 4.3% to a two-month low after the tower firm is cut to sell from neutral at Citi, which says the stock is “priced for perfection in an imperfect industry” European uranium stocks fall with Yellow Cake shares losing as much as 6% and Nac Kazatomprom shares declining as much as 4.7%. Both follow their U.S. peers down following weeks of strong gains as the price of uranium ballooned For those who missed it, Sunday's closely-watched German elections concluded with the race much closer than initially expected: SPD at 25.7%, CDU/CSU at 24.1%, Greens at 14.8%, FDP at 11.5%, AfD at 10.3% Left at 4.9%, the German Federal Returning Officer announced the seat distribution from the preliminary results which were SPD at 206 seats, CDU/CSU at 196. Greens at 118, FDP at 92, AfD at 83, Left at 39 and SSW at 1. As it stands, three potential coalitions are an option, 1) SPD, Greens and FDP (traffic light), 2) CDU/CSU, Greens and FDP (Jamaica), 3) SPD and CDU/CSU (Grand Coalition but led by the SPD). Note, option 3 is seen as the least likely outcome given that the CDU/CSU would be unlikely willing to play the role of a junior partner to the SPD. Therefore, given the importance of the FDP and Greens in forming a coalition for either the SPD or CDU/CSU, leaders of the FDP and Greens have suggested that they might hold their own discussions with each other first before holding talks with either of the two larger parties. Given the political calculus involved in trying to form a coalition, the process is expected to play out over several months. From a markets perspective, the tail risk of the Left party being involved in government has now been removed due to their poor performance and as such, Bunds trade on a firmer footing. Elsewhere, EUR is relatively unfazed due to the inconclusive nature of the result. We will have more on this in a subsequent blog post. Asian stocks fell, reversing an earlier gain, as a drop in the Shanghai Composite spooked investors in the region by stoking concerns about the pace of growth in China’s economy.  The MSCI Asia Pacific Index wiped out an advance of as much as 0.7%, on pace to halt a two-day climb. Consumer discretionary names and materials firms were the biggest contributors to the late afternoon drag. Financials outperformed, helping mitigate drops in other sectors.  “Seeing Shanghai shares extending declines, investors’ sentiment has turned weak, leading to profit-taking on individual stocks or sectors that have been gaining recently,” said Shoichi Arisawa, an analyst at Iwai Cosmo Securities. “The drop in Chinese equities is reminding investors about a potential slowdown in their economy.”  The Shanghai Composite was among the region’s worst performers along with Vietnam’s VN Index. Shares of China’s electricity-intensive businesses tumbled after Beijing curbed power supplies in the country’s manufacturing hubs to cut emissions. The CSI 300 still rose, thanks to gains in heavily weighted Kweichow Moutai and other liquor makers. Asian equities started the day on a positive note as financials jumped, tracking gains in U.S. peers and following a rise in Treasury yields. Resona Holdings was among the top performers after Morgan Stanley raised its view on the stock and Japanese banks. The regional market has been calmer over the past few trading sessions after being whipsawed by concerns over any fallout from China Evergrande Group’s debt troubles. While anxiety lingers, many investors expect China will resolve the distressed property developer’s problems rather than let them spill over into an echo of 2008’s Lehman crisis. Japanese equities closed lower, erasing an earlier gain, as concerns grew over valuations following recent strength in the local market and turmoil in China. Machinery and electronics makers were the biggest drags on the Topix, which fell 0.1%. Daikin and Bandai Namco were the largest contributors to a dip of less than 0.1% in the Nikkei 225. Both gauges had climbed more 0.5% in morning trading. Meanwhile, the Shanghai Composite Index fell as much as 1.5% as industrials tumbled amid a power crunch. “Seeing Shanghai shares extending declines, investors’ sentiment has turned weak, leading to profit-taking on individual stocks or sectors that have been gaining recently,” said Shoichi Arisawa, an analyst at Iwai Cosmo Securities Co. “The drop in Chinese equities is reminding investors about a potential slowdown in their economy. That’s why marine transportation stocks, which are representative of cyclical sectors, fell sharply.” Shares of shippers, which have outperformed this year, fell as investors turned their attention to reopening plays. Travel and retail stocks gained after reports that the government is making final arrangements to lift all the coronavirus state of emergency order in the nation as scheduled at the end of this month. Australia's commodity-heavy stocks advanced as energy, banking shares climb. The S&P/ASX 200 index rose 0.6% to close at 7,384.20, led by energy stocks. Banks also posted their biggest one-day gain since Aug. 2. Travel stocks were among the top performers after the prime minister said state premiers must not keep borders closed once agreed Covid-19 vaccination targets are reached. NextDC was the worst performer after the company’s CEO sold 1.6 million shares. In New Zealand, the S&P/NZX 50 index. In FX, the U.S. dollar was up 0.1%, while the British pound, Australian dollar, and Canadian dollar lead G-10 majors, with the Swedish krona and Swiss franc lagging. •    The Bloomberg Dollar Spot Index was little changed and the greenback traded mixed versus its Group-of-10 peers o    Volatility curves in the major currencies were inverted last week due to a plethora of central bank meetings and risk-off concerns. They have since normalized as stocks stabilize and traders assess the latest forward guidance on monetary policy •    The yield on two-year U.S. Treasuries touched the highest level since April 2020, as tightening expectations continued to put pressure on front-end rates and ahead of debt sales later Monday •    The pound advanced, with analyst focus on supply chain problems as Prime Minister Boris Johnson considers bringing in army drivers to help. Bank of England Governor Andrew Bailey’s speech later will be watched after last week’s hawkish meeting •    Antipodean currencies, as well as the Norwegian krone and the Canadian dollar were among the best Group-of-10 performers amid a rise in commodity prices •    The yen pared losses after falling to its lowest level in six weeks and Japanese stocks paused their rally and amid rising Treasury yields   In rates, treasuries extended their recent drop, led by belly of the curve ahead of this week’s front-loaded auctions, which kick off Monday with 2- and 5-year note sales.  Yields were higher by up to 4bp across belly of the curve, cheapening 2s5s30s spread by 3.2bp on the day; 10-year yields sit around 1.49%, cheaper by 3.5bp and underperforming bunds, gilts by 1.5bp and 0.5bp while the front-end of the curve continues to sell off as rate-hike premium builds -- 2-year yields subsequently hit 0.284%, the highest level since April 2020. 5-year yields top at 0.988%, highest since Feb. 2020 while 2-year yields reach as high as 0.288%; in long- end, 30-year yields breach 2% for the first time since Aug. 13. Auctions conclude Tuesday with 7-year supply. Host of Fed speakers due this week, including three scheduled for Monday. In commodities, Brent futures climbed 1.4% to $79 a barrel, while WTI futures hit $75 a barrel for the first time since July, amid an escalating energy crunch across Europe and now China. Base metals are mixed: LME copper rises 0.4%, LME tin and nickel drop over 2%. Spot gold gives back Asia’s gains to trade flat near $1,750/oz In equities, Stoxx 600 is up 0.6%, led by energy and banks, and FTSE 100 rises 0.4%. Germany’s DAX climbs 1% after German elections showed a narrow victory for social democrats, with the Christian Democrats coming in a close second, according to provisional results. S&P 500 futures climb 0.3%, Dow and Nasdaq contracts hold in the green. In FX, the U.S. dollar is up 0.1%, while the British pound, Australian dollar, and Canadian dollar lead G-10 majors, with the Swedish krona and Swiss franc lagging. Base metals are mixed: LME copper rises 0.4%, LME tin and nickel drop over 2%. Spot gold gives back Asia’s gains to trade flat near $1,750/oz Investors will now watch for a raft of economic indicators, including durable goods orders and the ISM manufacturing index this week to gauge the pace of the recovery, as well as bipartisan talks over raising the $28.4 trillion debt ceiling. The U.S. Congress faces a Sept. 30 deadline to prevent the second partial government shutdown in three years, while a vote on the $1 trillion bipartisan infrastructure bill is scheduled for Thursday. On today's calendar we get the latest Euro Area M3 money supply, US preliminary August durable goods orders, core capital goods orders, September Dallas Fed manufacturing activity. We also have a bunch of Fed speakers including Williams, Brainard and Evans. Market Snapshot S&P 500 futures down 0.1% to 4,442.50 STOXX Europe 600 up 0.3% to 464.54 MXAP little changed at 200.75 MXAPJ little changed at 642.52 Nikkei little changed at 30,240.06 Topix down 0.1% to 2,087.74 Hang Seng Index little changed at 24,208.78 Shanghai Composite down 0.8% to 3,582.83 Sensex up 0.2% to 60,164.70 Australia S&P/ASX 200 up 0.6% to 7,384.17 Kospi up 0.3% to 3,133.64 German 10Y yield fell 3.1 bps to -0.221% Euro down 0.3% to $1.1689 Brent Futures up 1.2% to $79.04/bbl Gold spot little changed at $1,750.88 U.S. Dollar Index up 0.15% to 93.47 Top Overnight News from Bloomberg House Speaker Nancy Pelosi put the infrastructure bill on the schedule for Monday under pressure from moderates eager to get the bipartisan bill, which has already passed the Senate, enacted. But progressives -- whose votes are likely vital -- are insisting on progress first on the bigger social-spending bill Olaf Scholz of the center-left Social Democrats defeated Chancellor Angela Merkel’s conservatives in an extremely tight German election, setting in motion what could be months of complex coalition talks to decide who will lead Europe’s biggest economy China’s central bank pumped liquidity into the financial system after borrowing costs rose, as lingering risks posed by China Evergrande Group’s debt crisis hurt market sentiment toward its peers as well Global banks are about to get a comprehensive blueprint for how derivatives worth several hundred trillion dollars may be finally disentangled from the London Interbank Offered Rate Economists warned of lower economic growth in China as electricity shortages worsen in the country, forcing businesses to cut back on production Governor Haruhiko Kuroda says it’s necessary for the Bank of Japan to continue with large-scale monetary easing to achieve the bank’s 2% inflation target The quant revolution in fixed income is here at long last, if the latest Invesco Ltd. poll is anything to go by. With the work-from-home era fueling a boom in electronic trading, the majority of investors in a $31 trillion community say they now deploy factor strategies in bond portfolios A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded somewhat mixed with the region finding encouragement from reopening headlines but with gains capped heading towards month-end, while German election results remained tight and Evergrande uncertainty continued to linger. ASX 200 (+0.6%) was led higher by outperformance in the mining related sectors including energy as oil prices continued to rally amid supply disruptions and views for a stronger recovery in demand with Goldman Sachs lifting its year-end Brent crude forecast from USD 80/bbl to USD 90/bbl. Furthermore, respectable gains in the largest weighted financial sector and details of the reopening roadmap for New South Wales, which state Premier Berijiklian sees beginning on October 11th, further added to the encouragement. Nikkei 225 (Unch) was kept afloat for most of the session after last week’s beneficial currency flows and amid reports that Japan is planning to lift emergency measures in all areas at month-end, although upside was limited ahead of the upcoming LDP leadership race which reports noted are likely to go to a run-off as neither of the two main candidates are likely to achieve a majority although a recent Kyodo poll has Kono nearly there at 47.4% of support vs. nearest contender Kishida at 22.4%. Hang Seng (+0.1%) and Shanghai Comp. (-0.8%) were varied with the mainland choppy amid several moving parts including back-to-back daily liquidity efforts by the PBoC since Sunday and with the recent release of Huawei’s CFO following a deal with US prosecutors. Conversely, Evergrande concerns persisted as Chinese cities reportedly seized its presales to block the potential misuse of funds and its EV unit suffered another double-digit percentage loss after scrapping plans for its STAR Market listing. There were also notable losses to casino names after Macau tightened COVID-19 restrictions ahead of the Golden Week holidays and crypto stocks were hit after China declared crypto activities illegal which resulted in losses to cryptoexchange Huobi which dropped more than 40% in early trade before nursing some of the losses, while there are also concerns of the impact from an ongoing energy crisis in China which prompted the Guangdong to ask people to turn off lights they don't require and use air conditioning less. Finally, 10yr JGBs were flat but have clawed back some of the after-hour losses on Friday with demand sapped overnight amid the mild gains in stocks and lack of BoJ purchases in the market. Elsewhere, T-note futures mildly rebounded off support at 132.00, while Bund futures outperformed the Treasury space amid mild reprieve from this month’s losses and with uncertainty of the composition for the next German coalition. Top Asian News Moody’s Says China to Safeguard Stability Amid Evergrande Issues China’s Tech Tycoons Pledge Allegiance to Xi’s Vision China Power Crunch Hits iPhone, Tesla Production, Nikkei Reports Top Netflix Hit ‘Squid Game’ Sparks Korean Media Stock Surge Bourses in Europe have trimmed the gains seen at the open, albeit the region remains mostly in positive territory (Euro Stoxx 50 +0.4%; Stoxx 600 +0.2%) in the aftermath of the German election and amid the looming month-end. The week also sees several risk events, including the ECB's Sintra Forum, EZ CPI, US PCE and US ISM Manufacturing – not to mention the vote on the bipartisan US infrastructure bill. The mood in Europe contrasts the mixed handover from APAC, whilst US equity futures have also seen more divergence during European trade – with the yield-sensitive NQ (-0.3%) underperforming the cyclically-influenced RTY (+0.4%). There has been no clear catalyst behind the pullback since the Cash open. Delving deeper into Europe, the DAX 40 (+0.6%) outperforms after the tail risk of the Left party being involved in government has now been removed. The SMI (-0.6%) has dipped into the red as defensive sectors remain weak, with the Healthcare sector towards to bottom of the bunch alongside Personal & Household Goods. On the flip side, the strength in the price-driven Oil & Gas and yield-induced Banks have kept the FTSE 100 (+0.2%) in green, although the upside is capped by losses in AstraZeneca (-0.4%) and heavy-weight miners, with the latter a function of declining base metal prices. The continued retreat in global bonds has also hit the Tech sector – which resides as the laggard at the time of writing. In terms of individual movers, Rolls-Royce (+8.5%) trades at the top of the FTSE 100 after winning a USD 1.9bln deal from the US Air Force. IWG (+6.5%) also extended on earlier gains following reports that founder and CEO Dixon is said to be mulling a multibillion-pound break-up of the Co. that would involve splitting it into several distinct companies. Elsewhere, it is worth being cognizant of the current power situation in China as the energy crisis spreads, with Global Times also noting that multiple semiconductor suppliers for Tesla (Unch), Apple (-0.4% pre-market) and Intel (Unch), which have manufacturing plants in the Chinese mainland, recently announced they would suspend their factories' operations to follow local electricity use policies. Top European News U.K. Relaxes Antitrust Rules, May Bring in Army as Pumps Run Dry Magnitude 5.8 Earthquake Hits Greek Island of Crete German Stocks Rally as Chances Wane for Left-Wing Coalition German Landlords Rise as Left’s Weakness Trumps Berlin Poll In FX, the Aussie is holding up relatively well on a couple of supportive factors, including a recovery in commodity prices overnight and the Premier of NSW setting out a timetable to start lifting COVID lockdown and restrictions from October 11 with an end date to completely re-open on December 1. However, Aud/Usd is off best levels against a generally firm Greenback on weakness and underperformance elsewhere having stalled around 0.7290, while the Loonie has also run out of momentum 10 pips or so from 1.2600 alongside WTI above Usd 75/brl. DXY/EUR/CHF - Although the risk backdrop is broadly buoyant and not especially supportive, the Buck is gleaning traction and making gains at the expense of others, like the Euro that is gradually weakening in wake of Sunday’s German election that culminated in narrow victory for the SPD Party over the CDU/CSU alliance, but reliant on the Greens and FDP to form a Government. Eur/Usd has lost 1.1700+ status and is holding a fraction above recent lows in the form of a double bottom at 1.1684, but the Eur/Gbp cross is looking even weaker having breached several technical levels like the 100, 21 and 50 DMAs on the way down through 0.8530. Conversely, Eur/Chf remains firm around 1.0850, and largely due to extended declines in the Franc following last week’s dovish SNB policy review rather than clear signs of intervention via the latest weekly Swiss sight deposit balances. Indeed, Usd/Chf is now approaching 0.9300 again and helping to lift the Dollar index back up towards post-FOMC peaks within a 93.494-206 range in advance of US durable goods data, several Fed speakers, the Dallas Fed manufacturing business index and a double dose of T-note supply (Usd 60 bn 2 year and Usd 61 bn 5 year offerings). GBP/NZD/JPY - As noted above, the Pound is benefiting from Eur/Gbp tailwinds, but also strength in Brent to offset potential upset due to the UK’s energy supply issues, so Cable is also bucking the broad trend and probing 1.3700. However, the Kiwi is clinging to 0.7000 in the face of Aud/Nzd headwinds that are building on a break of 1.0350, while the Yen is striving keep its head afloat of another round number at 111.00 as bond yields rebound and curves resteepen. SCANDI/EM - The Nok is also knocking on a new big figure, but to the upside vs the Eur at 10.0000 following the hawkish Norges Bank hike, while the Cnh and Cny are holding up well compared to fellow EM currencies with loads of liquidity from the PBoC and some underlying support amidst the ongoing mission to crackdown on speculators in the crypto and commodity space. In commodities, WTI and Brent front-month futures kicked the week off on a firmer footing, which saw Brent Nov eclipse the USD 79.50/bbl level (vs low 78.21/bbl) whilst its WTI counterpart hovers north of USD 75/bbl (vs low 74.16/bbl). The complex could be feeling some tailwinds from the supply crunch in Britain – which has lead petrol stations to run dry as demand outpaces the supply. Aside from that, the landscape is little changed in the run-up to the OPEC+ meeting next Monday, whereby ministers are expected to continue the planned output hikes of 400k BPD/m. On that note, there have been reports that some African nations are struggling to pump more oil amid delayed maintenance and low investments, with Angola and Nigeria said to average almost 300k BPD below their quota. On the Iranian front, IAEA said Iran permitted it to service monitoring equipment during September 20th-22nd with the exception of the centrifuge component manufacturing workshop at the Tesa Karaj facility, with no real updates present regarding the nuclear deal talks. In terms of bank commentary, Goldman Sachs raised its year-end Brent crude forecast by USD 10 to USD 90/bbl and stated that Hurricane Ida has more than offset the ramp-up in OPEC+ output since July with non-OPEC+, non-shale output continuing to disappoint, while it added that global oil demand-deficit is greater than expected with a faster than anticipated demand recovery from the Delta variant. Conversely, Citi said in the immediate aftermath of skyrocketing prices, it is logical to be bearish on crude oil and nat gas today and forward curves for later in 2022, while it added that near-term global oil inventories are low and expected to continue declining maybe through Q1 next year. Over to metals, spot gold and silver have fallen victim to the firmer Dollar, with spot gold giving up its overnight gains and meandering around USD 1,750/oz (vs high 1760/oz) while spot silver briefly dipped under USD 22.50/oz (vs high 22.73/oz). Turning to base metals, China announced another round of copper, zinc and aluminium sales from state reserves – with amounts matching the prior sales. LME copper remains within a tight range, but LME tin is the outlier as it gave up the USD 35k mark earlier in the session. Finally, the electricity crunch in China has seen thermal coal prices gain impetus amid tight domestic supply, reduced imports and increased demand. US Event Calendar 8:30am: Aug. Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.9% 8:30am: Aug. Cap Goods Orders Nondef Ex Air, est. 0.4%, prior 0.1% 8:30am: Aug. -Less Transportation, est. 0.5%, prior 0.8% 8:30am: Aug. Durable Goods Orders, est. 0.6%, prior -0.1% 10:30am: Sept. Dallas Fed Manf. Activity, est. 11.0, prior 9.0 Central Banks 8am: Fed’s Evans Speaks at Annual NABE Conference 9am: Fed’s Williams Makes Opening Remarks at Conference on... 12pm: Fed’s Williams Discusses the Economic Outlook 12:50pm: Fed’s Brainard Discusses Economic Outlook at NABE Conference DB's Jim Reid concludes the overnight wrap Straight to the German elections this morning where unlike the Ryder Cup the race was tight. The centre-left SPD have secured a narrow lead according to provisional results, which give them 25.7% of the vote, ahead of Chancellor Merkel’s CDU/CSU bloc, which are on 24.1%. That’s a bit narrower than the final polls had suggested (Politico’s average put the SPD ahead by 25-22%), but fits with the slight narrowing we’d seen over the final week of the campaign. Behind them, the Greens are in third place, with a record score of 14.8%, which puts them in a key position when it comes to forming a majority in the new Bundestag, and the FDP are in fourth place currently on 11.5%. Although the SPD appear to be in first place the different parties will now enter coalition negotiations to try to form a governing majority. Both Olaf Scholz and the CDU’s Armin Laschet have said that they will seek to form a government, and to do that they’ll be looking to the Greens and the FDP as potential coalition partners, since those are the most realistic options given mutual policy aims. So the critical question will be whether it’s the SPD or the CDU/CSU that can convince these two to join them in coalition. On the one hand, the Greens have a stronger policy overlap with the SPD, and governed with them under Chancellor Schröder from 1998-2005, but the FDP seems more in line with the Conservatives, and were Chancellor Merkel’s junior coalition partner from 2009-13.  So it’s likely that the FDP and the Greens will talk to each other before talking to either of the two biggest parties. For those wanting more information, our research colleagues in Frankfurt have released a post-election update (link here) on the results and what they mean. An important implication of last night’s result is that (at time of writing) it looks as though a more left-wing coalition featuring the SPD, the Greens and Die Linke would not be able for form a majority in the next Bundestag. So the main options left are for the FDP and the Greens to either join the SPD in a “traffic light” coalition or instead join the CDU/CSU in a “Jamaica” coalition. The existing grand coalition of the SPD and the CDU/CSU would actually have a majority as well, but both parties have signalled that they don't intend to continue this. That said, last time in 2017, a grand coalition wasn’t expected after that result, and there were initially attempts to form a Jamaica coalition. But once those talks proved unsuccessful, discussions on another grand coalition began once again. In terms of interesting snippets, this election marks the first time the SPD have won the popular vote since 2002, which is a big turnaround given that the party were consistently polling in third place over the first half of this year. However, it’s also the worst ever result for the CDU/CSU, and also marks the lowest combined share of the vote for the two big parties in post-war Germany, which mirrors the erosion of the traditional big parties we’ve seen elsewhere in continental Europe. Interestingly, the more radical Die Linke and AfD parties on the left and the right respectively actually did worse than in 2017, so German voters have remained anchored in the centre, and there’s been no sign of a populist resurgence. This also marks a record result for the Greens, who’ve gained almost 6 percentage points relative to four years ago, but that’s still some way down on where they were polling earlier in the spring (in the mid-20s), having lost ground in the polls throughout the final weeks of the campaign. Markets in Asia have mostly started the week on a positive note, with the Hang Seng (+0.28%), Nikkei (+0.04%), and the Kospi (+0.25%) all moving higher. That said, the Shanghai Comp is down -1.30%, as materials (-5.91%) and industrials (-4.24%) in the index have significantly underperformed, which comes amidst power curbs in the country. In the US and Europe however, futures are pointing higher, with those on the S&P 500 up +0.37%, and those on the DAX up +0.51%. Moving onto another big current theme, all the talk at the moment is about supply shocks and it’s not inconceivable that things could get very messy on this front over the weeks and months ahead. However, I think the discussion on supply in isolation misses an important component and that is demand. In short we had a pandemic that effectively closed the global economy and interrupted numerous complicated supply chains. The global authorities massively stimulated demand relative to where it would have been in this environment and in some areas have created more demand than there would have been at this stage without Covid. However the supply side has not come back as rapidly. As such you’re left with demand outstripping supply. So I think it’s wrong to talk about a global supply shock in isolation. It’s not as catchy but this is a “demand is much higher than it should be in a pandemic with lockdowns, but supply hasn't been able to fully respond” world. If the authorities hadn’t responded as aggressively we would have plenty of supply for the demand and a lot of deflation. Remember negative oil prices in the early stages of the pandemic. So for me every time you hear the phrase “supply shock” remember the phenomenal demand there is relative to what the steady state might have been. This current “demand > supply” at lower levels of activity than we would have had without covid is going to cause central banks a huge headache over the coming months. Should they tighten due to what is likely to be a prolonged period of higher prices than people thought even a couple of months ago or should they look to the potential demand destruction of higher prices? The risk of a policy error is high and the problem with forward guidance is that markets demand to know now what they might do over the next few months and quarters so it leaves them exposed a little in uncertain times. This problem has crept up fast on markets with an epic shift in sentiment in the rates market after the BoE meeting Thursday lunchtime. I would say they were no more hawkish than the Fed the night before but the difference is that the Fed are still seemingly at least a year from raising rates and a lot can happen in that period whereas the BoE could now raise this year (more likely February). That has focused the minds of global investors, especially as Norway became the first central bank among the G-10 currencies to raise rates on the same day. Towards the end of this note we’ll recap the moves in markets last week including a +15bps climb in US 10yr yields in the last 48 hours of last week. One factor that will greatly influence yields over the week ahead is the ongoing US debt ceiling / government shutdown / infrastructure bill saga that is coming to a head as we hit October on Friday - the day that there could be a partial government shutdown without action by the close on Thursday. It’s a fluid situation. So far the the House of Representatives has passed a measure that would keep the government funded through December 3, but it also includes a debt ceiling suspension, so Republicans are expected to block this in the Senate if it still includes that. The coming week could also see the House of Representatives vote on the bipartisan infrastructure bill (c.$550bn) that’s already gone through the Senate, since Speaker Pelosi had previously committed to moderate House Democrats that there’d be a vote on the measure by today. She reaffirmed that yesterday although the timing may slip. However, there remain divisions among House Democrats, with some progressives not willing to support it unless the reconciliation bill also passes. In short we’ve no idea how this get resolved but most think some compromise will be reached before Friday. Pelosi yesterday said it “seems self-evident” that the reconciliation bill won’t reach the $3.5 trillion hoped for by the administration which hints at some compromise. Overall the sentiment has seemingly shifted a little more positively on there being some progress over the weekend. From politics to central banks and following a busy week of policy meetings, there are an array of speakers over the week ahead. One of the biggest highlights will be the ECB’s Forum on Central Banking, which is taking place as an online event on Tuesday and Wednesday, and the final policy panel on Wednesday will include Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey and BoJ Governor Kuroda. Otherwise, Fed Chair Powell will also be testifying before the Senate Banking Committee on Tuesday, alongside Treasury Secretary Yellen, and on Monday, ECB President Lagarde will be appearing before the European Parliament’s Committee on Economic and Monetary Affairs as part of the regular Monetary Dialogue. There are lots of other Fed speakers this week and they can add nuances to the taper and dot plot debates. Finally on the data front, there’ll be further clues about the state of inflation across the key economies, as the Euro Area flash CPI estimate for September is coming out on Friday. Last month's reading showed that Euro Area inflation rose to +3.0% in August, which was its highest level in nearly a decade. Otherwise, there’s also the manufacturing PMIs from around the world on Friday given it’s the start of the month, along with the ISM reading from the US, and Tuesday will see the release of the Conference Board’s consumer confidence reading for the US as well. For the rest of the week ahead see the day-by-day calendar of events at the end. Back to last week now and the highlight was the big rise in global yields which quickly overshadowed the ongoing Evergrande story. Bonds more than reversed an early week rally as yields rose for a fifth consecutive week. US 10yr Treasury yields ended the week up +8.9bps to finish at 1.451% - its highest level since the start of July and +15bps off the Asian morning lows on Thursday. The move saw the 2y10y yield curve steepen +4.5bps, with the spread reaching its widest point since July as well. However, at the longer end of the curve the 5y30y spread ended the week largely unchanged after a volatile week. It was much flatter shortly following the FOMC and steeper following the BoE. Bond yields in Europe moved higher as well with the central bank moves again being the major impetus especially in the UK. 10yr gilt yields rose +7.9bps to +0.93% and the short end moved even more with the 2yr yield rising +9.4bps to 0.38% as the BoE’s inflation forecast and rhetoric caused investors to pull forward rate hike expectations. Yields on 10yr bunds rose +5.2bps, whilst those on the OATs (+6.3bps) and BTPs (+5.7bps) increased substantially as well, but not to the same extent as their US and UK counterparts. While sovereign debt sold off, global equity markets recovered following two consecutive weeks of declines. Although markets entered the week on the back foot following the Evergrande headlines from last weekend, risk sentiment improved at the end of the week, especially toward cyclical industries. The S&P 500 gained +0.51% last week (+0.15% Friday), nearly recouping the prior week’s loss. The equity move was primarily led by cyclicals as higher bond yields helped US banks (+3.43%) outperform, while higher commodity prices saw the energy (+4.46%) sector gain sharply. Those higher bond yields led to a slight rerating of growth stocks as the tech megacap NYFANG index fell back -0.46% on the week and the NASDAQ underperformed, finishing just better than unchanged (+0.02). Nonetheless, with four trading days left in September the S&P 500 is on track for its third losing month this year, following January and June. European equities rose moderately last week, as the STOXX 600 ended the week +0.31% higher despite Friday’s -0.90% loss. Bourses across the continent outperformed led by particularly strong performances by the IBEX (+1.28%) and CAC 40 (+1.04%). There was limited data from Friday. The Ifo's business climate indicator in Germany fell slightly from the previous month to 98.8 (99.0 expected) from 99.4 on the back a lower current assessment even though business expectations was higher than expected. In Italy, consumer confidence rose to 119.6 (115.8 expected), up just over 3pts from August and at its highest level on record (since 1995). Tyler Durden Mon, 09/27/2021 - 08:09.....»»

