Advertisements



Wrapped Ethereum Still Intact As "Joke" Spreads On Crypto Twitter About Its Insolvency

Speculations regarding Wrapped Ethereum (CRYPTO: WETH) being ‘insolvent’ are making the rounds on Twitter after an apparent "joke" was taken seriously by members of the community. read more.....»»

Category: blogSource: benzingaNov 28th, 2022

SBF: I Didn"t Steal Funds, And I Certainly Didn"t Stash Billions Away

SBF: I Didn't Steal Funds, And I Certainly Didn't Stash Billions Away One day before FTX Founder Sam Bankman-Fried was set to give testimony to the US House Financial Services Committee, he was arrested in the Bahamas. Now, in a Thursday Substack post, SBF denied allegations that he stole billions in user funds, and suggested that FTX was actually brought down after a monthslong effort by Binance CEO Changpeng “CZ” Zhao. In the post, Bankman-Fried says he estimated Alameda Research had net assets of $99 billion at the beginning of 2022. By October, he says his hedge fund's assets had fallen to $10 billion due to a broader downturn in the market - and even compared his FTT token's performance to various equities. SBF's Substack post marks SBF's first comprehensive response to federal charges, which include fraud and money laundering, CNBC reports. .@SBF_FTX denies stealing user funds and says that a "very substantial recovery" is possible for #FTX customers. @andrewrsorkin and @BeckyQuick discuss: pic.twitter.com/ntQ5VSKIaI — Squawk Box (@SquawkCNBC) January 12, 2023 Below is SBF's whole note in its entirety; Authored by Sam Bankman-Fried, Summary In mid November, FTX International became effectively insolvent.  The FTX saga, at the end of the day, is somewhere between that of Voyager and Celsius. Three things combined together to cause the implosion: a) Over the course of 2021, Alameda’s balance sheet grew to roughly $100b of Net Asset Value, $8b of net borrowing (leverage), and $7b of liquidity on hand. b) Alameda failed to sufficiently hedge its market exposure.   Over the course of 2022, a series of large broad market crashes came–in stocks and in crypto–leading to a ~80% decrease in the market value of its assets. c) In November 2022, an extreme, quick, targeted crash precipitated by the CEO of Binance made Alameda insolvent. And then Alameda’s contagion spread to FTX and other places, similarly to how Three Arrows etc. ultimately impacted Voyager, Genesis, Celsius, BlockFi, Gemini, and others.   Despite this, very substantial recovery remains potentially available.  FTX US remains fully solvent and should be able to return all customers’ funds.  FTX International has many billions of dollars of assets, and I am dedicating nearly all of my personal assets to customers. Notes This post is about FTX International’s (in)solvency.It’s not about FTX US, because FTX US is fully solvent and always has beenWhen I passed FTX US off to Mr. Ray and the Chapter 11 team, it had around +$350m net cash on hand beyond customer balances.  Its funds and customers were segregated from FTX International.It’s ridiculous that FTX US users haven’t been made whole and gotten their funds back yet.Here is my record of FTX US’s balance sheet as of when I handed it off: FTX International was a non-US exchange.  It was run outside the US, regulated outside the US, incorporated outside the US, and took non-US customers.(In fact, it was primarily headquartered, run from, and incorporated in The Bahamas, as FTX Digital Markets LTD.)US customers were onboarded to the (still solvent) FTX US exchange.  Senators have raised concerns about a potential conflict of interest from Sullivan & Crowell (S&C). Contrary to S&C’s statement that they “had a limited and largely transactional relationship with FTX”, S&C was one of FTX International’s two primary law firms prior to bankruptcy, and were FTX US’s primary law firm. FTX US’ GC came from S&C, they worked with FTX US in its most important regulatory application, they worked with FTX International on some of its most important regulatory concerns, and they worked with FTX US on its most important transaction. When I would visit NYC, I would sometimes work out of S&C’s office.S&C and the GC were the primary parties strong-arming and threatening me into naming the candidate they themselves chose as CEO of FTX--including for a solvent entity in FTX US--who then filed for Chapter 11 and chose S&C as counsel to the debtor entities. Despite its insolvency, and despite processing roughly $5b of withdrawals over its last few days of operation, FTX International retains significant assets–roughly $8b of assets of varying liquidity as of when Mr. Ray took over.In addition to that, there were numerous potential funding offers–including signed LOIs post chapter 11 filing totaling over $4b.  I believe that, had FTX International been given a few weeks, it could likely have utilized its illiquid assets and equity to raise enough financing to make customers substantially whole.Since S&C pressured FTX into Chapter 11 filings, however, I worry that those pathways may have been abandoned.  Even now, I believe that if FTX International were to reboot, there would be a real possibility of customers being made substantially whole. While FTX’s liquidity had started off in 2019 as largely dependent on Alameda, by 2022 it had greatly diversified, with Alameda falling to around 2% of volume on FTX. I didn’t steal funds, and I certainly didn’t stash billions away.  Nearly all of my assets were and still are utilizable to backstop FTX customers.  I have, for instance, offered to contribute nearly all of my personal shares in Robinhood to customers–or 100%, if the Chapter 11 team would honor my D&O legal expense indemnification.FTX International and Alameda were both legitimately and independently profitable businesses in 2021, each making billions.And then Alameda lost about 80 percent of its assets’ value over the course of 2022, due to a series of market crashes–as did Three Arrows Capital (3AC) and other crypto firms last year–and after that its assets fell even more from a targeted attack.  FTX was impacted by Alameda’s decline, as Voyager and others were earlier by 3AC and others. Note that, in many places here, I’m still forced to make approximations.  Many of my personal passwords are still being held by the Chapter 11 team–to say nothing about data.  If the Chapter 11 team wants to add their data to the conversation, I would welcome that.Also–I haven’t run Alameda for the past few years.  So much of this is pieced together post-hoc, coming from models and approximations, generally based on data that I had prior to resigning as CEO and modeling and estimations based on that data.   Overview of what happened 2021 Over the course of 2021, Alameda’s Net Asset Value skyrocketed, to roughly $100b marked to market by the end of the year by my model.  Even if you ignore assets like SRM that had much larger fully diluted than circulating supplies, I think it was still roughly $50b.And over the course of 2021, Alameda’s positions grew, too. In particular, I think it had about $8b of net borrowing, which I believe was spent on:a) ~$1b interest payments to lendersb) ~$3b buying out Binance from FTX’s cap tablec) ~$4b venture investments (By ‘net borrowing’, I mean, basically, borrowing minus liquid assets on hand that could be used to return the loans. This net borrowing in 2021 came primarily from third party borrow-lending desks–Genesis, Celsius, Voyager, etc., rather than from margin trading on FTX.) So by the start of 2022, I believe that Alameda’s balance sheet looked roughly like the following: a) ~$100b NAVb) ~$12b liquidity from 3rd party desks (Genesis, etc.)c) ~$10b more liquidity it likely could have gotten from themd) ~1.06x leverageIn that context, the ~$8b illiquid position (with tens of billions of dollars of available credit/margin from third party lenders) seemed reasonable and not very risky.  I think that Alameda’s SOL alone was enough to cover the net borrowing.  And it was coming from third party borrow-lending desks, who were all–I was told–sent accurate balance sheets from Alameda. I think its position on FTX International was reasonable at the time–about $1.3b by my model, collateralized with tens of billions of dollars of assets–and FTX successfully passed a GAAP audit as of then. As of the end of 2021, then, it would have taken a ~94% market crash to drag Alameda underwater!  And not just in SRM and assets like it–Alameda was still massively overcollateralized if you ignore those. I think that its SOL position alone was larger than its leverage. But Alameda failed to sufficiently hedge against the risk of an extreme market crash: the hundred billion of assets had only a few billion dollars of hedges.  It had a net leverage–[net position - hedges]/NAV–of roughly 1.06x; it was long the market. As a result, Alameda was in theory exposed to an extreme market crash–but it would take something like a 94% crash to bankrupt it. 2022 Market Crashes Alameda, then, entered 2022 with roughly: $100b NAV $8b net borrow 1.06x leverage Tens of billions of dollars of liquidity Then, over the course of the year, markets crash–again and again and again.  And Alameda repeatedly fails to sufficiently hedge its position until mid summer. –BTC crashed 30%–BTC crashed another 30%–BTC crashed another 30%–rising interest rates curtailed global financial liquidity–Luna went to $0–3AC blew out–Alameda’s co-CEO quit–Voyager blew out–BlockFi almost blew out–Celsius blew out–Genesis started shutting down–Alameda’s borrow/lending liquidity went from ~$20b in late 2021 to ~$2b by late 2022 And so Alameda’s assets get hit, again and again and again.  But this part isn’t specific to Alameda’s assets.  Bitcoin, Ethereum, Tesla, and Facebook are all down more than 60% on the year; Coinbase and Robinhood are down about 85% from their peaks last year. Remember that, at the end of 2021, Alameda had roughly $8b of net borrowing: a) ~$1b interest payments to lendersb) ~$3b buying out Binance from FTX’s cap tablec) ~$4b venture investments That $8b of net borrowing, less the few billion of hedges it had on, resulted in around $6b of excess leverage/net position, backed by ~$100b of assets.And as markets crashed, so did those assets.  Alameda’s assets–a combination of altcoins, crypto companies, public equities, and venture investments–fell around 80% over the course of the year, raising its leverage bit by bit. And over the same period, liquidity dried up–in borrow-lending markets, public markets, credit, private equity, venture, and pretty much everything else.  Nearly every liquidity source in crypto–including nearly all of the borrow-lending desks–blew out over the course of the year. Which means that Alameda’s liquidity–tens of billions of dollars at the end of 2021–dropped to single digit billions by fall 2022.  Most of the other platforms in the space had already gone under or were in the process of doing so, leaving FTX as the last man standing. In the summer of 2022, Alameda finally put on substantial hedges, in some combination of BTC, ETH, and QQQ (a NASDAQ ETF). But even after all the market crashes of 2022, shortly before November Alameda still had ~$10b of net asset value; it was positive even if you excluded SRM and tokens like it, and it was finally hedged. Margin Trading Over the course of 2022, a number of crypto platforms became insolvent due to margin positions blowing out, likely including Voyager, Celsius, BlockFi, Genesis, Gemini, and ultimately FTX. This is a fairly common on margin platforms; among others, it’s happened on: Traditional Finance: LME MF Global LTCM Lehman Crypto: OKEx OKEx again, and basically every week for a year CoinFlex EMX Voyager, Celsius, BlockFi, Genesis, Gemini, etc. The November Crash Then came CZ’s fateful tweet, following an extremely effective months-long PR campaign against FTX–and the crash. Up until that final crash in November, QQQ had moved roughly half as much as Alameda’s portfolio, and BTC/ETH had moved roughly 80% as much–meaning that Alameda’s hedges (QQQ/BTC/ETH), to the extent they existed, had worked.  Unfortunately the hedges hadn’t been sufficiently large until after the 3AC crash–but as of October 2022, they finally were. But the November crash was a targeted attack on assets held by Alameda, not a broad market move.  Over the few days in November, Alameda’s assets fell roughly 50%; BTC fell about 15%--only 30% as much as Alameda’s assets–and QQQ didn’t move at all. As a result, the larger hedge that Alameda had finally put on that summer didn’t end up helping.  It would have for every previous crash that year–but not for this one. Over the course of November 7th and 8th, things went from stressful but mostly under control to clearly insolvent. By November 10th, 2022, Alameda’s balance sheet had only ~$8b of (only semi-liquid) assets left, versus roughly the same ~$8b of liquid liabilities: And a run on the bank required immediate liquidity—liquidity that Alameda no longer had. Credit Suisse fell nearly 50% this autumn on the threat of a run on the bank.  At the end of the day, its run on the bank fell short.  FTX’s didn’t. And so, as Alameda became illiquid, FTX International did as well, because Alameda had a margin position open on FTX; and the run on the bank turned that illiquidity into insolvency.Meaning that FTX joined Voyager, Celsius, BlockFi, Genesis, Gemini, and others that experienced collateral damage from the liquidity crunch of their borrowers. All of which is to say: no funds were stolen.  Alameda lost money due to a market crash it was not adequately hedged for–as Three Arrows and others have this year.  And FTX was impacted, as Voyager and others were earlier. Coda Even then, I think it’s likely that FTX could have made all customers whole if a concerted effort had been made to raise liquidity. There were billions of dollars of funding offers when Mr. Ray took over, and more than $4b that came in after. If FTX had been given a few weeks to raise the necessary liquidity, I believe it would have been able to make customers substantially whole.  I didn’t realize at the time that Sullivan & Cromwell—via pressure to instate Mr. Ray and file Chapter 11, including for solvent companies like FTX US–would potentially quash those efforts.  I still think that, if FTX International were to reboot today, there would be a real possibility of making customers substantially whole.  And even without that, there are significant assets available for customers. I’ve been, regrettably, slow to respond to public misperceptions and material misstatements.  It took me some time to piece together what I could–I don’t have access to much of the relevant data, much of which is for a company (Alameda) I wasn’t running at the time. I had been planning to give my first substantive account of what happened in testimony to the US House Financial Services Committee on December 13th.  Unfortunately, the DOJ moved to arrest me the night before, preempting my testimony with an entirely different news cycle.  For what it’s worth, a draft of the testimony I planned to give leaked out here. I have a lot more to say–about why Alameda failed to hedge, what happened with FTX US, what led to the Chapter 11 process, S&C, and more.  But at least this is a start. Tyler Durden Thu, 01/12/2023 - 08:49.....»»

Category: personnelSource: nytJan 12th, 2023

From TerraUSD"s meltdown to the collapse of a $32 billion crypto empire, here is a full timeline of the crypto market"s year in 2022

