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U.S. cracks down on global chip exports to Huawei, China retaliation eyed

The Trump administration on Friday moved to block global chip supplies to blacklisted telecoms equipment giant Huawei Technologies [HWT.UL], spurring fears of Chinese retaliation and hammering shares of U.S. producers of chipmaking equipment......»»

Category: topSource: reutersMay 15th, 2020

US Futures Stabilize After Rollercoaster Session As Yuan, Chinese Stocks Crater

US Futures Stabilize After Rollercoaster Session As Yuan, Chinese Stocks Crater US stock futures steadied following a rollercoaster move earlier in the session and after Friday’s sharp rally as traders assessed moves by Chinese President Xi Jinping to tighten his grip on the nation’s leadership while keeping an eye on macro data now that the Fed is in a chatterbox blackout. Contracts on the S&P 500 edged 0.7% higher at 7:30a.m. in New York after earlier rising as much as 1.3% and dropping 0.7%, while the yield on the 10-year Treasury slipped for a second session. Nasdaq 100 futures were up 0.4% after bouncing between gains and losses earlier. Both underlying gauges are coming off their best week since June, and are entering the busiest week of the earnings season with 46% of the S&P 500’s market cap due to announce third-quarter results. A gauge of the dollar’s strength rose sharply unwinding some of Friday's losses, supported by a risk-off mood sparked by a rout across Chinese markets which saw the Hang Seng plunge 6.4%, the biggest one day drop since 2008! The offshore yen resumed its decline, tumbling by 1.3% - the biggest one-day slide since August 20019, to a record of 7.31, while the pound outperformed on bets for fiscal caution from the next UK prime minister. “Market sentiment could remain cautious near-term on China, on concerns of a shift of focus toward more state control versus a market-driven approach under the new leadership team,” said Xiaojia Zhi, the chief China economist at Credit Agricole CIB. “The exit path from zero-Covid is not yet clear.” Chinese economic data that was delayed last week and published Monday showed a mixed recovery, with unemployment rising and retail sales weakening despite a pickup in growth. Yet Xi’s Covid-zero campaign looks likely to continue to drag on the economy and there has been speculation that his “common prosperity” goal may even lead to property and inheritance taxes. “It’s clear demand is slowing but so far we’ve seen pockets of tech like software, cloud computing still being quite resilient,” said Laura Cooper, a senior investment strategist at BlackRock International Ltd., on Bloomberg TV. “We will be watching for any signs of cracks coming through that could put a dent to some of these earnings expectations.” In premarket trading, US-listed Chinese stocks tumbled, dragged lower by major internet and EV names including Alibaba, Baidu and Li Auto, which closed down more than 11%; search company Baidu was 12% lower while food delivery firm Meituan tanked more than 14%. The moves come after Chinese President Xi Jinping paved the way for an unprecedented third term as leader and packed the Politburo standing committee with loyalists. Tesla shares dropped after the company cut prices in China, reversing hikes imposed earlier this year.US stock futures steadied after Friday’s rally as traders assessed moves by Chinese President Xi Jinping to tighten his grip on the nation’s leadership. Other notable premarket movers: US-listed Macau casino stocks are also down, declining along with Chinese ADRs. Las Vegas Sands (LVS US) -7.9%, Wynn Resorts (WYNN US) -6.8%, Melco Resorts (MLCO US) -8.6% FedEx (FDX US) declines 1.9% in premarket trading after it was cut to equal-weight from overweight at Wells Fargo on concern that the revenue implications are not yet “fully captured” as the company pivots from growth and toward efficiency. Keep an eye on Williams-Sonoma (WSM US) stock as it was downgraded to underperform from hold at Jefferies, with broker saying it sees the home furnishing store operator underperforming ahead of a softer macroeconomic environment. Watch NXP Semiconductors (NXPI US) and Analog Devices (ADI US) shares as they were downgraded at Barclays, with the brokerage saying it expects cuts in the analog chip sector in the coming year and recommended “rotating out of the sub-sector sooner rather than later.” US investors have begun looking beyond the Federal Reserve’s ongoing tightening to a stage when it may begin to slow rate hikes. St. Louis Fed President James Bullard and his San Francisco counterpart Mary Daly made it clear they expect discussion at the November meeting to include debate on how high to raise rates and when to ease the pace. At the same time, Morgan Stanley’s Michael Wilson expects stocks to grind higher as markets transition to expectations of falling inflation and lower interest rates. The strategist, who correctly predicted this year’s slump, sees the S&P 500 Index bouncing as much as 15% if it breaches its 200-week moving average of 3,605 points, about 4% below Friday’s close. A similar view is held by Stifel Nicolaus & Co. strategists, who said in a separate note they see the benchmark rallying to 4,300 points in the next 6 months. "With the back end of the bond market offering real value for the first time since early 2021, rates are poised to come in," Wilson in a note on Monday. “Such a move could provide the necessary fuel for the next leg of the tactical rally in stocks until we get full capitulation on 2023 earnings estimates, something we think may take a few more months.” By contrast, Goldman Sachs Inc. strategists led by David Kostin are more cautious, seeing rising rates and slowing US growth hurting cyclicals and tech stocks. They recommend being overweight defensive sectors, as well as energy. In Europe, the Stoxx Europe 600 Index held an advance of about 1.3%. Media, utilities and travel are the strongest-performing sectors in Europe while miners and energy lag. IBEX outperforms peers, adding 0.9%, FTSE 100 lags, dropping 0.4% after Boris Johnson pulled out of the race to lead the UK’s ruling Conservative Party, placing Rishi Sunak closer to becoming the next prime minister.  A 12% slump in Prosus NV shares amid the China concerns pushed the technology sector into the red, while basic resources and energy stocks weighed on the benchmark amid lower commodity prices. Michelin shares rose as much as 3.7% in Paris trading and are the day’s top performers on the Stoxx 600 Automobiles & Parts Index, with the French tiremaker set to give a quarterly sales update on Tuesday. Here are the biggest European movers: Pearson shares jump as much as 7.8%, reaching the highest since January 2019, after the publishing and education company reported a 7% increase in underlying revenue in the first nine months of the year. Indivior gains as much as 7.6%, the most since February, after Morgan Stanley upgrades to overweight from equal-weight, describing the stock as a “value, growth and margin expansion story.” Auto Trader rises as much as 4.3% after announcing the disposal of Webzone Ltd. Peel Hunt upgrades to buy from hold, saying the sale shows the company’s “dedication to its key market.” Temenos climbs as much as 8.2%, the most intraday since mid-June, after Dealreporter reported that Goldman Sachs and Citi are sounding out interest in the buyout of the Swiss banking software developer. Prosus falls as much as 14% in Amsterdam and parent Naspers sinks as much as 14% in Johannesburg, with both declines the sharpest since March. Naspers holds a 28% stake in Tencent, which plunged in Hong Kong trading following President Xi Jinping’s move to stack his leadership ranks with loyalists. Galp drops as much as 6.1% after reporting third-quarter profit that missed the average analyst estimate. Philips falls as much as 4.5% to the lowest since 2011 after saying it would cut 4,000 jobs as part of a EU300 million cost-saving package, which analysts say may imply liquidity problems for the Dutch medical technology firm. Asian stocks fell, dragged by Chinese shares as President Xi Jinping’s move to tighten his leadership deepened investor worries, offsetting advances in Australia, South Korea and Japan. The MSCI Asia Pacific Index erased an earlier gain to drop as much as 1.2%, with Internet giants Tencent and Alibaba the biggest drags.  A selloff in Chinese stocks deepened in afternoon trading, as the Hang Seng plunged by more than 6%, its biggest drop since Lehman while the Hang Seng Tech Index crashed 9.7% to the lowest since February 2016, after Xi filled China’s most powerful bodies with close allies while securing a precedent-breaking third term. He installed six trusted associates alongside him on the Politburo’s supreme Standing Committee and put his former chief of staff Li Qiang in line for the premiership. Investors remained jittery as a leadership reshuffle highlighted Xi’s unquestioned grip over the ruling party, with allies set to take up key economic posts. An early loosening of Covid restrictions seemed less likely, while a set of long-delayed economic data showed a mixed recovery, further damping market sentiment. “The latest rally underlines our view that markets will remain volatile, and investors should prepare for large moves in both directions,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “Incremental improvements in inflation or labor market data, indications of economic resilience, any softening of language from the Fed, has the potential to drive a market bounce, as we have seen in recent days.” “Markets may be hoping now that the leadership transition is finalized, the focus will turn to the economy and mending the property sector,” said Marvin Chen, a strategist at Bloomberg Intelligence, adding that property investment is still a weak spot for the economy. “Still, these may take time. We may not see much change to Covid policies in the near term.” The declines in Chinese shares contrasted with the upbeat mood elsewhere in Asia, buoyed by declines in US Treasury yields and Federal Reserve officials’ indications of a potential slowing of rate hikes. Markets were closed for holidays in Singapore, India, Malaysia, Thailand and New Zealand In FX, the Bloomberg Dollar Spot Index rose, paring some of Friday’s losses and the greenback was steady or higher against all of its Group-of-10 peers. The pound jumped and gilts led Treasuries and European bonds higher as investors bet that Rishi Sunak would bring more stability to the country’s financial markets. Initial moves were however tempered, and the pound inched lower, sliding back under 1.13 after earlier rallying by as much as 0.9% to $1.1409. China’s offshore yuan led the decline in most emerging Asian currencies as traders assessed the impact of President Xi Jinping’s consolidation of power. Indonesia’s rupiah outperformed peers, supported by higher nickel prices. China’s onshore yuan weakened to a 14-year low while stocks headed for their biggest daily plunge in Hong Kong since the 2008 global financial crisis. Market setbacks following the reshuffle highlighted President Xi Jinping’s unquestioned grip over the ruling party and showed deep disappointment over a likely continuation of policies staked on Covid Zero and state- driven companies. The euro retreated after earlier rising to more than a two-week high of $0.9899. Eurozone composite PMI fell to 47.1 in October; economists had expected 47.6 The yen fell by more than 1%, to trade above 149 per dollar, after earlier surging to as much as 145.56 after suspected interventions by Japanese authorities Australian dollar declined against all of its G-10 peers after the Reserve Bank said it isn’t yet worried about the risk of imported inflation from a falling currency. Reports of fresh Covid restrictions in Guangzhou helped fuel a drop in China stocks and the yuan, pushing the Aussie even lower In rates, Treasuries trade off best levels of the session, although intermediate and long-end yields remain richer by 5bp-6bp. Gilts lead a global bond market rally, with front-end yields down nearly 40bp after Rishi Sunak emerged as the frontrunner to become new UK Prime Minister.  10-year TSY yields trade around 4.15%, richer by ~7bp on the day, trailing gilts by 18bp, bunds by 4bp in the sector; US 2s10s is ~5bp flatter on the day while gilt curve steepens. Treasuries extended their late-Friday rally during Monday’s Asia session, adding to a move sparked by comments from Fed’s Daly, who said policy makers should start planning for a reduction in the size of interest-rate increases, and a WSJ article predicting they will debate the size of future hikes in November. According to Bloomberg, dollar issuance slate includes OKB $1b 3Y and Cades 3Y; $20b of new bond sales are expected this week as companies emerge from earnings blackout periods; banks including JPMorgan Chase & Co., Citigroup Inc., Goldman Sachs Group Inc. and Bank of America Corp. could all come to market soon. Commodities were clipped as the USD rebounded and recessionary concerns mount (again); crude benchmarks are hampered on such factors, though similarly to US equity futures have recently eased off lows. Specifically, WTI and Brent benchmarks post downside of circa. USD 1.00/bbl compared to losses just shy of USD 2.00/bbl at worst. Both precious and base metals are broadly speaking under pressure; currently, Gold is impaired by circa. USD 10/oz and has been pushed back below the 10-DMA at USD 1650/oz. QatarEnergy head said the Co. is open to discussing working with Shell (SHEL LN) in all energy sectors, via Reuters. Looking at today's calendar, we get the US October PMIs, and September Chicago Fed national activity index, we also get PMI updates from Japan, UK, Germany, France and the Eurozone. Market Snapshot S&P 500 futures up 0.7% to 3,792 STOXX Europe 600 up 0.5% to 398.32 MXAP down 1.1% to 134.36 MXAPJ down 2.0% to 431.12 Nikkei up 0.3% to 26,974.90 Topix up 0.3% to 1,887.19 Hang Seng Index down 6.4% to 15,180.69 Shanghai Composite down 2.0% to 2,977.56 Sensex up 0.2% to 59,307.15 Australia S&P/ASX 200 up 1.5% to 6,779.36 Kospi up 1.0% to 2,236.16 German 10Y yield down 0.2% at 2.41% Euro down 0.3% to $0.9831 Brent Futures down 1.8% to $91.86/bbl Gold spot down 0.6% to $1,647.67 U.S. Dollar Index up 0.25% to 112.29 Top Overnight News from Bloomberg A sense of exasperation swept across Chinese markets as President Xi Jinping moved to stack his leadership ranks with loyalists, with stocks capping their worst day in Hong Kong since the 2008 global financial crisis and the yuan weakening to a 14-year low The ECB is priming another hefty hike in interest rates this week as the attention increasingly switches to how high it will eventually push Japan’s government will set out its expectation that the central bank watches the impact of moves in financial markets while emphasizing the two sides’ cooperation on policy, according to a draft of an upcoming stimulus plan obtained by Bloomberg Most of Japan’s currency intervention, confirmed and suspected, took place outside of regular trading hours, with the exception of probable action Monday -- unlike moves in 2010 and 2011 to weaken the yen. In contrast to that period, the government has only stated it intervened once, with the reluctance to do so seen as an additional tool to deter speculators Much of continental Europe is poised for an unusually warm end to the month, with Paris seeing temperatures more common on a summer day than well into the heating season A more detailed look at global markets courtesy of Newsquawk Asia-Pacififc stocks traded mixed after the initial optimism from Wall Street on Friday began to fade. ASX 200 was boosted by its commodities sector as the rise in underlying metals supported mining names in the region. Nikkei 225 was also  firmer but lagged behind peers (ex-China) following the touted FX intervention on Friday and again on Monday. KOSPI was led by gains in its IT names, but the region felt some jitters following an exchange of fire between North and South Korea after a North Korean boat crossed the South Korean maritime border. Shanghai Comp. initially traded flat after Chinese President Xi secured an unprecedented third term as the party leader, as expected. Chinese President Xi also suggested China's economy has high resilience and sufficient potential. The index also saw some brief upside after China released a myriad of delayed economic data, with Q3 GDP Y/Y topping forecasts and Trade Balance printing a larger surplus than expected, whilst exports also increased more than forecast, although these gains pared back. Hang Seng buckled as Xi’s leadership overhaul could prove to result in prolonged oversight and less autonomy for Hong Kong, with the Hang Seng Tech Index slumping over 5% and Alibaba, Tencent, JD.com, Baidu and Meituan shedding as much as 7-10%. Asia Data Recap Chinese GDP (Q3) Y/Y 3.9% (Exp. 3.3%, Prev. 0.4%); Q/Q 3.9% (Exp. 3.5%, Prev. -2.6%) Chinese Trade Balance (Sep) (USD) Y/Y 84.7bln (Exp. 80.3bln, Prev. 79.39B); Exports +5.7% (Exp. +4.0%, Prev. 7.1%), Imports +0.3% (Exp. 1.0%, Prev. 0.3%) Chinese Retail Sales (Sep) Y/Y 2.5% (Exp. 3.0%, Prev. 5.4%); YTD Y/Y 0.7% (Exp. 0.9%, Prev. 0.5%) Chinese Industrial Output (Sep) Y/Y 6.3% (Exp. 4.8%, Prev. 4.2%); YTD Y/Y 3.9% (Exp. 3.7%, Prev. 3.6%) Chinese Fixed Investments (Jan-Sep) 5.9% (Exp. 6.0%) Australian Composite PMI (Oct) 49.6 (Prev. 50.9); Services PMI (Oct) 49.0 (Prev. 50.6); Manufacturing PMI (Oct) 52.8 (Prev. 53.5) Japanese Jibun Manufacturing PMI (Oct) 50.7 (Prev. 50.8); Services PMI (Oct) 53.0 (Prev. 52.2); Composite PMI (Oct) 51.7 (Prev. 51.0) Top Asian News China suspended in-person schooling and dining-in at restaurants in a district in Guangzhou, "stoking concerns about the potential for disruption in the southern Chinese manufacturing hub that’s home to about 19mln people", Bloomberg reported. PBoC injected CNY 10bln via 7-day reverse repos at a maintained rate 2.00% for a daily injection of CNY 8bln. Japan's Top Currency Diplomat Kanda will not comment on whether they intervened in FX markets and said there is no change in stance that "we are ready to take action 24/7" and will continue to take appropriate action, via Reuters. Japan's Top Currency Diplomat Kanda offered no comments on intervention on Monday morning. Japanese Finance Minister Suzuki said no comment on FX intervention; currently trying to confront speculators; monitoring FX with a high sense of urgency. USD/JPY drop on Monday likely due to intervention, according to market participants cited by Reuters. Japanese government urges the BoJ to remain vigilant to the impact of sharp market moves, according to a draft document cited by Reuters. The Japanese government and the BoJ decided to intervene in FX on Friday by buying the Yen and selling the Dollar, according to Nikkei sources citing sources. Japan's FX intervention on October 21st is estimated at JPY 5.4-5.5tln, according to market sources and calculations cited by Reuters. BoJ Governor Kuroda said CPI growth beyond next FY likely to fall below 2%, will continue to put all effort into achieving price target along with rise in wages. Japanese gov't expects the BoJ to watch the impact of market moves, via Bloomberg citing a document; to collaborate closely with the BoJ on the policy mix; Finance Minister will not comment on FX intervention. Japan is to ease rules in relation to brokerages offering investment advice, according to reports citing Nikkei. Japanese Economy Minister Yamagiwa is planning to step down, according to NHK. South Korea is to expand its corporate-bond buying program, according to the finance minister cited by Reuters. RBA's Kent reiterated the Board expects to increase interest rates further in the period ahead; size and timing of rate increases in Australia will depend on incoming data. European bourses are mixed, though are well off lows, as initial strength faded following the open amid renewed USD strength and as PMIs flash ongoing recessionary/inflationary concerns. Sectors are a touch mixed amid the above action, Energy remains the standout laggard amid the complex's broader price action. US futures have managed to make their way back to being essentially unchanged on the session, as the initial bout of underperformance eases as US participants enter the fray pre-PMIs. Top European News UK's Boris Johnson has pulled out of the Conservative Party leadership contest, according to The Times' Swinford. UK's Boris Johnson and Rishi Sunak failed to strike a deal in talks on Saturday, according to the Times. UK leadership candidate Rishi Sunak so far received support from 147 MPs vs 24 for Penny Mordaunt. The deadline to reach the 100 threshold is at 14:00BST/09:00EDT on Monday. UK leadership candidate Penny Mordaunt will stay in the race as she reportedly sees a route to 100 nominations now Boris Johnson is out, according to sources cited by Bloomberg's Wickham. UK Chancellor Hunt backs Rishi Sunak for PM, via The Telegraph. UK Chancellor Hunt is said to be mulling up to GBP 20bln of tax rises in the October 31st budget, according to The Telegraph. The October 31st fiscal statement could be delayed after PM Truss' resignation, according to the FT. UK Chancellor Hunt is expected to extend the current freeze in income tax and allowances into the next parliament, according to FT citing sources. BoE's Mann said bond purchases for financial stability were targeted and temporary, and the start of bond selling on Nov 1st shows the BoE does not feel like its hands are tied. Mann said it is the BoE's job to address financial stability risks. Moody's affirmed UK's rating at Aa3; revised outlook to "Negative" from "Stable. FX Dollar regroups after Friday's reversal on less hawkish Fed dynamic and reports of Japanese intervention, DXY above 112.500 at best vs 111.760 low. Sterling underpinned ahead of deadline in race to be next UK PM with Sunak hot favourite to succeed, Cable holding within 1.1400-1.1300 range. Yen reverses from peaks as official buying momentum wanes, USD/JPY up to 149.70 from sub-145.50 at one stage. Aussie underperforms ahead of Budget that is expected to see growth forecast downgraded, AUD/USD under 0.6300 and Kiwi down in sympathy on NZ Labour Day as NZD/USD declines through 0.5700. Offshore Yuan below 7.3000 vs Buck as China tightens COVID restrictions in key southern manufacturing hub. Euro fades from a fraction below 0.9900 towards 0.9800 after broadly weak PMIs and amidst heavy option expiry interest. PBoC set USD/CNY mid-point at 7.1230 vs exp. 7.1173 (prev. 7.1186); weakest fix since June 1st 2020. Commodities Commodities clipped as the USD regains poise and recessionary concerns mount; crude benchmarks are hampered on such factors, though similarly to US equity futures have recently eased off lows. Specifically, WTI and Brent benchmarks post downside of circa. USD 1.00/bbl compared to losses just shy of USD 2.00/bbl at worst. Both precious and base metals are broadly speaking under pressure; currently, Gold is impaired by circa. USD 10/oz and has been pushed back below the 10-DMA at USD 1650/oz. QatarEnergy head said the Co. is open to discussing working with Shell (SHEL LN) in all energy sectors, via Reuters. China sold 100% of wheat offered at auction of state reserves on Oct 19th, according to Reuters citing the traded centre; sold at an average price of CNY 2,829/t. CCP National Congress Chinese President Xi secured an unprecedented third term as Chinese Communist Party (CCP) leader, as expected. The CCP amended its constitution to include "two establishes" and "two safeguards" to "cement" Xi Jinping's status as the core of the party, according to Reuters. Chinese President Xi is to head the communist party's central commission for discipline inspection, according to state media. The new CCP Politburo Standing Committee includes Li Qang, Li Xi, Ding Xuexiang, Cai Qi, Zhao Leji, Wang Huning, according to state media. The new Central Committee (comprising of 171 alternate members) does not include Liu He, Han Zheng, Sun Chunlan, Yi Gang, Guo Shuoing, Chinese President Xi said China's economy has high resilience, sufficient potential and has room for manoeuvre. Xi said China will open its doors even wider. Xi said China must ensure the CCP continues to be the backbone people can lean on, according to state media. Geopolitics Russian Defence Minister held phone calls with the US Pentagon Chief, UK Defence Minister, and the French Armed Forces Minister, according to Interfax and Reuters. French Armed Forces Minister has confirmed Russian Defence Minister told him Russia fears that Ukraine may use a "dirty bomb" on Russian territory. Russia's Shoigu warns of 'uncontrolled escalation' in Ukraine conflict, via Reuters. Ukraine's Foreign Minister spoke with US Defence Secretary Blinken and said they both agreed the Russian rhetoric on "dirty bombs" is aimed at creating a pretext for a false flag operation. They also discussed further practical steps to boost Ukraine’s air defense. Russian forces continued to target Ukraine's energy and military infrastructure over the weekend, according to the Russia Defence Ministry cited by Interfax. Russian authorities said two pilots died in a military plane crash into a residential building in Irkutsk, Russia, according to Interfax. Russian Deputy Foreign Minister said Russia completely reject any demilitarized zones in the vicinity of the Zaporozhye station, Via Al Jazeera. Russia continues to use Iranian uncrewed aerial vehicles (UAVs) against targets throughout Ukraine, according to the UK Ministry of Defence. US Event Calendar 08:30: Sept. Chicago Fed Nat Activity Index, est. -0.10, prior 0 09:45: Oct. S&P Global US Manufacturing PM, est. 51.0, prior 52.0 09:45: Oct. S&P Global US Composite PMI, est. 49.2, prior 49.5 09:45: Oct. S&P Global US Services PMI, est. 49.5, prior 49.3 DB's Jim Reid concludes the overnight wrap Morning from the middle of a forest in Center Parcs. We’ve had a biblical amount of rain, flash flooding in the resort and a weekend of over excitable children. We’re off to a safari park today where monkeys jump on your car. Only 24 hours before I can escape on a plane to New York. As we start a new week where we’re now in the Fed blackout period ahead of next week’s FOMC, we’re perhaps starting the 6th attempt this year at the Fed pivot trade. This only started on Friday as well-connected Nick Timiraos (WSJ) suggested that while a 75bps hike at the Fed’s next meeting was set to go ahead, officials were also likely to discuss “whether and how to signal plans to approve a smaller increase in December.” Whether this gets any further than the previous failed attempts to reprice markets only time will tell but with markets pricing in a terminal rate of over 5% prior to this, at least this is the first one that starts from anything vaguely resembling a realistic starting point given where inflation is. San Fran Fed President Daly also said on Friday that the Fed should start planning for a shift down in the pace of hikes but added that they are not there yet. The news helped price -8.0bps less Fed tightening by year-end on Friday, whilst also triggering a significant one-day decline in the 2yr Treasury yield of -13.8bps (-16bps post Timiraos). In turn the S&P 500 completed its strongest weekly performance since June, advancing +4.74% (+2.37% Friday). Futures are +0.3% this morning. The longer end rallied 12bps off the highs but was only -1.2bps on Friday as the same article discussed how the Fed could also signal a higher dot plot for 2023. Net net this left the biggest curve steepening since the pandemic (-12.2bps) which given that its not a huge move shows how massively flatter the curve has been since then. This morning in Asia 2 and 10yr yields are -4.3bps and -6.7bps lower respectively and this continuing the momentum from Friday. In the cold light of day (and it’s cold and dark in the forests of Center Parcs this morning), these more dovish stories are all plausible but between next week’s FOMC and the December equivalent we have CPI and NFP twice. So plenty of cold or hot water to flow under the bridge before then. On balance there are few signs at the moment that core inflation is about to see a rapid about turn and the Fed will be data dependent so it'll be impossible to have high conviction on what they do next without a strong view on the data. Before we examine the week ahead we should note that overall the 10yr yield ended last week up by +19.8bps (-1.2bps Friday), which marked its 12th consecutive weekly rise, and is also its longest run since 1984 when Paul Volcker was Fed Chair. So we need to put things into some perspective. In light of all this maybe the most interesting data this week comes on Friday with the Q3 employment cost index (DB at +1.1% vs. +1.3% last month) and the September personal income (+0.1% vs. +0.3%) and consumption (+0.3% vs. +0.4%) report, including the core PCE deflator (+0.58% vs. +0.56%). With respect to core PCE, our economists expect the Fed's preferred measure of inflation to rise by 40bps to 5.3%. Our economists highlight that as the median forecast for 2022 core PCE inflation in the Fed's Summary of Economic Projections from the September 21st meeting was 4.5%, it’s going to be tough to signal a downshift in December. Elsewhere this week the main highlights are the ECB (Thursday) and the BoJ (Friday) decisions and a huge round of earnings with big Tech the highlight. We’ll also have a new UK Prime Minister by Friday with a possibility we may have one after today’s ultra compressed rounds of Parliamentary votes. After Boris Johnson pulled out late last night it is possible that only tactical voting will stop ex-Chancellor Sunak being declared PM tonight. We’ll also see US Q3 GDP (Thursday) and flash PMIs in the US and Europe (today) and October CPIs and GDP for many European countries (Friday). There are other data which are in the day by day guide at the end as usual for a Monday but let’s take a brief look at the highlights outside the already discussed PCE. The ECB's decision on Thursday will be a big event with our European economists expecting another +75bps hike (72.3bp priced in), followed by +75bps in December (c.62bps priced in), +50bps in February (c.38bps priced), and +25bps in March, reaching a terminal rate of 3%. The press conference as ever will be a focal point and there’ll be lots of attention on technical things surrounding TLTROs and excess reserves. For more on the options here see our fixed income strategists blog from Friday here. Staying with central banks, over in Japan, the BoJ announces its decision on Friday amidst continued downward pressure on the yen, which hit a 32-year low against the dollar of 151.95 on Friday before surging again to end the week at 147.65 - c.3.5% swing while the Japanese slept after Nikkei reported fresh intervention from the Japanese authorities. The Yen has again seen a wild session in Asia. After falling again to 149.67 it surged to 145.65 and now trades at 148.88 as we go to press with no clarity on if and what intervention has been done. For US Q3 GDP this week, our US economists expect real growth to rebound to +3.0% from Q2's -0.6%. Q3 GDP figures will also be out for European countries on Friday, including for Germany and France with the former likely to be slightly negative and the latter slightly positive. Overall it’s likely to be the start of growth grinding towards or below zero and then staying negative for a few quarters. On European CPI on Friday remember September readings saw Germany's CPI reaching 10% for the first time since 1950. Earnings will come thick and fast this week, featuring the big tech, oil majors and key automakers and staples. In tech alone we have Microsoft, Alphabet (tomorrow), Meta (Wednesday) and Apple and Amazon (Thursday). A huge slug (20% by market cap) of the S&P 500 in 48 hours. Other notable tech firms reporting results will include Intel, Twitter, SAP and Samsung. The other main reporters are in the day by day week ahead at the end. Asian markets are higher outside of China/HK this morning with the Nikkei (+0.62%) and the KOSPI (+0.87%) up but with the Hang Seng (-4.99%) and the Shanghai composite (-0.89%) lower as markets worry about the policy direction of travel after the ending of the 20th Party Congress. We've also finally seen the monthly data dump out of China and despite a beat on Q3 GDP (+3.9% vs +3.3% expected) and industrial production (+6.3% vs 4.8%), we saw weaker retail sales (+2.5% vs +3.0%) and jobless rate (5.5% vs 5.2%). Looking back to last week, we've already discussed the US rates and equities pricing at the top. Over in Europe, gilts outperformed other sovereign bonds over the week as a whole thanks to the government’s Monday U-turn on the mini-budget. However, they became a major underperformer again on Friday as investors contemplated the likelihood that former Prime Minister Johnson could return to office. All-in-all that left 10yr yields down -28.2bps over the week (+14.1bps Friday), and after the close we heard that Moody’s had affirmed the UK’s credit rating but cut the outlook to negative. Elsewhere in Europe though there was a similar pattern to Treasuries, with 10yr bund yields also rising for a 12th week in a row with a +7.0bps gain over the week (+1.4bps Friday). At the same time, the STOXX 600 put in its best week since July, with a +1.27% advance (-0.62% Friday). Finally last week, European natural gas futures fell -20.02% (-10.67% Friday) to €114 per megawatt-hour after EU leaders endorsed a plan to cap gas prices. Tyler Durden Mon, 10/24/2022 - 08:12.....»»

Category: smallbizSource: nytOct 24th, 2022

"No Possibility Of Reconciliation" Any Longer: US And China Are Now "Officially In An Economic War"

"No Possibility Of Reconciliation" Any Longer: US And China Are Now "Officially In An Economic War" Semiconductor stocks across the globe - in Hong Kong, Europe and certainly in the US - are tumbling after the Biden administration on Friday unveiled new restrictions on technology exports to China which are meant to undercut Beijing's ability to develop wide swaths of its economy, from semiconductors and supercomputers to surveillance systems and advanced weapons. As noted earlier, the US Commerce Department on Friday unveiled sweeping new regulations that limit the sale of semiconductors and chip-making equipment to Chinese customers, striking at the foundation of the country’s efforts to build its own chip industry. The agency also added 31 organizations to its unverified list, including Yangtze Memory Technologies and a subsidiary of leading chip equipment maker Naura Technology, severely limiting their ability to buy technology from abroad. The move is the Biden admin’s most aggressive yet as it tries to stop China from developing technological capabilities it sees as a threat. And, as Bloomberg notes, depending on how broadly Washington enforces the restrictions, the impact could extend well beyond semiconductors and into industries that rely on high-end computing, from electric vehicles and aerospace to simple gadgets like smartphones. The two countries are now officially in an “economic war,” Dylan Patel, chief analyst at SemiAnalysis, said. A Chinese analyst said there is “no possibility of reconciliation” any longer. Chinese state media and officials over the weekend raged against the action, warning of economic consequences and stirring speculation about potential retaliation. He Xiaopeng, chairman and CEO of Chinese EV maker Xpeng, warned last month that escalating US restrictions on chip exports will set back the nation’s autonomous driving sector. “This is the US salvo against China’s efforts to build its domestic tech capabilities,” said Patel, who estimates the restrictions could reduce global technology and industry trade by hundreds of billions of dollars. “It’s the US firing back, making clear they will fight back.” European and Chinese semiconductor stocks tumbled on the news. ASML Holding NV, the most advanced maker of equipment for producing semiconductors, fell more than 3%. Bellwether Semiconductor Manufacturing International Corp. fell as much as 5.2% in Hong Kong on Monday, the most since Aug. 15, as Bloomberg Intelligence analyst Charles Shum slashed his estimate on 2023 growth by 50%. Hua Hong Semiconductor Ltd. plunged 10%, while Shanghai Fudan Microelectronics Group Co. plummeted 25%. Naura fell by its daily limit of 10% in mainland China, the biggest fall since April. According to Dan Wang, technology analyst at Gavekal Dragonomics, “the rules are a directional signal about US policy on China: a very hawkish consensus is now cemented in place." US officials said the new restrictions are necessary to stop China from becoming more of an economic and military menace. As a reminder, it was back in 2018 when we first explained that the "trade" war with China was really all about chips and semiconductors, preventing China from overtaking the US before it's too late. They are seeking to ensure the country’s chipmakers don’t secure the capability to make advanced semiconductors. China “has poured resources into developing supercomputing capabilities and seeks to become a world leader in artificial intelligence by 2030,” said Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler. “It is using these capabilities to monitor, track and surveil their own citizens, and fuel its military modernization.” Reaction in China was furious. The nationalistic Global Times newspaper warned the “savage attack on free trade” would have dire consequences for the US. “Only arrogant and ignorant people can truly believe that the US can block the development of China’s semiconductor or other technology industries by these illegitimate means,” it said in an editorial. “The US hegemony in science and technology that harms others without benefiting itself may bring some short-term difficulties to China’s semiconductor industry, but will in turn strengthen China’s will and ability to stand on its own in science and technology.” Quoted by Bloomberg, China's Foreign Ministry spokesperson Mao Ning said the measures are unfair and will “deal a blow to global industrial and supply chains and world economic recovery.” “The reality is the US is determined to use chips as a tool to contain China,” Gu Wenjun, head of Chinese chip researcher ICwise, wrote in an online commentary. “There is no possibility of reconciliation.” The new US regulations broadly limit chipmakers from selling to China artificial intelligence semiconductors and those that can be used for supercomputers. Nvidia Corp. warned in September that government restrictions on exporting AI chips to China could affect hundreds of millions of dollars in revenue, sending its stock tumbling. Chipmakers can request a Commerce Department exception to those rules. But they should presume such requests will be denied, senior officials said. Commerce also put in place a raft of restrictions on supplying US machinery that’s capable of making advanced semiconductors. It’s targeting the types of memory and logic chips that are at the heart of state-of-the-art designs. Specifically, the restrictions cover production of logic chips using so-called nonplanar transistors made with 16-nanometer technology or anything more advanced than that, 18-nanometer dynamic random access memory chips and Nand-style flash memory chips with 128 layers or more (the smaller the number of nanometers, the more capable the chip). Stacy Rasgon and a team from Sanford C. Bernstein explained the restrictions on AI, supercomputers and advanced chip-making equipment, while pointing out that the standard CPUs used in personal computers and servers would not be blocked from export to China, as some had feared. “The changes represent a further escalation, and we do not know what China might do in response,” the Bernstein analysts wrote. “Potential retaliation remains a risk.” Well there is always an invasion or blockade of Taiwan, just as Biden is doing his best to drain the "emergency" petroleum reserve to win a few Democratic votes. Finally, as Bloomberg notes, one key question is how the US rules will affect the ability of companies like ASML to sell into China. The Dutch company is effectively the most important supply chain company for chipmakers around the world. ASML has had to strike a challenging balance between the US and China. It has been selling its deep ultraviolet, or DUV, machines to Chinese customers, but has held back from selling its more advanced extreme ultraviolet, or EUV, machines. Under the new Commerce Department restrictions, the company may be limited from selling DUV technology to Chinese customers too, Citigroup analysts wrote. “We are assessing the potential implications of the new regulations, if any, and cannot comment at this moment,” said Monique Mols, a spokesperson for ASML. According to Patel of SemiAnalysis, the unverified list is a serious threat to China’s tech ambitions. In the past, the Commerce Department cut off access to critical technologies for companies like Huawei when they were added to the so-called entity list, meaning the agency had gathered evidence against them. The unverified list simply means the Commerce Department can’t verify that a company’s activities are safe. “That is huge,” he said. “They can pretty much blacklist any company they want in China within two months.” Here are some more kneejerk reactions from Wall Street analysts, courtesy of Bloomberg: Bernstein “The changes represent a further escalation, and we do not know what China might to do in response”; notes risk that China may retaliate The restriction on YMTC may impact Lam Research the most, though Western Digital will benefit from reduced competition “We do not believe the new rules generally include export controls on standard CPUs” Morgan Stanley “We saw the controls around graphics and equipment sales to China sovereign customers we had expected, but rules adding broader restrictions around supercomputers and multinational fabs in China could be disruptive” “The intent to slow down military supercomputers is clear, but there is potential for a protracted slowdown in adjacent markets as well,” and this could create risk for the compute supply chain in the first half of 2023, possibly impacting companies like Intel, AMD, Nvidia, Marvell, and Broadcom Citi The new rules could lead to DUV lithography restrictions to China and new data center processor restrictions “While US restrictions could make development of China’s advanced semiconductor technologies even more challenging, they should increase Chinese semiconductor companies’ propensity to purchase domestic equipment” Tyler Durden Mon, 10/10/2022 - 17:20.....»»