Category: personnelSource: nytSep 27th, 2021

5 ETF Areas for Investors to Consider Amid the September Slump

Amid the market uncertainty, we have highlighted some ETF areas that can be good investment options for market participants to combat the September chaos. Wall Street is witnessing a tough time in the historically weak month of September. The Dow Jones Industrial Average has fallen 4%, whereas the S&P 500 has lost 3.7% in the month. Not just the reputation of the month, there are other factors like uncertainty surrounding the Fed’s decision, several weak economic data releases, concerns about rising COVID-19 cases and the approaching winter season, a large chunk of unvaccinated population, possibilities of high corporate tax rates, China property market concerns along with inflation pressure that have been keeping investors on the edge.Investors are waiting for the minutes from the Fed’s two-day policy meeting that began on Sep 21. They are concerned about the Fed’s chances of tapering the fiscal stimulus support, which includes the $120 billion a month bond-buying program. Several economic data releases are also weighing on investors’ minds.Amid the market uncertainty, we have highlighted some ETF areas that can be good investment options for market participants amid the September chaos:Healthcare ETFsThe pandemic has triggered a race to introduce vaccines and treatment options, opening up investing opportunities in the healthcare sector. Moreover, the space has been gaining increasing attention lately, largely due to the resurgence in COVID-19 infections due to the Delta variant. This has made investors jittery, compelling them to shift toward defensive investments.Considering the current market situation, investors can consider The Health Care Select Sector SPDR Fund XLV, Vanguard Health Care ETF VHT, iShares U.S. Healthcare ETF IYH and Fidelity MSCI Health Care Index ETF (FHLC).Retail ETFsThe latest retail sales data has pleasantly surprised investors. The metric rose 0.7% sequentially in August 2021 against market expectations of a 0.8% decline, per a CNBC article. Online retail sales rose 5.3% last month after declining 4.6% in July, per a Reuters article. There was a rise in sales at clothing stores as well as building material and furniture in the previous month. Encouragingly, the core retail sales rebounded 2.5% in August from a downwardly revised drop of 1.9% in July, according to the Reuters article. Importantly, the metric highlights the spending component of GDP.Going on, market analysts expect impressive retail sales in 2021 along with a strong holiday season. The strength in consumer sentiment can be the major driving force as they are believed to be prepared to splurge this holiday season after facing strict restrictions for more than a year and have gathered enough resources.Considering the strong trends, investors may park their money in the following retail ETFs to tap the sales boom -- SPDR S&P Retail ETF XRT, Amplify Online Retail ETF IBUY, VanEck Retail ETF RTH and ProShares Online Retail ETF (ONLN) (read: ETFs to Win & Lose as Delta Variant Cases Surge).Housing ETFsThe U.S. housing sector saw a bright spot with strength in housing demand and declining lumber prices. However, headwinds like increasing construction costs and continued material supply-chain worries along with rising home prices remain. These factors took a toll on builder confidence, which declined for three months. Per the monthly National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder sentiment for the newly-built single-family homes rose a point to 76 in September from 75 in August, 80 in July, 81 in June and 30 in April (the lowest since June 2012). The reading looks strong as any number above 50 signals at improving confidence.Against such a backdrop, here are a few housing ETFs like iShares U.S. Home Construction ETF ITB, SPDR S&P Homebuilders ETF XHB, Invesco Dynamic Building & Construction ETF (PKB) and Hoya Capital Housing ETF (HOMZ) (read: Forget Bubble Fear: Bet on Housing ETFs).Dividend ETFsDividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. Moreover, dividend aristocrat funds provide investors with dividend growth opportunities in comparison to other products in the space but might not necessarily have the highest yields.‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed to be the smartest way to deal with market turmoil. Notably, the inclination toward dividend investing has been rising due to easing monetary policy on the global front, and market uncertainty triggered by the pandemic and deceleration in global growth.These products also form a strong portfolio, with a higher scope of capital appreciation as against simple dividend-paying stocks or those with high yields. As a result, these products deliver a nice combination of annual dividend growth and capital-appreciation opportunities and are mostly good for risk adverse long-term investors.Against this backdrop, let’s take a look at some ETFs that investors can consider like Vanguard Dividend Appreciation ETF VIG, SPDR S&P Dividend ETF SDY, iShares Select Dividend ETF DVY and ProShares S&P 500 Dividend Aristocrats ETF (NOBL) (read: Tax Hike Worries Drive Last Week's Inflows: 5 Hot ETFs).Low Volatility ETFsDemand for funds with “low volatility” or “minimum volatility” generally increases during tumultuous times. These seemingly-safe products usually do not surge in bull market conditions but offer more protection than the unpredictable ones. Providing more stable cash flow than the overall market, these funds are less cyclical in nature. Here are some options --  iShares Edge MSCI Min Vol USA ETF USMV, Invesco S&P 500 Low Volatility ETF SPLV, iShares Edge MSCI EAFE Minimum Volatility ETF EFAV, iShares Edge MSCI Min Vol Global ETF (ACWV), Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) (read: Growth Concerns to Drive Demand for Low-Volatility ETFs). Infrastructure Stock Boom to Sweep America A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made. The only question is “Will you get into the right stocks early when their growth potential is greatest?” Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.Download FREE: How to Profit from Trillions on Spending for Infrastructure >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Health Care Select Sector SPDR ETF (XLV): ETF Research Reports iShares U.S. Healthcare ETF (IYH): ETF Research Reports Vanguard Health Care ETF (VHT): ETF Research Reports SPDR S&P Homebuilders ETF (XHB): ETF Research Reports SPDR S&P Retail ETF (XRT): ETF Research Reports VanEck Retail ETF (RTH): ETF Research Reports iShares U.S. Home Construction ETF (ITB): ETF Research Reports SPDR S&P Dividend ETF (SDY): ETF Research Reports Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports iShares Select Dividend ETF (DVY): ETF Research Reports iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports iShares MSCI EAFE Min Vol Factor ETF (EFAV): ETF Research Reports Amplify Online Retail ETF (IBUY): ETF Research Reports Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksSep 22nd, 2021

India ETFs Rallying Hard: Is Any Upside Left?

India's stock market is hovering at a record high. Lower COVID-19 cases and pent-up demand have acted as the tailwind to the Indian market. India’s stock market is hovering at a record high. Lower COVID-19 cases and pent-up demand have acted as the tailwind to the Indian market. A rebound in demand has been aiding many industries, starting from autos, where supply is suppressed due to chip shortage, or real estate, which is seeing strong bookings to cash in on the low rates. Better-than-expected gross domestic product and goods and services tax (GST) collection point toward a sustainable rebound in earnings, per a source.“Strong liquidity and positive macroeconomic cues are also likely to support domestic markets to continue their movements to record levels. The consumer demand will be closely monitored as it is expected to pick up, given the festive season has begun and the restrictions are continuing to ease. However, concerns on the third wave of the (COVID-19) pandemic still hover," Motilal Oswal said in its report, as quoted on a source.India is expected to post strong economic growth in the coming quarters, even as inflation, led by food prices, is likely to remain elevated, S&P Global Ratings said recently. The economy is expected to log 9.5% growth in the current fiscal year, followed by 7% expansion in the next year, it predicted. The easing of retail inflation to 5.3% for August is a plus as it would help the Reserve Bank of India maintain its easy monetary policy stance a little longer.Can India Equities Rally Higher?Nifty50’s one-year and two-year forward PE multiples are the highest among emerging market economies. “Episodic shifts in risk appetite have rendered equity markets frothy with stretched valuations,” the Indian central bank said lately, per an Economic Times article.The growing optimism for the Indian stock market is also reflected in the fast fall in the equity risk premia for India. The RBI report said that the equity risk premia for India dropped to 3.2% in September from 6.3% in March 2020.Analysts have suggested that the market needs a healthy correction to prevent the “froth building up in various pockets”, per the above-mentioned Economic Times article. Against this backdrop, we highlight a few India ETFs with relatively lower P/E at the current level. Investors with a strong stomach for risks and those who have faith in further Indian market rally, may tap the below-mentioned ETFs.ETFs in Focus  WisdomTree India Earnings Fund EPI – P/E 17.74XThe WisdomTree India Earnings Index is a fundamentally weighted index that measures the performance of companies incorporated and traded in India that are profitable and that are eligible to be purchased by foreign investors as of the index measurement date. Weighted Index based on their earnings in their fiscal year prior to the Index measurement date adjusted for foreign investors. The fund charges 84 bps in fees.First Trust India NIFTY 50 Equal Weight ETF NFTY – P/E 17.83XThe underlying NIFTY 50 Equal Weight Index is an equally weighted index that tracks the performance of the 50 largest and most liquid Indian securities listed on the National Stock Exchange of India. The fund charges 80 bps in fees.Nifty India Financials ETF INDF – P/E 22.12XThe underlying Nifty Financial Services 25/50 Index measures the performance of companies in the Indian financial market, including banks, financial institutions, housing finance, insurance companies and other financial services companies. The fund charges 75 bps in fees.Invesco India ETF PIN – P/E 22.19XThe underlying FTSE India Quality and Yield Select Index is comprised of Indian equity securities traded on regulated stock exchanges in India. The India Index is designed to represent the Indian equity markets as a whole. The India Index has 50 constituents, spread among the following sectors: Information Technology, Health Sciences, Financial Services, Heavy Industry, Consumer Products and Other. The fund charges 78 bps in fees.iShares India 50 ETF INDY – P/E 27.68XThe underlying Nifty 50 Index measures the equity performance of the top 50 companies by free float market capitalization whose equity securities trade in the Indian securities markets. The fund charges 90 bps in fees. Infrastructure Stock Boom to Sweep America A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made. The only question is “Will you get into the right stocks early when their growth potential is greatest?” Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.Download FREE: How to Profit from Trillions on Spending for Infrastructure >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report WisdomTree India Earnings ETF (EPI): ETF Research Reports Invesco India ETF (PIN): ETF Research Reports iShares India 50 ETF (INDY): ETF Research Reports Nifty India Financials ETF (INDF): ETF Research Reports First Trust India NIFTY 50 Equal Weight ETF (NFTY): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacks7 hr. 39 min. ago

Gold Jumps Despite Hawkish FOMC Minutes

The September FOMC minutes were rather hawkish, but gold prices rose yesterday. Did higher inflation finally push the yellow metal up? Q3 2021 hedge fund letters, conferences and more Hawkish FOMC Minutes Yesterday (October 13, 2021), the FOMC published minutes from its last meeting in September. For me, the publication is rather hawkish, as it […] The September FOMC minutes were rather hawkish, but gold prices rose yesterday. Did higher inflation finally push the yellow metal up? if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Walter Schloss Series in PDF Get the entire 10-part series on Walter Schloss in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Hawkish FOMC Minutes Yesterday (October 13, 2021), the FOMC published minutes from its last meeting in September. For me, the publication is rather hawkish, as it signaled that the Fed could begin tapering its asset purchases as soon as mid-November or mid-December. Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December. This is because the FOMC members decided that the “substantial further progress” toward the Committee’s price-stability and maximum-employment goals has almost been met: Many participants noted that although the economic recovery had slowed recently and the August increase in payrolls had fallen short of expectations, the labor market had continued to show improvement since the Committee’s previous meeting. A number of participants assessed that the standard of substantial further progress toward the goal of maximum employment had not yet been attained but that, if the economy proceeded roughly as they anticipated, it may soon be reached. On the basis of the cumulative performance of the labor market since December 2020, a number of other participants indicated that they believed that the test of “substantial further progress” toward maximum employment had been met. The disappointing September nonfarm payrolls triggered some doubts about whether the Fed could announce tapering as soon as in November, but the recent comments from Atlanta Fed President Raphael Bostic and Fed Vice Chair Richard Clarida dispelled these doubts. The former official said: “I think that the progress has been made, and the sooner we get moving on that the better,” while the latter declared “I myself believe that the 'substantial further progress' standard has more than been met with regard to our price-stability mandate and has all but been met with regard to our employment mandate”. These remarks cement the expectations that the Fed’s tapering will start soon this year. The Pace Of Tapering The Fed officials also discussed the pace of tapering, which they wouldn’t do if they weren’t convinced that the time was right to go ahead: Participants also expressed their views on how slowing in the pace of purchases might proceed. In particular, participants commented on an illustrative path, developed by the staff and reflecting participants' discussions at the Committee's July meeting, that gave the speed and composition associated with a tapering of asset purchases (…) The path featured monthly reductions in the pace of asset purchases, by $10 billion in the case of Treasury securities and $5 billion in the case of agency mortgage-backed securities (MBS). 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. Given that the Fed continues to purchase Treasury securities by at least $80 billion per month and MBS by at least $40 billion per month, the signaled path of tapering implies that the quantitative easing is going to start in November 2021 and end in June 2022. Such a timeline pleases the Fed, as it will enable it to hike the federal funds rate if inflation turns out to be more persistent than initially thought: No decision to proceed with a moderation of asset purchases was made at the meeting, but participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate. Worries About Inflation Indeed, the FOMC members showed stronger worries about inflation, dropping references to the transitory character of inflation, and acknowledging that there were some upside risks: Most participants saw inflation risks as weighted to the upside because of concerns that supply disruptions and labor shortages might last longer and might have larger or more persistent effects on prices and wages than they currently assumed. Oh, really, inflation could last longer than you repeated for months?! You were wrong once again, what a surprise! What’s more, the committee also expressed concerns about the impact of easy monetary policy on elevated asset prices and financial stability: In addition, some participants mentioned the risks associated with high asset valuations in the United States and abroad, and a number of participants commented on the importance of resolving the issues involving the federal government budget and debt ceiling in a timely manner (…) Several participants expressed concern that the high degree of accommodation being provided by monetary policy, including through continued asset purchases, could increase risks to financial stability. Indeed, it’s high time for reducing the monetary stimulus, given the scale of irrational exuberance in the financial markets (investors are now so desperate to seek yields that they even buy non-existent sculptures)! Implications for Gold What do the recent FOMC minutes imply for the gold market? Well, the publication is rather hawkish, so it should be negative for gold prices. At least in theory. But the price of gold increased yesterday, approaching almost $1,800. What happened? The detailed analysis of yesterday’s price movement displayed on the chart below shows that the FOMC minutes didn’t affect the gold market in any meaningful manner. This is probably because this year’s tapering has already been reflected in gold prices. The yellow metal reacted significantly, but to something different: the September CPI report. Inflation rose slightly last month from 5.3% to 5.4% year-over-year, according to the BLS (so, no, inflation is not going away, just as I was warning investors for months). The price of gold declined initially, only to gain later. It seems that, at first, investors decided that higher inflation equals higher interest rates and a more hawkish Fed, so they decided to push gold down (just as they used to in response to higher inflationary readings earlier this year). However, after a while, traders changed their minds. So, although it’s too early to conclude this with certainty, it’s possible that the markets finally started to fear inflation, its persistence, and its impact on economic growth. If this is the case, we could see more safe-haven inflows into gold. Nonetheless, investors shouldn’t expect too much from one trading day, even though yesterday’s gold reaction gives some hope that the yellow metal will ultimately behave as an inflation-hedge and benefit from elevated inflation. We will see – gold has to jump above $1,800 first. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhD Sunshine Profits: Effective Investment through Diligence & Care Updated on Oct 14, 2021, 10:57 am (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 14th, 2021

No Qualms, No Prisoners

Totally not transitory inflation readings didn‘t sink S&P 500 – stocks recovered, and are likely to spend trading today near 4,400. Credit markets didn‘t disappoint after all, but the sectoral composition isn‘t a picture of screaming strength. Value erased steep intraday losses, so did the Russell 2000, but tech visibly lagged instead of being prodded […] Totally not transitory inflation readings didn‘t sink S&P 500 – stocks recovered, and are likely to spend trading today near 4,400. Credit markets didn‘t disappoint after all, but the sectoral composition isn‘t a picture of screaming strength. Value erased steep intraday losses, so did the Russell 2000, but tech visibly lagged instead of being prodded by retreating yields. VIX also is approaching the more complacent end of its spectrum. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Series in PDF Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more So, how far could the bulls make it? 4,420 is one resistance level, and then prior local highs at 4,470 await. The fate of this correction is being decided right there, and it‘s my view we have lower than 4,260 to go still. Therefore, I‘m taking a big picture view, and that is one of continuous inflation surprises to the upside forcing the Fed to taper, which it may or may not do. The policy risks of letting inflation run wild are increasing, so the central bank would find it hard not to deliver fast – the market would consider that a policy mistake. The tone of yesterday‘s FOMC minutes has calmed the Treasury market jitters, and the dollar succumbed. So did inflation expectations, but the shape of the TIP:TLT candle suggests that inflation isn‘t done and out. The Fed is in no position to break it, supply chain pressures, energy crunch and heating job market guarantee that it will be stubbornly with us for longer than the steadily increasing number of quarters Fed officials are admitting to. That‘s what precious metals and commodities are sensing, by the way. Cryptos aren‘t having second thoughts either. Copper caught spectacular fire, and its sudden outperformance is very conducive to real assets appreciation. But where does that leave stocks? Counting on the Fed being behind the curve, inflation has the power to derail the S&P 500 bull run – the more so it runs unchecked. The 1970s stagflation brought several wild swings, cutting the index in half as it spent the decade in a trading range. And given the breadth characteristics of the 500-strong index these days, the risks to the downside can‘t be underestimated. What‘s my target of 4,260 in this light? Let‘s consider that from the portfolio point of view – purely stock market traders might prefer to short exhaustion at 4,420 or the approach to 4,470, or balance the short position‘s risk in the stock market with precious metals, cryptos and commodity bets they way I do it – and it‘s working just fine as the precious metals and crypto positions do great while I‘m waiting for retracement in oil and copper (in price or in time). Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 is in the early phase of its bullish upswing, which can fizzle out easily unless the 50-day moving average is conquered again. The bulls have benefit of the (short-term) doubt. Credit Markets Quality debt instruments and HYG turned around, lending credibility to yesterday‘s stock rebound. Gold, Silver and Miners Precious metals are finally on a tear, and the exhaustive move in the miners being reversed this fast, has legs. Get ready for a challenge to $1,840 next as the fireworks I was looking for, arrived. Crude Oil Crude oil consolidates in a very narrow range, and the low volume hints at better not expecting too much downside. Copper Last three days, copper didn‘t really look back, and clearly wants to outperform the CRB Index, which has very positive implications for precious metals in the very least. The predictive effect upon the real economy needs to be viewed in light of monetary and fiscal policies getting potentially less supportive, though. Bitcoin and Ethereum The expected crypto pause came, and is gone, how did you like it? The crypto bull run is on! Summary Stock market rebound has to deal with 4,420 now, and in today‘s extensive analysis, I talked how to approach the current macroeconomic setup (inflation, taper reflected in Treasuries and the dollar) accounting for real assets too. S&P 500 isn‘t likely out of the woods yet, and the next few days will be a crucial in showing whether we‘re past this correction, or not. Or, if more than a few percent dip awaits. The places to enjoy strong gains, are precious metals, cryptos and commodities. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals. Thank you, Monica Kingsley Stock Trading Signals Gold Trading Signals Oil Trading Signals Copper Trading Signals Bitcoin Trading Signals www.monicakingsley.co mk@monicakingsley.co All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice. Updated on Oct 14, 2021, 10:36 am (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 14th, 2021