The industry endured a series of collapses, including FTX, algorithmic stablecoin UST, and centralized lender Celsius, to name just a few. Nuthawut Somsuk/Getty Images The Federal Reserve's interest rate hikes spooked investors away from speculative bets like crypto in 2022. The industry endured a series of collapses, including FTX, algorithmic stablecoin UST, and centralized lender Celsius. Despite market doldrums, Wall Street giants like BlackRock inked majors crypto-related deals. Crypto endured major blows this year as the industry's market cap sits more than two-thirds below its record high. The nascent space took hits from a harsh macroeconomic environment, a slew of bankruptcy filings and criminal charges against top crypto executives.Yet despite declines of over 60% for bitcoin and ether in 2022, venture funding continued to funnel into the space while major traditional financial institutions inked partnerships and expanded crypto-related offerings.Insider spoke with several crypto experts and charted the most influential events for the industry in 2022. January and FebruaryNon-fungible tokens, or NFTs, seemed all the rage in the beginning of 2022, especially after dictionary publisher Collins anointed the phrase as its "Word of the Year" in 2021. NFT monthly trading volumes peaked at $17 billion in January, according to Dune Analytics.Popular collections, often called "blue-chip" projects, were selling for millions. Singer Justin Bieber even bought a Bored Ape Yacht Club NFT for $1.3 million.Then NFT trading volumes began to decline in February, a month that also saw Sotheby's cancel a live auction of 104 CryptoPunks NFTs valued between $20 million to $30 million due to lack of interest. Some say this signaled the end of the NFT hype. MarchThe macro backdrop began to worsen in March, when the Fed announced its first rate hike in years to combat decades-high inflation.Investors turned away from speculative bets like cryptocurrencies, causing a further decline in token prices. Bitcoin's reputation as an inflation hedge was called into question as the cryptocurrency started to trade in tandem with tech stocks.Venture funding was still strong in the space though. Yuga Labs, creator of the Bored Ape Yacht Club NFT collection, raised $450 million in a seed round to give it a $4 billion valuation.MayAmid the fifth straight month of losses in crypto markets, algorithmic stablecoin TerraUSD, or UST, lost its 1-to-1 peg to the dollar, causing mass liquidations and the eventual collapse of its $18 billion ecosystem.Many retail participants lost their life savings because they were treating UST, which was advertised as a way to park your assets and earn 20% yields, as a savings account. "This began the great unraveling of crypto in 2022 and showed that, for way many projects, the emperor had no clothes." Jeremy Epstein, CMO of blockchain startup Radix, told Insider. June and July Three Arrows Capital, the massive crypto investment firm that once reported $10 billion in assets, had exposure to UST and some reports put its exposure to sister token Luna at around $560 million. The firm filed for insolvency in June, leading to widespread contagion.Three Arrows, commonly known as 3AC, invested in crypto startups and then allowed some of their portfolio companies to store funds with them as a custodian as well. Cofounders Kyle Davies and Su Zhu – both former derivatives traders for Credit Suisse – were hailed by many, with 3AC even called the "adult in the room."  Also in June, crypto lender Celsius paused all withdrawals and user activity on its platform. A month later, the firm filed for bankruptcy, listing $4.31 billion in assets and $5.5 billion in liabilities. The firm couldn't hold to its promise of offering up to 17% annual yields to customers. In July, digital asset brokerage Voyager, which allowed users to store their digital assets on its platform, filed for bankruptcy."Certain failures of exchanges have highlighted the risks of centralized projects and served as a reminder of the dangers of granting a single entity or organization full financial control," Daniel Kisluk, CMO of blockchain infrastructure developer Pendulum, told Insider.SeptemberThe market then turned its attention to Ethereum's Merge, an upgrade that cut energy usage on the smart-contract network by more than 99%. Crypto markets had a brief uptick in September. The Merge was the third most-important event in crypto's history, after the invention of bitcoin and ethereum, blockchain developer Ben Edgington previously told Insider.The upgrade was "fundamentally reengineering a chain which has hundreds of billions of dollars of value so we are swapping out the engine mid-flight," he said.Also in September, BlackRock announced a partnership with Coinbase's institutional arm, Coinbase Prime. The world's largest asset manager agreed to offer clients access to Coinbase's crypto trading and custody services. November and December Sam Bankman-Fried's once-$32 billion cryptocurrency empire collapsed in November, in what US prosecutors called the "worst financial frauds in American History."The cryptocurrency exchange, along with more than 130 of its associated entities, filed for bankruptcy protection on November 11. FTX's asset were reportedly transferred to Bankman-Fried's crypto hedge fund Alameda Research, leaving an $8 billion hole on the trading titan's balance sheet. In December, Bankman-Fried was charged with multiple counts of fraud and released on a $250 million bail bond. FTX cofounder Gary Wang and Alameda Research CEO Caroline Ellison were charged with defrauding investors and are reportedly working with authorities.Pendulum's Kisluk said that while 2022's numerous failures hurt confidence in crypto, the resulting bear market also represented an opportunity for the industry to "focus on creating and maximizing value for users, rather than on valuations" and shift toward decentralized finance and infrastructure projects.Radix's Epstein warned the industry must brace for more FTX contagion, but predicted crypto markets will rebound eventually."Ultimately, this year will be remembered as the year that, with great pain and discomfort we purged the toxic elements, preparing for healthier days ahead," the exec said. Read the original article on Business Insider.....»»

Category: personnelSource: nytDec 31st, 2022

FTX Post Mortem Part 2 Of 3: How Did We Get Here?

FTX Post Mortem Part 2 Of 3: How Did We Get Here? Authored by Scott Hill via BombThrower.com, Last week we covered the collapse of FTX as it happened but there’s a lot more to the story. How did FTX grow from a tiny Hong Kong bucket shop into a top three Crypto exchange over the course of just a few years? What was Alameda research and were they ever legitimate? Most importantly, how exactly does an exchange lose track of up to $10 billion worth of customer deposits? Most of this material is still an educated guess, but the guessers are out there putting together clues from private discussions which have been leaked, the bankruptcy proceedings and first hand dealings shared on Crypto Twitter. It’s worth noting that there is a whole deep state angle to this story. I won’t go into it in this article because so little is known (see endnote) What we do know is mostly confined to the fact that FTX CEO Sam Bankman-Fried (SBF) was the second largest donor to Democrat political campaigns since 2019. His Co-CEO for part of the FTX Empire, Ryan Salame, was a top 10 donor to the Republican party in the same period. Sam Bankman-Fried met with SEC Chairman Gary Gensler seeking a “no action” letter on an enforcement matter in April, shortly before SBF began pushing the DCCPA, a bill which the Crypto industry mainly saw as a subtle crackdown on DeFi wrapped in a reasonable sounding regulatory framework. The biggest question mark is the identity of FTX CTO and co-founder Garry Wang. The man is a ghost with very little online presence and only a handful of photos. Famed short seller Marc Cohodes is under the impression that Wang is a state actor for the CCP. These questions are important and interesting, but they don’t make for a useful article because of the complete absence of detail. Alameda Research Alameda Research, the market maker or crypto hedge fund founded by SBF in Hong Kong during the bull run of 2017 is the start of the rot. The official story is that the firm was formed from a team of young hotshots who learned to trade at Jane Street, a notoriously secretive global market maker which trades more than $10 trillion in securities volume each year. In January 2018 as Bitcoin was collapsing, Alameda research were performing the Japan arbitrage trade. They purchased Bitcoin in the US, moved it onto Japanese exchanges and cashed in on the gap between markets. The spread was often as wide as 10%. SBF claimed the firm made $10M on the arbitrage over the course of several weeks. This was a complicated trade. Japanese capital controls are strict with only Japanese nationals allowed to hold bank accounts, making it extremely difficult to get the money out of Japan and requiring a reasonable level of sophistication and corporate legitimacy to pull off. Following the Japan arbitrage, Alameda went after the “Kimchi Premium”. This was the same type of arbitrage trade, with Bitcoin on South Korean exchanges worth up to 20% more than Bitcoin on US exchanges. The capital controls were tighter, the ability to set up corporate infrastructure in the nation was more restricted and Bitcoin was in the middle of collapsing making trading the asset much more risky. Some people are suggesting that Alameda lost $10 million on the Kimchi Premium trade, but no one really knows whether any of this story is even true. I’m deeply skeptical of this entire backstory given what we have now seen about how careful SBF is with his public image. It’s entirely possible that this whole story was a fabrication to paint the picture of a boy genius trader with a Jane Street pedigree striking out on his own in Crypto land. Completely Absurd Fundraising In early 2018, Alameda Research established headquarters in Hong Kong. While SBF was a complete unknown to Crypto insiders at the time, Alameda Research was making a name for itself, frequently up the top of the Bitmex trading leaderboard. Crypto markets in 2018 were very different to the last few years. While 2017 had seen a burst of activity during Bitcoin’s bull run, volumes were still tiny and there were very few professional firms taking the asset class seriously. It’s completely plausible that in the absence of professional market makers, Alameda Research could have done very well. It also seems likely that the edge that such a small team had would have disappeared quickly as the market became more professional. Alameda Research only had a handful of employees. Nowhere near enough to build and execute a sophistical algorithmic market making strategy, such as those employed at Jane Street. In December 2019 an investment pitch deck for Alameda Research circulated among Crypto insiders. The firm was seeking to raise $200 million in debt funding and was offering 15% payments on the debt. The pitch itself made ridiculous claims about the firm’s edge and was riddled with red flags. “High Returns with no risk – These loans have no downside” Insiders that viewed the pitch deck were confused. The whispers within the industry were that this firm was highly profitable yet they seemed desperate to raise $200 million. Most stayed away and it’s unclear whether or not the fundraising was successful. Launch of FTX FTX was founded in May 2019 but had very little volume until the following year when they established the regulatory status to allow US customers to trade. FTX later acquired Blockfolio to obtain additional US licensing and the bones of a trading app. Even with this boost in volume, FTX was considered an unfavorable exchange to make markets for among established industry participants. The presumption was that Alameda Research was an embedded market maker that was given an unfair advantage on the platform and rival firms stayed clear. At the time SBF was still the CEO of both companies. There were claims of a separation of the firms, but it was known that they both operated out of the same offices in Hong Kong. It was rumored that Alameda had full access to customer position data and would hunt for liquidations. FTX was seen as a shady offshore bucket shop. By early 2021 little had changed in the industry perception of FTX, but volume was growing. In January SBF was busy arguing on Twitter, leading to the infamous “I’ll buy as much Solana as  you have, right now, at $3” tweet. He was not taken seriously until later that year when this huge Solana bet seemed to pay off. FTX gains Legitimacy By the middle of 2021, with Crypto in a raging bull market and FTX capturing significant market share, the exchange became too large to ignore. A big part of the story was China putting in place another round of Crypto bans in September which forced many major Crypto traders and market makers to find new venues to trade. Zhu Su, founder of disgraced Crypto Hedge fund Three Arrows Capital said recently that he had moved his fund’s trading from Huobi and Okex to FTX and Binance in the wake of the China ban. FTX gave them extremely favorable terms. A big reason that firms began to feel comfortable with FTX was the splashy fundraising FTX was able to pull off. Market participants assumed that among the billions of dollars of venture capital money that had been invested in FTX, someone had done basic due diligence on the firm. We now know that during these heady days of free money SBF was demanding investment commitments quickly from VCs or he would move on to the next phone call. There was a giant line of VCs desperate to get into an FTX round. The July fundraising list was a who’s who of Silicon Valley VC. Led by Sequoia, the round included Softbank, Temasek and VanEck. Apparently none of these firms insisted on even the most basic corporate controls, like installing a board of directors. A later round included a strategic investment from Blackrock. FTX was a blue ribbon investment. They all needed Crypto exposure now and FTX was the hottest Crypto startup in town. The other piece of the puzzle was that trading firms were now making money on FTX, when before they were simply getting their positions hunted by Alameda. Leverage was handed out in ample servings. Compliance was lax. Payouts were quick. It seemed to most that FTX had moved on from its shady beginnings to become a legitimate venue for market makers to use. Tokens A giant part of understanding exactly what went down at FTX is understanding the Tokens they had launched or partnered with. In 2019 FTX launched FTT, an Ethereum ecosystem token which represented a cut of exchange fees and offered discounts to traders for holding it. It was the same model that Binance launched their token with in 2017. Tokens would be bought out of the market with a portion of exchange profits on a regular basis, delivering a return to investors. A huge portion of FTT tokens were held on the FTX balance sheet as an asset. Even more egregious were the Solana ecosystem tokens which FTX helped launch. The leaked balance sheet showed that FTX had large holdings of Serum, Maps and Oxy. It showed Serum tokens marked as a $2.2 billion asset. Available market cap at the time was less than $500 million. We don’t know for sure, but it seems likely that loans were taken out backed by FTT and other minor tokens. Essentially, it seems that SBF invented his own currency from this air and then took out US dollar loans against it from anyone that would offer.  We haven’t heard from any major Crypto lender about whether or not they took FTT as collateral. We may never hear an admission on that point. What we do know is that Solana DeFi, where SBF had significant influence, largely took these minor tokens as collateral for loans on much more generous terms than seems reasonable now. And why wouldn’t Crypto lenders offer loans to FTX on whatever collateral was offered? FTX was the fastest growing exchange in industry history. It had prestigious investors. Its CEO was throwing around cash on advertising and political donations. Surely FTX was profitable enough to service their loans. So what happened to the money? When FTX blew up there was a balance sheet hole of somewhere between $6-10 billion. It was reported as “missing customer funds” but judging from recent public comments made by SBF it seems more likely that there was a complex web of loans and cross company funding arrangements than just straight up theft of customer assets. An underreported part of this story which fills in a key gap is that the offshore FTX entity apparently didn’t have its own bank account. Wires to the offshore exchange would go directly into a bank account held by Alameda Research. It seems that FTX didn’t secretly transfer customer funds to its associated hedge fund, it probably didn’t even make loans between companies. The most likely explanation is that Alameda Research just had direct access to customer funds  which were wired to them. While shocking, it wouldn’t be as egregious if the FTX terms didn’t explicitly say that assets were held on trust for customers. FTX wasn’t supposed to touch customer funds once they were deposited. Maybe that’s the whole point, that SBF was relying on some bizarre technicality or legal fiction to convince himself that he had the right to deal with customer assets. Did I mention that both of his parents are compliance lawyers, with one a leading expert on tax havens. If there’s anyone that could access the advice to set up a complex piece of legal fiction entitling him to pilfer customer funds in a defensible way, it’s SBF. Liquidations That only explains how Alameda Research got access to customer funds, but how did they lose the funds? Alameda Research is a market maker primarily and was the key integrated market maker on FTX. Among other things that gave Alameda the ability to purchase liquidated positions of customers, likely at a huge discount. In a bull market this is a hugely advantaged position to be in. Say Bitcoin drops 5% in an hour and longs get liquidated, Alameda was able to purchase those long Bitcoin positions and then resell them later, after the liquidation cascade was over and price had recovered. Alameda was exempt from liquidation on FTX, so they could hold underwater positions for as long as they wanted without being forced to close them. In a bear market, Alameda would likely accumulate underwater positions that they couldn’t get out of without incurring a large loss. Other market makers will generally sell a liquidated position off as soon as possible, to avoid being liquidated themselves. This doesn’t appear to be a check and balance that was in place for Alameda’s operations on FTX. Another key feature of the leverage trading offered at FTX was cross asset collateral. Essentially this means that leverage was offered on the entire portfolio of a customer. There wasn’t a segregation of collateral, users could simply offer up a mixed list of tokens and take margin loans against the whole pie. This included FTT and Serum at much more generous collateral ratios than other exchanges offered. Whatever low quality collateral you had, FTX would take it, and it seems that it would end up on Alameda’s books when a customer was liquidated. Luna Eclipse In a collapsing market, this lack of controls over Alameda is potentially disastrous. Luna had the most high profile collapse in the history of Crypto tokens in May this year, losing 99.7% of its value in a week before getting as close to absolute zero as possible. FTX and Binance were the major venues for trading the Luna collapse. Traders bought the dip on leverage all the way down. It seems likely that Alameda took all of those liquidated positions onto their own balance sheet. Luna started its collapse at around $90. The following week it was at essentially zero. There is no way that Alameda could have sold off all of those liquidated customer positions as the token collapsed. This type of liquidation transaction is known as “toxic flow” and is a surefire way to bankrupt a market maker. If FTX’s famously specialized liquidation engine simply meant that customer positions were shunted onto the Alameda balance sheet to be cleared at a later date, then the amount of toxic flow from junk tokens in the last year would build up quickly. This seems to be the only way the size of the hole makes any sense. Other Problems If we assume that Luna blew a giant hole in the balance sheets within the FTX empire then what happened next makes a whole lot more sense. SBF went on a buying spree as Crypto lenders collapsed, backstopping insolvent firms and being proclaimed as Crypto’s JP Morgan. In the cold light of day a more likely explanation than wanting to save the industry is wanting to save himself. If insolvent Crypto lenders like Voyager and Celsius had given loans to FTX, taking FTT and other minor tokens as collateral then those tokens would be seized and sold into the market during a bankruptcy, cratering the price and liquidating FTX loans with other lenders. Don’t forget, for tokens like Serum, FTX held and likely pledged as collateral more than the entire free float on the market. All of this isn’t to say that funds didn’t go missing in other ways though. According to the Bankruptcy filings, FTX had loaned more than $1 billion to SBF individually and $2.3 billion to his investment company, Paper Bird Inc. There were also 9 figure loans to other executives and Bahamas real estate purchased by SBF’s parents and associates worth $300 million. There are even suggestions that the $420 million meme fundraise in October 2021 basically just ended up in the pocket of SBF, rather than productively invested in the company. It seems like the FTX balance sheet was used as a slush fund for SBF. None of this in any way can add up to $6-10 billion in stolen customer funds and it’s unlikely that the mechanism was brazen theft. The scenario outlined above, poor trading controls at Alameda creating bad debt within the corporate structure and a CEO that was scrambling to keep the empire afloat, is far more likely. This also casts a new light on the “generous terms” offered to other major market participants in 2021. Taking VC money What if Alameda’s goal wasn’t to make money, but to lose money to other traders in a perverse growth hack used to attract the next round of “smart money” investors? After all, at best Alameda had been making a few hundred million from trading over the course of its existence and likely much less than that. As spreads closed with more market makers flooding into the asset class it’s much easier to take money from Sequoia and Softbank than it is to make money trading. Running an unprofitable casino is a terrible business, but selling an unprofitable casino that looks extremely busy to a private investor is a fantastic business. This part of the story seems like the inevitable end state of the 2010s dominance of Venture Capital and private investing. After a decade of easy money, low interest loans and an insatiable appetite for tech investments we were bound to see someone game the system. In 2021 VCs were not doing diligence, they were shoving newly raised funds into startups as fast as possible. Venture capital firms invested $643 billion in 2021. Almost double the pace of 2020 and five times as much as was committed in 2012. For context, noted scam company Theranos raised $1.4 billion over 13 years. FTX raised $1.8 billion in only 3 years. The entire story of the growth of FTX is a story of the driving forces of tech stock investing being applied to Crypto and fintech. The problem is that when a social media company blows up, users just lose their photos and social graph. When a fintech or Crypto company blows up, customers lose their funds and lives are ruined. A big part of the problem with FTX was that tech growth hacking and the infinite pot of VC money was applied to financial services with little regard for the safety of users. No one did the diligence. The regulators were asleep at the wheel. “Grow fast and break things” isn’t an appropriate model for the financial sector. We Have Questions… This article mostly dealt with how FTX managed to grow so fast and then blow up so spectacularly but it didn’t touch on the why. As stated in the introduction, there are some major question marks about state entanglement, potential involvement of intelligence operatives and the corruption of captured regulators are all major open questions that I just don’t have answers to. Was FTX a plant to bring down the Crypto industry and justify tighter regulation? Was FTX a front for money flowing from Crypto traders and Tech VCs into Democrat coffers? Why is the mainstream media reporting on this event as if SBF is just a failed entrepreneur who dreamed too big, rather than a fraud who appropriated customer funds? Who was behind the success of FTX? Who is Gary Wang? We likely won’t ever get satisfactory answers to these questions. The family political links between major characters in this story are deeply suspicious. As one Crypto Twitter account that has been covering the news relentlessly said: “This FTX fiasco is *really* doing its best to confirm every single conspiracy theory anyone has ever had about anything.” Next week in the conclusion of this three part article I’ll cover some of the fallout surrounding the FTX collapse that is important to understand and the lessons being learned by the industry in its attempt to rebuild. [A good place to start down the deep state rabbit hole in all this is Mathew Crawford’s  ‘A Grand Unified Theory of FTX’ – which I printed off to read and it clocks in around 65 pages – markjr] *  *  * Today’s post is from contributing analyst Scott Hill. To receive further updates of this series and our overall investment thesis for digital assets (even in this climate), subscribe to the Bombthrower mailing list.  Tyler Durden Sun, 11/27/2022 - 20:30.....»»