Category: worldSource: nytOct 10th, 2022

Futures Meltup To New All Time High As November Begins With A Bang

Futures Meltup To New All Time High As November Begins With A Bang US futures and European stocks rose to a new record high to start the historically stellar month of November... ... and Asian markets jumped amid positive earnings surprises and as concerns of a global stagflation and central bank policy error faded for a few hours (they will return shortly). TSLA melted up by another $35BN in market cap "because gamma." S&P 500 futures climbed 0.4% after the cash index posted the biggest monthly gain since last November. Treasury Secretary Janet Yellen expressed confidence in the continuing recovery from the pandemic, helping spur gains in equity markets. Health-care shares rallied in Europe. The dollar and Treasury yields advanced as investors awaited this week’s Federal Reserve meeting to announce the start of tapering (which will then lead to rate hikes next July according to Goldman). Oil rebounded on fresh supply concerns. In addition to the now absolutely batshit insane meltup in Tesla, which won't end until the SEC cracks down on gamma squeeze manipulation, other mega-cap technology stocks such as Google, Meta, Microsoft, Amazon.and Apple, aka oddly enough GAMMA, traded mixed. Exxon and Chevron added about 0.7% each as JP Morgan raised its price target on the oil majors following their strong quarterly results last week. Major Wall Street banks gained between 0.2% and 0.8%. The broader S&P 500 financials sector slipped last week, breaking a three-week winning streak. Lucid Group Inc. rose 4.8% in premarket, extending its advance from last week, after the new U.S. tax plan included a proposal to make EV tax credits more widely available. Harley-Davidson Inc jumped 8.2% after the European Union removed retaliatory tariffs on U.S. products including whiskey, power boats and company’s motorcycles. Here are the most notable pre-market movers: Tesla shares rise 2.3% in U.S. premarket trading after their biggest monthly gain in almost a year in October ABVC BioPharma jumps more than 700% as thelittle known biotechnology company garners attention from retail traders on social media Ocugen and Zosano (ZSAN US) are some other top gainers among retail trader stocks in premarket A largely upbeat earnings season has helped investors look past a mixed-macro economic picture, with the benchmark S&P 500 and the tech-heavy Nasdaq recording their best monthly performance since November 2020 in October. Of the 279 S&P 500 companies that have reported quarterly results, 87% have met or exceeded estimates. Among members of Europe’s Stoxx 600 index, 68% surpassed expectations. On the economic data front, readings on October factory activity data from IHS Markit and ISM are due after market open, followed by non-farm payrolls on Friday. Focus is now on the Fed’s two-day policy meeting which concludes at 2pm on Nov 3, where the central bank will announce the tapering of its $120 billion monthly bond buying program by $15 billion. With recent U.S. data showing inflation pressures building, the market has also started pricing in rate hikes next year. November and December tend to be among the strongest months for stocks and any hawkish tilt in the Fed’s message could catch equities by surprise.  Meanwhile, Biden’s economic agenda seemed to be on track as Democratic lawmakers worked to overcome their differences on a $1.75 trillion social-spending plan. “Depending on where you are looking, you are getting very different stories on the outlook for global markets,” Kerry Craig, global market strategist at JPMorgan Asset Management, said on Bloomberg Television. “If you look at equities and the rally you are seeing, you think everything is OK. If you look at the bond market and how yields are moving, there’s obviously a lot more concern around inflation and policy normalization.” European stocks hit the afterburner out of the gate with the Euro Stoxx 50 adding as much as 1% before drifting off best levels. FTSE MIB and IBEX outperform, FTSE 100 lags slightly. Banks, construction and travel are the strongest sectors; tech the sole Stoxx 600 sector in the red. Barclays Plc fell 1.5%. Chief Executive Officer Jes Staley stepped down amid a U.K. regulatory probe into how he characterized his ties to the financier and sex offender Jeffrey Epstein. Asian stocks were poised to snap a three-day decline thanks to a rally in Japanese equities, which got a boost from an election victory for the country’s ruling party and Prime Minister Fumio Kishida.  The MSCI Asia Pacific Index advanced as much as 0.6%, while Japan’s benchmark Topix and the blue-chip Nikkei 225 Stock Average each added more than 2%. Sony Group, Toyota Motor and Tokyo Electron were among the single-largest contributors to the regional measure’s rise. By sector, industrials and information-technology companies provided the biggest boosts.  Japan’s ruling Liberal Democratic Party defied worst-case scenarios to secure a majority by itself in a closely-watched election Sunday. Analysts said the outcome signals political stability, paving the way for economic stimulus to be executed as anticipated (see Street Wrap).  “Indicators of market activity show that there will be a positive market impact to the election, as although it was not greatly different than expectations, the LDP clearly surpassed some of the more dire polls of last week and there will not likely be any party shake-up in the intermediate-term,” John Vail, Tokyo-based chief global strategist at Nikko Asset Management wrote in a note.  The market is also “reacting positively” to Friday’s share-price gains in the U.S., Vail said. Futures on the S&P 500 rose during Asian trading hours after the underlying gauge added 0.2%.  Asia’s regional benchmark capped a weekly drop of 1.5%, its worst such performance since early October, as disappointing results weighed on big technology stocks. More than half of the companies on the MSCI Asia Pacific Index have reported results for the latest quarter with about 37% posting a positive surprise, according to data compiled by Bloomberg. Australia's S&P/ASX 200 index rose 0.6% to 7,370.80, recouping some losses after Friday’s 1.4% plunge. Health and consumer discretionary stocks contributed the most to the benchmark’s gain. WiseTech was among the top performers, snapping a four-day losing streak. Westpac was the worst performer after the bank delivered a smaller share buyback than some had expected. In New Zealand, the S&P/NZX 50 index fell 0.5% to 13,030.31. In rates, fixed income trades heavy with gilts leading the long end weakness. Treasuries were slightly cheaper on the long-end of the curve as S&P 500 futures exceed last week’s record highs. Yields are cheaper by 2bp to 2.5bp from belly out to long-end, with front-end slightly outperforming and steepening 2s10s spread by 1.7bp; 10-year yields around 1.58% with gilts underperforming by 1.1bp, Italian bonds by 3.5bp. Gilts and Italian bonds lag, with Bank of England rate decision due Thursday. In the U.S., weekly highlights include refunding announcement and FOMC Wednesday and Friday’s October jobs report. Bund and gilt curves bear steepen with gilts ~1bps cheaper to bunds. Peripheral spreads swing an early tightening to a broad widening to core with Italy the weakest performer. Overnight futures and options flows included block seller in 5-year note futures (3,900 at 3:09am ET) and a buyer of TY Week 1 129.00 puts at 3 on 10,000, says London trader. In FX, the Bloomberg dollar index held a narrow range. SEK and CHF top the G-10 score board, GBP lags with cable snapping below 1.3650. TRY outperforms EMFX peers. The BBDXY inched up and the greenback traded mixed against its Group-of-10 peers, with many of the risk-sensitive currencies leading gains The pound retraced some losses against the dollar, after dipping earlier in the European session. The yield on 2-year gilts hit the highest since May 2019. Financial markets are almost fully pricing in a 15-basis point increase in the Bank of England’s benchmark lending rate on Nov. 4, while economists increasingly share that view, even as they see the decision as a far closer call. A record share of U.K. businesses are expecting to increase prices, adding to the inflationary pressures confronting Bank of England policy makers ahead of their meeting on Thursday Australian bonds extended opening gains as traders positioned for the Reserve Bank’s policy decision Tuesday. The Aussie fell, tracking losses in iron ore prices following a weak China PMI, which showed signs of further weakness in October The yen fell for a second day after the ruling Liberal Democratic Party retained its outright majority in a lower-house election, reinforcing bets for fiscal stimulus and reforms. Hedge funds boosted net short positions on the yen to the most since January 2019, raising the risk of a squeeze should risk appetite deteriorate suddenly and demand for havens rise The Turkish lira edged higher after Turkish President Recep Tayyip Erdogan said he had “positive” talks with U.S. President Joe Biden In commodities, crude futures drift higher. WTI adds 40c to trade near $84; Brent rises ~1% near $84.50. Spot gold is quiet near $1,786/oz. Base metals are mixed: LME nickel and tin outperform, zinc lags. Looking at today's calendar, earnings continue on Monday with PG&E and ON Semiconductor reporting pre-market, and NXP Semiconductors post-market. We also get the latest Mfg PMI print and the October Mfg ISM print. Market Snapshot S&P 500 futures up 0.3% to 4,612.25 STOXX Europe 600 up 0.8% to 479.40 MXAP up 0.4% to 198.04 MXAPJ down 0.3% to 645.49 Nikkei up 2.6% to 29,647.08 Topix up 2.2% to 2,044.72 Hang Seng Index down 0.9% to 25,154.32 Shanghai Composite little changed at 3,544.48 Sensex up 1.3% to 60,079.40 Australia S&P/ASX 200 up 0.6% to 7,370.78 Kospi up 0.3% to 2,978.94 Brent Futures up 0.3% to $83.95/bbl Gold spot down 0.0% to $1,783.20 U.S. Dollar Index little changed at 94.14 German 10Y yield little changed at -0.091% Euro up 0.1% to $1.1571 Top Overnight News from Bloomberg House Democratic leaders are pushing hard to get Biden’s package finalized, with votes on both that bill and a smaller infrastructure plan this week -- the latest in a string of self- imposed deadlines. The Senate, which already approved the public-works bill, is likely to vote on the larger package later in the month Leaders of the Group of 20 countries agreed on a climate deal that fell well short of what some nations were pushing for, leaving it to negotiators at the COP26 summit in Glasgow this week to try to achieve a breakthrough The U.K. said it will trigger legal action against France within 48 hours unless a dispute over post-Brexit fishing rights is resolved, as the growing spat threatens to overshadow the United Nations’ climate summit Treasury Secretary Janet Yellen said she believes Federal Reserve Chair Jerome Powell has taken “significant action” in the wake of revelations over the personal investments of U.S. central-bank policy makers; Yellen dismissed recent moves in the bond market that have signaled concern about monetary policy makers squelching economic growth, and expressed confidence in the continuing recovery from the Covid-19 pandemic The U.S. and the European Union have reached a trade truce on steel and aluminum that will allow the allies to remove tariffs on more than $10 billion of their exports each year Asia-Pac bourses traded mostly higher amid tailwinds from last Friday's fresh record highs in the US where Wall St. topped off its best monthly performance YTD, but with some of the advances in the region capped as participants digested mixed Chinese PMI data and ahead of this week’s slew of key risk events including crucial central bank policy announcements from the RBA, BOE and FOMC, as well as the latest NFP jobs data. ASX 200 (+0.8%) was led higher by the consumer-related sectors amid a reopening play after Australia permitted fully vaccinated citizens to travel internationally again and with several M&A related headlines adding to the optimism including the Brookfield-led consortium acquisition of AusNet Services and Seven West Media’s takeover of Prime Media. Conversely, the largest weighted financials sector failed to join in on the spoils with Westpac shares heavily pressured following its FY results which fell short of analyst estimates despite more than doubling on its cash earnings. Nikkei 225 (+2.5%) was the biggest gainer with the index underpinned by favourable currency flows and following the general election in which the ruling LDP maintained a majority in the lower house although won fewer seats than previously for its slimmest majority since 2012, while the KOSPI (+0.4%) was kept afloat but with upside limited by slightly softer than expected trade data. Hang Seng (-1.5%) and Shanghai Comp. (+0.1%) were subdued amid a slew of earnings releases and following mixed Chinese PMI data in which the official Manufacturing and Non-Manufacturing PMIs disappointed analysts’ forecasts with the former at a second consecutive contraction, although Caixin Manufacturing PMI was more encouraging and topped market consensus. Finally, 10yr JGBs initially declined amid gains in stocks and recent pressure in T-notes due to rate hike bets with analysts at Goldman Sachs bringing forward their Fed rate hike calls to July 2022 from summer 2023 citing inflation concerns, although 10yr JGBS then recovered despite the mixed results from the 10yr JGB auction which showed a higher b/c amid lower accepted prices and wider tail in price. Top Asian News Japan’s Kishida Mulls Motegi for LDP Secretary General: Kyodo Home Sales Slump; Another Bond Deadline Looms: Evergrande Update Two Thirds of China’s Top Developers Breach a ‘Red Line’ on Debt Hedge Fund Quad Sells Memory Stocks Citing Demand Uncertainty European equities (Stoxx 600 +0.6%) have kicked the week off on the front-foot with the Stoxx 600 printing a fresh all-time-high. The handover from the APAC session was a largely constructive one with the Nikkei 225 (+2.6%) the best in class for the region amid favourable currency flows and the fallout from the Japanese general election which saw the ruling LDP party maintain a majority in the lower house. Elsewhere, performance for the Shanghai Composite (-0.1%) and Hang Seng (-0.9%) was less impressive amid a slew of earnings releases and mixed Chinese PMI data in which the official Manufacturing and Non-Manufacturing PMIs disappointed analysts’ forecasts. US equity index futures are trading on a firmer footing (ES +0.5%) ahead of Wednesday’s FOMC announcement and Friday’s NFP data. The latest reports from Washington suggest that House Democrats are hoping to pass the social spending and bipartisan infrastructure bills as soon as Tuesday. Back to Europe, a recent note from JPM stated that Q3 European earnings “are coming in well ahead of expectations in aggregate”, adding that results are healthy when considering the “trickier operating backdrop”. Sectors in the region are higher across the board with Auto names top of the leaderboard. Renault (+3.3%) sits at the top of the CAC 40 with the name potentially gaining some reprieve from agreement to resolve the US-EU steel and aluminium trade dispute (something which the Co. has previously noted as a negative). Also following the resolution, Thyssenkrupp (+2.8%) and Salzgitter (+4.5%) are both trading notably higher. Barclays (-2.0%) shares are seen lower after news that CEO Staley is to step down with immediate effect following the investigation into his relationship with sex offender Jeffrey Epstein; Barclays' Global Head of Markets, Venkatakrishnan is to take over. UK homebuilders (Persimmon -2.1%, Taylor Wimpey -1.9%, Barratt Developments -1.9%, Berkeley Group -1.7%) are softer on the session amid concerns that the sector could fall victim to higher mortgage rates given the shape of the UK yield curve. Ryanair (+1%) shares are higher post-earnings which saw the Co. continue its recovery from the pandemic, albeit still expects a loss for the year. Furthermore, the board is considering the merits of retaining its standard listing on the LSE. Finally, BT (+4.2%) is the best performer in the Stoxx 600 ahead of earnings on Thursday with press reports suggesting that the Co. could announce that its GBP 1bln cost savings target will be met a year earlier than the guided March 2023. Top European News SIG Proposed Offering for EU300m Senior Secured Notes Due 2026 Delivery Hero’s Turkey Unit CEO Nevzat Aydin to Step Down Goldman Sachs Says ‘Lost Decade’ Is Looming for 60/40 Portfolios URW Sells Stake in Paris Triangle Tower Project to AXA IM Alts In FX, the Greenback is holding above 94.000 in index terms and gradually ground higher after pausing for breath and taking some time out following its rapid resurgence last Friday to eclipse the 94.302 month end best at 94.313 before waning again. Hawkish vibes going into the FOMC are underpinning the Dollar and helping to offset external factors that are less supportive, including ongoing strength in global stock markets on solid if not stellar Q3 earnings and economic recovery from COVID-19 lockdown or restricted levels. Hence, the DXY is keeping its head above the round number and outperforming most major peers within and beyond the basket, awaiting Markit’s final manufacturing PMI, the equivalent ISM and construction spending ahead of the Fed on Wednesday and NFP on Friday. JPY/AUD - Little sign of relief for the Yen from victory by Japan’s ruling LDP part at the weekend elections as the 261 seat majority secured is down from the previous 276 and the tightest winning margin since 2012. Moreover, Security General Amari lost his constituency and new PM Kishida concedes that this reflects the public’s adverse feelings towards the Government over the last 4 years. Usd/Jpy is eyeing 114.50 as a result and the Aussie is looking precarious around 0.7500 against the backdrop of weakness in commodity prices even though perceptions for the upcoming RBA have turned markedly towards the potential for YCT to be withdrawn following firm core inflation readings and no defence of the 0.1% April 2024 bond target. NZD/EUR/CHF/CAD/GBP - All narrowly mixed vs their US counterpart, and with the Kiwi also taking advantage of the aforementioned apprehension in the Aud via the cross, while the Euro has pared declines from just under 1.1550, but still looks top-heavy into 1.1600. Elsewhere, the Franc is pivoting 0.9160 and 1.0600 against the Euro with more attention on a rise in Swiss sight deposits at domestic banks as evidence of intervention than a fractionally softer than expected manufacturing PMI, the Loonie is keeping afloat of 1.2400 ahead of Markit’s Canadian manufacturing PMI and Sterling is striving to stay above 1.3600, but underperforming vs the Euro circa 0.8470 amidst the ongoing tiff between the UK and France over fishing rights. SCANDI/EM - Robust Swedish and Norwegian manufacturing PMIs plus broad risk appetite is underpinning the Sek and Nok, in contrast to the Cnh and Cny following disappointing official Chinese PMIs vs a more respectable Caixin print, but the EM laggard is the Zar in knock-on reaction to Gold’s fall from grace on Friday, increasingly bearish technical impulses and SA energy supply issues compounded by Eskom’s load-shedding. Conversely, the Try has pared some declines irrespective of a slowdown in Turkey’s manufacturing PMI as the CBRT conducted a second repo op for Lira 27 bn funds maturing on November 11 at 16%. In commodities, WTI and Brent are firmer this morning with gains of between USD 0.50-1.00/bbl, this upside is in-spite of a lack of fundamental newsflow explicitly for the complex and is seemingly derived from broader risk sentiment, as mentioned above. Nonetheless, Energy Ministers are beginning to give commentary ahead of Thursday’s OPEC+ event and so far Angola, Kuwait and Iraq officials have voiced their support for the planned 400k BPD hike to production in December. This reiteration of existing plans is in opposition from calls from non-OPEC members such as the US and Japan that the group should look to increase production quicker than planned, in a bid to quell rising prices. Separately, Saudi Aramco reported Q3 earnings over the weekend in which its net profit doubled given strong crude prices and sales volumes improving by 12% QQ; subsequently, some analysts have highlighted the possibility for a end-2021 special dividend. Elsewhere, base metals are mixed and fairly contained in-spite of the EU and US announcing an agreement to resolve the ongoing aluminium and steel trade dispute. While spot gold and silver are modestly firmer this morning as the yellow metal remains contained after its slip from the USD 1800/oz mark in the tail-end of last week. Currently, spot gold is pivoting its 100-DMA at USD 1786 with the 50- and 200-DMAs residing either side at USD 1780/oz and USD 1791/oz respectively. US Event Calendar 9:45am: Oct. Markit US Manufacturing PMI, est. 59.2, prior 59.2 10am: Oct. ISM Manufacturing, est. 60.5, prior 61.1 10am: Sept. Construction Spending MoM, est. 0.4%, prior 0% DB's Jim Reid concludes the overnight wrap Welcome to November. I had three halloween parties over the weekend which is probably more than the entire number I went to before I had kids. I still have some spooky make up on this morning that I just couldn’t get off from last night. So there’s a reason alone to zoom into the call at 3pm today. As it’s the 1st of November Henry is about to publish our monthly performance review. It was a hectic month of higher inflation expectations and commodities, and also the best S&P 500 month of the year. Bonds underperformed across the board but these small negatives masked great volatility and stress under the surface, especially in the last week. See the report that should be out in the next 30-60mins. With all due respect to our readers in Australia, I’m going to open the market section this morning with a line I don’t think I’ve written in 27 years of market commentary and probably won’t again. And it’s not about England thrashing Australia at cricket on Saturday. Yes the most important event of the week could be the RBA meeting tomorrow. 2 year yields last week rose from 0.15% on Wednesday morning to 0.775% at the close on Friday as the RBA were conspicuous by their absence in defending the 0.1% target on the April 24 bond. I’ve absolutely zero idea what they are going to do tomorrow which should help you all tremendously but their absence again this morning gives a decent indication. I was taught economics in an era where central banks liked to keep an element of mystery and surprise. As such I’ve always disliked the forward guidance era as it encourages markets to pile on to much riskier, one way positions that a normally functioning market should naturally allow. But to go from forward guidance to silence (that rhymes) is a recipe for huge market turmoil if the facts change. It's unclear if the full implications of last week’s carnage at the global front end has yet been cleared out. There is lots of speculation about large unwinds, big stop losses etc. Liquidity was also awful last week. Much might depend on central banks this week. Make no mistake though there is considerable pain out there. The latest this morning in Aussie rates is that the 2y yield is down around -7bps while the 10y yield is down -19.0bps. So we wait with baited breath for tomorrow. Elsewhere in Asia, the Nikkei 225 (+2.42%) is charging ahead this morning as Japan’s Liberal Democratic Party kept its majority after lower house elections, thus boosting optimism about a potential fiscal stimulus. Elsewhere, the KOSPI (+0.43%) and the Shanghai composite (+0.07%) are outperforming the Hang Seng (-1.10%). In terms of data, China’s official manufacturing PMI fell from 49.6 to 49.2 (49.7 expected), not helped by commodities price rises and electricity shortages. The non-manufacturing PMI also fell to 52.4 from 53.2 (consensus 53). The Caixin manufacturing PMI did beat at 50.6 this morning (consensus 50). In terms of virus developments in the region, Shanghai Disneyland is closed amid recent COVID outbreaks, while Singapore is adding ICU beds in response to high levels of serious cases. The S&P 500 mini futures is up +0.23% this morning, the US 10y Treasury is at 1.56% (+1.2bps). It’s strange to have a likely Fed taper announcement on Wednesday be third billing for the week but the BoE on Thursday might be the next most important meeting as it’s still a finely judged call as to whether they hike this week or not. DB (preview here) think they will raise rates by 15bps with two 25bps hikes in February and May. They’ll also end QE a month earlier than planned. So over to the third billing, namely the Fed. They will announce a well flagged taper on Wednesday. In line with recent guidance, DB expect that the Fed will announce monthly reductions of $10bn and $5bn of Treasury and MBS purchases, respectively. With the first cut to purchases coming mid-November, this will bring the latest round of QE to a conclusion in June 2022. The Fed has some flexibility with this timetable but it will be interesting to hear how much Powell pushes back on markets that price in two hikes in 2022, including one almost fully priced for before the taper ends. If markets attacked the Fed in the same way they have the RBA the global financial system would have a lot of issues so it’s a fine balance for the Fed. They won’t want to push back too aggressively on market pricing given the uncertainty but they won’t want an outright attack on forward guidance. Moving on, a lowly fourth billing will be reserved for US payrolls on Friday. DB expect the headline gain (+400k forecast, consensus +425k vs. +194k previously) to modestly outperform that of private payrolls (+350k vs. +317k) and for the unemployment rate to fall by a tenth to 4.7% and average hourly earnings to post another strong gain (+0.4% vs. +0.6%) amidst still-elevated hours worked (34.8hrs vs. 34.8hrs). Outside of all this excitement, we have the COP26 which will dominate all your news outlets. The other main data highlight are the global PMIs (today and Wednesday mostly) which will give insight into how the economic recovery has progressed in the first month of Q4 with the surveys shedding light onto how inflation is affecting suppliers. There is lots more in store for us this week but see the day by day calendar at the end for the full run down The market also enters the second half of the 3Q earnings season. There are 168 S&P 500 and 85 Stoxx 600 companies reporting this week with 52% of the S&P 500 and 48% of the STOXX 600 having already reported. DB’s Binky Chadha published an update on earnings season over the weekend (link here). In the US, the size of the earnings beat has declined over the course of the season and is on track to hit 7%, well below the record 14-20% range post pandemic. Excluding the lumpy loan-loss reserve releases by banks, the beat is even lower at 5%, bringing it back in line with the historical norm. Quarterly earnings are on track to be down sequentially from Q2 to Q3 by -1.1% (qoq seasonally adjusted), the first drop since Q2 2020. The flat to down read of earnings is broad based across sector groups. Forward consensus estimates have fallen outside of the Energy sector. The S&P 500 nevertheless has seen one of the strongest earning season rallies on record. See much more in Binky’s piece. This week’s highlights include NXP Semiconductors, Zoom, and Tata Motors today before Pfizer, T-Mobile, Estee Lauder, BP, Mondelez, Activision Blizzard, and AP Moller-Maersk tomorrow. Then on Wednesday we’ll hear from Novo Nordisk, Qualcomm, CVS, Marriott, Albemarle, and MGM resorts. Thursday sees reports from Toyota, Moderna, Square, Airbnb, Uber, and Deutsche Post and then a busy Friday with Alibaba Group, Dominion Energy, Honda, and Mitsubishi. Looking back now and reviewing last week in numbers, it was a week of heightened intraday volatility within rates, as markets brought forward the expected timing of central bank policy actions across advanced economies while revising down growth expectations. Position stop outs almost certainly played a role as the magnitude of the moves were out of sync with macro developments while FX and equity markets were not nearly as volatile. Global front end rates started moving in earnest on Wednesday, following the Bank of Canada’s surprise decision to end net asset purchases, while bringing forward the timing of liftoff, which sent 2yr Canadian bonds more than +20bps higher. In the following days, the RBA opted not to defend their yield curve control target, and ECB President Lagarde did not use her press conference to provide much of a forceful pushback on recent repricing. All told, almost every DM economy saw their 2 yr bond selloff, including the US (+4.4 bps, +0.8 bps Friday), UK (+4.9 bps, +5.9 bps Friday), Germany (+5.2 bps, +3.2 bps Friday), Canada (+23bps) and Australia (+65bps). The long end went the other direction in the core countries, with many curves twist flattening over the week as negative growth sentiment weighed on the back end. Nominal 10yr yields declined -6.2 bps (-2.8 bps Friday) in the US, -11.1 bps (+2.5 bps Friday) in the UK, and were flat in Germany (+3.0 bps Friday). Unlike the rest of October, the decline in nominal yields coincided with declining inflation breakevens (albeit from historically high levels), with 10yr breakevens declining -5.2 bps (-0.6 bps Friday) in the US, -25.4 bps (-8.5 bps Friday) in the UK, and -16.3 bps (-11.5 bps Friday) in Germany. Note that outside the core there were some bond markets that moved higher in yield with 10yr bonds in Canada (+7bps), Australia (+30bps) and Italy (+19bps) all higher for different reasons. Some of the bond moves above don’t do the intra-day volatility any justice though. Elsewhere Crude oil prices dipped to close out what was otherwise another very good month, with Brent and WTI -1.34% (+0.07% Friday) and -0.23% (+0.92% Friday) lower. Meanwhile, equity markets marched to the beat of a different drum. The S&P 500 (+1.33%, +0.19% Friday), Nasdaq (+2.71%, +0.33% Friday), and DJIA (+0.40%, +.25% Friday) all set new all-time highs, while the STOXX 600 increased +0.77% (+0.07% Friday), cents below the all-time high set in August. Generally strong earnings relative to a worried market prior to the season again supported equity markets. Calls were replete with mentions of supply chain woes and labour shortages though, but companies sounded an optimistic note on end-user demand. Many big tech stocks reported, to more mixed results than the broader index. Alphabet and Microsoft beat on both revenue and earnings, Facebook and Apple missed analyst revenue estimates, while Amazon and Twitter missed revenue and earnings estimates. Ford and Caterpillar, two bellwethers particularly exposed to current supply chain and labour maladies, fared especially well. So far this season 279 companies have reported, with 206 beating on revenue and 237 beating on earnings Out of D.C., after prolonged negotiations within the Democratic Party, US President Biden unveiled a new social and climate spending framework, containing $1.75 trillion in spending measures as well as revenue-raising offsets. Once the text is finalized, it should enable a vote on the social spending package as well as the separately-negotiated bi-partisan infrastructure bill. More is likely to come this week. Tyler Durden Mon, 11/01/2021 - 07:59.....»»

Category: smallbizSource: nytNov 1st, 2021

BTFD Arrives: Futures Rebound, Europe Surges While Asia Slumps On Evergrande Fears

BTFD Arrives: Futures Rebound, Europe Surges While Asia Slumps On Evergrande Fears Even though China was closed for a second day, and even though the Evergrande drama is nowhere closer to a resolution with a bond default imminent and with Beijing mute on how it will resolve the potential "Lehman moment" even as rating agency S&P chimed in saying a default is likely and it does not expect China’s government “to provide any direct support” to the privately owned developer, overnight the BTFD crew emerged in full force, and ramped futures amid growing speculation that Beijing will rescue the troubled developer... Algos about to go on a rampage — zerohedge (@zerohedge) September 21, 2021 ... pushing spoos almost 100 points higher from their Monday lows, and European stock were solidly in the green - despite Asian stocks hitting a one-month low - as investors tried to shake off fears of contagion from a potential collapse of China’s Evergrande, although gains were capped by concerns the Federal Reserve could set out a timeline to taper its stimulus at its meeting tomorrow. The dollar dropped from a one-month high, Treasury yields rose and cryptos rebounded from yesterday's rout. To be sure, the "this is not a Lehman moment" crowed was out in full force, as indicated by this note from Mizuho analysts who wrote that “while street wisdom is that Evergrande is not a ‘Lehman risk’, it is by no stretch of the imagination any meaningful comfort. It could end up being China’s proverbial house of cards ... with cross-sector headwinds already felt in materials/commodities.” At 7:00 a.m. ET, S&P 500 e-minis were up 34.00 points, or 0.79% and Nasdaq 100 e-minis 110.25 points, or 0.73%, while futures tracking the Dow  jumped 0.97%, a day after the index tumbled 1.8% in its worst day since late-July,  suggesting a rebound in sentiment after concerns about contagion from China Evergrande Group’s upcoming default woes roiled markets Monday. Dip-buyers in the last hour of trading Monday helped the S&P 500 pare some losses, though the index still posted the biggest drop since May. The bounce also came after the S&P 500 dropped substantially below its 50-day moving average - which had served as a resilient floor for the index this year - on Monday, its first major breach in more than six months. Freeport-McMoRan mining stocks higher with a 3% jump, following a 3.2% plunge in the S&P mining index a day earlier as copper prices hit a one-month low. Interest rate-sensitive banking stocks also bounced, tracking a rise in Treasury yields. Here are some of the biggest U.S. movers today: U.S.-listed Chinese stocks start to recover from Monday’s slump in premarket trading as the global selloff moderates. Alibaba (BABA US), Baidu (BIDU US), Nio (NIO US), Tencent Music (TME US)and Bilibili (BILI US) are among the gainers Verrica Pharma (VRCA US) plunges 30% in premarket trading after failing to get FDA approval for VP-102 for the treatment of molluscum contagiosum ReWalk Robotics (RWLK US) shares jump 43% in U.S. premarket trading amid a spike in volume in the stock. Being discussed on StockTwits Aprea Therapeutics gains 21% in U.S. premarket trading after the company reported complete remission in a bladder cancer patient in Phase 1/2 clinical trial of eprenetapopt in combination with pembrolizumab Lennar (LEN US) shares fell 3% in Monday postmarket trading after the homebuilder forecast 4Q new orders below analysts’ consensus hurt by unprecedented supply chain challenges ConocoPhillips (COP US) ticks higher in U.S. premarket trading after it agreed to buy Shell’s  Permian Basin assets for $9.5 billion in cash, accelerating the consolidation of the largest U.S. oil patch SmileDirect (SDC US) slightly higher in premarket trading after it said on Monday that it plans to enter France with an initial location in Paris KAR Global (KAR US) shares fell 4.6% in post-market trading on Monday after the company withdrew is full-year financial outlook citing disruption caused by chip shortage Sportradar (SRAD US) shares jumped 4.5% in Monday postmarket trading, after the company said basketball legend Michael Jordan will serve as a special adviser to its board and also increase his investment in the sports betting and entertainment services provider, effective immediately Orbital Energy Group (OEG US) gained 6% postmarket Monday after a unit won a contract  to construct 1,910 miles of rural broadband network in Virginia. Terms were not disclosed “So much of this information is already known that we don’t think it will necessary set off a wave of problems,” John Bilton, head of global multi-asset strategy at JPMorgan Asset Management, said on Bloomberg TV. “I’m more concerned about knock-on sentiment at a time when investor sentiment is a bit fragile. But when we look at the fundamentals -- the general growth, and direction in the wider economy -- we still feel reasonably confident that the situation will right itself.” Aside from worries over Evergrande’s ability to make good on $300 billion of liabilities, investors are also positioning for the two-day Fed meeting starting Tuesday, where policy makers are expected to start laying the groundwork for paring stimulus.  Europe's Stoxx 600 index climbed more than 1%, rebounding from the biggest slump in two months, with energy companies leading the advance and all industry sectors in the green. Royal Dutch Shell rose after the company offered shareholders a payout from the sale of shale oil fields. Universal Music Group BV shares soared in their stock market debut after being spun off from Vivendi SE. European airlines other travel-related stocks rise for a second day following the U.S. decision to soon allow entry to most foreign air travelers as long as they’re fully vaccinated against Covid-19; British Airways parent IAG soars as much as 6.9%, extending Monday’s 11% jump. Here are some of the biggest European movers today: Stagecoach shares jump as much as 24% after the company confirmed it is in takeover talks with peer National Express. Shell climbs as much as 4.4% after selling its Permian Basin assets to ConocoPhillips for $9.5 billion. Bechtle gains as much as 4.3% after UBS initiated coverage at buy. Husqvarna tumbles as much as 9% after the company said it is suing Briggs & Stratton in the U.S. for failing to deliver sufficient lawn mower engines for the 2022 season. Kingfisher slides as much as 6.4% after the DIY retailer posted 1H results and forecast higher profits this fiscal year. The mood was decidedly more sour earlier in the session, when Asian stocks fell for a second day amid continued concerns over China’s property sector, with Japan leading regional declines as the market reopened after a holiday. The MSCI Asia Pacific Index was down 0.5%, headed for its lowest close since Aug. 30, with Alibaba and SoftBank the biggest drags. China Evergrande Group slid deeper in equity and credit markets Tuesday after S&P said the developer is on the brink of default. Markets in China, Taiwan and South Korea were closed for holidays. Worries over contagion risk from the Chinese developer’s debt problems and Beijing’s ongoing crackdowns, combined with concern over Federal Reserve tapering, sent global stocks tumbling Monday. The MSCI All-Country World Index fell 1.6%, the most since July 19. Japan’s stocks joined the selloff Tuesday as investor concerns grew over China’s real-estate sector as well as Federal Reserve tapering, with the Nikkei 225 sliding 2.2% - its biggest drop in three months, catching up with losses in global peers after a holiday - after a four-week rally boosted by expectations for favorable economic policies from a new government. Electronics makers were the biggest drag on the Topix, which declined 1.7%. SoftBank Group and Fast Retailing were the largest contributors to a 2.2% loss in the Nikkei 225. Japanese stocks with high China exposure including Toto and Nippon Paint also dropped. “The outsized reaction in global markets may be a function of having too many uncertainties bunched into this period,” Eugene Leow, a macro strategist at DBS Bank Ltd., wrote in a note. “It probably does not help that risk taking (especially in equities) has gone on for an extended period and may be vulnerable to a correction.” “The proportion of Japan’s exports to China is greater than those to the U.S. or Europe, making it sensitive to any slowdown worries in the Chinese economy,” said Hideyuki Ishiguro, a senior strategist at Nomura Asset Management in Tokyo. “The stock market has yet to fully price in the possibility of a bankruptcy by Evergrande Group.” The Nikkei 225 has been the best-performing major stock gauge in the world this month, up 6.2%, buoyed by expectations for favorable policies from a new government and an inflow of foreign cash. The Topix is up 5.3% so far in September. In FX, the Bloomberg Dollar Spot Index inched lower and the greenback fell versus most of its Group-of-10 peers as a selloff in global stocks over the past two sessions abated; the euro hovered while commodity currencies led by the Norwegian krone were the best performers amid an advance in crude oil prices. Sweden’s krona was little changed after the Riksbank steered clear of signaling any post-pandemic tightening, as it remains unconvinced that a recent surge in inflation will last. The pound bucked a three-day losing streak as global risk appetite revived, while investors look to Thursday’s Bank of England meeting for policy clues. The yen erased earlier gains as signs that risk appetite is stabilizing damped demand for haven assets. At the same time, losses were capped due to uncertainty over China’s handling of the Evergrande debt crisis. In rates, Treasuries were lower, although off worst levels of the day as U.S. stock futures recover around half of Monday’s losses while European equities trade with a strong bid tone. Yields are cheaper by up to 2.5bp across long-end of the curve, steepening 5s30s spread by 1.2bp; 10-year yields around 1.3226%, cheaper by 1.5bp on the day, lagging bunds and gilts by 1bp-2bp. The long-end of the curve lags ahead of $24b 20-year bond reopening. Treasury will auction $24b 20-year bonds in first reopening at 1pm ET; WI yield ~1.82% is below auction stops since January and ~3bp richer than last month’s new-issue result In commodities, crude futures rose, with the front month WTI up 1.5% near $71.50. Brent stalls near $75. Spot gold trades a narrow range near $1,765/oz. Base metals are mostly in the green with LME aluminum the best performer Looking at the day ahead now, and data releases include US housing starts and building permits for August, along with the UK public finances for September. From central banks, we’ll hear from ECB Vice President de Guindos. Otherwise, the General Debate will begin at the UN General Assembly, and the OECD publishes their Interim Economic Outlook. Market Snapshot S&P 500 futures up 1.0% to 4,392.75 STOXX Europe 600 up 1.1% to 459.10 MXAP down 0.5% to 200.25 MXAPJ up 0.2% to 640.31 Nikkei down 2.2% to 29,839.71 Topix down 1.7% to 2,064.55 Hang Seng Index up 0.5% to 24,221.54 Shanghai Composite up 0.2% to 3,613.97 Sensex up 0.4% to 58,751.30 Australia S&P/ASX 200 up 0.4% to 7,273.83 Kospi up 0.3% to 3,140.51 Brent Futures up 1.6% to $75.13/bbl Gold spot down 0.1% to $1,761.68 U.S. Dollar Index little changed at 93.19 German 10Y yield fell 5.0 bps to -0.304% Euro little changed at $1.1729 Top Overnight News from Bloomberg Lael Brainard is a leading candidate to be the Federal Reserve’s banking watchdog and is also being discussed for more prominent Biden administration appointments, including to replace Fed chairman Jerome Powell and, potentially, for Treasury secretary if Janet Yellen leaves Federal Reserve Chair Jerome Powell will this week face the challenge of convincing investors that plans to scale back asset purchases aren’t a runway to raising interest rates for the first time since 2018 ECB Vice President Luis de Guindos says there is “good news” with respect to the euro-area recovery after a strong development in the second and third quarter The ECB is likely to continue purchasing junk-rated Greek sovereign debt even after the pandemic crisis has passed, according to Governing Council member and Greek central bank chief Yannis Stournaras U.K. government borrowing was well below official forecasts in the first five months of the fiscal year, providing a fillip for Chancellor of the Exchequer Rishi Sunak as he prepares for a review of tax and spending next month U.K. Business Secretary Kwasi Kwarteng warned the next few days will be challenging as the energy crisis deepens, and meat producers struggle with a crunch in carbon dioxide supplies The U.K.’s green bond debut broke demand records for the nation’s debt as investors leaped on the long-anticipated sterling asset. The nation is offering a green bond maturing in 2033 via banks on Tuesday at 7.5 basis points over the June 2032 gilt. It has not given an exact size target for the sale, which has attracted a record of more than 90 billion pounds ($123 billion) in orders Germany cut planned debt sales in the fourth quarter by 4 billion euros ($4.7 billion), suggesting the surge in borrowing triggered by the coronavirus pandemic is receding Contagion from China Evergrande Group has started to engulf even safer debt in Asia, sparking the worst sustained selloff of the securities since April. Premiums on Asian investment-grade dollar bonds widened 2-3 basis points Tuesday, according to credit traders, after a jump of 3.4 basis points on Monday Swiss National Bank policy makers watching the effects of negative interest rates on the economy are worrying about the real-estate bubble that their policy is helping to foster Global central banks need to set out clear strategies for coping with inflation risks as the world economy experiences faster-than-expected cost increases amid an uneven recovery from the pandemic, the OECD said A quick look at global markets courtesy of Newsquawk Asian equities traded cautiously following the recent downbeat global risk appetite due to Evergrande contagion concerns which resulted in the worst day for Wall Street since May, with the region also contending with holiday-thinned conditions due to the ongoing closures in China, South Korea and Taiwan. ASX 200 (+0.2%) was indecisive with a rebound in the mining-related sectors counterbalanced by underperformance in utilities, financials and tech, while there were also reports that the Byron Bay area in New South Wales will be subject to a seven-day lockdown from this evening. Nikkei 225 (-1.8%) was heavily pressured and relinquished the 30k status as it played catch up to the contagion downturn on return from the extended weekend with recent detrimental currency inflows also contributing to the losses for exporters. Hang Seng (-0.3%) was choppy amid the continued absence of mainland participants with markets second-guessing whether Chinese authorities will intervene in the event of an Evergrande collapse, while shares in the world’s most indebted developer fluctuated and wiped out an early rebound, although affiliate Evergrande Property Services and other property names fared better after Sun Hung Kai disputed reports of China pressuring Hong Kong developers and with Guangzhou R&F Properties boosted by reports major shareholders pledged funds in the Co. which is also selling key assets to Country Garden. Finally, 10yr JGBs were higher amid the underperformance in Japanese stocks and with the Japan Securities Dealers Association recently noting that global funds purchased the most ultra-long Japanese bonds since 2014, although upside was limited amid softer demand at the enhanced liquidity auction for 2yr-20yr maturities and with the BoJ kickstarting its two-day policy meeting. Top Asian News Richest Banker Says Evergrande Is China’s ‘Lehman Moment’ Hong Kong Tycoons, Casino Giants Find Respite in Stock Rebound Taliban Add More Male Ministers, Say Will Include Women Later Asian Stocks Drop to Lowest Level This Month; Japan Leads Losses European equities (Stoxx 600 +1.1%) trade on a firmer footing attempting to recoup some of yesterday’s losses with not much in the way of incremental newsflow driving the upside. Despite the attempt to claw back some of the prior session’s lost ground, the Stoxx 600 is still lower by around 1.6% on the week. The Asia-Pac session was one characterised by caution and regional market closures with China remaining away from market. Focus remains on whether Evergrande will meet USD 83mln in interest payments due on Thursday and what actions Chinese authorities could take to limit the contagion from the company in the event of further troubles. Stateside, futures are also on a firmer footing with some slight outperformance in the RTY (+1.2%) vs. peers (ES +0.8%). Again, there is not much in the way of fresh positivity driving the upside and instead gains are likely more a by-product of dip-buying; attention for the US is set to become increasingly geared towards tomorrow’s FOMC policy announcement. Sectors in Europe are firmer across the board with outperformance in Oil & Gas names amid a recovery in the crude complex and gains in Shell (+4.4%) after news that the Co. is to sell its Permian Basin assets to ConocoPhillips (COP) for USD 9.5bln in cash. Other outperforming sectors include Tech, Insurance and Basic Resources. IAG (+4.1%) and Deutsche Lufthansa (+3.8%) both sit at the top of the Stoxx 600 as the Co.’s continue to enjoy the fallout from yesterday’s decision by the US to allow travel from vaccinated EU and UK passengers. Swatch (-0.7%) is lagging in the luxury space following a downgrade at RBC, whilst data showed Swiss watch exports were +11.5% Y/Y in August (prev. 29.1%). Finally, National Express (+7.7%) is reportedly considering a takeover of Stagecoach (+21.4%), which is valued at around GBP 370mln. Top European News U.K. Warns of Challenging Few Days as Energy Crisis Deepens Germany Trims Planned Debt Sales as Pandemic Impact Recedes U.K.’s Green Bond Debut Draws Record Demand of $123 Billion Goldman Plans $1.5 Billion Petershill Partners IPO in London In FX, all the signs are constructive for a classic turnaround Tuesday when it comes to Loonie fortunes as broad risk sentiment improves markedly, WTI consolidates within a firm range around Usd 71/brl compared to yesterday’s sub-Usd 70 low and incoming results from Canada’s general election indicate victory for the incumbent Liberal party that will secure a 3rd term for PM Trudeau. Hence, it’s better the devil you know as such and Usd/Cad retreated further from its stop-induced spike to just pips short of 1.2900 to probe 1.2750 at one stage before bouncing ahead of new house price data for August. Conversely, the Swedish Krona seems somewhat reluctant to get carried away with the much better market mood after the latest Riksbank policy meeting only acknowledged significantly stronger than expected inflation data in passing, and the repo rate path remained rooted to zero percent for the full forecast horizon as a consequence. However, Eur/Sek has slipped back to test 10.1600 bids/support following an initial upturn to almost 10.1800, irrespective of a rise in unemployment. NOK/AUD/NZD - No such qualms for the Norwegian Crown as Brent hovers near the top of a Usd 75.18-74.20/brl band and the Norges Bank is widely, if not universally tipped to become the first major Central Bank to shift into tightening mode on Thursday, with Eur/Nok hugging the base of a 10.1700-10.2430 range. Elsewhere, the Aussie and Kiwi look relieved rather than rejuvenated in their own right given dovish RBA minutes, a deterioration in Westpac’s NZ consumer sentiment and near reversal in credit card spending from 6.9% y/y in July to -6.3% last month. Instead, Aud/Usd and Nzd/Usd have rebounded amidst the recovery in risk appetite that has undermined their US rival to top 0.7380 and 0.7050 respectively at best. GBP/CHF/EUR/JPY/DXY - Sterling is latching on to the ongoing Dollar retracement and more supportive backdrop elsewhere to pare losses under 1.3700, while the Franc continues its revival to 0.9250 or so and almost 1.0850 against the Euro even though the SNB is bound to check its stride at the upcoming policy review, and the single currency is also forming a firmer base above 1.1700 vs the Buck. Indeed, the collective reprieve in all components of the Greenback basket, bar the Yen on diminished safe-haven demand, has pushed the index down to 93.116 from 93.277 at the earlier apex, and Monday’s elevated 93.455 perch, while Usd/Jpy is straddling 109.50 and flanked by decent option expiry interest either side. On that note, 1.4 bn resides at the 109.00 strike and 1.1 bn between 109.60-70, while there is 1.6 bn in Usd/Cad bang on 1.2800. EM - Some respite across the board in wake of yesterday’s mauling at the hands of risk-off positioning in favour of the Usd, while the Czk has also been underpinned by more hawkish CNB commentary as Holub echoes the Governor by advocating a 50 bp hike at the end of September and a further 25-50 bp in November. In commodities, WTI and Brent are firmer in the European morning post gains in excess of 1.0%, though the benchmarks are off highs after an early foray saw Brent Nov’21 eclipse USD 75.00/bbl, for instance. While there has been newsflow for the complex, mainly from various energy ministers, there hasn’t been much explicitly for crude to change the dial; thus, the benchmarks are seemingly moving in tandem with broader risk sentiment (see equities). In terms of the energy commentary, the Qatar minister said they are not thinking of re-joining OPEC+ while the UAE minister spoke on the gas situation. On this, reports in Russian press suggests that Russia might allow Rosneft to supply 10bcm of gas to Europe per year under an agency agreement with Gazprom “as an experiment”, developments to this will be closely eyed for any indication that it could serve to ease the current gas situation. Looking ahead, we have the weekly private inventory report which is expected to post a headline draw of 2.4mln and draws, albeit of a smaller magnitude, are expected for distillate and gasoline as well. Moving to metals, spot gold is marginally firmer while silver outperforms with base-metals picking up across the board from the poor performance seen yesterday that, for instance, saw LME copper below the USD 9k mark. Note, the action is more of a steadying from yesterday’s downside performance than any notable upside, with the likes of copper well within Monday’s parameters. US Event Calendar 8:30am: Aug. Building Permits MoM, est. -1.8%, prior 2.6%, revised 2.3% 8:30am: Aug. Housing Starts MoM, est. 1.0%, prior -7.0% 8:30am: Aug. Building Permits, est. 1.6m, prior 1.64m, revised 1.63m 8:30am: Aug. Housing Starts, est. 1.55m, prior 1.53m 8:30am: 2Q Current Account Balance, est. -$190.8b, prior -$195.7b DB's Jim Reid concludes the overnight wrap Global markets slumped across the board yesterday in what was one of the worst days of the year as an array of concerns about the outlook gathered pace. The crisis at Evergrande and in the Chinese real estate sector was the catalyst most people were talking about, but truth be told, the market rout we’re seeing is reflecting a wider set of risks than just Chinese property, and comes after increasing questions have been asked about whether current valuations could still be justified, with talk of a potential correction picking up. Remember that 68% of respondents to my survey last week (link here) thought they’d be at least a 5% correction in equity markets before year end. So this has been front and centre of people’s mind even if the catalyst hasn’t been clear. We’ve all known about Evergrande’s woes and how big it was for a while but it wasn’t until Friday’s story of the Chinese regulatory crackdown extending into property that crystallised the story into having wider implications. As I noted in my chart of the day yesterday link here Chinese USD HY had been widening aggressively over the last couple of months but IG has been pretty rock solid. There were still no domestic signs of contagion by close of business Friday. However as it stands, there will likely be by the reopening post holidays tomorrow which reflects how quickly the story has evolved even without much new news. Before we get to the latest on this, note that we’ve still got a bumper couple of weeks on the calendar to get through, including the Fed decision tomorrow, which comes just as a potential government shutdown and debt ceiling fight are coming into view, alongside big debates on how much spending the Democrats will actually manage to pass. There has been some respite overnight with S&P 500 futures +0.58% higher and 10y UST yields up +1.5bps to 1.327%. Crude oil prices are also up c. 1%. On Evergrande, S&P Global Ratings has said that the company is on the brink of default and that it’s failure is unlikely to result in a scenario where China will be compelled to step in. The report added that they see China stepping in only if “there is a far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy.” The Hang Seng (-0.32%) is lower but the Hang Seng Properties index is up (+1.59%) and bouncing off the 5 plus year lows it hit yesterday. Elsewhere the ASX (+0.30%) and India’s Nifty (+0.35%) have also advanced. Chinese and South Korean markets are closed for a holiday but the Nikkei has reopened and is -1.80% and catching down to yesterday’s global move. Looking at yesterday’s moves in more depth, the gathering storm clouds saw the S&P 500 shed -1.70% in its worst day since May 12, with cyclical industries leading the declines and with just 10% of S&P 500 index members gaining. There was a late rally at the end of the US trading session that saw equity indices bounce off their lows, with the S&P 500 (-2.87%) and NASDAQ (-3.42%) both looking like they were going to register their worst days since October 2020 and late-February 2021 respectively. However, yesterday was still the 5th worst day for the S&P 500 in 2021. Reflecting the risk-off tone, small caps suffered in particular with the Russell 2000 falling -2.44%, whilst tech stocks were another underperformer as the NASDAQ lost -2.19% and the FANG+ index of 10 megacap tech firms saw an even bigger -3.16% decline. For Europe it was much the same story, with the STOXX 600 (-1.67%) and other bourses including the DAX (-2.31%) seeing significant losses amidst the cyclical underperformance. It was the STOXX 600’s worst performance since mid-July and the 6th worst day of the year overall. Unsurprisingly, there was also a significant spike in volatility, with the VIX index climbing +4.9pts to 25.7 – its highest closing level since mid-May – after trading above 28.0pts midday. In line with the broader risk-off move, especially sovereign bonds rallied strongly as investors downgraded their assessment of the economic outlook and moved to price out the chances of near-term rate hikes. By the close of trade, yields on 10yr Treasuries had fallen -5.1bps to 1.311%, with lower inflation breakevens (-4.1bps) leading the bulk of the declines. Meanwhile in Europe, yields on 10yr bunds (-4.0bps), OATs (-2.6bps) and BTPs (-0.9bps) similarly fell back, although there was a widening in spreads between core and periphery as investors turned more cautious. Elsewhere, commodities took a hit as concerns grew about the economic outlook, with Bloomberg’s Commodity Spot Index (-1.53%) losing ground for a third consecutive session. That said, European natural gas prices (+15.69%) were the massive exception once again, with the latest surge taking them above the peak from last Wednesday, and thus bringing the price gains since the start of August to +84.80%. Here in the UK, Business Secretary Kwarteng said that he didn’t expect an emergency regarding the energy supply, but also said that the government wouldn’t bail out failed companies. Meanwhile, EU transport and energy ministers are set to meet from tomorrow for an informal meeting, at which the massive spike in prices are likely to be discussed. Overnight, we have the first projections of the Canadian federal election with CBC News projecting that the Liberals will win enough seats to form a government for the third time albeit likely a minority government. With the counting still underway, Liberals are currently projected to win 156 seats while Conservatives are projected to win 120 seats. Both the parties are currently projected to win a seat less than last time. The Canadian dollar is up +0.44% overnight as the results remove some election uncertainty. Turning to the pandemic, the main news yesterday was that the US is set to relax its travel rules for foreign arrivals. President Biden announced the move yesterday, mandating that all adult visitors show proof of vaccination before entering the country. Airline stocks outperformed strongly in response, with the S&P 500 airlines (+1.55%) being one of the few industry groups that actually advanced yesterday. Otherwise, we heard from Pfizer and BioNTech that their vaccine trials on 5-11 year olds had successfully produced an antibody response among that age group. The dose was just a third of that used in those aged 12 and above, and they said they planned to share the data with regulators “as soon as possible”. Furthermore, they said that trials for the younger cohorts (2-5 and 6m-2) are expected as soon as Q4. In Germany, there are just 5 days left until the election now, and the last Insa poll before the vote showed a slight tightening in the race, with the centre-left SPD down a point to 25%, whilst the CDU/CSU bloc were up 1.5 points to 22%. Noticeably, that would also put the race back within the +/- 2.5% margin of error. The Greens were unchanged in third place on 15%. Staying with politics and shifting back to the US, there was news last night that Congressional Democratic leaders are looking to tie the suspension of the US debt ceiling vote to the spending bill that is due by the end of this month. If the spending bill is not enacted it would trigger a government shutdown, and if the debt ceiling is not raised it would cause defaults on federal payments as soon as October. Senate Majority Leader Schumer said the House will pass a spending bill that will fund the government through December 3rd and that the “legislation to avoid a government shutdown will also include a suspension of the debt limit through December 2022.” Republicans may balk at the second measure, given that it would take the issue off the table until after the 2022 midterm elections in November of that year. There wasn’t a great deal of data out yesterday, though German producer price inflation rose to +12.0% in August (vs. +11.1% expected), marking the fastest pace since December 1974. Separately in the US, the NAHB’s housing market index unexpectedly rose to 76 in September (vs. 75 expected), the first monthly increase since April. To the day ahead now, and data releases include US housing starts and building permits for August, along with the UK public finances for September. From central banks, we’ll hear from ECB Vice President de Guindos. Otherwise, the General Debate will begin at the UN General Assembly, and the OECD will be publishing their Interim Economic Outlook. Tyler Durden Tue, 09/21/2021 - 07:45.....»»