Futures Rebound From Overnight Slide As Oil Keeps Rising

Futures Rebound From Overnight Slide As Oil Keeps Rising US equity-index futures erased earlier declines, rebounding from a loss of as much as 0.8% helped by the start of the European session and easing mounting concerns about stagflation from rising energy prices, signs of widening regulatory scrutiny by China, and the upcoming third-quarter earnings which is expected to post a sharply slower pace of growth and beats than recent record quarters. At 730am ET, Dow e-minis were up 5 points, or 0.1%, S&P 500 e-minis were up 7.25 points, or 0.16%, and Nasdaq 100 e-minis were up 46.75points, or 0.31%. Oiil rose 0.3% to $83.86/bbl while the dollar dipped and 10Y yield drifted back under 1.60%. Gains in tech stocks kept Nasdaq futures afloat on Tuesday, while energy names rose as Brent resumed gains, trading around $84/bbl on expectations that a power crisis from Asia to Europe will lift demand and tighten global balances. Higher oil prices and supply chain disruptions have set off alarm bells for businesses and consumers ahead of the third-quarter reporting season that kicks off on Wednesday with JPMorgan results.  "We believe that market participants could stay concerned over high energy prices translating into further acceleration in inflation, and thereby faster tightening by major central banks," said Charalambos Pissouros, head of research at JFD Group. In the pre-market, Tesla rose 0.7% after data showed the electric vehicle maker sold 56,006 China-made vehicles in September, the highest since it started production in Shanghai about two years ago. Oil firms including Exxon Mobil and Chevron Corp gained 0.1% and 0.3%, respectively, as Brent crude hit a near-three year high on energy crunch fears. Here are the notable movers: China’s Internet sector is one of the “most undervalued” in Morningstar’s coverage, says Ivan Su, an analyst, adding that Tencent (TCEHY US) and Netease (NTES US) are top picks MGM Resorts (MGM US) rises 2% in U.S. premarket trading after stock was upgraded to outperform from neutral and price target more than doubled to a Street-high $68 at Credit Suisse Quanterix (QTRX US) jumped 20% in Monday postmarket trading after the digital-health company announced that its Simoa phospho-Tau 181 blood test has been granted breakthrough device designation by the U.S. FDA as an aid in diagnostic evaluation of Alzheimer’s disease Relay Therapeutics (RLAY US) fell 7% in Monday postmarket trading after launching a $350 million share sale via Goldman Sachs, JPMorgan, Cowen, Guggenheim Securities Westwater Resources (WWR US) rose as much as 26% in Monday postmarket trading after its board of directors approved construction of the first phase of a production facility in Alabama for battery ready graphite products TechnipFMC (FTI US) in focus after co. was awarded a substantial long-term charter and services contract by Petrobras for the pipelay support vessel Coral do Atlântico Fastenal, which was one of the first companies to report Q3 earnings, saw its shares fall 2.4% in premarket trading on Tuesday, after the industrial distributor said the Covid-related boost was fading. The company said growth in the quarter was slightly limited by either slower expansion or contraction in sales of certain products related to the pandemic, when compared to the previous year quarter. While there was an uptick in sales of certain Covid-related supplies, the unit price of many products was down significantly, the company said in a statement.  Third-quarter sales and profit were in line with the average analyst estimate "While investors want to believe the narrative that stock markets can continue to move higher, this belief is bumping up against the reality of how the continued rise in energy prices, as well as supply-chain pressures, are likely to impact company profit margins,” said Michael Hewson, chief market analyst at CMC Markets in London. In Europe, losses led by basic resources companies and carmakers outweighed gains for utilities and tech stocks, pulling the Stoxx Europe 600 Index down 0.1%. Metals miner Rio Tinto was among the worst performers, dropping 2.7%. European equities climbed off the lows having lost over 1% in early trade. Euro Stoxx 600 was down -0.35% after dropping as much as 1.3% initially, led by basic resources companies and carmakers outweighed gains for utilities and tech stocks. The DAX is off 0.3%, FTSE 100 underperforms in a quiet morning for news flow. Miners, banks and autos are the weakest sectors after China reported a sharp drop in auto sales; utilities, tech and real estate post modest gains. European tech stocks slide, with the Stoxx Tech Index dropping as much as 1.4% in third straight decline, as another broker downgrades TeamViewer, while Prosus and chip stocks come under pressure. TeamViewer shares fall as much as 5.1% after Deutsche Bank downgrades the remote software maker to hold from buy following recent guidance cut. Asian stocks fell, halting a three-day rally as uncertainty over earnings deepened amid elevated inflation, higher bond yields and the risk of a widening Chinese crackdown on private industry. The MSCI Asia Pacific Index slid as much as 1.2%, led by technology and communication shares. Alibaba plunged 3.9% following a rally over the past week, while Samsung Electronics tumbled to a 10-month low after at least five brokers slashed their price targets, as China’s power crisis is seen worsening supply-chain disruptions. “Given the run-up in tech so far, it’s not difficult for investors to harvest profits first before figuring out if techs can maintain their growth when yields rise,” said Justin Tang, head of Asian research at United First Partners. Shares in Hong Kong and the mainland were among the worst performers after Chinese authorities kicked off an inspection of the nation’s financial regulators and biggest state-run banks in an effort to root out corruption. The MSCI Asia Pacific Index is down 12% from a February peak, with a global energy crunch lifting input prices and the debt crisis at China Evergrande Group weighing on the financial sector. Investors are waiting to see how this impacts earnings, according to Jun Rong Yeap, a market strategist at IG Asia.  “Increasing concerns on inflation potentially being more persistent have started to show up,” he said. “This comes along with the global risk-off mood overnight, as investors look for greater clarity from the earnings season on how margins are holding up, along with the corporate economic outlook.” Japan’s Topix index also fell, halting a two-day rally, amid concerns about a global energy crunch and the possibility of a widening Chinese crackdown on private industry. The Topix fell 0.7% to 1,982.68 at the 3 p.m. close in Tokyo, while the Nikkei 225 declined 0.9% to 28,230.61. SoftBank Group Corp. contributed the most to the Topix’s drop, decreasing 2.4%. Out of 2,181 shares in the index, 373 rose and 1,743 fell, while 65 were unchanged. “Market conditions were improving yesterday, but pushing for higher prices got tough when the Nikkei 225 approached its key moving averages,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.  The Nikkei’s 75-day moving average is about 28,500 and the 200-day moving average is about 28,700, so some investors were taking profits, he said. Japan’s spot power price increased to the highest level in nine months, as the global energy crisis intensifies competition for generation fuel before the winter heating season. In FX, the Bloomberg Dollar Spot Index reversed an overnight gain as the greenback slipped against all of its Group-of-10 peers. Risk sensitive Scandinavian currencies led gains, followed by the New Zealand and Australian dollars. The pound was little changed while speculators ramped up wagers on sterling’s decline at the fastest rate in more than two years, Commodity Futures Trading Commission data show, further breaking the link between anticipated rate increases and currency gains. The yen steadied after three days of declines. The Turkish lira extended its slide to a record low after President Recep Tayyip Erdogan hinted at a possible military offensive into neighboring Syria. Fixed-income was quiet by recent standards: Treasury futures were off lows of the day, improving as S&P 500 futures pare losses during European morning, and as cash trading resumed after Monday’s holiday. The 10Y yield dipped from 1.61% to 1.59% after hitting 1.65% based on futures pricing on Monday, but the big mover was on the front end, where 2-year yields climbed as much as 4bps to 0.35% the highest level since March 2020 reflecting increased expectations for Fed rate hikes, as Treasury cash trading resumed globally. Two coupon auctions during U.S. session -- of 3-and 10-year notes -- may weigh on Treasuries however.  Treasury and gilt curves bull-flatten with gilts outperforming at the back end. Bunds have a bull-steepening bias but ranges are narrow. Peripheral spreads tighten a touch with long-end Italy outperforming peers. In commodities, Crude futures drift higher in muted trade. WTI is up 0.25% near $80.70, Brent trades just shy of a $84-handle. Spot gold remains range-bound near $1,760/oz. Base metals are mixed with LME lead and nickel holding small gains, copper and aluminum in the red. Looking at the day ahead, central bank speakers include the Fed’s Vice Chair Clarida,Bostic and Barkin, as well as theECB’s President Lagarde, Makhlouf, Knot, Villeroy, Lane and Elderson. Data highlights from the US include the JOLTS job openings for August, and the NFIB’s small business optimism index for September which came in at 99.1, below last month's 100.1. The IMF will be releasing their latest World Economic Outlook. Market Snapshot S&P 500 futures little changed at 4,351.50 STOXX Europe 600 down 0.6% to 454.90 MXAP down 0.9% to 194.41 MXAPJ down 1.0% to 635.42 Nikkei down 0.9% to 28,230.61 Topix down 0.7% to 1,982.68 Hang Seng Index down 1.4% to 24,962.59 Shanghai Composite down 1.2% to 3,546.94 Sensex little changed at 60,149.85 Australia S&P/ASX 200 down 0.3% to 7,280.73 Kospi down 1.4% to 2,916.38 German 10Y yield fell 6 bps to -0.113% Euro up 0.1% to $1.1565 Brent Futures up 0.4% to $84.01/bbl Gold spot up 0.2% to $1,757.84 U.S. Dollar Index little changed at 94.29 Top Overnight Headlines from Bloomberg The EU drew record demand for its debut green bond, in the sector’s biggest-ever offering. The bloc registered more than 135 billion euros ($156 billion) in orders Tuesday for a sale of 12 billion euros of securities maturing in 2037 Investors are dumping negative-yielding debt at the fastest pace since February as concerns about inflation and reduced central bank stimulus propel global interest rates higher French President Emmanuel Macron unveiled a 30-billion-euro ($35 billion) plan to create the high-tech champions of the future and reverse years of industrial decline in the euro area’s second-largest economy British companies pushed the number of workers on payrolls above pre-coronavirus levels last month, an indication of strength in the labor market that may embolden the Bank of England to raise interest rates. As the Biden administration and governments around the world celebrate another advance toward an historic global tax accord, an obscure legal question in the U.S. threatens to tear it apart Chinese property developers are suffering credit rating downgrades at the fastest pace in five years, as a recent slump in new-home sales adds to concerns about the sector’s debt woes German investor confidence declined for a fifth month in October, adding to evidence that global supply bottlenecks and a surge in inflation are weighing on the recovery in Europe’s largest economy Social Democrat Olaf Scholz’s bid to succeed Angela Merkel as German chancellor is running into its first test as tensions emerge in talks to bridge policy differences with the Greens and pro-business Free Democrats A more detailed breakdown of global markets from Newsquawk Asian equity markets traded mostly lower following the indecisive mood stateside where the major indices gave back initial gains to finish negative amid lingering inflation and global slowdown concerns, with sentiment overnight also hampered by tighter Beijing scrutiny and with US equity futures extending on losses in which the Emini S&P retreated beneath its 100DMA. ASX 200 (-0.3%) was subdued as weakness in energy, tech and financials led the declines in Australia and with participants also digesting mixed NAB business survey data. Nikkei 225 (-0.9%) was on the backfoot after the Japan Center for Economic Research noted that GDP contracted 0.9% M/M in August and with retailers pressured after soft September sales updates from Lawson and Seven & I Holdings, while the KOSPI (-1.4%) was the laggard on return from holiday with chipmakers Samsung Electronics and SK Hynix subdued as they face new international taxation rules following the recent global minimum tax deal. Hang Seng (-1.4%) and Shanghai Comp. (-1.3%) adhered to the downbeat picture following a continued liquidity drain by the PBoC and with Beijing scrutinising Chinese financial institutions’ ties with private firms, while default concerns lingered after Evergrande missed yesterday’s payments and with Modern Land China seeking a debt extension on a USD 250mln bond to avoid any potential default. Finally, 10yr JGBs eked minimal gains amid the weakness in stocks but with demand for bonds limited after the recent subdued trade in T-note futures owing to yesterday’s cash bond market closure and following softer results across all metrics in the 30yr JGB auction. Top Asian News Alibaba Stock Revival Halted on Concerns of Rising Bond Yields Iron Ore Rally Pauses as China Steel Curbs Cloud Demand Outlook China’s Star Board Sees Rough Start to Fourth Quarter: ECM Watch Citi Lists Top Global Stock Picks for ‘Disruptive Innovations’ European bourses kicked the day off choppy but have since drifted higher (Euro Stoxx 50 -0.4%; Stoxx 600 Unch) as the region remains on standby for the next catalyst, and as US earnings season officially kicks off tomorrow – not to mention the US and Chinese inflation metrics and FOMC minutes. US equity futures have also nursed earlier losses and reside in relatively flat territory at the time of writing, with broad-based performance seen in the ES (Unch), NQ (+0.2%), RTY (-0.2%), YM (Unch). From a technical standpoint, some of the Dec contracts are now hovering around their respective 100 DMAs at 4,346 for the ES, 14,744 for the NQ, whilst the RTY sees its 200 DMA at 2,215, and the YM topped its 21 DMA at 34,321. Back to Europe, cash markets see broad-based downside with the SMI (-0.1%) slightly more cushioned amid gains in heavyweight Nestle (+0.6%). Sectors kicked off the day with a defensive bias but have since seen a slight reconfiguration, with Real Estate now the top performer alongside Food & Beverages, Tech and Healthcare. On the flip side, Basic Resources holds its position as the laggard following yesterday's marked outperformance and despite base metals (ex-iron) holding onto yesterday's gains. Autos also reside at the bottom of the bunch despite constructive commentary from China's Auto Industry Body CAAM, who suggested the chip supply shortage eased in China in September and expected Q4 to improve, whilst sources suggested Toyota aims to make up some lost production as supplies rebound. In terms of individual movers, GSK (+2.3%) shares spiked higher amid reports that its USD 54bln consumer unit has reportedly attracted buyout interest, according to sources, in turn lifting the FTSE 100 Dec future by 14 points in the immediacy. Elsewhere, easyJet (-1.9%) gave up its earlier gains after refraining on guidance, and despite an overall constructive trading update whereby the Co. sees positive momentum carried into FY22, with H1 bookings double those in the same period last year. Co. expects to fly up to 70% of FY19 planned capacity in FY22. In terms of commentary, the session saw the Germany ZEW release, which saw sentiment among experts deteriorate, citing the persisting supply bottlenecks for raw materials and intermediate products. The release also noted that 49.1% of expects still expect inflation to rise further in the next six months. Heading into earnings season, experts also expect profits to go down, particularly in export-tilted sectors such a car making, chemicals and pharmaceuticals. State-side, sources suggested that EU antitrust regulators are reportedly likely to open an investigation into Nvidia's (+0.6% Pre-Mkt) USD 54bln bid from Arm as concessions were not deemed sufficient. Top European News Soybeans Near 10-Month Low as Supply Outlook Expected to Improve EasyJet Boosts Capacity as Travel Rebound Gathers Pace Currency Traders Are Betting the BOE Is About to Make a Mistake Citi Lists Top Global Stock Picks for ‘Disruptive Innovations’ In FX, the Buck has reclaimed a bit more lost ground in consolidatory trade rather than any real sign of a change in fundamentals following Monday’s semi US market holiday for Columbus Day and ahead of another fairly light data slate comprising NFIB business optimism and JOLTS. However, supply awaits the return of cash Treasuries in the form of Usd 58 bn 3 year and Usd 38 bn 10 year notes and Fed commentary picks up pace on the eve of FOMC minutes with no less than five officials scheduled to speak. Meanwhile, broad risk sentiment has taken a knock in wake of a late swoon on Wall Street to give the Greenback and underlying bid and nudge the index up to fresh post-NFP highs within a 94.226-433 band. NZD/AUD - A slight change in fortunes down under as the Kiwi derives some comfort from the fact that the Aud/Nzd has not breached 1.0600 to the upside and Nzd/Usd maintaining 0.6950+ status irrespective of mixed NZ electric card sales data, while the Aussie takes on board contrasting NAB business conditions and confidence readings in advance of consumer sentiment, with Aud/Usd rotating either side of 0.7350. EUR/CAD/GBP/CHF/JPY - All rangy and marginally mixed against their US counterpart, as the Euro straddles 1.1560, the Loonie meanders between 1.2499-62 with less fuel from flat-lining crude and the Pound tries to keep sight of 1.3600 amidst corrective moves in Eur/Gbp following a rebound through 0.8500 after somewhat inconclusive UK labour and earnings data, but hardly a wince from the single currency even though Germany’s ZEW survey missed consensus and the institute delivered a downbeat assessment of the outlook for the coming 6 months. Elsewhere, the Franc continues to hold within rough 0.9250-90 extremes and the Yen is striving to nurse outsize losses between 113.00-50 parameters, with some attention to 1 bn option expiries from 113.20-25 for the NY cut. Note also, decent expiry interest in Eur/Usd and Usd/Cad today, but not as close to current spot levels (at the 1.1615 strike in 1.4 bn and between 1.2490-1.2505 in 1.1 bn respectively). SCANDI/EM - The Nok and Sek have bounced from lows vs the Eur, and the latter perhaps taking heed of a decline in Sweden’s registered jobless rate, but the Cnh and Cny remain off recent highs against the backdrop of more Chinese regulatory rigour, this time targeting state banks and financial institutions with connections to big private sector entities and the Try has thrown in the towel in terms of its fight to fend off approaches towards 9.0000 vs the Usd. The final straw for the Lira appeared to be geopolitical, as Turkish President Erdogan said they will take the necessary steps in Syria and are determined to eliminate threats, adding that Turkey has lost its patience on the attacks coming from Syrian Kurdish YPG controlled areas. Furthermore, he stated there is a Tal Rifaat pocket controlled by YPG below Afrin and that an operation could target that area which is under Russian protection. However, Usd/Try is off a new ATH circa 9.0370 as oil comes off the boil and ip came in above forecast. In commodities, WTI and Brent front-month futures are choppy and trade on either side of the flat mark in what is seemingly some consolidation and amid a distinct lack of catalysts to firmly dictate price action. The complex saw downticks heading into the European cash open in tandem with the overall market sentiment at the time, albeit the crude complex has since recovered off worst levels. News flow for the complex has also remained minimal as eyes now turn to any potential intervention by major economies in a bid to stem the pass-through of energy prices to consumers heading into winter. On that note, UK nat gas futures have been stable on the day but still north of GBP 2/Thm. Looking ahead, the weekly Private Inventory data has been pushed back to tomorrow on account of yesterday's Columbus Day holiday. Tomorrow will also see the release of the OPEC MOMR and EIA STEO. Focus on the former will be on any updates to its demand forecast, whilst commentary surrounding US shale could be interesting as it'll give an insight into OPEC's thinking on the threat of Shale under President Biden's "build back better" plan. Brent Dec trades on either side of USD 84/bbl (vs prev. 83.13-84.14 range) whilst WTI trades just under USD 81/bbl after earlier testing USD 80/bbl to the downside (USD 80-80.91/bbl range). Over to metals, spot gold and silver hold onto modest gains with not much to in the way of interesting price action, with the former within its overnight range above USD 1,750/oz and the latter still north of USD 22.50/oz after failing to breach the level to the downside in European hours thus far. In terms of base metals, LME copper is holding onto most of yesterday's gains, but the USD 9,500/t mark seems to be formidable resistance. Finally, Dalian and Singapore iron ore futures retreated after a four-day rally, with traders citing China's steel production regaining focus. US Event Calendar 6am: Sept. SMALL BUSINESS OPTIMISM 99.1,  est. 99.5, prior 100.1 10am: Aug. JOLTs Job Openings, est. 11m, prior 10.9m 11:15am: Fed’s Clarida Speaks at IIF Annual Meeting 12:30pm: Fed’s Bostic Speaks on Inflation at Peterson Institute 6pm: Fed’s Barkin Interviewed for an NPR Podcast DB's Jim Reid concludes the overnight wrap It’s my wife’s birthday today and the big treat is James Bond tomorrow night. However, I was really struggling to work out what to buy her. After 11.5 years together, I ran out of original ideas at about year three and have then scrambled round every year in an attempt to be innovative. Previous innovations have seen mixed success with the best example being the nearly-to-scale oil portrait I got commissioned of both of us from our wedding day. She had no idea and hated it at the closed eyes big reveal. It now hangs proudly in our entrance hall though. Today I’ve bought her a lower key gamble. Some of you might know that there is a US website called Cameo that you can pay famous people to record a video message for someone for a hefty fee. Well, all her childhood heroes on it were seemingly too expensive or not there. Then I saw that the most famous gymnast of all time, Nadia Comăneci, was available for a reasonable price. My wife idolised her as a kid (I think). So after this goes to press, I’m going to wake my wife up with a personalised video message from Nadia wishing her a happy birthday, saying she’s my perfect ten, and praising her for encouraging our three children to do gymnastics and telling her to keep strong while I try to get them to play golf instead. I’m not sure if this is a totally naff gift or inspired. When I purchased it I thought the latter but now I’m worried it’s the former! My guess is she says it’s naff, appreciates the gesture, but calls me out for the lack of chocolates. Maybe in this day and age a barrel of oil or a tank of petrol would have been the most valuable birthday present. With investor anticipation continuing to build ahead of tomorrow’s CPI release from the US, yesterday saw yet another round of commodity price rises that’s making it increasingly difficult for central banks to argue that inflation is in fact proving transitory. You don’t have to be too old to remember that back in the summer, those making the transitory argument cited goods like lumber as an example of how prices would begin to fall back again as the economy reopened. But not only have commodity aggregates continued to hit fresh highs since then, but lumber (+5.49%) itself followed up last week’s gains to hit its highest level in 3 months. Looking at those moves yesterday, it was a pretty broad-based advance across the commodity sphere, with big rises among energy and metals prices in particular. Oil saw fresh advances, with WTI (+1.47%) closing above $80/bbl for the first time since 2014, whilst Brent Crude (+1.53%) closed above $83/bbl for the first time since 2018. Meanwhile, Chinese coal futures (+8.00%) hit a record after the flooding in Shanxi province that we mentioned in yesterday’s edition, which has closed 60 of the 682 mines there, and this morning they’re already up another +6.41%. So far this year, the region has produced 30% of China’s coal supply, which gives you an idea as to its importance. And when it came to metals, aluminium prices (+3.30%) on the London Metal Exchange rose to their highest level since the global financial crisis, whilst Iron Ore futures in Singapore jumped +7.01% on Monday, and copper was also up +2.13%. The one respite on the inflation front was a further decline in natural gas prices, however, with the benchmark European future down -2.73%; thus bringing its declines to over -47% since the intraday high that was hit only last Wednesday. With commodity prices seeing another spike and inflation concerns resurfacing, this proved bad news for sovereign bonds as investors moved to price in a more hawkish central bank reaction. Yields in Europe rose across the continent, with those on 10yr bunds up +3.0bps to 0.12%, their highest level since May. The rise was driven by both higher inflation breakevens and real rates, and leaves bund yields just shy of their recent post-pandemic closing peak of -0.10% from mid-May. If they manage to surpass that point, that’ll leave them closer to positive territory than at any point since Q2 2019 when they last turned negative again. It was a similar story elsewhere, with 10yr yields on OATs (+2.6bps), BTPs (+3.9bps) and gilts (+3.1bps) likewise reaching their highest level in months. The sell-off occurred as money markets moved to price in further rate hikes from central banks, with investors now expecting a full 25 basis point hike from the Fed by the end of Q3 2022. It seems like another era, but at the start of this year before the Georgia Senate race, investors weren’t even pricing in a full hike by the end of 2023, whereas they’re now pricing in almost 4. So we’ve come a long way over 2021, though pre-Georgia the consensus CPI forecast on Bloomberg was just 2.0%, whereas it now stands at 4.3%, so it does fit with the story of much stronger-than-expected inflation inducing a hawkish response. Yesterday’s repricing came alongside a pretty minimal -0.15% move in the Euro versus the dollar, but that was because Europe was also seeing a similar rates repricing. Meanwhile, the UK saw its own ramping up of rate hike expectations, with investors pricing in at least an initial 15bps hike to 0.25% happening by the December meeting in just two months’ time. Overnight in Asia, stocks are trading in the red with the KOSPI (-1.46%), Shanghai Composite (-1.21%), Hang Seng (-1.20%), the Nikkei (-0.93%) and CSI (-0.82%) all trading lower on inflation concerns due to high energy costs and aggravated by a Wall Street Journal story that Chinese President Xi Jinping is increasing scrutiny of state-run banks and big financial institutions with inspections. Furthermore, there were signs of a worsening in the Evergrande debt situation, with the firm missing coupon payments on a 9.5% note due in 2022 and a 10% bond due in 2023. And there were fresh indications of a worsening situation more broadly, with Sinic Holdings Group Co. saying it doesn’t expect to pay the principal or interest on a $250m bond due on October 18. Separately in Japan, Prime Minister Fumio Kishida said on Monday that he will raise pay for public workers and boost tax breaks to firms that boost wages to try and improve the country’s wealth distribution. Back to yesterday, and the commodity rally similarly weighed on thin-volume equity markets, though it took some time as the S&P 500 had initially climbed around +0.5% before paring back those gains to close down -0.69%. Before the late US sell-off, European indices were subdued, but the STOXX 600 still rose +0.05%, thanks to an outperformance from the energy sector (+1.49%), and the STOXX Banks Index (+0.13%) hit a fresh two-year high as the sector was supported by a further rise in yields. On the central bank theme, we heard from the ECB’s chief economist, Philip Lane, at a conference yesterday, where he said that “a one-off shift in the level of wages as part of the adjustment to a transitory unexpected increase in the price level does not imply a trend shift in the path of underlying inflation.” So clearly making a distinction between a more persistent pattern of wage inflation, which comes as the ECB’s recent forward guidance commits them to not hiking rates “until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon”, as well as having confidence that “realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term”. Turning to the political scene, Brexit is likely to be in the headlines again today as the UK’s Brexit negotiator David Frost gives a speech in Lisbon where he’s expected to warn that the EU’s proposals on the Northern Ireland Protocol are insufficient. That comes ahead of a new set of proposals that are set to come from the EU tomorrow, with the two sides disagreeing on the extent of border controls required on trade from Northern Ireland with the rest of the UK. Those controls were put in place as part of the Brexit deal to prevent a hard border being put up between Northern Ireland and the Republic of Ireland, whilst also preserving the integrity of the EU’s single market. But the UK’s demands for adjustments have been met with opposition by the EU, and speculation has risen that the UK could trigger Article 16, which allows either side to take unilateral safeguard measures, if the protocol’s application “leads to serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade”. On the data front, there wasn’t much data to speak of with the US holiday, but Italy’s industrial production contracted by -0.2% in August, in line with expectations. To the day ahead now, andcentral bank speakers include the Fed’s Vice Chair Clarida,Bostic and Barkin, as well as theECB’s President Lagarde, Makhlouf, Knot, Villeroy, Lane and Elderson. Data highlights from the US include the JOLTS job openings for August, and the NFIB’s small business optimism index for September. In Europe, there’s also UK unemployment for August and the German ZEW Survey for October. Lastly, the IMF will be releasing their latest World Economic Outlook.     Tyler Durden Tue, 10/12/2021 - 07:56.....»»

Category: personnelSource: nytOct 12th, 2021

America"s Funding Challenges Ahead

America's Funding Challenges Ahead Authored by Alasdair Macleod via GoldMoney.com, This article looks at the Fed’s funding challenges in the US’s new fiscal year, which commenced on 1 October. There are three categories of buyer for US Federal debt: the financial and non-financial private sector, foreigners, and the Fed. The banks in the financial sector have limited capacity to expand bank credit, and American consumers are being encouraged to spend, not save. Except for a few governments, foreigners are already reducing their proportion of outstanding federal debt. That leaves the Fed. But the Fed recently committed to taper quantitative easing, and it cannot be seen to directly monetise government debt. That is one aspect of the problem. Another is the impending rise in interest rates, related to non-transient, runaway price inflation. Funding any term debt in a rising interest rate environment is going to be considerably more difficult than when the underlying trend is for falling yields. There is the additional risk that foreigners overloaded with dollars and dollar-denominated financial assets are more likely to become sellers.Not only are foreigners overloaded with dollars and financial assets, but with bond yields rising and stock prices falling, foreigners for whom over-exposure to dollars is a speculative position going wrong will undoubtedly liquidate dollar assets and dollars. If not buying their own national currencies, they will stockpile commodities and energy for production, and precious metals as currency hedges instead. The Fed will be faced with a bad choice: protect financial asset values and not the dollar or protect the dollar irrespective of the consequences for financial asset values. And the Federal Government’s deficit must be funded. The likely compromise of these conflicting objectives leads to the risk of failing to achieve any of them. Other major central banks face a similar quandary. Funding ballooning government deficits is about to get considerably more difficult everywhere. Introduction Our headline chart in Figure 1 shows the excess liquidity in the US economy that is being absorbed by the Fed through reverse repos (RRPs). With a reverse repo, the Fed lends collateral (in this case US Treasuries overnight from its balance sheet) to eligible counterparties in exchange for overnight funds, which are withdrawn from public circulation. As of last night (6 October), total RRPs stood at $1,451bn, being the excess liquidity in the financial system with interest rates set by the RRP rate of 0.05%. Simply put, if the Fed did not offer to take this liquidity out of public circulation, overnight dollar money market rates would probably become negative. The chart runs from 31 December 2019 to cover the period including the Fed’s reduction of its funds rate to the zero bound and the commencement of quantitative easing to the tune of $120bn every month —they were announced on 19th and 23rd March 2020 respectively. Other than the brief spike in RRPs at that time which was a wobble to be expected as the market adjusted to the zero bound, RRPs remained broadly at zero for a full year, only beginning a sustained increase last March. Much of the excess liquidity absorbed by RRPs arises from government spending not immediately offset by bond sales. Figure 2 shows how this is reflected in the government’s general account at the Fed. The US Treasury’s balance at the Fed represents money not in public circulation. It is therefore latent monetary inflation, which is released into the economy as it is spent. Since March 2021, the balance on this account fell by about $800bn, while reverse repos have risen by about $1,400bn, still leaving a significant balance of liquidity to be absorbed arising from other factors, the most significant of which is likely to be seepage into the wider economy from quantitative easing (over two trillion so far and still counting). The US Treasury has draw down on its general account because had it accumulated balances from bond funding in excess of its spending ahead of the initial covid lockdown. And its debt ceiling was getting closer, which is currently being renegotiated. But this is only part of the story, with the Federal deficit running at about $3 trillion in the fiscal year just ended. That is a huge amount of government “fiscal stimulus”, and clearly, the private sector is having difficulty absorbing it all. The scale of this deficit, debt ceilings aside, is set to increase under the Biden administration. If the US economy is already drowning in dollars, it is likely to worsen. Assuming the debt ceiling negotiations raise the Treasury borrowing limit, the baseline deficit for the new fiscal year must be another $3 trillion. Optimists in the government’s camp have looked for economic recovery to increase tax revenues to reduce this deficit enough together with selective tax increases to allow the government to invest additional capital funds in the crumbling national infrastructure. A more realistic assessment is that unexpected supply disruption of nearly all goods and rising production costs are eating into the recovery, which is now faltering. And it is raising costs for the government in its mandated spending even above the most recent assumptions. It is increasingly difficult to see how the budget deficit will not increase above that $3 trillion baseline. This article looks at the funding issues in the new fiscal year following the expected resolution of the debt ceiling issue. The principal problems are its scale, how it will be funded, and the impact of price inflation and its effect on interest rates. Assessing the scale of the funding problem There are three distinct sources for this funding: the Fed, foreign investors, and the private sector, which includes financial and non-financial businesses. Figure 3 shows how the ownership of Treasury stock in these categories has progressed over the last ten years and the sum of these funding sources up to the mid-point of the last US fiscal year (31 March 2021). Over that time total Treasury debt more than doubled to nearly $30 trillion. The funding of further debt expansion from these levels is likely to be a significant challenge. Initially, the Fed can release funds by reducing the level of overnight RRPs, some of which will become absorbed directly, or indirectly, in Treasury funding. But after that financing will become more problematic. Since 2011, the Fed’s holdings of US Treasury debt have increased from 11% to 19% of the growing total, reflecting QE particularly since March 2020. At the same time the proportion of total Treasury debt owned by foreign investors has fallen from 32% to 24% today, and now that they are highly exposed to dollars, they could be reluctant to increase their share again, despite continuing trade deficits. Private sector investors, whose share of the total at 57% is virtually unchanged from ten years ago, can only expand their ownership by increasing their savings and through the expansion of bank credit. But with bank balance sheets lacking room for further credit expansion and consumers inclined to spend rather than save, it is difficult to envisage this ratio increasing sufficiently as well. Clearly, the Fed has been instrumental in filling the funding gap. But the Fed has now said it intends to taper its bond purchases. Unless foreign investors step in, the Fed will be unable to taper. Excess liquidity currently reflected in outstanding RRPs can be expected to be mostly absorbed by expanding T-bill and short-maturity T-bond funding, which might buy three- or four-months’ funding time and not permit much longer-term bond issuance. But after that, the Fed may be unable to taper QE. Foreign funding problems While we cannot be privy to the bimonthly meetings of central bankers at the Bank for International Settlements and at other forums, we can be certain that there is a higher level of monetary policy cooperation between the major central banks than is generally admitted publicly. On matters such as interest rate policy it is important that there is a degree of cooperation, otherwise there could be instability on the foreign exchanges. And to support the dollar’s debasement, policy agreements between important foreign central banks may need to be considered. This is because the dollar’s role as the reserve currency gives the US Government and its banks not just an advantage of seigniorage over the American people, but over foreign holders of dollars as well. Dollar M1 money supply is currently $19.7 trillion, approximately 50% of global M1 money stock.[i] Therefore, its seigniorage and the world-wide Cantillon effect from increasing public circulation is of great advantage to the US Government, not only over its own people but in transferring wealth from foreign nations as well. This is particularly to the disadvantage of any other national government which, following sounder monetary policies, does not expand its own currency stock at a similar rate while being forced to use dollars for international transactions. Ensuring currency debasement globally is therefore a compelling reason behind monetary cooperation between governments. By agreeing on permanent currency swap lines with five major central banks (the ECB, the Bank of Japan, the Bank of England, the Bank of Canada, and the Swiss National Bank) they are drawn into supporting a global inflationary arrangement which ensures the stock of dollars can be expanded without consequences on the foreign exchanges. Ahead of its massive monetary expansion on 19 March 2020, to keep other central banks onside temporary swap arrangements were extended to nine other central banks, ensuring their compliance as well.[ii] But notable by their absence were the central banks whose governments are members and associates of the Shanghai Cooperation Organisation, which will have found that their dollar holdings and financial assets (mainly US Treasuries) have been devalued without consultation or recompense. It is therefore not surprising that foreign governments other than those with permanent swap lines are increasingly reluctant to add to their holdings of dollars and US Treasuries. By selectively excluding major nations such as China from swap line arrangements, by default the Fed is pursuing a political agenda with respect to its currency. International acceptability of the dollar is being undermined thereby when the US Treasury is becoming increasingly desperate for inward capital flows to fund its budget deficits. Even including allied governments, all foreigners are now reducing their exposure to US dollar bank deposits, by 12.9% between 1 January 2020 and end-July 2021, and to US T-Bills and certificates by 20.7% over the same period. The only reason for holding onto longer-term assets is in expectation of speculative gains. The situation for longer-term Treasury bonds is not encouraging. The US Treasury’s “major foreign holders” list of holders of longer-maturity Treasury securities, shows the list to be dominated by Japan and China, between them owning 31.5% of all foreign owned Treasuries. Japan’s cooperative relationship with the Fed was confirmed by Japan increasing her holdings of US Treasuries, but only by 1.3% in the year to July 2021, while China and Hong Kong, which between them hold a similar amount to Japan, reduced theirs by 3%.[iii] The ability of the US Treasury to find foreign buyers other than for relatively smaller amounts from offshore financial centres and oil producing nations therefore appears to be potentially limited. We should also note that total financial assets and dollar cash held by foreigners already amounts to $32.78 trillion, roughly one and a half times US GDP — dangerously high by any measure. This total and its breakdown is shown in Table 1. If foreign residents are to increase their holdings in US Treasuries, it is most easily achieved by foreign central banks on the permanent swap line list drawing them down and further subscribing to invest in T-Bills and similar short-term securities. As well as being obviously inflationary, that recourse has practical limitations without reciprocal action by the Fed. But a far greater danger to Federal government funding comes from dollar liquidation of existing debt and equity holdings, especially if interest rates begin to rise, bearing in mind that for any foreign holder of dollars without a strategic reason for holding a foreign currency, all such exposure, even holding dollars and dollar-denominated assets, is speculative in nature. The question then arises as to what foreigners will buy when they sell their dollars. Governments without a strategic imperative may prefer at the margin to adjust their foreign reserves in favour of the other major currencies and gold. But out of the total liabilities shown in Table 1 official institutions only hold $4.284 trillion long- and short-term Treasuries, which includes China and Hong Kong’s holdings, out of the $7.2 trillion total shown in Figure 2 earlier in this article. The $3 trillion balance is owned by private sector foreign investors. Excluding China and Hong Kong’s $1.3 trillion, US Treasury debt held by foreign governments is under 10% of all foreign holdings of dollar securities and cash. What is held by foreign private sector actors therefore matters considerably more, bearing in mind that it can all be classified as speculative, being a foreign currency imparting accounting risk to balance sheets and investment portfolios. If interest rates rise because of price inflation not proving to be transient, it will lead to significant investment losses and therefore selling of the dollar, triggering a widespread repatriation of global funds. A global increase in bond yields and falling equity values will also force sales of foreign securities by US investors. But with US investors being less exposed to foreign currencies in correspondent banks and with a significantly lower level of foreign investment exposure, the net capital flows would be to the disadvantage of the dollar. Some of the proceeds from dollar liquidation by foreigners are likely to lead to commodity stockpiling and at the margin some of it will hedge into precious metals, driving their prices higher. The long-term suppression of precious metal prices would to come to an end. Domestic problems for the Fed Clearly, the resumption of government deficit funding will no longer be supported by foreign purchases of US Treasuries at a time when trade deficits remain stubbornly high. This throws the funding emphasis onto the Fed and domestic purchasers of government debt. But as stated above, the private sector will need to reduce its consumption to increase its savings. Alternatively, banks which have limited capacity to do so will have to expand credit to purchase Treasury bonds, which is not only inflationary, but diverts credit expansion from the private sector. Consumers are charging in the opposite direction from increasing savings, drawing them down in favour of increased consumption. This is partly due to them returning to their pre-covid relationship between consumption and savings, and partly due to a shift against cash liquidity in favour of goods increasingly driven by expectations of higher prices. With their fingers firmly crossed, the latter is believed by central bankers and politicians to be a temporary phenomenon, the consequence of imbalances in the economy due to logistics failures. But the longer it persists, the more this view will turn out to be wishful thinking. Increasing prices for energy and essential goods, which are notoriously under-recorded in the broader CPI statistics, are emerging as the major concern. So far, few observers appear to accept that they are the inevitable consequence of earlier currency debasement. There is a growing risk that when consumers realise that rising prices are not just a short-term and temporary phenomenon, they will increasingly buy the goods they may need in the future instead of buying them when they are needed. This alters the relation between cash liquidity-to-hand and goods, increasing the prices of goods measured in the declining currency. And so long as consumers expect prices to continue to rise, it is a process that is bound to accelerate until it is widely understood by the currency’s users that in exchange for goods, they must dispose of it entirely. If that point is reached, the currency will have failed completely. It is this process that undermines the credibility of a fiat currency. Before it develops into a total rout, it can only be countered by an increase in interest rates sufficient to stop it, as well as by strictly limiting growth in the stock of currency. And even then, some form of convertibility into gold may be required to restore public trust. This, the only cure for fiat currency instability, is too radical for the establishment to contemplate, and is a crisis that increases until it is properly addressed. The rise in interest rates exposes all the malinvestments that have grown and persisted while interest rates were suppressed from the 1980s onwards, finally ending at the zero bound. The shock of widespread business failures due to rising interest rates will impact early in the currency’s decline when it becomes obvious that initial increases in interest rates will be followed by yet more. Importantly, the supply of essential goods is then further compromised by business failures instead of being alleviated by improving logistics. And consumer demand shifts even more in favour of the essentials in life and away from luxury and inessential spending. The poor are especially disadvantaged thereby and the middle classes begin to struggle. The private sector’s growing economic woes further undermine government finances. Unemployment increases and tax revenues collapse, adding to the budget deficit and therefore to the government’s funding requirements. Mandatory costs increase more than budgeted. Interest charges, currently about $400bn, add yet more to the deficit. Today, in all the major currencies control over interest rates by central banks is being challenged. Like the Fed, other major central banks are also insisting that rising prices are temporary, while markets are beginning to suspect the reality is otherwise. All empirical evidence and theories of money and credit scream at us that statist control over interest rates is being eroded and lost to market-driven outcomes. The consequences for markets and government funding costs There is growing evidence that accelerating monetary expansion in recent years is feeding into a purchasing power crisis for major currencies. Covid and logistics disruptions, coupled with lack of inventories due to the widespread practice of just-in-time manufacturing processes have undoubtedly made the situation considerably worse. But in the history of accelerating inflations, there have always been unexpected economic developments. Shifting consumer priorities expose hitherto unforeseen weaknesses, so it would be a mistake to disassociate these problems from currency debasements. It is leading to a situation which confuses statist economists, who tend to think one-dimensionally about the relationships between prices and economic prospects. For them, rising prices are only a symptom of increasing demand. And so long as expansion of demand remains under control and is consistent with full employment, it is their policy objective. They do not appear to understand rising prices in a failing economy. But classical economics and on the ground conditions militate otherwise. Inflation is monetary in origin, and it is the destruction of the currency’s purchasing power that is evidenced in rising prices. And when the public sees prices of needed goods rising at an increased pace, they begin to rid themselves of the currency. And far from stimulating production and consumption, high rates of monetary inflation act as an economic burden. Monetary policy now faces the dual challenge of rising prices and rising interest rates as the economy slumps. When central banks would expect to reduce interest rates, they will now be forced to increase them. When deficit spending is deployed to stimulate the economy, it must now be curtailed. Just when they matter most, bond yields will rise along their yield curves from the short end, and equity market values will be undermined by changing yield relationships. Falling financial asset values become a consequence of earlier monetary inflation undermining a currency’s purchasing power. The Fed, the Bank of England, the Bank of Japan, and the ECB have all acted together to accommodate government budget deficits, to be funded as cheaply as possible by suppressing interest rates. That they have acted together has so far concealed the consequences from bond markets, whose participants only compare one government bond market with another instead of valuing bond risks on their own merits. And through regulation, banks have been made to view investment in government bonds as being risk-free for counterparty purposes. All this is about to change with the turn in the interest rate trend. Monetary policy will have two basic options to weigh; between supporting the currency’s purchasing power by increasing interest rates, or to support financial markets by suppressing them. If the latter is deemed more important than the currency, it will most likely require more quantitative easing by the Fed, not less. Expressed another way, either central banks will pursue the current policy of maintaining domestic confidence and the wealth effect of elevated financial asset values and let the currency go hang. Alternatively, they can aim to support their currencies, and be prepared to preside over a collapse in financial asset values and accept the knock-on consequences. It is a dirty choice, with either policy option likely to fail in its objective. The end of the neo-Keynesian statist road, which started out lauding the merits of deficit spending is in sight. Mathematical economics and the state theory of money are about to be shown for what they are — intellectualised wishful thinking. As the most distributed currency, the dollar is likely to lead the way for all the others, slavishly followed by the Bank of England, the Bank of Japan, and the ECB. And all their high-spending governments, addicted to debt, will face unexpected funding difficulties. Tyler Durden Mon, 10/11/2021 - 17:40.....»»