Category: worldSource: nytNov 28th, 2022

Futures Slide On China Covid Curb Concerns; Disney Jumps After Chapek Fired

Futures Slide On China Covid Curb Concerns; Disney Jumps After Chapek Fired After opening modestly in the green, US equity futures have drifted steadily lower all session and were last trading near their Monday lows as concerns that China may tighten Covid curbs after China reported its first Covid-related death in almost six months and a city near Beijing rumored to be a test case for dropping all curbs enforced a slew of restrictions all weighed on growth in the world’s second-largest economy, as well as the ongoing carnage in the crypto space. At 7:30am ET, S&P futures were down 0.5% to 3,953 while Nasdaq 100 futures slumped 0.9% to session lows, below 11,600. The dollar stormed higher as investors sought shelter in the dollar; 10Y yields rose to 3.83%, while bitcoin traded around $16,000 after dumping over the weekend. Oil dipped but rebounded from session lows on concern of a weakening demand outlook from China and following a $10 price target cut to $100 for Q4 2022 from Goldman overnight. US-listed Chinese stocks including Alibaba, Baidu and JD.com fell in US premarket trading after China saw its first Covid-related death in almost six months, sparking concern that Beijing could see a return of heightened restrictions on schools, restaurants and shops amid a continuing outbreak in the capital. Worsening outbreaks across the nation are stoking concerns that authorities may again resort to harsh restrictions. A city near Beijing that was rumored to be a test case for the ending of virus restrictions has suspended schools, locked down universities and asked residents to stay at home for five days. Elsewhere in premarket moves, Walt Disney shares soared 8% after the firm fired embattled CEO Bob Iger and brought back former leader Bob Iger as chief executive officer, a surprise capitulation by the board after a string of disappointing results. Cryptocurrency-related stocks declined after the price of Bitcoin retreated amid worries over contagion from the downfall of Sam Bankman-Fried’s FTX empire. Shares in Riot Blockchain -4.5%, Marathon Digital  -3.1%, Coinbase -4.6%. Squarespace shares gained 2.2% after being upgraded to overweight from neutral at Piper Sandler, which identifies the website- building and hosting company as having the lowest risk to its 2023 numbers among e-commerce stocks. "Markets got their hopes up that the Chinese government might loosen its Covid policy, but despite the slowing economy, there is little chance of that," said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “This is going to be bad for commodity-related stocks as well as luxury companies and other exporters to China.” However, others like Morgan Stanley, remain hopeful and expect that China will end Covid zero in a few months; in its base case the bank sees China reopening by April as shown below. "Financial markets have caught a cold amid worries that mounting Covid cases in China and a fresh tightening of restrictions will send a fresh shiver through manufacturing output and push down demand for raw materials," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. As Bloomberg notes, trading will be slow this week, with the US market closed Thursday for the Thanksgiving holiday and open for a half day on Friday. Meanwhile, Goldman strategists warned that the bear market had more room to run and that stocks were likely to see more declines and lower valuations in 2023. "The conditions that are typically consistent with an equity trough have not yet been reached,” strategists including Peter Oppenheimer and Sharon Bell wrote in a note on Monday. They said that a peak in interest rates and lower valuations reflecting recession are necessary before any sustained stock-market recovery can happen. After a sharp rally fueled by signs of cooling inflation, US stocks were subdued last week as Federal Reserve officials indicated they need to see a meaningful slowdown in prices before reducing the pace of their interest rate increases. The big event for the market this week comes Wednesday, when the central bank releases minutes from its latest policy meeting, possibly providing clues on when it will shift to less-aggressive rate hikes. In Europe, the Stoxx 50 index fell 0.5%, with the IBEX outperforming peers, adding 0.4%, while FTSE MIB lags, dropping 1%. Miners, tech and chemicals are the worst-performing sectors. Here are the notable European movers: Virgin Money UK shares rose as much 16%, the most in two years, after the British lender announced an extension of its share buyback program and reported earnings that analysts said could prompt upgrades in profit forecasts. Ipsen rose as much as 4.5%, to the highest since April, after JPMorgan said the stock may get a boost from clinical trial data on its Onivyde and elafibranor drugs in 2023. Rheinmetall shares jumped as much as 3.7% after Deutsche Bank upgraded the defense and automotive company to buy from hold and Berenberg raised its PT on the stock. Diploma shares gained as much as 3.3% after the seals and components distributor reported full-year revenue that beat analyst estimates. Next and Boohoo fell after they were both downgraded to hold from buy at Panmure. The broker cited inventory challenges for UK apparel retailers more broadly as demand has fallen in the UK clothing market since early October. Next fell as much as 1.9% while Boohoo dropped 7%; M&S and Asos also fell. Shares in Vallourec dropped as much as 13% in Paris trading after the steel and alloy tubing group announced third- quarter results that fell short of analyst expectations. Shares in IT services firm Bechtle fell as much as 5.4% after Exane downgraded the stock to neutral, citing concern about how margins will be affected by wage inflation and cost increases. SGS shares fell as much as 3.6%. The testing and inspection firm was cut to underweight from neutral at JPMorgan, with the broker saying shares look “mispriced.” Earlier in the session, Asian stocks also declined, with Hong Kong leading losses, as investors assessed the outlook for China’s reopening while continuing to monitor the Federal Reserve’s policy trajectory. The MSCI Asia Pacific Index dropped as much as 1.2%. Chinese technology stocks were the biggest drags on the gauge, also driving the Hang Seng Index down almost 2%, after fresh reports of Covid deaths and lockdowns in China. Malaysian shares pared losses as a deadline for party leaders to name a prime minister was extended after Saturday’s election produced the country’s first-ever hung parliament. Benchmarks across Asia Pacific also fell, while the dollar strengthened, as Federal Reserve Bank of Boston President Susan Collins reiterated the likelihood of large US interest-rate hikes, with the outlook for inflation still uncertain. US stocks had risen recently on hopes for a slower pace of tightening. “After the recent good US consumer and producer price inflation reports, it was easy to conclude that there are much better times ahead in the asset markets,” said Gary Dugan, chief executive officer at the Global CIO Office in a note. “It just won’t be that easy.” Asian stocks had been rebounding as well, gaining as much as 15% from a trough in October, helped also by hopes for reduced restrictions in China. The advance started to falter last week amid lingering doubts over China’s reopening and US rate policy India’s major stock indexes posted their biggest decline in more than a month, tracking weaker global markets and as shares of Reliance Industries and index-heavy software makers slipped.   The S&P BSE Sensex closed 0.8% lower at 61,144.84 in Mumbai, while the NSE Nifty 50 Index eased by an equal measure. Both indexes posted their biggest single-day slump since Oct. 11, with the Sensex now trading 1.3% off its recent peak. Global stocks fell amid concern that China may tighten Covid curbs after a string of reported deaths. Worsening outbreaks across the nation are stoking concerns that authorities may again resort to harsh restrictions.  All but two of the 19 sector sub-gauges compiled by BSE Ltd. traded lower, led by information technology companies. In FX, the dollar gained as fears of a return to stricter Covid containment measures in China boosted demand for havens. The Bloomberg dollar spot index rises 0.7%. CHF and CAD are the strongest performers in G-10 FX, SEK and JPY underperform. The yen plunged by more than 1% dropping as low as 142 per dollar. The Japanese currency held up well throughout most of the Asian session, but began a steep slide shortly before European session began. The euro fell by as much as 1% versus the dollar, the biggest slide this month, to touch $1.0226.  The Australian dollar and Swedish krona were also among the worst performers It’s not unusual for implied volatility to trail realized in the currency market, especially at times when key risk events like central bank policy meetings are far ahead on the calendar. When it comes to the euro-dollar pair, options are underpriced across the curve, with striking moves on the one- and six-month tenors New Zealand dollar short-dated FX option volatility advanced as pricing for a 75- basis-point hike in the official cash rate holds at 60%, two days out from the decision In rates, Treasuries were mixed with the belly of the curve underperforming, cheapening 2s5s30s fly by 3.2bp on the day. Wider losses were seen across gilts where the front-end underperforms.  Treasury yields were cheaper by 0.5bp across belly and richer by 1.5bp across long-end of the curve, flattening 5s30s spread by 1.5bp on the day -- reaching as low as -10.9bp and tightest since Nov. 7. The US 10-year yields around 3.825% and slightly richer on the day;  gilts lag by additional 1.5bp in the sector. US session focus includes double auction event for 2- and 5-year notes while Daly is expected to speak in the afternoon.  The gilts curve bear-flattens with 2s10s narrowing 2.3bps, while the Bund curve bear-steepens. Peripheral spreads are mixed to Germany; Italy widens, Spain and Portugal tighten. In commodities, WTI and Brent are lower by around USD 0.50/bbl or 0.50% on the session, but have lifted from earlier lows and as such are some way from Friday's base. The crude complex was weighed by China's COVID controls, with a stronger US dollar also impacting and adding to the broader complex's woes. Goldman Sachs cut its Q4 Brent oil outlook by USD 10/bbl to $100/bbl due to China COVID concerns, while it sees elevated oil flows from China ahead of EU curbs and a price cap; $ forecasts Brent to recovery to USD 110/bbl in 2023, expects oil demand to increase at an above trend rate of circa. 1.6mln BPD in 2023. Spot gold/silver are unable to glean any haven-related upside in wake of the USDs strength, with the yellow metal over $10/oz below the USD 1751/oz 10-DMA despite briefly surpassing the figure overnight; base metals similar dented. Cryptocurrency prices struggled in the ongoing crisis sparked by the downfall of Sam Bankman-Fried’s once powerful FTX empire. Crypto-exposed stocks fell. It's a quiet start to the holiday-shortened week, with just the October Chicago Fed national activity index due at 830am. We get earnings from Zoom; On the Fed speaker slate, Fed's Daly talks on price stability. Market Snapshot S&P 500 futures down 0.6% to 3,950.25 STOXX Europe 600 down 0.2% to 432.60 MXAP down 1.2% to 150.77 MXAPJ down 1.4% to 487.13 Nikkei up 0.2% to 27,944.79 Topix up 0.3% to 1,972.57 Hang Seng Index down 1.9% to 17,655.91 Shanghai Composite down 0.4% to 3,085.04 Sensex down 0.9% to 61,121.88 Australia S&P/ASX 200 down 0.2% to 7,139.25 Kospi down 1.0% to 2,419.50 German 10Y yield up 1% to 2.03% Euro down 0.9% to $1.0230 Brent Futures down 0.7% to $86.97/bbl Gold spot down 0.6% to $1,739.61 U.S. Dollar Index up 0.86% to 107.85 Top Overnight News from Bloomberg Asset managers are turning ever more bearish on the dollar amid bets that the Federal Reserve may be approaching the peak of its interest-rate hike cycle Investors are slowly coming to terms with the sheer size of the UK government’s borrowing needs over the next few years and it doesn’t look pretty The PBOC net drained 2b yuan ($421m) via its open-market operations on Monday for the first time since Nov. 9, as a selloff in government and corporate bonds eased China’s financial regulators have asked banks to stabilize lending to property developers and construction firms, the latest effort by policymakers to turn around the real-estate crisis and bolster economic growth More than two years of growth-squelching policies sent international investors fleeing China. It’s taken all of two weeks to lure them back Sam Bankman-Fried’s bankrupt crypto empire owes its 50 biggest unsecured creditors a total of $3.1 billion, new court papers show, with a pair of customers owed more than $200 million each A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks began the week mostly lower amid headwinds from China after several areas announced fresh virus restrictions including lockdowns and the country also reported its first COVID-19 deaths in about six months. ASX 200 was constrained by underperformance in the mining-related sectors amid a decline in commodity prices and with BHP shares pressured amid reports its chairman is considering retiring next year. Nikkei 225 lacked direction amid further political tremors in the Kishida government after Internal Affairs Minister Terada resigned due to involvement in a funding scandal and was the third cabinet member to step down in under a month. KOSPI declined amid geopolitical concerns after North Korea's recent missile launches and with sentiment subdued as data for the first 20 days of November showed exports fell 16.7% Y/Y and imports fell 5.5% Y/Y. Hang Seng and Shanghai Comp suffered losses due to the worsening COVID situation in the mainland, while the Hong Kong benchmark was the worst hit with the special administrative region said to be near to cutting non-emergency services at public hospitals amid a surge in COVID cases and its Chief Executive Lee also tested positive for COVID-19. Furthermore, the PBoC maintained its key lending rates with the 1-Year and 5-Year LPR kept at 3.65% and 4.30%, respectively, although this was widely expected. Top Asian News China reported 2,365 (prev. 2,267) new coronavirus cases in the mainland on November 20th, 24,730 (prev. 22,168) new asymptomatic cases and 2 COVID deaths, which follows its first COVID-related death in six months on Saturday. Beijing’s Chaoyang district urged residents to remain at home on Monday as cases continue to rise, according to Reuters. It was also reported that the Baiyun district in China's Guangzhou imposed a 5-day lockdown from November 21st-25th and China's Shijiazhuang city is to conduct mass coronavirus testing in certain areas. Beijing City has tightened testing requirements for travellers entering Beijing, according to an official; will now require 3 PCR tests in 3 days upon arrival, via Reuters. Hong Kong is near to cutting non-emergency services at public hospitals again amid a surge in COVID cases, according to SCMP. It was also reported that Hong Kong Chief Executive John Lee tested positive for COVID-19. Taiwan’s representative at APEC Morris Chang said he had a very happy interaction with Chinese President Xi during a brief meeting, according to Reuters. US VP Harris met with Chinese President Xi briefly at APEC and she noted to Xi that they must maintain open lines of communication to responsibly manage the competition between their countries, according to a White House official. Furthermore, Harris said that the US does not seek conflict or confrontation and welcomes competition, while she added that her Asia trip signifies the significance of the relationship between the US and its allies and partners in the region, according to Reuters. US House GOP leader McCarthy said he will form a select committee on China if he is elected as House Speaker, according to Reuters. Germany plans to tighten disclosure rules for companies exposed to China and plans to assess company disclosures to decide whether they should conduct stress tests on China risks, according to a draft document cited by Reuters. APEC