Category: blogSource: zerohedgeSep 21st, 2021

Australian LNG exporter ships a rare cargo to Europe as buyers rush to secure alternatives to Russian supplies

Australia's Woodside Energy has delivered an LNG cargo to German utility Uniper as European buyers scramble to replace lost Russian supplies. Europe received its first LNG cargo from Australian energy firm Woodside Energy Group.Getty Images Australian energy company Woodside delivered an LNG cargo to Europe amid an energy crisis.  A cargo of 75,000 tonnes of natural gas arrived for German utility Uniper on Sunday.  European buyers are rushing to secure natural gas from alternative sellers as Russia cuts off flows.  Europe just received a shipment of liquefied natural gas from Australia, as the continent steps up efforts to secure alternative energy supplies after Russia curbed supplies.Woodside Energy Group said it delivered approximately 75,000 tonnes of LNG to German government-owned gas importer Uniper. The cargo of Australia's North West Shelf LNG arrived at the Gate Terminal on Maasvlakte, Rotterdam on Sunday."Events over the course of 2022 have shown that the world cannot take reliable and affordable supplies of energy for granted, particularly as we strive to decarbonise," the Australian energy company said in a statement Monday. "At such times it is more important than ever that buyers and sellers work together to flexibly respond to market dynamics. Our relationship with Uniper is an example of such cooperation," it added.  The shipment marks a rare move for Australia, which largely exports its natural gas to Asia. It comes in response to Europe's energy crisis, after Russia cut back flows to the continent in retaliation to Western sanctions.Europe has also sought natural gas from the likes of Qatar, the US and China, to make sure its households have enough supplies through the winter. And while the US gained the title of the world's largest LNG exporter earlier this year, Australia has been making its mark in the industry too, accounting for about 20% of global LNG shipments, per the Australian government. "We continue to work on securing the much needed gas supply into Europe from reliable sources like Australia and thus helping to strengthen security of supply during the ongoing crisis triggered by the Russian war," Uniper's director of LNG Andreas Gemballa said in a joint statement with Woodside. Read the original article on Business Insider.....»»

Category: worldSource: nytNov 28th, 2022

Futures Steady Ahead Of Fed Minutes

Futures Steady Ahead Of Fed Minutes US equity futures were steady, trading in a narrow 15 point range before the release of minutes from the latest Fed meeting which may signal that the pace of rate hikes may slow. S&P500 futures up 0.1% by 7:30 a.m. ET, swinging between gains and losses, after the underlying index closed above 4,000 for the first time since Sept. 12 amid lighter trading before Thursday’s Thanksgiving holiday. Nasdaq 100 futures rose 0.1% after the tech-heavy index climbed 1.5% on Tuesday. Credit Suisse shares plunged below their record closing low after the bank warned of a fourth-quarter loss. Oil fell as the EU discussed imposing a price cap on Russian oil between $65 and $70 a barrel (which Russia will never comply with). The Bloomberg dollar index erased earlier declines. Ten-year US Treasury yields rose by one basis point. In premarket trading, Nordstrom sank 10% after reporting late Tuesday that gross margin for the fiscal third quarter that trailed the average analyst estimate. The department-store operator also reiterated its full-year outlook despite topping analysts’ expectations for adjusted earnings per share and revenue. The stock had ended Tuesday’s regular session at the highest level in three months amid a rally among retail shares. Tesla gained after Citigroup upgraded the electric-vehicle maker to neutral from sell. Here are some other notable premarket movers: Manchester United shares jump 11% in US premarket trading as the owners of the football club, the Glazer family, work with financial advisers on a partial sale of the club or investments including stadium and infrastructure redevelopment. Cryptocurrency-exposed stocks rally anew as Bitcoin extended its rebound into a second session, though investors were keeping an eye out for signs of any contagion from the collapse of Sam Bankman-Fried’s FTX empire. Coinbase +3.6%, Riot Blockchain +3.8%, Marathon Digital +4%, Core Scientific +11% Keep an eye on Medtronic as the stock was cut to neutral from buy at Citi, with the broker saying the medical-equipment group’s quarterly results were the “straw that broke the camel’s back.” MacroGenics shares gained about 4% in postmarket trading on Tuesday after Guggenheim Securities raised its rating on the stock to buy from neutral, citing a stronger balance sheet and near-term clinical data catalysts. The publication of minutes from the Fed’s Nov. 1-2 meeting -- due at 2 p.m. in Washington -- will be studied for how united policymakers were over a higher peak for interest rates than previously signaled in their inflation fight. Some investors anticipate that lower-than-estimated inflation figures could prompt the Fed to temper the size of its rate hikes as early as at next month’s gathering. After an initial shock from Chair Jerome Powell’s comments earlier this month, US equities have turned higher on expectations that lower-than-estimated inflation figures could prompt the Fed to tame the size of its rate hikes. The minutes are “likely to shed some light into how many FOMC members are becoming concerned about policy lags and the impacts of such lags on the US economy,” said Michael Hewson, chief market analyst at CMC Markets UK. “With Fed Chair Powell keen to impress on the market that he wants to limit the scale of advances in the equity markets, it will be interesting to see how many other Fed officials share that view.” The Stoxx Europe 600 crept 0.1% higher to a fresh three-month high as travel and leisure and mining stocks gained. FTSE 100 outperforms peers, adding 0.5%, FTSE MIB lags, dropping 0.3%. Miners, travel and energy are the strongest performing sectors.  Credit Suisse Group shares dropped below their record closing low after the bank warned of a fourth-quarter loss and revealed a record $88 billion outflow. Here are the most notable European movers: Britvic shares rise as much as 4.9% after the UK soft-drinks maker reported full-year sales and earnings that beat estimates. Goodbody said the results bode well for the year ahead. Glencore gains as much as 4.8%, the most since Nov. 4, after Bernstein analysts upgraded the miner to outperform from market perform, saying it is best positioned to take advantage of thermal coal prices amid the gas shortage in Europe. CTS Eventim shares climb as much as 5%, touching the highest since June, after Baader raised the ticket seller to add from reduce, saying it is delivering a “very strong business recovery.” Rotork shares rise as much as 4.5%. The industrial valve maker’s reiterated guidance and in-line results should be welcome, while the margin outlook is also positive, analysts said. Endesa shares drop as much as 6.5%, the most intraday since June, after the Spanish utility gave guidance for lower-than-expected profits for the next two years. Credit Suisse drops as much as 6.2% after the troubled lender said it will book a loss of up to 1.5b Swiss francs for the fourth quarter and reported further outflows of wealth management funds. Vontobel said massive net outflows in wealth management are “deeply concerning.” Siemens Healthineers shares fall as much as 4.5% after it was cut to hold from buy at Jefferies, with the broker seeing limited scope for any upside in the medtech group’s FY23 guidance. EMS-Chemie shares drop as much as 4.7% after the chemicals company warned on profits, citing worsening demand from the automotive sector. European investors digested data showing that private-sector activity in Germany and France -- the euro area’s top two economies -- contracted in November, painting a bleak picture for a region that may already be in recession. A separate survey showed that the UK economy is in recession, with the downturn expected to worsen into 2023. Earlier in the session, Asian stocks advanced as investors awaited the Federal Reserve’s minutes to assess the US rate-hike path while weighing risks from China’s Covid lockdowns and regulatory crackdown.  The MSCI Asia Pacific excluding Japan Index climbed as much as 0.7%, led by gains in tech and energy stocks. Alibaba and other Chinese internet firms were the biggest individual contributors to the measure’s gain.  Equities in Hong Kong snapped a five-day losing streak while those in mainland China closed with a small gain as investors analyze impact of virus curbs. Traders were also cautious following a report that Chinese authorities are planning to impose a fine of more than $1 billion on Jack Ma’s Ant Group. Elsewhere, benchmarks in Australia, Taiwan, South Korea and Indonesia posted moderate gains. Japan’s markets were closed for a holiday.  In a move to fight the spread of Covid, Shanghai will ask new arrivals into the city to stay away from public venues for five days starting from Thursday, as Chinese authorities revert to tougher virus restrictions amid a nationwide surge in infections. “China Covid will continue to create volatility, but it wasn’t completely unexpected and is somewhat priced in,” said Charu Chanana, senior markets strategist at Saxo Capital Markets. “For now, equities are getting a push from weaker yields overnight and expectations that FOMC minutes may be dovish.”  The minutes of the Fed’s November meeting will likely reveal a consensus among policymakers that the central bank needs to slow rate hikes. Investors are also digesting a slew of corporate earnings from Asia. Indian shares rose for a second straight day, helped by gains in banking stocks. A drop in index-heavy Reliance Industries and software firms trimmed gains.  The S&P BSE Sensex gained rose 0.2% to 61,510.58 in Mumbai, while the NSE Nifty 50 Index added 0.1%. Twelve of BSE Ltd.’s 19 sector sub-gauges gained, led by a measure of banking stocks, trading close to a record high after climbing about 21% this year.  Foreign investors have largely been buyers of local shares since end of September. However, the global funds are also taking profit from some of top performers regularly. Australian stocks rose to the highest since June as miners gained. The S&P/ASX 200 index rose 0.7% to close at 7,231.80, extending gains for a second session, following Wall Street higher amid positive earnings and a focus on Federal Reserve minutes due later Wednesday.  Mining and bank shares contributed most to the benchmarks advance.  In New Zealand, the S&P/NZX 50 index fell 0.8% to 11,323.80, as the central bank raised interest rates by a record 75 basis points and signaled further tightening ahead, stepping up its inflation fight even as it forecasts a recession next year In FX, Bloomberg dollar spot index flatlined as G-10 peers moved in narrow ranges. Scandinavian currencies were the best G-10 performers while the yen and the Canadian dollar were the worst. The New Zealand dollar pared gains after earlier advancing by as much 0.7% versus the greenback. The Reserve Bank of New Zealand raised interest rates by 75 basis points, as expected, and said rates will peak at 5.5% instead of 4.1%, and forecasts a recession next year as it seeks to contain inflation. The nation’s 2-year bond yield added 20bps The euro steadied around $1.03. European bond curves flattened and underperformed Treasuries as markets priced in more ECB tightening following RBNZ’s hawkish move. 2-year Bund yields added 7bps while the 10-year yield rose 1bp. Italian bonds outperformed bunds. The pound traded little changed against the US dollar and the euro. Currency traders are focusing on an upcoming Supreme Court ruling on whether the semi-autonomous Scottish government can call a second independence referendum without approval from the UK government In rates, Treasuries were narrowly mixed with the curve continuing to flatten; long-end yields traded slightly richer on the day, front-end and belly cheaper. 10-year Treasury yields were cheaper by 1bp on the day at around 3.765% with bunds trading cheaper by 1bp in the sector; 30-year dipped below 3.81% for first time since Oct. 7, aided by prospect of a big index duration extension at next week’s month- end rebalancing. Bunds underperformed with long-end yields cheaper by over 5bp on the day following PMI numbers and German 30-year bond sale. US session features heavy economic data slate including PMIs and University of Michigan sentiment. The Gilt curve bull flattens with 2s10s narrowing 5.7bps. Peripheral spreads tighten to Germany. In commodities, Bloomberg reported that EU is considering a price cap on Russian oil of $65-70bbl; several EU diplomats reportedly said the proposed level was too high. Subsequently, the G7 is looking at a price cap on Russian seaborne oil in the $65-70/bbl level, via Reuters citing a European official. Crude was capped by the latest oil cap reports ahead of a potential EU Ambassadors discussion; benchmarks gave up their initial modest consolidation and now post downside of near 2.0%. WTI and Brent Jan’23 futures fell to session lows $78.94/bbl and $85.96/bbl vs $81.30/bbl and $88.80/bbl respectively prior to the below source reports. Spot gold fell roughly $4 to trade near $1,737/oz, base metals were pressured by China's latest crackdown measures.. Looking to the day ahead now, and the main data highlight will be the global flash PMIs for November, along with the US weekly initial jobless claims, preliminary durable goods orders for October, and new home sales for October. From central banks, we’ll get the minutes from the FOMC meeting earlier this month, and there’ll be remarks from ECB Vice President de Guindos, the ECB’s de Cos and Centeno, and BoE chief economist Pill. Finally, earnings releases include Deere & Company. Market Snapshot S&P 500 futures up 0.2% to 4,019.00 Brent Futures up 1.1% to $89.29/bbl Gold spot down 0.2% to $1,737.60 U.S. Dollar Index down 0.2% 107.05   Top Overnight News from Bloomberg The ECB should move carefully as it starts shrinking its balance sheet, opting for a “passive” approach to so-called quantitative tightening, according to Vice President Luis de Guindos The EU watered down its latest sanctions proposal for a price cap on Russia’s oil exports by delaying its full implementation and softening key shipping provisions Europe PMI manufacturing and services unexpectedly rose in November, according to S&P Global. While it still firmly indicates a recession in the 19-nation region is underway, it offers some room to think the downturn may be shallower than previously predicted. UK Prime Minister Rishi Sunak suffered a blow to his authority as he struggled to quell Conservative rebellions on multiple policy fronts, and downcast MPs threatened an exodus from Westminster ahead of the next election The UK economy is in recession with the downturn expected to worsen heading into 2023, a key survey warned. S&P Global said its poll of purchasing managers suggests the economy is shrinking at a quarterly rate of 0.4%. Gloom was widespread in November, with services firms seeing new business fall at the fastest pace for almost two years China’s purchases of machines to make computer chips fell 27% last month from a year earlier as the US imposed new, sweeping sanctions to try and derail the country’s chip ambitions A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks took impetus from the positive handover from Wall St where sentiment was underpinned amid a global risk revival despite the lack of fresh catalysts but with upside capped amid Japan's holiday closure, tighter COVID rules in China and following the RBNZ's historic rate hike. ASX 200 was led by strength in the mining-related industries and with the energy sector front running the advances although the index is limited by underperformance in tech. NZX 50 was the laggard following the RBNZ’s 75bps rate hike and hawkish revisions to its OCR view which it now expects to peak at 5.50% (prev. 4.10% view), while the Committee had considered either a 75bps or 100bps move compared with analysts’ forecasts of either a 50bps or 75bps hike heading into the meeting. Hang Seng and Shanghai Comp were both higher, albeit with price action in the mainland choppy amid COVID concerns after several key cities tightened restrictions and testing requirements. Top Asian News PBoC adviser Wang Yiming sees China's 2023 GDP growth to likely be above 5% if the impact of COVID ends but noted growth will depend on the rollout of support measures and that support measures are needed to lift market confidence and consumption. Wang stated there is limited room for China to cut interest rates and slower Fed hikes in H1 2023 will provide China with more policy room. Shenzhen will require 48-hour COVID tests to access public venues and Chengdu will conduct mass testing on November 23rd-27th, while Tianjin is to conduct complete city testing on November 24th-25th. RBNZ hiked the OCR by 75bps to 4.25%, as expected, while it stated that monetary conditions need to tighten further and that the Committee considered a 75bps or 100bps rate increase. RBNZ said consumer price inflation is too high and the Committee agreed the OCR needs to reach a higher level and sooner than previously indicated. Furthermore, the RBNZ noted near-term inflation expectations have risen and it raised its OCR projections with the OCR expected to peak at 5.5% by December 2023 vs prev. forecast of 4.10%. RBNZ Governor Orr said during the press conference that there will be a shallow recession but noted economic activity remains high and spending is strong, while the RBNZ also noted that they are mature in the tightening cycle and closer to the end than the beginning but added that new shocks are arriving all the time. Beijing is set to maintain COVID curbs until a turning point appears, according to reports via Bloomberg; requests residents do not unnecessarily leave the city. China's cabinet will make adjustments to the RRR at an appropriate time, via Reuters citing State Media; will encourage commercial banks to issue loans to guarantee the delivery of homes. UK Chancellor Hunt and BoE Governor Bailey are to reduce the maximum authorised size of the APF to GBP 871bln (prev. GBP 886bln), according to a BoE statement. Moody's said the UK government set out an ambitious consolidation plan but added that low confidence in the delivery hampers its credibility, according to Reuters. UK Supreme Court rules that Scotland cannot hold an independence referendum without approval from the British government. ECB's de Guindos says it is likely we will see negative Q4 growth rates within the EZ. Upcoming inflation projections will still be high, before starting to slow in Q1-2023; will show core also remains high. Top European News UK Chancellor Hunt and BoE Governor Bailey are to reduce the maximum authorised size of the APF to GBP 871bln (prev. GBP 886bln), according to a BoE statement. Moody's said the UK government set out an ambitious consolidation plan but added that low confidence in the delivery hampers its credibility, according to Reuters. UK Supreme Court rules that Scotland cannot hold an independence referendum without approval from the British government. ECB's de Guindos says it is likely we will see negative Q4 growth rates within the EZ. Upcoming inflation projections will still be high, before starting to slow in Q1-2023; will show core also remains high. Fixed Income UK debt rampant ahead of DMO supply and comments from BoE's Pill, with Gilts posting a fresh 107.00+ post-mini budget collapse high Bunds tag along, but lag BTPs, former flat between 140.59-139.77 parameters and latter nearer top of 119.42-118.31 range US Treasuries trailing with no cash trade overnight and a hectic agenda looming on the eve of Thanksgiving, T-note subdued within a 112-21+/112-12 band Commodities Crude capped by oil cap reports ahead of a potential EU Ambassadors discussion; benchmarks gave up their initial modest consolidation and now post downside of near 2.0%. WTI and Brent Jan’23 futures fell to session lows USD 78.94/bbl and USD 85.96/bbl vs circa. USD 81.30/bbl and USD 88.80/bbl respectively prior to the below source reports. US Private Energy Inventory Data (bbls): Crude -4.8mln (exp. -1.1mln), Cushing -1.4mln, Gasoline -0.4mln (exp. +0.4mln), and Distillate +1.1mln (exp. -0.6mln). OPEC+ delegates said Saudi's denial of a production increase at the December meeting reflected an unease with public discussion of the group's decision-making before an agreement with Russia was struck, according to WSJ. US Treasury Department issued new guidance on the implementation of a price cap policy for Russian crude and said the price cap will be set after a technical exercise is conducted by the price cap coalition. A Treasury official also noted hopes that the EU price cap consultation is concluded relatively soon to allow the coalition to announce a price, while the official added there is no reason to expect Russia will retaliate to a price cap by cutting oil output and warned that violation of price cap could be subject to civil or criminal penalties, according to Reuters. EU is considering a price cap on Russian oil of USD 65-70bbl, according to Bloomberg sources; several EU diplomats reportedly said the proposed level was too high. Subsequently, the G7 is looking at a price cap on Russian seaborne oil in the USD 65-70/bbl level, via Reuters citing a European official. EU Ambassadors will revert to the oil price cap discussion this afternoon in an attempt to agree on legislation for it today, according to WSJ's Norman's understanding. For metals, spot gold and silver are diverging modestly but remain in close proximity to the unchanged mark as sentiment struggles for clear direction alongside a gradual pick-up in the USD, with base metals pressured by China's latest crackdown measures. FX Kiwi flies as RBNZ lives up to hawkish hype, and more, NZD/USD eyes 0.6200 and AUD/NZD cross breaches 1.0800 as Aussie lags vs Buck around 0.6650 in wake of weaker PMIs and more Chinese COVID contagion DXY clings to 107.00 ahead of packed US agenda on the eve of Thanksgiving, Euro faded from 1.0300+ against Greenback after post-EZ PMI pop, but may glean support from hefty option expiries Sterling underpinned around 1.1900 after better than forecast UK flash PMIs and Supreme Court rules against Scotland holding Independence vote independently Yen flags following flirt above 141.00 in Japanese holiday-impacted trade PBoC set USD/CNY mid-point at 7.1281 vs exp. 7.1307 (prev. 7.1667) US Event Calendar 07:00: Nov. MBA Mortgage Applications 2.2%, prior 2.7% 08:30: Oct. Durable Goods Orders, est. 0.4%, prior 0.4%; - Less Transportation, est. 0%, prior -0.5% Cap Goods Ship Nondef Ex Air, est. 0.1%, prior -0.5% Cap Goods Orders Nondef Ex Air, est. 0%, prior -0.4% 08:30: Nov. Initial Jobless Claims, est. 225,000, prior 222,000 Continuing Claims, est. 1.52m, prior 1.51m 09:45: Nov. S&P Global US Manufacturing PM, est. 50.0, prior 50.4 Global US Services PMI, est. 48.0, prior 47.8 Global US Composite PMI, est. 48.0, prior 48.2 10:00: Nov. U. of Mich. Sentiment, est. 55.0, prior 54.7 U. of Mich. Current Conditions, est. 57.8, prior 57.8 U. of Mich. Expectations, est. 52.5, prior 52.7 U. of Mich. 1 Yr Inflation, est. 5.1%, prior 5.1% U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.0% 10:00: Oct. New Home Sales, est. 570,000, prior 603,000 New Home Sales MoM, est. -5.5%, prior -10.9% 14:00: Nov. FOMC Meeting Minutes DB's Jim Reid concludes the overnight wrap Morning from a taxi on the way to the airport and to Frankfurt. Germany are playing their first World Cup game today so I'm not sure anyone will be at the event I'm presenting at! However at least i have an excuse if they are not. Shame I'm not off to Saudi Arabia as they have declared today a national holiday after the shock defeat of the team I have in the office sweepstake, namely Argentina! Markets have been a bit more Saudi than Argentina over the last 24 hours, with bonds and equities moving higher despite the negative mood music that continues to overshadow markets. It perhaps hints at the technicals in the market that our equity strategists have repeatedly highlighted in recent weeks. See their updated thoughts here on how long the bear market rally might last. In fact, not only did the Covid situation in China take a fresh turn for the worse yesterday, but we also had a fresh round of threats about a cut-off in the remaining flow of Russian gas to Europe. Both of these could have significant ramifications for the global economy more broadly, since China plays a critical role in supply chains that could have ramifications for global inflation in the event of further lockdowns, whilst Europe is already facing a critical energy situation this winter. Our German economics team did though acknowledge the improved outlook of late in a note here last night but they still believe a recession is baked in the sand with a notable real incomes squeeze. The flash PMIs today will be an important barometer in terms of how Europe is fairing. When it comes to the latest developments in China, restrictions ramped up further yesterday against the backdrop of steadily rising case numbers. Shanghai said that new arrivals would not be allowed to enter public venues for the first five days, and would also be required to take three PCR tests within three days of their arrival. Meanwhile, Beijing said that residents would need a negative PCR test in the previous 48 hours to enter public venues and take buses, and Guangzhou said they would be extending Covid restrictions in parts of Haizhu district until the end of November 27. China-exposed stocks continued to struggle on the back of this. For instance, the NASDAQ’s Golden Dragon China index fell a further -1.43% yesterday, thus bringing its losses over the last 3 sessions to -7.77%, albeit +26.13% of the lows on October 24 after the reopening speculation started to build. That index contains US-listed stocks for whom most of their business is done in China, so offers a barometer of sentiment outside of trading hours in Asia. Overnight, Chinese equities themselves are trading in negative territory with the Shanghai Composite (-0.38%) and the CSI (-0.36%) edging lower as the daily Covid-19 infections continue to climb. As we said yesterday it can be possible for China to tighten restrictions quite firmly in the near term but loosen them more sustainably by the spring. So its a difficult one to trade but I suspect what they do from spring onwards should be the most important. Indeed, the negative developments in China failed to dampen risk appetite more broadly however, and the major equity indices climbed on both sides of the Atlantic. By the close of trade, the S&P 500 had advanced +1.36%, and Europe’s STOXX 600 even hit a 3-month high thanks to a +0.73% advance. To be fair in Europe, sentiment was boosted by some better-than-expected consumer confidence data, with the European Commission’s number for the Euro Area hitting a 5-month high of -23.9 (vs. -26.0 expected). Oil prices also benefited from the risk-on moves, with Brent crude (+1.03%) ending a run of 4 consecutive declines to close at $88.35/bbl. It dipped to $82 late on Monday as OPEC+ cuts were speculated upon before a subsequent Saudi denial. Speaking of energy, the European Commission outlined their proposals for an emergency break on natural gas prices yesterday. But the cap was set at €275 per megawatt-hour (more than twice the current level), and would only come into force if futures on the front-month TTF exceed that for two weeks, and if TTF prices are also €58 higher than the LNG reference price for 10 consecutive trading days in the last two weeks. So even during the summer spike when gas prices peaked above the €275 level, the cap wouldn’t have come into force since prices didn’t remain there for two weeks. The measures still require approval from EU member states, and EU energy ministers are set to discuss the proposal in Brussels tomorrow. Those proposals from the EU came as Gazprom threatened to cut gas flows to Europe via Ukraine yesterday, with Gazprom saying that Ukraine had taken gas that was meant for Moldova. In response, they warned they may limit volumes from November 28 based on the amount of gas not getting to Moldova. But the concern for the rest of Europe will be that previous threats from Russia to reduce volumes by a small amount end up resulting in much larger reductions, and this could be the start of a total shutdown that cuts off the last remaining pipeline to western Europe. In response, natural gas futures ended the day up by +7.21% at €124 per megawatt-hour, marking their third consecutive daily increase. Adding to the downbeat backdrop, the US 2s10s curve pressed deeper into inversion territory for an 8th consecutive session yesterday, hitting a post-1981 low of -76.27bps. That trend wasn’t just confined to the US however, with the German 2s10s curve similarly hitting a post-2009 low of -13.8bps. That came as policymakers continued to strike a firm tone on the need to rein inflation back in, with Cleveland Fed President Mester saying that “restoring price stability remains the number one focus of the FOMC”. The November FOMC Minutes are due today. The big takeaway from the meeting was that the Fed was ready to break their streak of +75bp hikes by stepping down to a +50bp hike in December, a message well-received by the market in subsequent weeks, with +52.0bps now priced for the December meeting. While stale in that regard, the Chair also paired the stepdown to +50bp hikes with a higher terminal rate, so we’ll be looking for any indication that the rest of the Committee agrees, and if so, how much higher terminal may need to go to restrict financial conditions adequately. Over in Europe, the debate also continued on whether the ECB should raise rates by 50bps or 75bps as well. Austria’s Holzmann echoed his hawkish remarks from the previous day, saying that he was in favour of a 75bps hike based on the current data. But Bundesbank President Nagel said “it would be too hasty to commit to how big the next rate hike could be”. Finally, Lithuania’s Simkus said that “50 basis points is a must”, and that since “we still see very strong inflation pressures and we need to dampen them as soon as possible to prevent a de-anchoring of inflation expectations. 75 is also possible.” By the close of trade, yields on 10yr Treasuries (-7.1bps), bunds (-1.3bps) and OATs (-1.5bps) had all moved lower. Outside of China, Asian equity markets are mostly trading higher this morning following the overnight rally on Wall Street. As I type, the Hang Seng (+0.42%) is trading higher, recovering from its earlier losses with the KOSPI (+0.46%) also in the green. Elsewhere, markets in Japan are closed for a holiday.US stock futures tied to the S&P 500 (-0.07%) are little changed. A big surprise came from the Reserve Bank of New Zealand (RBNZ) as the central bank delivered a 75bps hike, its biggest rate hike on record as it struggles to contain rising inflation. The Monetary Policy Committee (MPC) increased the Official Cash Rate (OCR) from 3.5% to 4.25% while signalling further tightening ahead. At the same time, it also warned that economic growth will slow in the near-term due to the shock of rising interest rates and elevated inflation. Shortly after the decision, yields on the policy-sensitive 2yr bond moved sharply higher (+26 bps), trading at 4.58% with the 10yr yields briefing touching 4.27% before retracing back to 4.20% as we go to print. Separately we have data from Australia showing that the preliminary PMI indices all weakened in November. The S&P Global manufacturing PMI dropped to 51.5 from the prior month’s level of 52.7 but more importantly the services sector PMI contracted further to a weak looking 47.2 following a level of 49.3 in October. There wasn’t much data of note yesterday, although the Richmond Fed’s manufacturing index for November came in at -9 (vs. –8 expected). Otherwise, the OECD released their latest economic outlook, projecting global growth of just +2.2% in 2023 and +2.7% in 2024. If that +2.2% number is realised, that would make 2023 the third-worst year of the 21st century so far for global growth, behind only 2020 with the pandemic and 2009 with the GFC. To the day ahead now, and the main data highlight will be the global flash PMIs for November, along with the US weekly initial jobless claims, preliminary durable goods orders for October, and new home sales for October. From central banks, we’ll get the minutes from the FOMC meeting earlier this month, and there’ll be remarks from ECB Vice President de Guindos, the ECB’s de Cos and Centeno, and BoE chief economist Pill. Finally, earnings releases include Deere & Company. Tyler Durden Wed, 11/23/2022 - 08:04.....»»

Category: worldSource: nytNov 23rd, 2022

Leading gas importer Japan says LNG is sold out until 2026, as energy-squeezed countries battle over dwindling supplies

"The LNG procurement environment has changed completely. Procurement can also be said to be in a state of war," Japanese companies told the country's trade ministry. A LNG tanker.Getty Images Long-term contracts for liquefied natural gas shipments are sold out until 2026, Japan has said. The fuel shortage is due to a lack of investment in LNG export projects, its trade ministry said. Europe is competing with Asia for LNG after Russia cut off pipeline gas flows over sanctions.  Japan, the leading importer of liquefied natural gas, has said supplies of LNG are sold out for the next three years, setting the stage for battle royale between countries fighting to secure deliveries amid a global shortage.There are no long-term contracts available for LNG shipments before 2026, Japanese companies told the country's trade ministry in a survey published Monday. "The LNG procurement environment has changed completely. Procurement can also be said to be in a state of war," they told the ministry.A dwindling supply of natural gas worldwide has sent countries racing to secure shipments of the key fuel. The squeeze is due to a lack of investment in LNG export projects, according to the trade ministry.At the same time, European buyers are set to step up their imports of LNG from next year after Moscow cut off pipeline-borne gas flows to the continent in retaliation to Western sanctions. They have already been in "huge competition" with Asian buyers for exports from Qatar to replace the Russian supplies."The global 'LNG competition' is likely to heat up further," the ministry said. Japan is the world's top importer of LNG, but China is set to overtake it, according to the IEA.China, which initially provided Europe with additional supply, has halted LNG shipments to the region to make sure its own households have enough gas for the colder months.On Monday, QatarEnergy agreed a 27-year deal to provide China's Sinopec with LNG — the longest-term contract ever, Reuters reported.Europe stands to face shortages in the years ahead, if Russia completely turns off the gas tap, according to Japan's trade ministry. Should that happen, there will be a global shortage of 7.6 million tons of LNG in January 2025, it predicted.The gap between global LNG demand and supply is expected to ease in 2026, when planned projects in the US and Qatar are expected to come online. Until then, given the lack of long-term contracts, importers will be forced to buy natural gas from the spot market at much higher prices. The spot market is currently trading three times higher than long-term contracts, per Bloomberg. Read the original article on Business Insider.....»»