Category: personnelSource: nytOct 11th, 2021

"It"s A Disastrous Day" - All Hell Breaks Loose In China"s Bond Markets

"It's A Disastrous Day" - All Hell Breaks Loose In China's Bond Markets The US bond market may be closed, but it was fully open in China, and locals took advantage of this fact to do one thing: sell. In the aftermath of our viral post ""Catastrophic" Property Sales Mean China's Worst Case Scenario Is Now In Play", China property firms bonds were hit with another wrecking ball on Monday as Evergrande was set to miss its third round of (offshore) bond payments in as many weeks and rival Modern Land became the latest scrambling to delay deadlines. Having already suffered the fastest drop on record, Chinese junk bond markets - where property developer issuers dominate - were routed once again as fears about fast-spreading contagion in the $5 trillion sector, which drives a sizable chunk of the Chinese economy, continued to savage sentiment. Meanwhile, China Evergrande Group's offshore bondholders still had not received interest payment by a Monday deadline Asia time, Reuters reported citing sources. But while Evergrande's default is now just semantics, and one week after Fantasia shocked bondholders with a surprise announcement it too would stuff creditors just weeks after it had said its liquidity was fine, which sent its bond plunging from par to 74 cents in seconds... ... other signs of stress included smaller rival Modern Land asking investors to push back by three months a $250 million bond payment due on Oct. 25 in part "to avoid any potential payment default." This was not expected, and Modern Land's April 2023 bond plunged more than 50% to 30 cents on the day. Elsewhere, Xinyuan Real Estate proposed paying just 5% of principal on a note due Oct. 15 and swapping that debt for bonds due 2023. Fitch Ratings called the move a distressed debt exchange while downgrading the firm to C. At least the two companies are relatively small: Modern Land and Xinyuan have $1.35 billion and $760 million of dollar bonds outstanding, respectively, according to data compiled by Bloomberg. In comparison, Evergrande has $19.2 billion. Among the declines for high-yield issuers, China Aoyuan Group’s 6.35% note due 2024 dropped 13.2 cents on the dollar to 57.5 cents; Sunac's 6.5% dollar bond due 2026 declined 9.4 cents to 57.9 cents, leaving both poised to close at the lowest-ever levels. Kaisa Group, which was the first Chinese property developer to default back in 2015, also saw some of its bonds slump to less than half their face value while supposedly "safe" names such as R&F Properties, and Greenland Holdings, which both have prestige projects in global cities like London, were also widely sold. Yields on Chinese junk-rated dollar bonds surged 291 basis points to 17.54% last week, the highest level in about a decade, according to a Bloomberg index. And just to add insult to injury, China's10-year government bond futures declined to a three-month low as the central bank’s latest liquidity draining weakened expectations of fresh monetary policy easing. Futures contracts on 10-year notes fall 0.4% to 99.14, the lowest level since July 12. 10-year sovereign bond yields rose 5bps, the biggest gains in two months, to 2.96%. "It's a disastrous day," Clarence Tam, fixed income PM at Avenue Asset Management in Hong Kong, told Reuters, highlighting how even some supposedly safer "investment grade" firms had now seen 20% wiped off their bonds. "We think it's driven by global fund outflow .... Fundamentally, we are worried the mortgage management onshore hits the developers' cash flow hard," he added, referring to concerns people could stop putting deposits down on new homes. In other words, the dynamic we discussed over the weekend in which we explained why "China's Worst Case Scenario Is Now In Play" is spreading from the biggest rotten apples - i.e., Evergrande, Fantasia - to collapsing confidence in the property sector, to credits that until now were seen as healthy and immune from a property implosion. In short, the bursting of the US housing bubble has moved to China, and yes - that culminated with the original Lehman moment. Meanwhile, JPMorgan analysts highlighted how international investors were now demanding the highest ever premium to buy or hold 'junk'-rated Chinese debt. There is now a whopping 1,200 basis point difference between the bank's closely-followed JACI China high yield index and a similar index of investment grade AA-rated local Chinese market bonds, known as "onshore" bonds. The option-adjusted spread on the ICE BofA Asian Dollar High Yield Corporate China Issuers Index (.MERACYC) is also at its widest ever. "Evergrande's contagion risk is now spreading across other issuers and sectors," JPMorgan's analysts said, demonstrating a rare talent for observing the obvious. And while today may have been "disastrous" it could get far, far worse if the market loses faith that Beijing will bail out the bond market. "We believe policymakers have zero tolerance for systemic risk to emerge and are aiming to maintain a stable property market, and policy support could be forthcoming if the deterioration in property activity levels worsen," said Goldman head of Asia Credit Kenneth Ho. Overnight we saw the first sign of such an implicit support in Harbin, the capital of northeastern Heilongjiang province, which became one of the first cities in China to announce measures to support property developers and their projects. According to a report on a website run by Harbin Daily, the city will offer as much as 100,000 yuan home-purchase subsidy to “talents” that meet certain requirements. The city would also make more existing homes eligible for housing provident fund loans to buyers; the moves are aimed at promoting stable and healthy development of the city’s property market, according to the document. The cash-strapped property developer's troubles and contagion worries have sent shockwaves across global markets and the firm has already missed payments on dollar bonds, worth a combined $131 million, that were due on Sept. 23 and Sept. 29. While China's property sector turmoil has so far been contained to the bond market, tensions amid offshore bonds could soon create headaches for the country’s equity traders, according to Gilbert Wong, head of Asia quantitative research at Morgan Stanley. High-yield credit spreads over comparable Treasuries are the widest on record -- at about 1,866 basis points on an option-adjusted basis, data compiled by Bloomberg as of Friday show.  But a measure of stock volatility has actually fallen so far this month. Still, the pair has shown a close relationship in recent years, which suggests their divergence may not last. In the end, a crash in the stock market, where hundreds of millions of Chinese residents are invested, may be just the kick Beijing needs to wake it out of its no bailout stupor. Tyler Durden Mon, 10/11/2021 - 13:05.....»»

Category: dealsSource: nytOct 11th, 2021

Nearly 80,000 shipping containers are piled high in the Port of Savannah, a report says, as the supply chain crisis shows no sign of stopping

Some ships are having to wait at sea for nine days before they can get a spot in the port, the head of the Georgia Ports Authority said. Ports around the world are overwhelmed. Getty Images/Sasin Tipchai The Port of Savannah is overwhelmed with shipping containers as the supply chain crisis continues. There are nearly 80,000 containers stacked up on the docks, The New York Times reported. The head of the Georgia Ports Authority said some ships were waiting for nine days before getting a slot. The Port of Savannah, like other ports around the US, is approaching crisis point, according to a report by The New York Times.It has nearly 80,000 containers - 50% more than normal - stacked up, and the person that oversees the port says he's "never had the yard as full as this."About 700 containers have been left there for a month or more, per The Times. In September, 4,500 containers sat in the port for weeks, waiting to be collected by the trucks or boats that take them to their next destination, The Times reported.These issues have become common in ports around the world.After falling shipping demand in the first half of 2020, a surge at the end of that year led to delays, port traffic jams, and blockages across the supply chain. A lack of shipping containers and dock workers made it worse. Now, containers are getting jammed up in ports because of both rising demand and a continuing shortage of staff to unload them and take them to their destination.Around the world, other containers are stuck at sea on ships that are waiting to find a spot in port. Insider's Grace Kay reported earlier in October that nearly 500,000 shipping containers were stuck off the coast of Southern California.The traffic jam in Savannah shows no signs of easing up, Griff Lynch, who oversees the port and is executive director of the Georgia Ports Authority, said.He has had to force some ships to wait at sea for more than nine days, and recently had more than 20 ships in a queue, he said. "The supply chain is overwhelmed and inundated ... It's not sustainable at this point," he told The Times.The fact 4,500 containers sat for weeks in September was "bordering on ridiculous," he said. The immediate concern for the industry is dealing with supply chain issues ahead of the busy holiday shopping season. But experts say these issues are set to continue well into next year and beyond."There is no indication that it will get better by 2022," Dave Marcotte, longtime retail and supply chain expert from Kantar Consulting, said in a recent conversation with Insider. "Things are really bad ... it's like a huge rubber band that keeps getting stretched further and further," he said.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderOct 11th, 2021

Futures Slide As Soaring Oil Nears $85

Futures Slide As Soaring Oil Nears $85 While cash bonds may be closed today for Columbus Day, which may or may not be a holiday - it's difficult to know anymore with SJW snowflakes opinions changing by the day - US equity futures are open and they are sliding as soaring oil prices add to worries over growing stagflation (Goldman and Morgan Stanley both slashed their GDP estimates over the weekend even as they both see rising inflation), fueling concern that a spreading energy crisis could hamper economic recovery (as a reminder, yesterday we had one, two, three posts on stagflation, showing just how freaked out Wall Street suddenly is). Rising raw material costs, labor shortages and other supply chain bottlenecks have raised concerns of elevated prices hammering corporate profits while rising rates are suggesting that a tidal wave of inflation is coming. And while cash bonds may be closed, one can easily extrapolate where they would be trading based on TSY futures which are currently trading at a 1.65% equivalent. But while cash bonds may be closed, the big mover on Monday was oil, with WTI surging nearly 3% and touched a seven-year high as an energy crisis gripping the major economies showed no sign of easing. Meanwhile, Brent rose just shy of $85, rising to the highest since late 2018 when the Fed abruptly reversed tightening course. Over in China, coal futures reached a record as flooding shuttered mines. The surge in oil lifted shares of Chevron Corp, Exxon Mobil Corp and APA Corp between 1.2% and 3% in premarket trading. At the same time, rising rates hit FAAMGs, with Apple, Microsoft and Amazon all falling between 0.6% and 0.8%. The surge above 1.6% for 10-year Treasury yields is intensifying debate among strategists over how to position investor portfolios amid anxiety over whether transitory inflation is transitioning into stagflation. Lucid Group rose 2.2% and Occidental Petroleum climbed 3.1%, leading gains in the U.S. premarket session. Here are some of the biggest movers and stocks to watch today: U.S.-listed Chinese tech stocks soar 2% to 5% in premarket trading, extending their recent rebound. Rally supported by Beijing slapping a smaller-than-expected fine on food delivery giant Meituan and last week’s news that U.S. President Joe Biden was planning to meet with Xi Jinping before the end of the year. Alibaba (BABA US +5%) leads gains, while JD.com (JD US) and Baidu (BIDU US) rise 2% apiece Watch U.S. energy stocks as oil surges past $80 a barrel as the global power crunch rattled a market in which OPEC+ has only been restoring output at a modest pace. Exxon Mobil (XOM US +1.1%), Chevron (CVX US +1%) and Occidental (OXY US +3.1%) among top risers in premarket trading. Robinhood (HOOD US) dropped 2%; the company was under pressure in U.S. premarket trading as a looming share sale by early investors and a toughening regulatory environment for cryptocurrencies are adding to the headwinds in the stock market for the darling of the U.S. retail trading mania. ChemoCentryx (CCXI US) up 2% in U.S. premarket trading, adding to Friday’s massive gains after the drug developer won U.S. approval for Tavneos as a treatment for a rare autoimmune disorder Cloudflare (NET US) slides 1.8% in U.S. premarket trading after Piper Sandler downgraded stock to neutral Akerna Corp. (KERN US) gained in Friday postmarket trading after Matthew Ryan Kane, a board member, bought $346,032 of shares, according to a filing with the U.S. Securities & Exchange Commission. “We see rising risks to global growth and evidence of more persistent inflation, which makes us more cautious on the outlook for global markets overall,” Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, wrote in a note to clients. In Europe, the Stoxx 600 Index fell 0.2%, led by declines in travel and property firms. Miners and energy stocks were the two strongest-performing sectors in Europe on Monday on rising prices for iron ore and oil. The Stoxx 600 Basic Resources Index climbed as much as 2.4%, while the Energy Index gains as much as 1.5% to the highest since Feb. 24, 2020. European banking stocks also advanced on Monday, following four weeks of gains, and traded about 1.3% below pre-pandemic high. The sector has gained 36% ytd, is the best performer among 20 European sectors in 2021. Up 0.7% today, outperforming a slightly weaker broader Stoxx 600 Index and as investors tilt toward cyclical sectors. Earlier in the session, Asian stocks jumped, buoyed by Hong Kong-listed technology shares including Meituan, which was consigned a lower-than-expected regulatory fine. The MSCI Asia Pacific Index climbed as much as 0.9%, driven by the consumer-discretionary and communication sectors. Alibaba and Meituan were the top contributors to the gauge, each surging about 8% in the first trading in Hong Kong after the food-delivery giant was handed a $533 million fine for violating anti-monopolistic practices.  The result of the investigation into Meituan is “a relief and likely to provide closure to the share price overhang,” Citigroup analysts wrote in a note Friday, when the penalty was announced.  Hong Kong’s stock gauge was among the top performing in the region. Japan’s benchmarks also climbed as the yen weakened to an almost three-year low against the dollar and new Prime Minister Fumio Kishida said he’s not considering changes to the country’s capital-gains tax at present. Improved sentiment in China is providing much-needed support to Asian equities, which declined for four straight weeks amid uncertainty circling global markets. Power shortages in China and India, supply-chain woes, inflation risks and rising bond yields are all on the radar as the earnings season kicks off. “We are still in a market that is very, very concerned about the growth outlook,” said Kyle Rodda, market analyst at IG Markets. These sort of rallies that appear almost inexplicable are “symptomatic of the market still trying to piece together all pieces of the puzzle,” he added. Australia The S&P/ASX 200 index fell 0.3% to close at 7,299.80, with most subgauges taking a hit. Miners advanced, posting gains for a third session, offsetting losses in healthcare and consumer discretionary stocks.  Star Entertainment was the worst performer after a report saying the company had enabled suspected money laundering, organized crime and fraud at its Australian casinos for years. Fortescue surged after the company said it plans to build a green energy factory to rival China.  In New Zealand, the S&P/NZX 50 index dropped 0.5% to 13,019.37. In FX, the pound crept higher to touch an almost 2-week high versus the dollar and the Gilt curve shifted higher, led by the front-end, after the Bank of England’s Michael Saunders, one of the most hawkish members of the Monetary Policy Committee, suggested in remarks published Saturday that investors were right to bring forward bets on rate hikes. Hours earlier, Governor Andrew Bailey warned of a potentially “very damaging” period of inflation unless policy makers take action. Australia’s dollar led gains among G-10 currencies on the back of increases in oil, natural gas and iron ore prices and as Sydney emerges from a 15- week lockdown on Monday. Iron ore futures extended gains as improved rebar margins at Chinese steel mills buoyed demand prospects. The yen dropped against the dollar, with analysts forecasting more weakness ahead as the nation’s yield differentials widen. As noted above, treasury futures slumped in U.S. trading Monday, with the cash market closed for Columbus Day; they implied a yield of 1.65% on the 10Y. 10-year note futures price is down 8+/32, a price change equivalent to a yield increase of about 3bp. Benchmark 10-year yield ended Friday at 1.615%, its highest closing level since June, as investors focused on the inflationary aspects in mixed September employment data. China's10-year government bond futures declined to a three-month low while the yuan advanced as the central bank’s latest liquidity draining weakened expectations of fresh monetary policy easing. Futures contracts on 10-year notes fall 0.4% to 99.14, the lowest level since July 12. It dropped 0.4% on Friday. 10-year sovereign bond yields rose 5bps, the biggest gains in two months, to 2.96%. Looking ahead, upcoming reports on third-quarter company profits which start this week are seen as the next potential pressure point in a market already under siege from slowing global growth, sticky inflation and tighter monetary policies. Global earnings revisions are sliding - an omen for U.S. stocks that have taken their cue from rising earnings estimates all year. “The coming earnings’ season in the U.S. will be heavily scrutinized for pricing power, margins and clues on the shortage situation, as well as wage pressures,” according to Geraldine Sundstrom, a portfolio manager at  Pacific Investment Management Co. in London. “Already a number of large multinationals have issued warnings about production cuts and downgraded their Q3 outlook due to supply chain and labor shortages.” Market Snapshot S&P 500 futures down 0.3% to 4,371.25 STOXX Europe 600 down 0.2% to 456.41 German 10Y yield up 1.5 bps to -0.135% Euro little changed at $1.1568 MXAP up 0.8% to 196.45 MXAPJ up 0.7% to 642.13 Nikkei up 1.6% to 28,498.20 Topix up 1.8% to 1,996.58 Hang Seng Index up 2.0% to 25,325.09 Shanghai Composite little changed at 3,591.71 Sensex up 0.5% to 60,358.30 Australia S&P/ASX 200 down 0.3% to 7,299.79 Kospi down 0.1% to 2,956.30 Brent Futures up 1.9% to $83.98/bbl Gold spot down 0.1% to $1,755.02 U.S. Dollar Index up 0.11% to 94.17 Top Overnight News from Bloomberg The U.S. labor market will see “ups and downs” as the pandemic lingers, but it’s premature to judge that the recovery is in peril, said San Francisco Federal Reserve President Mary Daly Treasury Secretary Janet Yellen said she expects Congress to take action soon to bring the U.S. into line with a global minimum tax agreed on last week by 136 countries Chinese builders are looking to payment extensions or debt exchanges to avoid default on imminent bond obligations as liquidity conditions tighten for the real estate sector Austria will get a new chancellor, though the career diplomat stepping into Sebastian Kurz’s shoes is a close ally of the departing conservative leader who resigned over a corruption scandal Just because pandemic inflation is transitory doesn’t mean it’s going away anytime soon. That’s the awkward conclusion that policy makers and investors are arriving at, as prices accelerate all over the world. European natural gas has climbed 25% in two weeks, and oil topped $80 for the first time since 2014. Fertilizers hit a record on Friday, which means food prices -- already at a 10- year peak -- will likely rise even higher A more detailed summary of overnight news from Newsquawk Asia-Pac stocks traded mostly positive but ended the day somewhat mixed after having shrugged off the early weakness stemming from last Friday’s lacklustre performance stateside and disappointing NFP jobs data. Note, markets in Taiwan and South Korea were closed. ASX 200 (-0.3%) was the laggard with underperformance in tech, consumer stocks and defensives overshadowing the gains in commodities and with Star Entertainment the worst hit with losses of more than 20% after media outlets alleged that it enabled suspected money laundering, organised crime, fraud and foreign interference which the Co. said were misleading reports. However, downside for the index was limited as New South Wales businesses reopened from the lockdown that lasted for over three months. Nikkei 225 (+1.6%) reversed opening losses as exporters cheered a weaker currency and with the government mulling over JPY 100bln financial support for chip factory construction. Hang Seng (+2.0%) and Shanghai Comp. (Unch) were both positive following talks between China's Vice Premier Liu He and USTR Tai on Saturday in which China was said to be negotiating for a cancellation of tariffs and sanctions. The advances in Hong Kong were led by tech stocks including Meituan despite the Co. being fined CNY 3.4bln by China’s market regulator for monopolistic behaviour, as the amount was seen to be a slap on the wrist, while the gains in the mainland were only mild as participants also reflected on the substantial liquidity drains by the PBoC totalling a net CNY 510bln since Saturday. Finally, 10yr JGBs were pressured amid the gains in Japanese stocks and lack of BoJ purchases in the market, while price action was also not helped by the continued weakness in T-note futures amid the semi-holiday conditions in US for Columbus Day in which the NYSE and the Nasdaq will open but bonds trading will remain shut. Top Asian News Australian IPOs Heading for Biggest Haul Since 2014: ECM Watch Syngenta’s Shanghai IPO Proposal Suspended For Earnings Update China Junk-Rated Dollar Bond Rout Deepens Amid Builder Worries China’s 10-Year Bond Yield Jumps By The Most Since August Bourses in Europe are mostly but modestly lower (Euro Stoxx 50 -0.1%, Stoxx 600 -0.2%) whilst the FTSE 100 (+0.2%) bucks the trend, owing to firm performances in its heavyweight sectors. US equity futures meanwhile trade within tight ranges with broad-based losses of some 0.3-0.4%. Fresh fundamental catalysts have remained light, although inflation and stagflation remain on traders' minds heading into this week's US and Chinese inflation metrics and against the backdrop of rising energy prices. Thus, the sector configuration sees Basic Resources, Oil & Gas and Banks at the top of the bunch, whilst the downside sees Travel & Leisure, Real Estate and Retail, with no overarching theme to be derived. Basic Resources is the marked outperformer as base metals are bolstered in what seems to be a function of the coal shortage in Asia, with iron ore contracts also surging overnight and copper following suit, in turn boosting the likes of Rio Tino (+3.2%), Antofagasta (+3.1%), Glencore (+3.1%), BHP (+2.8%). The top of the Stoxx 600 is dominated by metal names. In terms of individual movers, Carrefour (-2.2%) is softer after sources stated that exploratory talks over a Carrefour-Auchan tie-up ended due to the complexity of the deal. Evotec (+0.7%) holds onto gains as it seeks a Nasdaq listing. Roche (+0.6%) and Morphosys (+3.7%) underpin the health sector after the Cos received Breakthrough Therapy Designation from the US FDA for gantenerumab for the treatment of Alzheimer's disease. Top European News BOE Officials Double Down on Signals of Imminent Rate Hike Brexit Clash on Northern Ireland Means Headaches for Johnson Asos CEO Beighton Steps Down as Sales Growth Slows Adler Shares Flounder After Asset Disposal Plan, Past M&A Report In FX, the Aussie has secured a considerably firmer grip of the 0.7300 handle vs its US rival as COVID-19 restrictions are relaxed in NSW and base metals tread water after a mostly positive APAC equity session overnight. However, Aud/Usd is also firmer on the back of ongoing Greenback weakness and long liquidation from what some are calling ‘stretched’ levels of IMM positioning going in to Friday’s NFP release, while the Aud/Nzd cross has rebounded further above 1.0550 in wake of a rise in NZ virus cases that has prompted the PM to keep Auckland on level 3 alert for another week pending review. Hence, Nzd/Usd is capped around 0.6950 and continues to lag on the unwinding of Kiwi longs built up in advance of last week’s universally anticipated 25 bp RBNZ hike. Back to the Buck, but looking at the index in relation to where it was before and after the latest BLS report, 94.000 is providing some underlying support on Columbus Day that is not a full US market holiday, but will see cash Treasuries remain closed. Moreover, the DXY is gleaning momentum within a narrow 94.028-214 range via marked Yen underperformance amidst the latest rout in bonds and more pronounced technical impulses as Usd/Jpy extends beyond 112.50 and sets yet another 2021 peak around 112.95. GBP - Sterling is taking up post-payrolls Dollar slack as well, but firmer in its own right too as comments from BoE Governor Bailey and MPC member Saunders add to the growing expectation that rate hikes may be delivered sooner than had been expected before the former revealed that policy-setters were evenly divided at 4-4 in August on the subject of minimum criteria being achieved for tightening. Cable is hovering under 1.3650 and Eur/Gbp is sub-0.8500 in response, with the latter not really fazed by the UK-EU rift on NI protocol. CAD/NOK - The Loonie remains firm against its US peer after the stellar Canadian jobs data and Usd/Cad continues to probe support/bids at 1.2450 against the backdrop of strength in oil prices that is also keeping the Norwegian Krona afloat and Eur/Nok eyeing deeper sub-10.0000 lows irrespective of marginally mixed vs consensus inflation metrics. CHF/EUR/SEK - All rather rangy, aimless and looking for inspiration or clearer direction as the Franc straddles 0.9275 vs the Greenback, but remains firmer against the Euro above 1.0750 following only a faint rise in Swiss domestic bank sight deposits. Meanwhile, the Euro is pivoting 1.1575 vs the Buck and looks hemmed in by decent option expiry interest just outside the range given.1 bn rolling off between 1.1540-50 and 1.6 bn from 1.1590-1.1600 at the NY cut. Elsewhere, the Swedish Crown is slipping on risk-off grounds towards 10.1250 having tested resistance circa 10.1000. In commodities, WTI and Brent front-month futures continue the upward trajectory seen during the APAC session, with the complex underpinned heading into the winter period and against the backdrop of higher gas prices. The gains have been more pronounced in the US counterpart vs the global benchmark with no clear catalysts behind the outperformance, although this may be a continuation of the unwind seen after reports suggested a release of the US SPR (Strategic Petroleum Reserve) is unlikely. For context, reports of such a release last week took the WTI-Brent arb to almost USD 4.2/bbl vs USD 2.7/bbl at the time of writing. Furthermore, there have also been reports of lower US production under President Biden's "build back better" initiative, which puts more weight on renewable energy, with some energy analysts also suggesting that OPEC+ sees less of a threat from a "shale boom" as a result. Back to price action, WTI has been in the limelight after topping the USD 80/bbl overnight and extending gains to levels north of USD 81.50/bbl (vs low 79.55/bbl), whilst the Brent Dec contract topped USD 84.00/bbl (vs low USD 82.50/bbl). In terms of other news flow, sources suggested the fire at Lebanon's Zahrani fuel tank has been put out after the energy minister suggested the fire was contained – the cause of the fire is not yet known. Gas prices also remain elevated with UK nat gas futures relatively flat on the day but still north of GBP 2/Thm vs GBP 1/Thm mid-August and vs GBP 4/Thm last week, whilst the Qatari Energy Minister said he is unhappy about gas prices being high amid negative follow-through to customers. Over to metals, spot gold and silver are somewhat lacklustre, but with magnitudes of price action contained, with the former meandering just north of USD 1,750/oz and the latter above USD 22.50/oz heading into this week's key risk events. Overnight, iron ore futures were bolstered some 10% in Dalian and Singapore Exchanges amid fears of coking coal supply shortages - coking coal is an essential input to produce iron and steel. Traders should also be cognizant of the Chinese metrics released this week as another elevated PPI metric could see the release of more state reserves, as had been the case over the recent months. Using the Caixin PMIs as a proxy for the release, the PMI suggested sharp increases in both input costs and output prices – largely owed to supply chain delays, with the "rate of inflation was the quickest seen for four months, amid reports of greater energy and raw material costs. This, in turn, led to a solid increase in prices charged". The measure for output prices its highest in three months, whilst "the pressure of rising costs was partly transmitted downstream to consumers, as the demand was not weak." US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap A reminder that it’s Columbus Day today where US bond markets are closed. Equity markets are open but expect it to be quiet. Ahead of this, this morning we have published our latest monthly survey results covering over 600 global market participants. See here for more. For the first time since June, the biggest perceived risk to markets is now higher yields and inflation, whilst direct Covid-19 risks are out of the top 3 for the first time. A further equity correction before YE remains the consensus now. 71% expect at least another 5% off equities at some point before YE (68% correctly suggested that last month). A very overwhelming 84% thought the next 25bps move in 10yr US Treasury yields would be up. Of some additional interest is that the definition of stagflation is varied but that the majority think it’s a high or very high risk for the next 12 months. The extreme of this view surprised me. While I’ve long thought the market has underestimated the inflation risks I would still say there is enough of a growth cushion for 2022. However it’s clear the risks have built. Anyway, lots more in the survey. Thanks for filling it in and see the results for details. The week ahead will centre around the US CPI release on Wednesday but it might be a touch backward looking given that energy has spiked more recently and that used car prices are again on the march after a late summer fall that will likely be captured in this week’s release. Elsewhere, we’ve got a potentially more challenging US earnings season than that seen over the last year will commence with the big financials from Wednesday. In addition minutes from the last FOMC will give clues to the latest taper thinking on Wednesday as well. The IMF/World Bank meetings will generate plenty of headlines this week with their latest world outlook update tomorrow the highlight. The best of the rest data wise consists of JOLTS (Tuesday),which we think is a better labour market indicator than payrolls albeit a month behind, US PPI (Thursday) which will give a scale of building pipeline price pressures, US retail sales and UoM consumer sentiment (Friday), and China’s CPI and PPI (Thursday). With all that to look forward to, markets have started the week on a strong note, with equity indices including the Hang Seng (+2.02%), Nikkei (+1.57%), CSI (+0.32%) and Shanghai Composite (+0.32%) all moving higher, whilst the Kospi (-0.11%) has seen a slight decline. Japanese stocks have been buoyed by comments from new PM Kishida over the weekend that he isn’t currently considering changes to the country’s capital-gains tax. That comes with just 20 days remaining until the country’s general election. Separately in China, the country’s energy woes continue with 60 of 682 coal mines closed in the Shanxi province due to heavy floods, with Chinese coal futures up +8.00% this morning. And the property market issues are continuing to persist, with a new Chinese developer Modern Land seeking a 3 month extension to a $250 million dollar bond due to mature on October 25. By the end of last week, a Bloomberg index of Chinese junk-rated dollar bonds had seen yields climb to a decade-high above 17%, so clearly one to still look out for. Unlike in Asia, equity futures are pointing lower in the US and Europe this morning, with those on the S&P 500 down -0.21%. In terms of the main highlight it’s clearly US CPI mid-week. Given my views that inflation risks have been massively understated this year I’ve been saying for months that these reports have potentially been the most important monthly data we have seen for years. But since they mostly come and go with a “meh… mostly transitory” and a relative whimper, I’ve clearly been wrong to over hype them. So ignore me when I say that this month’s report might not be that interesting. With energy soaring over the last month and signs of inflation pressures continuing to build elsewhere then I’m not sure we can read too much into this month’s figures. Take used cars. Given the 2-3 month lag between actual prices and their CPI impact, this month will more than likely reflect a softening of prices in the summer. However September saw prices rise +5.4% so this will probably show up towards the end of the year along with the recent rise in energy costs. Our economists expect a +0.41% headline (vs. +0.27% previously) and +0.27% core (vs. +0.10%) mom rate. This is a bit above consensus and would take the yoy rate to 5.4% (up a tenth) and 4.1% (unch) respectively. Speaking of inflationary pressures, this morning has seen energy prices take a further leg higher, with WTI oil (+1.90%) moving back above $80/bbl for the first time since late 2014, whilst Brent crude (+1.42%) has moved above $83/bbl. European natural gas prices will continue to be an important one to follow amidst the astonishing price surge there, but the declines at the end of last week mean prices finished the week down by more than -45% since their intraday peak on Wednesday, before the comments from Russian President Putin that brought down prices. The rest of the day-by-day calendar is at the end as usual but although it’s a second tier release normally, tomorrow’s JOLTS will be interesting in as far as it might confirm that the main labour problems in August were a lack of supply rather than demand. The report’s full value is reduced by it being a number of weeks out of date but there’s a reasonable argument for saying that this is a better gauge of the state of the labour market than the payroll release. We go through Friday’s mixed report at the end when looking back at last week. Outside of data, it’s that time again as earnings season gets going, with a number of US financials kicking things off from mid-week. In terms of the highlights, we’ll hear from JPMorgan Chase, BlackRock and Delta Air Lines on Wednesday. Then on Thursday, we’ll get UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup, US Bancorp and Walgreens Boots Alliance. Finally on Friday, we’ll hear from Charles Schwab and Goldman Sachs. For more info on the upcoming earnings season, you can read DB’s equity strategists Q3 S&P 500 preview here. Back to markets, it was interesting over the weekend that the BoE’s Saunders chose to endorse market expectation of an earlier start to the hiking cycle in the UK rather than push back against it. He is on the more hawkish end of the spectrum but it was an important statement. Earlier, Governor Bailey suggested that there could potentially be a very damaging period of higher inflation ahead if policy makers didn’t react. Interestingly our survey showed that the market thinks the BoE is likely to make a policy error by being too hawkish so a battle seems likely to commence over policy here in the UK over the coming weeks and months. The November meeting appears live. Those comments have helped to support the pound this morning, which is up by +0.16% against the US Dollar. Looking back to last week now, risk sentiment was supported in the first full week of Q4 by easing European energy prices and a cease fire on the debt ceiling that avoided disaster and bought Washington lawmakers 8 weeks to find a more permanent solution. Global equity indices thus gained on the week: the S&P 500 picked up +0.79%, with a slight -0.19% pullback on Friday, and European equities kept pace with the STOXX 600 rallying +0.97% (-0.28% on Friday). Cyclical stocks led the way on both sides of the Atlantic; energy stocks were among the best performers whist financials benefitted from higher yields and a steeper curve. Speaking of which, US 10yr Treasury yields gained a punchy +14.1bps to close the week at 1.603%, their highest levels since early June. The benchmark gradually increased 3.0bps after Friday’s employment data. Inflation compensation continued to drive rate increases, as US 10yr breakevens gained +13.5 bps to finish the week at 2.515%. We need to go back to May to find higher levels. The sovereign yield increases were global in nature, with German bunds gaining +7.3bps and UK gilts +15.6bps higher. German 10yr breakevens gained +3.9bps while UK breakevens were +12.0bps higher. US nonfarm payrolls increased +194k in September, well below consensus expectations of a +500k gain, though private payrolls increased +317k and net two month revisions were up +169k. The unemployment rate ticked down to a post-pandemic low of 4.8% on the back of a declining labour force participation rate. Average hourly earnings were robust, increasing +0.6% mom (+0.4% expected). Taken in concert, the print likely cleared the (admittedly low) bar to enable the FOMC to announce tapering at the November meeting, whilst also feeding the creeping stagflation narrative (see survey results). Elsewhere, building on a preliminary July deal, the OECD said 136 nations have signed up to implement a 15% minimum global tax rate to address adequate taxation of multinational tech firms. As part of the deal, countries agreed not to impose any additional digital services taxes.       Tyler Durden Mon, 10/11/2021 - 08:12.....»»