leaders’ declaration affirmed the commitment to promote strong, balanced, secure sustainable and inclusive growth and stated that they are determined to uphold and further strengthen the rules-based multilateral trading system, while they welcomed progress this year in advancing the free-trade area of the Asia-Pacific. Furthermore, APEC is determined to achieve a post-COVID economic recovery and recognised that more intensive efforts are needed to address challenges such as rising inflation, food security, climate change and natural disasters, according to Reuters. Japanese PM Kishida accepted the resignation of Internal Affairs Minister Terada in order to prioritise parliamentary debate and which follows the latter’s involvement in funding scandals, while it was later reported that Japan appointed former Foreign Minister Matsumoto as the new Internal Affairs Minister, according to Reuters. European bourses are pressured across the board, Euro Stoxx 50 -0.6%, as China's COVID crackdowns weighs on sentiment in an otherwise limited European morning. Sectors feature a defensive bias with those most sensitive to renewed COVID controls posting modest underperformance. Stateside, futures are similarly pressured, ES -0.6%, given the above headwinds with the US docket slim today at the start of a holiday shortened week. Goldman Sachs equity strategy: bear market is not over, continue to think near-term path is likely to be volatile and down before reaching a final trough in 2023, via Reuters. Top European News ECB's Lane says (when questioned on the increment of upcoming hikes) "what matters is the level we're going to arrive at. The exact allocation across different meetings is a secondary issue", via ECB. Does not think December is going to be the last rate hike, "The logic of a pause for the ECB: we’re not at that point". UK PM Sunak will be urged by businesses on Monday to seek better EU relations and will face pressure from businesses to soften the impact of Brexit such as by opening doors to more immigration to fill holes in the nation's labour market, according to FT. UK was reportedly considering Swiss-style ties with the EU and the government believes that EU relations are thawing which could lead to 'frictionless' trade, according to The Times. However, UK Health Minister Barclay said he did not recognise a report that the government wants to shift to a Swiss-style relationship with the EU, according to Reuters. FX Dollar benefits from short squeeze amidst latest bout of China-related risk aversion, DXY eyes 108.000 from 106.890 low. Yen sinks alongside Yuan, towards 142.00 after breach of 100 DMA near 141.00. Euro loses 1.0300+ status as Buck bounces and overshadows hawkish-leaning ECB commentary and firm rebound in EGB yields. Aussie undermined by deteriorating Chinese COVID situation, but Kiwi holds up better in hope of hawkish RBNZ hike on Wednesday; AUD/USD hovers on 0.6600 handle, NZD/USD hangs above 0.6100. Sterling loses Fib support just over 1.1800 after failing to breach round number above convincingly. Fixed Income Despite pronounced action earlier on, core fixed benchmarks are in relative proximity to the unchanged mark with Bunds just 20 ticks lower overall. Bunds were bid on a surprising MM domestic PPI decrease; however, ECB's Lane then pushed the complex back down before the latest Beijing, China updates saw that downside dissipate to leave the benchmark only modestly softer. Stateside, USTs have been directionally in-fitting though magnitudes slightly more contained ahead of a holiday-thinned weak and with two lots of supply due later. Commodities Crude benchmarks are weighed on by China's COVID controls, with a stronger USD also impacting and adding to the broader complex's woes. Specifically, WTI and Brent are lower by around USD 0.50/bbl or 0.50% on the session, but have lifted from earlier lows and as such are some way from Friday's base. BP (BP/ LN) - Stopped production at its Rotterdam Refinery (400k BPD), been taken "completely and safely out of operation". Follows reports via Bloomberg on Friday of a serious incident re. a steam outage, via BP. Subsequently, workers will not assist in restarting operations at the Rotterdam refinery (400k BPD) unless their wage demands are met, via Union. A large explosion reportedly hit Russia’s Gazprom pipeline amid suspicions of sabotage related to Russia’s war in Ukraine, according to the Daily Mail. Kuwait’s oil revenues for FY21/22 rose 84.5% Y/Y to KWD 16.33bln, according to the Finance Ministry. US VP Harris said the US will use its APEC host year to set new ambitious sustainability goals and she proposed setting a new aggregate target for reducing carbon emissions from the power sector in APEC, while she also proposed to set a goal for reducing methane emissions and said the US will introduce a new initiative on a just energy transition, according to a White House official cited by Reuters. UN climate agency published a new COP27 cover decision draft deal text and approved a proposal covering funding arrangements loss and damage from climate change suffered by vulnerable countries. However, it was also reported that EU climate policy chief Timmermans said the deal is not enough of a step forward and that the mitigation programme agreement allows some parties to hide from their commitments, while he added that too many parties are not ready to make more progress, according to Reuters. Goldman Sachs cut its Q4 Brent oil outlook by USD 10/bbl to USD 100/bbl due to China COVID concerns, while it sees elevated oil flows from China ahead of EU curbs and a price cap; UBS forecasts Brent to recovery to USD 110/bbl in 2023, expects oil demand to increase at an above trend rate of circa. 1.6mln BPD in 2023. Russia is now the largest fertiliser supplier to India for the first time as it provides discounts, according to Reuters sources. China's NDRC is to lower retail prices of gasoline and diesel by CNY 175/tonne and CNY 165/tonnes respectively as of November 22nd. Spot gold/silver are unable to glean any haven-related upside in wake of the USDs strength, with the yellow metal over USD 10/oz below the USD 1751/oz 10-DMA despite briefly surpassing the figure overnight; base metals similar dented. Geopolitics IAEA said powerful explosions shook the area of Ukraine’s Zaporizhzhia nuclear power plant on Saturday evening and Sunday morning with more than a dozen blasts heard within a short period during the morning. It was also reported that Ukraine’s Energoatom said Russia's military shelled the Zaporizhzhia nuclear power plant on Sunday morning and that there were at least 12 hits on the plant’s infrastructure facilities, while Russia’s Defence Ministry said Ukraine fired shells at power lines supplying the nuclear power plant, according to Reuters and TASS. US Defense Secretary Austin said Russia is carrying out atrocities in Ukraine and said that ‘these aren’t just lapses’, while he added that China, like Russia, is seeking a world where ‘might makes right’. Austin said autocrats like Russian President Putin are watching the Ukraine conflict and could seek nuclear weapons, while he added autocrats could conclude obtaining ‘nuclear weapons would give them a hunting licence of their own’, according to Reuters. UK PM Sunak told Ukrainian President Zelensky that the UK will provide a GBP 50mln air defence package to Ukraine which will include 125 anti-aircraft guns and technology to counter Iranian-supplied drones, according to Reuters. Russian President Putin spokesperson says there is no discussion in the Kremlin of a fresh wave of military mobilisation, via Reuters. German Defence Ministry spokesperson says air policing is being discussed with Poland, via Reuters. US Event Calendar 08:30: Oct. Chicago Fed Nat Activity Index, est. -0.03, prior 0.10 Central Bank speakers 13:00: Fed’s Daly Talks on Price Stability A more detailed look at global markets courtesy of DB's Jim Reid This morning my new credit strategy team and I have just published our 2023 credit outlook. Our view on the terminal rate for 2023 credit spreads and peak level 2024 defaults hasn’t changed much since we last updated our spread targets in April, when we became the first bank to warn of a tough 2023 US recession. In this outlook, we slightly increase our targets and see YE ‘23 spreads for EUR and USD IG hitting 245bps and 235bps, and EUR and USD HY hitting 930bps and 860bps, respectively. This is a widening from current levels of +53bps, +100bps, +400bps and +410bps, respectively. Our full-year total return forecasts for EU IG is 1.6%, USD IG -0.2%, USD HY -3.3% and EUR HY -4.4%. A lack of near-term maturities will limit 2023 defaults, but our models highlight that leverage is 2x more important than maturity walls at explaining historical default patterns. We forecast YE'23 defaults in USD HY of 4.5%, USD Loans of 5.6%, EUR HY of 2.2%, and EUR Loans of 3.7%. But by 2H’24, we forecast peak defaults in USD HY of 9%, USD Loans of 11.3%, EUR HY of 4.3% and EUR loans of 7.1%. Indeed loans worry us more than high-yield bonds in 2023. We see USD loans returning -10.8% over FY'23 as defaults rise and CLO demand is impaired from future downgrades. In the near-term, European credit should continue to outperform US credit, as event risk in the region falls with spreads still wide to the US. Our bearishness gathers momentum later in 2023. Indeed, the major 2023 theme will be the likely US recession in H2. Whether this happens and how severe it is will make or break 2023. In some ways we feel that this has been a pretty easy US cycle to predict as it's been an old fashioned boom-and-bust cycle. Half the 66 economists who forecast the US economy on Bloomberg now predict at least two consecutive quarters of negative growth for 2023 (albeit mildly negative). Has there ever been such a large number predicting a recession from a starting point of not being in one? The worry we would have is that economists’ models seldom predict a recession. So if they now do, that speaks volumes. The risk is that if and when it arrives, it creates systemic risk from somewhere in the over-levered / illiquid financial system. Something normally breaks when the Fed hikes. So the main driver of 2023 view is the combination of still relatively high rates, a tough US recession, and what crisis that might subsequently trigger. If we’re wrong on the US recession call, or if it is mild and without systemic risk, then we will be wrong on our forecasts. We suspect most readers will hope we are. See the full report here. Hopefully this new report won't distract you from the World Cup. I've drawn Argentina and Poland in the office sweepstake which will distract me from England's likely stressful journey through the tournament, however long it lasts. The start of the World Cup coincides with Thanksgiving week so it will be the usual compressed few days of activity. The FOMC minutes (Wednesday) and the ECB's account of their last meeting (Thursday) will be the key macro events. Focus will likely be on their thinking about the terminal rate (both) and QT plans (ECB), with both now more likely to hike 50bps than 75bps in December. We will also see global flash PMIs on Wednesday. Other data will include an array of business activity indicators, including durable goods orders in the US. Indeed, Wednesday is a US data dump ahead of Thanksgiving and we will also see the final UoM consumer confidence data which includes the inflation expectations revision which is important. Claims also comes a day early. The Fed speakers last week helped prompt a big flattening of the US curve as they generally hinted towards a terminal rate of above 5%. As such before we see the FOMC minutes, tomorrow sees three Fed speakers who might add to the debate. They are all hawks (Mester, George and Bullard) though and have all spoken since the FOMC so the market should know their biases. Over the weekend, the Atlanta Fed President Raphael Bostic (non-voter) opined that he believes that the Fed can slow the pace of rate hikes and feels that the Fed's target policy rate need not rise more than 1 percentage point to tackle inflation and help ensure a soft landing. Boston Fed Collins also spoke but kept all options open. Lastly, with only around 20 S&P 500 firms left to report earnings this season, this week's results line-up will be tech-heavy and feature a number of large Chinese firms. These include Baidu (Tuesday), Xiaomi (Wednesday) and Meituan (Friday). In the US, we will hear from Zoom today and Analog Devices, Autodesk and HP tomorrow. Risk aversion has resurfaced across Asian equity markets this morning with fresh China COVID-19 fears after the nation witnessed its first Covid-related death in 6 months on Saturday with two more following on Sunday, sparking concerns that Beijing would reimpose strict Covid curbs even as they consider longer-term reopenings. As I type, the Hang Seng (-2.09%) is the largest underperformer with the Shanghai Composite (-0.81%), the CSI (-1.30%) and the KOSPI (-1.11%) all slipping. Elsewhere, the Nikkei (+0.02%) has been wavering between gains and losses. In overnight trading, stock futures in the DMs are pointing to a weak start with contracts on the S&P 500 (-0.29%), NASDAQ 100 (-0.24%) and the DAX (-0.37%) trading in the red. Meanwhile, yields on the 2 and 10yr USTs are -2.5bps and -4.1bps lower, respectively, with the curve now at -72.6bps, a fresh four decade low. Coming back to China, the People’s Bank of China (PBOC) left its benchmark lending rates unchanged for the third straight month, maintaining its one-year loan prime rate (LPR) at 3.65%, while the five-year LPR (a reference for mortgages) was kept intact at 4.30%. With the authorities recently extending more support to property developers, the possibility of additional easing seems less likely from the central bank. In energy markets, oil prices are continuing their recent decline amid China demand concerns. Brent crude futures are down -1.02% at $86.73/bbl with WTI (-1.09%) just below $80/bbl. Reviewing last week now, US yields and equities sold off while European counterparts rallied, though the moves in equities in particular were small despite another week filled with macro news. Starting on rates, Fed Vice Chair Brainard kept to the company line in outlining a likely step down to +50bp hikes starting in December, but, unlike her colleagues, did not explicitly tie the slower pace with a higher terminal rate. Regional Fed Presidents were happy to take up that mantle, however, with St. Louis Fed President Bullard continuing to lead the vanguard. Indeed, Bullard noted that policy rates may even need to get as high as 7% to fight inflation, from just under 4% today. The Taylor Rule was invoked in that speech. That sent 2yr Treasury yields +19.2bps higher on the week (+7.2bps Friday). 10yr yields lagged, climbing +1.3bps (+5.9bps Friday), which drove the 2s10s curve to its most inverted of the cycle, ending the week at -70.6bps. While curves also flattened on this side of the Atlantic, Bunds and Gilts outperformed, where 10yr Bunds fell -14.6bps (-0.6bps Friday) and Gilts were -11.9bps (+3.7bps Friday) lower. Despite continued tech layoffs, fears of a material escalation in the war after the missiles landed in Poland (for which tensions were quickly eased), and tighter expected Fed policy, equities were subdued but resilient. Indeed, the S&P 500, which fell -0.69% over the week (+0.48% Friday), had its first weekly performance that did not exceed +1% in either direction since early August, while the STOXX 600 climbed +0.25% given the move lower in European discount rates. For a truly muted performance, we highlight the Dow Jones, which was -0.01% lower (+0.59% Friday). While aggregate indices put in a lacklustre shift, regional indices in Europe outperformed, with the DAX up +1.46% (+1.16% Friday) and the CAC +0.76% (+1.04% higher), and certain sectors underperformed in the US where the Nasdaq fell -1.57% (+0.01% Friday) and the Russell 2000 was -1.75% lower (+0.58% Friday). Elsewhere, Brent crude oil pulled back -8.72% (-2.41% Friday), which was its worst weekly return since early August, coincidentally also the last week that the S&P 500 had an absolute value return below 1%. Tyler Durden Mon, 11/21/2022 - 07:57.....»»