Category: personnelSource: nytNov 21st, 2022

Futures Sink To Session Lows As Sentiment Sours

Futures Sink To Session Lows As Sentiment Sours US equity futures dropped to session lows, and surrendered earlier gains of as much as 0.2%, setting up Wall Street stocks to extend Wednesday’s weakness, with traders assessing comments from Fed officials about the path of rate hikes amid earnings reports (such as those from Target) confirming that the US consumer is hunkering down for a recession.  S&P 500 futures were 0.8% lower and those on the Nasdaq 100 dropped 0.6% at 7:30 a.m. in New York, with treasury yields bouncing after yesterday’s decline.  10-year Treasury yields rose, following indications from Fed officials on Wednesday that policy would tighten further. The dollar rallied half a percent against a basket of currencies. Traders got mixed signals from policy makers, with Fed hawk Christopher Waller saying recent data have made him more comfortable with a moderate interest-rate increase of 50 basis points next month, but left the door open to a sequence of such increases if needed to curb inflation. Meanwhile, San Francisco Fed President Mary Daly said a pause in rate hikes was “off the table,” and New York Fed President John Williams said the central bank should avoid incorporating financial stability risks into its considerations. “All this Fed talk in recent weeks starting with Powell’s press conference after the last meeting, they are indicating they are going to slow the pace of hikes,” Patrick Armstrong, CEO at Plurimi Wealth told Bloomberg TV, adding that he expected a 50 basis-point increase at the next meeting. In premarket trading, Cisco Systems rose after the communications equipment company reported first-quarter results that beat expectations and raised its full-year forecast. Nvidia was also on the rise after topping estimates, lifting semiconductor peers AMD and Marvell. NetEase shares fell as the video game maker plans to end a 14-year partnership with Blizzard Entertainment. Bath & Body Works shares jumped the company boosted its full-year profit forecast. Here are the other notable premarket movers: Ardelyx soars ~77% in premarket trading after its kidney disease therapy won the backing of a majority of a panel of FDA advisers. The response from analysts was mostly positive, with Piper Sandler upgrading the stock to overweight, saying it will be hard for the Food and Drug Administration to justify a rejection of the drug based on the advisory committee’s positive feedback. Bath & Body Works shares jump ~21% in premarket trading after boosting its full-year profit forecast due to a focus on innovation and cost control. Analysts found the results to be impressive overall, noting the print was “strong” with the company reporting beats across the top line. Elevate shares rise ~67% in premarket trading to ~$1.77 after it entered into a definitive agreement to be acquired by an affiliate of Park Cities Asset Management LLC for $1.87/share in cash, implying value of $67m. NetEase shares fall in US premarket trading as the video game maker plans to end a 14-year partnership with Blizzard Entertainment after January, suspending services to licensed games that represented low-single-digit percentage of its revenue and net income in 2021. Norwegian Cruise Line is double- downgraded to underperform from outperform at Credit Suisse, with the broker seeing downside risk to estimates and preferring the firm’s peers. Norwegian Cruise shares fall ~4% in US premarket trading. Principal Financial drops ~2.4% in premarket trading after both Evercore and Morgan Stanley downgrade the stock, citing its high valuation. Robinhood Markets shares gain ~1.4% in US premarket trading after the broker gave an operating update for October, with analysts positive on the company’s better performance during the month and early indications of stronger trading volumes for November. Sonos jumped in postmarket trading after the speaker company reported fourth-quarter revenue that beat expectations and gave a full-year revenue forecast that is ahead of the analyst consensus. US equities have marked a pause this week after the S&P 500 rallied 10.5% over the past month, while the Nasdaq 100 rose about 9.4% during the same period, with slowing inflation weighed against stronger-than-expected US economic data. “The market is likely to experience quite a few false bottoms” as seen in the IT sector at the moment, Jefferies strategists led by Sean Darby wrote in a note. “We are cognizant that each time global markets attempt to rally on the back of speculation that the end of the Fed’s tightening intentions may be in sight, FOMC officials come out with a new paragraph of hawkish narrative, to tamp down any prospect of irrational exuberance,” Simon Ballard, chief economist at First Abu Dhabi Bank, wrote in a note to investors. In Europe, the Stoxx 600 also erased gains to trade lower 0.4%. Basic resources and utilities underperformed, while food and consumer product stocks rose. The Dax outperformed while the FTSE 100 underperformed regional peers, while gilts 2-year yields rise above 3% and 10-year yields trade around 3.15%, both within Wednesday’s range. Investors braced for the release of the UK budget later in the day, while European Central Bank policy makers were said to consider a slowdown in interest-rate hikes, with only a 50 basis-point increase next month. Here are the biggest European movers" Siemens jumps as much as 8.9% on the European engineering giant’s robust order books and outlook, which Jefferies says were well ahead of expectations and mainly driven by its division that makes factory automation software. Chipmakers may be in focus after Nvidia posted quarterly sales that topped analysts’ estimates and Micron Technology said it was reducing production of chips due to weakening market conditions. ASML shares rose as much as 1.2%. Subsea 7 gains as much as 7.7%, the most since March 7, after the Norwegian offshore energy firm published better-than-expected 3Q results, driven by higher margins and solid performance, Citi says. Ocado drops as much as 9.4% after Kintbury Capital chief investment officer Chris Dale said even its bull case is for 50% downside in the stock, on expectations the UK company will struggle to finance itself. Alstom declines as much as 6.1% -- paring some of its post-earnings gains -- after Morgan Stanley slashed its price target on worries about the French rail equipment maker’s balance sheet and record-low cash-flow guidance. NN Group drops as much as 8.6%, the most since mid-August, after the insurer set new 2025 targets which Citi says may disappoint because of their “conservatism.” Bouygues falls as much as 5.2% in Paris trading as a warning on margins at the Colas constructions unit overshadowed nine-month results from the French conglomerate that beat consensus estimates for operating income. Embracer slides as much as 21%, the biggest intraday decline on record, after the Swedish video-game maker reduced its fiscal 2023 adjusted Ebit target, citing a delay in its Dead Island 2 game, a more challenging macro environment and a mixed reception to some of its key releases. Earlier in the session, Asian stocks declined amid fears that Federal Reserve’s tightening still has further go to curb inflation after strong US retail sales print.  The MSCI Asia Pacific Index declined as much as 1.3%, its biggest drop in a week before paring losses. Tech drove losses with Meituan, Samsung and Netease leading the gauge lower.   Benchmarks in Hong Kong were notable losers in the region, with the Hang Seng Tech Index sliding as much as 5.6% before reducing the loss. They were down for a second day following rapid gains that put the gauges there into bull market territory. Equities in mainland China and South Korea also dropped while those in Japan, Australia and Singapore were slightly higher.  Tencent Holdings Ltd.’s plan to pay out $20b of stock in Meituan sparked a broad selloff of Chinese internet stocks on Thursday as investors fear more divestments by the online gaming company are on the cards. The People’s Bank of China warned inflation may accelerate as overall demand in the economy picks up, suggesting it may refrain from adding more long-term stimulus. It did still doubled short-term cash injection Thursday to ease a selloff in sovereign debt. In the US, San Francisco Fed President Mary Daly said the central bank should keep hiking, while New York Fed President John Williams said it should focus on the economy rather than financial risks as it raises rates.  “The hotter-than-expected US retail sales data and hawkish leaning comments from Fed officials weighed on equities,” Saxo Capital Markets strategists including Redmond Wong wrote in a note. US retail sales posted the biggest increase in eight months in October Japanese stocks traded range-bound as investors worried about further US interest rate hikes after San Francisco Federal Reserve President Mary Daly said that “pausing is off the table.” The Topix Index rose 0.2% to 1,966.28 as of market close Tokyo time, while the Nikkei declined 0.4% to 27,930.57. Sumitomo Mitsui Financial Group Inc. contributed the most to the Topix Index gain, increasing 2.1%. Out of 2,165 stocks in the index, 1,512 rose and 551 fell, while 102 were unchanged. “The US retail sales numbers came out higher than expected, also signaling that inflationary factors remain strong,” said Takeru Ogihara, chief strategist at Asset Management One. Australian stocks snapped a 3-day losing streak as the S&P/ASX 200 index rose 0.2% to close at 7,135.70, boosted by strength in healthcare shares and banks.  Australia’s jobless rate unexpectedly fell in October as a surge in full-time employment underpinned strong hiring, reinforcing the Reserve Bank’s arguments for further interest-rate increases. In New Zealand, the S&P/NZX 50 index rose 0.6% to 11,294.52. Stocks in India declined, in line with global peers, as investors sought clarity over the Federal Reserve’s future policy moves and their impact on growth.  Expiry of weekly derivative contracts also weighed on local shares as investors continued taking profits from recent gainers such as banks after conclusion of quarterly results season.  The S&P BSE Sensex fell to close at 0.4%, its biggest drop since Nov. 10, to 61,750.60 in Mumbai, while the NSE Nifty 50 Index declined by an equal measure. For the week, the Sensex and Nifty are little changed. “With the result season now over, we expect the market to track global developments in the near term,” Motilal Oswal Financial Services analyst Siddhartha Khemka said. Mortgage lender HDFC and its banking unit provided the biggest drag to the Sensex. Out of 30 shares in the Sensex index, only eight rose and the rest fell. All but three of BSE Ltd.’s 19 sector sub-gauges closed lower, led by consumer durables stocks. In rates, 10-year yields TSY yield add 3bps to 3.7%, while bunds 10-year yields drop 2bps to below 2%. Treasuries were cheaper by as much as 2.4bp across 10-year sector, with 3.714% yield vs session high 3.74%, following a more aggressive bear-flattening move in gilts after the UK government released its latest fiscal statement. Bunds outperform by 5bp in the sector while gilts lag by 2bp. UK curve sharply bear- flattens on the day with 2-year yield cheaper by 10bp, back above 3% level. In commodities, crude benchmarks are under modest pressure given the USD recovery throughout the morning, generally softer APAC tone and a continuing deterioration to the China COVID case count weighing. Ags. in focus and pressured following a as-expected extension to the Black Sea grain deal. Currently, the yellow metal is holding around the lower-end of USD 1761-1774/oz parameters, and is thus a similar distance from the WTD peak of USD 1786/oz and the 10-DMA at USD 1738/oz. WTI falls below $85. Spot gold falls roughly $8 to trade near $1,766/oz To the day ahead now, and a key highlight will be the UK government’s autumn statement. Otherwise, data releases include US housing starts and building permits for October, the Philadelphia Fed’s business outlook index and the Kansas City Fed manufacturing index for November, and the weekly initial jobless claims. Finally, central bank speakers include the Fed’s Bullard, Bowman, Mester, Jefferson and Kashkari, the ECB’s Villeroy, and the BoE’s Pill and Tenreyro. Market Snapshot S&P 500 futures down 0.2% to 3,960.25 STOXX Europe 600 down 0.2% to 429.39 MXAP down 0.7% to 152.94 MXAPJ down 1.0% to 494.58 Nikkei down 0.3% to 27,930.57 Topix up 0.2% to 1,966.28 Hang Seng Index down 1.2% to 18,045.66 Shanghai Composite down 0.1% to 3,115.44 Sensex down 0.1% to 61,897.84 Australia S&P/ASX 200 up 0.2% to 7,135.65 Kospi down 1.4% to 2,442.90 German 10Y yield down 0.5% to 1.99% Euro down 0.2% to $1.0378 Brent Futures down 0.5% to $92.39/bbl Gold spot down 0.5% to $1,765.56 U.S. Dollar Index up 0.27% to 106.57 Top Overnight News from Bloomberg Bank customers are the most enthusiastic about using the British pound for global payments since mid-2016, around the same time the UK voted to quit the European Union President Joe Biden rejected Ukrainian President Volodymyr Zelenskiy‘s assertion that Russia fired a missile that landed in Poland — continuing efforts by the US and allies to de-escalate the deadly episode Chinese regulators asked banks to report on their ability to meet short-term obligations after a rapid selloff in bonds triggered a flood of investor withdrawals from fixed-income products, according to people familiar with the matter China will well implement agreements made by Chinese President Xi Jinping and US President Joe Biden at G-20 summit over economic policy and trade negotiations, Ministry of Commerce says Turns out Chinese President Xi Jinping’s partnership with Vladimir Putin has limits after all: He doesn’t want to follow the Russian leader into diplomatic isolation Brazil President-elect Luiz Inacio Lula da Silva will ask congress to circumvent a key fiscal safeguard by excluding the country’s most important social program from a public spending cap to pay for his campaign pledges A more detailed look at global market courtesy of Newsquawk APAC stocks traded mostly lower throughout the session following the downbeat lead from Wall Street. ASX 200 was the relative outperformer with gains lead but the Consumer Staples and IT sector, with no reaction seen in wake of the Aussie jobs data. Nikkei 225 traded on either side of the 28k mark before stabilising under the round figure, with losses modest during the session. KOSPI gave up earlier gains and drifted lower throughout the session with losses led by the chip and IT sectors, whilst sentiment in the region was soured by North Korea firing a short-range ballistic missile. Hang Seng and Shanghai Comp opened with and then extended on losses with the former seeing downside in Meituan, which fell around 6% after Tencent announced a special dividend in the form of Meituan shares, whilst People's Daily also suggested China is able to achieve COVID Zero as mainland cases roses at the fastest pace since April. Top Asian News China reported 2,388 (prev. 1,623) new confirmed coronavirus cases in the mainland on Nov 16th, via Reuters China is able to achieve COVID Zero, according to People's Daily. China has asked banks to report on liquidity following the sudden bond rout, according to Bloomberg. PBoC injected CNY 132bln via 7-day reverse repos with the rate at 2.00% for a CNY 123bln net injection. Tokyo to raise COVID alert level by one notch amid the recent rise in COVID cases, according to NTV. BoJ Governor Kuroda said it is important to continue monetary easing to support the economy. Kuroda said recent price hikes are due to cost-push factors, according to Reuters. Kuroda said BoJ will closely coordinate with the government to conduct appropriate policy. Senior BoJ official Uchida said it is too early to discuss the exit from monetary stimulus, via Reuters. Saudi Arabia signed USD 30bln worth of investment agreements with South Korean firms, covering clean energy and medical tech, according to the Saudi Investment Minister China's Commerce Ministry, on China-US economic & trade dialogue, says will implement the key consensus reached by leaders, domestic exports/imports will see greater pressure. Stocks in Europe, Eurostoxx 50 -0.2%, are on a mixed footing after scaling back opening gains with no clear fundamental catalyst driving price action thus far ahead of numerous events. Stateside, futures have similarly pared back initial upside and are near the unchanged mark/marginally lower with the ES back below the 4k figure ahead of data, Fed speak and a few corporate updates. Top European News COP27 Set for Showdown After Draft Leaves Out Fossil Fuel Pledge China’s Forgotten Covid Zero Lockdown Has Just Hit 100 Days Where European Energy Infrastructure Is Vulnerable to Attack Rusal Asks LME to Disclose Origin of All Metal, Not Russian Only European Stocks Steady as Investors Assess Policy, Growth Risks FX DXY has seen a intra-day recovery from a 106.08 low to a 106.68 peak, with G10 peers now all pressured vs initial modest upside against the Greenback. Fundamental driver(s) behind the move have been limited, with the sessions main events yet to come in the form of the UK budget and Central Bank speak thereafter. Cable has, given the USD's recovery, experienced a marked pullback from 1.1950+ best to back below the figure and almost a full point lower. Similarly, EUR has moved into the red though this is comparably more contained given its initial upside was capped by EUR/GBP action, action which is now marginally EUR-favourable. USD/CNY has reverted back to initial 7.14+ best levels after pulling back towards the figure, with the region focused on fresh COVID commentary. PBoC sets USD/CNY mid-point at 7.0655 vs exp. 7.0479 (prev. 7.0363) Fixed Income Gilts unchanged ahead of significant fiscal changes from the UK, USTs await Fed speak post-Waller. Currently, the UK benchmark resides at the lower-end of 106.32-107.17 parameters with the associated 10yr yield at 3.15%; a figure that is only 15bp above the current BoE base rate and significantly shy of the 4.632% peak seen in wake of the former PM/Chancellor’s ‘mini-Budget’. EGBs and USTs are holding in similarly contained ranges around the unchanged mark; currently, +14 and -9 ticks respectively, with focus on the hefty Central Bank docket. Italy maintains the new BTP Italia bond real annual coupon at 1.6%. Commodities Crude benchmarks are under modest pressure given the USD recovery throughout the morning, generally softer APAC tone and a continuing deterioration to the China COVID case count weighing. Ags. in focus and pressured following a as-expected extension to the Black Sea grain deal. Currently, the yellow metal is holding around the lower-end of USD 1761-1774/oz parameters, and is thus a similar distance from the WTD peak of USD 1786/oz and the 10-DMA at USD 1738/oz. TC Energy's Keystone oil pipeline issues were resolved after force majeure, but TC Energy will reduce injections for the rest of November, according to Reuters sources. Ukrainian Infrastructure Minister says the Black Sea grain initiative will be extended for 120-days, via Reuters; Russia will not cut off the Black Sea grain deal, via Tass citing the Deputy Foreign Minister. Geopolitics Chinese President Xi may visit Russia in 2023; government heads could have call in December, according to Tass. North Korea fired an unspecified ballistic missile toward East Sea, according to the South Korean military cited by Yonhap. North Korea said the recent South Korea, US, and Japan summit would lead the Korean peninsula to an even more unpredictable situation, according to KCNA. South Korean and US militaries conducted missile defence drills following the North Korean missile launch, according to the South Korean military. UK blocked Chinese takeover of Newport chip plant, ordering Chinese-owned Nexperia to sell at least 86% of the factory in order to mitigate risk to national security, according to FT. China's President Xi said China is willing to increase imports from Italy, according to CCTV. Turkish President Erdogan expects issues around the US F-16 jet purchases to resolve soon, via Reuters. US Event Calendar 08:30: Nov. Initial Jobless Claims, est. 228,000, prior 225,000 Nov. Continuing Claims, est. 1.51m, prior 1.49m 08:30: Oct. Housing Starts, est. 1.41m, prior 1.44m Oct. Housing Starts MoM, est. -2.0%, prior -8.1% Oct. Building Permits, est. 1.51m, prior 1.56m Oct. Building Permits MoM, est. -3.2%, prior 1.4% 08:30: Nov. Philadelphia Fed Business Outl, est. -6.0, prior -8.7 11:00: Nov. Kansas City Fed Manf. Activity, est. -8, prior -7 Central bank speakers 08:00: Fed’s Bullard Discussed the Economy and Monetary Policy 09:15: Fed’s Bowman Discusses Financial Literacy and Inclusion 09:40: Fed’s Mester Speaks at Financial Stability Conference 10:40: Fed’s Jefferson and Kashkari Take Part in Panel Discussion 13:45: Fed’s Kashkari Takes Part in Moderated Q&A 20:05: Powell, Williams and Daly Honor Chicago Fed’s Evans DB's Jim Reid concludes the overnight wrap After a strong rebound over recent days, the momentum behind risk assets started to peter out yesterday thanks to some hawkish comments from Fed officials, weak corporate earnings, as well as strong retail sales numbers that dampened hopes about a dovish pivot from the Fed. To be fair it wasn’t all bad news, and fears of a military escalation subsided after NATO leaders said the missile that hit Polish territory on Tuesday evening wasn’t the result of an intentional Russian attack. However, apart from specific assets like the Polish Zloty, that wasn’t enough to boost sentiment more broadly, and the S&P 500 (-0.83%) ended the day noticeably lower. Running through those specific factors, a key one behind yesterday’s market moves were some fairly hawkish comments from Fed officials. For instance, Kansas City Fed President George cautioned about prematurely ending rate hikes in a WSJ interview, saying that “the more important question for this committee, looking out over next year, is being careful not to stop too soon”. Later on we then heard from San Francisco Fed President Daly , who said that she thought that “somewhere between 4.75 and 5.25 seems a reasonable place to think about” in terms of how high rates could go. Bear in mind that the peak rate priced in by futures is still at 4.92%, so the bulk of Daly’s range is above where pricing currently is. And finally we heard from Governor Waller, who said he was “more comfortable considering stepping down to a 50 basis-point hike” based on the data of recent weeks, but also said that “we still have a ways to go” and that “policy is barely in restrictive territory today”. Those comments came against the backdrop of some decent retail sales numbers for October, with headline growth up by +1.3% (vs. +1.0% expected). That was the fastest pace of monthly growth since February, and the details looked pretty strong as well, with the measure excluding autos and gasoline up by +0.9% (vs. +0.2% expected). On one level that’s good news of course, but the report was seen as showcasing the strength of the US consumer amidst the ongoing rate hikes from the Fed, which should give them more space to keep hiking over the next few meetings. With investors pricing in a slightly more hawkish Fed on the day, the 2yr Treasury yield ticked up +1.7bps to 4.35%. However, the broader risk-off tone meant there was a large decline in longer-dated yields on both sides of the Atlantic. In the US, the 10yr yield came down -8.0bps to 3.69%, and yields on 10yr bunds (-10.9bps), OATs (-12.0bps) and gilts (-14.9bps) all saw sharp declines as well. In turn, those moves pushed several yield curves even deeper into inversion territory, with the 2s10s yield curve closing beneath -60bps for the first time since 1982, which is concerning when you consider its historic accuracy as a leading indicator of recessions. Other yield curves also inverted by even more, with the 3m10yr curve down -6.6bps to -54.2bps. And even the Fed’s preferred yield curve (18m forward 3m yield minus the spot 3m yield) has now spent a full week in inversion territory, closing yesterday at -15.3bps, which is the lowest since March 2020. Overnight in Asia, yields on 10yr USTs (+2.8bps) have slightly retraced their moves yesterday, trading at 3.72% as we go to print. Growing speculation about a recession proved bad news for equities, and the mood was further hit by a weak earnings release from Target (-13.14%), who cut their outlook and saw earnings miss expectations. By the close, that had seen the S&P 500 shed -0.83%, with the losses driven by the more cyclical sectors. Tech was impacted in particular, with the NASDAQ down -1.54% and the FANG+ index down -2.10%. For Europe it was much the same story, with the STOXX 600 (-0.98%) and the DAX (-1.00%) both losing ground on the day, and after the close we then heard a Bloomberg report that suggested ECB policymakers would slow down their rate hikes to a 50bp move next month. In more positive news, there were strong signs that a military escalation had been avoided after a missile struck Polish territory on Tuesday evening, after both NATO and Poland’s leaders said that it did not look to have resulted from an intentional Russian attack. Polish President Duda said that “most likely, this was an unfortunate accident”, and NATO Secretary General Stoltenberg said that their view was it resulted from a Ukrainian air defence missile that was fired in defence against Russian attacks. The news helped Poland’s Zloty to regain its position prior to the attack, strengthening +1.14% against the US Dollar yesterday. Looking forward now, attention will be on the UK today as the government delivers their Autumn Statement. That’s set to outline their fiscal consolidation plans for the years ahead, which is part of their plan to regain market confidence following the turmoil in late September and early October. Our UK economist published an update earlier this week on what to look out for (link here) but a key one will be the overall scale of the package, as well as how that’s distributed between spending cuts and tax rises. Keep an eye out as well on what’s announced on energy prices, since the current Energy Price Guarantee is only confirmed until the end of March. Ahead of the statement, data yesterday showed consumer price inflation surprised on the upside in October, coming in at +11.1%. That’s the highest reading since 1981, and is above the consensus estimate of +10.7%, as well as the Bank of England’s projection at +10.9%. Interestingly, the ONS said that without the government’s Energy Price Guarantee, CPI would have been around +13.8%, rather than +11.1%. Overnight in Asia, the major equity markets are trading lower this morning, including the Hang Seng (-1.49%), the Shanghai Composite (-0.63%), the CSI (-1.01%), the Nikkei (-0.35%) and the KOSPI (-1.10%). Tech stocks are under pressure again as well, with the Hang Seng Tech index (-3.48%) on track for its biggest decline in a couple of weeks. That follows an announcement from Tencent that they’d be distributing $20bn of shares in Meituan. In the meantime, Bloomberg reported that regulators in China had asked banks about their ability to meet short-term obligations, following a bond selloff that triggered investor withdrawals. Elsewhere overnight, US equity futures are pointing towards gains at today’s open with contracts on the S&P 500 (+0.21%) and NASDAQ 100 (+0.29%) both higher. And we also had an employment report from Australia showing that the unemployment rate fell to a 48-year low of 3.4% in October (vs. 3.5% expected). Back in the US, we finally got confirmation overnight that the Republicans had gained control of the House of Representatives following last week’s midterm elections. The Associated Press’ count now puts the Republicans at the 218 mark needed for the majority, whilst the Democrats have 211 seats with only 6 districts now outstanding. So that means from January the Democrats will require at least some Republican support to pass legislation. When it came to yesterday’s other data from the US, it wasn’t as strong as the retail sales numbers, with industrial production contracting by -0.1% in October (vs. +0.1% expected). We also got the latest NAHB housing market index for November, which fell to 33 (vs. 36 expected). If you exclude the pandemic month of April 2020, that’s the lowest reading for that index in over a decade. To the day ahead now, and a key highlight will be the UK government’s autumn statement. Otherwise, data releases include US housing starts and building permits for October, the Philadelphia Fed’s business outlook index and the Kansas City Fed manufacturing index for November, and the weekly initial jobless claims. Finally, central bank speakers include the Fed’s Bullard, Bowman, Mester, Jefferson and Kashkari, the ECB’s Villeroy, and the BoE’s Pill and Tenreyro. Tyler Durden Thu, 11/17/2022 - 08:02.....»»

Category: blogSource: zerohedgeNov 17th, 2022

Hudson: Germany"s Position In America"s New World Order

Hudson: Germany's Position In America's New World Order Authored by Michael Hudson, Germany has become an economic satellite of America’s New Cold War with Russia, China and the rest of Eurasia. Germany and other NATO countries have been told to impose trade and investment sanctions upon themselves that will outlast today’s proxy war in Ukraine. U.S. President Biden and his State Department spokesmen have explained that Ukraine is just the opening arena in a much broader dynamic that is splitting the world into two opposing sets of economic alliances. This global fracture promises to be a ten- or twenty-year struggle to determine whether the world economy will be a unipolar U.S.-centered dollarized economy, or a multipolar, multi-currency world centered on the Eurasian heartland with mixed public/private economies. President Biden has characterized this split as being between democracies and autocracies. The terminology is typical Orwellian double-speak. By “democracies” he means the U.S. and allied Western financial oligarchies. Their aim is to shift economic planning out of the hands of elected governments to Wall Street and other financial centers under U.S. control. U.S. diplomats use the International Monetary Fund and World Bank to demand privatization of the world’s infrastructure and dependency on U.S. technology, oil and food exports. By “autocracy,” Biden means countries resisting this financialization and privatization takeover. In practice, U.S. rhettoric means promoting its own economic growth and living standards, keeping finance and banking as public utilities. What basically is at issue is whether economies will be planned by banking centers to create financial wealth – by privatizing basic infrastructure, public utilities and social services such as health care into monopolies – or by raising living standards and prosperity by keeping banking and money creation, public health, education, transportation and communications in public hands. The country suffering the most “collateral damage” in this global fracture is Germany. As Europe’s most advanced industrial economy, German steel, chemicals, machinery, automotives and other consumer goods are the most highly dependent on imports of Russian gas, oil and metals from aluminum to titanium and palladium. Yet despite two Nord Stream pipelines built to provide Germany with low-priced energy, Germany has been told to cut itself off from Russian gas and de-industrialize. This means the end of its economic preeminence. The key to GDP growth in Germany, as in other countries, is energy consumption per worker. These anti-Russian sanctions make today’s New Cold War inherently anti-German. U.S. Secretary of State Anthony Blinken has said that Germany should replace low-priced Russian pipeline gas with high-priced U.S. LNG gas. To import this gas, Germany will have to spend over $5 billion quickly to build port capacity to handle LNG tankers. The effect will be to make German industry uncompetitive. Bankruptcies will spread, employment will decline, and Germany’s pro-NATO leaders will impose a chronic depression and falling living standards. Most political theory assumes that nations will act in their own self-interest. Otherwise they are satellite countries, not in control of their own fate. Germany is subordinating its industry and living standards to the dictates of U.S. diplomacy and the self-interest of America’s oil and gas sector. It is doing this voluntarily – not because of military force but out of an ideological belief that the world economy should be run by U.S. Cold War planners. Sometimes it is easier to understand today’s dynamics by stepping away from one’s own immediate situation to look at historical examples of the kind of political diplomacy that one sees splitting today’s world. The closest parallel that I can find is medieval Europe’s fight by the Roman papacy against German kings – the Holy Roman Emperors – in the 13th century. That conflict split Europe along lines much like those of today. A series of popes excommunicated Frederick II and other German kings and mobilized allies to fight against Germany and its control of southern Italy and Sicily. Western antagonism against the East was incited by the Crusades (1095-1291), just as today’s Cold War is a crusade against economies threatening U.S. dominance of the world. The medieval war against Germany was over who should control Christian Europe: the papacy, with the popes becoming worldly emperors, or secular rulers of individual kingdoms by claiming the power to morally legitimize and accept them. Medieval Europe’s analogue to America’s New Cold War against China and Russia was the Great Schism in 1054. Demanding unipolar control over Christendom, Leo IX excommunicated the Orthodox Church centered in Constantinople and the entire Christian population that belonged to it. A single bishopric, Rome, cut itself off from the entire Christian world of the time, including the ancient Patriarchates of Alexandria, Antioch, Constantinople and Jerusalem. This break-away created a political problem for Roman diplomacy: How to hold all the Western European kingdoms under its control and claim the right for financial subsidy from them. That aim required subordinating secular kings to papal religious authority. In 1074, Gregory VII, Hildebrand, announced 27 Papal Dictates outlining the administrative strategy for Rome to lock in its power over Europe. These papal demands are strikingly parallel to today’s U.S. diplomacy. In both cases military and worldly interests require a sublimation in the form of an ideological crusading spirit to cement the sense of solidarity that any system of imperial domination requires. The logic is timeless and universal. The Papal Dictates were radical in two major ways. First of all, they elevated the bishop of Rome above all other bishoprics, creating the modern papacy. Clause 3 ruled that the pope alone had the power of investiture to appoint bishops or to depose or reinstate them. Reinforcing this, Clause 25 gave the right of appointing (or deposing) bishops to the pope, not to local rulers. And Clause 12 gave the pope the right to depose emperors, following Clause 9, obliging “all princes to kiss the feet of the Pope alone” in order to be deemed legitimate rulers. Likewise today, U.S. diplomats claim the right to name who should be recognized as a nation’s head of state. In 1953 they overthrew Iran’s elected leader and replaced him with the Shah’s military dictatorship. That principle gives U.S. diplomats the right to sponsor “color revolutions” for regime-change, such as their sponsorship of Latin American military dictatorships creating client oligarchies to serve U.S. corporate and financial interests. The 2014 coup in Ukraine is just the latest exercise of this U.S. right to appoint and depose leaders. More recently, U.S. diplomats have appointed Juan Guaidó as Venezuela’s head of state instead of its elected president, and turned over that country’s gold reserves to him. President Biden has insisted that Russia must remove Putin and put a more pro-U.S. leader in his place. This “right” to select heads of state has been a constant in U.S. policy spanning its long history of political meddling in European political affairs since World War II. The second radical feature of the Papal Dictates was their exclusion of all ideology and policy that diverged from papal authority. Clause 2 stated that only the Pope could be called “Universal.” Any disagreement was, by definition, heretical. Clause 17 stated that no chapter or book could be considered canonical without papal authority. A similar demand as is being made by today’s U.S.-sponsored ideology of financialized and privatized “free markets,” meaning deregulation of government power to shape economies in interests other than those of U.S.-centered financial and corporate elites. The demand for universality in today’s New Cold War is cloaked in the language of “democracy.” But the definition of democracy in today’s New Cold War is simply “pro-U.S.,” and specifically neoliberal privatization as the U.S.-sponsored new economic religion. This ethic is deemed to be “science,” as in the quasi-Nobel Memorial Prize in the Economic Sciences. That is the modern euphemism for neoliberal Chicago-School junk economics, IMF austerity programs and tax favoritism for the wealthy. The Papal Dictates spelt out a strategy for locking in unipolar control over secular realms. They asserted papal precedence over worldly kings, above all over Germany’s Holy Roman Emperors. Clause 26 gave popes authority to excommunicate whomever was “not at peace with the Roman Church.” That principle implied the concluding Claus 27, enabling the pope to “absolve subjects from their fealty to wicked men.” This encouraged the medieval version of “color revolutions” to bring about regime change. What united countries in this solidarity was an antagonism to societies not subject to centralized papal control – the Moslem Infidels who held Jerusalem, and also the French Cathars and anyone else deemed to be a heretic. Above all there was hostility toward regions strong enough to resist papal demands for financial tribute. Today’s counterpart to such ideological power to excommunicate heretics resisting demands for obedience and tribute would be the World Trade Organization, World Bank and IMF dictating economic practices and setting “conditionalities” for all member governments to follow, on pain of U.S. sanctions – the modern version of excommunication of countries not accepting U.S. suzerainty. Clause 19 of the Dictates ruled that the pope could be judged by no one – just as today, the United States refuses to subject its actions to rulings by the World Court. Likewise today, U.S. dictates via NATO and other arms (such as the IMF and World Bank) are expected to be followed by U.S. satellites without question. As Margaret Thatcher said of her neoliberal privatization that destroyed Britain’s public sector, There Is No Alternative (TINA). My point is to emphasize the analogy with today’s U.S. sanctions against all countries not following its own diplomatic demands. Trade sanctions are a form of excommunication. They reverse the 1648 Treaty of Westphalia’s principle that made each country and its rulers independent from foreign meddling. President Biden characterizes U.S. interference as ensuring his new antithesis between “democracy” and “autocracy.” By democracy he means a client oligarchy under U.S. control, creating financial wealth by reducing living standards for labor, as opposed to mixed public/private economies aiming at promoting living standards and social solidarity. As I have mentioned, by excommunicating the Orthodox Church centered in Constantinople and its Christian population, the Great Schism created the fateful religious dividing line that has split “the West” from the East for the past millennium. That split was so important that Vladimir Putin cited it as part of his September 30, 2022 speech describing today’s break away from the U.S. and NATO centered Western economies. The 12th and 13th centuries saw Norman conquerors of England, France and other countries, along with German kings, protest repeatedly, be excommunicated repeatedly, yet ultimately succumb to papal demands. It took until the 16th century for Martin Luther, Zwingli and Henry VIII finally to create a Protestant alternative to Rome, making Western Christianity multi-polar. Why did it take so long? The answer is that the Crusades provided an organizing ideological gravity. That was the medieval analogy to today’s New Cold War between East and West. The Crusades created a spiritual focus of “moral reform” by mobilizing hatred against “the other” – the Moslem East, and increasingly Jews and European Christian dissenters from Roman control. That was the medieval analogy to today’s neoliberal “free market” doctrines of America’s financial oligarchy and its hostility to China, Russia and other nations not following that ideology. In today’s New Cold War, the West’s neoliberal ideology is mobilizing fear and hatred of “the other,” demonizing nations that follow an independent path as “autocratic regimes.” Outright racism is fostered toward entire peoples, as evident in the Russophobia and Cancel Culture currently sweeping the West. Just as Western Christianity’s multi-polar transition required the 16th century’s Protestant alternative, the Eurasian heartland’s break from the bank-centered NATO West must be consolidated by an alternative ideology regarding how to organize mixed public/private economies and their financial infrastructure. Medieval churches in the West were drained of their alms and endowments to contribute Peter’s Pence and other subsidy to the papacy for the wars it was fighting against rulers who resisted papal demands. England played the role of major victim that Germany plays today. Enormous English taxes were levied ostensibly to finance the Crusades were diverted to fight Frederick II, Conrad and Manfred in Sicily. That diversion was financed by papal bankers from northern Italy (Lombards and Cahorsins), and became royal debts passed down throughout the economy. England’s barons waged a civil war against Henry II in the 1260s, ending his complicity in sacrificing the economy to papal demands. What ended the papacy’s power over other countries was the ending of its war against the East. When the Crusaders lost Acre, the capital of Jerusalem in 1291, the papacy lost its control over Christendom. There was no more “evil” to fight, and the “good” had lost its center of gravity and coherence. In 1307, France’s Philip IV (“the Fair”) seized the Church’s great military banking order’s wealth, that of the Templars in the Paris Temple. Other rulers also nationalized the Templars, and monetary systems were taken out of the hands of the Church. Without a common enemy defined and mobilized by Rome, the papacy lost its unipolar ideological power over Western Europe. The modern equivalent to the rejection of the Templars and papal finance would be for countries to withdraw from America’s New Cold War. They would reject the dollar standard and the U.S. banking and financial system. that is happening as more and more countries see Russia and China not as adversaries but as presenting great opportunities for mutual economic advantage. The broken promise of mutual gain between Germany and Russia The dissolution of the Soviet Union in 1991 promised an end to the Cold War. The Warsaw Pact was disbanded, Germany was reunified, and American diplomats promised an end to NATO, because a Soviet military threat no longer existed. Russian leaders indulged in the hope that, as President Putin expressed it, a new pan-European economy would be created from Lisbon to Vladivostok. Germany in particular was expected to take the lead in investing in Russia and restructuring its industry along more efficient lines. Russia would pay for this technology transfer by supplying gas and oil, along with nickel, aluminum, titanium and palladium. There was no anticipation that NATO would be expanded to threaten a New Cold War, much less that it would back Ukraine, recognized as the most corrupt kleptocracy in Europe, into being led by extremist parties identifying themselves by German Nazi insignia. How do we explain why the seemingly logical potential of mutual gain between Western Europe and the former Soviet economies turned into a sponsorship of oligarchic kleptocracies. The Nord Stream pipeline’s destruction capsulizes the dynamics in a nutshell. For almost a decade a constant U.S. demand has been for Germany to reject its reliance on Russian energy. These demands were opposed by Gerhardt Schroeder, Angela Merkel and German business leaders. They pointed to the obvious economic logic of mutual trade of German manufactures for Russian raw materials. The U.S. problem was how to stop Germany from approving the Nord Stream 2 pipeline. Victoria Nuland, President Biden and other U.S. diplomats demonstrated that the way to do that was to incite a hatred of Russia. The New Cold War was framed as a new Crusade. That was how George W. Bush had described America’s attack on Iraq to seize its oil wells. The U.S.-sponsored 2014 coup created a puppet Ukrainian regime that has spent eight years bombing of the Russian-speaking Eastern provinces. NATO thus incited a Russian military response. The incitement was successful, and the desired Russian response was duly labeled an unprovoked atrocity. Its protection of civilians was depicted in the NATO-sponsored media as being so offensive as to deserve the trade and investment sanctions that have been imposed since February. That is what a Crusade means. The result is that the world is splitting in two camps: the U.S.-centered NATO, and the emerging Eurasian coalition. One byproduct of this dynamic has been to leave Germany unable to pursue the economic policy of mutually advantageous trade and investment relations with Russia (and perhaps also China). German Chancellor Olaf Sholz is going to China this week to demand that it dismantle is public sector and stops subsidizing its economy, or else Germany and Europe will impose sanctions on trade with China. There is no way that China could meet this ridiculous demand, any more than the United States or any other industrial economy would stop subsidizing their own computer-chip and other key sectors. The German Council on Foreign Relations is a neoliberal “libertarian” arm of NATO demanding German de-industrialization and dependency on the United States for its trade, excluding China, Russia and their allies. This promises to be the final nail in Germany’s economic coffin. Another byproduct of America’s New Cold War has been to end any international plan to stem global warming. A keystone of U.S. economic diplomacy is for its oil companies and those of its NATO allies to control the world’s oil and gas supply – that is, to reduce dependence on carbon-based fuels. That is what the NATO war in Iraq, Libya, Syria, Afghanistan and Ukraine was about. It is not as abstract as “Democracies vs. Autocracies.” It is about the U.S. ability to harm other countries by disrupting their access to energy and other basic needs. Without the New Cold War’s “good vs. evil” narrative, U.S. sanctions will lose their raison d’etre in this U.S. attack on environmental protection, and on mutual trade between Western Europe and Russia and China. That is the context for today’s fight in Ukraine, which is to be merely the first step in the anticipated 20 year fight by the US to prevent the world from becoming multipolar. This process, will lock Germany and Europe into dependence on the U.S. supplies of LNG. The trick is to try and convince Germany that it is dependent on the United States for its military security. What Germany really needs protection from is the U.S. war against China and Russia that is marginalizing and “Ukrainianizing” Europe. There have been no calls by Western governments for a negotiated end to this war, because no war has been declared in Ukraine. The United States does not declare war anywhere, because that would require a Congressional declaration under the U.S. Constitution. So U.S. and NATO armies bomb, organize color revolutions, meddle in domestic politics (rendering the 1648 Westphalia agreements obsolete), and impose the sanctions that are tearing Germany and its European neighbors apart. How can negotiations “end” a war that either has no declaration of war, and is a long-term strategy of total unipolar world domination? The answer is that no ending can come until an alternative to the present U.S.-centered set of international institutions is replaced. That requires the creation of new institutions reflecting an alternative to the neoliberal bank-centered view that economies should be privatized with central planning by financial centers. Rosa Luxemburg characterized the choice as being between socialism and barbarism. I have sketched out the political dynamics of an alternative in my recent book, The Destiny of Civilization. *  *  * This paper was presented on November 1, 2022. on the German e-site BraveNewEurope. Tyler Durden Fri, 11/04/2022 - 02:00.....»»