Category: blogSource: zerohedgeOct 11th, 2021

Europa Scorned And Forsaken

Europa Scorned And Forsaken Authored by Alasdair Crooke via The Strategic Culture Foundation, Does Europe possess the energy and the humility to look itself in the mirror, and re-position itself diplomatically? Two events have combined to make a major inflection point for Europe: The first was America’s abandonment of the Great Game ploy of attempting to keep the two Central Asian great land powers – Russia and China – divided and at odds with each other. This was the inexorable consequence to the US’ defeat in Afghanistan – and the loss of its last strategic foothold in Asia. Washington’s response was a reversion to that old nineteenth century geo-political tactic of maritime containment of Asian land-power – through controlling the sea lanes. However America’s pivot to China as its primordial security interest has resulted in the North Atlantic becoming much less important to Washington – as the US security crux compacts down to ‘blocking’ China in the Pacific. The Establishment-linked figure, George Friedman (of Stratfor fame), has outlined America’s new post-Afghan strategy on Polish TV. He said tartly: “When we looked for allies [for a maritime force in the Pacific] on which we could count – they were the British and the Australians. The French weren’t there”. Friedman suggested that the threat from Russia is more than a bit exaggerated, and implied that the North Atlantic NATO and Europe are not particularly relevant to the US in the new context of ‘China competition’. “We ask”, Friedman says, “what does NATO do for the problems the US has at this point?”. “This [the AUKUS] is the [alliance] that has existed since World War II. So naturally they [Australia] bought American submarines instead of French submarines: Life goes on”. Friedman continued: “The NATO countries don’t have force enough to help us. It has been weakened by the Europeans. To have a military alliance, you have to have a military. The Europeans are not interested in spending the money”. “Europe”, he said, “has left us with no choice: It is not a case of the US adopting this strategy [AUKUS], it is the strategy of Europe. First, there is no Europe. There is a bunch of countries in Europe, pursuing their own interests. You can only be bilateral [perhaps working with Poland and Romania]. There is no ‘Europe’ to work with”. A storm in a tea-cup? Possibly. But the French went apoplectic. Expressions such as ‘stab in the back’ and ‘betrayal’ were flung around. It was Europa scorned. She is bitter and angry. Biden has made a groveling apology to President Macron over cutting out France from the submarine contract, and Blinken has been in Paris smoothing feathers. George Friedman’s blunt account of the ‘new strategy’ may not be Biden ‘speak’, but it is Military Industrial think-tank conceptualisation. How do we know that? Firstly, because Friedman is one of their spokesmen – but simply because… continuity. The incumbents of the White House come and go, but US security objectives do not alter so readily. When Trump was in the White House, his views on NATO were very similar to those just repeated by Friedman. Incumbents may change, but military think-tank perspectives evolve to a different and slower cycle. The ‘multilateral dimension’ of relations with France would be viewed as a largely Biden preoccupation. Friedman expressed the continuity of a US slow-burn focus to seeing China as the threat to US primacy. NATO won’t disappear, but it will play a narrower role (especially in the wake of its’ Afghan débacle). But the EU, Friedman has made ruthlessly clear, is not viewed by the US security élite as a serious global player – or really as much more than one ‘punter’, amongst others, buying at the US weapons supermarket. The submarine contract with Australia however, was a centrepiece to Paris’s strategy for European ‘strategic autonomy’. Macron believed France and the EU had established a position of lasting influence in the heart of the Indo-Pacific. Better still, it had out-manoeuvred Britain, and broken into the Anglophone world of the Five Eyes to become a privileged defence partner of Australia. Biden dissed that. And Commission President von der Leyen told CNN that there could not be “business as usual” after the EU was blindsided by AUKUS. One factor for the UK being chosen as the ‘Indo-Pacific partner’ very probably was Trump’s successful suasion with ‘Bojo’ Johnson to abandon the Cameron-Osborne outreach to China; whereas the big three EU powers were perceived in the US security world as ambivalent towards China, at best. The UK really did cut links. The grease finally was Brexit, which opened the window for strategic options – which otherwise would have been impossible to the UK. There may be a heavy price to pay though further down the line – the US security establishment are really pushing the Taiwan ‘envelope’ to the limit (possibly to weaken the CCP). It is extremely high risk. China may decide ‘enough is enough’, and crush the AUKUS maritime venture, which it can do. The second ‘leg’ to this global inflection point – also triggered around the Afghan pivot into the Russo-Chines axis – was the SCO summit last month. A memorandum of understanding was approved that would tie together China’s Belt and Road Initiative to the Eurasian Economic Community, within the overall structure of the SCO, whilst adding a deeper military dimension to the expanded SCO structure. Significantly, President Xi spoke separately to members of the Collective Security Treaty Organisation (of which China is not a part), to outline its prospective military integration too, into the SCO military structures. Iran was made a full member, and it and Pakistan (already a member), were elevated into prime Eurasian roles. In sum, all Eurasian integration paths combined into a new trade, resource – and military block. It represents an evolving big-power, security architecture covering some 57% of the world’s population. Having lifted Iran into full membership – Saudi Arabia, Qatar and Egypt may also become SCO dialogue partners. This augurs well for a wider architecture that may subsume more of the Middle East. Already, Turkey after President Erdogan’s summit with President Putin at Sochi last week, gave clear indications of drifting towards Russia’s military complex – with major orders for Russian weaponry. Erdogan made clear in an interview with the US media that this included a further S400 air defence system, which almost certainly will result in American CAATSA sanctions on Turkey. All of this faces the EU with a dilemma: Allies who cheered Biden’s ‘America is back’ slogan in January have found, eight months later, that ‘America First’ never went away. But rather, Biden paradoxically is delivering on the Trump agenda (continuity again!) – a truncated NATO (Trump mooted quitting it), and the possible US shunning of Germany as some candidate coalition partners edge toward exiting from the nuclear umbrella. The SPD still pays lip service to NATO, but the party is opposed to the 2% defence spending target (on which both Biden and Trump have insisted). Biden also delivered on the Afghanistan withdrawal. Europeans may feel betrayed (though when has US policy ever been other than ‘America First’? It’s just the pretence which is gone). European grander aspirations at the global plane have been rudely disparaged by Washington. The Russia-China axis is in the driving seat in Central Asia – with its influence seeping down to Turkey and into the Middle East. The latter commands the lions’ share of world minerals, population – and, in the CTSO sphere, has the region most hungry and ripe for economic development. The point here however, is the EU’s ‘DNA’. The EU was a project originally midwifed by the CIA, and is by treaty, tied to the security interests of NATO (i.e. the US). From the outset, the EU was constellated as the soft-power arm of the Washington Consensus, and the Euro deliberately was made outlier to the dollar sphere, to preclude competition with it (in line with the Washington Consensus doctrine). In 2002, an EU functionary (Robert Cooper) could envisage Europe as a new ‘liberal imperialism’. The ‘new’ was that Europe eschewed hard military power, in favour of the ‘soft’ power of its ‘vision’. Of course, Cooper’s assertion of the need for a ‘new kind of imperialism’ was not as ‘cuddly’ liberal – as presented. He advocated for ‘a new age of empire’, in which Western powers no longer would have to follow international law in their dealings with ‘old fashioned’ states; could use military force independently of the United Nations; and impose protectorates to replace regimes which ‘misgovern’. This may have sounded quite laudable to the Euro-élites initially, but this soft-power European Leviathan was wholly underpinned by the unstated – but essential – assumption that America ‘had Europe’s back’. The first intimation of the collapse of this necessary pillar was Trump who spoke of Europe as a ‘rival’. Now the US flight from Kabul, and the AUKUS deal, hatched behind Europe’s back, unmissably reveals that the US does not at all have Europe’s back. This is no semantic point. It is central to the EU concept. As just one example: when Mario Draghi was recently parachuted onto Italy as PM, he wagged his finger at the assembled Italian political parties: “Italy would be pro-European and North Atlanticist too”, he instructed them. This no longer makes sense in the light of recent events. So what is Europe? What does it mean to be ‘European’? All that needs to be thought through. Europe today is caught between a rock and a hard place. Does it possess the energy (and the humility) to look itself in the mirror, and re-position itself diplomatically? It would require altering its address to both Russia and China, in the light of a Realpolitik analysis of its interests and capabilities. Tyler Durden Mon, 10/11/2021 - 02:00.....»»

Category: smallbizSource: nytOct 11th, 2021

Gazprom Hikes Export Prices As Moscow Urges Europe To Fix Ties To Avoid More Gas Shortages

Gazprom Hikes Export Prices As Moscow Urges Europe To Fix Ties To Avoid More Gas Shortages Russia's nat gas giant, Gazprom, raised its 2021 price guidance for natural gas exports, while signaling caution on volumes it could ship, as Europe’s energy crisis worsens. According to Bloomberg, the Russian state-controlled exporter that supplies 35% of European gas needs, reiterated that shoring up inventories at home was its top priority, and only after it has refilled its own storage facilities by the end of October, would the company look at potentially increasing exports to continental Europe, Wood & Co. and BCS Global Markets wrote in separate notes Friday following a webinar with Gazprom managers. It would, in theory, explain why Russian supplies to Europe remain well below recent levels. At the same time, Russian research houses Wood & Co and Sova Capital noted that Gazprom increased its full-year gas-price guidance for exports to Europe and Turkey to a range of $295 to $330 per 1,000 cubic meters. The revised outlook on Gazprom’s average prices in the region is good news for the company’s investors as it signals higher dividends may be coming. Both Wood & Co. and Sova Capital also say that Gazprom is sticking with its conservative estimate of full-year gas supplies to Europe and Turkey, which is seen at 183 billion cubic meters. That suggests that despite Putin's suggestion last Wednesday that his country could boost deliveries to record levels, partially easing an energy crisis sweeping Europe which threatens to hamper the region’s economic recovery by driving up business costs and household bills and sending inflation soaring, Gazprom’s caution on shipments will disappoint some traders and policy makers hoping for an immediate hike in supply. Incidentally, in response to Putin's statement, Goldman's European energy analysts said that the comments from the former KGB spy raised questions as to what extent Russian gas supplies can alleviate the ongoing tightness in European gas markets. Goldman was adamant: "we believe these statements, which we discuss in more detail below, are similar in nature to what officials have communicated for the past few months and bring no new information as to how we should think about this winter's gas balances in Europe. Accordingly, we maintain our base case, which assumes Russian flows to NW Europe through existing pipelines will normalize from November from reduced levels this month and that the newly built 55 Bcm Nord Stream 2 pipeline will be operational this winter, but with only a marginal net contribution to NW European supplies. Until then, we continue to see a risk that Gazprom might have to rely on taking physical delivery at the TTF hub to complement their pipeline flows to the region to satisfy winter contractual obligations given its local storage sites remain nearly empty." According to Goldman, such physical tightening of the market could take TTF prices well above current levels. However, should Russian flows increase as Goldman predicts in its base case, the bank would expect EU gas prices to decline from current levels but remain above the threshold for gas-to-oil switching of $27/mmBtu at current oil prices (rising to $30/mmBtu at our year-end Brent price forecast) until we know more about winter weather. Should winter weather remain average, prices could then drop further to the bank's base case $17/mmBtu forecast by likely year-end. Going back to the supply issues at hand, it’s not unusual for Gazprom to offer a cautious supply outlook, due to the fact that its sales are highly dependent on the weather, both in Russia and abroad. However, the company has taken pains to reiterate in recent days that it is fulfilling all its contractual obligations and it will aim to boost exports whenever possible. The Russian analysts say that Gazprom sees longer-term contracts and longer-dated prices as a tool that would help Europe mitigate the impact of extreme volatility. Translation: turn on Nord Stream 2 and all shall be well. Which brings us to the second point: according to the FT, the Kremlin’s ambassador to the EU called on Europe to mend ties with Moscow in order to avoid future gas shortages, even as he insisted that Russia had nothing to do with the recent jump in prices. Vladimir Chizov, Russia’s permanent representative to the EU, said he expected Gazprom, to respond swiftly to instructions from president Vladimir Putin to adjust output. Making it abundantly clear that the hurdles preventing Russia from pumping more gas to Europe are largely political, the ambassador said that action, which would help curb skyrocketing wholesale prices, was likely to come “sooner rather than later." Putin “gave some advice to Gazprom, to be more flexible. And something makes me think that Gazprom will listen,” Chizov told the Financial Times. While rejecting assertions from European lawmakers that Russia had played a role in Europe’s gas crunch, Chizov said Europe’s choice to treat Moscow as a geopolitical “adversary” had not helped. "The crux of the matter is only a matter of phraseology,” he said. “Change adversary to partner and things get resolved easier . . . when the EU finds enough political will to do this, they will know where to find us." And there you have it: after demonizing Russia for much of the past decade, with countless fake news reports out of the liberal media in the US seeking to portray Putin as the world's biggest mastermind and effectively in control of the Trump White House, while helping send western relations with Russia to fresh post-Cold War lows, the chicken are coming home to roost and they are finding the temperature to be rather frigid.  Ironically, for a gas-starved Europe, Russia has now emerged as the only source of incremental gas supply which stands between the continent and a very cold winter. At one point last week spot gas prices reached nearly 10 times their level from the beginning of the year, before abruptly dropping after Putin hinted that Gazprom might increase supplies. Chizov insisted Moscow had no interest in gas price surges. “This does not promote stability,” he said. “People will start looking around, turning back from gas to coal, which some are already doing”, much to the chagrin of the ESG lobby. Record high prices and low reserves have spooked EU governments fearful of a winter shortage and led to demands from some member states for Brussels to consider emergency remedies or new reforms. But energy commissioner Kadri Simson told the FT last week that the roots of the crisis were “not created here in Europe.” Which, of course, is laughable as even Reuters' energy analyst John Kemp explained over the weekend in "Forget Russian Intentions, Fundamentals Drove Up Europe's Gas Price." Cutting to the chase, Russian officials have said that regulatory approval to permit gas flows through the controversial Nord Stream 2 pipeline to Germany would help solve the crisis. Some analysts have suggested Moscow is exacerbating the price squeeze to force such an outcome (they wouldn't be wrong). Meanwhile, the US and many eastern EU states oppose the pipeline, which they say was designed to circumvent gas transit through Ukraine. Chizov said the EU’s own energy policies had worsened the bloc’s woes as well as a reluctance among European energy companies to pay more to replenish their reserves. “All the problems that are arising have been created artificially. Primarily for political reasons,” he said. However, Klaus-Dieter Maubach, chief executive of German gas company Uniper, a Gazprom client, suggested last week that supplies were the issue. Uniper “would be happy if Gazprom . . . delivered more volumes to cool down the situation and lower the gas price,” he said at a conference in Russia. Chizov also told the FT that the crisis had been aggravated by EU regulations that force Gazprom to supply a proportion of gas to Europe on the freely-traded spot market terms, rather than through long-term contracts, which Brussels has argued are uncompetitive. “Long-term contracts . . . provided security of supply and stability of volumes and prices. Then came this idea, emanating from Brussels, that the system should be changed,” he said. “We know that market rules may be helpful in some situations but quite unhelpful in others. Things can change. And they did change.” And the result was the biggest surge in gas prices in history. Chizov also said that Gazprom is fulfilling its obligations to European customers on long-term supply contracts, but has been reluctant to make additional volumes available on the spot market, instead supplying domestic Russian storage facilities. That was because European energy companies were delaying extra purchases in the hope that prices will fall. “If prices are freely floated on the market, of course any energy company in this part of Europe will think what the best moment is to order additional volumes,” he said. “The serious buyers know perfectly well what is going on . . . they have their own calculations.” But Chizov said he believed the commission, whose flagship renewable energy reform initiative aims for the bloc to achieve net zero emissions by 2050, was “underestimating the future role of gas” as a European energy source. “Until mankind finds a way to store energy in a sizeable manner, all those propellers and solar panels will not become a decisive factor,” he said, and somewhere Greta Thunberg sobbed uncontrollably. Tyler Durden Sun, 10/10/2021 - 20:11.....»»