Category: blogSource: zerohedgeNov 21st, 2022

Tech Wrecks But Bonds, Bullion, & Bitcoin Bid As Rate-Hike Odds Slide

Tech Wrecks But Bonds, Bullion, & Bitcoin Bid As Rate-Hike Odds Slide A surprisingly violent day across markets today. FX saw Yuan explode higher; yields plunged everywhere; stocks pumped and dumped (with tech wrecked by MSFT and GOOGL); crypto spiked dramatically higher; oil and gold ramped as the dumped... Former NYFed President Bill Dudley unleashed another of his infamous op-eds today, calling for The Fed to be hawkish for longer (but not higher)... "Emphasizing “longer” rather than “higher” has some advantages. It presumably reduces the risk of a hard landing: If monetary policy is somewhat tight, but not very tight, activity and employment should slow gradually. It gives Fed officials time to assess the consequences of their efforts, recognizing that monetary policy entails uncertainty and affects the economy with long and variable lags. That said, the downside risks are significant. Because less-aggressive tightening takes longer to bring down inflation, it might allow inflationary expectations to become unanchored – a dynamic that only even-higher interest rates could counteract. ... Volcker did what was necessary and beat inflation. Burns didn’t, and failed. How does Powell want to be remembered?" So that really doesn't help does it! But, rate-hike odds slipped (Nov is still a lock for 75bps but Dec now only 25% odds of 75bps hike, down from around 75% on 10/20)... Source: Bloomberg And overall the terminal rate expectation slipped while subsequent rate-cut expectations fell (hawkish)- more pause than pivot... Source: Bloomberg US Majors pumped and dumped today, with MSFT/GOOGL weighing most heavily on Nasdaq overnight. The US cash open sparked another buying panic but the European close ended that fun and games (Nasdaq did not make it back to unch), By the close, the majors were all back the lows of the day with only Small Caps holding any gains... Boeing crashed after some early gains, dragging down the Dow also... The S&P 500 broke back above its 50DMA (following The Dow and Small Caps) but was unable to hold those gains. Nasdaq remains below its 50DMA... Just a reminder, stocks are decoupling from Fed terminal rate expectations on hopes of a pause... but haven't priced in the actual hikes to the pause (and the pivot is evaporating)... Source: Bloomberg Treasuries were bid across the curve with the long-end outperforming (30Y -9bps, 2Y -5bps). On the week, 2Y yields are down around 4bps (underperforming the rest of the curve), while 10Y is leading the charge, down around 20bps.. Source: Bloomberg 10Y Yields tumbled back below 4.00% for the first time in a week (10Y yields are down 35bps from Friday's highs)... Source: Bloomberg Here's Academy Securities' Peter Tchir explaining why the market is suddenly so bullish on rates: There are several reasons, the simplest being the Fed Blackout period. That is important for several reasons: Fed members, such as Daly, in the moments before the blackout period started, seemed to shift gears in terms of what the Fed would do after November. The alleged Fed mouthpiece, Nick at the WSJ, posted a note that also seemed to support that view. So the last few things before the quiet period passed as dovish (at least by recent standards). Finally, we are not subject to hearing how weak data isn’t changing their trajectory three times after any weak data hits (and weak data is hitting). The Fed messaging and blackout period helps but isn’t sufficient. Fortunately, if you are bullish rates here, there are other influences that will help support rates: Lots of signs that inflation is abating (tomorrow’s Inflation Dumpster Dive T-Report). Earnings calls seem to reflect caution, which can be self-fulfilling. FX and geopolitics. It is clear that at least Japan and the U.K. have been reaching out directly and through back channels for support. It seems impossible that the ECB hasn’t. So there is pressure on the Treasury and the Fed to throttle back the dollar’s strength. Since we need cooperation for Russia and China, there could be some give or take. China is un-investible. Expect U.S. investors to pull back from China, with U.S. asset prices likely to benefit. Post-election policy shifts. I think there are two shifts that are plausible, regardless of who wins the November mid-terms: Peace in Ukraine? Virtually no effort has been made to figure out an exit ramp for Putin even as his nuclear threats escalate, backed up by increasingly devastating attacks on infrastructure. Maybe, just maybe after the elections, the messaging will suddenly shift from ensuring a Ukrainian “win” to some sort of “global” win. Inflation fighting at all costs? Given signs the economy is slowing, will politicians stick to the inflation is the devil policy stance? Would that allow the Fed to wait and see? It isn’t a pivot when their work is almost done. The yield curve flattened further with the all-important 3m10Y finally inverting... Source: Bloomberg The dollar was clubbed like a baby seal, tumbling to 5-week lows today (anyone else smell coordination?)... Source: Bloomberg As JPY rallied back to recent yentervention highs... Source: Bloomberg And Offshore Yuan soared by the most on record... Source: Bloomberg The dollar's weakness inspired some crypto gains with Bitcoin back above $21,000 (six-week highs)... Source: Bloomberg And gold rallied with futures back above $1675... Oil prices extended gains today with WTI back above $88 (2 weeks higher)... Finally, amid all the chaos, here's two charts that should help to do anything but calm the nerves. The Sovereign risk of USA and China has been soaring in recent weeks... Source: Bloomberg Default - unlikely; Devaluation - you decide? And then there's this... 'dad joke of the decade' by the richest man in the world... Entering Twitter HQ – let that sink in! pic.twitter.com/D68z4K2wq7 — Elon Musk (@elonmusk) October 26, 2022 And what Friday will be like... Tyler Durden Wed, 10/26/2022 - 16:00.....»»