Category: dealsSource: nytNov 4th, 2022

Futures Coiled Ahead Of Data, Earnings Juggernaut

Futures Coiled Ahead Of Data, Earnings Juggernaut US equity futures swung between gains and losses (a remarkable achievement considering the collapse in generals such as GOOGL and MSFT and last night's 25% implosion in META, something which startled even JPMorgan's top trader) as investors weighed disappointing tech earnings amid growing hopes of a Fed pivot and/or a Treasury buyback (Op Twist) announcement. Contracts on the S&P 500 were little changed as of 7:30 a.m. in New York, while Nasdaq 100 futures fell 0.4% after both indexes snapped a three-day winning streak on Wednesday, dragged down by negative sentiment toward tech following a string of disappointing earnings. In premarket trading, Nvidia led chipmakers with exposure to data centers higher after Meta Platforms said it’s planning for even bigger capital expenditures in 2023. As noted last night, Facebook Meta projected capex of $34 billion to $39 billion in 2023, up from $32 billion to $33 billion in 2022. Meanwhile, shares in social-media companies tumbled after Meta gave a lukewarm revenue forecast for the fourth-quarter amid ballooning costs, stoking worries about a slowdown in the advertising market amid a weaker economic backdrop. Meta crashed as much as 20% in US premarket trading - its second biggest drop on record; peer Snap drops as much as 1.7%, Pinterest falls as much as 3.6%. Meanwhile, Twitter traded closer to Elon Musk’s offer price of $54.20, with a court-ordered deadline to complete the $44 billion deal just one day away.  Here are the other notable premarket movers: Ford shares declined as much as 2.6% in US premarket trading after narrowing its profit outlook for the year, though the move was relatively muted given the automaker had already issued a profit warning last month. Wolfspeed shares tumble 24% in premarket trading after the semiconductor device company provided second-quarter revenue guidance that was worse than anticipated. Analysts are confident in the company’s longer-term vision, but see near-term headwinds clouding visibility. Teladoc Health’s shares jumped as much as 11% in US premarket trading on Thursday, with analysts reassured by the telehealth company’s smaller-than-expected tweak to its 2023 guidance, making its fourth-quarter goals easier to achieve. Twitter shares rise 1.2% to $53.98 in US premarket trading hours, moving closer to Elon Musk’s offer price of $54.20, with a court-ordered deadline to complete the $44 billion deal just one day away. Vertiv Holdings stock gains 2.1% in premarket trading on thin volume as Cowen upgraded it to outperform from market perform, saying its confidence in the company’s “compelling” guidance has now been restored. Keep an eye on Sleep Number’s stock after the air mattress manufacturer reported third-quarter results that were ahead of expectations, while issues with chip inventory and weakening consumer demand led the company to scale back earnings per share guidance for the full year. Watch Silicon Laboratories as the stock was cut to hold from buy at Needham following Wednesday’s results, based on concerns regarding slowing consumer demand. It’s another big day for US tech earnings with Amazon.com, Apple and Intel all reporting after market hours. As Bloomberg notes, hopes for a Fed pivot rose again after a lower-than-expected rate hike from the Bank of Canada on Wednesday, while investors bet that the central bank will be less aggressive as earnings and economic data point to an economic slowdown. The 10-year US Treasury yield receded to the 4% level before bouncing slightly on Thursday, while the Bloomberg Dollar Index was at this month’s after a contraction in services and manufacturing and fewer new home sales showed the Fed’s efforts to cool the economy seem to be bearing some fruit. Still, economists expect the Fed to hike by 75 basis points for the fourth time in a row when it meets next week. Traders have cut expectations for rates to peak next year to 4.86% from 5% a week ago. “We will hit peak inflation sometime this calendar year and then we’ll see interest rates peaking sometime early next year” ahead of a slowdown, said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners Pty Ltd. “In that scenario, equity doesn’t look too bad. Actually, equity looks pretty well-positioned, even though we may be staring at a mild recession in the US." We also get the first read of US Q3 GDP shortly: while consensus still calls for a 2.4% expansion in US gross domestic product in the third quarter, a few forecasters cut their projections after Wednesday’s trade data were released, with one dropping by nearly a full percentage point. The GDP figures are due out later Thursday, along with data on durable-goods orders and weekly first-time unemployment claims. In Europe, equities slipped before a European Central Bank rate decision. The Stoxx Europe 600 Index was weighed down by technology and mining stocks. Credit Suisse Group AG plunged as much as 16% as the bank reported its fourth straight loss and announced a huge corporate overhaul, an equity offering and massive layoffs. Oil stocks rose after Shell Plc raised its dividend and TotalEnergies SE posted a record profit. Here are the biggest European movers: Shell shares gain as much as much as 5.8% as it raises its dividend after posting its second-highest profit on record, even as some parts of its business showed signs of slowing. AB InBev rises as much as 6.9% after beating 3Q results estimates and raising the lower end of its growth forecast. Casino shares rise as much as 30% on signs that the company’s debt burden is manageable. Rebound in shares may also be driven in part by bearish speculators reversing their bets on sharp declines in the stock this year, rather than just fresh buying by bulls. Aegon shares rise as much as 9.8% after announcing it will combine its Dutch activities with ASR for a total consideration of €4.9 billion, in a move that analysts think makes strategic sense, given scope for material synergies. Credit Suisse shares slumped as much as 16% after the Swiss lender reported a $4b loss and announced a massive overhaul, including thousands of job cuts, the sale of its structured products group and a capital increase to the tune of 4 billion francs. European chip stocks slide on Thursday, with STMicro the biggest decliner of the group after the chipmaker guided fourth-quarter revenue slightly below consensus estimates, triggering concerns that the slowdown in semiconductor demand is spreading beyond consumer end-markets. Peer ASML drops as much as 3.7% Ipsen shares fall as much as 9.7%, the most since April, after the French pharmaceuticals firm published 3Q sales numbers that beat estimates, even as revenue fell for Somatuline, a long-time key drug that’s facing increased competition from generics. Inspecs shares drop as much as 50% to a record low with Peel Hunt (buy) flagging a deteriorating outlook for the eyewear firm. In just a few minutes, the ECB is set to look past Europe's growing recession by lifting its main interest rate by another 75 basis points to the highest in more than a decade as it battles record euro-zone inflation. The pace of increases is likely to slow to 50 basis points in December, according to economists. “We are oriented with consensus, expecting a big hike of 75 basis points” from the ECB, Monica Defend, head of the Amundi Institute, said on Bloomberg Television. “We think they will continue being hawkish until December and then with the beginning of the new year, they might review or slow down a little bit the pace. Yesterday the Central Bank of Canada surprised the market with their final hike -- we think the ECB will remain bold.” Earlier in the session, Asian stocks were mixed, with most advancing for a third straight day, as Hong Kong shares jumped and a weaker dollar supported regional equities, while Japanese equities led declines. The MSCI Asia Pacific Index rose as much as 1.2%, lifted by technology shares, before paring its gain. Gauges in Hong Kong also trimmed their advance to less than 1%, while investors focused on a slew of earnings and awaited further policy guidance following China’s party congress. Benchmarks in Taiwan and South Korea were also higher as some chip stocks rose, with the measures buoyed by encouraging earnings beats this week including by Samsung SDI and LG Energy. The drop in the US 10-year Treasury yield and dollar this week is giving currencies and equity measures in Asia a boost, with traders looking ahead to US employment data later this week for further clues on the Fed’s rate-hike path. And with China’s historic rout on Monday on the mend and the quarterly earnings season providing some positive surprises, the Asian benchmark is close to erasing losses for the month. “Any admission of major Western central banks having to pause or give up the inflationary fight entirely would be rather big news, potentially leading to sharp asset price reversals,” Martin W. Hennecke, head of Asia investment advisory at wealth management firm St. James’s Place, wrote in a note. If inflation really is to be addressed more seriously, there should arguably be more focus on budget deficits to be brought under better control, he added. Japanese equities fell for the first time in four sessions, as investors assessed the latest earnings from domestic and foreign companies.  The Topix dropped 0.7% to close at 1,905.56, while the Nikkei declined 0.3% to 27,345.24. Mitsubishi UFJ Financial Group Inc. contributed the most to the Topix decline, decreasing 2.6%. Out of 2,166 stocks in the index, 576 rose and 1,484 fell, while 106 were unchanged. “There are no big surprises in Japanese earnings results,” said Takeru Ogihara, chief strategist at Asset Management One. “On the other hand, although all the results have not been released yet, US earnings are down quite a bit, so I think they may be having a greater impact.” In India, key stocks gauges overcame volatility induced by the expiry of monthly derivative contracts and resumed their recent advance, with metals and real estate companies recovering. The gains in local shares were in line with Asian peers, which rose tracking decline in the dollar.  The S&P BSE Sensex jumped 0.4% to 59,756.84 in Mumbai, recovering from a drop of 0.1% during the session. The NSE Nifty 50 Index advanced 0.5%. All but three of the 19 sector sub-gauges compiled by BSE Ltd. ended higher.  Both key indexes have now gained in eight out of nine sessions, a period that includes the one-hour ceremonial Diwali trading on Monday. The benchmarks are now less than 3% short of their respective records set last year. Trading resumed after a holiday on Wednesday.         In rates, the yield on the 10-year Treasury bond rebounded after inching below 4% earlier, with investors positioning for less aggressive rate hikes as earnings and economic data indicate a slowdown. The benchmark US yield has dropped more than 20 basis points over the past two days. A gauge of the dollar gained after two days of steep declines. On Wednesday morning, US yields cheaper by 5bp to 8bp across the curve with losses led by belly, flattening 5s30s by nearly 2bp on the day while 2s5s30s fly cheapens 4bp; 10-year yields around 4.075%, with bunds trading 1bp cheaper in the sector. The US auction cycle concludes with 7-year note sale at 1pm, while first estimate of 3Q GDP leads economic calendar. Money markets pricing around 72bp of rate hikes for ECB policy meeting, and attention will also be centered on possible changes to TLTRO loans. German bonds fell across the curve; the 10-year bund yield climbing 7bps higher to 2.89%. In Fx, the Bloomberg Dollar Spot Index rose 0.3%, halting two days of steep losses; data due later Thursday may show the US economy rebounded in the third quarter. The yen jumped to a three-week high, before paring gains, as traders geared up for a Bank of Japan policy decision on Friday. The market is abuzz with talk that the BOJ may step in to prop up the yen should the currency weaken if the central bank maintains its super-easy monetary policy as expected. The pound pulled back from early gains against the US dollar to trade 0.6% lower at $1.1560; further gains could be limited given uncertainties about how a revamped UK fiscal plan could impact the economy just as it enters a recession In commodities, oil fluctuated after touching the highest level in about two weeks after US Secretary of State Anthony Blinken said a deal with Iran would be unlikely to advance in the short term.  Traders placed bets on a soaring price for aluminum as the US considers adding the metal to sanctions against Russia, a major producer. Iron ore futures slumped to the lowest since May 2020 on concern overan economic slowdown in China. Bitcoin is under modest pressure, downside which has increased amid the recent relative resurgence in the USD. Looking at the day ahead, today’s big data release will be the advance reading of Q3 GDP in the US. After back-to-back negative readings earlier this year, economists see today’s print at +2.4%, a solid rebound, on the back of strong net exports that could compensate for slowing demand. We will also get the quarterly core PCE, which should provide a clue to tomorrow’s September reading. Other indicators released in the US will include durable goods orders and Kansas City Fed manufacturing activity index. In earnings, we will hear from Apple, Amazon, Mastercard, Samsung, Merck, Shell, McDonald's, T-Mobile, Linde, TotalEnergies, Comcast, Honeywell, Intel, S&P Global, Caterpillar, AB InBev, American Tower, Gilead Sciences, EDF, Neste, STMicroelectronics, Shopify, PG&E, Repsol, EDP, Pinterest, First Solar, Credit Suisse, Deutsche Lufthansa, Hertz and Ubisoft. So a busy day with the ECB as well. Market Snapshot S&P 500 futures up 0.4% to 3,855.75 STOXX Europe 600 down 0.2% to 409.35 MXAP up 0.6% to 138.12 MXAPJ up 0.9% to 441.27 Nikkei down 0.3% to 27,345.24 Topix down 0.7% to 1,905.56 Hang Seng Index up 0.7% to 15,427.94 Shanghai Composite down 0.6% to 2,982.90 Sensex up 0.2% to 59,661.74 Australia S&P/ASX 200 up 0.5% to 6,845.13 Kospi up 1.7% to 2,288.78 German 10Y yield up 3.1% to 2.17% Euro down 0.2% to $1.0058 Brent Futures up 0.3% to $95.93/bbl Gold spot up 0.1% to $1,665.68 U.S. Dollar Index little changed at 109.74 Top Overnight News from Bloomberg The yen is seeing a respite from recent heavy selling as traders reconsider the pace of US rate hikes and prepare for Friday’s key Bank of Japan policy decision. It’s too soon to write off the dollar’s dominance as the US rate-hike cycle may not be near its peak. That’s the firm conviction of money managers at JPMorgan Asset Management and Fivestar Asset Management even after a gauge of the greenback touched a one-month low on Thursday. Chinese President Xi Jinping said his nation is willing to work with the US to find ways to cooperate, comments that come before a potential meeting with President Joe Biden at a Group of 20 summit next month. Stocks slipped and US futures pared gains as traders digested a flurry of major earnings and prepared for another jumbo European Central Bank rate hike later Thursday. A more detailed look at global markets courtesy of Newsquawk APAC stocks traded mixed following a similar lead from Wall Street and amid a lack of fresh fundamental drivers overnight.  ASX 200 was supported by gains across its commodities-related sectors, whilst financials lagged after ANZ Bank shed over 3% post-earnings. Nikkei 225 was in the red as exporters were pressured by the recent firming in the Japanese currency against the Dollar. KOSPI saw gains across its energy, industrial, and IT names, whilst Samsung Electronics saw choppy trade after earnings before stabilising in the green. Hang Seng outperformed and the Hang Seng Tech index also surged following the recent selling - the gains were driven by Alibaba and JD.com. Shanghai Comp was firmer at the open but gains fizzled out, whilst the PBoC injected another CNY +200bln via 7-day reverse repo for a third straight session. Top Asian News Samsung Electronics (005380 KS) - Q3 2022 (KRW): Revenue 76.8tln (Co. exp. 76tln), Net profit 9.4tln (exp. 7.9tln), expects H2 2023 recovery in memory chips focused on servers and mobile; expect tech and memory chip demand to remain weak in Q4. Q3 Consolidated Net 9.14tln (exp. 9.43tln). Co. expects tech and memory chip demand to remain weak in Q4. Q4 demand for smartphones and wearables is forecast to increase Q/Q; 2023 demand for smartphones and wearables is expected to grow. (Newswires) Japan is eyeing in excess of JPY 29tln in government spending on stimulus, according to NHK. PBoC injected CNY 240bln via 7-day reverse repos at a maintained rate 2.00% for a daily injection of CNY 238bln. China's MOFCOM sees retail sales keeping a stable recovery, consumption expected to stabilise and recover; Foreign Ministry says China is prepared to make "vast space for peaceful unification". European bourses are under modest pressure, Euro Stoxx 50 -0.5%, with the region digesting earnings and largely just awaiting the ECB; FTSE 100 +0.3% outperforms post-Shell +3.5%. Sectors are predominantly in the red though, in-fitting with bourses, Energy outperforms after Shell & Total while Tech names lag following Meta and STMicroelectronics. Stateside, futures are mixed and yet to develop much traction either side of the unchanged mark, NQ -0.3% lags more corporate updates and as yields pick up. Meta Platforms Inc (META) Q3 2022 (USD): EPS 1.64 (exp. 1.88), Revenue 27.71bln (exp. 27.38bln). Facebook DAUs 1.98bln (exp. 1.86bln). Facebook MAUs 2.96bln (exp. 2.97bln). META average price per ad -18% (exp. -15.3%). Co. said it faces near-term challenges on revenue, and sees reality labs op losses in 2023 significantly higher. CFO said revenue from large advertisers remain challenged, while revenue among smaller advertisers remain more resilient. -20% in the pre-market. Ford Motor Co (F) Q3 2022 (USD): EPS -0.21 (exp. 0.27), Revenue 39.4bln (exp. 36.25bln); Raises FY22 FCF outlook to 9.5-10bln (prev. 5.5-6.5bln); sees FY adj. EBIT around USD 11.5bln (prev. 11.5-12.5bln). -2% in the pre-market Top European News Credit Suisse to Raise $4 Billion to Fund Sweeping Overhaul Campari 3Q Adjusted Ebit Beats Estimates Putin-Linked Celebrity Journalist Sobchak Flees Russia Bankers Grill Erdogan’s Lieutenants Over Risky Build-Up of Bonds Egypt’s Pound Weakens About 10% Versus Dollar After Policy Shift Made.com Abandons Hope for Rescue Buyer as Collapse Looms Is Putin Strangling Russia’s Golden Gas Goose? The IEA Thinks So FX Buck stops the rot as rival currencies retreat ahead of risk events, including ECB and top tier US data, DXY tops 110.00 vs bottom near 109.500. Euro and Sterling fade just shy of 1.0100 and 1.1650 respectively and in proximity to key technical levels. Aussie undermined by a sharp fall in iron ore and renewed Yuan weakness; AUD/USD down from 0.6500+ peak and eyeing 0.6450, USD/CNH up from circa 7.1640 to 7.2630 or so. Fixed Income Bonds wane after forging fresh midweek recovery peaks. Bunds reverse around one full point from just over 139.00 pre-ECB. T-note turn tail from 111-05+ to 110-21+ as 4% cash yield holds ahead of US GDP, IJC and Durable Goods. Gilts buck trend and retest 102.000 again amidst reports that UK PM Sunak may hike taxes and cut spending to make budget savings. Commodities A contained session for the commodity space with markets generally tentative and mixed awaiting the afternoon’s risk events of which the ECB takes centre stage. Crude benchmarks are essentially unchanged on the session and have slipped marginally from best levels of USD 88.50/bbl and USD 96.20/bbl for WTI Dec’22 and Brent Jan’22 respectively. Spot gold spent much of the morning firmer as the DXY waned below 110.00, but as the index reclaims the figure the yellow metal has been tarnished in turn and has slipped back below the 21-DMA though remains above the 10-DMA. Biden admin reportedly reviewing plans for a Russian oil price cap, according to Bloomberg citing sources. Under earlier plans, a price cap in the range of USD 40-60/bbl was mulled, but sources suggested discussions involve a cap at the higher end of that range and above. No decision is expected before the US mid-term elections. Central Banks RBNZ Governor Orr said New Zealand is relatively well positioned, but inflation is still too high in an absolute sense; has eyes firmly focused on meeting inflation target, via Reuters. Westpac's Evans is forecasting a 50bp rate hike from the RBA next week (vs market expectations for 25bps hike). Brazilian Selic Interest Rate 13.75% vs. Exp. 13.75% (Prev. 13.75%). BCB will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected; it will stay vigilant, and policy can be adjusted, via Reuters and Bloomberg. CBRT raises its year-end inflation estimate to 65.2% from 60.4%. Geopolitics US has accelerated the fielding of a more accurate version of its mainstay nuclear bomb to NATO bases in Europe, according to a US diplomatic cable and two people familiar with the issue, via Politico. Ukraine has boosted its forces in the northern region to counter the potential attack from Belarus, according to Ukraine's general staff, via Reuters. Chinese President Xi said, "the Chinese and American peoples have many things in common, and can become good friends and partners for mutually beneficial cooperation.", according to CCTV US Air Force is to replace its entire fleet of F-15 jets in Okinawa, Japan with a rotational force, via FT; officials cited are concerned this will send a dangerous signal to China re. deterrence. US Event Calendar 08:30: 3Q GDP Annualized QoQ, est. 2.4%, prior -0.6% 3Q PCE Core QoQ, est. 4.5%, prior 4.7% 3Q GDP Price Index, est. 5.3%, prior 9.0% 3Q Personal Consumption, est. 1.0%, prior 2.0% 08:30: Sept. Durable Goods Orders, est. 0.6%, prior -0.2% Sept. -Less Transportation, est. 0.2%, prior 0.3% Sept. Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.4% Sept. Cap Goods Orders Nondef Ex Air, est. 0.3%, prior 1.4% 08:30: Oct. Initial Jobless Claims, est. 220,000, prior 214,000 Oct. Continuing Claims, est. 1.39m, prior 1.39m 11:00: Oct. Kansas City Fed Manf. Activity, est. -2, prior 1 DB's Jim Reid concludes the overnight wrap I'll visit our new offices in NY for the first time today as DB hosts a macro conference at which I'm the keynote speaker. I've been told that it's one of the best offices on the buy- or sell-side in Manhattan, so I have high expectations. While I've been in NY, attempts to price in a Fed pivot have gathered pace and continued yesterday after we had a smaller-than-expected hike from the BoC (+50bps vs +75bps expected, taking the overnight lending rate target to 3.75%). That followed the central bank’s expectations of lower inflation and growth on the back of higher rates and subsiding price pressures. Markets got the read-through to the Fed given that the BoC was the first to hike and go in larger increments this cycle, so we saw another day with 2-7bps declines in Fed pricing for 2023 meetings. However, equities struggled even with the continued pivot discussion (S&P 500 -0.74%, Nasdaq -2.04%) given the previous night’s poor tech earnings. That theme continued after the bell as Meta fell -19.70% in after-hours given a weaker revenue outlook and metaverse-related results. This morning futures tied to the S&P 500 (+0.51%) and the NASDAQ 100 (+0.43%) are moving higher, brushing off Meta’s disappointing results. The focus today (outside the ECB meeting) will be on Apple, the world’s most valuable public company at a c.$2.4tn market cap, and Amazon, ranked 5th globally with a market cap of $1.2tn, with both reporting after hours. My purchase of the new iPad Pro yesterday on its release day in NY won't yet filter into Apple’s results! Intel will also report after hours today following Samsung’s (+0.17%) profit miss this morning (more below). Back to the pivot discussion, unsurprisingly US bonds reacted by rallying across the curve, including a -5.6bps decline for the 2y yield and a -9.9bps move lower for the 10y. This morning in Asia, yields on 10yr USTs are slightly rebounding (+1.45 bps), trading at 4.02% as we go to press. Given that the ECB is far behind both the Fed and the BoC in its tightening cycle, the pass-through to European yields was more limited. The front-end yields in key markets were mixed (-2.2bps for Germany, -1.2bps in France and +0.2bps in Italy) in anticipation of today’s meeting, with the global move felt a bit more at the longer end (10y Bund -5.7bps, 10y OATs -5.1bps and 10y BTPs -5.0bps). Given the US pivot discussion, the euro strengthened +1.1% against the dollar to above parity for the first time in around 6 weeks, with the DXY index falling by -1.11%. Speaking of the ECB, the central bank is due to announce its interest rate decision today. Our European economists expect another +75bps hike, which would take the deposit rate to 1.5%, but in their preview here they also outline that it’s the runoff of ECB’s EUR 8.8tn balance sheet that will be the focal point for markets. The team expect QT to be discussed at this meeting but without a decision being made until December. The process will likely be gradual amid concerns over stability and fragmentation ansd will kick off in April, after rates are at the terminal level. They also see the central bank taking measures to encourage early TLTRO repayments today. Beyond today’s meeting, our European economists see rates moving higher by +75bps in December, +50bps in February and +25bps in March, taking the terminal rate to 3%. This is in line with their expectations of a hawkish tone at today’s meeting that potentially would not exclude a possibility of another +75bps in December. Yesterday they put out a note looking at whether the central bank has the capacity to maintain its hiking pace here. The US equity sell-off discussed earlier accelerated after Europe went home. Sectors like energy (+1.36%), health care (+1.12%) and materials (+0.67%) were the top performers in the S&P 500 after commodity stocks got a boost from a rally in oil (WTI +3.04% and Brent +2.32%). Understandably, IT (-2.23%) and communications (-4.75%) were the heaviest decliners amidst the largest daily declines since March 2020 for Alphabet (-9.63%) and Microsoft (-7.72%). That heavyweight laggard bias actually left roughly 57% of S&P 500 members in the green by the close. In earnings before the closing bell, non-tech stocks gave some relief to investors after a beat and upside guidance tweaks from Kraft Heinz (-0.4%) and Thermo Fisher Scientific (-2.26%). Earnings beats from Universal Health (+13.1%), Hess (+4.82%) and Visa (+4.60%) put them among the top of S&P 500 firms in terms of daily gains. Meanwhile, Boeing (-8.89%) disappointed by missing on revenue and decreasing deliveries forecast. European stocks managed to post solid gains before the mood soured a bit in the US. The Stoxx 600 was up by +0.66% amid advances in materials (+1.55%), industrials (+1.53%) and healthcare (+1.00%). On a country level, Germany (DAX +1.09%) and Spain (IBEX35 +0.97%) outperformed but most other major bourses (CAC 40 +0.41%) were in the green as well for the day. There weren’t many economic data catalysts yesterday but consumer confidence for France beat consensus of 77 by rising to 82 from 79 last month. Similar gauges are due from Germany and Italy this morning. In the UK, we had news of the medium fiscal plan being pushed back to November 17th from October 31st, which didn't prevent a -13.8bps slide in 2y gilts and a drop of 5-10bps in BoE pricing for the next few meetings, including the one next Thursday. A return to credibility has bought the government time which in turn has allowed them to delay the fiscal plan to take advantage of the lower rates seen in the last couple of weeks which will help reduce the size of the fiscal hole that the OBR will report on. The long end rallied too, with 10y yields falling by -6.1bps. Meanwhile, sterling strengthened by +1.33% against the dollar and the FTSE 100 gained +0.61%. In US data, the advanced goods trade balance for September came in at -$92.2bn, wider than the median Bloomberg estimate of -$87.5bn and wholesale inventories MoM growth also missed (+0.8% vs +1.0% expected). Both could negatively reflect on today’s first reading of Q3 GDP. New home sales, on the other hand, surprised on the upside by coming in at 603k vs 580k expected but it was still a -10.9% MoM decline. Asian equity markets are mixed this morning. As I type, the Hang Seng (+2.15%) is leading gains across the region after jumping more than +3% in early trade following a broad rally in the Chinese listed tech stocks. Meanwhile, the KOSPI (+1.29%) is also trading in positive territory despite South Korea’s GDP growth decelerating in 3Q22 (more below). Elsewhere, the Nikkei (-0.26%) and the CSI (-0.12%) are trading lower with the Shanghai Composite (-0.06%) just below flat. Early morning data showed that South Korea’s 3Q GDP grew +0.3% q/q (v/s +0.3% expected), recording its slowest growth since the third quarter of 2021, as the economy is losing momentum due to elevated inflation and global policy tightening denting demand both at home and abroad. It followed a +0.7% gain in the preceding quarter. Elsewhere, China’s industrial profits for January to September fell -2.3% y/y compared to a -2.1% drop recorded in the preceding month. In company news, Samsung Electronics registered a 31.39% drop in operating profit for the third quarter to 10.85 trillion won ($7.67 billion) from 15.8 trillion won in the same period a year earlier. Additionally, the company announced that geopolitical uncertainties are likely to dampen demand until late 2023, as the global economic downturn slashed appetite for electronic devices. Today’s big data release will be the advance reading of Q3 GDP in the US and our economists preview the data drop here with a telling title “More trade tricks than growth treats.” After back-to-back negative readings earlier this year, the team sees today’s print at +3.0%, a solid rebound, on the back of strong net exports that could compensate for slowing demand. We will also get the quarterly core PCE, which should provide a clue to tomorrow’s September reading. Other indicators released in the US will include durable goods orders and Kansas City Fed manufacturing activity index. In earnings, we will hear from Apple, Amazon, Mastercard, Samsung, Merck, Shell, McDonald's, T-Mobile, Linde, TotalEnergies, Comcast, Honeywell, Intel, S&P Global, Caterpillar, AB InBev, American Tower, Gilead Sciences, EDF, Neste, STMicroelectronics, Shopify, PG&E, Repsol, EDP, Pinterest, First Solar, Credit Suisse, Deutsche Lufthansa, Hertz and Ubisoft. So a busy day with the ECB as well. Tyler Durden Thu, 10/27/2022 - 08:01.....»»

Category: blogSource: zerohedgeOct 27th, 2022

Europe"s Energy Crisis May Not End Until 2024

Europe's Energy Crisis May Not End Until 2024 Authored by David Messler via OilPrice.com, The EU gas storage units are nearly full giving some relief to fears of shortages Challenges remain for the continent’s energy security as winter arrives The challenges will persist into the winter of 2023-24. The worst energy security fears of spring and summer as regards the coming winter in the European Union-EU, have been somewhat allayed. Earlier this year when war broke out in Ukraine and it became clear that the conflict would drag on for months, if not years, the EU appeared perilously in danger of a winter “Polar-Geddon,” as cold air gripped the continent. Largely forgotten and retired gas storage caverns, that hadn’t been filled in the expectation of a steady supply from Russia via the Nordstream I and II pipelines, suddenly were thrust front and center into the public eye.  Troubles often come in twos. The next shoe to drop was the deflation of expectations of much of the EU electric grid base load being met by wind and solar farms, when the elements refused to cooperate. Beginning in the middle of last year, it was noted that the wind wasn’t blowing and the output of solar farms was less than predicted. These two events appeared ready to converge upon the EU and presenting it with a stark, and chilly future for the winter of 2022-23. As is often the case, the fullness of time alleviated the worst fears as energy leaders in the countries that make up the EU, sprang into action. They turned to Norway for an additional 90 bn cubic meters of gas to begin filling the storage caverns. The infrastructure was in place, it was just a matter of price. The also U.S. responded with a massive sealift of billions of cubic feet of LNG, mostly from the Gulf Coast Cryo plants, and little by little the starkest fears of early spring were put to rest. Now the WSJ reports that EU gas caverns are largely filled, thanks to U.S. LNG exports. Europe’s population is now in Nature’s hands as winter approaches.  “Storage facilities of gas for heating and power generation are almost full, consumption is down and liquefied natural gas tankers are steaming in. Europe is in a stronger position than feared in recent months, after Moscow slashed gas deliveries in retaliation for Western sanctions over the invasion of Ukraine. However, much could go wrong. One long cold spell or a busted pipeline could upset the region’s preparations, threatening emergency rationing, blackouts and a deeper economic recession. Officials and analysts say the willingness of consumers to cut back on gas use will be key for getting through the winter.” The focus of the rest of this article will be on what indeed could go wrong, and put the citizens of the EU in jeopardy. Asian demand, energy cutback compliance, and the weather in the U.S. could make the difference While seemingly out of the woods for the early part of this season, with full storage caverns, several challenges lie ahead for this energy beleaguered continent. The first is that Asian demand, and in particular Chinese demand is expected to resurge in the coming months. The focus on the Eastern Hemisphere is understandable as its growing economies are the product of this regions ascendancy as manufacturing and distribution hubs for nearly everything. This relentless demand, should it occur will challenge the import hubs of the EU, as they begin discharging stored gas this winter and begin looking for new supplies to address the winter of 2023-24.  Bloomberg noted in an article recently, that China which had been reselling cargoes of U.S. LNG to the EU for a profit, was no longer doing so. “China told its state-owned gas importers to stop reselling LNG to energy-starved buyers in Europe and Asia in order to ensure its own supply for the winter heating season.” If this action signals a turn in China’s outlook, then EU buyers will face increased competition for U.S. supplies, of which over the summer they received the Lion’s Share. Loaded LNG cargoes are very fungible and it is common for the final destination of an LNG carrier to change after it departs port. The second is making it through this winter without the draconian cutbacks discussed in the WSJ article. Compliance with the urgent conservation directives will determine if EU energy security is at the mercy of the weather this winter. “Europe is probably as well prepared as it could be. The infrastructure is pretty much maxed out,” says Michael Bradshaw, professor of global energy at Warwick Business School. “We are up against the hard reality that there are physical limitations to the ability to replace Russian gas in the short term. That means that doubling down on the demand-reduction side of the equation is vital.” “A lot could go wrong. If freezing weather jacks up demand, stockpiles could drain and prices could shoot to levels that hammer companies and government finances. Low temperatures could also spark a contest between North America and Europe for LNG supplies.” And that leads us to our third point in this macro thesis. It is only pure serendipity that things aren't much worse in the U.S. than they are. Sky-high prices for coal have kept U.S. utilities burning gas this summer for electricity generation. That should have kept prices higher than they were. What happened? You perhaps remember that fire in the Freeport LNG plant near Galveston in June? It had the effect of putting 2-BCFD back on the market, and available for injection vs export. Hence we are only ~4% under 5-year averages in our storage. This week. It will be interesting to see what sort of draws are seen in next week's report as a big chunk of the nation feels winter's first blast. Nor am I optimistic, absent a big surge in gas drilling, that we will be able to do anything to materially impact this tight supply scenario. The trend isn't encouraging for mid to long term new supplies as noted in the chart above. This is compiled from data put out by the EIA and only measures a running average between production noted in various reports and the number of rigs turning to the right. A simplistic measure as I have noted in past reports, but trends are instructive of their own accord. And the trend suggests, for whatever reason, well productivity is declining. Your takeaway The challenges for the EU will remain through to the heating season of 2023-24, depending as we have noted in this article on the weather on both the European and North American continents. This will drive prices for gas which have fallen sharply over the third quarter. One way I am looking to arbitrage this price action is selecting producers that stand to benefit. One I am looking at in particular is a Canadian player, ARC Resources, (TSX-ARX). It is Canada’s third largest gas driller, with high margins and access to U.S. southern LNG hubs and east to the big population centers of Toronto and Montreal. ARX is generating free cash at a rate of $2.0 bn CAD, and has growth plans that are covered by Free Funds Flow. ARX pays a modest dividend, currently yielding 2.7%, and trades current at 6X EPS. There are others worth considering as well. Tourmaline Oil Corp, (TSX: TOU) is one of the country’s biggest gas drillers with 80% of its daily production comprised of 2.2 BCFD. It is trading at 9X EPS, which is why my interest has run more to ARC Resources. I like the Canadian gas drillers as opposed to the big American gas drillers due market access. EQT, (NYSE:EQT) and CNX Resources, (NYSE:CNX) among others draw on the Marcellus super-basin for their reserves. The Marcellus is locked behind the Appalachian Mountains with no pipeline access to the big consumer markets in New York City, and Boston. In spite of years of work by pipeline builders to obtain permits to build the Mountain Valley Pipeline, and Atlantic Coast Pipeline, both are still incomplete with no clear pathway to completion. Whichever way you go, I think the gas drillers are a safe bet if a cold winter here and in the EU challenges supplies as we have discussed. Tyler Durden Sat, 10/22/2022 - 07:00.....»»

Category: blogSource: zerohedgeOct 22nd, 2022

Futures Green After Bouncing From Session Lows As Overnight Swings Turn Violent

Futures Green After Bouncing From Session Lows As Overnight Swings Turn Violent US equity-index futures have swung wildly in the illiquid, overnight session, and after earlier dropping as much as 0.5% following the rapid move higher in US Treasurys and UK gilts, they have since erased all losses to trade near session highs, up 0.3% with Nasdaq futures also up 0.2%, as investors the surge in yields fizzled and as investors assessed disappointing earnings from Tesla against resilient reports from AT&T and IBM. Oil jumped, Chinese stocks spiked (but then fizzled) and both the offshore and onshore yuan rose after a Bloomberg report sparked market optimism that Chinese officials are mulling shortening the amount of time people coming into the country must spend in mandatory quarantine, an implicit tempering of the country's much maligned coved zero policies. The US dollar slumped as sterling spiked as UK Prime Minister Liz Truss began meetings with a key Conservative party official, stoking speculation that a change in leadership may be afoot. US 10-year yield holds steady at about 4.12%. In other notable overnight developments, Hong Kong's Hang Seng index tumbled to the lowest level since 2009 amid continued liquidations and outflows from China... ... while the yen finally weakened past the closely watched 150 per dollar level, marking a 32-year low and keeping investors on high alert for further intervention to support it. And sure enough, the BOJ promptly jumped in sparking a big move lower in the pair. The move followed a surge in US Treasury yields to multi-year highs that widened the gap with Japanese equivalents. In premarket trading, bank stocks were mostly higher following their worst day in more than a month. In corporate news, the world’s biggest banks have already had to use about $30 billion of their own cash this year to fund loans for acquisitions and buyouts that they weren’t able to offload to investors. US-listed Chinese stocks bounced in premarket trading, a day after Wednesday’s selloff sent the Nasdaq Golden Dragon China Index down to its lowest closing level since July 2013. The KraneShares CSI China Internet Fund ETF rises 2.1% as of 7:20 a.m. in New York. Here are the other notable premarket movers: Tesla (TSLA US) falls 5.5% in premarket trading after the world’s most valuable automaker missed third-quarter revenue estimates as it struggled to get its cars to customers. Fellow EV firms lower in premarket trading include: Nikola (NKLA US) -2%, Faraday Future (FFIE US) -2%, Rivian (RIVN US) -1.8%, Canoo (GOEV US) -0.7% Alcoa (AA US) drops 9.3% in premarket trading after the aluminum giant reported worse-than-expected results for the third quarter, putting pressure on its global peers. International Business Machines (IBM US) shares rise 3.1% in premarket trading after the IT services company reported third-quarter revenue that beat expectations. Ally Financial (ALLY US) shares drop 2.5% in premarket trading as Morgan Stanley downgraded the car-finance company to equal-weight from overweight following Wednesday’s third-quarter results. Sunrun (RUN US) shares slump 4.1% in premarket trading after Wolfe downgrades the stock in a note to peer perform, citing headwinds from a rising interest-rate environment. Las Vegas Sands (LVS US) shares rise 1% in US premarket trading after posting better- than-expected 3Q adjusted property Ebitda. That was driven by a solid performance in Singapore while uncertainty remains around Macau. US stocks slipped on Wednesday after a two-day rally saw the S&P 500 reclaim $1.2 trillion in market capitalization amid support from technical levels and optimism about earnings. Higher bond yields and Tesla’s sobering report provided reminders of the tough macroeconomic backdrop as costs for companies remain high and the Federal Reserve pushes forward with interest rate hikes. “We continue to see plenty of macroeconomic headwinds,” said Marija Veitmane, a senior strategist at State Street Global Markets. “As central banks tighten financial conditions, earnings will crack. So we are very much in the sell-the-rally camp.” Investors continue to closely monitor events in the UK where Liz Truss’s chaotic premiership looked close to imploding as backbench Conservative lawmakers openly said she should resign and even Cabinet ministers discussed her future. The pound weakened and 10-year UK bond yields climbed, but were off their highs. A generally strong start to the third-quarter earnings season has bolstered sentiment toward equities. But investors are having to balance signs of corporate resilience against fears about the impact of persistent inflation, hawkish moves by the Federal Reserve and other central banks and threats to the economy. “I think the market now is looking at 2023 and baking some kind of mild downturn into the price,” Hugh Gimber, global market strategist at JPMorgan Asset Management, said on Bloomberg Television. “The key is that inflation number coming down, because if it does, 5% for the Fed looks to me roughly as the right figure and then the market can have a clearer picture.” In Europe, the Stoxx 50 fell 0.5% with Spain's IBEX flat but outperforming peers; the DAX lags, retreating 0.8%. Telecoms, financial services and retailers are the worst-performing sectors. Oil and gas shares are the only rising sector in Stoxx Europe 600 index on Thursday as crude extended gains amid a report that China debates easing some Covid restrictions, while European gas advanced after a five-day losing run. The Stoxx Energy sub-index advanced 1.3% as of 10:45 a.m. in London, while the broader equity benchmark declined 0.5%. Here are some of the biggest European movers today: Oil and gas shares are the only rising sector in Stoxx Europe 600 index on Thursday as crude extended gains amid a report that China is debating easing some Covid restrictions, while European gas advanced after a five-day losing run. BP gained 1.5%, Shell +1.4% and TotalEnergies +1.5% Saipem soars as much as 13% in Milan, the most intraday since July 14, after winning a $4.5 billion engineering and construction contract from Qatargas. Jefferies upgraded the stock to buy after the “material” award Yara shares gain as much as 7.2% after fertilizer maker’s 3Q adjusted Ebitda beat analyst estimates and was seen as very strong in an uncertain quarter. Declining gas prices are also pointing toward restarting fertilizer capacity in Europe as demand is rising Brunello Cucinelli shares soar as much as 11.5%, the most since March, after it delivered a significant beat in its 3Q results as well as a major uptick in FY guidance Nokia shares fall as much as 6.8% after a mixed set of results, with sales beating consensus estimates while profit and margin lagged. The bottom-line was dragged down by the network equipment maker’s Technologies segment, which continued to be hobbled by a delay in patent contract renewals Ericsson shares slide as much as 16%, the most since Oct. 2016, after reporting third-quarter operating profit and margin that missed analyst estimates. While the Swedish telecom equipment maker pledges to change pricing and cut costs, analysts still see margin pressure persisting into the next year Volvo shares fall as much as 5.9% in Stockholm trading, the most intraday since May 2, as analysts highlight that focus for 3Q results is on the weaker Truck division margin, which is driving a miss at Ebit level GB Group shares plummet as much as 20%, hitting the lowest since September 2017, after identity verification company published a first-half trading update. Davy said the revenue was below consensus expectations Earlier in the session, Asian equities headed for a second day of declines, as the recent selloff in Hong Kong shares deepened amid investor concerns on China’s zero-Covid approach. The MSCI Asia Pacific Index dropped as much as 1.6%, as tech shares faced fresh losses after bond yields spiked overnight. The gauge pared some of its earlier losses after a report that Chinese authorities were considering a shorter quarantine for inbound travelers. Hong Kong led declines in the region, with its benchmark falling to the lowest since 2009 as Chief Executive John Lee’s maiden policy speech left investors disappointed. Traders remained concerned about consumer demand in China amid lockdowns and rising Covid cases, as well as the spillover into earnings for the region.  “History suggests it is hard for stocks to rally in the face of EPS cuts,” said Stephen Innes, managing partner at SPI Asset Management in a note. “While stock prices should trough before EPS estimates bottom, there is still a lot of wood to chop.” Benchmarks in Taiwan, South Korea and Australia also fell, with the latter extending declines after government data showed that Australian hiring almost stalled in September. Japan’s gauges slid even as the yen weakened past the closely-watched 150 per dollar. Indexes in Indonesia and Malaysia defied the broader gloom to gain more than 1%. The Hang Seng Tech index has now tumbled more than 70% from its Jan 2021 high. China’s possible cut in quarantine period for inbound travelers is a small step in the right direction but a lot more is needed to lift investor sentiment dented by the country’s Covid Zero policy.  US futures pared losses after the Bloomberg report on the news. The offshore yuan briefly gained as much as 0.5% to 7.2353 against the dollar. According to Amir Anvarzadeh, a strategist at Asymmetric Advisors: “A cut to quarantine rules for inbound travelers will not be enough for the Chinese market to rebound” Japanese stocks slid as investors refocused on the impact of higher US interest rates and a looming global recession after a two-day rally. The Topix fell 0.5% to close at 1,895.41, while the Nikkei declined 0.9% to 27,006.96. Hoya Corp. contributed the most to the Topix decline, decreasing 3.5%. Out of 2,166 stocks in the index, 596 rose and 1,454 fell, while 116 were unchanged. Australian stocks declined with global growth fears in focus; the S&P/ASX 200 index fell 1% to 6,730.70, in step with most markets in Asia and on Wall Street amid worries of a global slowdown. Miners contributed the most to the gauge’s retreat as investors weighed quarterly production reports. They also assessed jobs data that suggest the RBA will continue to slow the pace of interest rate increases. In New Zealand, the S&P/NZX 50 index fell 0.8% to 10,832.03. Key Indian stock gauges gained for a fifth straight day, their longest run of advances in two months, before a key festival next week and as robust corporate earnings boost investor sentiment. The S&P BSE Sensex gained 0.2% to 59,202.90 in Mumbai, while the NSE Nifty 50 Index advanced 0.3%. The indexes overcame decline of as much as 0.5% as weekly derivative contracts expired Thursday. The key benchmarks have risen more than 2% this week and were trading near their highest level since Sept. 21. Twelve of 19 sector sub-gauges compiled by BSE Ltd. advanced, led by oil & gas companies while consumer durables were the worst performers. For the week, information technology stocks are the best performers, helped by stronger-than-expected earnings. Out of 11 Nifty 50 companies, which have so far reported earnings, eight have either met or exceeded average estimates, while three have trailed. Asian Paints’ quarterly results trailed estimates, dragged by weaker revenue growth and rising costs, while Bajaj Finance’s numbers matched consensus In rates, 10-year TSY yields trade near session lows at around 4.12%, richer by 1bp on the day after earlier rising 5bps to 4.17% while German 10-year yield rises 5.5bps to 2.43%. Treasuries pared losses in the early US session, rising with gilts which stretch to fresh session highs and outperform on the day as Bank of England Deputy Governor Ben Broadbent says UK rates may not rise as much as markets foresee. Gilts outperformed by 4bp while bunds lag Treasuries by 2bp; belly outperformance tightens 2s5s30s fly by 4bp on the day. Dollar issuance slate empty so far and expected to be light; Wednesday saw three borrowers price $6.5b. Three-month dollar Libor +4.70bp at 4.32457% In FX, the Bloomberg Dollar Spot Index hovered as the greenback traded mixed against its Group-of-10 peers, though most pairs consolidated recent moves. Treasury yields rose by as much as 2bps, led by the short end. The euro erased a modest loss to near $0.98. Bunds fell for a third session as traders continued to digest Wednesday’s unexpected German Finance Agency decision to increase its own securities holdings for repo purposes, with schatz swap spreads narrowing for a sixth day, the longest streak since December UK bonds pared an earlier loss and traders cut bets on BOE tightening after Deputy Governor Ben Broadbent said it’s not clear that UK interest rates need to rise as much as the market expects. The pound fell below $1.12 as Liz Truss’s premiership looks close to imploding after she fired one minister over a security breach and two others were heard resigning amid the fallout from a chaotic parliamentary vote before agreeing to stay in their posts The yen fluctuated in a tight range, and briefly rose above 150 per dollar. Japanese Finance Minister Shunichi Suzuki said excessive and sudden moves in the foreign exchange market triggered by speculation can’t be tolerated. Japan’s benchmark yield climbed above the central bank’s policy ceiling and monetary authorities announced unscheduled bond purchases to rein it back in. Demand for long gamma in dollar-yen gains traction as spot breaches the psychologically-key 150 level Australia’s dollar slid as much as 0.7% amid a weak jobs print, before reversing following a report that Chinese officials were debating whether to shorten quarantine for inbound travelers. Bonds fell. Australia’s employment rose by just 923 people in September, below the forecast of 25,000, government data showed In commodities, WTI and Brent December contracts are firmer intraday with the former around USD 86/bbl (84.49-86.27 range) whilst the latter resides around USD 93.50/bbl (91.95-93.92 range). The crude complex is buoyed by the pullback in the Dollar after receiving a boost from source reports that China is considering easing its COVID rules for travellers. Spot gold sees some support from the DXY remaining under 113.00, although remains well off recent highs, with the yellow metal still around the USD 1,630/oz mark (vs yesterday’s 1,654.50/oz high). LME metals are mixed but 3M copper receives a boost from the Buck alongside the aforementioned China source reports, but the red metal remains under USD 7,500/t. Overall, Bitcoin is contained and essentially unchanged on the session around USD 19.1k with specific updates relatively limited and participants focused on broader market action. To the day ahead now, and data releases from the US include the weekly initial jobless claims and existing home sales for September, whilst in Germany there’s the PPI reading for September. Central bank speakers include the Fed’s Harker, Jefferson, Cook and Bowman, the ECB’s de Cos and BoE Deputy Governor Broadbent. Earnings releases include Danaher, Philip Morris International, Union Pacific, AT&T and Blackstone. Finally, EU leaders will gather for a summit in Brussels. Market Snapshot S&P 500 futures down 0.5% to 3,690.25 MXAP down 0.8% to 136.26 MXAPJ down 0.9% to 440.36 Nikkei down 0.9% to 27,006.96 Topix down 0.5% to 1,895.41 Hang Seng Index down 1.4% to 16,280.22 Shanghai Composite down 0.3% to 3,035.05 Sensex down 0.3% to 58,948.91 Australia S&P/ASX 200 down 1.0% to 6,730.73 Kospi down 0.9% to 2,218.09 STOXX Europe 600 down 0.5% to 395.57 German 10Y yield up 3% to 2.45% Euro little changed at $0.9777 Brent Futures up 0.9% to $93.26/bbl Gold spot little changed at $1,630.01 U.S. Dollar Index down -0.1% at 112.86 Top Overnight News from Bloomberg Giorgia Meloni, the right-wing leader poised to form a new Italian government, said she’d give up on the fledgling coalition if her allies can’t commit to supporting Ukraine along with Italy’s European Union and NATO partners France’s Economy & Finance minister Bruno Le Maire targets inflation of 4% by the end of 2023, AFP reports, stressing these are “objectives, not forecasts” Turkey’s central bank is poised to take another step toward cutting interest rates into single digits this year, a gamble masterminded by President Recep Tayyip Erdogan to power economic growth ahead of elections next June German Chancellor Olaf Scholz warned that a proposal to introduce a European Union-wide cap on gas prices could backfire as the region seeks to offset a drastic supply cut from Russia. A more detailed look at global markets courtesy of Newquawk Asia-Pacific stocks were pressured following the weak handover from Wall Street owing to the higher yield environment and as global inflationary headwinds offset the recent earnings momentum. ASX 200 was led lower by the underperformance in tech and following disappointing jobs data, although the energy sector bucked the trend after gains in oil prices and strong quarterly output updates from Woodside Energy and Santos. Nikkei 225 briefly fell beneath 27,000 with participants on intervention watch, while stronger-than-expected Exports and Imports failed to spur risk appetite as the data also contributed to a record trade deficit for the fiscal first half. Hang Seng and Shanghai Comp. declined from the open with the former on course for its lowest close since 2009 amid heavy losses in tech and with the mainland also downbeat after the lack of surprises from the PBoC which maintained its benchmark lending rates unchanged as widely expected, although news of China mulling shortening its quarantine eventually lifted the Shanghai Comp into the green. Top Asian News PBoC 1-Year Loan Prime Rate (Oct) 3.65% vs. Exp. 3.65% (Prev. 3.65%); 5-Year Loan Prime Rate (Oct) 4.30% vs. Exp. 4.30% (Prev. 4.30%) China reportedly held emergency talks with chip firms after US curbs, according to Bloomberg. China is reportedly mulling cutting inbound quarantine to 7 days from 10 days which will be presented to the top leaders, according to Bloomberg. Indonesian 7-Day Reverse Repo (Oct) 4.75% vs. Exp. 4.75% (Prev. 3.75%); will intervene in FX to prevent imported inflation. Japanese Finance Minister Suzuki provides no comment on FX levels; cannot tolerate speculative moves; will take action against any speculative, excessive and sudden moves, via Reuters. Japanese currency diplomat Kanda says excessive and disorderly FX moves have a negative impact on the economy, will not comment on whether Japan is intervening now or has intervened today European cash bourses trade mixed with the breadth of the market narrow (Euro Stoxx 50 -0.2%; Stoxx 600 -0.4%). Sectors in Europe are mostly negative with no overarching theme – Energy and Banks outperform amid price action in underlying crude and yields respectively. Meanwhile, Telecom names sit at the bottom of the pile as Ericsson (-14%) and Nokia (-5.3%) slide following red flags on margins. US equity futures are softer across the board but to varying degrees, with the NQ (-0.9%) lagging the ES (-0.5%) and RTY (-0.4%), with Tesla carrying a larger weight in the NDX (circa. 4.0%) than the SPX (circa. 1.8%). Tesla Inc (TSLA) - Q3 2022 (USD): Adj. EPS 1.05 (exp. 1.00), Revenue 21.45bln (exp. 21.96bln). Q3 FCF USD 3.30bln (exp. 2.89bln). Q3 Automotive gross margin +27.9% (exp. +28.4%). Tesla sees initial phase of semi deliveries begin in December 2022. Tesla still sees 50% avg. annual growth in vehicle deliveries. Raw material cost inflation impacted quarterly profitability along with ramp inefficiencies from Gigafactory Berlin-Brandenburg, Gigafactory Texas, 4680 cell production. Battery supply constraints will be main limiting factor. CEO Musk said looking forward to a record-breaking Q4 and the Co. is gaining rapid traction in 4680 cell production. -5.0% in the pre-market Top European News BoE's Broadbent says the MPC is likely to respond relatively promptly to news about fiscal policy. Remains to be seen if rates need to rise as much as currently priced in by markets, via BoE. The justification for tighter policy is clear. If government support mitigates the effect of import costs, there is more at the margin for monetary policy to do. If Bank Rate really were to reach 5.25%, the cumulative impact on GDP of the entire hiking cycle would be just under 5% - of which only around one quarter has already come through UK Tory 1922 Committee officers are expected to meet on Thursday to discuss the leadership crisis in the Tory party, according to The Telegraph's Editor. However, recent reporting indicates the Committee will not be meeting today. UK PM Truss's office noted that the Tory party's chief whip and deputy chief whip remain in their posts. ITV's Peston, citing a member of UK Cabinet, that it is clear there is a will among ministers to attempt to keep PM Truss in office until October 31st (when the budget will be announced). A view that contrasts the recent update from ITV's Brand, citing a 1922 member, that the “odds are against” PM Truss surviving the day as PM FX Pound precarious as pressure continues to build against UK PM Truss and BoE's Broadbent infers that market expectations on rates may be too hawkish, Cable pivots 1.1200 Yen slips under 150.00 mark vs Dollar as yields continue to rally, but rebounds amidst further Japanese verbal, if not actual intervention Franc remains on the backfoot due to as a funding currency, but Euro gleans traction from data and EGB/UST spread convergence, USD/CHF straddles 1.0050 and EUR/USD bounces ahead of 0.9750 to reclaim 10 and 21 DMAs Aussie labours after payrolls miss consensus by some distance and before recovery in tandem with Yuan on reports that China may relax some Covid rules for inbound travellers, AUD/USD eyes 0.6300 from sub-0.6250 and USD/CNH off peaks near 7.2800 Riksbank's Ingves, to Swedish parliament, says easing mortgage repayment rules would be inappropriate. RBI is continuing spot USD sales and receiving December forwards, according to traders cited by Reuters. Fixed Income Debt remains depressed though notably off worst levels after dovish remarks from BoE's Broadbent lifted Gilts to the mid-98.00 region. In turn, both USTs and Bunds have climbed off lows of 109.19+ and 134.86 respectively, though still post downside of circa. 3 and 50 ticks respectively. The complex looks to US data and Fed speak while BTPs await updates out of Italy as potential PM Meloni is set to begin constructing her cabinet, with particular focus on the Berlusconi's Foreign Minister nominee. Commodities WTI and Brent December contracts are firmer intraday with the former around USD 86/bbl (84.49-86.27 range) whilst the latter resides around USD 93.50/bbl (91.95-93.92 range). The crude complex is buoyed by the pullback in the Dollar after receiving a boost from source reports that China is considering easing its COVID rules for travellers. Spot gold sees some support from the DXY remaining under 113.00, although remains well off recent highs, with the yellow metal still around the USD 1,630/oz mark (vs yesterday’s 1,654.50/oz high). LME metals are mixed but 3M copper receives a boost from the Buck alongside the aforementioned China source reports, but the red metal remains under USD 7,500/t. MMG's (1208 HK) Las Bambas copper mine in Peru reportedly halted copper transportation due to protests. German Energy Regulator says potential gas emergency is now end of February at the earliest, rather than end of November which was part of the scenario analysis in the August forecast, via Reuters. Geopolitical Russia's Deputy UN envoy said Russia would reassess cooperation with the UN Secretariat if the UN chief sends experts to Ukraine to inspect downed drones and is not optimistic about the renewal of the Ukraine grain Black Sea export deal, according to Reuters. US State Department said the US, UK and France raised the issue of Iran's transfer of drones to Russia at a meeting of the UN Security Council on Wednesday, according to Reuters. US Treasury senior official travelled to Turkey this week and discussed sanctions and export controls imposed on Russia, according to Reuters. US and South Korea are conducting military drills at their fastest pace in years to show their readiness as tensions rise on the divided Korean Peninsula, according to Nikkei Asia Review. EU states have agreed on new sanctions against Iran regarding the supply of drones to Russia, according to the Czech EU presidency; to freeze assets of three individuals and one entity responsible for the drone sale. US Event Calendar 08:30: Oct. Initial Jobless Claims, est. 232,000, prior 228,000 08:30: Oct. Continuing Claims, est. 1.38m, prior 1.37m 08:30: Oct. Philadelphia Fed Business Outl, est. -5.0, prior -9.9 10:00: Sept. Existing Home Sales MoM, est. -2.1%, prior -0.4% 10:00: Sept. Home Resales with Condos, est. 4.7m, prior 4.8m 10:00: Sept. Leading Index, est. -0.3%, prior -0.3% Central Bank Speakers 12:00: Fed’s Harker Discusses the Economic Outlook 13:30: Fed’s Jefferson Makes Opening Remarks at Careers Event 13:45: Fed’s Cook Speaks on Panel at Careers Event 14:05: Fed’s Bowman Has Opening Remarks at Community Development... DB's Jim Reid concludes the overnight wrap It's half-term and unfortunately I can't completely escape my responsibilities. Tomorrow I'm off to Center Parcs for the first time for a few days. It's fair to say I'm the least excited of the five of us going. All tips on how to survive the experience welcome. I'll be broadcasting the EMR live from there on Monday morning whilst on holiday as my co-authors are both off with Tim getting married. So many congratulations to him. Since I started the EMR nearly 16 years ago I think 9 of my co-authors have got married while working on it, 10 including me. It's a publication that breeds stability and wholesome values. All are still going strong as far as I'm aware! The honeymoon rally of the last few days petered out yesterday, with Treasury yields hitting multi-year highs as investors turned their focus back to central banks and how fast they’ll hike rates. All the big central banks are deciding policy over the next couple of weeks, so it’s not surprising that’s happening, but sentiment wasn’t helped either by further inflation surprises from the UK and Canada for September, which echoed what we’d already seen from the US last week. and added to the sense that the hiking cycle will be extended. After the close, we then heard from Tesla who missed revenue estimates, sending their shares -7% lower in after hours trading. Supply chain issues continued to beleaguer the company, particularly around batteries. Nevertheless, they still forecast strong growth and Elon Musk said a meaningful share buyback was likely. For whatever it’s worth on the macro side, Musk also believes commodity prices will continue to fall. Meanwhile, in overnight trading, futures tied to the S&P 500 (-0.3%) and NASDAQ 100 (-0.6%) are pointing to further losses. However these losses have halved as I type, possibly on breaking news on Bloomberg that China is considering cutting quarantine for arrivals from abroad from 10 to 7 days. I'd imagine there are hopes the zero covid policy is loosening a bit. Back to bonds and treasury yields rose to new highs for this cycle across the yield curve, with the 10yr yield up +12.7bps at 4.13%. This morning in Asia, they are another +1.25bps higher trading at a fresh 14-yr high of just under 4.15% as I type. This comes as investors move to expect an increasingly aggressive tightening cycle from the Fed over the months ahead, with the rate priced in for the December meeting up a further +3.2bps to 4.51%. It's gone just above the previous high for this cycle of 4.52% overnight. Furthermore, the peak rate for this hiking cycle priced in for May went up by +8.6bps to 4.97%. This morning in Asia it's gone above 5% for the first time in this cycle. We heard from a few Fed officials yesterday, including Presidents Bullard, Evans, and Kashkari. President Bullard noted the Fed could yet still bring forward tightening into 2022. If policy got tight enough, he noted that 2023’s inflation profile could look better. A point often cited by those expecting a rapid improvement in inflation is the composition of certain rent measures the Fed follows presents a lagged reading, and therefore inflation is not currently as bad as they expect. Bullard directly addressed that point in his remarks and that unsurprisingly, the Fed is aware of such methodological shortcomings and takes them into account when evaluating the stance of policy. President Kashkari spoke along similar lines, noting the Fed still needed tighter policy but could wind up pausing tightening come next year. Evans struck the same tone, expressing hope that the September dot plot would prove the optimal amount of tightening, so a much slower pace of tightening next year. Regardless of the above, we still have more than 75bps priced for November at 78.1bps. As we await their next decision in just under a couple of weeks from now, there was further evidence yesterday that the Fed’s hikes were filtering their way through to the real economy, with data from the mortgage Bankers Association showing the contract rate on a 30yr fixed mortgage hit 6.94% in the week ending October 14. That’s the highest it’s been since 2002, and came as their gauge of applications to purchase or refinance a home fell a further -4.5% to its lowest level since 1997, which echoes the decline in other housing indicators we’ve seen recently. US housing starts for September were also down more than expected, hitting an annualised rate of 1.439m (vs. 1.461m expected), with the previous month’s number also revised down by -9k. On the other hand, building permits rose to an annualised rate of 1.564m (vs. 1.530m expected). For equities it was also a rough session, with the S&P 500 coming down -0.67% after having gained +3.82% over the two days at the start of the week. Netflix (+13.09%) was the top performer in the index following its earnings release the previous day, but otherwise it was a broad-based decline that saw over 76% of the index move lower. The Nasdaq underperformed, falling -0.85%, and that was before Tesla’s earnings miss after the close. The major indices lost ground in Europe too, with the Stoxx 600 (-0.53%) bringing an end to its run of 4 consecutive gains. Back in Europe, sovereign bonds also lost ground across much of the continent as we approach the ECB’s decision next week. Yields on 10yr bunds were up +9.0bps to a post-2011 high of 2.37%, which followed comments by Slovenian central bank governor Vasle that the ECB should hike by 75bps at the next two meetings in October and December. Here in the UK, gilts outperformed other European sovereign bonds for a third day running, with markets remaining calm as they looked forward to the government’s fiscal announcement on October 31. That outperformance was particularly noticeable among long-dated gilts, with yields on 30yr gilts down -31.9bps after the BoE’s announcement the previous evening that their Q4 gilt sales as part of quantitative tightening would only involve short- and medium-maturity gilts, rather than long-dated ones. To be fair though, gilts rallied right across the curve, and that came in spite of the latest UK inflation data for September, which showed CPI rising to +10.1% (vs. +10.0% expected), so back up to its level in July. In addition, core inflation continued to accelerate, hitting a 30-year high of +6.5% in September (vs. +6.4% expected). Whilst UK markets were more subdued yesterday, there was fresh turmoil on the political front as Home Secretary Suella Braverman left the government after what was reported as a security breach. In Braverman’s resignation letter, the strong implication was that Truss herself should go, saying that “The business of government relies upon people accepting responsibility for their mistakes. Pretending we haven’t made mistakes, carrying on as if everyone can’t see that we have made them, and hoping that things will magically come right is not serious politics.” A chaotic parliamentary vote late in the session won't make life any easier for PM Truss in the short-term. Back on inflation, there wasn’t much respite elsewhere, as Canadian inflation similarly surprised on the upside with a +6.9% reading in September (vs. +6.7% expected). That prompted investors to ratchet up their expectations of future rate hikes from the Bank of Canada, with another 75bp move at their meeting next week now fully priced in. That said, there was some marginally better news from the Euro Area on inflation, as the final CPI release for September was revised down a tenth to +9.9%, having come in at +10.0% on the earlier flash reading. But although that revision takes it out of double-digit territory, it’s worth noting that’s still the fastest inflation since the single currency’s formation. Asian equity markets are tumbling this morning with the Hang Seng (-2.36%) leading losses, after briefly sliding -3.0% in early trade, its lowest intraday level since 2009 due to a selloff in Chinese listed tech shares. Elsewhere the KOSPI (-1.47%) and the Nikkei (-1.11%) are also deep in the red. Mainland China’s Shanghai Composite (-0.39%) and the CSI (-0.80%) are also falling. Early morning data showed that exports in Japan advanced +28.9% y/y (v/s +26.6% expected), increasing for the 19th consecutive month in September and compared to the prior month’s +22.0% rise. This was on the back of strong demand for autos and mineral fuels. At the same time, imports surged +45.9% y/y (v/s +44.9% expected) and against a +49.9% gain in the previous month. Staying on Japan, yields on 10yr JGBs again briefly moved beyond the BoJ's upper limit of 0.25%, prompting the central bank to announce unscheduled bond buying for the first time this month to bring it back within its target range. Adding to the challenge for policy makers, the Japanese yen continues to press towards the 150 level, as it reached yet another fresh 32-yr low of 149.96 against the US dollar, thus increasing the possibility for further government intervention to support the battered currency. Separately, the People’s Bank of China (PBOC) left its benchmark lending rates unchanged for a second month, keeping the 1-yr loan prime rate at 3.65% and the 5-yr rate at 4.3%. To the day ahead now, and data releases from the US include the weekly initial jobless claims and existing home sales for September, whilst in Germany there’s the PPI reading for September. Central bank speakers include the Fed’s Harker, Jefferson, Cook and Bowman, the ECB’s de Cos and BoE Deputy Governor Broadbent. Earnings releases include Danaher, Philip Morris International, Union Pacific, AT&T and Blackstone. Finally, EU leaders will gather for a summit in Brussels. Tyler Durden Thu, 10/20/2022 - 07:49.....»»