Category: personnelSource: nytOct 10th, 2021

Futures Drift Before Taper-Triggering Jobs Report

Futures Drift Before Taper-Triggering Jobs Report US equity-index drifted in a tight range overnight, in a tight range before key jobs data that could provide clues on the Federal Reserve’s policy. As noted in our preview, unless the jobs report is a disaster, it will virtually assure the Fed launches tapering in one month. Markets drifted higher on Thursday after the Senate averted the risk of an immediate default, pushing global stocks on course for their best week since early September, but a late day selloff wiped away most gains and closed spoos below the critical 4400 level. At 07:30 a.m. ET, Dow e-minis were up 35 points, or 0.10%, S&P 500 e-minis were up 5.00 points, or 0.1%, and Nasdaq 100 e-minis were up 10.75 points, or 0.07%. Treasury Yields were 1 point higher after earlier tagging 1.60%, the highest since June. The dollar was flat while Brent topped $83 before paring gains. Bitcoin traded above $55,000. Uncertainty over the debt ceiling negotiations and a run-up in U.S. Treasury yields over elevated inflation were major concerns among investors earlier this week, injecting volatility in equity markets this week. High-growth FAAMG stocks slipped in premarket trading following sharp gains in previous session. Energy firms including Chevron Corp and Exxon Mobil gained about 0.8% tracking crude prices, while major U.S. lenders also edged up as the benchmark 10-year yield hit its highest level since June 4. Here are some of the biggest movers and stocks to watch today: Tesla (TSLA US) shares in focus after Elon Musk says a global shortage of chips and ships is the only thing standing in the way of the company maintaining sales growth in excess of 50% Sundial Growers (SNDL US) shares rise as much as 19% in U.S. premarket after the Canadian cannabis producer said it will buy liquor and pot retailer Alcanna for $276m in stock Allogene Therapeutics (ALLO US) plunges 36% in U.S. premarket trading after an early-stage study of its cell therapy was put on hold by U.S. regulators Prelude Therapeutics (PRLD US) fell in U.S. premarket trading, adding to Thursday’s 40% plunge on early- stage data for the company’s experimental cancer treatments that Barclays says came in below expectations Vaxart (VXRT US) rises 8% in U.S. premarket trading after its oral tablet vaccine candidate cut transmission of Covid-19 in animals, according to data from a study led by Duke University Faraday Future (FFIE US) slides 4% in U.S. premarket trading after J Capital says it is short on the stock. The short-seller says they don’t think the company “will ever sell a car” Codiak Biosciences (CDAK US) shares fell 6% in Thursday postmarket trading after disclosing that Sarepta Therapeutics is terminating a research license and option agreement Agile Therapeutics (AGRX US) tumbled Thursday postmarket after the women’s health-care company said that it intends to offer and sell shares of its common stock, as well as warrants to purchase shares of its common stock, in an underwritten public offering Looking to today's main event, economists expect September hiring to have surged by 500,000 jobs as the summer wave of COVID-19 infections began to subside, and as millions of Americans no longer receive jobless benefits, positioning the Fed to start scaling back its monthly bond buying.  “All roads lead to non-farm payrolls data which will decide, in the market’s minds, whether the start of the Fed taper is a done deal for December,” said Jeffrey Halley, senior market analyst at OANDA. “I do not believe that markets have priced in the Fed taper and its implications to any large degree yet. Even a weak number probably only delays the inevitable for another month.” Even “reasonably soft” payrolls and unemployment figures wouldn’t be enough to change the minds of its officials, according to Ipek Ozkardeskaya, senior analyst at Swissquote. “Only a shockingly low figure could do that,” she said. “The persistent rise in oil prices can only continue boosting inflation fears and the central bank hawks, limiting the upside potential in case of a further recovery in stocks.” “As soon as you start thinking about tapering it’s really hard to not then think about what that means for the Fed funds rate and when that might start to increase,” Kim Mundy, currency strategist and international economist at Commonwealth Bank of Australia in Sydney, said on Bloomberg Television. “We do see scope that markets can start to price in a more aggressive Fed funds rate hike cycle.” In Europe, tech companies led the Stoxx Europe 600 Index down 0.2%, with energy stocks and carmakers being the only industry groups with meaningful gains. Chip stocks fell, especially Apple suppliers, following a profit warning from Asian peer and fellow supplier AAC Technologies. On the other end, European travel stocks rose after U.K. confirmed the travel “red list” will be cut to just seven countries; British Airways parent IAG and TUI led the advances. Here are some of the biggest European movers today: Daimler shares gains as much as 3.2%, outperforming peers, after UBS upgrades stock to buy from neutral, calling it an earnings momentum story that stands to gain from strong demand, electrification trends and its future focus on passenger cars. Adler shares rise as much as 13% after shareholder Aggregate sells a call option to Vonovia for a 13.3% stake in the German real estate investment firm at a strike price of EU14 per share. Cewe Stiftung shares jump as much as 4.2%, their best day in over three months, after the photography services firm gets a new buy rating at Hauck & Aufhaeuser. Weir shares fall as much as 6.3%, to the lowest since Nov. 13, after the U.K. machinery maker announced that a ransomware attack will affect full-year profitability; Jefferies says it’s unlikely that guidance beyond that will be revised. Zur Rose slumps as much as 9.2% after Berenberg downgrades the Swiss online pharmacy to hold from buy, citing the expected negative impact from a delay in the implementation of mandatory e-prescriptions in Germany. Czech digital-payments provider Eurowag shares slide as much as 10% as it starts trading in London, after pricing its IPO below an initial range and making its debut a day later than planned. Asian stocks rose for a second day as China’s market reopened higher and the U.S. Senate approved a short-term increase in the debt ceiling. The MSCI Asia Pacific Index advanced as much as 1% in a rally led by consumer discretionary shares. Alibaba and Tencent were among the biggest contributors to the gauge’s climb. Shares in mainland China surged more than 1% as investors returned from the Golden Week holiday. Chinese property shares fell after a report that more than 90% of China’s top 100 property developers’ sales declined in September by an average of 36% from the same period last year, while investor concerns about developers’ liquidity rose after Fantasia bonds were suspended from trading. In mainland: CSI 300 Real Estate Index drops as much as 2%, Seazen Holdings falls as much as 5%, Poly Developments -4%. Asia’s stock benchmark is slightly down for the week, as rising bond yields weighed on tech-heavy indexes in South Korea, Taiwan and Japan. The gauge is down more than 1% this month amid an energy shortage in China and India.  “Markets may not want to commit directionally” given that we have non-farm payrolls data on the docket, making a follow-through of today’s rally suspect, said Ilya Spivak, the head of Greater Asia at DailyFX. Traders are expecting today’s U.S. employment data to provide clues on the direction of the world’s largest economy. On Thursday, the U.S. averted what would have been its first default on a debt payment. Most major benchmarks in Asia climbed, led by Japan, Indonesia and Australia. India’s central bank kept its lending rates at a record low at a policy meeting today. In Australia, the S&P/ASX 200 index rose 0.9% to close at 7,320.10. All industry groups edged higher. The benchmark rose 1.9% for the week, the biggest weekly gain since early August. Miners led the charge, having the best week since July, banks the best since the start of March. EML Payments tumbled after an update on its Ireland subsidiary from the country’s central bank. Chalice Mining continued its rebound, finishing the session the strongest performer in the mining subgauge.  There is a risk of excessive borrowing due to low interest rates and rising house prices, Reserve Bank of Australia said in its semiannual Financial Stability Review released Friday. In New Zealand, the S&P/NZX 50 index fell 0.1% to 13,086.60 In rates, Treasury futures remained under pressure after paring declines that pushed 10-year yield as high as 1.5995% during European morning, highest since June 4; the 1.60% zone is thought to have potential to spur next wave of convexity hedging. U.K. 10-year is higher by 4bp, German by 2.3bp - gilts underperformed, weighing on Treasuries as money markets continue to bring forward BOE rate-hike expectations. During U.S. session, September jobs report may seal case for Fed taper announcement in November.  In FX, the greenback traded in a narrow range versus G10 peers while 10-year Treasury yields approached 1.6%, outperforming Bunds.  Gilt yields rose 5-6bps across the curve; demand for downside protection in the pound eases this week as the U.K. currency moves off cycle lows amid money markets repricing. U.K. wage growth rose at its strongest pace on record in a survey of job recruiters, indicating strains from a shortage of workers are persisting. Turkish lira initially weakens above 8.96/USD before recouping half of its losses In commodities, oil extended a rebound, on track for a seventh weekly gain. Crude futures pushed to the best levels for the week. WTI rises 1.5% near $79.50, Brent pops back on to a $83-handle. Spot gold trades a $5 range near $1,757/oz. Base metals are mostly positive, with LME nickel gaining over 3.5%. Looking at the day ahead, the highlight will be the aforementioned September jobs report. Central bank speakers include ECB President Lagarde and the ECB’s Panetta. Market Snapshot S&P 500 futures little changed at 4,389.50 STOXX Europe 600 down 0.3% to 457.18 MXAP up 0.4% to 194.72 MXAPJ up 0.2% to 636.80 Nikkei up 1.3% to 28,048.94 Topix up 1.1% to 1,961.85 Hang Seng Index up 0.6% to 24,837.85 Shanghai Composite up 0.7% to 3,592.17 Sensex up 0.7% to 60,070.61 Australia S&P/ASX 200 up 0.9% to 7,320.09 Kospi down 0.1% to 2,956.30 Brent Futures up 1.4% to $83.09/bbl Gold spot up 0.0% to $1,756.25 U.S. Dollar Index little changed at 94.29 German 10Y yield up +3.4 bps to -0.151% Euro little changed at $1.1549 Top Overnight News from Bloomberg Global talks to reshape the corporate tax landscape are set to resume on Friday after Ireland’s decision to adhere to the world consensus on a minimum rate removed one hurdle to an agreement that still hangs in the balance Germany’s Social Democrats hailed a positive start in their effort to form a government after their first meeting with the Greens and the pro-business Free Democrats A U.S. nuclear-powered attack submarine struck an object while submerged in international waters in the Indo- Pacific region last week, the Navy said, adding that no life- threatening injuries were reported China drained the most short- term liquidity from the banking system in a year on a net basis as it reduced support after a week-long holiday. Government bond futures slid by the most since August China’s central bank will continue to push for the reform of its benchmark loan rate and make deposit rates more market-based, according to a senior official India’s central bank surprised markets by suspending its version of quantitative easing, signaling the start of tapering pandemic-era stimulus measures as an economic recovery takes hold U.K. government bond yields have climbed to levels last seen before the Brexit referendum in 2016 relative to German peers, as traders brace for inflation in Britain over the next decade to far outpace the rate in Europe’s largest economy A detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly higher as the region conformed to the global upbeat mood after the agreement in Washington to raise the debt ceiling which the Senate approved, with the overnight bourses also invigorated by the return of China and strong Caixin PMI data. The ASX 200 (+0.9%) was led higher by strength in mining names with underlying commodity prices boosted as Chinese buyers flocked back to market which helped the ASX disregard a record increase in daily COVID-19 cases in Victoria state. Nikkei 225 (+1.3%) was the biggest gainer and reclaimed the 28k level as exporters benefitted from a softer currency, while attention turns to PM Kishida who will outline his policy program today and is reportedly planning to present an additional budget after the election. Furthermore, there were recent comments from an ally of the new PM who suggested that capital gains tax could be raised to 25% from the current 20% without affecting stock prices, although this failed to dent the mood in Tokyo and weaker than expected Household Spending was also brushed aside. The gains for the KOSPI (-0.1%) were later reversed alongside the tentative price action in index heavyweight Samsung Electronics after its Q3 prelim. results showed oper. profit likely rose to its highest in three years but missed analysts’ forecasts. Hang Seng (+0.6%) and Shanghai Comp. (+0.7%) were mixed with the latter jubilant on reopen from the Golden Week holiday after improved Caixin Services and Composite PMI data which both returned to expansionary territory. This helped mainland stocks overlook the recent developer default fears and largest daily liquidity drain by the PBoC since October last year, although Hong Kong initially lagged amid heavy Northbound Stock Connect trade. Finally, 10yr JGBs declined on spillover selling from T-notes and with havens shunned amid the gains across riskier assets, although downside in JGBs was limited given the BoJ’s presence in the market for nearly JPY 1.5tln of JGBs with up to 10yr maturities. Top Asian News Gold Steadies Ahead of Key U.S. Jobs Report as Yields Climb Investors Fear Tax Talk in Kishida’s ‘New Japanese Capitalism’ China Coal Prices Plunge as Producers Vow to Ease Shortages China Developer Stocks Fall After Report of Monthly Sales Drop An initially contained to marginally-firmer European cash open followed an upbeat APAC handover (ex-Hang Seng) was short-lived with bourses coming under moderate pressure; Euro Stoxx 600 -0.3%. As such, major indices are all in the red, except for of the UK FTSE 100 which is essentially unchanged and bolstered by strength in heavy-weight energy and mining names given broader price action the return of China. Sectors were initially mixed at the open, but in-fitting with the action in indices, has turned to a predominantly negative performance ex-energy. Crossing to the US, futures have directionally been following European peers, but the magnitude has been more contained, with the ES unchanged as we await the September labour market report for any read across to the Fed’s policy path; however, officials have already made it clear that it would have to be a very poor report to spark a deviation from its announced intentions, where it is expected to announce an asset purchase tapering in November. Returning to Europe, Daimler (+2.5%) stands out in the individual stocks space, firmer after a broker upgrade and notable price target lift at UBS; Marks & Spencer (+1.5%) is also supported on broker action. To the downside lies Weir Group (-3.0%) after reports of a ransomware attack. Top European News Adler’s Largest Shareholder Sells Option on Stake to Vonovia; A Controversial Tycoon Sits on Adler’s $9 Billion Pile of Debt Chip Stocks Drag Tech Gauge Lower as Asian Apple Supplier Warns European Gas Rises as Bumpy Ride Continues With Cold Air Coming Lira Weakens to Fresh Low as Rising U.S. Yields Add Pressure In FX, the Dollar is trying to regroup and firm up again after its latest downturn amidst a further rebound in US Treasury yields, more pronounced curve re-steepening, and perhaps some relief that the Senate finally passed the debt ceiling extension bill, albeit by a slender margin and only delaying the issue until early December. Looking at the DXY as a benchmark, a marginally higher low above 94.000 and lower high below 94.500 is keeping the index contained as the clock ticks down to September’s jobs report that is expected to show a recovery in hiring after the prior month’s shortfall, but anecdotal data has been rather mixed to offer little clear pointers for the bias around consensus - full preview of the latest BLS release is available via the Research Suite under the Ad-hoc Economic Analysis section. From a technical perspective, near term support for the DXY resides at 94.077 (vs the current 94.139 base) and resistance sits at 94.448 (compared to a 94.338 intraday high). TRY - A double whammy for the already beleaguered Lira as oil prices come back to the boil and ‘sources’ suggest that Turkish President Erdogan’s patience is wearing thin with the latest CBRT Governor as the Bank waited until September to cut rates. Recall, Erdogan has already ousted a CBRT chief for not loosening monetary policy in his belief that lowering the cost of borrowing will bring inflation down, and although the reports have been by a senior member of his administration there is a distinct feeling of no smoke without fire in the markets as Usd/Try remains bid having only held below 9.0000 by short distance between 8.9707-8.8670 parameters. CHF/JPY - No real surprise that the low yielders and funders are underperforming, even though broadly upbeat risk sentiment during APAC hours has not rolled over to the European session. The Franc has retreated to 0.9300 vs the Buck and Yen is trying to fend off pressure on the 112.00 handle after failing to sustain momentum through 111.50 before weaker than expected Japanese household spending data overnight. However, decent option expiry interest from 111.85-75 (1.4 bn) may weigh on Usd/Jpy pending the aforementioned US payrolls outcome. AUD - Some payback for the Aussie after Thursday’s outperformance, as Aud/Usd loses a bit more momentum following its rebound beyond 0.7300 and with hefty option expiries at 0.7335 (2.7 bn) capping the upside more than smaller size at the round number (1.1 bn) cushions the downside. In commodities, WTI and Brent remain on an upward trajectory after the mid-week pullback; as it stands, crude benchmarks are near fresh highs for the week, with WTI for November eyeing USD 80/bbl once again. Fresh news flow for the complex has been sparse, aside from substantial UK press focus on the domestic energy price cap potentially set to increase next year. More broadly, US officials have largely reiterated commentary from the Energy Department provided on Thursday around not currently intending act on energy costs with a reserve release. The session ahead has just the Baker Hughes rig count specifically for crude scheduled, though the complex may well get dragged into a broader risk move depending on the initial reaction to and analysis on NFP. For metals, spot gold and silver are contained around the unchanged mark and haven’t been affected by any significant amount by the firmer USD or elevated yield space thus far. Elsewhere, base metals are buoyed by China’s return and strong Caixin data from the region, although it is worth highlighting that the likes of LME copper are well off earlier highs. US Event Calendar 8:30am: Sept. Change in Nonfarm Payrolls, est. 500,000, prior 235,000 Change in Private Payrolls, est. 450,000, prior 243,000 Change in Manufact. Payrolls, est. 25,000, prior 37,000 Unemployment Rate, est. 5.1%, prior 5.2% Sept. Underemployment Rate, prior 8.8% Labor Force Participation Rate, est. 61.8%, prior 61.7% Average Weekly Hours All Emplo, est. 34.7, prior 34.7 Average Hourly Earnings MoM, est. 0.4%, prior 0.6% Average Hourly Earnings YoY, est. 4.6%, prior 4.3% 10am: Aug. Wholesale Trade Sales MoM, est. 0.9%, prior 2.0%; Wholesale Inventories MoM, est. 1.2%, prior 1.2% DB's Jim Reid concludes the overnight wrap I’ve never quite understood why you’d go to the cinema if you’ve got a nice telly at home but such has been the nature of life over the last 19 months that I was giddy with excitement last night at booking tickets for James Bond at the local cinema next week. We’ve booked it on the same night as our first ever physical parents evening where I’ll maybe have the first disappointing clues that my three children aren’t going to be child prodigies and that maybe they’ll even have to settle for a career in finance! Markets have been stirred but not completely shaken this week and yesterday they continued to rebound thanks to the near-term resolution on the US debt ceiling alongside subsiding gas prices, which took the sting out of two of the most prominent risks for investors over the last couple of weeks. That provided a significant boost to risk appetite, and by the close of trade, the S&P 500 had recovered +0.83% in its 3rd consecutive move higher, which put it back to just -3.0% beneath its all-time high in early September, whilst Europe’s STOXX 600 was also up +1.60% and closed before a later US sell-off. Attention will today focus squarely on the US jobs report at 13:30 London time, which is the last one before the Fed’s next decision in early November, where a potential tapering announcement is likely bar an extraordinarily poor number today, or an exogenous event in the next few weeks. Starting with the debt ceiling, yesterday saw Democratic and Republican Senators agree to pass legislation to raise the ceiling by enough to get to early December, meaning we won’t have to worry about it for another 8 whole weeks. The Senate voted 50-48 with no Republicans blocking the legislation to increase the debt limit by $480bn, with House Majority leader Hoyer saying that the House would convene on Tuesday to pass the measure as well. To raise it for a longer period, the chatter out of Washington made it clear that Democrats would need to need to raise the debt ceiling in a partisan manner as part of the reconciliation process. As we mentioned in yesterday’s edition, this extension means that a number of deadlines have now been punted into the year end, including the government funding and the debt ceiling (both now expiring the first Friday of December), just as the Democrats are also seeking to pass Biden’s economic agenda through a reconciliation bill containing much of their social proposals, alongside the $550bn bipartisan infrastructure package. And on top of that, we’ve also got the decision on whether Chair Powell will be re-nominated as Fed Chair, with the decision 4 years ago coming at the start of November. So a busy end to the year in DC. The other main story yesterday was the sizeable decline in European natural gas prices, with the benchmark future down -10.73% to post its biggest daily loss since August. Admittedly, they’re still up almost five-fold since the start of the year, but relative to their intraday peak on Wednesday they’ve now shed -37.5%. So nearly a double bear market all of a sudden! The moves follow Wednesday’s signal that Russia could supply more gas to Europe. However, even as energy prices were starting to fall back from their peak, the effects of inflation were being felt elsewhere, with the UN’s world food price index climbing to its highest level in a decade in September. Looking ahead, today’s main focus will be on the US jobs report for September later on. Last month the report significantly underwhelmed expectations, coming in at just +235k, which was well beneath the +733k consensus expectation and the slowest pace since January. That raised questions as to the state of the labour market recovery, and helped to complicate a potential decision on tapering, with nonfarm payrolls still standing over 5m beneath their pre-Covid peak. This month, our US economists are expecting a somewhat stronger +400k increase in nonfarm payrolls, which should see the unemployment rate tick down to a post-pandemic low of 5.1%. On the bright side at least, the ADP’s report of private payrolls for September on Wednesday came in at an above-forecast 568k (vs. 430k expected), while the weekly initial jobless claims out yesterday for the week through October 2 were beneath expectations at 326k (vs. 348k expected). Ahead of that, global equities posted a decent rebound across the board, with cyclicals leading the march higher on both sides of the Atlantic. As mentioned at the top, the S&P 500 advanced +0.83%, which was part of a broad-based advance that saw over 390 companies move higher on the day. That said the index was up as much as +1.5% in early US trading before slipping lower in the US afternoon. The pullback was partly due to new headlines that China’s central bank plans to continue addressing monopolistic actions in internet companies that operate in the payments sector. Nonetheless, Megacap tech stocks were among the big winners yesterday, with the FANG+ index up +2.08%, whilst the small-cap Russell 2000 index was also up +1.58%. In Europe, the STOXX 600 (+1.60%) posted its strongest daily gain since July, and the broader gains helped the STOXX Banks index (+1.61%) surpass its pre-pandemic high, taking it to levels not seen since April 2019, even as sovereign bond yields moved lower. Speaking of sovereign bonds, yesterday saw a divergent set of moves once again, with yields on 10yr Treasuries up +5.2bps to 1.573%, their highest level since June, whereas those across the European continent moved lower. The US increase came against the backdrop of that debt ceiling resolution, and there was a noticeable rise in yields for Treasury bills that mature in December, which is where the debt ceiling deadline has now been kicked to. Elsewhere in North America, the Bank of Canada’s Macklem joined the global central bank chorus and noted inflation pressures were likely to be temporary, even if they’ve been more persistent than previously expected. Meanwhile over in Europe, lower inflation expectations helped yields move lower, with those on 10yr bunds (-0.3bps), OATs (-1.1bps) and BTPs (-3.6bps) all moving back. Overnight in Asia, all markets are trading in the green with the Nikkei (+2.16%) leading the way, along with CSI (+1.34%), Shanghai Composite (+0.60%), KOSPI (+0.22%) and Hang Seng (+0.04%). Chinese markets reopened after a week-long holiday so the focus will again be back on property market debt, and today the PBOC injected just 10bn Yuan with its 7-day reverse repos, resulting in a net liquidity withdrawal of 330bn Yuan. That comes as the services and composite PMIs did see a pickup from August level, with the services PMI up to 53.4 (vs. 49.2 expected), moving back above the 50 mark that separates expansion from contraction. In Japan however, household spending was down -3.0% year-on-year in August (vs. -1.2% expected) which came amidst a surge in the virus there. There’s also some news on the ESG front, with finance minister Shunichi Suzuki saying that the country would introduce ESG factors when considering the finance ministry’s foreign reserves. Looking forward, S&P 500 futures (+0.06%) are pointing to a small move higher. In Germany, as talks got underway today on a potential traffic-light coalition, it was reported by DPA that CDU leader Armin Laschet had signalled his willingness to stand down, with the report citing unidentified participants from internal discussions. In televised remarks last night, Laschet said that his party needs fresh voices across the board and that new leadership will be in place soon. This moves comes as Germany’s Social Democratic Party held talks with the Greens and the Free Democratic Party to enact a new three-way ruling coalition, which would leave the CDU out of power entirely. There wasn’t a massive amount of data yesterday, though German industrial production fell by -4.0% in August (vs. -0.5% expected), which follows the much weaker than expected data on factory orders the previous day. Elsewhere, the Manheim used car index increased +5.3% in September, its first positive reading in 4 months. Our US economics team points out that there tends to be around a two month lag between wholesale prices and CPI prints, so we aren’t likely to see this impact next week’s CPI print but it will likely prevent a bigger fall towards the end of the year. To the day ahead now, and the highlight will be the aforementioned September jobs report from the US. Central bank speakers include ECB President Lagarde and the ECB’s Panetta. Tyler Durden Fri, 10/08/2021 - 07:50.....»»

Category: smallbizSource: nytOct 8th, 2021

Luongo: Is Europe"s Entire "Energy Crisis" Manufactured?