Category: blogSource: zerohedgeOct 26th, 2022

Macleod: The Great Global Unwind Begins

Macleod: The Great Global Unwind Begins Authored by Alasdair Macleod via GoldMoney.com, There is a growing feeling in markets that a financial crisis of some sort is now on the cards. backslash Credit Suisse’s very public struggles to refinance itself is proving to be a wake-up call for markets, alerting investors to the parlous state of global banking. This article identifies the principal elements leading us into a global financial crisis. Behind it all is the threat from a new trend of rising interest rates, and the natural desire of commercial banks everywhere to reduce their exposure to falling financial asset values both on their balance sheets and held as loan collateral. And there are specific problems areas, which we can identify: It should be noted that the phenomenal growth of OTC derivatives and regulated futures has been against a background of generally declining interest rates since the mid-eighties. That trend is now reversing, so we must expect the $600 trillion of global OTC derivatives and a further $100 trillion of futures to contract as banks reduce their derivative exposure. In the last two weeks, we have seen the consequences for the gilt market in London, warning us of other problem areas to come. Commercial banks are over-leveraged, with notable weak spots in the Eurozone, Japan, and the UK. It will be something of a miracle if banks in these jurisdictions manage to survive contracting bank credit and derivative blow-ups. If they are not prevented, even the better capitalised American banks might not be safe. Central banks are mandated to rescue the financial system in troubled times. However, we find that the ECB and its entire euro system of national central banks, the Bank of Japan, and the US Fed are all deeply in negative equity and in no condition to underwrite the financial system in this rising interest rate environment.  The Credit Suisse wake-up call In the last fortnight, it has become obvious that Credit Suisse, one of Switzerland’s two major banking institutions, faces a radical restructuring. That’s probably a polite way of saying the bank needs rescuing. In the hierarchy of Swiss banking, Credit Suisse used to be regarded as very conservative. The tables have now turned. Banks make bad decisions, and these can afflict any bank. Credit Suisse has perhaps been a little unfortunate, with the blow-up of Archegos, and Greensill Capital being very public errors. But surely the most egregious sin from a reputational point of view was a spying scandal, where the bank spied on its own employees. All the regulatory fines, universally regarded as a cost of business by bank executives, were weathered. But it was the spying scandal which forced the bank’s highly regarded CEO, Tidjane Thiam, to resign. We must wish Credit Suisse’s hapless employees well in a period of high uncertainty for them. But this bank, one of thirty global systemically important banks (G-SIBs) is not alone in its difficulties. The only G-SIBs whose share capitalisation is greater than their balance sheet equity are North American: the two major Canadian banks, Morgan Stanley, and JPMorgan. The full list is shown in Table 1 below, ranked by price to book in the second to last column. [The French Bank, Groupe BPCE’s shares are unlisted so omitted from the table] Before a sharp rally in the share price last week, Credit Suisse’s price to book stood at 24%, and Deutsche Bank’s stood at an equally lowly 23.5%. And as can be seen from the table, seventeen out of twenty-nine G-SIBs have price-to-book ratios of under 50%. Normally, the opportunity to buy shares at book value or less is seen by value investors as a strategy for identifying undervalued investments. But when a whole sector is afflicted this way, the message is different. In the market valuations for these banks, their share prices signal a significant risk of failure, which is particularly acute in the European and UK majors, and to a similar but lesser extent in the three Japanese G-SIBs. As a whole, G-SIBs have been valued in markets for the likelihood of systemic failure for some time. Despite what the markets have been signalling, these banks have survived, though as we have seen in the case of Deutsche Bank it has been a bumpy road for some. Regulations to improve balance sheet liquidity, mainly in the form of Basel 3, have been introduced in phases since the Lehman failure, and still price-to-book discounts have not recovered materially. These depressed market valuations have made it impossible for the weaker G-SIBs to consider increasing their Tier 1 equity bases because of the dilutive effect on existing shareholders. Seeming to believe that their shares are undervalued, some banks have even been buying in discounted shares, reducing their capital and increasing balance sheet leverage even more. There is little doubt that in a very low interest rate environment some bankers reckoned this was the right thing to do. But that has now changed. With interest rates now rising rapidly, over-leveraged balance sheets need to be urgently wound down to protect shareholders. And even bankers who have been so captured by the regulators that they regard their shareholders as a secondary priority will realise that their confrères in other banks will be selling down financial assets, liquidating financial collateral where possible, and withdrawing loan and overdraft facilities from non-financial businesses when they can.  It is all very well to complacently think that complying with Basel 3 liquidity provisions is a job well done. But if you ignore balance sheet leverage for your shareholders at a time of rising prices and therefore interest rates, they will almost certainly be wiped out. There can be no doubt that the change from an environment where price-to-book discounts are an irritation to bank executives to really mattering is bound up in a new, rising interest rate environment. Rising interest rates are also a sea-change for derivatives, and particularly for the banks exposed to them. Interest rates swaps, of which the Bank for International Settlements reckoned there were $8.8 trillion equivalent in June 2021, have been deployed by pension funds, insurance companies, hedge funds and banks lending fixed-rate mortgages. They are turning out to be a financial instrument of mass destruction. An interest rate swap is an arrangement between two counterparties who agree to exchange payments on a defined notional amount for a fixed time period. The notional amount is not exchanged, but interest rates on it are, one being at a predefined fixed rate such as a spread over a government bond yield with a maturity matching the duration of the swap agreement, while the other floats based on LIBOR or a similar yardstick. Swaps can be agreed for fixed terms of up to fifteen years. When the yield curve is positive, a pension fund, for example, can obtain a decent income uplift by taking the fixed interest leg and paying the floating rate. And because the deal is based on notional capital, which is never put up, swaps can be leveraged significantly. The other party will be active in wholesale money markets, securing a small spread over floating rate payments received from the pension fund. Both counterparties expect to benefit from the deal, because their calculations of the net present values of the cash flows, which involves a degree of judgement, will not be too dissimilar when the deal is agreed. The risk to the pension fund comes from rising bond yields. Despite the rise in bond yields, it still takes the fixed rate agreed at the outset, yet it is committed to paying a higher floating rate. In the UK, 3-month sterling LIBOR rose from 0.107% on 1 December 2021, to 3.94% yesterday. In a five-year swap, the fixed rate taken by the pension fund would be based on the 5-year gilt yield, which on 1 December last was 0.65%. With a spread of perhaps 0.25% over that, the pension fund would be taking 0.9% and paying 0.107%, for a turn of 0.793%. Today, the pension fund would still be taking 0.9%, but paying out 3.94%. With rising interest rates, even without leverage it is a disaster for the pension fund. But this is not the only trap they have fallen into. In the UK, pension fund exposure to repurchase agreements (repos) led to margin calls and a sudden liquidation of gilt collateral less a fortnight ago. A number of specialist firms offered liability driven investment schemes (LDIs), targeted at final salary pension schemes. Using repos, LDI schemes were able to use low funding rates to finance long gilt positions, geared by up to seven times. When LDIs blew up due to falling collateral values, the gilt market collapsed as pension funds became forced sellers, and the Bank of England dramatically reversed its stillborn quantitative tightening policy. That saga has further to run, and the problem is not restricted to UK pension funds, as we shall see. A fuller description of how these repo schemes blew up is described later in this article. The LDI episode is a warning of the consequences of a change in interest rate trends for derivatives in the widest sense. We should not forget that the evolution of derivatives has been in large measure due to the post-1980 trend of declining interest rates. With commodity, producer, and consumer prices now all rising fuelled by currency debasement, that trend has now come to an end. And with collateral values falling instead of rising, it is not just a case of dealers adjusting their outlook. There are bound to be more detonations in the $600 trillion OTC global derivatives market. Central to these derivatives are banks and shadow banks. Credit Suisse has been a market maker in credit default swaps, leveraged loans, and other derivative-based activities. The bank deals in a wide range of swaps, interest rate and foreign exchange options, forex forwards and futures.[i] The replacement values of its OTC derivatives are shown in the 2021 accounts at CHF125.6 billion, which reduces with netting agreements to CHF25.6 billion. Small beer, it might seem. But the notional amounts, being the principal amounts upon which these derivative replacement values are based are far, far larger. The leverage between replacement values and notional amounts means that the bank’s exposure to rising interest rates could rapidly drive it into insolvency. At this juncture, we cannot know if this is at the root of the bank’s troubles. And this article is not intended to be a criticism of Credit Suisse relative to its peers. The problems the bank faces are reflected in the entire G-SIB system with other banks having far larger derivative exposures. The point is that as a whole, participants in the derivatives market are unprepared for the conditions which led to its phenomenal growth at $600 trillion equivalent, which is now being reversed by a change in the primary trend for interest rates. Central bank balance sheets and bailing commercial banks In the event of commercial banking failures, it is generally expected that central banks will ensure depositors are protected, and that the financial system’s survival is guaranteed. But given the sheer size of derivative markets and the likely consequences of counterparty failures, it will be an enormous task requiring global cooperation and the abandonment of the bail-in procedures agreed by G20 member nations in the wake of the Lehman crisis. There will be no question but that failing banks must continue to trade with their bond holders’ funds remaining intact. If not, then all bank bonds are likely to collapse in value because in a bail-in bond holders will prefer the sanctity of deposits guaranteed by the state. And any attempt to limit deposit protection to smaller depositors would be disastrous. Because the Great Unwind is so sudden, it promises to become a far larger crisis than anything seen before. Unfortunately, due to quantitative easing the central banks themselves also have bond losses to contend with, wiping out the values of their balance sheet equity many times over. That a currency-issuing central bank has net liabilities on its balance sheet would not normally matter, because it can always expand credit to finance itself. But we are now envisaging central banks with substantial and growing net liabilities being required to guarantee entire commercial banking networks.  The burden of bail outs will undoubtedly lead to new rounds of currency debasement directly and indirectly, as vain attempts are made to support financial asset values and prevent an economic catastrophe. Accelerating currency debasement by the issuing authorities will almost certainly undermine public faith in fiat currencies, leading to their entire collapse, unless a way can be found to stabilise them. The euro system has specific problems In theory, recapitalising a central bank is a simple matter. The bank makes a loan to its shareholder, typically the government, which instead of a balancing deposit it books as equity in its liabilities. But when a central bank is not answerable to any government, that route cannot be taken. This is a problem for the ECB, whose shareholders are the national central banks of the member states. Unfortunately, they are also in need of recapitalisation. Table 2 below summarises the likely losses suffered this year so far on their bond holdings under the assumptions in the notes. Other than the four national central banks for which bond prices are unavailable, we can see that all NCBs and the ECB itself have been entrapped by rising bond yields. Even the mighty Bundesbank appears to have losses on its bonds forty-four times its shareholders’ capital since 1 January. Bearing in mind that the Eurozone’s consumer price index is now rising at about 10% and considerably higher in some member states, 5-year maturity government bond yields between 2% (Germany) and 4% (Italy) can be expected to rise considerably from here. No amount of mollification, that central banks can never go bust, will cover up this problem. Imagine the legislative hurdles. The Bundesbank, let’s say, presents a case to the Bundestag to pass enabling legislation to permit it to recapitalise itself and to subscribe to more capital in the ECB on the basis of its share of the ECB’s equity to restore it to solvency. One can imagine finance ministers being persuaded that there is no alternative to the proposal, but then it will be noticed that the Bundesbank is owed over €1.2 trillion through the TARGET2 system. Surely, it will almost certainly be argued, if those liabilities were paid to the Bundesbank, there would be no need for it to recapitalise itself. If only it were so simple. But clearly, it is not in the Bundesbank’s interest to involve ignorant politicians in monetary affairs. The public debate would risk spiralling out of control, with possibly fatal consequences for the entire euro system. So, what is happening with TARGET2? TARGET2 imbalances are deteriorating again… Figure 1 shows that TARGET2 imbalances are increasing again, notably for Germany’s Bundesbank, which is now owed a record €1,266,470 million, and Italy’s Banca Italia which owes €714,932 million. These are the figures for September, while all the others are for August and are yet to be updated. In theory, these imbalances should not exist because that was an objective behind TARGET2’s construction. And before the Lehman crisis, they were minimal as the chart shows. Since then, they have increased to a total of €1,844,815 million, with Germany owed the most, followed by Luxembourg, which in August was owed €337,315 billion. Partly, this is due to Frankfurt and Luxembourg being financial centres for international transactions through which both foreign and Eurozone investing institutions have been selling euro-denominated obligations issued by entities in Portugal, Italy, Greece, and Spain (the PIGS). The bank credit resulting from these transactions works through the system as follows: An Italian bond is sold through a German bank in Frankfurt. On delivering the bond, the seller has recorded in his favour a credit (deposit) at the German bank. Delivery to Milan against payment occurs with the settlement going through TARGET2, the settlement system through which cross-border settlements are made via the NCBs. Accordingly, the German bank records a matching credit (asset) with the Bundesbank.  The Bundesbank has a liability to the German bank. On the Bundesbank’s balance sheet, it generates a matching asset, reflecting the settlement due from the Banca d’Italia. The Banca d’Italia has a liability to the Bundesbank, and a matching asset to the Italian bank acting for the buyer of the Italian bond. The Italian bank has a liability to the Banca d’Italia, matching the debit on the bond buyer’s account, which is extinguishedby the buyer’s payment in settlement. As far as the international seller and the buyer through the Italian market are concerned, settlement has occurred. But the offsetting transfers between the Bundesbank and the Banca d’Italia have not taken place. There have been no settlements between them, and imbalances are the result.  The situation has been worsened by capital flight within the Eurozone, using dodgy collateral originating in the PIGS posted to the relevant national central bank by commercial banks, against cash credits made to commercial banks in the form of repurchase agreements (repos).  There are two reasons for these repo transactions. The first is simple capital flight within the Eurozone, where cash balances gained through repos are deployed to buy bonds and other assets lodged in Germany and Luxembourg. The payments will be in euros but are very likely to be for bonds and other investments not denominated in euros. The second is that in overseeing TARGET2, the ECB has ignored collateral standards as a means of subsidising the PIGS’ financial systems. With the PIGS economies on continuing life support, local bank regulators would be put in an awkward position if they had to decide whether bank loans are performing or non-performing. Because increasing quantities of these loans are undoubtedly non-performing, the solution has been to bundle them up as assets which can be used as collateral for repos through the central banks, so that they get lost in the TARGET2 system. If, say, the Banca d’Italia accepts the collateral it is no longer a concern for the local regulator. The true fragility of the PIGS economies is concealed in this way, the precariousness of commercial bank finances is hidden, and the ECB has achieved a political objective of protecting the PIGS’ economies from collapse. The recent increase in the imbalances, particularly between the Bundesbank and the Banca d’Italia are a warning that the system is breaking down. It was not an obvious problem when the long-term trend for interest rates was declining. But now that they are rising, the situation is radically different. The spread between Germany’s bond yields and those of Italy along with those of the other PIGS is increasingly being deemed by investors to be insufficient to compensate for the enhanced risks in a rising interest rate environment. The consequences could lead to a new crisis for the PIGS as their precarious state finances become undermined. Furthermore, capital flight out of Eurozone investments generally is confirmed by the collapse in the euro’s exchange rate against the US dollar. The Eurozone’s repo market From our analysis of the underlying causes of TARGET2 imbalances, we can see that repos play an important role. For the avoidance of doubt a repo is defined as a transaction agreed between parties to be reversed on pre-agreed terms at a future date. In exchange for posting collateral, a bank receives cash. The other party, in our discussion being a central bank, sees the same transaction as a reverse repo. It is a means of injecting fiat liquidity into the commercial banking system. Repos and reverse repos are not exclusively used between commercial banks and central banks, but they are also undertaken between banks and other financial institutions, sometimes through third parties, including automated trading systems. They can be leveraged to produce enhanced returns, and this is one of the ways in which liability driven investment (LDI) has been used by UK pension funds geared up to seven times. Presumably UK LDIs are an activity mirrored by their Eurozone equivalents, likely to be revealed as interest rates continue to rise. According to the last annual survey by the International Capital Market Association conducted in December 2021, at that time the size of the European repo market (including sterling, dollar, and other currencies conducted in European financial centres) stood at a record of €9,198 billion equivalent.[ii] This was based on responses from a sample of 57 institutions, including banks, so the true size of the market is somewhat larger. Measured by cash currency analysis, the euro share was 56.9% (€5,234bn). Obtaining euro cash through repos is cheap finance, as Figure 2 illustrates, which is of rates earlier this week. It allows European pension and insurance funds to finance geared bond positions through liability driven investment schemes. Which is fine, until the values of the bonds held as collateral fall, and cash calls are then made. This is what blew up the UK gilt market recently and are doing do so again this week as gilt prices fall. This is not a problem restricted to the UK and sterling markets. We can be sure that this situation is ringing alarm bells in the ECB’s headquarters in Frankfurt, as well as in all the major commercial banks around Europe. It has not been a concern so long as interest rates were not rising. Now that they are, with price inflation out of control there’s likely to be an increased reluctance on the part of the banks to novate repo agreements. There are a number of moving parts to this emerging crisis. We can summarise the calamity beginning to overwhelm the Eurozone and the euro system, as follows: Rising interest rates and bond yields are set to implode European repo markets. The LDI crisis which hit London will also afflict euro-denominated bond and repo markets — possibly even before the ink in this article has long dried. Collapsing repos in turn will lead to a failure of the TARGET2 system, because repos are the primary mechanism drivingTARGET2 imbalances. The spreads between German and highly indebted PIGS government bonds are bound to widen dramatically, causing a new funding crisis for ever more highly indebted PIGS on a scale far larger than seen in the past. Commercial banks in the Eurozone will be forced to liquidate their assets and collateral held against loans, including repos, as rapidly as possible. This will collapse Eurozone bond markets, as we saw with the UK gilt market earlier this month. Paper held in other currencies by Eurozone banks will be liquidated as well, spreading the crisis to other markets. The ECB and the euro system, which is already insolvent, is duty bound to intervene heavily to support bond markets and ensure the survival of the whole system. Panglossians might argue that the ECB has successfully managed financial crises in the past, and that to assume they will fail this time is unnecessarily alarmist. But the difference is in the trends for price inflation and interest rates. If the ECB is to have the slightest chance of succeeding in keeping the whole euro system and its allied commercial banking system afloat, it will be at the expense of the currency as it doubles down on suppressing interest rates.  The Bank of Japan is struggling to keep bond yields suppressed Along with the ECB, the Bank of Japan forced negative interest rates upon its financial system in an effort to maintain a targeted 2% inflation rate. And while other jurisdictions see CPI rising at 10% or more, Japan’s CPI is rising at only 3%. There are a number of identifiable reasons why this is so. But the overriding reason is that the Japanese consumer continues to place unshakeable faith in the yen. This means that in the face of higher prices, the average consumer withholds spending, increasing preferences for holding the currency. Even though the yen has fallen by 26% against the dollar, and dollar prices are rising at 8.5%, the growing preference for holding cash yen relative to consumer purchases in domestic markets holds. But this cannot go on for ever. While domestic market conditions remain stable, the US Fed’s more aggressive interest rate policy relative to the BOJ’s tells a different story for the yen on the foreign exchanges. The Bank of Japan first started quantitative easing over twenty years ago and has accumulated a mixture of government bonds (JGBs), corporate bonds, equities through ETFs, and property trusts. On 30 September, their accumulated total had a book value — as distinct from a market value — of over ¥594 trillion ($4.1 trillion). But at ¥545.5 trillion, the JGB element is 92% 0f the total. Since 31 December 2021, the yield on the 10-year JGB (by far the largest component) has risen from 0.17% to 0.25% today. On this basis, the bond portfolio held at that time has lost nearly ¥10 trillion, which compares with the bank’s capital of only ¥100 million. Therefore, the losses on the bond element alone are about 100,000 times greater that the bank’s slender equity. One can see why the BOJ has drawn a line in the sand against market reality. It insists that the 10-year JGB yield must be prevented from rising above 0.25%. Its neo-Keynesian case is that consumer inflation is subdued so the case for reducing stimulation to the economy is a marginal one. But the consequence is that the currency is collapsing. And only yesterday, the rate to the US dollar began to slide again. This is shown in Figure 3 — note that a rising number represents a weakening yen. Despite the mess that Japan’s Keynesian policies has created, it is difficult to see the BOJ changing course willingly. But the crisis for it will surely come if one or more of its three G-SIBs needs supporting. And it should be noted (See Table 1) that all three of them have balance sheet gearing measured by assets to shareholders equity of over twenty times, with Mizuho as much as 26 times, and they all have price to book ratios less than 50%. The Fed’s position The position of America’s Federal Reserve Board is starkly different from those of the other major central banks. True, it has substantial losses on its bond portfolio. In its Combined Quarterly Financial Report for June 30, 2022, the Fed disclosed the change in unrealised cumulative gains and losses on its Treasury securities and mortgage-backed securities of $847,797 million loss (versus June 30 2021, $185,640m loss).[iii] The Fed reports these assets in its balance sheet at amortised cost, so the losses are not immediately apparent. But on 30 June, the five-year note was yielding 2.7% and the ten-year 2.97%. Currently, they yield 4.16% and 3.95% respectively. Even without recalculating today’s market values, it is clear that the current deficit is now considerably more than a trillion dollars. And the Fed’s capital and reserves stand at only $46.274 billion, with portfolio losses exceding 25 times that figure. Other than losses from rising bond yields, instead of pushing liquidity into markets it is withdrawing it through reverse repos. In this case, the Fed is swapping some of the bonds on its balance sheet for cash on pre-agreed, temporary terms. Officially, this is part of the Fed’s management of overnight interest rates. But with the reverse repo facility standing at over $2 trillion, this is far from a marginal rate setting activity. It probably has more to do with Basel 3 regulations which penalise large bank deposits relative to smaller deposits, and a lack of balance sheet capacity at the large US banks. Repos, as opposed to reverse repos, still take place between individual banks and their institutional customers, but it is not obvious that they pose a systemic risk, though some large pension funds may have been using them for LDI transactions, similarly to the UK pension industry. While highly geared compared with in the past, US G-SIBs are not nearly as much exposed to a general credit downturn as the Europeans, Japanese, and the British. Contracting bank credit will hurt them, but other G-SIBs are bound to fail first, transmitting systemic risk through counterparty relationships. Nevertheless, markets do recognise some risk, with price-to-book ratios of less than 0.9 for Goldman Sachs, Bank of America, Wells Fargo, State Street, and BONY-Mellon. JPMorgan Chase, which is the Fed’s principal policy conduit into the commercial banking system, is barely rated above book value. Bank of England — bad policies but some smart operators In the headlights of an oncoming gilt market crash, the Bank of England acted promptly to avert a crisis centred on pension fund liability driven investment involving interest rate swaps. The workings of interest rate swaps have already been described, but repos also played a role. It might be helpful to explain briefly how repos are used in the LDI context. A pension fund goes to a shadow bank specialising in LDI schemes, with access to the repo market. In return for a deposit of say, 20% cash, the LDI scheme provider buys the full amount of medium and long-dated gilts to be held in the LDI scheme, using them as collateral backing for a repo to secure the funding for the other 80%. The repo can be for any duration from overnight to a year.  One year ago, when the Bank of England suppressed its bank rate at zero percent, one-month sterling LIBOR was close to 0.4% percent to borrow, while the yield on the 20-year gilt was 1.07%. Ignoring costs, a five-times leverage gave an interest rate turn of 0.63% X 5 = 3.15%, nearly three times the rate obtained by simply buying a 20-year gilt. Today, the yield differential has improved, leading to even higher net returns. But the problem is that the rise in yield for the 20-year gilt to 4.9% means that the price has fallen from a notional 100 par to 49.95. Since this is the collateral for the cash obtained through the repo, the pension fund faces margin calls amounting to roughly 2.5 times the original investment in the LDI scheme. And all the pension funds using LDI schemes faced calls at the same time, which crashed the gilt market. This is why the BOE had to act quickly to stabilise prices. Very sensibly, it has given pension funds and the LDI providers until this Friday to sort themselves out. Until then, the BOE stands prepared to buy any long-dated gilts until tomorrow (Friday, 14 October). It should remove the selling pressure from LDI-related liquidation entirely and orderly market conditions can then resume. This experience serves as an example of how rising bond yields can wreak havoc in repo markets, and with interest rate swaps as well. That being the case, problems are bound to arise in other currency derivative markets as bond yields continue to rise. Like the other major central banks, the BOE has seen a substantial deficit arise on its portfolio of gilts. But at the outset of QE, it got the Treasury to agree that as well as receiving the dividends and profits from gilts so acquired, it would also take any losses. All gilts bought under the QE programmes are held in a special purpose vehicle on the Bank’s balance sheet, guaranteed by the Treasury and therefore valued at cost. Conclusions In this article I have put to one side all the economic concerns of a downturn in the quantities of bank credit in circulation and focused on the financial consequences of a new long-term trend of rising interest rates. It should be coming clear that they threaten to undermine the entire fiat currency financial system. Credit Suisse’s public problems should be considered in this context. That they have not arisen before was due to the successful suppression of interest rates and bond yields, while the quantities of currency and bank credit have expanded substantially without apparent ill effects. Those ill effects are now impacting financial markets by undermining the purchasing power of all fiat currencies at an accelerating rate. From being completely in control of interest rates and fixed interest markets, central banks are now struggling in a losing battle to retain that control from the consequences of their earlier credit expansion. That enemy of every state, the market, has central banks on the run, uncertain as to whether their currencies should be protected (this is the Fed’s current decision and probably a dithering BOE) or a precarious financial system must be the priority (this is the ECB and BOJ’s current position). But one thing is clear: with CPI measures rising at a 10% clip, interest rates and bond yields will continue to rise until something breaks. So far, commercial banks are dumping financial assets to deleverage their balance sheets. The effects on listed securities are in plain sight. What is less appreciated, at least before LDI schemes threatened to collapse the UK’s gilt market, is that the $600 trillion OTC derivative market which grew on the back of a long-term trend of declining interest rates is now set to shrink as contracts go sour and banks refuse to novate them. That means that up to $600 trillion of notional credit is set to vanish, in what we might call the Great Unwind. This downturn in the cycle of bank credit boom and bust will prove difficult enough for the central banks to manage. But they themselves have balance sheet issues, which can only be resolved, one way or another, by the rapid expansion of base money. And that risks undermining all public credibility in fiat currencies. Tyler Durden Fri, 10/14/2022 - 19:40.....»»