Category: dealsSource: nytOct 20th, 2022

Markets Are Failing To Grasp The Painful Fact That There Is No Quick Resolution To The Energy Crisis

Markets Are Failing To Grasp The Painful Fact That There Is No Quick Resolution To The Energy Crisis By Michael Every of Rabobank Post-liberal liberalism and post-Marx Marxism Yesterday saw a three-way global ideological split on how to deal with our energy crisis: hair shirt; unwind markets; and eat-the-seed-corn. None will solve the short- to medium-term problem, much as financial markets are failing to grasp that painful fact. The UK, after removing energy price support for households from April, may also remove the pensions lock to inflation (as CPI hit 10.1% again today); so old people will be doubly unable to afford their heating bills, bringing us ‘demand destruction’; and PM Truss or Tory Party destruction. The BOE said it would continue with QT. Markets hated the idea. The European Commission dodged an immediate cap on gas prices due to EU splits, but will ask members’ approval for a temporary "maximum dynamic price" on benchmark TTF Dutch gas as a "last-resort" – with the caveat that this cannot boost demand. Which, by implication must also mean matching rationing. Goodbye free markets and economies. That’s as Qatar warns it sees global LNG shortages until 2025, which Bloomberg helpfully recounts come on top of similar heads ups from: the IEA; Germany; Uniper; Woodside; Morgan Stanley; Chevron; ICIS; Rystad; the International Group of LNG Importers; and our own Joe DeLaura. US President Biden is going to release another 15m barrels of oil from the Strategic Petroleum Reserve, which has as much to do with the mid-term elections and bad Democrat polling as Hunter Biden did with a laptop. The administration also claims this action should be a signal for the domestic energy industry to ramp up output, despite it implying the opposite. Meanwhile, the same diverse ideologies to try to solve structural problems, and markets head-in-sand approaches, are also evident on the global stage. Yesterday, Branko Milanovic published ‘Let’s go back to mercantilism and trade blocs!’, which has been the underlying warning/prophecy here since 2016. He agrees: “There are two reasons why the West should abandon globalization. The first is that it was not good, economically, for its middle classes… Second, geopolitically, globalization helped the rise of China which is already now, but will be even more so in the future, the main military and political competitor of the US…. The idea was, to the great but undeclared chagrin, of the American liberals first raised by Donald Trump. Now the liberals, in this respect like in several others, are happy to follow in Trump’s footsteps.” However, this raises a problem: “How to explain this volte-face to the rest of the world. The Western narrative has, since 1945, been built precisely on the opposite view… Now, the West that was the principal ideological champion of free trade has soured on it because it no longer works in its favour… We are now told that we need to go back to the drawing board. But we are not allowed to call these reversals by their real names. Their real name is trade blocs.” And these aren’t new, having previously been called: “UK imperial preferences, Japan’s co-prosperity zone, Grosse Deutschland’s Central European area, Soviet Council for Mutual Economic Assistance. They also responded to geopolitical interests of the countries that introduced them. For some 80 years they were held to have been ideologically retrograde, part of “beggar-they-neighbour” quasi autarkic policies. Now, we are to believe that  “friend-shoring” is somehow different. It is not. It just mercantilism under a new name and trade blocs in a different costume”. Milanovic is not alone in these thoughts. Even the UK’s right-wing conservative Daily Telegraph’s @NJ_Timothy tweeted at length yesterday: “The real problems with the British economy are about poor productivity, regional disparities and an unsustainable trade deficit. We need a new approach based on active government, long-term investment, economic rebalancing, skills and training, and domestic production. We’re not as rich as we think we are. Inflation is a brutal correction. Pay stagnation tells its story. So do the trade deficit and the state of the public finances. We have become addicted to super low interest rates and QE. Personal debt stands at 133% of household income. Our economic model is dependent on consumption, but too many are too poor to consume without credit. We have run down manufacturing and built a services economy that makes a small number of people rich while creating lots of low-productivity, low-skill, low-paid jobs. So we have fewer productive and well-paid jobs, and fewer such jobs outside the south-east of England. Even more important, our unbalanced economy means fewer exports and a huge trade deficit, which creates a series of perverse outcomes. To protect Sterling Britain needs foreign capital. Companies and assets like utilities and housing are sold off, risking a vicious cycle. Good young firms are sold before they can grow. Utilities profiteer without investing. R&D spend is kept low. Asset prices are propped up. We need economic growth through a rebalanced economy. Everything – from education to immigration, fiscal and monetary policy to energy, industrial strategy, the regulation of labour markets and supply of housing – must be directed at achieving that objective. We’ll need to smash shibboleths. Ever freer trade may not work as conventional wisdom assumes. Aggregate demand matters. Intervention works. The supply-side reforms we need most – like retraining programmes and infrastructure and R&D spend – cost money… Without a radical change in our economic model, there can be no levelling up, no great improvements in productivity or pay, and no improvements in inequality and fairness. This is the only way to build a better society in which everyone can contribute.” He’s not wrong either: and his solution smells like mercantilism rather than Thatcherism – though I presume the UK, and West, will try to retain as much liberalism as it can. Of course, there are those who cheer the austerity the UK is about to introduce, despite it showing its fiscal pendulum swinging from extreme stupidity to opposite extreme stupidity without pausing anywhere sensible in the middle of the spectrum. Perhaps they should note that just as US Secretary of State Blinken warned this week --without evidence-- that China has accelerated its timetable for action on Taiwan, China is reportedly trying to poach ex-RAF fighter-jet and helicopter pilots to teach the PLA how to evade UK defences for £240,000 a head - the inflation-adjusted cost of 30 pieces of silver, as some put it. Less romantically, Mike Bird of The Economist notes this is the price of a drab 1-bedroom flat an hour’s commute from London. The West used to be able to coax Soviet experts to defect when the very best the USSR could ever give them was that kind of paltry reward: now we can’t even offer that to our own non-financial elite. Worse, the government is about to slash state spending, which could see a further slew of highly-trained soldiers willing to work for those who can pay their mortgage and gas-bills. If you take a mercenary approach to running the state, is it any surprise its citizens take the same mercenary approach back? Oops, I am actually describing the bedrock view of neoliberal economics - that individual selfishness produces the best of all socio-economic outcomes, and free trade always rules: yet that ideology was hypocritically fleshed out on the fat back of British mercantilism(!) At the same time, the Asia Nikkei notes of the 20th CPP congress in Beijing, ‘Xi's speech hints at ambition to surpass Mao: Chinese leader suggests direct ideological descent from Marx’. The congress rewrote its section on ideology into "A New Frontier in Adapting Marxism to the Chinese Context and the Needs of the Times," and Xi was referenced as a "Marxist politician, thinker, and strategist." As importantly, the SCMP reports ‘China’s ideology tsar Wang Huning tipped to head the National People’s Congress’. For Wall Streeters who only know the name of Li Keqiang, Wang is a brilliant, and brilliantly ideological, intellectual. He sees Western liberalism as failed experiment leading to social, cultural, and economic collapse, and looks to Confucius, Plato, and Schmitt --the source of Nazi jurisprudence-- as support for his views that society always comes before the individual. He is, as the SCMP puts it, the “brains behind the throne”, and the architect of the ‘Chinese dream’ concept. The NPC chairman is normally headed by the CCP’s number 2 or 3, and so holds enormous power; the NPC itself is the final interpretation authority of Hong Kong’s Basic Law. As academic analysis puts it: “As one of China’s leading “neo-authoritarian” establishment intellectuals during the late 1980s, Wang constructed a China-specific version of modernization theory inspired by American political scientist Samuel P. Huntington… Wang is therefore one in a long line of thinkers who have identified modernization as a process in permanent tension with the shared belief systems that bind human communities together. Viewed from the perspective of political order, modernization is desirable only insofar it can be counterbalanced with the creation of new value systems whose functional role is to keep institutions strong and societies governable. Strong states are culturally unified states. For an establishment intellectual in the context of CCP-ruled China, this means preserving and centralizing Party authority; renovating and expanding faith in Party socialism; and recalibrating globalization to make the international system more conducive to Party survival.” If you were waiting for some kind of Pavlovian “now buy all of the things!” signal from the 20th congress, this was not it. By contrast, even if markets are too ignorant to see it --something the deeply-insightful Wang would have predicted to be the case-- his promotion would underline how ideological the world is becoming. Bloomberg tried to chip in timidly yesterday that ‘China’s Shock GDP Delay Shows Communist Party Trumps Economy.’ That was a very, very small step in the right (or rather Left) analytical direction. Post-Marx Marxism, which is mercantilist, is here to stay as a bulwark against Western liberalism. That will accelerate Western liberals shifting to post-liberalism and mercantilism as a response.    At this stage I am supposed to tell you what goes up and what goes down, “because markets”. This should be obvious really. *All* markets will be mightily shaken up in that scenario. However, to spell it out in short, such a process: Is both inflationary and deflationary. It’s inflationary in the West, and means rates are going to rise further and then not go down by much. It’s deflationary for China. Or it’s even more inflationary for both China and the West, depending on Beijing’s policy response. Disrupts the real economy, with losers --and winners-- by geography and sector. All that is solid melts into air. Then again, could we see greater market volatility than we already have this year? Could we see more solidity melt than we already have? I’m not sure. That only underlines how far down this ideological path we have already come, even as most of our politicians, and much of the market, clings to denialism.   Tyler Durden Wed, 10/19/2022 - 11:05.....»»

Category: blogSource: zerohedgeOct 19th, 2022

A Europe with zero Russian gas flows is unimaginable as Asian competition for supplies heats up, Qatar"s energy minister says

Saad al-Kaabi told the Financial Times warned that Europe's energy crisis could last until 2025, unless Moscow resumes its cut-off flows of gas to the region. Europe is still negotiating natural gas deals with Qatar.Hoëgh LNG Qatar's energy minister told the FT he can't envisage a future with zero Russian gas flows to Europe.  Its energy supply problem could last until 2025 if Russian deliveries don't return, Saad al-Kaabi said. European importers are in "huge competition" with Asian buyers for Qatari gas, he said. Qatar's energy minister has said he can't picture a future with zero Russian natural-gas flows to Europe, as there isn't enough volume to replace the missing deliveries in the long term. Saad al-Kaabi told the Financial Times warned that Europe's energy crisis could last until 2025, unless Moscow resumes its cut-off flows of gas to the region.He also said European importers are in "huge competition" with Asian buyers for exports from Qatar, one of the world's leading exporters of liquefied natural gas, as they all hunt for alternative supply.Al-Kaabi, who is head of state-run QatarEnergy, noted that European countries have enough gas for power and heating this winter, as storage is at full capacity. But he warned that a severe winter next year would make the energy crisis much worse, if the Ukraine war rages on and Moscow keeps the gas taps turned off."It's really replenishing the reserves, or the storage, for next year that's going to be the issue," Kaabi said. "So . . . next year and the following year, even up to 2025, are going to be the issue."Russia has slashed its gas exports to Europe in retaliation to Western sanctions imposed over the Ukraine war. State energy giant recently Gazprom threatened to cut more supplies to Europe if Western price caps on Russian gas and oil are imposed.  The Qatari energy minister said he couldn't envisage a future with zero flows of Russian gas to Europe."If that's the case, then I think the problem is going to be huge and for a very long time," he said."You just don't have enough volume to bring [in] to replace that gas for the long term, unless you're saying 'I'm going to be building huge nuclear [plants], I'm going to allow coal, I'm going to burn fuel oils'."Bernstein Research estimates European countries need to find 112 million tons of gas — equal to nearly one-third of the entire global LNG market — to replace Russian gas, the FT reported. In the face of Russia's energy moves, European buyers have scrambled to secure alternative sources of supply from the likes of Qatar and the United Arab Emirates. German utilities RWE and Uniper are nearing agreements on long-term deals to buy LNG from Qatar.Qatar has regularly been the world's leading LNG exporter. However, the US claimed the title for the first half of 2022 as it stepped up exports to Europe.According to Kaabi, Europe's rush to secure long-term supplies of natural gas has put the region in "huge competition" with Asian importers."Because of this pull of Europe wanting additional gas . . . the Asian buyers are looking at the same thing and saying 'hold on, we need to be able to secure our future development needs,'" he said.Qatar is talking to almost every customer in Asia, who are extremely serious about nailing down deals, he added.Just this week, China stopped sales of LNG to Europe to make sure its own households have enough gas supply for the colder months. Qatar along with the US stands as one of the world's major LNG exporters. In July however, the US claimed the title as the "world's largest LNG exporter" during the first half of 2022.Natural gas prices have soared this year after Russia cut flows to Europe, with Dutch TTF futures hitting highs above 346 euros ($339) per megawatt hour in August. Prices have since fallen as Europe's gas storage rapidly fills up. At last check Wednesday, European natural gas prices were up 3.33% at 117 euros ($114) per megawatt hour.  Read the original article on Business Insider.....»»

Category: topSource: businessinsiderOct 19th, 2022

Futures Rip Higher Amid Reports Of Truss Mini Budget "U-Turn" As CPI Looms

Futures Rip Higher Amid Reports Of Truss Mini Budget "U-Turn" As CPI Looms US equity futures traded heavy for much of the overnight session ahead of the much-anticipated (and gloomy, having hammered stocks on 7 of 9 CPI days so far in 2022) inflation data at 830am ET (full preview here), even as gilt yields suspiciously slumped overnight as if someone was aware of some non-public news, before futures ripped sharply higher around 730am ET when first SkyNews... Downing Street denying any changes to mini budget but I'm told by sources discusssions underway over which bits might yet be junked give the scale of the concern Looking at a return to the mandate from the leadership contest No clarity on timing of announcement if it happens — Sam Coates Sky (@SamCoatesSky) October 13, 2022 ... and then Bloomberg reported that UK's officials were likely to blink first in their showdown with the Bank of England (which recall is set to end its temporary bond buying tomorrow) and were discussing how they can back down from Prime Minister Liz Truss’s plans for a massive unfunded package of tax cuts. And while the officials are drafting options for Truss but no final decision has been taken and they are waiting for Chancellor of the Exchequer Kwasi Kwarteng to return to London from Washington, where he has been attending meetings of the International Monetary Fund, the person said, asking not to be identified commenting on private discussions.  Meanwhile, UK long-end bonds surge as the end of the BOE’s bond purchases intervention approaches. And despite conflicting reports from other reporters such as the Guardian's political editor Pippa Crerar reporting that "No 10 rules out further changes to the mini-budget despite pressure from Tory MPs saying "the position has not changed""... No 10 rules out further changes to the mini-budget despite pressure from Tory MPs saying "the position has not changed" but rumours flying around Westminster about a possible U-turn. Timing very unclear. — Pippa Crerar (@PippaCrerar) October 13, 2022 ... the confusion was enough to spark some serious short covering across the risk complex which pushed futures more than 1% higher... ... because, as we noted earlier today, hedge fund positioning ahead of the CPI report is the lowest in 5 years! The S&P index tumbled to its lowest since November 2020 yesterday, as concerns mounted about the impact of hawkish Fed policy, especially on rate-sensitive sectors such as semiconductors. Europe’s Stoxx 600 gauge steadied, while on currency markets, the dollar slumped as cable surged on hopes that Truss would U-turn and the BOE would go back to doing QT. Among notable moves in premarket trading, US-listed Macau casino stocks fell amid concerns around the impact from China’s Covid Zero strategy, after the Communist Party’s People’s Daily newspaper ran a series of commentaries this week touting the benefits of the policy. Comcast Corp. and Altice USA Inc. rose after Citigroup Inc. analysts upgraded the cable company stocks given their ability to generate annual cash flow. Here are other notable premarket movers: American Express (AXP US) declines 0.9% in US premarket trading, as Citi downgraded the stock along with shares of SLM Corp. (SLM US) and Velocity Financial (VEL US) amid likely “rather large” EPS impact even from mild US recession as credit losses build. Applied Materials (AMAT US) falls as much as 1.3% in premarket trading after the chip- equipment maker slashed its earnings forecast as the semiconductor industry reacts to the Biden administration’s new restrictions on doing business with China. Chip stocks are in focus after Applied Materials cut its forecast. Taiwan Semiconductor Manufacturing Co., meanwhile, lowered its capital spending target while setting its 4Q gross-margin target above expectations. Watch KLA (KLAC US), Lam Research (LRCX US), Qualcomm (QCOM US), Nvidia (NVDA US), AMD (AMD US) US-listed Macau casino stocks fall in premarket trading amid concerns around the impact from China’s Covid Zero strategy, after the Communist Party’s People’s Daily newspaper ran a series of commentaries this week touting the benefits of the policy. Wynn Resorts (WYNN US) -2.2%, Las Vegas Sands (LVS US) -1.4%, MGM Resorts (MGM US) -2.2% Keep an eye on Owens & Minor (OMI US) stock as it was downgraded to neutral at Citi following the medical and surgical supplier’s “disappointing” third-quarter results on Wednesday. Analyst Daniel Grosslight said Wednesday’s 35% selloff seemed “punitive,” but was not “wholly unwarranted.” QuidelOrtho (QDEL US) jumped 9% in extended trading on Wednesday after the health-care services company reported better-than-expected preliminary revenue for the third quarter, thanks to higher Covid-19 testing revenue. Away from the US rollercoaster, the September reading of the consumer price index, due at 8:30 a.m. today, is expected to decelerate to an 8.1% annual pace amid a decline in gasoline prices. However, the so-called core figure, which excludes food and energy, is projected to have returned to a four-decade high. With investors already worried that underlying strength in the economy will prompt the Fed to keep aggressively raising rates, strategists have warned that hotter-than-expected inflation data could firm up bets of another large rate hike next month and fuel further stock-market declines. The index is already down about 25% so far this year and is in a bear market. “I don’t think it’s quite time to buy the dip right now,” Oliver Kettlewell, head of fixed income and global portfolios at Mashreq Capital, said on Bloomberg TV. “You need to see data bottoming first and I don’t think the Fed will pivot anytime soon. There is more weakness in the stock markets to come. I don’t think it will fall 40-50%, but it certainly looks like it will get weaker from here.” The third-quarter company earnings season also kicks off tomorrow and the key question for investors is whether profit margins remained resilient amid surging costs. Although analysts have downgraded estimates in recent weeks, some strategists have warned that the cuts don’t yet reflect the bleaker outlook for economic growth. In Europe, travel, energy and banks are the strongest performing sectors. Euro Stoxx 50 rises 0.4%. FTSE MIB outperforms peers, adding 1%, FTSE 100 lags, adding 0.2%. Here are the biggest movers: Norsk Hydro shares gain as much as 8% after people familiar with the matter said the Biden administration is considering a ban on Russian aluminum supplies. Entain rises as much as 4.5% following its third-quarter trading update, with some analysts highlighting rising market share in the US and benefits from upcoming sporting events such as the FIFA World Cup. UK domestic stocks gain as government bonds bounce back and the pound rises. British assets have been volatile as the Friday deadline for Bank of England’s emergency bond-buying program looms. Lloyds rises as much as 3.7% while Barclays gained as much as 1.8%. Zotefoams shares surge as much as 30% after the polyethylene foam manufacturer said it expects earnings to be significantly ahead of market expectations. Peel Hunt said positive trends in key end markets makes them confident in the near term and future. ASML shares fall as much as 3.2% after peer Applied Materials slashed its 4Q sales forecast, citing new US export control rules. Meanwhile, top customer TSMC reduced its 2022 capex target by about 10% amid a collapse in global chip demand. Shares of Banca Monte dei Paschi drop as much as 20%, to a record low, after the Italian lender set the terms of its rights offer at a discount to the theoretical ex-rights price. Aroundtown falls as much as 7.9% after Citi downgrades the stock to neutral and opens a negative catalyst watch on the real estate company as it prepares “for the worst.” Earlier in the session, Asian equities fell for the fifth straight session as caution prevailed ahead of key US inflation data due later Thursday. The MSCI Asia Pacific Index slid as much as 1%, with consumer discretionary and communication services shares falling the most. Chinese tech shares plunged for a sixth day, the longest streak in almost a year, dragging down Hong Kong’s benchmark. Stocks in Japan and South Korea were also down. Chinese shares lost momentum amid a pick-up in Covid cases, after staging a strong intraday rebound in the previous session. Investors also monitored developments ahead of the upcoming Communist Party congress, which may introduce further policies to shore up growth. A hot US consumer price index reading may spur another outsized interest-rate hike by the Federal Reserve at its next meeting. Minutes released Wednesday from the last meeting suggested some officials considered reducing the pace of rate hikes, but overall market sentiment remains jittery. Fed Officials Commit to Restrictive Rates But Calibration Needed The main MSCI Asian stock gauge is trading around its lowest level since April 2020, having fallen almost 30% this year.  The region’s stocks are “pricing in low expectations and limited investor appetite, after significant earnings and price underperformance as an asset class over the last decade,” said Sundeep Bihani, a portfolio manager at Eastspring Investments. But “a rising rate cycle, delayed Covid-19 re-opening versus the West and cash-rich balance sheets provide a good pathway to grow out of this underperformance,” he added. Japanese stocks fell for a fourth day, dragged by telecoms and services providers, ahead of anxiously awaited US inflation data due later Thursday. The Topix fell 0.8% to close at 1,854.61, while the Nikkei declined 0.6% to 26,237.42. Daikin Industries Ltd. contributed the most to the Topix decline, decreasing 2.9%. Out of 2,167 stocks in the index, 381 rose and 1,725 fell, while 61 were unchanged. Australian stocks, meanwhile, were steady ahead of the CPI report. The S&P/ASX 200 index closed 0.1% lower at 6,642.60 ahead of the US inflation data due later Thursday. Gains in financial shares were partly offset by losses in miners as gold price retreated. Qantas Airways was the best performer after the airline returned to profit following a streak of five consecutive half-yearly losses. Nib dropped after announcing a share placement. In New Zealand, the S&P/NZX 50 index fell 0.5% to 10,817.48. In FX, Bloomberg dollar spot index falls 0.1%. CHF and JPY are the weakest performers in G-10 FX, NOK and GBP outperform. Pound reclaims $1.11. In rates, treasuries were mixed after erasing declines, with 10-year note futures near Wednesday’s high ahead of the key CPI data at 8:30am New York time. US yields in belly of curve are richer by 1bp-2bp, steepening 5s30s spread; 10-year erased a 3.7bp increase, is near flat at 3.89% with gilts in the sector richer by 18bp. Sharp bull-flattening in gilts drove earlier price action; 30-year UK yields fall some 29bps to 4.53% while 10-year declines 20bps to 4.22%. Bunds 10-year yield -3.7bps to 2.27% and USTs 10-year yield is little changed.  After CPI, focal point of US session is 30-year bond auction at 1pm. This week’s Treasury auction cycle concludes with $18b 30-year bond reopening; its 3- and 10-year note sales tailed. In commodities, WTI trades within Wednesday’s range at near $87.33. Like OPEC, the IEA Monthly Oil Market Report lowered 2022 oil demand growth outlook by 60k BPD to 1.9mln BPD, 2023 cut by 470k BPD to 1.7mln BPD. World oil demand will contract by 340k BPD Y/Y in Q4.  Spot gold gains traction as the Dollar declines ahead of US CPI, with the yellow metal back above its 21 DMA (1,672.50/oz). Base metals are firmer across the board amid the Dollar’s recent decline alongside the gains across stocks, with 3M copper back above USD 7,500/t, whilst LME aluminium outperforms. Bitcoin tumbled again, sliding to $18,760 while ethereum dropped to a session low of $1,260. To the day ahead now, and the main data highlight will be the US CPI release for September. Otherwise from central banks, we’ll hear from the ECB’s Nagel and the BoE’s Mann. Market Snapshot S&P 500 futures up 0.5% to 3,605.25 STOXX Europe 600 down 0.3% to 384.73 MXAP down 1.0% to 136.16 MXAPJ down 1.1% to 440.03 Nikkei down 0.6% to 26,237.42 Topix down 0.8% to 1,854.61 Hang Seng Index down 1.9% to 16,389.11 Shanghai Composite down 0.3% to 3,016.36 Sensex down 0.7% to 57,242.19 Australia S&P/ASX 200 little changed at 6,642.61 Kospi down 1.8% to 2,162.87 German 10Y yield little changed at 2.31% Euro little changed at $0.9705 Brent Futures up 1.0% to $93.35/bbl Gold spot up 0.0% to $1,673.32 U.S. Dollar Index little changed at 113.28 Top Overnight News from Bloomberg Chancellor of the Exchequer Kwasi Kwarteng said the Bank of England will be responsible if UK markets suffer renewed volatility after its bond-buying program ends on Friday UK pension funds are dumping assets to meet margin calls as the BOE confirmed it will end emergency bond buying, and the reverberations are being felt everywhere from Sydney to Frankfurt and New York Sweden’s inflation rate reached a three- decade high last month, driven by electricity prices and the weakness of the country’s currency, keeping alive bets that the central bank could opt for faster rate hikes than its current path suggests Yen traders are readying for another volatile session Thursday with the release of key US inflation figures -- data which sent the Japanese currency tumbling 2% in a matter of minutes last month on its path toward intervention A Chinese developer with state backing for domestic funding has defaulted on a convertible bond and warned it may face a similar fate on offshore debt, fueling concern about Beijing’s ability to contain a broader property debt crisis European natural gas jumped as worries over major facilities in Norway added to supply risks from Russia. Benchmark futures rose as much as 9.2%, after earlier swinging between gains and losses. Norway’s Nyhamna gas project is being evacuated, Dagens Naeringsliv reported A more detailed global summary of global markets courtesy of Newsquawk European bourses saw a choppy start to the session but have since been trending higher despite a lack of fresh fundamental drivers. Sectors are now mostly firmer, although tech remains the laggard after TSMC cut its capex guidance and flagged a decline in overall chip industry next year. Stateside, futures have been moving in tandem with their European counterparts, whilst the tech-laden NQ lags vs its peers. Top European News ECB's Wunsch said it is better to start QT sooner than later, via a pre-recorded CNBC interview. EDF Working Council said in the event of a normal or very cold winter, EDF will be forced to take some users off the electricity grid; capacities will not suffice. Goldman Analyst Sees UK Property Prices Falling 20% on Rate Rise NATO Countries Back German Plan for European Anti-Missile Shield Monte Paschi Sets Terms on Rights Offer as Banks Back Deal Asia stocks traded cautiously following the soft handover from Wall Street where markets ended the session marginally lower after hot PPI data and mixed FOMC Minutes which spurred a short-lived dovish reaction. ASX 200 was kept afloat by outperformance in its top-weighted financials sector and as earnings optimism provided a tailwind with Qantas shares flying high on expectations for a return to profit for the current 6-month period. Nikkei 225 was lacklustre following recent currency weakness and firm PPI data which climbed to a 5-month high. KOSPI underperformed after North Korean leader Kim guided a test firing of long-range strategic cruise missiles which hit a target 2,000km away and are capable of carrying nuclear weapons. Hang Seng and Shanghai Comp. were both subdued as China continued to advocate the strict zero-COVID approach with a Foreign Ministry spokesperson noting that China needs COVID security to achieve economic growth, although downside in the mainland was contained amid support for the property industry with China local governments to purchase houses as stimulus to help developers. Top Asian News China Semiconductor Industry Association said it opposes the US Commerce Department's export control regulations and hopes the US government can correct wrong practices in a timely manner, while it was separately reported that TSMC (2330 TT) received a 1-year US licence for China chip expansion. TSMC (2330 TT/TSM) Q3 2022 (TWD): Net profit 280.9bln (exp. 265.64bln), Gross margin 60.4% (exp. 58.9%), and said the Co. faces challenges from rising inflationary costs in 2023; 2022 Capex seen around USD 36bln (vs prev. guidance of USD 40-44bln); sees Q4 business around flat; not considering share buyback Samsung (005930 KS) has been granted a 1yr exemption from new US restrictions that block exports of advanced chips and related equipment to China, according to WSJ sources. Chinese Health Official said China will continue to strengthen COVID prevention and control, will resolutely guard against large-scale outbreaks, Reuters. Chinese local governments are to purchase houses as stimulus to support developers, according to China Securities Times. Japanese Finance Minister Suzuki said excess FX volatility and disorderly moves can hurt the economy and financial stability, while he told the G20 that Japan is deeply worried about recent sharp FX volatility and explained that recent intervention was prompted by excess moves by speculators. Furthermore, Suzuki said they cannot tolerate excess FX moves by speculators and will take decisive action on speculative FX moves in which they are focused on FX volatility rather than the yen level regarding intervention, according to Reuters. FX DXY declined under 113.00 ahead of the US CPI metric, although likely as a function of GBP strength throughout the European morning. EUR benefits from the pullback in the Buck, with EUR/USD back above 0.9700. Antipodeans are also faring well alongside the improved risk tone across markets. USD/CNH tested 7.2000 to the upside, whilst China continues with its zero-COVID policy ahead of the CCP National Congress. Fixed Income US Treasuries are still observing some caution before potentially key CPI data, but EU bonds are flying just a day after diving to new cycle lows. UK debt is leading the mainstream recovery whilst there is chat in UK markets about another possible fiscal U-turn and/or the BoE relenting on buy-backs to offer further assistance beyond tomorrow, albeit all speculation at this stage. Commodities WTI and Brent front-month futures are modestly firmer intraday but off best levels after settling lower yesterday. IEA Monthly Oil Market Report: lowers 2022 oil demand growth outlook by 60k BPD to 1.9mln BPD, 2023 cut by 470k BPD to 1.7mln BPD. World oil demand will contract by 340k BPD Y/Y in Q4. Spot gold gains traction as the Dollar declines ahead of US CPI, with the yellow metal back above its 21 DMA (1,672.50/oz). Base metals are firmer across the board amid the Dollar’s recent decline alongside the gains across stocks, with 3M copper back above USD 7,500/t, whilst LME aluminium outperforms Geopolitics Sites in Ukraine's capital of Kyiv were targeted by shelling early today, according to the administration in Kyiv cited by Sky News Arabia. Furthermore, Ukrainian President Zelensky's office later said that a critical infrastructure facility was hit by drone strikes in the Kyiv region, according to Reuters. Ukraine President Zelenskiy said cannot have diplomacy with Russia today and cannot respect leaders who are killing and not respecting international law. Saudi Arabia fully rejected statements criticising the kingdom after the OPEC+ output cut decision, while it said that statements critical of the kingdom are not based on facts and set the OPEC+ decision outside its economic context. US officials are concerned the Russian oil price cap will fail as a result of the OPEC+ cut, according to Bloomberg. North Korean leader Kim guided a test firing of long-range strategic cruise missiles which hit a target 2,000km away and are capable of carrying nuclear weapons, while North Korean leader Kim said focus should be on developing nuclear forces, according to Yonhap and KCNA. North Korea reportedly cancelled a meeting with the EU diplomatic service, while the reason was unclear but followed two recent statements from Brussels that may have impacted DPRK decision-making, according to NK News citing sources. Japan's Defence Minister said North Korea has likely achieved the capability of mounting a nuclear warhead on a ballistic missile that could reach Japan, according to Reuters. US FCC is set to ban all US sales of new Huawei and ZTE equipment as well as some sales of video surveillance equipment from three other Chinese firms amid national security concerns, according to Axios citing sources. US Event Calendar 08:30: Sept. CPI MoM, est. 0.2%, prior 0.1% CPI YoY, est. 8.1%, prior 8.3% CPI Ex Food and Energy MoM, est. 0.4%, prior 0.6% CPI Ex Food and Energy YoY, est. 6.5%, prior 6.3% 08:30: Oct. Initial Jobless Claims, est. 225,000, prior 219,000 Continuing Claims, est. 1.37m, prior 1.36m DB's Jim Reid concludes the overnight wrap There’s been little relief for investors over the last 24 hours, with the major asset classes fluctuating between gains and losses as markets were left with plenty of global developments to digest. For much of the day it had looked as though we might see equities begin to stabilise, but ultimately the S&P 500 (-0.33%) nose-dived into the close to decline for a 6th consecutive session and hit its lowest level since November 2020. For reference, if we get a 7th consecutive decline, that would be the worst run for the index since February 2020 as fears about the global spread of Covid-19 ramped up. Whether that happens could largely hinge on today’s all-important CPI print from the US, which is the last big piece of data the Fed will get ahead of their next decision in just under 3 weeks’ time. Bear in mind it was only last month that the stronger-than-expected reading on core CPI sparked a big re-evaluation about when the Fed would slow down their rate hikes, with futures pricing out the chances they’d adjust to 50bp hikes in November in favour of a continued 75bps pace. In turn, that triggered the biggest one-day decline in the S&P 500 since June 2020, with a -4.32% move, so investors will be keenly attuned for any fresh surprises today. Ahead of that release, we got an advance look yesterday at US inflation pressures last month from the PPI reading. That showed the monthly headline measure coming in above expectations at +0.4% (vs. +0.2% expected), which also meant that the year-on-year measure only fell back to +8.5% (vs. +8.4% expected). The core measure excluding food and energy was more in line with expectations however, coming in at +0.3%, with the year-on-year core reading at +7.2% (vs. +7.3% expected). In terms of what our US economists are expecting for today, they think that the headline CPI print will come in at +0.28% (vs. +0.12% in August) as energy continues to drag on the main print. However, they see core CPI which excludes energy and food prices coming in at a stronger +0.44% (vs. +0.57% in September), and it’s that reading which should get the most focus given last month’s upside surprise. In turn, those numbers should push the year-on-year CPI down to +8.1%, while core CPI should pick up to +6.5%. As we look forward to the CPI print later, there are some initial signs of markets recovering their poise, with the VIX index of volatility (-0.06pts) ticking lower for the first time in a week. That coincided with continued falls in US equities, as mentioned, with the S&P 500 down -0.33% and the NASDAQ a hair lower at -0.09%, although futures today are pointing modestly higher, with contracts on the S&P 500 (+0.16%) and the NASDAQ 100 (+0.11%) both advancing. One factor supporting the amidst the broader uncertainty was some positive corporate news as we head into earnings season, with PepsiCo (+4.18%) being one of the top performers in the S&P after they increased their profit and sales outlook for the rest of the year. That said, the European indices were much less positive, with the STOXX 600 (-0.53%) losing ground for a 6th consecutive session, and European equity futures are pointing towards further losses again today. Those equity losses yesterday came as we got the minutes from the recent September FOMC meeting, which reflected the growing debate on the Committee about the risks to over- or under-doing the tightening cycle. Several participants highlighting the need to maintain a restrictive stance as long as necessary and the danger of prematurely easing policy, while several participants observed risks would become more two-sided as policy moved into restrictive territory. There was also continued debate about the form of labour market softening that would be required to help return inflation to target; would unemployment go up or job openings go down? This debate isn’t new in Fed commentary, but the emphasis placed on both camps drove Treasury yields a bit lower following the release. In terms of yesterday’s comments, President Kashkari said earlier in the session that the bar for a monetary policy pivot was “very high”. By the end of the day, 2yr Treasury yields had fallen -1.5bps, 10yr yields retreated -5.1bps, while pricing for the November FOMC was almost unchanged at +73.9bps. Overnight, 10yr yields (+2.5bps) have seen another move higher, trading at 3.92% as we go to press. Back here in the UK, there was still plenty going on yesterday, with the main development being that a BoE spokesperson reiterated Governor Bailey’s comments from Tuesday evening that their intervention in the gilts market would come to an end tomorrow as planned. The spokesperson said that “temporary and targeted purchases of gilts will end on 14 October” and that this “has been made absolutely clear in contact with the banks at senior levels.” That message also pushed back against what the FT had reported in the small hours of yesterday, where they said that the BoE had privately signalled they could extend the intervention past Friday’s deadline. Against this backdrop, UK assets remained volatile, with the 30yr gilt yield (+2.3bps) rising above 5% at one point for the first time since the BoE’s intervention began, before paring back nearly all those gains to close at 4.80%. In fact, the 30yr was actually one of the few maturities to see yields rise on the day, with 2yr gilt yields down -20.3bps, and 10yr gilt yields down -0.4bps. However, there were other signs that investors were still nervous, with implied sterling-dollar volatility over the next month moving higher once again to the levels seen right after the mini-budget announcement in late September. Interestingly, there was also a warning from the Conservative chair of the Treasury Select Committee, Mel Stride, who tweeted about the government’s tax cuts that “Credibility might now be swinging towards evidence of a clear change in tack rather than just coming up with other measures that try to square the fiscal circle.” In the meantime, we heard from BoE Chief Economist Pill too, who pointed towards further rate hikes in saying that “I am still inclined to believe that a significant monetary policy response will be required to the significant macro and market news of the past few weeks.” Elsewhere in Europe, sovereign bonds had followed a similar pattern to gilts, with sharp rises early in the session to fresh multi-year highs before those gains were then pared back significantly. For instance, yields on 10yr bunds had exceeded the 2.40% mark at one stage, before only closing up +1.4bps at 2.30%, whilst yields on 10yr OATs (+3.0bps) and BTPs (+6.2bps) echoed that movement. Those moves came as we heard from ECB policymakers, including President Lagarde who confirmed that discussions on QT had started. There were also comments from others on the Governing Council, including Austria’s Holzmann (one of the biggest hawks) who said that markets were “spot on” about the ECB’s plans, and that a 100bp hike was “beyond what we would need to signal to the market that we are serious. The Netherlands’ Knot separately said that policy rates were “still way below neutral” and that “at least two more significant hikes” were needed before the ECB got back into “the range of plausible estimates for neutral”. Staying on Europe, our colleagues in corporate credit research have separately published a report analysing risk-free hedges in place (link here), and start to quantify the impact on leverage loan and HY issuers. The report may be sector-biased, but the thought process has broader market implications worth considering. This morning in Asia, the major equity markets have followed the moves lower in the US and Europe ahead of that US inflation print later on. Currently, the Kospi (-1.14%) is the biggest underperformer, although the Hang Seng (-1.00%), the Nikkei (-0.48%) and the CSI (-0.29%) have also lost ground. The main exception is the Shanghai Composite (+0.16%), which has made modest gains. Those moves have occurred amidst further weakness for the Japanese yen, which has remained above the 146 level this morning against the dollar, having hit a post-1998 low yesterday of 146.97 per US Dollar. That follows comments from BoJ Governor Kuroda, who promised to keep monetary easing in place, contrasting with the other central banks. Separately, data this morning showed that producer prices had risen more than expected in September, coming in at +9.7% year-on-year (vs. +8.9% expected). Looking at yesterday’s other data, UK monthly GDP unexpectedly contracted in August with a -0.3% decline (vs. unch expected), and July’s growth was revised down to +0.1% (vs. +0.2% previously). Elsewhere, Euro Area industrial production grew by +1.5% in August (vs. +0.7% expected). To the day ahead now, and the main data highlight will be the US CPI release for September. Otherwise from central banks, we’ll hear from the ECB’s Nagel and the BoE’s Mann. Tyler Durden Thu, 10/13/2022 - 08:04.....»»