Luongo: Is Europe's Entire "Energy Crisis" Manufactured? Authored by Tom Luongo via Gold, Goats, 'n Guns blog, The European Gas Crisis keeps hitting new high after new high as gas prices around the world go ballistic.   While this isn’t just a European problem, if you read the MSM, that’s all they seem to care about.   You know, it snows in Japan as well folks, and China. Prices keep skyrocketing in Europe because there is no shortage of idiocy at the top of the European power structure. The confluence of the pressurizing of Nordstream 2 with the release of the “Pandora Papers” and the beginnings of German coalition talks just after the beginning of Q4 should have everyone’s Spidey-Sense shutting down like your adrenals do after a long period of self-inflicted stress. And honestly, whose adrenals aren’t on the verge of collapse after eighteen months of ‘flatten the curve,’ ‘follow the science,’ and ‘just roll over to the Communism, already, you disgusting plebe!’ that we’ve been going through. I guess that’s yet another thing we have to try and factor into our analysis of what collapse is the most imminent? Because when you put this gas crisis in Europe into its proper context it should be clear where the battle lines are being drawn as the extreme pressure cooker of today’s geopolitical landscape forces everyone off the sidelines and into the fray. On the one hand we have natural gas prices in Europe approaching coffin corner. On the other we have Russia browning out gas deliveries to Europe. China is experiencing major energy shortages and the entirety of the coal delivery network around the world is buckling. These are facts. There are more I could list but let’s stay focused here. The thing that makes no sense, seemingly, is that no one has an answer why these facts exist in the first place. Because all anyone official ever wants to do is blame the sneaky Russians to avoid their own responsibility for this. Finally, after a couple of weeks of this howling, Russian President Vladimir Putin addressed the issue from their side. I suggest strongly you read his remarks carefully. Because in there you’ll find a couple of ‘facts’ which make this entire crisis in Europe seem like yet another staged ‘false flag’ for political gain. Ready? The two middle points are the ones the no one want to report on but are the key to the understanding of this. Europe is engaged in a game of idiotic brinksmanship with its people and the capital markets over gas supplies. They do this to construct a narrative and distort markets for political benefit. When the reality is that this entire ‘crisis’ is a manufactured one because of their unwillingness to bow to the forces their policies have unleashed. Gas prices in Europe are this way because of Europe’s own mistakes in trying to remake its economy (Putin Point #4). Moreover, Putin also urged Gazprom, as a gesture of good faith despite his misgivings, to ship gas through Ukraine even though it would be better to turn on other capacity. “Gazprom believes that it is economically more viable, it would even be more profitable to pay a fine to Ukraine, but to increase the volume of pumping through new systems precisely because of the circumstances that I mentioned – there is more pressure in the pipe, less CO2 emissions into the atmosphere. Everything is cheaper, around 3 billion a year. But I ask you not to do this,” the President said. Does this sound like the mustache-twirling tyrant that’s portrayed in the odious British, US and German media? Of course not. Now, I’m not accusing Putin of being an angel here or anything, he’s throwing scraps back to people who have put themselves in a position to starve and freeze to death, both literally and politically. The goal here is to highlight just how moronic the EU’s stance on energy has become, to finally to break up the logjam. He’s happy to see Gazprom (and possibly Rosneft if need be) sell all Europeans as much gas as it can supply and they demand, but only on terms that benefit everyone, supplier and demander. As I’ve talked about in previous blog posts, the EU thinks they have a monopsony on Russian gas and because of this can dictate terms to them. This is patently untrue, and Gazprom shifting around supplies for a few days here and there proves that point dramatically. Like Jay Powell draining the world of eurodollars with just five basis points, Putin and Gazprom can expose the the extent of Eurocrat mendacity with just a few days of slowing gas exports. That’s why this brinksmanship over gas supplies and electricity prices isn’t aimed at the Russians, who clearly have other customers for their gas, but with the people of Europe themselves and the capital markets all structured around one-sigma price volatility they are now extremely vulnerable even if things begin to return to normal. The Russian Bogey Man is simply the cover story for what is a much deeper and, frankly, much more disturbing game. So, while Zerohedge is correct about gas supply brown outs in Europe it’s only partly for reasons abundantly clear to even first-year geopolitical analysts: Flows dropped as Gazprom has booked only about a third of the gas transit capacity it was offered for October via the Yamal-Europe pipeline and no extra transit capacity via Ukraine. Gazprom declined to comment. It has repeatedly said it was supplying customers with gas in full compliance with existing contracts and said additional supplies could be provided once the newly built Nord Stream 2 gas pipeline was launched. Ball. Court. Germany. Yes, Germany needs Nordstream 2. Hell Europe needs Nordstream 3 if these Davos ninnies are wrong about Climate Change, which they are. Germany is the country caught in the middle of this titanic battle for the future of the world and Davos is the group creating this false flag to force a shift in sentiment negatively towards Russia. That’s what’s driving this current crisis, one that, I think, is now threatening the future of the European Union itself. If those are the stakes, then eventually someone will finally do the right thing. Putin just offered the smallest of olive branches. Now let’s see if the European Commission has three collective brain cells to rub together and figure out how to save face (and their backsides). Beating up and demeaning your neighbor is not a winning strategy, nor is it a path to lower prices and stable markets. At some point they, the Russians, realize that the situation is exactly what it looks like from the outside, war. And, in this case the Russians under Putin are finally treating the EU commissars as enemy combatants because that’s who they are. That’s why his comments were structured to put the onus of the crisis back on Europe’s leadership rather than blaming the people keeping the lights on in the first place. Whenever things like this happen Capitalism is always blamed. But, it’s always Commie vandals like the EU Commission who created the problem, either deliberately with dumb things like the Third Gas Directive or malinvestment of capital which leaves the world vulnerable to a hot summer in Asia. And this is the essential point no one wants to confront. The EU picked this fight purely for political purposes because they have an agenda — energy instability for political benefit — but it has come back to bite them in the ass. Because, as I said, the markets are so tight it takes only a small shift in sentiment to see the prices of things with inelastic demand, like energy, rise dramatically with a marginal shift in either supply, demand or, in this case, both. Russia doesn’t act this ‘by the book’ at this moment in time without a plan. Treating the EU like the enemies they are is the strategic play. Whining about it in the media only accentuates their weakness and lack of leverage. My friends at Mittdolcino.com are positively despondent because they see this power play for how it affects Italy, which is that it will carve the country up into pieces over divergent needs for inflation and deflation between it and Germany since one of these two countries need to exit the Euro-zone. There’s no way this massive ‘drop’ in Russian supplies to the EU occurs without a longer-term strategic plan by the Russians.  Putin has made it clear he is fully fed up with EU shenanigans and this is the time for him to put the most pressure imaginable on Brussels to break the EU into tiny pieces. How?  It’s again, all about Germany.   When Nordstream 2 was announced and I was writing Gold Stock Advisor for Newsmax in 2013 I talked then about how the difference between how gold was accounted for between the ECB and the Fed.  That put Germany squarely in the middle between the U.S. on one side and Russia on the other. Russia and China still hadn’t signed the big deal for the Power of Siberia pipeline at the time. They are now working on Power of Siberia 2, which will open up the massive mineral deposits in Mongolia.  So, even then, in my naïve way of seeing the world then as a first-year geopolitical analyst, I understood that Russia’s foreign policy had to be focused on getting Germany to side with them versus the U.S. The political establishment in Germany was never going to let that happen because under Obama. Davos was running the operation to cleave Ukraine from Russia.  To date, both have been partially successful.  Both Ukraine and Germany are being torn apart from within as domestic leadership bows to internationals forces forcing them to pursue policies which go completely against their countries’ wishes and best interests. So, now, fast forward to today.  The day after the German elections brings a mess but with a highly likely outcome that the SPD will ally with the Greens and the FDP. With Christian Lidner (FDP) as Finance Minister (at least temporarily) we have a German government at war with itself. As Alex Mercouris brought up after I left the chat with Crypto Rich last week, the Greens are fracturing over the Russia issue.  Part of them want a restoration of good Russian relations, the other are neocon/Davos infiltrators trying to constantly move the goalposts on both Climate Change and geopolitics. The SPD are pure Davos scum at this point so expect nothing good from them.  This is why I think Putin ‘shut off the taps’ the day after the election.  Like everyone else, he can see what Davos is doing and doesn’t like it.  So, in order for him to make his point he does exactly what he should, stop trading with those who have unofficially declared war on Russia and push the political scene in Germany to a breaking point. Because here’s where this goes.  Germany needs to either control the purse strings of the EU or it needs to leave the euro-zone and be independent of the sinking ship.  Putin realizes that the best way to achieve this is to pour gasoline on a raging firestorm in the energy markets (oh, the humanity of the puns!) and remind German voters just who is truly responsible for their €2000/month electricity bills. It’s not Putin.  It’s Berlin.  So, Berlin needs to sign off on Nordstream 2 and then ram it down the EU Commission’s throat.  And they better do it soon because Winter is Coming, after all. And they just voted for more of this while Merkel, who has been the biggest obstacle to AfD’s inclusion in any government, is leaving the scene.  The CDU leadership got whacked across the board.  Most of the big names will not be in the Bundestag this time around, so the party will be doing a lot of self-reflection. Inflation of the type Putin is ‘forcing’ on Europeans today is the type a country only recovers from with a political inversion.  This is why today we’re seeing surprise rate hikes from Poland, for example. It’s why Serbia is begging Russia to increase gas supplies there and Hungary signed a 15-year deal to secure its energy future. While there is no appetite for a political inversion in Germany today after last week’s vote, there will be in about 3 months if coalition talks stall. Because the ECB under Christine Lagarde cannot raise rates but is powerless to stop them rising ultimately if the market senses that there is no political leadership capable of reining it in. That ship sailed a few months ago after the Fed called Lagarde’s hawkish bluff and actively drained more than $1 trillion from overseas dollar markets and just increased the capacity to drain even more, without tapering QE. Now let’s go back to the Fed and Wall St.  If there is a real backlash within some areas of the U.S. ‘big money’ against Davos which is showing up as Fed monetary policy, per my consistent analysis of the situation and events playing out to support it, then they are tacitly coordinating with Putin to give Germany what it wants, an excuse to leave the euro and conduct independent trade and energy policy.   Think about it.  On the one hand the Fed is drying up dollars.  On the other Putin is spiking energy prices making it impossible for Germany to fight inflation within the EU.  On the third hand, China is cracking down on property speculation domestically, kicking out the foreign NGOs and reminding foreign investors that the rules in China are not the same as they are in the West. You can and will lose all your money if you invest behind the Great Wall, as so many Evergrande bondholders just found out. Now let’s square the entire circle. If Europe’s energy crisis is a constructed false flag event to spook capital, encourage speculators and effect political change, then can’t you make the same arguments for the concurrent fight on Capitol Hill regarding the Democrats, the debt ceiling and the spending bills? Senate Majority Leader Mitch McConnell has been adamant that the Democrats do not need any help in passing a debt ceiling resolution. They can do it any time they want to. But, the Democrats won’t do this? Why? They are manufacturing a narrative that there is crisis on the horizon — default on U.S. bond payments. This is the one outcome no investor wants to contemplate. So, the Democrats, like the Europeans, are arguing against themselves in order to blackmail the world into giving them their cookie or they will hold their breath until they collapse global markets. Let me repeat. There is no debt ceiling crisis. There is no U.S. default crisis. There is only a bunch of Mafiosi on Capitol Hill doing what they’ve been told to do while purposefully scaring everyone into believing there is a crisis when none exists. Do I have to invoke a classic Who song to make my point? What’s the goal? Chaos and the continued undermining of faith in politics, capital markets, energy production and seizing supply chains as we approach the winter in the Northern Hemisphere where susceptibility to pesky things like the flu, the latest iteration of COVID-9/11 and blatant political bullshit swells like a boil on the back of a government bureaucrat blocking a permit for some basic, but eminently important thing. That Putin came out and told the world he’s ready to work with Europe to do his part alleviating the energy supply problems in Europe I’ve not heard one encouraging word from those that would benefit from this the most. Their silence is deafening. And that brings me back to Germany where, unless this gets resolved quickly, the most likely downstream outcome is Germany leaving the euro, reinstitute the Deutsche Mark, watch it fall vs. the dollar in the near term but outcompete the euro.   With the euro in freefall after a disastrous Q3 close and German Bunds getting prepared for their next big sell-off, perhaps, maybe, for the first time in a long time, the markets are beginning to wake up from their central bank induced SOMA injections and get real with the possibilities that forces are now aligned to do the unthinkable, break up the EU. But that only happens with a political inversion where the CDU/CSU ally with AfD and the FDP to form a real government after the current parties can’t form a coalition or any three-way coalition formed fails as inflation crushes the German middle class. If the AfD were smart now they would be blaming all of this on Merkel’s moronic energy policy.  Now we’re seeing calls for delaying shutting down Germany’s nuclear reactors.  They can’t import enough coal to feed the plants.  BASF has shut down ammonia production, so food production is threatened. There is no Agenda 2030 on the horizon if Germans freeze to death in their homes or get decimated by COVID-9/11 because they can’t afford to heat their homes. This will crush France and Macron, overthrow Davos at the mid-terms here in the states and break the European Union in the process. Germany is the lynchpin to the entire Davos edifice.  Without a compliant and beaten Germany there is no further Great Reset.  A Germany that breaks from the euro becomes a Germany that realigns with Russia and Eastern Europe. It’s a Germany no longer hell bent on internal European mercantilism and the establishment of the Fourth Reich through the EUSSR.   The German people keep asking for that policy to end but aren’t given the options by their leadership to make that happen.  Then again, they keep giving their leadership just enough power to forestall their having to make a real decision. That decision is coming at them, fast. As it is everyone across the West in various guises. So, as Powell with five little basis points is under extreme pressure to go full MMT retard, so far has held his water and Putin with a few million BTUs of gas, these men are forcing open fault lines in the aristocracy that thinks it deserves to run the world and can bring down the whole rotten edifice. *  *  * Join my Patreon if you don’t put up fronts BTC: 3GSkAe8PhENyMWQb7orjtnJK9VX8mMf7Zf BCH: qq9pvwq26d8fjfk0f6k5mmnn09vzkmeh3sffxd6ryt DCR: DsV2x4kJ4gWCPSpHmS4czbLz2fJNqms78oE LTC: MWWdCHbMmn1yuyMSZX55ENJnQo8DXCFg5k DASH: XjWQKXJuxYzaNV6WMC4zhuQ43uBw8mN4Va WAVES: 3PF58yzAghxPJad5rM44ZpH5fUZJug4kBSa ETH: 0x1dd2e6cddb02e3839700b33e9dd45859344c9edc DGB: SXygreEdaAWESbgW6mG15dgfH6qVUE5FSE Tyler Durden Fri, 10/08/2021 - 03:30.....»»

Category: smallbizSource: nytOct 8th, 2021

September Payrolls Preview: It Will Be A Beat, The Question Is How Big

September Payrolls Preview: It Will Be A Beat, The Question Is How Big After a strong initial claims report and a solid ADP private payrolls print, all eyes turn to the most important economic data point of the week, and the month, Friday's nonfarm payrolls report due at 830am ET on Friday, where consensus expects a 500K print- more than double last month's disappointing 235K print - as well as a drop in the unemployment rate to 5.1% and an increase in average hourly earnings to 4.6%. And unlike last month, when we correctly predicted the big miss in August payrolls, this time we agree that tomorrow's report will be a beat, the only question is how big. Here is a snapshot of what to expect tomorrow: Total Payrolls: 500K, Last 235K Private Payrolls: 450K, Last 243K Unemployment Rate: 5.1%, Last 5.2% Labor force participation rate: 61.8%, Last 61.7% Average Hourly Earnings Y/Y: 4.6%, Last 4.3% Average Hourly Earnings M/M: 0.4%, Last 0.6% Average Weekly Hours: 34.7, Last 34.7 As Newsquawk writes in its NFP preview, September’s jobs data, the last before the Fed’s November 3rd policy meeting, will be framed in the context of the central bank’s expected taper announcement, where a merely satisfactory report would likely to be enough for the FOMC to greenlight a November announcement to scale-back its USD 120BN/month asset purchases. Goldman economists are more bullish than normal, and estimate nonfarm payrolls rose 600k in September, above consensus of +500k, and they note that "labor demand remains very strong, and we believe the nationwide expiration of enhanced unemployment benefits on September 5 boosted effective labor supply and job growth—as it did in July and August in states that ended federal benefits early." As a result, Goldman is assuming a 200k boost in tomorrow’s numbers and a larger boost in October. The bank also believes the reopening of schools contributed to September job growth, by around 150k. Despite these tailwinds, Big Data employment signals were mixed, and dining activity rebounded only marginally. Labor market proxies have been constructive for the month: ADP’s gauge of payrolls surprised to the upside, although analysts continue to note that the direct relationship between the official data and the ADP’s gauge is tenuous, despite the gap being under 100k over the last three reports. The number of initial jobless claims and continuing claims has eased back between the survey periods of the August and September jobs data, although analysts note that more recent releases have shown an uptick in claims potentially clouding the outlook. The ISM business surveys have signaled employment growth in the month, with manufacturing employment rising into growth territory again, but services sector hiring cooled a little in the month, but remains expansionary; survey commentary continues to allude to a tight labour market. The Bureau of Labor Statistics will release the September employment situation report at 13:30BST/08:30EDT on October 8th. POLICY: The September jobs report might have reduced relevance on trading conditions given that Fed officials have effectively confirmed that, barring a collapse in the jobs data, it is on course to announce a tapering of its asset purchases at the November 3rd meeting. Accordingly, trading risks may be skewed to the downside, rather than to the upside, where a significant payrolls miss may present obstacles to the Fed announcing its taper. Additionally, it is worth being cognizant of how efforts in Washington to raise the debt ceiling are progressing; as yet, officials have not struck a deal, and are in the process of enacting stop gap legislation to allow funding into December; some analysts suggest that the Fed may be reticent to tighten policy in the face of potential default risks. PAYROLLS: The consensus looks for 500k nonfarm payrolls to be added to the US economy in September (prev. 235k), which would be a cooler rate of growth than the three- and six-month average rate, though in line with the 12-month average (3-month average is 750k/month, the six-month average is 653k/month, and the 12-month average is 503k/month – that technically at least suggests an improving rate of payrolls growth in recent months). Aggregating the nonfarm payrolls data since March 2020, around 5.33mln Americans remain out of work relative to pre-pandemic levels. MEASURES OF SLACK: The Unemployment Rate is expected at 5.1% (prev. 5.2%); Labour Force Participation previously at 61.7% vs 63.2% pre-pandemic; U6 measure of underemployment was previously at 8.8% vs 7.0% prepandemic; Employment-population ratio was previously 58.5% vs 61.1% pre-pandemic. These measures of slack are likely to provide more insight into how Fed officials are judging labour market progress, with many in recent months noting that they are closely watching the Underemployment Rate, Participation Rate, and the Employment-Population Ratio for a better handle on the level of slack that remains in the economy. Analysts would be encouraged the closer these get to pre-pandemic levels. EARNINGS: Average Hourly Earnings expected at +0.4% M/M (prev. +0.6%); Average Hourly Earnings expected at +4. 6% Y/Y (prev. +4.3%); Average Workweek Hours expected at 34.7hrs (prev. 34.7hrs). Aggregating the nonfarm payrolls data since March 2020, around 5.33mln Americans still remain out of work relative to pre-pandemic levels. ADP: The ADP National Employment Report showed 568k jobs added to the US economy in September, topping expectations for 428k, and a better pace than the prior 340k (revised down from 374k initially reported). ADP itself said that the labor market recovery continued to make progress despite the marked slowdown in the rate of job additions from the 748k pace seen in Q2. It also noted that Leisure & Hospitality remained one of the biggest beneficiaries to the recovery, though said that hiring was still heavily impacted by the trajectory of the pandemic, especially for small firms. ADP thinks that the current bottlenecks in hiring will likely fade as the pandemic situation continues to improve, and that could set the stage for solid job gains in the months ahead. On the data methodology, analysts continue to note that ADP's model incorporates much of the prior official payrolls data, other macroeconomic variables, as well as data from its own payrolls platform; "Payrolls were soft in August, thanks to the hit to the services sector from the Delta variant, and that weakness likely constrained ADP data," Pantheon Macroeconomics said. "The overshoot to consensus, therefore, suggests that the other inputs to ADP’s model were stronger than we expected, but none of the details are published, so we don’t know if the overshoot was model-driven or due to stronger employment data at ADP’s clients." INITIAL JOBLESS CLAIMS: Initial jobless claims data for the week that coincides with the BLS jobs report survey window saw claims at around 351k – little changed from the 349k for the August jobs data survey window – where analysts said seasonal factors played a role in boosting the weekly data, while there may have been some lingering Hurricane Ida effects; the corresponding continuing claims data has fallen to 2.802mln in the September survey period vs 2.908mln in the August survey period. In aggregate, the data continues to point to declining trend, although in recent weeks the level of jobless claims has been picking up again. BUSINESS SURVEYS: The Services and Manufacturing ISM reports showed divergent trends in September, with the service sector employment sub-index easing a little to 53.0 from 53.7, signalling growth but at a slower rate, while the manufacturing employment sub-index rose back into expansionary territory, printing 50.2 from 49.0 prior. On the manufacturing sector, ISM said companies were still struggling to meet labour-management plans, but noted some modest signs of progress compared to previous months: "Less than 5% of comments noted improvements regarding employment, compared to none in August," it said, "an overwhelming majority of panelists indicate their companies are hiring or attempting to hire," where around 85% of responses were about seeking additional staffing, while nearly half of the respondents expressed difficulty in filling positions, an increase from August. "The increasing frequency of comments on turnover rates and retirements continued a trend that began in August," ISM said. Meanwhile, in the services sector, employment activity rose for a third straight month; respondents noted that employees were flocking to better-paying jobs and there was a lack of pipeline to replace these staff, while other respondents talked of labor shortages being experienced at all levels. ARGUING FOR A BETTER-THAN-EXPECTED REPORT: End of federal enhanced unemployment benefits. The expiration of federal benefits in some states boosted labor supply and job-finding rates over the summer, and all remaining such programs expired on September 5. The July and August indicated a cumulative 6pp boost to job-finding probabilities from June to August for workers losing $300 top-up payments and a 12pp boost for workers losing all benefits. Some of the 6mn workers who lost some or all benefits on September 5 got a job by September 18—in time to be counted in tomorrow’s data. Goldman assumes a +200k boost to job growth from this channel, with a larger increase in subsequent reports (+1.3mn cumulatively by year end). School reopening. The largest 100 school districts are all open for in-person learning, catalyzing the return of many previously furloughed teachers and support staff. While full normalization of employment levels would contribute 600k jobs (mom sa, see left panel of the chart below), some janitors and support staff did not return due to hybrid teaching models, and job openings in the sector are only 200k above the pre-crisis level (see right panel). Relatedly, the BLS’s seasonal factors already embed the usual rehiring of education workers on summer layoff, so if fewer janitors returned to work than in a typical September, this would reduce seasonally adjusted job growth, other things equal. Taken together, assume a roughly 150k boost from the reopening of schools in tomorrow’s report. Job availability. The Conference Board labor differential—the difference between the percent of respondents saying jobs are plentiful and those saying jobs are hardto get - edged down to 42.5 from 44.4, still an elevated level. Additionally, JOLTS job openings increased by 749k in July to a new record high of 10.9mn. ADP. Private sector employment in the ADP report increased by 568k in September, above consensus expectations for a 430k gain, implying strong growth in the underlying ADP sample. Additionally, schools generally do not use ADP payroll software, arguing for a larger gain from school reopening in the official payroll measure. ARGUING FOR A WEAKER-THAN-EXPECTED REPORT: Delta variant. Rebounding covid infection rates weighed on services consumption and the labor market in August. And while US case counts began to decline in early September, restaurant seatings on Open Table rebounded only marginally. leisure and hospitality employment rose in September, but probably not at the ~400k monthly pace of June and July. Employer surveys. The employment components of our business surveys were flat to down, whereas we and consensus forecast a pickup in job growth. Goldman's services survey employment tracker remained unchanged at 54.5 and the manufacturing survey employment tracker declined 0.4pt to 57.8. And while the Goldman Sachs Analyst Index (GSAI) decreased 0.8% to 68.5, the employment component rose1.9% to 71.9. NEUTRAL FACTORS: Big Data. High-frequency data on the labor market were mixed between the August and September survey weeks, on net providing little guidance about the underlying pace of job growth. Three of the five measures tracked indicate an at-or-above-consensus gain (Census Small Business Pulse +0.5mn, ADP +0.6mn,Google mobility +2mn), but the Homebase data was an outlier to the downside. At face value, it would indicate a large outright decline in payrolls. The Census Household Pulse (-0.6mn) was also quite weak, though encouragingly, it also indicated a large drop in childcare-related labor supply headwinds as schools reopened. Seasonality. The September seasonal hurdle is relatively low: the BLS adjustment factors generally assume a 600-700k decline in private payrolls (which exclude public schools), compared to around -100k on average in July and August. Continued labor shortages encouraged firms to lay off fewer workers at the end of summer. Partially offsetting this tailwind, the September seasonal factors may have evolved unfavorably due to the crisis—specifically by fitting to last September’s reopening-driven job surge (private payrolls +932k mom sa). Jobless claims. Initial jobless claims fell during the September payroll month, averaging 339k per week vs. 378k in August despite a boost from individuals transitioning or attempting to transition to state programs. Across all employee programs including emergency benefits, continuing claims fell dramatically (-3.3mn)–but again for non-economic reasons (federal enhanced programs expired). Continuing claims in regular state programs decreased 106k from survey week to survey week. Job cuts. Announced layoffs reported by Challenger, Gray & Christmas rebounded 11% month-over-month in September after decreasing by 14% over the prior two months (SA by GS). Nonetheless, layoffs remain near the three-decade low on this measure (in 1993). Tyler Durden Thu, 10/07/2021 - 20:10.....»»