Category: smallbizSource: nytOct 14th, 2022

Futures Flat Amid Firehose Of News, Start Of Earnings Season

Futures Flat Amid Firehose Of News, Start Of Earnings Season Welcome to the final day of the week and first day of Q3 earnings season, which coming after yesterday's torrid post-CPI reversal, has already seen a flood of newsflow and market volatility: while JPM reported solid earnings this morning to launch the latest earnings season helping push its stock higher in the premarket, followed by mediocre results from Wells and Citi and a soggy update from Morgan Stanley which sent its price down 3%, the big news of the day is the unexpected termination of UK chancellor Kwasi Kwarteng who was summarily fired as a scapegoat for the unprecedented chaos gripping the UK over the past month. pic.twitter.com/4nvtyGWCoA — Kwasi Kwarteng (@KwasiKwarteng) October 14, 2022 And with traders desperately scrambling to stay on top of all the flashing red headlines, futures are surprisingly flat, as S&P 500 and Nasdaq 100 futures flip between losses and gains as corporate results started rolling in. US banks are expected to post the biggest profit decline of any S&P 500 Index sector, according to data compiled by Bloomberg Intelligence, even as energy props up the entire market. The fear is Fed tightening will spark defaults and force banks to set aside higher provisions against losses. In premarket trading, tech shares continued to weaken as Jefferies became the latest bank to highlight the impact of higher rates and US restrictions on shipments to China. Nutanix shares rose as much as 18% in premarket trading after Dow Jones reported that the company is exploring a sale after receiving takeover interest, citing people familiar with the matter. Here are some other notable premarket movers: Delta Air Lines (DAL US) shares gain 1.3% in premarket trading after Cowen upgraded the carrier to outperform from market perform, noting that the third quarter was strong outside of Hurricane Ian, which took earnings slightly below the broker’s estimates. Beyond Meat (BYND US) shares fell 10% in premarket trading after the company lowered its 2022 revenue outlook and said it’s reducing current workforce by approximately 200 employees. Keep an eye on Blue Owl (OWL US) as the stock was initiated with an overweight recommendation at Piper Sandler, which says the asset management firm is well positioned to take advantage of long-term industry tailwinds. Travere Therapeutics (TVTX US) fell 5.1% in postmarket trading on Thursday as the company announced that it sees a three-month extension of the previously assigned PDUFA target action date for its application for accelerated approval of sparsentan for the treatment of IgA nephropathy. “Even though investors may look through a disappointing CPI print, it will be a much higher bar to look through weak corporate earnings.” Invesco global market strategist David Chao told clients. “Growth is below trend and decelerating because the Fed is still tightening. This is a tough backdrop for risk assets.” In Europe, the Stoxx 50 adds 1%. IBEX outperforms peers, climbing 1.1%, DAX lags, adding 0.8%. Utilities, real estate and chemicals are the strongest-performing sectors. Here are the biggest movers: Bystronic shares rise as much as 1.9%, the most since June, after company reported a net revenue beat yoy for the nine-month period. Analysts welcome a more specified and positive outlook. Ahold Delhaize shares advance as much as 2.3% after Bryan Garnier said a potential Kroger-Albertsons tie-up removes concerns about Ahold merging with Albertsons, which had been rumored over the summer. Arcadis gains as much 5.3%, the most intraday in three months, after KBC Securities raised its rating on the engineering company to buy from accumulate, saying recent acquisitions have increased the company’s exposure to growth trends, while the stock’s valuation is “conservative.” Kone shares fall, paring earlier gains of as much as 4.3%, after the Finnish elevator firm reported preliminary adjusted Ebit for the third quarter that missed estimates. Temenos shares tumble as much as 23% to the lowest since 2016, after the banking software firm announced a sharp cut to FY Ebit target on the back of a 50% miss on bottom-line in 3Q.# International Distributions Services plunges as much as 17%, most since early days of Covid-19 pandemic, after reporting a loss at its Royal Mail unit and warning of possible job cuts in response to recent strike action. TomTom NV falls as much as 12%, the most since May 24, after it lowered guidance for free cash flow as a percentage of revenue to break-even from at least 5%. In Britain, government bonds rallied sharply as Prime Minister Liz Truss prepared to reverse parts of her tax-cutting program and ousted chancellor Kwasi Kwarteng. The pound weakened. Her plans have roiled UK markets for weeks, forcing the Bank of England to launch an emergency bond-buying program. That program expires later on Friday. “It does seem pretty clear that the government is preparing a U-turn on at least a very big chunk, if not half, the permanent tax cuts in the budget,” BlackRock Inc.’s chief macroeconomic strategist, Rupert Harrison, told Bloomberg Television. “And if we don’t get that, then the markets will react very negatively.” Earlier in the session,  Asian stocks took impetus from the aggressive rebound on Wall St where stocks made a remarkable comeback from the initial CPI-related selling with several factors attributed to the turnaround including a dovish ECB staff model view, speculation of a major U-turn in the UK’s fiscal plans and a touted short squeeze. ASX 200 was lifted in which energy led the broad strength across sectors and after Australian Treasurer Chalmers recently ruled out scrapping tax cuts in the budget. Nikkei 225 outperformed and breached the 27,000 level amid some earnings encouragement with index heavyweight Fast Retailing boosted after it posted a record annual profit. Hang Seng and Shanghai Comp. benefitted from the heightened risk appetite as the PBoC reiterated support pledges, while participants digested relatively inline inflation numbers and now await the latest Chinese trade data. In FX, the Bloomberg Dollar Spot Index staged a modest rebound after yesterday’s loss and the greenback advanced versus most of its Group-of-10 peers. The pound led G-10 declines, halting a blistering rally that’s made it the best performer among major currencies this week amid reports of potential u-turns on the UK government’s proposed tax cuts. The euro pared some of yesterday’s advance, to trade at around $0.9750. Bunds and Italian bonds advanced for a second day, led by the belly. The Aussie was the best G-10 performer after China’s central bank pledged to do more to stimulate the economy. Shorter-maturity bonds declined, following losses in similar-dated Treasuries on Thursday. The yen headed for an eighth day of losses, but selling was tempered by speculation the authorities will step in to support the currency. A five-year auction drew solid demand The Hungarian forint rallied by as much as 3% versus the euro, the biggest jump in 11 years, after the central bank said it would provide 18% one-day deposit rate In rates, Treasury yields fell by as much as 4bps, led by the front end following a sharp rally in gilts as UK bonds head toward their biggest weekly gains since 2011 amid expectations the British government is preparing to partially reverse its tax cuts plans.  The UK curve aggressively bull-flattens with long-end yields richer by 30bp on the session; UK 2s10s, 5s30s spreads flatter by 17bp and 5bp. In the US, 10-year futures remain short of Thursday’s highs with cash yields richer by 3bp-5bp across the curve. Focal points of US session include retail sales data and three scheduled Fed speakers. US 10-year yields near lows of the day into early US session, richer by 4.5bp at around 3.90% with gilts outperforming by an additional 20bp in the sector; long-end of the US curve lags slightly, steepening 5s30s spread by ~1bp. In commodities,  WTI and Brent front-month futures are modestly softer on the day as the Dollar picked up in early European hours, but the contracts hold onto most of yesterday's gains. Turkish President Erdogan has ordered the energy minister to build a gas hub in Turkey following talks with Russian President Putin; says both countries will immediately work on Putin's proposal to transport Russian gas, via NTV cited by Reuters. Spot gold found resistance at it is 21 DMA (USD 1,671.50/oz) with the yellow metal edging lower as the USD extends on intraday highs. LME futures are mixed/contained with 3M copper holding onto levels above USD 7,500/t, but LME aluminium dips following the recent rise. Spot gold falls roughly $5 to trade near $1,662/oz. Bitcoin posts modest gains after yesterday's rebound, with the crypto above USD 19,500, whilst Ethereum holds a USD 1,300+ handle. To the day ahead now, and data releases include US retail sales for September, and the University of Michigan’s preliminary consumer sentiment index for October. From central banks, we’ll hear from the ECB’s Holzmann, and the Fed’s George, Book and Waller. Finally, earnings releases include JPMorgan, Wells Fargo, Citigroup, Morgan Stanley and UnitedHealth. Market Snapshot S&P 500 futures down 0.2% to 3,674.50 STOXX Europe 600 up 1.1% to 393.36 MXAP up 1.9% to 138.38 MXAPJ up 1.7% to 446.58 Nikkei up 3.3% to 27,090.76 Topix up 2.3% to 1,898.19 Hang Seng Index up 1.2% to 16,587.69 Shanghai Composite up 1.8% to 3,071.99 Sensex up 1.5% to 58,119.00 Australia S&P/ASX 200 up 1.7% to 6,758.83 Kospi up 2.3% to 2,212.55 German 10Y yield little changed at 2.18% Euro down 0.3% to $0.9751 Brent Futures down 0.6% to $93.97/bbl Gold spot down 0.2% to $1,663.18 U.S. Dollar Index up 0.36% to 112.76 Top Overnight News from Bloomberg Hawkish European Central Bank officials aim to start unwinding the institution’s €5.1 trillion ($4.9 trillion) asset hoard by early 2023 while retaining interest rates as their primary monetary-policy tool, according to people familiar with the matter The euro-area economy may succumb to two consecutive quarters of contraction, European Central Bank Vice President Luis de Guindos told Verslo žinios, a Lithuanian newspaper Overstretched positioning in the options market is taking a hit after the dollar retreated following the release of the latest US inflation data Singapore’s central bank tightened monetary policy settings for a fifth time in the past year, warning of persistent price pressures and a clouded outlook for the global and local economy China’s consumer inflation remained subdued in September as lockdowns continued to impact spending habits, while soft commodity prices kept producer inflation in check. The consumer price index rose 2.8% last month from a year earlier A shift toward private markets is cushioning many of the world’s largest investors from the wreckage wrought by runaway inflation and spiraling interest rates Sweden’s nationalists, who emerged as the second largest political force in last month’s elections, will stay out of the new government that will take over from Magdalena Andersson’s Social Democrats A more detailed look at global markets courtesy of Newsquawk APAC stocks took impetus from the aggressive rebound on Wall St where stocks made a remarkable comeback from the initial CPI-related selling with several factors attributed to the turnaround including a dovish ECB staff model view, speculation of a major U-turn in the UK’s fiscal plans and a touted short squeeze. ASX 200 was lifted in which energy led the broad strength across sectors and after Australian Treasurer Chalmers recently ruled out scrapping tax cuts in the budget. Nikkei 225 outperformed and breached the 27,000 level amid some earnings encouragement with index heavyweight Fast Retailing boosted after it posted a record annual profit. Hang Seng and Shanghai Comp. benefitted from the heightened risk appetite as the PBoC reiterated support pledges, while participants digested relatively inline inflation numbers and now await the latest Chinese trade data. Top Asian News Xi Faces ‘Rockiest Economy in Decades’ on Eve of Party Congress Singapore Unveils New $1.05 Billion Inflation-Relief Package Japan Keeps Up Yen Warnings, Declines to Say If Intervened Iron Ore Heads for Longest Run of Weekly Losses in Almost a Year European bourses trade on a firmer footing in an extension of yesterday’s gains. There hasn’t been a clear factor behind today’s moves with some desks continuing to cite oversold conditions, evidence of disinflationary impulses in more timely indicators (e.g. NY Fed survey) and hopes of a policy u-turn in the UK. Sectors in Europe mostly firmer, with outperformance in Real Estate and Utilities. To the downside but still in positive territory, Tech, Autos and Telecom names lag peers. Stateside, Stateside, US futures are showing a more contained performance with the e-mini S&P back below 3700 as pausing for breath from yesterday’s rally. Top European News UK PM Truss is to reverse some economic plans later today, according to Bloomberg sources.; UK PM Truss is to hold a press conference today (timing TBC), according to Bloomberg. UK Trade Department Minister Hands said there are absolutely no plans to change anything; there is no change to plans on corporation tax, according to Reuters. UK PM Truss and Chancellor Kwarteng are weighing up whether to announce corporation tax rise today after chancellor's early flight back from the US, according to Times' Swinford; no decision has yet been taken. UK Tory whips warned that UK PM Truss could face a leadership challenge if Chancellor Kwarteng's economic statement on October 31st fails to end the turbulence in financial markets, according to the Daily Mail front page. UK senior Tories are reportedly holding talks about replacing PM Truss with a joint ticket of Rishi Sunak and Penny Mordaunt, according to The Times. The 1922 Committee is ready to suspend the rule that prevents a vote to oust the Conservative leader within a year of taking office, according to the New Statesman. ECB's Lagarde said inflation in the EZ is far too high, and likely to stay above the ECB's target for an expected period of time; governing council expects to raise the interest rate further over the next several meetings ECB's Kazimir said 75bps hike in October is appropriate; Deposit Rate must rise above Neutral but start of balance sheet reduction can wait until next year FX DXY attempts to claw back some of yesterday's losses and briefly reclaimed 113.00 to the upside vs yesterday's 113.92 peak. GBP sits as the laggard as it unwinds some of the prior day's gains. USD/JPY topped yesterday's high of 147.67 whilst BoJ Kuroda reiterated the need to maintain stimulus. HUF strengthened following an unexpected NBH hike to the Overnight Collateral Loan Rate. Hungarian Central Bank unexpectedly hikes the Overnight Collateral Loan Rate to 25% from 15.5%. NBH will launch a new one-day deposit tender from today with an 18% interest rate. Fixed Income Bunds are well within a 136.75-138.52 range vs their prior 136.22 prior close. Gilts are back above 97.00 between from yesterday’s 94.52 Liffe settlement amidst further reports that some economic plans may be reversed by the PM later today. T-note towards the top of its 111-14/110-27 overnight extremes ahead of US retail sales and Fed speakers Commodities WTI and Brent front-month futures are modestly softer on the day as the Dollar picked up in early European hours, but the contracts hold onto most of yesterday's gains. Turkish President Erdogan has ordered the energy minister to build a gas hub in Turkey following talks with Russian President Putin; says both countries will immediately work on Putin's proposal to transport Russian gas, via NTV cited by Reuters. Spot gold found resistance at it is 21 DMA (USD 1,671.50/oz) with the yellow metal edging lower as the USD extends on intraday highs. LME futures are mixed/contained with 3M copper holding onto levels above USD 7,500/t, but LME aluminium dips following the recent rise. Geopolitics Japan's Chief Cabinet Secretary Matsuno said North Korea's repeated ballistic missile launches are unacceptable and he believes North Korea will take further provocative action including a possible nuclear test. Matsuno added it is getting more difficult to detect North Korea's missiles early and react, while they are considering all options including counterattack capabilities, according to Reuters. North Korea fires artillery shells off sea, according to South Korean military; into the buffer zones in the east and west seas during the afternoon, Yonhap reported US event calendar 08:30: Sept. Import Price Index YoY, est. 6.2%, prior 7.8% 08:30: Sept. Import Price Index MoM, est. -1.1%, prior -1.0% 8:30: Sept. Export Price Index YoY, est. 9.3%, prior 10.8% 08:30: Sept. Export Price Index MoM, est. -1.0%, prior -1.6% 08:30: Sept. Retail Sales Advance MoM, est. 0.2%, prior 0.3% 08:30: Sept. Retail Sales Control Group, est. 0.3%, prior 0% 08:30: Sept. Retail Sales Ex Auto MoM, est. -0.1%, prior -0.3% 10:00: Aug. Business Inventories, est. 0.9%, prior 0.6% 10:00: Oct. U. of Mich. 5-10 Yr Inflation, est. 2.8%, prior 2.7% 10:00: Oct. U. of Mich. 1 Yr Inflation, est. 4.6%, prior 4.7% 10:00: Oct. U. of Mich. Expectations, est. 58.2, prior 58.0 10:00: Oct. U. of Mich. Current Conditions, est. 59.5, prior 59.7 10:00: Oct. U. of Mich. Sentiment, est. 58.8, prior 58.6 DB's Jim Reid concludes the overnight wrap The term rollercoaster is one of the most overused, lazy terms to describe markets, but the last 24 hours are best summed up by being a major rollercoaster ride and actually home to one of the biggest intra-day turnarounds in living memory. The white-knuckle ride started with a boost amidst reports of a potential fiscal U-turn out of the UK before then slumping on another upside surprise in US inflation, before rallying again (and rallying very hard) for no obvious reason other than potentially stretched bearish positioning ahead of the CPI. If that was the case one can only imagine how bullish markets would have been if CPI was soft. If you’re looking to further explain the unexplainable, Bloomberg suggested that the S&P 500 had given back 50% of the post-covid rally at the lows which triggered technical buy programs. Who knows if this was true. To give you an idea of the ride, futures on the S&P were up +1.57% before CPI, down -2.40% around an hour later, but with the main index closing +2.60% and thus putting a spectacular end to a run of 6 consecutive declines, in spite of a CPI report that was another case of bad news from whatever angle you wanted to look at it. The index had a remarkable intraday range of 5.52%. Let's see what US bank earnings bring today as they herald in the unofficial start of earnings season. In terms of the details of that CPI report, the headline price gains for the month came in at +0.4%, which was above the +0.2% reading expected and meant that the year-on-year measure only ticked down to +8.2% (vs. +8.1% expected). Second, and more concerning from the Fed’s point of view, core CPI was also stronger than expected, with monthly core CPI at +0.6% (vs. +0.4% expected) for a second month running, thus taking the year-on-year measure up to +6.6%, which is the fastest that core inflation has been since 1982. Third, it wasn’t just a case of outliers driving inflation higher, since it continued to remain broad-based across the consumer basket. In fact, the Cleveland Fed’s trimmed mean measure that excludes the biggest outliers in either direction was still up +0.56% on the month (or +6.96% on an annualised basis), so still far from levels that the Fed can be comfortable with. And fourth, if you look at the Atlanta Fed’s measure that divides the consumer basket into sticky prices that change slowly and flexible prices that change quickly, then the monthly gain in sticky prices in September was the biggest since June 1982 at +0.68%, so things are getting even worse on that measure. Against that backdrop, investors swiftly moved to upgrade their expectation of future tightening from the Federal Reserve, with a 75bp hike at the November meeting now fully priced in for the first time. In addition, markets placed a growing probability on the chances of the Fed continuing at a 75bps pace in December rather than slowing down. That’s in line with our US econ team’s updated call following the release, where they now expect the Fed to maintain the +75bp pace of hikes through December (link here). In markets a total of 143bps of hikes are now priced in by year-end. Looking further out into 2023, the peak rate priced for March rose +25.5bps on the day to a new high of 4.92% to reflect the extra 25bps of hikes, and the rate priced for end-2023 similarly rose +22.0bps to a fresh high of 4.57%. With more tightening being priced in for the months ahead, Treasuries sold off across the curve with the front-end particularly impacted. By the close of trade, yields on 2yr Treasuries surged +17.2bps on the day to a post-2007 high of 4.46%, and their 10yr counterparts were also up +4.7bps to 3.94% after trading in a 23.8bps range. This morning yields are less than a bps lower across most of the curve. Decomposing the S&P, the best performers were the cyclically-sensitive energy, financial, information tech, and materials sectors, which, again, bucks against the macro news from yesterday. The Nasdaq lagged slightly behind the S&P, gaining +2.23%. In overnight trading, US equity futures are pointing to further gains with contracts on the S&P 500 (+0.54%) and the NASDAQ 100 (+0.47%) higher ahead of the big bank earnings. Whilst there was plenty of interest in the US CPI, here in the UK there was also lots of market action going on amidst speculation that the government could be on the verge of a U-turn over their recent mini-budget. Sterling surged on the reports, which came from multiple outlets all suggesting that talks were taking place on reversing course. The biggest centre of speculation was with regard to corporation tax, which had been set to go up to 25% from April before Truss came to office, before that was then scrapped by Truss. Not going ahead with that increase was one of the biggest single items in terms of cost in the mini-budget, which totalled £19bn of the £45bn package of tax cuts announced, although it’s not clear yet to what extent they’ll reverse, and whether that might be to a lower rate than 25%. Overnight it's been confirmed that Chancellor Kwarteng has left the IMF conference early which has further raised speculation of an imminent U-turn. For now we haven’t had anything officially confirmed, but sterling surged by +2.04% on the day. Admittedly it had a helping hand from general dollar weakness, but that was still the largest daily increase in sterling since the Covid-related volatility of March 2020, so not the sort of moves we’re used to seeing every day. In the meantime, there was also an incredible rally for gilts as speculation of a U-turn mounted, with the 10yr yield down -23.5bps to 4.19% and 30yr yields down -26.1bps to 4.54% having been 5.09% at the highs in the previous session. That also came as the Bank of England bought a record £4.68bn of bonds yesterday, which is the largest so far, ahead of the scheduled end to their intervention in the gilt market today. Whether that actually happens we'll see next week. That sovereign bond rally was echoed elsewhere in Europe, with yields on 10yr bunds (-2.8bps), OATs (-3.7bps) and BTPs (-6.0bps) all moving lower on the day. And Euro equities put in a decent performance too, with the STOXX 600 recovering from its initial losses to gain +0.85%. That came in spite of investors also moving to ratchet up their expectations of future ECB tightening, with the rate priced in by year-end up +1.9bps on the day. Nevertheless, there was some better news on the inflation side from natural gas futures, which dropped to their lowest levels since early July, falling -3.98% on the day to €154 per megawatt-hour. This morning in Asia, stock markets are tracking US equities with the Nikkei (+3.44%) leading gains and the Hang Seng (+3.38%) trading sharply higher while the Kospi (+2.45%), the CSI (+2.14%) and the Shanghai Composite (+1.74%) are also trading in positive territory. Moving on to China, inflation has remained subdued amid persistent lockdowns and soft commodity prices. Early morning data showed that CPI advanced +2.8% y/y in September, up from +2.5% in August, pushed higher by food costs. While it rose at the fastest pace since April 2020, it fell short of market forecasts for a +2.9% gain. At the same time, the producer price index (PPI) dropped to its slowest pace in 20 months, rising by +0.9% (v/s +1.0% expected), down from +2.3% growth in August. In the FX market, the Japanese yen has hit a fresh 32-yr low of 147.45 versus the US dollar, below the level when the Japanese authorities intervened last month. Yesterday, the BOJ Governor Haruhiko Kuroda in a speech indicated that he intends to stick to his policy of large-scale monetary easing as raising interest rates now seems inappropriate given Japan’s economic and price conditions. The CPI was the main data focus yesterday, but we also got the weekly initial jobless claims from the US, which showed an increase to 228k in the week through October 8. That was a bit above the 225k reading expected and above the 219k reading the previous week, although it partly reflected a rise in Florida claims following Hurricane Ian. To the day ahead now, and data releases include US retail sales for September, and the University of Michigan’s preliminary consumer sentiment index for October. From central banks, we’ll hear from the ECB’s Holzmann, and the Fed’s George, Book and Waller. Finally, earnings releases include JPMorgan, Wells Fargo, Citigroup, Morgan Stanley and UnitedHealth. Tyler Durden Fri, 10/14/2022 - 08:34.....»»