Category: personnelSource: nytOct 13th, 2022

A Russian oil price cap will backfire on the global economy and the plan likely influenced OPEC"s production cut, Indonesian finance minister says

The planned price cap on Russian oil likely influenced OPEC's decision to slash production by 2 million barrels a day, Indonesia's finance minister said. Indonesia, which is a net importer of petroleum, is one country that would likely be affected by the price cap and has avoided pledging its support.Nick Oxford/Reuters A price cap on Russian oil could backfire on the global economy, Indonesia's finance minister warned. If a price cap is met with retaliation from Russia, it could result in oil prices being pushed higher. The move could also set a precedent for other commodities, which would hurt some of Indonesia's exports. A price cap on Russian oil will backfire on the global economy, and the move likely influenced OPEC's recent decision to slash its production of oil, according to Indonesian finance minister Sri Mulyani Indrawati.The cap on Russian oil prices has been in the works by G7 nations and is set to roll out by the end of the year, with expected support from the European Union. The measure is intended to lower skyrocketing energy prices – but Russia has threatened to retaliate against a price cap, potentially slashing more supplies off the market and drive prices even higher. That could have serious consequences for the global economy, Indrawati warned, noting that the fallout from Russia's war in Ukraine was no longer limited to the battlefield."The war is no longer just a military war –  I think that's really changed the landscape of geopolitics, diplomacy and economic relations … What does it mean for the global economy?" she said in an interview with Bloomberg on Tuesday.Indonesia, which is a net importer of petroleum, is one country that would likely be affected by the price cap and has avoided pledging its support. China and India, who have become major customers of Russian oil, have also avoided getting on board, although a US Treasury official reported that talks with the two countries on the price cap have been "positive."Additionally, a price cap on Russian oil could inspire market intervention for other commodities, Indrawati noted. That could harm Indonesia as a major exporter of natural gas, coal, nickel, and palm oil – and its economy has been reliant on those exports as the strong US dollar hammers rival currencies and spurs volatility worldwide.She added that price cap plans likely influenced OPEC's recent decision to cut oil production by 2 million barrels a day, as officials she's spoken to in Saudi Arabia have expressed concern about the price cap setting a precedent."When the United States is imposing sanctions using economic instruments, that creates a precedent for everything … and that's going to create uncertainty – not only for Indonesia, for all other countries," Indrawati said. "The Saudi and OPEC response to this is because of exactly that." Read the original article on Business Insider.....»»

Category: topSource: businessinsiderOct 12th, 2022

Futures Bounce, Gilts Tumble In BOE-Driven Rollercoaster Session

Futures Bounce, Gilts Tumble In BOE-Driven Rollercoaster Session US stocks were set to bounce, ending a brutal five-day losing streak, amid confusion over what the BOE will do in two days, amid hope that tomorrow's CPI print will come in lower than expected, and as Treasury yields eased off multi-year highs - at least initially - and investors put aside concerns that overheating inflation could offer more fodder to hawkish Federal Reserve policy makers amid speculation that things are breaking in far too many markets after it emerged that the Fed had sent a substantial amount of dollars to Switzerland this week in the first material use of the dollar swap facility in 2022. Nasdaq futures gained 0.9% by 7:30 a.m. in New York while S&P 500 futures rose 0.7% a day after the benchmark index nearly erased its October gains, while UK bonds tumbled and the pound rose amid UK policy confusion. While global risk sentiment earlier received a boost from a report suggesting the Bank of England could extend its emergency bond repurchases, a bank spokesperson quashed that speculation and said the program would still end on Friday, leaving traders in the dark as to what will happen. Meanwhile, Treasury yields and the dollar were little changed as traders await a key US inflation measure due Thursday that’s set to return to a four-decade high, underscoring broad and elevated price pressures that are pushing the Federal Reserve toward yet another large interest-rate hike next month. US investors are also looking to corporate earnings for clues about Fed policy. Among notable moves in premarket trading, Uber Technologies edged back up after the previous session’s 10% slump that was driven by the Biden administration’s proposal on classifying gig workers’ employment status. Analysts said there was limited near-term risk, given implementation was “far from imminent.” Chip stocks were set to recoup some of this week’s losses stemming from fresh curbs on China’s access to US semiconductor technology. Norwegian Cruise Line Holdings also gained in premarket trading, after UBS raised its recommendation on the stock to buy, amid strong improvement in bookings. PepsiCo gained 1.9% in premarket trading after the company raised its forecast for the full year and said consumers continue to purchase more of its snack foods and soft drinks despite rising inflation. In the US, investors have been laser-focused on how the Fed might respond to inflation figures due Thursday. While economists expect the consumer price index reading for September to have declined slightly versus a year earlier, a surprise increase could send stocks tumbling, JPMorgan's trading desk warned. Given the Fed has so far shown little sign of toning down its hawkishness, even in the face of a potential economic recession and weaker company earnings, many analysts expect equity bounces to be short-lived. “In the back of everyone’s mind is tomorrow’s CPI print, with many investors worried that it may be as strong as the jobs report on Friday,” said Neil Campling, head of TMT research at Mirabaud Securities. “Bears are firmly in control and any rallies could be incapable of sustaining a bid for more than a few days.” “While futures positioning is now slightly less extreme, it is still a very bearish set up into what is seen as a binary market event tomorrow,” said Carl Dooley, head of EMEA trading at Cowen in London. That makes it “natural to see some bear covering, with the remaining bulls having another roll of the dice.” The big story overnight was the flip-flopping rollercoaster from the BOE: the yield on 30-year gilts rose above 5% for the first time since late September after the Bank of England confirmed its plan to end emergency bond purchases on Friday and a report showed the UK economy shrank unexpectedly in August. Sterling rallied more than 1% after a report from Politico that the government may make further fiscal U-turns. “The Bank of England is a test case for how hawkish central banks can be without doing damage to financial stability,” said Michael Metcalfe, global head of macro strategy at State Street Global Markets. So far the "test" is failing miserably. In other news, Q3 earniungs season kicks off on Friday when several top Wall Street banks are set to report including JPMorgan, although analysts have already downgraded estimates for corporate America in recent weeks, a glum outlook by management teams could further pressure stocks. Lori Calvasina, head of US equity strategy at RBC Capital Markets, cut her year-end target for the S&P 500 Index to 3,800 from 4,200 citing a weak economic backdrop through the end of 2023. However, her new target implies a nearly 6% gain from Tuesday’s close. In European equities, consumer products, chemicals and food & beverages are the strongest-performing sectors. Euro Stoxx 50 rose 0.4% as Spain's IBEX lagged, dropping 0.5%  Credit Suisse drops as much as 5.0%, adding to a tumultuous month for the Swiss lender, after Bloomberg reported that the Justice Department is investigating whether it continued to help US clients hide assets from authorities. Here are other notable European movers: LVMH rises as much as 3.2% on stronger-than-expected organic revenue growth, signaling that the wealthy are still spending, and allaying fears of a China slowdown from Covid-19 curbs. Chr. Hansen climbs as much as 15%, the most since 2012, after the Danish enzymes and food cultures manufacturer reported better- than-expected 4Q results, including a wide topline beat, Jefferies says. Leonteq rallies as much as 7.8% after the company responded to a Financial Times report that had driven the stock lower in recent days. Bossard rises as much as 4.2% after nine- month sales beat estimates. UK domestic stocks underperform amid gilt market volatility following earlier speculation over the timing of an end to the Bank of England’s bond-buying program. Homebuilders, real estate, retail and domestic banks are among biggest decliners with Barclays falling as much as 5.3%. Philips slumps as much as 12%, hitting the lowest in more than a decade, after the Dutch medical technology company cut its outlook due to worse-than-expected supply-chain difficulties, prompting analysts to doubt its ability to meet 2022 targets. Kloeckner falls as much as 14%, the most intraday since May 2020, after the steel company revised its full-year guidance, which Jefferies said implies a 20%-25% reduction to consensus estimates. Earlier in the session, Asian equities were mixed after a three-day rout, as Chinese shares rebounded in a volatile trading session, while overall sentiment remained jittery ahead of the release of the US inflation report. The MSCI Asia Pacific Index erased an early-session loss of as much as 0.8% and traded down just 0.1% as of 5:02 p.m. in Hong Kong Wednesday, with financial shares lifting the broader market. Still, the benchmark hovered near a two-year low. Chinese stocks bounced back strongly in afternoon trading as bargain hunters piled into the nation’s battered shares, with the CSI 300 Index closing 1.5% higher, the most in two months. Investors were worried about the Covid-Zero policy and an economic slowdown despite an upbeat set of aggregate financing and loans data released on Tuesday. “With supportive valuations and better earnings outlook, downside may be limited from current levels,” said Vey-Sern Ling, an analyst at Union Bancaire Privee. Still, “China has too many outstanding issues currently that drag investor sentiment. Investors may not be willing to buy equities given the macro uncertainties.” Sentiment also remained fragile after Bank of England Governor Andrew Bailey said the bank would end emergency gilt purchases as planned this week, in the face of market pressure to expend the program.  US consumer price data due Thursday will be crucial in defining the size of the Federal Reserve’s interest-rate hike at the November meeting. Economists expect inflation to top 8% again.  “The tightening of US financial conditions, global and China growth slowdowns have sharply weighed on Asian equities this year,” said Rajat Agarwal, Asia equity strategist at Societe Generale SA. “Korea and Taiwan, the two semiconductor-driven markets have been the worst affected. A fading semiconductor cycle, geopolitical issues and more recently the semiconductor exports curbs have pushed the valuations to a more than five-year low on the two markets.” South Korean stocks erased losses to close higher after the central bank pivoted back to half-point interest-rate increases Japanese stocks closed a directionless day slightly lower, pushing losses to a third day, weighed down by electronics makers. The Topix fell 0.1% to close at 1,869.00, while the Nikkei was virtually unchanged at 26,396.83. Tokyo Electron Ltd. contributed the most to the Topix Index decline, decreasing 4.4%. Out of 2,168 stocks in the index, 908 rose and 1,151 fell, while 109 were unchanged. Australian stocks snapped a three day rout, led by financial stocks. The S&P/ASX 200 index edged higher to close at 6,647.50 after a three-day drubbing, with traders awaiting US inflation data due Thursday for further clues on Federal Reserve interest rate hikes. Financial stocks gained, led by Bank of Queensland, offsetting losses in mining and energy stocks. Coronado Global Resources was among the top gainers after the coal miner confirmed it’s in talks with Peabody Energy on a merger. In New Zealand, the S&P/NZX 50 index fell 0.8% to 10,873.23. Stocks in India gained for the first time in four sessions, helped by real estate and consumer goods companies that had seen sharp declines earlier this week. Investors will be monitoring India’s consumer inflation data for September to be released later Wednesday to gauge the outlook for local shares. Software exporter Wipro reported quarterly earnings below consensus estimates.  The S&P BSE Sensex rose 0.8% to 57,625.91 in Mumbai, while the NSE Nifty 50 Index was higher by an equal measure. All of BSE Ltd.’s 19 sector sub-indexes advanced. In FX, the Bloomberg Dollar Spot Index was little changed as the greenback traded mixed versus its Group-of-10 peers. the yen led G-10 losses and slipped to a fresh 24- year low of 146.43 per dollar as traders tested the resolve of Japanese authorities to intervene as key US inflation data may drive further weakness. The British pound led G-10 gains after volatile session. It earlier erased gains against the dollar while gilts extended a decline after the BOE confirmed that the bond-buying scheme will still end on Friday. Sterling had risen after the Financial Times reported that the BOE told lenders it was prepared to extend the program past Oct. 14 end date if market conditions demanded it. Bearish sentiment in the pound is the strongest in two weeks when it comes to short-term bets as hedging costs keep rallying. The euro was steady around $0.97 as Bunds and Italian bonds fell led by the long end of the curve. The Aussie inched lower. In rates, Treasuries are mixed with the curve steeper as US trading gets under way, led by dramatic steepening in UK bond market after Bank of England Governor Andrew Bailey late Tuesday said the central bank’s bond buying would end this week. Focal points of US session include September PPI and 10-year auction, following cool reception for Tuesday’s 3-year. US yields little changed at front end, the 10Y yield rises by 1bp to  3.95%, steepening 2s10s by ~1.5bp, 5s30s by ~2bp. US auction cycle continues with $32b 10- year note reopening at 1pm New York time, concludes Thursday with 30-year reopening. WI 10-year yield at around 3.96% is above auction stops since 2009 and ~63bp cheaper than last month’s result. UK gilts remain near worst levels of the session with 30-year yields cheaper by ~18bp on the day and UK 2s10s, 5s30s spreads steeper by 30bp and 15bp. Australia’s bonds gained for the first day in five after RBA Assistant Governor Luci Ellis said the central bank’s neutral interest rate is likely to be at least 2.5%, compared with the current cash-rate target of 2.6%. In commodities, WTI trades within Tuesday’s range, marginally falling to near $89.33. Polish pipeline operator said on Tuesday evening it detected a leak in the Druzhba pipeline; cause is unknown; leak detected in one of two lines, second line is working as normal. Russia's Transfneft said it has received notice from Polish operator PERN about the leak at Druzbha; oil pumping towards Poland continues, according to IFX. Polish top official for energy infrastructure said there are no grounds to believe leak in Druzhba pipeline was sabotage, adds leak was probably caused by accidental damage. Spot gold is modestly firmer as the upside for the Buck remains capped for now, but the yellow metal remains under its 21DMA (USD 1,673.34/oz). LME metals are mixed with copper relatively flat but aluminium is underperforming following a large build in LME warehouse stocks. To the day ahead now, and data releases include the US PPI reading for September, along with UK GDP and Euro Area industrial production for August. From central banks, we’ll get the FOMC minutes from the September meeting, and hear from the Fed’s Barr, Kashkari and Bowman, ECB President Lagarde, the ECB’s Knot and De Cos, as well as the BoE’s Pill, Haskel and Mann. Finally, earnings releases include PepsiCo. Market Snapshot S&P 500 futures up 0.5% to 3,617.00 MXAP little changed at 137.63 MXAPJ little changed at 444.71 Nikkei little changed at 26,396.83 Topix down 0.1% to 1,869.00 Hang Seng Index down 0.8% to 16,701.03 Shanghai Composite up 1.5% to 3,025.51 Sensex up 0.6% to 57,503.85 Australia S&P/ASX 200 little changed at 6,647.54 Kospi up 0.5% to 2,202.47 STOXX Europe 600 down 0.2% to 387.21 German 10Y yield little changed at 2.34% Euro up 0.1% to $0.9719 Brent Futures up 0.3% to $94.55/bbl Gold spot up 0.3% to $1,671.92 U.S. Dollar Index little changed at 113.12 Top Overnight News from Bloomberg Giorgia Meloni’s euphoria at winning the Italian election is running into reality as the far-right leader struggles to put together a coalition government and the gas-dependent country’s financial outlook darkens Bank of England Governor Andrew Bailey’s blunt warning that fund managers have to cut vulnerable positions before the central bank ends debt purchases is sending a shiver around already fragile global bond markets The UK economy shrank unexpectedly in August for the second time in three months, raising the possibility that the country is now in a recession. The 0.3% drop in output was driven by a sharp decline in manufacturing and a small contraction in services The Bank of England has warned that some UK households may face a strain over debt repayments that is as great as before the 2008 financial crisis, if economic conditions continue to be difficult Bank of England policy maker Jonathan Haskel said one of the key issues ailing the UK economy is lackluster levels of business innovation and productivity The European Union is moving closer to proposing a temporary overhaul of the electricity market by limiting prices of gas used for power generation even as pressure mounts for the bloc to impose a broader cap Germany’s biggest service-sector union is demanding 10.5% pay increases amounting to at least 500 euros ($486) a month for public-sector employees to avoid real losses amid record inflation A more detailed look at global markets courtesy of Newsquawk Asian stocks were subdued with price action indecisive as the region took its cue from the choppy performance and late selling stateside after BoE Governor Bailey rejected industry calls for an extension to Gilt purchases, although a report from FT overnight suggested the contrary. ASX 200 was rangebound with strength in the real estate and the top-weighted financials sector offsetting the losses in tech, utilities and mining-related stocks, while there were also comments from RBA’s  Assistant Governor Ellis who suggested nominal rates have already passed neutral and that policy was no longer expansionary. Nikkei 225 lacked conviction following the disappointing Machinery Orders data although the downside was contained with Japan reportedly to draw up economic measures before month-end. Hang Seng and Shanghai Comp. were the worst hit despite the jump in loans and financing data in China with markets constrained by lockdown concerns after China's Xi'an announced to suspend onsite classes for some students and shut other venues, while the Shenzhen Metro suspended three stations due to coronavirus. Top Asian News US permitted at least two non-Chinese chipmakers in China to receive goods and support that are restricted under new US export rules, according to industry sources. It was later reported that SK Hynix (000660 KS) received authorisation from the US Commerce Department to receive equipment for a chip production facility in China for a year without seeking a separate permit from the US, according to Reuters. China will be declared an official threat in a new strategic review of Britain's enemies, according to The Sun. RBA Assistant Governor Ellis said the neutral rate is a guide rail for policy not a destination and that the real neutral rate is uncertain but should be positive even if low which implies a nominal neutral rate of at least 2.5% for Australia, while Ellis added that policy is no longer in an expansionary place, according to Reuters. BoK hiked the base rate by 50bps to 3.00%, as expected and said inflation will remain high in the 5%-6% range for a considerable time. BoK Governor Rhee said board members Joo Sang-Yong and Shin Sung-Hwan dissented at Wednesday's rate decision, while he added that the board's views on the rate hike pace in November differ but added that a majority of board members see the BoK's terminal rate at 3.5%. European bourses saw a choppy start to the session, but have since titled to the upside as US traders prepare to enter the fray. Sectors are mixed with Consumer Products bolstered by luxury names after LVMH earnings, with Tech following whilst Banks and Real Estate lag. Stateside, US equity futures trade on a firmer footing with the ES back above 3600 as the index futures attempt to claw back some of the lost ground yesterday. Top European News It was reported that the BoE signalled to lenders that it is prepared to prolong bond purchases with officials privately indicating a flexible approach if market volatility flares up, according to FT. It was later reported that BoE affirmed that its bond-buying scheme will end on Friday 14th October, via Bloomberg. BoE said the bank has made it clear from the outset its temporary and targeted purchases of gilts will end on October 14th, and beyond Oct 14th, a number of facilities are in place to ease liquidity pressures on LDIs. Pensions and Lifetime Savings Association said the announcement by the BoE to purchase index-linked Gilts is a positive additional intervention, while it noted that the concern of pension funds has been that the period of purchasing should not be ended too soon, according to Reuters. UK's trade deal with India is reportedly on the verge of collapse after Indian ministers reacted "furiously" to comments by Home Secretary Braverman, according to The Times. There is growing speculation that UK PM Truss "could ditch yet more aspects of the mini-budget", according to Politico's Courea, adds "Think we’re looking at “deferring” tax cuts and maybe a further windfall tax”". However, Downing St source said that despite claims, there's no delay to April income tax cut, former Chancellor Sunak's corporation tax hike still is cancelled, according to a Sun reporter. ECB's Villeroy said fears of a recession must not derail ECB normalisation and that the current level of inflation requires ECB determination, while he also noted that a short recession is less detrimental than stagflation and said discussion about a 50bps or 75bps hike in October is premature amid volatile markets. Furthermore, Villeroy said the ECB may move more slowly after reaching a neutral rate and the APP unwind could begin earlier than 2024 with partial reinvestments. FX DXY is softer but off worst levels after testing levels close to 113.00 to the downside. GBP was volatile but currently stands as the outperformer following speculation over the Government ‘ditching’ or ‘deferring’ more of the tax cut proposals. The USD extended its bull run against the JPY to a fresh 2022 and multi-year best beyond prior Japanese intervention levels and 146.00, with little resistance from officials other than the usual verbal interjections Fixed Income Bunds slipped to a fresh intraday low on Eurex at 135.64 for an 81 tick loss on the day having been 9 ticks above par at one stage. Gilts remain 100+ ticks adrift within extremes spanning 90.90-92.81 vs yesterday’s 92.83 Liffe close. US Treasuries are holding steady before PPI data, 10 year note supply, FOMC minutes and further Fed rhetoric. Commodities WTI and Brent front-month futures are flat intraday but off the worst levels seen overnight. NHC said Tropical Storm Karl is expected to strengthen today as it moves slowly over the southwestern Gulf of Mexico. Polish pipeline operator said on Tuesday evening it detected a leak in the Druzhba pipeline; cause is unknown; leak detected in one of two lines, second line is working as normal. Russia's Transfneft said it has received notice from Polish operator PERN about the leak at Druzbha; oil pumping towards Poland continues, according to IFX. Polish top official for energy infrastructure said there are no grounds to believe leak in Druzhba pipeline was sabotage, adds leak was probably caused by accidental damage. Germany State of Brandenburg Economy Minister said there was a pressure drop in Druzhba's main pipeline No.2, according to dpa. Polish pipeline operator PERN said supply to German clients is continuing taking into account technical possibilities; Polish refineries are receiving oil in line with nominations. SGH Macro said the understanding in Beijing is that Saudi Crown Prince Mohammad bin Salman assured Russia’s President Vladimir Putin that OPEC+ will cooperate to ensure that global crude oil prices do not fall below USD 80/bbl at least until the end of the military conflict between Russia and Ukraine, even if there is a global economic crisis.". Spot gold is modestly firmer as the upside for the Buck remains capped for now, but the yellow metal remains under its 21DMA (USD 1,673.34/oz). LME metals are mixed with copper relatively flat but aluminium is underperforming following a large build in LME warehouse stocks. Geopolitics US President Biden told CNN that he doesn't think Russian President Putin will use a tactical nuclear weapon. US President Biden said the Saudis face consequences after the OPEC+ production cut, according to Bloomberg. Two delegations of US congressmen led by Republican Brad Wenstrup and Democrat Seth Moulton have arrived in Taiwan and will stay until Thursday, according to Sputnik. US Event Calendar 07:00: Oct. MBA Mortgage Applications -2.0%, prior -14.2% 08:30: Sept. PPI Final Demand MoM, est. 0.2%, prior -0.1% Sept. PPI Final Demand YoY, est. 8.4%, prior 8.7% Sept. PPI Ex Food, Energy, Trade MoM, est. 0.2%, prior 0.2% Sept. PPI Ex Food, Energy, Trade YoY, est. 5.6%, prior 5.6% Sept. PPI Ex Food and Energy YoY, est. 7.3%, prior 7.3% Sept. PPI Ex Food and Energy MoM, est. 0.3%, prior 0.4% 14:00: Sept. FOMC Meeting Minutes DB's Jim Reid concludes the overnight wrap Have we got 3 days to avert some kind of financial crisis here in the UK? That seemed to be the implicit message from the BoE governor Bailey last night in Washington in what were extraordinary comments that shook global markets after what was slowly turning into a pretty positive session up until the remarks less than 90 minutes before the US close. His exact words were “My message to the funds involved and all the firms is you’ve got three days left now…. You’ve got to get this done.” He was referring to the fact that the APF purchases are slated to end on Friday and that there won’t be any extension. Whether that’s the case or not the extra actions from BoE this week and the stern words from Bailey hint at some big issues still for UK pension funds which will scare the market. Bailey’s language was also a little scary elsewhere saying that he’d been up all night addressing UK market issues and that recent market volatility went beyond their bank stress tests. I suppose the problem with all of this is that if you want pension funds to sort all their issues out in the next three days, he may have made their job a lot harder with the explicit public comments as the market will be really concerned there's a bigger problem now than they thought beforehand. This is unlikely to help pension funds delever. So we could be in for some major volatility in UK assets for the next few days. The only caveat is that the FT reported at 5am this morning that the BoE have privately communicated to bankers that it would extend the emergency bond buying program if market conditions required it. The first reaction to Bailey's comments was felt in Sterling which fell -1.35% from the comments to the close (-0.79% on the day overall) landing at $1.097. Overnight it has rebounded (+0.54%) a bit as I type purely on the FT article I mentioned above. 10yr treasury yields spiked +6.6bps into the close after Bailey having been roughly unchanged immediately before the remarks (after volatile intraday moves) and global equities retreated after their own volatile session. Initially the S&P 500 fell -1.23% after the open, hitting intraday lows that were last matched in November 2020, immediately following Pfizer’s positive Covid trial results, before steadily rallying throughout the day to +0.76%, only to reverse course and nose dive into the close, finishing -0.65% lower following Bailey’s comments. The continued bout of volatility and warnings around broader financial stability saw the Vix index of volatility increase +1.2pts to 33.63pts, its highest levels since immediately before June’s financial conditions easing. Big tech stocks led the way down, with the NASDAQ falling -1.10% to hit its lowest level since July 2020. European stocks may have missed the intraday gyrations and the late US sell-off, but ended up much in the same place, with the STOXX 600 (-0.56%) down for a 5th consecutive session Back to the UK, earlier, the Bank of England announced they were widening the scope of their daily gilt purchases to include index-linked gilts as well. The move followed some astonishing increases in real yields on Monday, which were so big that they surpassed what we saw during the market turmoil following the mini-budget, with the 10yr index-linked gilt yield rising by an incredible +64.1bps. This widening in the BoE’s intervention is now occurring alongside their existing conventional gilt purchases. 10yr Gilts closed +1.0bps, while real 10yr yields fell back -5.6bps. Nevertheless, nominal 30yr yields increased +10.9bps to 4.78%, and that was before Bailey’s comments after the close. Elsewhere, today we start the shift back towards inflation with today’s PPI release from the US setting the stage for the all-important CPI reading tomorrow, with those prints having led to some of the biggest selloffs we’ve seen this year. There’s little doubt in markets that the Fed are going to go for another 75bps hike in 3 weeks’ time, particularly after last week’s jobs report, but there’s more uncertainty about the subsequent meetings, and any upside inflation surprises today and tomorrow could put any slowdown in rate hikes even further into the distance. Alternatively softer numbers could help encourage a big rally given bearish risk positioning. We won’t get the producer price reading until 13:30 London time, but ahead of that we did get the New York Fed’s latest Survey of Consumer Expectations for September, which showed a divergent picture on inflation expectations. At the one-year horizon, expectations fell back to 5.4%, which is their lowest in a year, and some further good news for the Fed. But the longer-term data was somewhat less positive, with three-year expectations ticking back up to 2.9% following three consecutive monthly declines, and five-year expectations advanced to 2.2% following four consecutive monthly declines. Clearly that could just be a blip, but well-anchored inflation expectations have regularly been cited as a reason for the Fed not moving even more aggressively, so any signs that expectations are going in the wrong direction again would raise the prospect of yet more tightening ahead. In the meantime, Fed officials continued to strike a hawkish note in their remarks yesterday, with Cleveland Fed President Mester saying that “the larger risks come from tightening too little and allowing very high inflation to persist and become embedded in the economy”. Recall, there’s been a brewing philosophical divergence on the Committee about the risks of over-tightening given the long and variable lags of monetary policy, which should gather more steam once we get through the last two FOMC meetings in 2022, so it was instructive to hear an official come down so starkly on the other side of the balance of risks debate. That backdrop saw futures price in a 75bps hike for November as more likely than at any point to date so far, with +73.8bps priced in by the close. Elsewhere among central bankers, we heard from ECB Chief Economist Lane as well yesterday, although he didn’t reveal much in the way of policy conclusions to draw from. One line was that he said “the ECB’s Governing Council is fully aware that further ground needs to be covered in the next several meetings to exit from the prevailing highly accommodative level of policy rates”. So a clear signal that more rate hikes are coming over the meetings ahead. Against that backdrop, sovereign bonds in Europe had oscillated between gains and losses throughout the day, in line with the volatility seen across global markets. But by the close yields had mostly fallen across the continent, with those on 10yr bunds (-4.1bps) and OATs (-3.0bps) both falling back. 10yr BTPs rose +4.2bps as some of the previous day's excitement over possible joint EU issuance to help with the energy crisis faded. Asian equity markets are sliding again this morning with the Hang Seng (-1.92%) leading losses followed by the Shanghai Composite (-1.22%) and the CSI (-1.19%) as the rising number of Covid-19 cases has prompted Beijing to impose fresh lockdowns and travel restrictions ahead of the 20th Party Congress. Elsewhere, the Nikkei (-0.14%) is slightly weaker with the Kospi (-0.16%) also moving lower as the Bank of Korea (BOK) raised interest rates by a half percentage point to 3%. The statement indicated that it sees upside risks to its August inflation projection for this year of 5.2%, which warrants additional rate hikes. Additionally, it warned of slower growth with the Korean economy expected to grow next year at a slower pace than the August forecast of 2.1%. Moving ahead, US stock futures are ticking higher with contracts on the S&P 500 (+0.43%) and the NASDAQ 100 (+0.52%) edging higher with US 10yrs -2bps overnight. In FX, the Japanese yen touched a new 24-yr low of 146.23 against the dollar. Elsewhere yesterday, the IMF released their latest round of economic projections as the IMF/World Bank annual meetings get underway. In terms of the headlines, they left their 2022 global growth forecast unchanged at +3.2%, but their 2023 forecast was downgraded to +2.7% (vs. +2.9% in July). Those reductions were particularly concentrated in the advanced economies, with Germany seeing one of the biggest downgrades as they’re now forecasting a -0.3% contraction for 2023 (vs. +0.8% in July). They also upgraded their global inflation forecasts, and are now projecting that world consumer prices will have risen by +8.8% in 2022 (vs. +8.3% in July) and +6.5% in 2023 (vs. +5.7% in July). Finally on the data front, the UK unemployment rate fell to 3.5% (vs. 3.6% expected) in the three months to August, which is its lowest level since 1974. In addition, the number of payrolled employees in September was up +69k (vs. +35k expected). To the day ahead now, and data releases include the US PPI reading for September, along with UK GDP and Euro Area industrial production for August. From central banks, we’ll get the FOMC minutes from the September meeting, and hear from the Fed’s Barr, Kashkari and Bowman, ECB President Lagarde, the ECB’s Knot and De Cos, as well as the BoE’s Pill, Haskel and Mann. Finally, earnings releases include PepsiCo. Tyler Durden Wed, 10/12/2022 - 08:03.....»»

Category: blogSource: zerohedgeOct 12th, 2022

Global Chip Rout Vaporizes Quarter Trillion In Value As Earnings Estimates Crater

Global Chip Rout Vaporizes Quarter Trillion In Value As Earnings Estimates Crater Global semiconductor stocks were monkey-hammered Tuesday in a worsening US-China tech war. The acceleration of the chip rout has wiped out a whopping $240 billion from the sector's global market value since Thursday, according to Bloomberg data. In total, Global semi stocks have lost over $1.7 trillion in market cap from their Dec 2021 highs... Taiwan Semiconductor Manufacturing Co., the world's largest chipmaker, plunged as much as 8.5% in Asia (a record), while Samsung Electronics and Tokyo Electron also extended declines.  The downward draft in global semis comes after the Biden administration slapped China last Friday with US export restrictions on certain types of chips used in artificial intelligence and supercomputing. Tighter rules were also enforced on US companies selling semiconductor equipment to Chinese firms.  "The changes represent a further escalation, and we do not know what China might do in response," wrote Stacy Rasgon, an analyst at Bernstein. "Potential retaliation remains a risk." Gabriel Wildau, an analyst at advisory firm Teneo Holdings, said the new restrictions might only suggest the Biden administration is buying some time to limit China's advancement of chips while allowing the US to catch up.  The new trade restrictions come as the chip industry grapples with a terrible start to the earning season as weaker PC demand and supply chain issues plague manufacturers' outlooks. AMD issued preliminary third-quarter results last week that warned about these issues.  In the US, chip stocks are on track for the third day of declines, with Advanced Micro Devices Inc., Nvidia Corp., Qualcomm Inc., and Texas Instruments Inc. down about 1%. The benchmark Philadelphia Semiconductor is down 42% this year and on track for the worst annual performance in 14 years as the PC and crypto booms turn to busts. Earnings estimates downgrades have also accelerated (one of the fastest declines since 2008) and will likely continue for the next few quarters.  SOX is priced around 13.3 times estimated earnings, nearing a low of 11.3 in 2018. Earnings could be slashed in the coming quarters as a glut of memory chips and graphics cards need to be offloaded at heavily discounted prices. Samsung, Micron, and AMD have all warned about excess inventory...  Christopher Danely, an analyst at Citigroup, had a pretty ominous view about semis, indicating, "this is just the beginning of the downturn and every company/every end market will feel it." October has been the worst month for global tech since October 2008.  "It is difficult to call a bottom on the performance of the chip sector," said Gary Dugan, chief executive officer of the Global CIO Office. Tyler Durden Tue, 10/11/2022 - 09:25.....»»

Category: worldSource: nytOct 11th, 2022

Futures Tumble, Briefly Drop Below 3,600, Despite Latest Panic Pivot By Bank of England