Category: smallbizSource: nytOct 7th, 2021

Futures Surge On Debt Ceiling Reprieve, Slide In Energy Prices

Futures Surge On Debt Ceiling Reprieve, Slide In Energy Prices The nausea-inducing rollercoaster in the stock market continued on Thursday, when US index futures continued their violent Wednesday reversal - the biggest since March - and surged with Nasdaq futures up more than 1%, hitting a session high, as Chinese technology stocks rebounded from a record low, investors embraced progress on the debt-ceiling impasse in Washington, a dip in oil prices eased worries of higher inflation and concerns eased about the European energy crisis fueled a risk-on mood. At 7:30am ET, S&P futures were up 44 points or 1.00% and Dow futures were up 267 points or 0.78%. Oil tumbled as much as $2, dragging breakevens and nominal yields lower, while the dollar dipped and bitcoin traded around $54,000. Wednesday's reversal started after Mitch McConnell on Wednesday floated a plan to support an extension of the federal debt ceiling into December, potentially heading off a historic default, a proposal which Democrats have reportedly agreed to after Senate Majority Leader Chuck Schumer suggested an agreement would be in place by this morning. While the deal is good news for markets worried about an imminent default, it only kicks the can to December when the drama and brinksmanship may run again. Markets have been rocked in the past month by worries about the global energy crisis, elevated inflation, reduced stimulus and slower growth. Meanwhile, the prospect of a deal to boost the U.S. debt limit into December is easing concern over political bickering, while Friday’s payrolls report may shed light on the the Federal Reserve’s timeline to cut bond purchases. “We have several things that we are watching right now -- certainly the debt ceiling is one of them and that’s been contributing to the recent volatility,” Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute, said on Bloomberg Television. “But we look for these 5% corrections to add money to the equity markets.” Tech and FAAMG stocks including Apple (AAPL US +1%), Nvidia (NVDA +2%), Microsoft (MSFT US +0.9%), Tesla (TSLA US 0.8%) led the charge in premarket trading amid a dip in 10-year Treasury yields on Thursday, helped by a slide in energy prices on the back of Putin's Wednesday announcement that Russia could ramp up nat gas deliveries to Europe, something it still has clearly not done. Perhaps sensing that not all is at Putin said, after plunging on Wednesday UK nat gas futures (NBP) from 407p/therm to a low of 209, prices have ominously started to rise again. As oil fell, energy stocks including Chevron, Exxon Mobil and APA led declines with falls between 0.6% and 2.1%. Here are some of the other big movers today: Twitter (TWTR US) shares rise 2% in U.S. premarket trading after it agreed to sell MoPub to AppLovin for $1.05 billion in cash Levi Strauss (LEVI US) rises 4% in U.S. premarket trading after it boosted its adjusted earnings per share forecast for the full year; the guidance beat the average analyst estimate NRX Pharmaceuticals (NRXP US) drops in U.S. premarket trading after Relief Therapeutics sued the company, alleging breach of a collaboration pact Osmotica Pharmaceuticals (OSMT US) declined 28% in premarket trading after launching an offering of shares Rocket Lab USA (RKLB US) shares rose in Wednesday postmarket trading after the company announced it has been selected to launch NASA’s Advanced Composite Solar Sail System, or ACS3, on the Electron launch vehicle U.S. Silica Holdings (SLCA US) rose 7% Wednesday postmarket after it started a review of strategic alternatives for its Industrial & Specialty Products segment, including a potential sale or separation Global Blood Therapeutics (GBT US) climbed 2.6% in Wednesday after hours trading while Sage Therapeutics (SAGE US) dropped 3.9% after Jefferies analyst Akash Tewari kicked off his biotech sector coverage On the geopolitical front, a senior U.S. official said President Joe Biden’s plans to meet virtually with his Chinese counterpart before the end of the year. Tensions are escalating between the two countries, with U.S. Secretary of State Antony Blinken criticizing China’s recent military maneuvers around Taiwan. European equities rebounded, with the Stoxx 600 index surging as much as 1.3% boosted by news that the European Central Bank was said to be studying a new bond-buying program as emergency programs are phased out. Also boosting sentiment on Thursday, ECB Governing Council member Yannis Stournaras said that investors shouldn’t expect premature interest-rate increases from the central bank. Here are some of the biggest European movers today: Iberdrola shares rise as much as 6.8% after an upgrade at BofA, and as Spanish utilities climbed following a report that the Ministry for Ecological Transition may suspend or modify the mechanism that reduces the income received by hydroelectric, nuclear and some renewables in relation to gas prices. Hermes shares climb as much as 3.8%, the most since February, after HSBC says “there isn’t much to worry about” from a possible slowdown in mainland China or questions over trend sustainability in the U.S. Edenred shares gain as much as 5.2%, their best day since Nov. 9, after HSBC upgrades the voucher company to buy from hold, saying that Edenred, along with Experian, offers faster recurring revenue growth than the rest of the business services sector. Valeo shares gain as much as 4.9% and is Thursday’s best performer in the Stoxx 600 Automobiles & Parts index; Citi raised to neutral from sell as broker updated its model ahead of 3Q results. Sika shares rise as much as 4.2% after company confirms 2021 guidance, which Baader said was helpful amid market concerns of sequentially declining margins due to rising raw material prices. Centrica shares rise as much as 3.6% as Morgan Stanley upgrades Centrica to overweight from equalweight, saying the utility provider will add market share as smaller U.K. companies fail due to the spike in wholesale energy prices. Earlier in the session, Asian stocks rallied, boosted by a rebound in Hong Kong-listed technology shares and optimism over the progress made toward a U.S. debt-ceiling accord. The MSCI Asia Pacific Index climbed as much as 1.3%, on track for its biggest jump since Aug. 24. Alibaba, Tencent and Meituan were among the biggest contributors to the benchmark’s advance. Equity gauges in Hong Kong and Taiwan led a broad regional gain, while Japan’s Nikkei 225 also rebounded from its longest losing run since 2009. Thursday’s rally in Asia came after U.S. stocks closed higher overnight on a possible deal to boost the debt ceiling into December. Focus now shifts to the reopening of mainland China markets on Friday following the Golden Week holiday, and also the U.S. nonfarm payrolls report due that day. READ: China Tech Gauge Posts Best Day Since August After Touching Lows “Risk off sentiment has persisted due to a number of negative factors, but worry over some of these issues has been alleviated for the near term,” said Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “One is that concern over stagflation has abated, with oil prices pulling back.” Sentiment toward risks assets was also supported as a senior U.S. official said President Joe Biden plans to meet virtually with Chinese President Xi Jinping before the end of the year. Of note, holders of Evergrande-guaranteed Jumbo Fortune bonds have yet to receive payment; the holders next step would be to request payment from Evergrande. The maturity of the bond in question was Sunday October 3rd, with a Monday October 4th effective due data, though the bond does have a five-day grace period only in the event that payment failure is due to an administrative/technical error. Australia's S&P/ASX 200 index rose 0.7% to close at 7,256.70. All subgauges finished the day higher, with the exception of energy stocks as Asian peers tumbled with a retreat in crude oil prices.  Collins Foods was among the top performers after the company signed an agreement to become KFC’s corporate franchisee in the Netherlands. Whitehaven tumbled, dropping the most for a session since June 17.  In New Zealand, the S&P/NZX 50 index fell 0.5% to 13,104.61. Oil extended its decline from a seven-year high as U.S. stockpiles grew more than expected, and European natural gas prices tumbled on signals from Russia it may increase supplies to the continent. The yield on the U.S. 10-year Treasury was 1.526%, little changed on the day after erasing a 2.4bp increase; bunds outperformed by ~1.5bp, gilts by less than 1bp; long-end outperformance flattened 2s10s, 5s30s by ~0.5bp each. Treasuries pared losses during European morning as fuel prices ebbed and stocks gained. Bunds and gilts outperform while Treasuries curve flattens with long-end yields slightly richer on the day. WTI oil futures are lower after Russia’s offer to ease Europe’s energy crunch. Negotiations on a short-term increase to U.S. debt-ceiling continue.    In FX, the Bloomberg Dollar Spot Index was little changed and the greenback was weaker against most Group-of-10 peers, though moves were confined to relatively tight ranges. The U.S. jobs report Friday is the key risk for markets this week as a strong print could boost the dollar. Options traders see a strong chance that the euro manages to stay above a key technical support, at least on a closing basis. Risk sensitive currencies such as the Australian and New Zealand dollars as well as Sweden’s krona led G-10 gains, while Norway’s currency was the worst performer as European natural gas and power prices tumbled early Thursday after signals from Russia it may increase supplies to the continent. The pound gained against a broadly weaker dollar as concerns over the U.K. petrol crisis eased and focus turned to Bank of England policy. A warning shot buried deep in the BoE’s policy documents two weeks ago indicating that interest rates could rise as early as this year suddenly is becoming a more distinct possibility. Australia’s 10-year bonds rose for the first time in two weeks as sentiment was bolstered by a short-term deal involving the U.S. debt ceiling. The yen steadied amid a recovery in risk sentiment as stocks edged higher. Bond futures rose as a debt auction encouraged players to cautiously buy the dip. Looking ahead, investors will be looked forward to the release of weekly jobless claims data, likely showing 348,000 Americans filed claims for state unemployment benefits last week compared with 362,000 in the prior week. The ADP National Employment Report on Wednesday showed private payrolls increased by 568,000 jobs last month. Economists polled by Reuters had forecast a rise of 428,000 jobs. This comes ahead of the more comprehensive non-farm payrolls data due on Friday. It is expected to cement the case for the Fed’s slowing of asset purchases. We'll also get the latest August consumer credit print. From central banks, we’ll be getting the minutes from the ECB’s September meeting, and also hear from a range of speakers including the ECB’s President Lagarde, Lane, Elderson, Holzmann, Schnabel, Knot and Villeroy, along with the Fed’s Mester, BoC Governor Macklem and PBoC Governor Yi Gang. Market Snapshot S&P 500 futures up 1% to 4,395.5 STOXX Europe 600 up 1.03% to 455.96 MXAP up 1.2% to 193.71 MXAPJ up 1.8% to 633.78 Nikkei up 0.5% to 27,678.21 Topix down 0.1% to 1,939.62 Hang Seng Index up 3.1% to 24,701.73 Shanghai Composite up 0.9% to 3,568.17 Sensex up 1.2% to 59,872.01 Australia S&P/ASX 200 up 0.7% to 7,256.66 Kospi up 1.8% to 2,959.46 Brent Futures down 1.8% to $79.64/bbl Gold spot up 0.0% to $1,762.96 U.S. Dollar Index little changed at 94.19 German 10Y yield fell 0.6 bps to -0.188% Euro little changed at $1.1563 Top Overnight News from Bloomberg Democrats signaled they would take up Senate Republican leader Mitch McConnell’s offer to raise the U.S. debt ceiling into December, alleviating the immediate risk of a default but raising the prospect of another bruising political fight near the end of the year The European Central Bank is studying a new bond-buying program to prevent any market turmoil when emergency purchases get phased out next year, according to officials familiar with the matter Market expectations for interest-rate hikes “are not in accordance with our new forward guidance,” ECB Governing Council member Yannis Stournaras said in an interview with Bloomberg Television Creditors have yet to receive repayment of a dollar bond they say is guaranteed by China Evergrande Group and one of its units, in what could be the firm’s first major miss on maturing notes since regulators urged the developer to avoid a near-term default Boris Johnson’s plan to overhaul the U.K. economy is a 10-year project he wants to see out as prime minister, according to a senior official. The time frame, which has not been disclosed publicly, illustrates the scale of Johnson’s gamble that British voters will accept a long period of what he regards as shock therapy to redefine Britain The U.K.’s surge in inflation has boosted the cost of investment-grade borrowing in sterling to the most since June 2020. The average yield on the corporate notes climbed just past 2%, according to a Bloomberg index A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded positively as the region took impetus from the mostly positive close in the US where the major indices spent the prior session clawing back opening losses, with sentiment supported amid a potential Biden-Xi virtual meeting this year, and hopes of a compromise on the debt ceiling after Senate Republican Leader McConnell offered a short-term debt limit extension to December. The ASX 200 (+0.7%) was led higher by strength in the tech sector and with risk appetite also helped by the announcement to begin easing restrictions in New South Wales from next Monday. The Nikkei 225 (+0.5%) attempted to reclaim the 28k level with advances spearheaded by tech and amid reports Tokyo is to lower its virus warning from the current top level. The Hang Seng (+3.1%) was the biggest gainer owing to strength in tech and property stocks, with Evergrande shareholder Chinese Estates surging in Hong Kong after a proposal from Solar Bright to take it private. Reports also noted that the US and China reportedly reached an agreement in principle for a Biden-Xi virtual meeting before year-end and with yesterday’s talks in Zurich between senior officials said to be more meaningful and constructive than other recent exchanges. Finally, 10yr JGBs retraced some of the prior day’s after-hours rebound with haven demand hampered by the upside in stocks and after the recent choppy mood in T-notes, while the latest enhanced liquidity auction for longer-dated JGBs resulted in a weaker bid-to-cover. Top Asian News Vietnam Faces Worker Exodus From Factory Hub for Gap, Nike, Puma Japan’s New Finance Minister Stresses FX Stability Is Vital Korea Lures Haven Seekers With Bonds Sold at Lowest Spread Africa’s Free-Trade Area to Get $7 Billion in Support From AfDB Bourses in Europe hold onto the gains seen at the cash open (Euro Stoxx 50 +1.5%; Stoxx 600 +1.1%) following on from an upbeat APAC handover, albeit the upside momentum took a pause shortly after the cash open. US equity futures are also firmer across the board but to a slightly lesser extent, with the tech-laden NQ (+1.0%) getting a boost from a pullback in yields and outperforming its ES (+0.7%), RTY (+0.6%) and YM (+0.6%). The constructive tone comes amid some positive vibes out of the States, and on a geopolitical note, with US Senate Minority Leader McConnell offered a short-term debt ceiling extension to December whilst US and China reached an agreement in principle for a Biden-Xi virtual meeting before the end of the year. Euro-bourses portray broad-based gains whilst the UK's FTSE 100 (+1.0%) narrowly lags the Euro Stoxx benchmarks, weighed on by its heavyweight energy and healthcare sectors, which currently reside at the foot of the bunch. Further, BoE's Chief Economist Pill also hit the wires today and suggested that the balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long-lasting than originally anticipated. Broader sectors initially opened with an anti-defensive bias (ex-energy), although the configuration since then has turned into more of a mixed picture, although Basic Resource and Autos still reside towards the top. Individual movers are somewhat scarce in what is seemingly a macro-driven day thus far. Miners top the charts on the last day of the Chinese Golden Week Holiday, with base metal prices also on the front foot in anticipation of demand from the nation – with Antofagasta (+5.1%), Anglo American (+4.2%) among the top gainers, whist Teamviewer (-8.2%) is again at the foot of the Stoxx 600 in a continuation of the losses seen after its guidance cut yesterday. Ubisoft (-5.1%) are also softer, potentially on a bad reception for its latest Ghost Recon game announcement. Top European News ECB’s Stournaras Reckons Investor Rate-Hike Bets Are Unwarranted Shell Flags Financial Impact of Gas Market Swings, Hurricane Johnson’s Plans for Economy Signal Ambitions for Decade in Power U.K. Grid Bids to Calm Market Saying Winter Gas Supply Is Enough In FX, the latest upturn in broad risk sentiment as the pendulum continues to swing one way then the other on alternate days, has given the Aussie a fillip along with news that COVID-19 restrictions in NSW remain on track for being eased by October 11, according to the state’s new Premier. Aud/Usd is eyeing 0.7300 in response to the above and a softer Greenback, while the Aud/Nzd cross is securing a firmer footing above 1.0500 in wake of a slender rise in AIG’s services index and ahead of the latest RBA FSR. Conversely, the Pound is relatively contained vs the Buck having probed 1.3600 when the DXY backed off further from Wednesday’s w-t-d peak to a 94.102 low and has retreated through 0.8500 against the Euro amidst unsubstantiated reports about less hawkish leaning remarks from a member of the BoE’s MPC. In short, the word is that Broadbent has downplayed the prospects of any fireworks in November via a rate hike, but on the flip-side new chief economist Pill delivered a hawkish assessment of the inflation situation in the UK when responding to a TSC questionnaire (see 10.18BST post on the Headline Feed for bullets and a link to his answers in full). Back to the Dollar index, challenger lay-offs are due and will provide another NFP guide before claims and commentary from Fed’s Mester, while from a technical perspective there is near term support just below 94.000 and resistance a fraction shy of 94.500, at 93.983 (yesterday’s low) and the aforementioned midweek session best (94.448 vs the 94.283 intraday high, so far). NZD - Notwithstanding the negative cross flows noted above, the Kiwi is also taking advantage of more constructive external and general factors to secure a firmer grip of the 0.6900 handle vs its US counterpart, but remains rather deflated post-RBNZ on cautious guidance in terms of further tightening. EUR/CHF/CAD/JPY - All narrowly mixed against their US peer and mostly well within recent ranges as the Euro reclaims 1.1500+ status in the run up to ECB minutes, the Franc consolidates off sub-0.9300 lows following dips in Swiss jobless rates, the Loonie weighs up WTI crude’s further loss of momentum against the Greenback’s retreat between 1.2600-1.2563 parameters awaiting Canada’s Ivey PMIs and a speech from BoC Governor Macklem, and the Yen retains an underlying recovery bid within 111.53-23 confines before a raft of Japanese data. Note, little reaction to comments from Japanese Finance Minister, when asked about recent Jpy weakening, as he simply said that currency stability is important, so is closely watching FX developments, but did not comment on current levels. In commodities, WTI and Brent front month futures are on the backfoot, in part amid the post-Putin losses across the Nat Gas space, with the UK ICE future dropping some 20% in early trade. This has also provided further headwinds to the crude complex, which itself tackles its own bearish omens. WTI underperforms Brent amid reports that the US was mulling a Strategic Petroleum Reserve (SPR) release and did not rule out an export ban. Desks have offered their thoughts on the development. Goldman Sachs says a US SPR release would likely be of up to 60mln barrels, only representing a USD 3/bbl downside to the year-end USD 90/bbl Brent forecast and stated that relief would only be transitory given structural deficits the market will face from 2023 onwards. GS notes that any larger price impact that further hampers US shale activity would lead to elevated US nat gas prices in 2022, and an export ban would lead to significant disruption within the US oil market, likely bullish retail fuel price impact. RBC, meanwhile, believes that these comments were to incentivise OPEC+ to further open the taps after the producers opted to maintain a plan to hike output 400k BPD/m. On that note, sources noted that the OPEC+ decision against a larger supply hike at Monday's meeting was partly driven by concern that demand and prices could weaken – this would be in-fitting with sources back in July, which suggested that demand could weaken early 2022. The downside for crude prices was exacerbated as Brent Dec fell under USD 80/bbl to a low of near 79.00/bbl (vs 81.14/bbl), whilst WTI Nov briefly lost USD 75/bbl (vs high 77.23/bbl). Prices have trimmed some losses since. Metals in comparison have been less interesting; spot gold is flat and only modestly widened its overnight range to the current 1,756-66 range, whilst spot silver remains north of USD 22.50/bbl. Elsewhere, the risk tone has aided copper prices, with LME copper still north of USD 9,000/t, whilst some also cite supply concerns as a key mining road in Peru (second-largest copper producer) was blocked, with the indigenous community planning to continue the blockade indefinitely, according to a local leader. It is also worth noting that Chinese markets will return tomorrow from their Golden Week holiday. US Event Calendar 7:30am: Sept. Challenger Job Cuts YoY, prior -86.4% 8:30am: Oct. Initial Jobless Claims, est. 348,000, prior 362,000; Continuing Claims, est. 2.76m, prior 2.8m 9:45am: Oct. Langer Consumer Comfort, prior 54.7 11:45am: Fed’s Mester Takes Part in Panel on Inflation Dynamics 3pm: Aug. Consumer Credit, est. $17.5b, prior $17b DB's Jim Reid concludes the overnight wrap On the survey, given how fascinating markets are at the moment I think the results of this month’s edition will be especially interesting. However the irony is that when things are busy less people tend to fill it in as they are more pressed for time. So if you can try to spare 3-4 minutes your help would be much appreciated. Many thanks. It was a wild session for markets yesterday, with multiple asset classes swinging between gains and losses as investors sought to grapple with the extent of inflationary pressures and potential shock to growth. However US equities closed out in positive territory and at the highs as the news on the debt ceiling became more positive after Europe went home. Before this equities had lost ground throughout the London afternoon, with the S&P 500 down nearly -1.3% at one point with Europe’s STOXX 600 closing -1.03% lower. Cyclical sectors led the European underperformance, although it was a fairly broad-based decline. However after Europe went home – or closed their laptops in many cases – the positive debt ceiling developments saw risk sentiment improve throughout the rest of New York session. The S&P rallied to finish +0.41% and is now slightly up on the week, as defensive sectors such as utilities (+1.53%) and consumer staples (+1.00%) led the index while US cyclicals fell back like their European counterparts. Small cap stocks didn’t enjoy as much of a boost as the Russell 2000 ended the day -0.60% lower, while the megacap tech NYFANG+ index gained +0.82%. Risk sentiment improved following reports that Senate Minority Leader Mitch McConnell was willing to negotiate with Democrats to resolve the debt ceiling impasse and allow Democrats to raise the ceiling until December. This means President Biden and Congressional Democrats would be able to finish their fiscal spending package – now estimated at around $1.9-2.2 trillion – and include a further debt ceiling raise into one large reconciliation package near year-end. Senate Majority Leader Schumer has not publicly addressed the deal yet, but Democrats have signaled that they’ll accept the deal, although they’ve also indicated they’d still like to pass the longer-term debt ceiling bill under regular order in a bipartisan manner when the time came near year-end. Interestingly, if we did see the ceiling extended until December, this would put another deadline that month, since the government funding extension only went through to December 3, so we could have yet another round of multiple congressional negotiations in just a few weeks’ time. The news of a Republican offer coincided with President Biden’s virtual meeting with industry leaders, where the President implored them to join him in pressuring legislators to raise the debt limit. Treasury Secretary Yellen also attended the meeting, and re-emphasised her estimate for the so-called “drop dead date” to be October 18. Potentially at risk Treasury bills maturing shortly thereafter rallied a few basis points, signaling investors took yesterday afternoon’s debt ceiling developments as positive and credible. This was a far cry from where markets opened the London session as turmoil again gripped the gas market. UK and European natural gas futures both surged around +40% to reach an intraday high shortly after the open. However, energy markets went into reverse following comments from Russian President Putin that the country was set to supply more gas to Europe and help stabilise energy markets, with European futures erasing those earlier gains to actually end the day down -6.75%, with their UK counterpart similarly reversing course to close -6.96% too. The U.K. future traded in a stunning 255 to 408 price range on the day. We shouldn’t get ahead of ourselves here though, since even with the latest reversal, prices are still up by more than five-fold since the start of the year, and this astonishing increase over recent weeks has attracted attention from policymakers across the world as governments look to step in and protect consumers and industry. In the EU, the Energy Commissioner, Kadri Simson, said that the price shock was “hurting our citizens, in particular the most vulnerable households, weakening competitiveness and adding to inflationary pressure. … There is no question that we need to take policy measures”. However, the potential response appeared to differ across the continent. French President Macron said that more energy capacity was required, of which renewables and nuclear would be key elements, while Italian PM Draghi said that joint EU gas purchases had wide support. However, Hungarian PM Orban took the opportunity to blame the European Commission, saying that the Green Deal’s regulations were “indirect taxation”, which shows how these price spikes could create greater resistance to green measures moving forward. Elsewhere, blame was also cast on carbon speculators, with Spanish environment minister Rodriguez saying that “We don’t want to be hostages of external financial investors”, and outside the EU, Serbian President Vucic said that his country could ban power exports if there were further issues, which just shows how energy has the potential to become a big geopolitical issue this winter. Those declines in natural gas prices were echoed across the energy complex, with both Brent Crude (-1.79%) and WTI (-1.90%) oil prices subsiding from their multi-year highs the previous day, just as coal also fell -10.20%. In turn, that served to alleviate some of the concerns about building price pressures and helped measures of longer-term inflation expectations decline across the board. Indeed by the close, the 10yr breakeven in the US had come down -1.4bps, and the equivalent measures in Germany (-4.6bps), Italy (-6.1bps) and the UK (-4.2bps) had likewise seen declines of their own. In spite of those moves for inflation expectations, this proved little consolation for European sovereign bonds as higher real rates put them under continued pressure, even if yields had pared back some of their gains from the morning. Yields on 10yr bunds (+0.6bps), OATs (+0.9bps) and BTPs (+3.2bps) were all at their highest levels in 3 months, whilst those on Polish 10yr debt were up +13.7bps after the central bank there unexpectedly became the latest to raise rates, with the 40bps hike to 0.5% marking the first increase since 2012. However, for the US it was a different story, with yields on 10yr Treasuries down -0.5bps to 1.521%, having peaked at 1.57% earlier in the London morning. There was a late story in Europe that could bear watching in the coming weeks as Bloomberg reported that the ECB is studying a new bond-buying tool that could help ease market volatility if a “taper tantrum”-esque move were to happen when the PEPP purchases end in March. The plan would reportedly target purchases selectively if there were to be a larger selloff in more heavily indebted economies, which differs from the existing programs that buys debt in relation to the size of each member’s economy. Asian stocks overnight have performed strongly, with the Hang Seng (+2.28%), Nikkei (+1.68%) and KOSPI (+1.61%) all advancing after the positive news on the debt-ceiling, as well on news that US President Biden was set to meeting with Chinese President Xi by the end of the year. All the indices were lifted by the IT and consumer discretionary sectors, and the Hang Seng Tech index has rebounded by +3.29% this morning. Separately, Evergrande-related news has been subsiding in recent days, but China Estates, a company controlled by a backer of Evergrande, rose 30% after the company disclosed an offer to take it private for $245mn. Otherwise, US futures are pointing to a positive start later, with those on the S&P 500 (+0.50%) and DAX (+1.19%) both advancing. Turning to Germany, exploratory talks will be commencing today between the centre-left SPD, the Greens and the Liberal FDP, who together would make up a so-called “traffic-light” coalition. That marks a boost for the SPD, who beat the CDU/CSU bloc into first place in the September 26 election, although CDU leader Armin Laschet said that his party were “still ready to hold talks”. However, the CDU/CSU have faced internal tensions after they slumped to their worst-ever election result, whilst a Forsa poll out on Tuesday said that 53% of voters wanted a traffic-light coalition, versus just 22% who favoured the Jamaica option led by the CDU/CSU. So momentum seems clearly behind the traffic light option for now. Looking at yesterday’s data, in the US the ADP’s report at private payrolls came in at an unexpectedly strong +568k (vs. +430k expected), which is the highest in their series for 3 months and comes ahead of tomorrow’s US jobs report. However in Germany, factory orders in August fell by -7.7% (vs. -2.2% expected) amidst various supply issues. To the day ahead now, and data releases include German industrial production and Italian retail sales for August, whilst in the US we’ve got the weekly initial jobless claims and August’s consumer credit.From central banks, we’ll be getting the minutes from the ECB’s September meeting, and also hear from a range of speakers including the ECB’s President Lagarde, Lane, Elderson, Holzmann, Schnabel, Knot and Villeroy, along with the Fed’s Mester, BoC Governor Macklem and PBoC Governor Yi Gang. Tyler Durden Thu, 10/07/2021 - 07:57.....»»

Category: blogSource: zerohedgeOct 7th, 2021

The Kobayashi Maru And The Dentist

The Kobayashi Maru And The Dentist By Michael Every of Rabobank As William Shatner finally goes into space at the age of 90 --to give us his renditions of Space Oddity, Lucy in the Sky with Diamonds, or Rocket Man?-- Earth faces a mountain of problems; and markets, once again seizing on only ‘good news’, face the Kobayashi Maru scenario from ‘The Wrath of Khan’: a no-win scenario. At one point Wednesday, natural gas prices in the UK and EU were up 40% on the day. That is not a supply shock: it’s a photon torpedo. Then Russia’s President Putin suggested he might have some spare gas lying around, and prices retreated to levels still as painful as William Shatner’s singing. Crisis over? Not until gas goes all the way back down again: and even if Russia magically fills the gas gap, it would still underline what an enormous geostrategic error the EU made in thinking energy supplies are not a pressure point on it - just as critics said would be the case when Angela Merkel opted for NordStream 2. When she goes to the dentist, does she opt for the cheapest one possible, or the one she trusts who costs more? As the old joke goes, realpolitik is getting your teeth done but, from the dentist’s chair, grabbing them somewhere important, and saying: “Do we have an understanding?” What else is there to understand? In Congress, which knows from both pulling teeth and such grabbing, Mitch McConnell ”has blinked” by offering the Democrats a path to a short-term, small-cap debt-ceiling increase out to the end of the year. Except the Republicans are reportedly still going to insist on linking a proper end-year debt-ceiling hike --which would be more embarrassing for the Democrats to have to vote on again-- to reconciliation, which again uses up that bullet there rather than on the desired elements of Progressive spending bills. In short, this crisis isn’t over yet either. In Zurich, the US and China agreed to set up a virtual meeting between President Biden and Xi Jinping by year end - just as he will be tied up with the debt ceiling again. As the wags ask, is it better held on China’s Zoom or China’s TikTok for maximum security? It’s good for the US and China to be talking; and for the US to repeat it doesn’t want a Cold War, even as it pushes military alliances, tech controls, and threatens tariffs and new trade tools; and for China to say the same as it de facto decouples parts of its economy too. Yet Minxin Pei opines: “as security competition overshadows US-China relations, it will be nearly impossible for them to cooperate even on issues of mutual interest, such as climate change and future pandemics. All bilateral issues will be viewed only through the lens of national security and evaluated in terms of whether modest cooperation might strengthen the other's security.” He adds the historical analogy that the pre-WW1 UK and Germany were tied together by trade --and royal blood-- more than the US and China are today. Meanwhile, as Taiwan claims China will be capable of an invasion by 2025, the Global Times editor tweets: “PLA already has the ability NOW to liberate Taiwan at one stroke, why has to wait until 2025? That the mainland hasn’t taken the action is a goodwill of Beijing to treasure cross-Straits peace. I worry that the goodwill could be abused by Taiwan and the war is triggered suddenly.” US Secretary of State Blinken, who wasn’t in Zurich, argues the energy crisis underlines the need for a push for green energy, which it does - while overlooking the fact that the green push also precipitated the crisis. Blinken is also asking China to “act responsibly and to deal effectively with any challenges” over Evergrande. On that note, the Financial Times repeats research showing in 2008, 75% of Chinese houses were bought by first-time buyers, but in 2018 this had fallen to 15%, with the rest snapped up by investors - as enough homes to house 90m people sit empty. Is this “responsible”, or Marxist ‘productive capital’? Can markets reasonably expect things to look the same when the dust settles? If so, it says a lot about markets and not a lot about Marxists. But what lies on the other side if not more bubbles? We simply don’t know. Higher growth is not likely to be a key part of it, however. But of course, the deepest Kobayashi Maru challenge sits with central banks. With inflation raging, what are they to do? Tighten policy? Like that will help on top of tax hikes and higher prices! (**RED ANECDOTE ALERT** My favourite supermarket sushi just hiked prices on my favourite set by 40%. Set phasers to ‘less sushi’, sadly.) How about easing policy? Like that will help either! We have already seen the RBNZ opt for the former path. In Australia, the rates market is certain hikes are coming. Poland just hiked. The chatter is the BOE will follow: or at least this is reportedly the UK Treasury’s expectation, and more so given the government openly flags it wants a high wage, high productivity economy when the former is the infinitely easier of the two to achieve, historically. And Fed tapering apparently looms. One wonders at how this will play out, and not even in the long term.   Trying the other path, the ECB “will discuss boosting its regular asset purchases once the pandemic-era emergency stimulus comes to an end, but any such increase is by no means guaranteed,” says Governing Council member Muller. In short, while the Eurozone “recovery” --the recessionary energy crisis aside-- will allow the ECB to end its EUR1.85trn pandemic bond-buying program in March 2022, the idea is already being floated of then compensating by increasing QE by another EUR20bn a month! And, of course, the EU is now all for subsidizing energy prices, which will only see those prices increase further, and likewise increase the whip-hand that President Putin now holds. I repeat, neither monetary nor fiscal policy will be of much help unless they address the supply side of things, which right now they don’t. On which note, our recent ‘In Deep Ship’ report argued that smaller economies would logically start looking at diversifying trade to smaller vessels and/or consider launching national carriers as a response to current shipping snarls. As Splash247.com reports, US carrier Matson has now started a direct Shanghai-Auckland service using 707TEU and 516TEU vessels, on top of a Taiwanese carrier launching a 1,700 and 2,700TEU service between Qingdao, Shanghai, Ningbo, Nansha, Shekou and Tauranga. Moreover, “An extreme shortage of liner calls to New Zealand in recent months has prompted talk among exporters of the need to create a national shipping line.” Such structural re-workings of the Kobayashi Maru scenario --which themselves open up very worrying geopolitical scenarios!-- are arguably the only way one can defeat it, as Captain Kirk infamously did. Yet for most central banks, and governments, the greater likelihood is that they will boldly go into the mission to ‘Build Back Better’….and then end up like Lieutenant Saavik in her attempt: “Activate escape pods. Send out the Log Buoy. ...All hands abandon ship. Repeat, ...all hands abandon ship.” Tyler Durden Thu, 10/07/2021 - 08:21.....»»

Category: blogSource: zerohedgeOct 7th, 2021

Between A Rock And A Hard Place

S&P 500 stopped consolidating in the 4,340s shortly after the open, and went largely one way since – except for the run up to the closing bell, which I used to grab short profits off the table. The overnight pump is at work today – not vigorously, but still. Given the credit market posture (yields […] S&P 500 stopped consolidating in the 4,340s shortly after the open, and went largely one way since – except for the run up to the closing bell, which I used to grab short profits off the table. The overnight pump is at work today – not vigorously, but still. Given the credit market posture (yields not rising much on the day), a brief retracement in tech can be expected – especially since yesterday‘s outage news were what powered it in the first place. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q2 2021 hedge fund letters, conferences and more VIX has gone nowhere yesterday, and looks unwilling to spend much time below 21 really. We‘re at crossroads where the supports I mentioned on Thursday, are giving way one after another. 4,260s are next in line, followed by 4200s – it would take time to get there, and Friday‘s non-farm payrolls could be the catalyst. Unless they come in outrageously weak, the Fed is likely to announce taper in Nov – monetary policy deceleration into a weakening economy while inflation expectations are rising, supply chains increasingly strained to the point that the International Chamber of Shipping has issued a red alert warning of a global transport systems collapse – make you go hmm. Something tells me the Fed won‘t be as successful jawboning inflation as in June – its favorite metric, the PCE deflator, isn‘t yielding, and the realization that inflation is here to stay, is creeping in. I don't know how so much of the financial universe could have been duped by the transitory narrative... for so long. The energy squeeze is on – I cashed in sizable oil profits yesterday (check at my site the portfolio performance at fresh highs!) – the dollar is stalling, cryptos are rising and adding to open profits too, while precious metals are waking up. I‘m looking for silver to lead and be more resilient – the gold to silver ratio falling first below 73 would be a welcome confirmation of the budding broad recognition of inflation across the markets. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 volume doesn‘t show the buyers are serious here. This downswing isn‘t over. Credit Markets HYG was really weak yesterday, but the quality debt instruments positioning hints at a reprieve, at a risk-off led S&P 500 pause next. Gold, Silver and Miners Gold and silver upswing was finally joined by the miners – the sentiment is warming up to further gains. Crude Oil The crude oil elevator hasn‘t stopped yet, but I wouldn‘t be surprised by a consolidation of gained ground next. Copper Copper upswing was a bit too readily sold into, and the volume wasn‘t stellar. This long sideways trend isn‘t over yet. Bitcoin and Ethereum Bitcoin and Ethereum are approaching the early Sep highs – and look likely to overcome them. Summary Stock market bears still have the upper hand, and credit markets are signalling caution. None of the intraday reversals to the upside have stuck, and we haven‘t reached a local bottom yet. Coupled with the stagflationary undertones, the cyclically sensitive commodities have a harder time than oil. The dollar is likely to come under increasing pressure, which would underpin precious metals and commodities alike. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals. Thank you, Monica Kingsley Stock Trading Signals Gold Trading Signals Oil Trading Signals Copper Trading Signals Bitcoin Trading Signals www.monicakingsley.co mk@monicakingsley.co All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice. Updated on Oct 5, 2021, 10:44 am (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 5th, 2021