Futures Tumble, Briefly Drop Below 3,600, Despite Latest Panic Pivot By Bank of England Another day, another rout, only this time there was an even more ominous twist. It's shaping up as another risk off day on Wall Street, and around the world, as stocks fell... again... as usual... pressured by the relentless rout in the chip sector (following Friday's decision by the Biden administration to put fresh curbs on China’s access to US semiconductor technology) which sent chip giant Taiwan Semi conductor plunging 8.3%, its biggest drop on record, and wiped out $240 billion in market cap from the global semiconductor sector, while US futures extended their Monday slump amid general amid fears of persistently high inflation two days ahead of the CPI report, and signs that company earnings were set to disappoint. A gauge of the dollar climbed to the highest this month before reversing.  But the ominous twist today is that for the second time in two weeks, the BOE stepped in the market, this time boosting its "temporary" QE to add linker bonds to its usual array of gilt purchases to tackle what it called “fire-sale dynamics.”  While this helped lift gilts and cable (if only briefly), its effect on futures was truly transitory, with the Emini dumping as much as 1% to a low of 3584, falling below the key level of 3,600, before stabilizing uneasily just above 3,600. It was down 0.6% at last check, while Nasdaq future were 0.5% lower as of 7:45am ET. In US premarket trading, Meta Platforms slipped after it was cut to neutral from overweight by Atlantic Equities, which sees the social media giant’s growth outlook increasingly challenged by the strengthening macro headwinds and growing competition for advertising dollars; it was also added by Russia to a list of terrorist and extremist organizations. Here are some other notable premarket movers: Zoom shares decline 3% in premarket trading as Morgan Stanley cut the recommendation on the stock to equal-weight from overweight, saying the company’s online business needs to normalize post Covid for the firm to unlock the “tremendous value” in its enterprise platform. Roblox falls as much as 3.8% in premarket trading after Barclays initiates coverage with an underweight rating, saying the gaming platform’s daily users are “fairly saturated” and growth is decelerating post Covid. Amgen shares rise 1.7% in premarket trading after being upgraded to overweight from equal-weight by Morgan Stanley, which highlighted the “unappreciated upside” in the biopharma’s mid-term pipeline. Lululemon shares rise 1.3% in premarket trading after Piper Sandler upgraded the athletic apparel brand to overweight from neutral, noting the company’s momentum in the broker’s Spring 2022 Taking Stock With Teens survey. Elastic drops 2.4% in US premarket trading as Wells Fargo initiates at underweight, giving the application software company its only negative analyst rating. Leggett & Platt shares fell 8.6% in postmarket trading on Monday after the company lowered sales guidance for the full-year. Piper Sandler reduced the price target to a Street low, noting that the company’s speciality foam business is not only losing share but has been “disproportionately impacted” by weakness in the bed-in-a-box part of the market. The mood remains extremely fragile ahead of Thursday’s US inflation data, with the case for another 75 basis-point rate hike likely to be strong if the reading comes in higher than than forecast. Fed officials until now show little sign they are in a mood to pause the rate-hiking cycle despite the potential hit to economic growth. “We have not seen the impact of tightening,” Michael Kelly, head of the multi-asset team at PineBridge Investments told Bloomberg TV. “That lies ahead and when we see that, it’s another leg down for risk assets.” Meanwhile, Russian President Vladimir Putin threatened further missile attacks on Ukraine after hitting Kyiv and other cities in the most intense barrage of strikes since the first days of its invasion. “It’s little wonder investors enter the week in a dreary mood, especially with headlines from Ukraine signaling a further escalation in geopolitical tensions,” said Christopher Smart, chief global strategist at Barings. European stocks also declined with the Euro Stoxx 50 falling 0.9%. Energy, chemicals and miners are the worst performing sectors. IBEX outperforms peers, dropping 0.7%, FTSE MIB lags, dropping 1.4%. Here are the biggest premarket movers: Qiagen shares rise as much as 7.2%, the most intraday since November 2021, after a Dow Jones report that Bio-Rad Laboratories is in talks to combine with the German diagnostics firm. Airbus shares rise as much as 1.3% after September deliveries of 55 aircraft seen as “an encouraging data point,” compatible with the jetmaker reaching its target of 700 deliveries this year, Deutsche Bank analysts write in a note. Dustin shares rise as much as 10%, the most since January, after the Swedish computer and technology retail company reported 4Q results which Handelsbanken said included “solid” organic growth helped by its corporate and public sector unit. Boozt rises as much as 9%, the most since August, after Danske Bank upgraded the Swedish online fashion retailer to buy from hold, seeing an attractive share after recent weak performance despite a “more resilient business model than before.” Mining and energy stocks decline more than the broader European market on Tuesday as metals and crude slide amid concerns over weaker demand due to global economy slowdown and strengthening dollar. BP dropped as much as 3.4%, and Shell -2.4% European semiconductor stocks fall for a third day, following a rout in shares of Asian chip powerhouses including Samsung and TSMC. ASML declined as much as -2.8% Givaudan shares are down as much as 8.3%, reaching the lowest value since March 2020, after the company reported weaker-than-expected 3Q sales. Analysts are worried about soft growth in North America and a miss by the taste and wellbeing division amid a weakening consumer backdrop. Ferrexpo shares decline as much as 11% in early trading on Tuesday, most in three weeks, after the iron- ore maker said production has been temporarily suspended at group’s operations in Ukraine due to limited power supply. Asian equities headed for a third day of declines amid a continued selloff in semiconductor shares, with markets in Taiwan, South Korea and Japan declining as trading resumed after holidays. The MSCI Asia Pacific Index dropped as much as 2.2%, with a technology sub-gauge falling more than 4%. Chip-related stocks in the region declined in the wake of fresh curbs on China’s access to US technology. The Hang Seng Tech Index also fell more than 3% amid the geopolitical tensions. Read: Chipmaker Rout Engulfs TSMC, Samsung With $240 Billion Wiped Out Hong Kong’s benchmark gauge slipped after a state-owned newspaper endorsed China’s Covid-Zero policy for the second day in a row, quashing investors’ hopes for a relaxation around the upcoming Communist Party congress. Chinese shares edged higher. Rising geopolitical risks are also weighing on sentiment, after Russia bombarded Kyiv and other Ukrainian cities. Meanwhile, investors remain on edge amid the prospect of more aggressive monetary tightening ahead of the release of US consumer-inflation data on Thursday. “Thin volumes, high volatility and uncertainty, and a bearish sentiment globally means investors will overreact on the downside to any negative news,” Olivier d’Assier, head of APAC applied research at Qontigo, wrote in a note. Several data releases this week, as well as a further escalation in the war in Ukraine, may trigger further selling, he added. The MSCI’s Asian stock benchmark is once again approaching the lowest level since April 2020, having fallen more than 4% over a three-day period. Japanese stocks fell, dragged by losses in technology shares amid concerns on earnings and the impact of new US curbs on chip-related exports to China. The Topix fell 1.9% to close at 1,871.24, while the Nikkei declined 2.6% to 26,401.25. Out of 2,168 stocks in the Topix, 285 rose and 1,833 fell, while 50 were unchanged. The market was closed for a holiday Monday. Tokyo Electron slid more than 5% after the Biden administration put fresh curbs on Chinese access to US chip technology. Tech sentiment was also hurt by a forecast cut at Yaskawa Electric, while Fast Retailing dropped more than 3% ahead of its earnings report this week.  “With around 30% of Japanese tool makers’ orders coming from China, we think we are now likely to see cancelations hurting backlogs just when the chip market is facing a major oversupply,” said Amir Anvarzadeh, a strategist at Asymmetric Advisors Ltd., adding that Tokyo Electron would be among the hardest hit. In FX, the Bloomberg Dollar Spot Index rose for fifth day as commodity currencies fell versus the greenback. Aussie and loonie were the worst G-10 performers as global growth concerns prompted traders to seek haven in the dollar; China signaled it may retain its strict Covid Zero policy, hitting stocks and commodities including iron ore The euro halted a four-day decline. German bonds advanced while Italy’s yield premium over Germany rose, paring some of Monday’s sharp drop amid doubts about Germany’s support for joint EU debt issuance. UK bonds edged higher in a bull-steepening move after the Bank of England expanded its financial stability operations, adding inflation-linked debt to its purchases, while pausing the sale of corporate bonds. The focus is on the result of the BOE’s daily bond-buying operation, a sale of 2051 linkers by the government and Governor Andrew Bailey’s comments later. The pound traded weaker versus the euro and was little changed against the dollar. Options traders are adding downside exposure in the pound again as cable retreats toward the $1.10 handle. The yen traded in a narrow range amid caution the authorities will step in to prevent further currency losses. Government bonds fell in tandem with overseas peers. In rates, Treasuries pared a decline and the curve bear steepened after the panicking BOE expanded its QE operation. The 10-year yields pated Monday’s gilt-led losses led by gains in UK bond market, after earlier touching 4%, while the 30-year yield hit its highest level since 2014; yields on two-year Treasuries rose to the highest since 2007. US cash market, closed Monday’s for bank holiday, remains cheaper vs Friday’s close by as much as 6bp at long end. US 10-year yield is higher by ~4bp at 3.92%, steepening 2s10s by ~5bp vs Friday’s close, with 5s30s also ~5bp wider on the day; gilts bull-steepen with UK 2-year yields richer by 11bp on the day. As reported earlier, Monday’s record slide in gilts was arrested after BOE said inflation-linked notes will be included in this week’s remaining buybacks. US auctions resume at 1pm New York time with $40b 3-year note sale, followed by 10- and 30-year sales Wednesday and Thursday In commodities, WTI drifts 2.6% lower to trade near $88.74. Spot gold falls roughly $3 to trade near $1,665/oz. Most base metals are in the red.  Bitcoin hovers around the USD 19,000 mark whilst Ethereum remains under 1,300. Looking to the day ahead now, it's another quiet event calendar with just the NFIB’s small business optimism index from the US for September out today (92.1, above 91.6 expected). From central banks, we’ll hear from BoE Governor Bailey and Deputy Governor Cunliffe, the ECB’s Lane and Villeroy, as well the Fed’s Mester. Finally, the IMF will be publishing their latest World Economic Outlook. Market Snapshot S&P 500 futures down 0.7% to 3,599.25 STOXX Europe 600 down 0.9% to 386.58 MXAP down 2.0% to 137.94 MXAPJ down 2.1% to 445.19 Nikkei down 2.6% to 26,401.25 Topix down 1.9% to 1,871.24 Hang Seng Index down 2.2% to 16,832.36 Shanghai Composite up 0.2% to 2,979.79 Sensex down 0.7% to 57,610.70 Australia S&P/ASX 200 down 0.3% to 6,644.99 Kospi down 1.8% to 2,192.07 Brent Futures down 1.5% to $94.71/bbl Gold spot down 0.1% to $1,667.26 U.S. Dollar Index little changed at 113.21 German 10Y yield little changed at 2.30% Euro little changed at $0.9708 Top Overnight News from Bloomberg Record inflation and the danger of winter energy shortages are sinking confidence in the euro-zone economy. As the hard data gradually worsen, the hawks who currently steer ECB policy have only a limited opportunity to deliver more big hikes UK unemployment fell unexpectedly to the lowest since 1974 as people dropped out of the workforce at a record rate. The government said 3.5% of adults were looking for work in the three months through August, down from 3.6% the month before. Economists had expected no change From Japanese pensions and life insurers to foreign governments and US commercial banks, where once they were lining up to get their hands on US government debt, most have now stepped away. And then there’s the Federal Reserve, which a few weeks ago upped the pace that it plans to offload Treasuries from its balance sheet to $60 billion a month Credit Suisse Group AG is the last of 16 banks to face a US class-action lawsuit accusing it of conspiring with others to rig the foreign exchange market A more detailed breakdown courtesy of RanSquawk APAC stocks traded with a negative bias as several markets returned from the long weekend and reacted to the recent bearish themes with tech stocks hit due to the US’s chip tech curbs on China and with global sentiment not helped by the heightened geopolitical concerns after Russia’s missile assault on Ukrainian cities. ASX 200 was indecisive after mixed data and with the index subdued by underperformance in tech and energy. Nikkei 225 declined with the reopening of Japan’s borders overshadowed by tech sector woes which also saw heavy selling pressure on South Korean and Taiwanese chipmakers. Hang Seng and Shanghai Comp. were mixed with notable losses in tech and casino stocks in which the latter suffered after domestic trips in China during the National Day Golden Week holiday fell by 18% Y/Y, while sentiment was also dampened by increased lockdown concerns as China tightened COVID controls ahead of the Communist Party congress including the rollout of mandatory biweekly mass testing in Shanghai. Top Asian News China Securities Daily suggested that China may cut RRR in Q4. People's Daily said China must stick to zero-COVID policy which is sustainable and key to stabilising the economy. China's Xi'an announced on Tuesday to suspend onsite classes for some students amid the COVID-19 flare-ups, other areas including culture venues, tourist attractions and cinemas also suspended services on Tuesday, according to Global Times. PBoC set USD/CNY mid-point at 7.1075 vs exp. 7.1038 (prev. 7.0992) Japanese PM Kishida said the BoJ needed to maintain policy until wages increase, while he urged companies that increase prices to raise pay also and said the government will prepare measures to help companies raise salaries, according to FT. Japanese Finance Minister Suzuki said they are closely watching FX moves with a strong sense of urgency and will respond to excess FX moves, according to Reuters. Japan's MOF top currency official Kanda said they are always ready to take necessary steps against FX volatility and said he can make a decision on FX intervention anywhere even from an aeroplane, according to TBS. Japanese Chief Cabinet Secretary Matsuno said they are closely watching FX moves with a high sense of urgency; to take appropriate steps on excess FX moves, via Reuters. Japan is to draw up economic measures before the end of October, according to NHK. RBI likely sold USD in spot and received forwards via state-run banks, according to traders cited by Reuters. RBNZ Governor Orr said in the Annual Report that there is more work to do and increasing the OCR is the most effective way we can reduce inflation and support maximum sustainable employment over the coming years, consistent with our monetary policy remit. European bourses are once again underwater as the selling pressure from yesterday has bled through into today’s session. Sectors in Europe are mostly softer but Retail is the standout outperformer. Stateside, US futures are also on the backfoot with the e-mini S&P Dec contract dipping below 3600 in a continuation of yesterday’s losses. Top European News Barclaycard UK consumer spending rose 1.8% Y/Y in September which was the slowest pace since February 2021. Germany's government rejected the report about Chancellor Scholz backing joint EU debt for loans to ease the energy crisis and said "such plans are not known in the government", according to a source cited by Reuters. German Chancellor Scholz said Germany will discuss inflation reduction act with the US; there must be no customs war, via Reuters. EU trade commissioner said it is working on a new temporary state aid framework which will allow countries to support firms hit by high energy bills; adds that decoupling from China is not an option for EU companies, via Reuters. UK Chancellor Kwarteng will need to plug a GBP 60bln hole in the public finances with either spending reductions or a tax raid, according to the IFS via the Telegraph. BoE said it intends to purchase index-linked Gilts, effective from Oct 11-14, and announced a temporary pause to corporate bond sales. Linker purchases will act as a backstop to restore order; purchases are time limited. Many pension funds feel that the BoE intervention in gilts market should be extended to October 31st "and possibly beyond", according to the Pension Fund Trade Body cited by Reuters. Brookfield, DigitalBridge Said to Weigh Vantage Stake Bid European Gas Rises on Supply Risks as Russia Escalates War Apollo Makes Quick Gains on CLOs Dumped by UK Pension Funds Credit Suisse Is Final Holdout in FX Rigging Case Going to Trial Discounted Fuel, Grains Make Taliban Boost Trade With Russia FX DXY is firmer on the day with a current intraday high of 113.50 (vs a 112.95 low) G10s are mixed vs the USD with the CAD and AUD the laggards, in-fitting with losses across oil and base metals respectively. USD/JPY held within a 145.86-50 range (vs YTD high of 145.90) following more jawboning from Japanese Chief Cabinet Secretary Matsuno. Fixed Income Schatz and Bund futures both retreated to new intraday lows and the latter is just under Monday’s 135.83 session base, at 135.81. The 10yr UK debt future also recoiled to a deeper Liffe low (92.06) before bouncing and thereby remaining ‘comfortably’ off yesterday’s 91.46 trough. US Treasuries are narrowly mixed and side-lined awaiting the return of cash traders, more Fed speakers and USD 40bln 3 year issuance. Commodities WTI and Brent front-month futures are weaker intraday amid several factors including technicals, a firmer Dollar, alongside further bearish COVID-related headlines emanating from China. Spot gold is relatively flat despite the firmer Dollar, but remains under its 21 DMA (1,674/oz) as the clock ticks down to US CPI on Thursday. LME metals meanwhile are mostly lower with 3M copper softer on the day amid the stronger Buck, sullied risk tone, and with the Chinese COVID restrictions an ongoing tail risk with the metal moving on either side of USD 7,500/t. Iranian State News Agency denied reports of worker strikes at Abadan refinery, according to Reuters. Geopolitics US President Biden and G7 leaders will hold a virtual meeting today to discuss their commitment to support Ukraine, according to the White House. US Democrat Senator Menendez threatened to block US cooperation with Saudi amid its deepening ties with Russia, while he ripped into the decision to cut oil output and effectively accused Saudi of fuelling Russia's war machine, according to Business Insider. Russian Deputy Foreign Minister Ryabkov said direct conflict with the US and NATO is not in Moscow's interests but noted that Russia will take adequate countermeasures in response to the West's growing involvement in the Ukraine conflict, according to RIA. Russian Deputy Foreign Minister said Russia does not threaten anyone with the use of nuclear weapons, via Al Jazeera US Event Calendar 06:00: Sept. SMALL BUSINESS OPTIMISM, 92.1, est. 91.5, prior 91.8 Central Banks 12:00: Fed’s Mester Speaks to Economics Club of New York DB's Jim Reid concludes the overnight wrap It's been another rough 24 hours for markets, with a major European bond selloff after Bloomberg reported that German Chancellor Scholz would support issuing joint EU debt to deal with the energy crisis. At this stage it’s just a report without formal confirmation and we’ll have to see how it might be executed, so we shouldn’t get ahead of ourselves. However, the details from the story suggested that Scholz had signalled an openness to common borrowing at last week’s EU summit in Prague, so long as the money was distributed in the form of loans rather than grants. So perhaps the common borrowing announced during the pandemic will prove to have been the first of many rather than a one-off. If the last decade was all about how Europe/Germany could get away with as little fiscal spending as they could, this decade seems to be all about spending. This continues to change the macro dynamics of the continent completely from where it was, especially with regards bond yields and the depo rate. We should note however, that after Europe closed, Reuters suggested that a German government source rejected the story that Berlin backed such joint EU debt for this purpose. So we'll see if there is any retracement in yields this morning as the initial market reaction was substantial. Yields on 10yr bunds surged +14.3bps on the day (+11bps after the story hit) to close at 2.33%, thus leaving them at their highest closing level since 2011. There were similar moves across the continent, with yields on 10yr OATs up +11.5bps to a post-2012 high of 2.91%. However, the big outperformer were Italian BTPs where yields actually fell on the day following the news, with the spread between 10yr BTPs over bunds down by -21.3bps to 230bps. That was a big change from earlier in the session, when the Italian spread had been on track to close at its widest level since April 2020 as nerves built ahead of Italian draft budget proposals. However it was a case of anything Europe could do, the UK could do worse, as the 10yr Gilt yield soared by +23.6bps on the day to 4.46% after the BoE announced fresh measures (see below) which seemed to scare investors of what might be out there rather than reassured them. The moves were eerily reminiscent of the late-September turmoil after the mini-budget, with rises in yields taking place across all maturities, with the 30yr yield up by an even-larger +28.8bps. It’s clear that LDI trades are still creating some tension in the market. If nominal yield moves weren’t enough for you, the movements in real yields were even more astonishing, with the 10yr real yield up by +64.1bps on the day to close at 1.23%, which is its highest closing level since 2009. In the meantime, sterling (-0.28%) lost ground against the US Dollar for a 4th consecutive session, closing at $1.1055, and implied sterling-dollar volatility over the next month has also been creeping back up to near its levels shortly after the mini-budget. Those movements for gilts came in spite of numerous announcements from UK policymakers yesterday as they sought to deal with the mini-budget’s legacy. First, the Bank of England said that as part of their ongoing intervention to purchase long-dated government gilts, they would increase the maximum auction sizes for this week, which comes ahead of the planned end to the operation on Friday. In addition, they announced the launch of a “Temporary Expanded Collateral Repo Facility”, which is designed to help ease pressures on liability driven investment funds. Second, we heard that the government were bringing forward the Medium-Term Fiscal Plan to October 31 from November 23, which will be published alongside a forecast from the independent OBR. And finally, it was confirmed that James Bowler would be the new Permanent Secretary to the Treasury (the most senior civil servant in the department). Bowler is currently Permanent Secretary at the Department for International Trade but has over 20 years’ experience working in the Treasury, and the appointment was widely reported as a U-turn by PM Truss to reassure markets. That’s because Truss had pledged when running for PM that she would combat the “Treasury orthodoxy”, but has instead opted for someone with lengthy experience in the department. Over in the US, Treasury markets weren’t actually open given the Columbus Day holiday, but Fed funds futures showed that investors were continuing to price out the pivot speculation from early last week, with the rate priced in by December 2023 up by a further +6bps to 4.46% over the last 24 hours and up from 4% at the pivot lows a week ago. In Asia, yields on the 30-year UST (+10.38 bps) rose to 3.95%, the highest since 2014, whereas the 10yr yield (+11bps) has broken through the 4.0% threshold as we go to press. This all follows a fresh set of comments from Fed officials, including Chicago Fed President Evans, who said that “I see the nominal funds rate rising to a bit above 4.5% early next year and then remaining at this level for some time while we assess how our policy adjustments are affecting the economy”. Vice Chair Brainard spoke late in the session but didn't really move the needle too much but her comment that the Fed should be cautious seemed to lean a little dovish even though she covered both sides of the argument. Henry in my team wrote about the five "Fed pivot" trades that markets have tried to encourage in the last few months in his weekly "Mapping Markets" yesterday. See here for more. Whilst bonds were having another bad day, there wasn’t much respite for equities either, with the S&P 500 (-0.75%) moving lower for a 4th consecutive session, which leaves it less than 1% away from its closing low for the year at end-September. The 6% rally in the first 2 and a bit days of the quarter seems a lifetime away rather than 3 business days ago. The more interest-sensitive tech stocks bore the brunt of the declines, with the NASDAQ down -1.04% to close at its lowest level since July 2020, whilst the FANG+ index (-1.17%) of megacap tech stocks has now shed around -43% since its all-time peak back in November 2021. Backin Europe the tone was also a fairly negative one, with the STOXX 600 (-0.40%) losing ground for a 4th day in a row as well. Asian equity markets are mostly trading lower this morning as concerns continue about the Fed’s tightening cycle alongside Washington’s semiconductor export controls on China. As I type, the Nikkei (-2.34%) and the Kospi (-2.29%) are sharply lower after resuming trading following a holiday with the Hang Seng (-1.43%) also sliding. Bucking the trend are Chinese equities with the Shanghai Composite (+0.40%) and the CSI (+0.49%) both moving higher. However, concerns over rising Covid-19 cases in China are still hovering in the background. In overnight trading, US stock futures point to further losses with contracts tied to the S&P 500 (-0.45%) and NASDAQ 100 (-0.40%) both trading in negative territory. Early morning data showed that Japan’s current account surplus (+58.9 billion yen) shrank to its smallest amount on record for the month of August as import prices surged compared to July’s surplus of +229.0 billion yen. In geopolitical news, the G-7 nations have called for an emergency meeting (videoconference) today to discuss the escalating war in Ukraine in the wake of Russia's revenge attacks over the last 24 hours. In addition to this, the G7 will also discuss energy issues in an attempt to bring down gas prices by creating a buyer’s alliance. To the day ahead now, and data releases include UK labour market data for August and September, Italy’s industrial production for August, as well as the NFIB’s small business optimism index from the US for September. From central banks, we’ll hear from BoE Governor Bailey and Deputy Governor Cunliffe, the ECB’s Lane and Villeroy, as well the Fed’s Mester. Finally, the IMF will be publishing their latest World Economic Outlook. Tyler Durden Tue, 10/11/2022 - 08:07.....»»

Category: worldSource: nytOct 11th, 2022

Jittery Futures Coiled Tightly Ahead Of Today"s Jobs Report Main Event

Jittery Futures Coiled Tightly Ahead Of Today's Jobs Report Main Event S&P futures rebounded from an overnight drop and swung between gains and losses as investors looked forward to the week's main event, the September payrolls report, for clues on what the Fed will do next after a raft of hawkish Fed doused expectations on Thursday for a quick halt to rate hikes. Nasdaq 100 futs fell 0.3%, trimming deeper losses, amid a sharp premarket drop for semiconductor stocks prompted by a plunge in AMD which slumped after it preannounced much weaker-than-expected 3Q revenue and margins . Meanwhile, S&P500 futures on the S&P 500 Index traded little changed, although the benchmark was poised for the best weekly advance since June. Treasuries drifted lower, the dollar was flat, and cryptos were unchanged. In premarket trading, Credit Suisse shares gained 7.9% after the lender offered to buy back debt securities for as much as CHF BN, in a show of financial strength after recent concerns about the bank’s solidity. Shares are up 14% this week, best weekly return since June 2020. They have recovered from a 12% intraday drop on Monday, when the stock slumped to a fresh low Shares are 49% down YTD. On the other end, chipmakers led the slide in early New York trading. Besides AMD’s 6% plunge, Nvidia Corp. and Intel Corp. fell more than 2% each amid concern that a slowing world economy will sharply dent semiconductor demand. Here are some other notable premarket movers Twitter shares fell as much as 1.9% to $48.45 in US premarket trading on Friday, trading almost 10% below Elon Musk’s offer price of $54.20 as the deal is said to be contingent on receiving $13 billion in debt financing, according to people familiar with the matter. They were flat by 6am in New York. Chip stocks were lower in US premarket trading after Samsung and AMD reported disappointing figures within hours of each other. The announcements signaled a deteriorating climate for global chip demand affecting the entire personal computers supply chain, including chipmakers, semiconductor equipment makers and PC manufacturers. AMD  -6.4%, Nvidia -3.3%, Intel -2.8%. Pot stocks rallied in US premarket trading on Friday, set to extend Thursday’s gains after President Joe Biden pardoned thousands of Americans for possession of marijuana and ordered a review of its legal status, sparking hopes that decriminalization of the drug was drawing nearer and a more favorable regulatory environment for cannabis-related firms. Tilray Brands +9%, Canopy Growth +9%, Cronos Group +2.4%. DraftKings shares jump as much as 9.2% in US premarket trading on Friday, boosted by a report that the sports-betting firm is said to be nearing a sizable new partnership with Disney’s ESPN, signaling that interest in legalized sports betting in increasing. DraftKings trades at a price-to-sales multiple of 4.2 times, according to Bloomberg data, down from a peak of around 37 times reached in March 2021. Levi Strauss shares fell as much as 4.6% in US premarket trading on Friday after the jeans maker cut its adjusted earnings per share and net revenue growth outlook for the full year, stoking worries that it could be tough for retailers in the near-term as the company grapples with the impact of a stronger dollar, weakness in its European markets and supply-chain disruption. Payoneer Global jumps as much as 8.4% in premarket trading following news that the company will join the S&P SmallCap 600 index before trading opens on Oct. 12. Lyft shares fall 3.7% in US premarket trading after RBC downgraded the ride- sharing firm and slashed its PT, saying its bull case for the stock looks increasingly less likely. Aehr Test Systems jumped 9% in extended trading after the semiconductor manufacturing company reported net sales growth and improved adjusted earnings in the fiscal first quarter. As previewed earlier, today's main event is the jobs report and as JPM noted, prior to Friday's NFP (and CPI next Wednesday), the market has been oscillating between the “hawkish Fed” and “Fed pivot” narrative. While the JOLTS Job Openings and the ISM Manufacturing employment index showed more evidence of a slowing labor market, the stronger than expected ADP/ISM Services once again proved the economy still remains strong and therefore weakens the hope of a near-term pivot from the Fed. In a nutshell, according to JPM's trading deks, with consensus expected tomorrow’s NFP to print +255k, Equity bulls would need a print ~100k to see the market alter its Fed expectations (full preview here). The data will follow hawkish comments from Fed officials. Chicago Fed President Charles Evans said the benchmark rate will probably be at 4.5% to 4.75% by next spring, and Minneapolis Fed’s Neel Kashkari said the central bank is “quite a ways away” from pausing its campaign of rate increases. “Barring an unexpectedly shocking number, I do not think today’s release will prompt the Fed to change tack,” said Stuart Cole, the head macro economist at Equiti Capital. “This has certainly been the message that various Fed officials have been promulgating.” Meanwhile, according to Bloomberg, US Treasury yields are heading for a 10th week of increases, the longest streak since 1984, as the Fed stays resolute in its fight against inflation despite recent data suggesting a cooling of the economy. Investors are being swayed between hopes for an end to monetary tightening by March next year and concern over the possibility of a deep recession that such a pivot would underscore. At the same time, investor focus is increasingly trained on signs of a weaker earnings-reporting season. Besides Thursday’s dour trading update from European oil major Shell, underwhelming figures from AMD and South Korean Samsung Electronics Co. are reinforcing concerns for the global economy. “The issue of the Fed pivot remains the main factor restricting risk appetite,” Sebastien Barbe, the head of emerging-market research and strategy at Credit Agricole CIB, wrote in a note. “Cautiousness should remain in place ahead of the US jobs report. Given the repeated hawkish comments by Fed speakers, this may not be enough to sustainably support risk appetite.” In Europe, the Stoxx 50 fell 0.2%. FTSE MIB outperforms, adding 0.2%; IBEX lags, dropping 0.5%. Tech, consumer products and retailers are the worst-performing sectors. Here are the biggest European equity movers: Renault shares climb as much as 4.8%. The automaker is raised to outperform from neutral and PT hiked to EU55 from EU35 at Oddo on its successful operational recovery and accelerating “product offensive.” Credit Suisse shares gain 8.4% after the lender offered to buy back debt securities for as much as CHF3bn, in a show of financial strength after recent concerns about the bank’s solidity. Telenor shares jump as much as 5.1%, the most since July 2020, after the telecom operator agreed to sell a 30% stake in its Norwegian fiber network to a consortium led by KKR and Oslo Pensjonsforsikring. Storytel gains as much as 11%, the most since August, after the Swedish publishing house released preliminary streaming revenue for the third quarter that was slightly above guidance, according to DNB European chip stocks are under pressure on Friday after industry bellwethers AMD and Samsung posted results that widely missed analysts’ expectations. ASML drops as much as 2.9% Adidas shares decline as much as 3.2% with UBS saying the uncertainty about its partnership with Kanye West’s Yeezy brand is a “negative development” for the sportswear group. Ocado shares decline as much as 3.1% after PT cut to a Street-low 420p from 595p at Morgan Stanley, which maintains an underweight rating on the grocery delivery group and says the case for its automated model has “got harder.” Building materials group Marshalls slumps 28% after it warned on a slowdown in demand for its landscaping products, prompting Peel Hunt to cut earnings estimates. Asian stocks fell, on track to snap a three-day winning streak, as Federal Reserve officials reiterated their hawkish views and tech shares weighed. The MSCI Asia Pacific Index declined as much as 1.3%, with tech and consumer discretionary shares falling after five Fed officials on Thursday separately signaled inflation remained too high in the US. Some chip shares slid after Advanced Micro Devices’ preliminary third-quarter sales missed projections and Samsung reported disappointing preliminary quarterly results.  Meanwhile, China’s electric-vehicle firms led declines on the Hong Kong market as concerns grew over weaker-than-expected orders. Vietnam’s stocks tumbled to the lowest in almost two years as a wave of forced selling hit the market amid concerns about rising interest rates.  Liquidity remained relatively low with the onshore China market closed for the Golden Week holiday.  The Asian gauge remains on track for its best week since July after weak US economic data earlier fueled hopes that the Fed may be less aggressive in tightening. Traders will scrutinize the US payroll data out later Friday for signs of economic slowdown and the impact on monetary policy. “Clearly the equity market is still playing chicken with the Fed around,” Joshua Crabb, head of Asia Pacific equities at Robeco, told Bloomberg Television. The interest-rate environment “is here to stay and that will continue to put pressure on some of the more highly valued sort of companies.” Japanese stocks dropped as investors remained cautious over the outlook for Fed policy and awaited an upcoming monthly US payrolls report. The Topix fell 0.8% to 1,906.80 as of the market close in Tokyo, while the Nikkei 225 declined 0.7% to 27,116.11. Mitsubishi UFJ Financial Group contributed the most to the Topix’s decline, decreasing 2.2%. Out of 2,168 stocks in the index, 569 rose and 1,495 fell, while 104 were unchanged. “There is uncertainty whether US interest rate hikes could be 75bps or 100bps during the FOMC meeting in November,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management. “We are watching the unemployment rate and wage growth.”  Stocks in India ended flat on Friday but posted their first weekly advance in four, helped by a recovery in metal companies. The S&P BSE Sensex was little changed at 58,191.29 in Mumbai, while the NSE Nifty 50 Index dropped 0.1%. For the week, the gauges rose 1.3% each. Tata Consultancy Services was the most prominent decliner among the Sensex 30 companies, dropping 1.3%. The country’s biggest software exporter will kickoff quarterly earnings season Monday. Titan was among the best performers after reporting strong sales growth for three-months through September. Eleven of the 19 sector sub-indexes compiled by BSE Ltd. retreated, led by oil & gas companies, while consumer durables makers were the top performers. A measure of metal companies was the top gainer for the week, posting its best advance since July. In FX, the Bloomberg Dollar Spot Index slipped 0.1% as the dollar fell against all Group of 10-peers apart from the kiwi. Demand for dollar topside exposure in the long-end remains strong ahead of the payrolls report. The euro rose above $0.98 and Bund yields climbed by up to 4bps as real yields continued to push higher alongside ECB tightening wagers. The cable led G-10 gains to trade above $1.12 after reversing early European session weakness. Yields on gilts rose by 3-6bps. The New Zealand dollar rose against the greenback as the nation’s bond yields closed up to 10bps higher. Australian dollar and Norwegian krone strengthened somewhat. Australian yields rose up to 7bps. The yen snapped a two-day decline as traders weigh the risk of an intervention by Japanese authorities to support the currency after it weakened past 145 per dollar. The currency is still set for an eighth straight week of declines In rates, Treasuries were slightly cheaper across the curve after most yields reached weekly highs while maintaining narrow ranges ahead of September jobs report. Gilts and bunds weigh, underperforming Treasuries. US yields cheaper by up to 3bp across belly of the curve, cheapening 2s5s30s fly by 3.5bp on the day to around 12bp, up from as low as -13.7bp on Tuesday; 10-year yields around 3.85%, richer vs bunds and gilts by 6bp and 2bp. UK 10-year yield rises 2.5bps to 4.19%, while German 10-year climbs 4.5bps to 2.13%. In commodities, US crude futures rose to approach $89 a barrel, on course for the biggest weekly surge since March. Spot gold is little changed at ~$1,713/oz. Bitcoin is contained within very narrow parameters, essentially pivoting the USD 20k mark as we head into the NFP release. To the day ahead now, and the highlight will likely be the aforementioned US jobs report for September. Otherwise, data releases include German industrial production and Italian retail sales for August. From central banks, we’ll hear from the Fed’s Williams, Kashkari and Bostic, as well as BoE Deputy Governor Ramsden. Finally, EU leaders will be meeting in Prague. Market Snapshot S&P 500 futures down 0.2% to 3,748.50 STOXX Europe 600 down 0.2% to 395.56 MXAP down 1.1% to 143.02 MXAPJ down 1.3% to 463.87 Nikkei down 0.7% to 27,116.11 Topix down 0.8% to 1,906.80 Hang Seng Index down 1.5% to 17,740.05 Shanghai Composite down 0.6% to 3,024.39 Sensex down 0.3% to 58,069.57 Australia S&P/ASX 200 down 0.8% to 6,762.77 Kospi down 0.2% to 2,232.84 German 10Y yield little changed at 2.13% Euro up 0.2% to $0.9813 Brent Futures up 0.1% to $94.53/bbl Gold spot up 0.0% to $1,712.81 U.S. Dollar Index down 0.24% to 111.9 Top Overnight News from Bloomberg Investors poured the most money into cash since April 2020 on fears of a looming recession, but stocks could see further declines as they don’t fully reflect that risk, say Bank of America Corp. strategists Underlying inflation in the euro area is increasingly driven by higher demand, according to the European Central Bank, which has listed the trend among reasons to lift borrowing costs Inflation expectations among euro-zone consumers held steady in August, according to the European Central Bank, which has been raising interest rates in the face of record price gains The European Central Bank is ratcheting up pressure on some banks to keep 2022 bonuses in check amid fears about the darkening economic outlook, according to people with knowledge of the matter A report by the Recruitment & Employment Confederation showed UK companies are starting to impose hiring freezes because of pessimism about the outlook, and employees are deciding “stay put” rather than apply for other jobs A more detailed look at global markets courtesy of Newsquawk APAC stocks were lower as the region followed suit to the weak performance seen in global counterparts with risk appetite sapped amid the slew of hawkish Fed rhetoric and with participants awaiting the key US jobs data. ASX 200 was subdued by underperformance in the real estate sector and after the RBA Financial Stability Review noted financial stability risks have increased globally and that some households are already feeling the strain from higher rates which is likely to persist for some time. Nikkei 225 was pressured and briefly dipped below the 27,000 level after disappointing data in which Household Spending showed a surprise M/M contraction and with wage growth softer than previous. Hang Seng declined amid weakness in property and tech stocks with sentiment also not helped by reports that the US is to announce new measures that will effectively halt some exports of US equipment to Chinese firms making advanced NAND and DRAM memory chips. Top Asian News BoK said it will maintain its stance of raising interest rates going forward to combat inflation which is expected to remain in the 5-6% range for a considerable period of time, according to Yonhap. RBA Financial Stability Review stated that financial stability risks have increased globally and markets are stressed by synchronised policy tightening, geopolitical tension, higher USD and rising energy prices. RBA also stated that stability risks would be magnified by further substantial tightening in global markets and some households are already feeling the strain from higher rates which is likely to persist for some time. Japanese top currency diplomat Kanda says has never felt a limit to ammunition for currency intervention, making various steps so as not to face a limit to ammunition when it comes to FX intervention, via Reuters. Malaysia Cuts Personal Income Tax by 2 Percentage Points Tycoon Faces Key Vote for Plan to Tap Vedanta Cash Reserves Gold Set for Largest Weekly Gain Since March as Jobs Data Loom Taiwan Exports Shrink for First Time Since 2020 on Global Slump European bourses are modestly on the backfoot, though have trimmed this slightly as the session progresses, in limited newsflow pre-NFP. Nonetheless, are still on track to conclude the week with upside of just over 2% WTD for the Stoxx 600. Stateside, futures are similarly contained and lie either side of the unchanged mark with NQ -0.1% modestly lagging amid yield upside as officials pushback on an imminent pivot. ECB recently told some banks to exercise restraint on pay and dividends amid concerns about a potential wave of defaults, according to Bloomberg. Top European News UK PM Truss is watering down former UK PM Johnson's plans to cut 91k civil service jobs, according to FT. Irish Foreign Minister Coveney says the new air of positivity has created a flicker of optimism, lots of issues yet to be resolved (re. Brexit/N. Ireland). Greece Should Take Turkey’s Warnings Seriously, Erdogan Says Credit Suisse Short Bets Soar Weeks Ahead of Strategy Review Brexit Grudges Recede as Truss Makes Inroads With EU Allies New Jupiter Boss to Shake Up Dozens of Funds and Cut CIO Role Swedish Housing Market Slump Deepens on Rate, Energy Worries Geopolitics US President Biden said the nuclear 'Armageddon' threat is back for the first time since the Cuban Missile Crisis, according to AFP News Agency. Japanese government spokesperson Kihara said Japan is to impose additional sanctions against Russia and will freeze assets of more Russians after the annexation of parts of Ukraine, according to Reuters. US and South Korea are to conduct joint maritime drills involving the US aircraft carrier off the east coast on October 7th-8th, while the South Korean military said it will continue to strengthen its abilities to respond against North Korean provocation through joint drills, according to Yonhap. US forces conducted an airstrike in northern Syria on Thursday which killed Islamic State leader Abu-Hashum Al-Umawi and another IS official, according to Reuters. Turkish President Erdogan in a call with Russian President Putin discussed improving bilateral relations, according to the Turkish readout via Reuters. FX Typically tense pre-NFP trade has seen the DXY briefly dip below 112.00, to a 111.94 low, before regathering itself and holding marginally above the figure. Action that comes to the benefit of peers across the board with GBP the primary beneficiary, Cable to a 1.1218 peak, but closely followed by other activity FX. EUR/USD is more contained given a hefty amount of OpEx around today's NY Cut, with participants also cognisant of worrying German data. After yesterday's relative outperformance, the CHF and NZD are the relative laggards and are currently unchanged on the session. CNB Minutes (Sep): Mora and Holub voted for a 75bp hike, other members regarded rates as commensurate with the current situation. Consensus that inflation was probably close to peaking. HKMA purchases HKD 1.57bln from the market as the HKD hits the weak end of its trading range. Fixed Income Core benchmarks dipped to lows amid the morning's German data release, with Import Prices lifting again, though have gained some poise since in quiet trade. Currently, Bunds are towards the mid-point of a ~70tick range with similarly settled action in USTs and Gilts before US data & Fed speak. As such, yields are elevated but off highs of 3.85%, 2.16% & 4.22% for US, German and UK 10yrs respectively. Commodities WTI and Brent are off highs but still holding onto gains of around USD 0.50/bbl and are at the top-end of the week’s USD 86.35/bbl – 95.00/bbl parameter in Brent Dec’22. For today, the main potential catalyst is the EU’s informal meeting of heads of state. A gathering which is focused on “Russia's war in Ukraine, energy and the economic situation.” US Secretary of State Blinken said the US will not do anything that infringes upon its interests and is reviewing a number of response options when asked about ties with Saudi Arabia and OPEC+ cuts, according to Reuters. US Republican Senator Grassley will seek to add the NOPEC bill to the defence policy bill, according to Reuters. OPEC Sec Gen says oil production capacity freed up by the latest production reductions could allow nations to intervene in the event of any crises in the oil market, according to Al Arabiya. Spot gold is little changed overall having derived some very brief upside from the DXY’s move below 112.00; however, the metal remains capped by the 50-DMA. US Event Calendar 08:30: Sept. Change in Nonfarm Payrolls, est. 255,000, prior 315,000 Change in Private Payrolls, est. 275,000, prior 308,000 Change in Manufact. Payrolls, est. 20,000, prior 22,000 Unemployment Rate, est. 3.7%, prior 3.7% Underemployment Rate, prior 7.0% Labor Force Participation Rate, est. 62.4%, prior 62.4% Average Hourly Earnings YoY, est. 5.0%, prior 5.2%; Average Hourly Earnings MoM, est. 0.3%, prior 0.3% Average Weekly Hours All Emplo, est. 34.5, prior 34.5 10:00: Aug. Wholesale Trade Sales MoM, est. 0.5%, prior -1.4%; Wholesale Inventories MoM, est. 1.3%, prior 1.3% 15:00: Aug. Consumer Credit, est. $25b, prior $23.8b Fed speakers 10:00: Fed’s Williams Speaks in Moderated Q&A 11:00: Fed’s Kashkari Discusses Agriculture, Food and Inflation 12:00: Fed’s Bostic Discusses Inequality DB's Jim Reid concludes the overnight wrap In these stressful markets I’ve kept my personal anecdotes to a minimum but I have a few butterflies this morning as I have a big 36 hole golf matchplay final on Sunday. After 2 major knee operations in the last 12 months, 4 back injections in the last 18, a long period with a trapped nerve in my shoulder, a numb hand and countless rounds of physio, I’ve eventually played the best golf of my life this year and have got down to a 2.6 handicap. I have to give my opponent 16 shots over 36 holes though so it’s going to be hard. A couple of weeks later I’m also in a scratch final with no shots given. However the problem is my opponent is off +1. My current mid-life crisis obsession (after piano, cycling, etc. previously) is to get down to scratch. I suspect I’ll fail as I don’t hit it far enough. However I’m doing weights and speed training which is why I keep getting injured. My wife despairs at my obsessiveness most of the time but it keeps me going!! We’re all going to be obsessing about payrolls today and then US CPI next week. Clearly the latter has more potential to shape trading over the next few weeks but the former is always a big event. In terms of what to expect from today's jobs report, our US economists are forecasting that nonfarm payrolls grew by +275k in September. That’s slightly above the +250k consensus print, but if realised that would still be the slowest pace of monthly job growth since April 2021. However versus long-term average that would still be a hefty print even if you adjust for population. Our economists think that’ll be enough to push the unemployment rate down a tenth to 3.6%, especially given the three-tenths rise in the participation rate in August. When it comes to the Fed, both futures and our US economists see a +75bps move as the likely outcome at the next meeting, and a strong report today would cement those expectations, not least given the recent chatter that the Fed might slow down their pace of hikes earlier than anticipated. Today's print comes as the mood has soured again over the last 48 hours even if the prior 48 hours were spectacular enough to leave us notably stronger for the week still for risk even if bonds have given up their gains. Yesterday saw a fresh selloff in stocks and bonds alongside further dollar strength after multiple Fed speakers pushed back on speculation that they’re about to ease up on hiking rates. That wasn’t helped by the news on the inflation side either, with oil prices reaching a one-month high, whilst commodities more broadly advanced for a 4th day running. Going through some of these themes we’ll start with the Fed, since yesterday saw an array of speakers who reiterated hawkish talking points from the get-go. In particular, Minneapolis Fed President Kashkari said that “Until I see some evidence that underlying inflation has solidly peaked and is hopefully headed back down, I’m not ready to declare a pause. I think we’re quite a ways away from a pause.” So that adds to the previous day’s FOMC members who similarly pushed back on an imminent reversal. Later in the session, we heard from Presidents Evans and Mester, Governors Cook and Waller. They all held the line, pushing back on any pivot pricing. Notably, President Evans, another reformed dove, said rates would be near 4.5-4.75% by the spring of next year, with the market pricing terminal rates at the lower end of that range at 4.55% as of March. Against that backdrop, investors continued to price out the chances of a Fed pivot next year, with Fed funds futures for December 2023 up +13.4bps on the day to 4.33%, their biggest one-day increase since the September FOMC itself. Now that’s still beneath the 4.6% that the FOMC had in their dot plot for end-2023 a couple of weeks back, and the 4.50% the market priced in 8 days ago, but the moves over the last couple of days do suggest they’re having some success in pushing back on the rate cut speculation. The impact of that worked its way through to Treasury yields, with the 10yr yield up +7.1bps to 3.82%, having been led by a +6.8bps rise in the real yield to 1.61%. That's still some room below the late September intraday peak of 4.02%, but quite a bounce from Tuesday’s intraday low of 3.56%. That range is all within seven days, such is the recent volatility in bond markets. This morning in Asia, yields on the 10yr are just a tad lower as we go to press. It’s worth keeping an eye on long-end Gilts as they continue to unwind some of the once in a lifetime sized rally from 5% last week after the BoE stepped in. 30yr yields closed at 4.29% having been as low as 3.62% on Monday. Anecdotal evidence points to the LDI saga still impacting that end of the curve. The hawkish Fed rhetoric impacted on equities as well, with the S&P 500 (-1.02%) and the STOXX 600 (-1.25%) each seeing a noticeable pullback. The NASDAQ proved more resilient falling only -0.68%. In addition, the VIX index of volatility picked up again following a run of 4 consecutive declines, moving up +1.97pts to finish above 30 again at 30.52. One factor that won’t be welcomed by policymakers is the latest rise in commodity prices, with Brent crude (+1.12%) and WTI (+0.79%) oil prices rising for a 4th day running, which follows the decision by the OPEC+ group to cut their production levels the previous day. In response, US President Biden said that his reaction was “Disappointment. And we’re looking at what alternatives we may have”. In the meantime, there was a modest downtick in European natural gas futures (-3.91%) to €167 per megawatt-hour. Speaking of which, our research colleagues in Frankfurt published their latest gas supply monitor yesterday (link here), in which they update their scenarios for this winter to reflect the latest developments. They also preview what to expect from the informal meeting of EU leaders taking place in Prague today. Staying on Europe, sovereign bonds lost ground across the continent in line with the US moves, with yields on 10yr bunds (+5.4bps), OATs (+4.4bps) and BTPs (+4.7bps) all moving higher. That follows a similar dose of scepticism from investors about whether the ECB might pivot alongside the Fed, and the deposit rate priced in by overnight index swaps for June 2023 moved up more than 15bps for the second straight day, increasing +15.5bps yesterday to 2.89%. Those moves also came as we got the accounts from the ECB’s September meeting when they hiked by 75bps, which indicated that “some members” had preferred to only hike by 50bps, although “all members joined a consensus to raise the three key ECB interest rates by 75 basis points”. There was also a view that policy rates were still “significantly below the neutral rate”, even with the latest rate hike”, and it said that chief economist Lane had “stressed that price pressures were extraordinarily high and likely to persist for an extended period.” Back in the UK, there were fresh signs that the recent market turmoil was impacting the mortgage market, after Moneyfacts reported that the average 5yr fixed mortgage rate was now above 6%. That puts it at its highest level since February 2010, and follows the previous day’s news that the 2yr fixed rate had also passed the 6% milestone. Furthermore, there were some warnings on the energy front, with National Grid saying that there was one scenario (although not its base case) that could see 3-hour power cuts if there wasn’t enough gas supply. The more negative newsflow occurred as sterling continued to lose ground against the US Dollar again, with a further -1.45% fall that brings its declines over the last two sessions to -2.76%. And gilts struggled as well, and not just at the long-end as discussed earlier, with 10yr yields up +13.3bps on the day to 4.15%. Asian equity markets are also declining this morning with the Hang Seng (-1.13%) leading losses, pulling back from a strong rebound earlier this week with the Nikkei (-0.59%) also trading in negative territory. Meanwhile, the Kospi (+0.06%) is swinging between gains and losses with the index heavyweight Samsung Electronics downbeat 3Q preliminary earnings forecast weighing on sentiment. Elsewhere, markets in China are closed for the National Day holiday. Looking forward, stock futures in the US are fluctuating with contracts tied to the S&P 500 (+0.03%) and NASDAQ 100 (+0.04%) just above flat ahead of the big day. Early morning data showed that Japan’s real wages (-1.7% y/y) fell in August for the fifth consecutive month, following a revised -1.8% fall in July. At the same time, household spending (+5.1% y/y) increased in August (v/s +6.7% expected) following a +3.4% gain in July as the economy continued to recover from COVID-19 restrictions albeit with rising prices probably preventing further gains. Ahead of today’s US jobs report, the weekly initial jobless claims for the week ending October 1 came in at 219k (vs. 204k expected), although there was a -3k downward revision to the previous week, without any apparent impact from the recent hurricane, which our US econ team believes will show up in next week’s data. Elsewhere, German factory orders contracted by more than expected in August, falling -2.4% (vs. -0.7% expected), but there was a sharp upward revision to the previous month, as the data now showed a +1.9% expansion (vs. -1.1% previously). To the day ahead now, and the highlight will likely be the aforementioned US jobs report for September. Otherwise, data releases include German industrial production and Italian retail sales for August. From central banks, we’ll hear from the Fed’s Williams, Kashkari and Bostic, as well as BoE Deputy Governor Ramsden. Finally, EU leaders will be meeting in Prague. Tyler Durden Fri, 10/07/2022 - 07:49.....»»

Category: personnelSource: nytOct 7th, 2022