Category: blogSource: zerohedgeOct 14th, 2022

The bond market is in the middle of its worst decline since 1949. It"s set to unravel some very popular trades, BofA says.

The worst bond market decline since 1949 will rattle stocks as surging interest rates unwind the most crowded stock trades, BofA wrote in a research note. Welcome back, team. Phil Rosen here. On Friday, I wrapped my final day at the Messari Mainnet conference in New York City. There, I rubbed shoulders with crypto enthusiasts, blockchain founders, and angel investors who all seem convinced the future of finance is decentralized — and that after parties are mandatory. For the small price of sleep deprivation, last week I took note of dozens of evening festivities ranging from panel talks to rooftop happy hours and even a yacht party. The overwhelming bullishness was the most obvious quirk of the conference. Bitcoin and ether have cratered more than 60% this year, but no one seemed to remember that while dancing on a barge in the East River.  "The general sentiment among VCs [here] is very upbeat," one blockchain exec told me. Read my full dispatch here: Crypto parties are still raging in the bear market. Here's what it's like at Mainnet, where tickets cost $2,100 and attendees party on yachts.And below, I'm breaking down what Bank of America has to say about the worst bond market decline in over 70 years. Buckle up. If this was forwarded to you, sign up here. Download Insider's app here.Alexander Spatari/Getty Images1. The bond market is in the middle of a historic crash and it'll hammer stocks, according to a Friday note from Bank of America. As central banks around the world move to stem inflation, BofA analysts said bonds are experiencing their worst decline since 1949. The US Aggregate Bond ETF is down 15% in 2022, and global bonds have seen even more pain. "Bond crash in recent weeks means highs in credit spreads, lows in stocks are not yet in," BofA analysts said, adding that if it gets worse it could unwind the long US dollar, long US tech, and long private equity trades. These are the trades that helped catapult mega-cap tech names like Apple, Amazon, and Alphabet. If those widely-held, crowded positions become losing bets, BofA said, it would mean a sell-off in stocks. "True capitulation is when investors sell what they love and own," the firm noted.Bank of America is by no means alone in its downbeat forecast. Goldman Sachs on Friday slashed its year-end expectation for the S&P 500 to 3,600 from 4,300.The Fed's aggressiveness, the Wall Street giant said, is going to drag stocks more than 4% lower going into the new year."The expected path of interest rates is now higher than we previously assumed, which tilts the distribution of equity market outcomes below our prior forecast," Goldman strategists said in a note, adding that the outlook is unusually murky."The forward paths of inflation, economic growth, interest rates, earnings, and valuations are all in flux more than usual, with a wider distribution of potential outcomes."What's your stock market outlook heading into year-end? Where is the S&P 500 going to end 2022? Email prosen@insider.com or tweet @philrosenn. In other news: Worried traderRichard Drew/Associated Press2. US stock futures fall early Monday, after the pound slumped nearly 5% to a record low overnight. Meanwhile, oil prices also plunged, with Brent trading below $85 a barrel. Here are the latest market moves. 3. Earnings on deck: Max Healthcare Institute Ltd Registered Shs, Neil Industries Ltd, and more, all reporting.4. Ray Dalio said his hedge fund Bridgewater Associates is up around 25% this year. He broke down two ways investors should approach the market as it is due to drop another 20% — and explained what area he's bullish on in the long run.5. Wharton professor Jeremy Siegel said Jerome Powell is making one of the biggest policy mistakes in the Fed's 110-year history. It's the same exact mistake the Fed made one year ago, Siegel noted — and that could tip the US economy into a recession.6. The IEA's executive director slammed Russia's plan to switch gas exports from Asia to Europe. The Kremlin has "already lost the energy battle" against the EU, Fatih Birol said. He thinks the pivot will take at least 10 years: "You're not selling onions." 7. A top economist said US home prices could plunge 20% by next summer as a housing recession kicks in. House prices are down about 5% from their May peak, and existing home sales are down 20% from a year ago. But Fed officials have indicated they want a correction in the market. 8. The S&P Global exec in charge of the firm's DeFi efforts broke down Wall Street's biggest hurdles to institutional adoption of crypto. In comments at the Messari Mainnet conference, the Chief DeFi officer said institutional capital will flood into crypto once there's more regulatory clarity. Get the full details here.9. The head of ETF strategy at $19.5 billion Allianz shared how to manage risk as the Fed moves to slow inflation. Stocks have tanked since interest rates have climbed, but Johan Grahn explained how investors can manage pitfalls and make smarter money moves as the chances of a recession heighten.Markets Insider10. As stocks sell off, Fundstrat's Tom Lee is sticking to his bullish year-end stock market forecast. Lee argued the Fed could actually do far less tightening, since the market is "doing [the] Fed's work" already. Here's what you want to know. Keep up with the latest markets news throughout your day by checking out The Refresh from Insider, a dynamic audio news brief from the Insider newsroom. Listen here.Curated by Phil Rosen in New York. (Feedback or tips? Email prosen@insider.com or tweet @philrosenn).Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London. Read the original article on Business Insider.....»»

Category: smallbizSource: nytSep 26th, 2022

People are going to war over rare social media usernames

The biggest story in tech right now is a deadly campaign of terror that some people are waging over something seemingly banal: usernames. Sheesh — it's already Monday. Jordan Parker Erb here, reporting to you from New York. On social media, people are waging a deadly campaign over something seemingly banal: usernames. Oh, and for all you Wordle fans (guilty!), the online puzzle is being turned into a board game.Now, let's get to it.If this was forwarded to you, sign up here. Download Insider's app here.Deena So'Oteh for Insider1. People are waging a deadly war over social media usernames. Unique usernames — so-called "OG handles" — have become increasingly coveted on social media, and some people are going to desperate lengths to get them.One tech exec, who nabbed the handle @ginger, is used to fielding offers to buy the username. But in 2020, he became a part of a campaign of terror over the handle.Platforms like Instagram and Twitter ban the sale of handles, so online marketplaces have sprung up instead. The most valuable usernames — two-letter handles, as well as memorable words like ginger — can sell for thousands of dollars.But some people turn to more drastic measures to get rare usernames. Several people with pithy, coveted handles have been targeted, resulting in harassment and "swatting" — and in one case, death.Inside the obsession with social media's most sought-after handles.In other news:A cart full of Amazon packagesCARLO ALLEGRI/Reuters2. Amazon is shrinking private brands like AmazonBasics. The Wall Street Journal reported the company is cutting back on its private-label business — including its colossal AmazonBasics brand — and is considering nixing its private-label selections altogether.3. Elon Musk could face prison time if he doesn't comply with a court order in Twitter's suit. According to a legal expert, the court handling the case has many ways to force compliance — including massive daily fines, taking control of Tesla stock, and even sending Musk to prison. Here's what legal experts are saying.4. A tech worker was fired after posting TikToks about her salary. The employee, based in Denver, deleted videos from her account to avoid angering her bosses, but was fired two days after superiors discussed the content of her videos with her. She breaks down what happened.5. Inside the world of Weee, a rapidly rising online grocer. Weee's CEO Larry Liu pivoted his failing group-buying startup into an Asian and Hispanic grocery delivery service worth $4 billion. While Liu cites the company's diverse immigrant workforce as an advantage, some workers say the company's culture is brutal. Read the full profile on Weee.6. Coinbase is temporarily shutting down its US affiliate-marketing program on July 19. In leaked emails, Coinbase said "crypto market conditions" mean the company is "unable to continue supporting incentivized traffic to its platform." Here's what we learned from the emails.7. Shopify is canceling some students' internships via email. The company rescinded offers for some interns who were set to begin this fall, and is also pausing recruiting for other fall internships — drying up a key onramp into the tech industry.8. Mark Cuban said he made a joke that made Bill Gates so "pissed" they never spoke again. In a podcast interview, Cuban said the interaction happened right after Cuban sold his company Broadcast.com for $5.7 billion in 1999, and that they haven't spoken since. See the joke that has the pair at odds.Odds and ends:The popular online puzzle Wordle is being reimagined as a board game.Hasbro/The New York Times9. Wordle is being turned into a board game. The viral online puzzle, wherein players have six tries to guess a five-letter word, is being reimagined as a board game to play IRL. Here's how to play "Wordle: The Party Game."10. Rivian's new R1S is like three dream cars wrapped up into one EV. After test-driving the new electric SUV, Insider's transportation reporter was enamored. With stunning features, off-roading capabilities, and practicality to boot, he came away thinking the R1S is the best of all worlds.What we're watching today:IBM, Goldman Sachs, Bank of America, and others are reporting earnings. Keep up with earnings here.It's Sir Richard Branson's birthday.The World Economic Forum's Annual Meeting of the New Champions, described as the "Summer Davos," starts today.GameStop Corp record date for 4-for-1 stock split.A hearing is being held in the UK class action case against Google and Alphabet.Keep updated with the latest tech news throughout your day by checking out The Refresh from Insider, a dynamic audio news brief from the Insider newsroom. Listen here.Curated by Jordan Parker Erb in New York. (Feedback or tips? Email jerb@insider.com or tweet @jordanparkererb.) Edited by Hallam Bullock (tweet @hallam_bullock) in London.Read the original article on Business Insider.....»»

Category: smallbizSource: nytJul 18th, 2022

DEFCON 2... Or Cutting Off The Nose To Spite The Face

DEFCON 2... Or Cutting Off The Nose To Spite The Face By Peter Tchir of Academy Securities I had difficulty choosing a title for today. DEFCON 2 made a lot of sense as I’m increasingly worried about the economy and the market – for this summer. On the one hand I’m so perplexed by the messaging that the Fed is prepared to trigger a recession in its fight with inflation that I can’t help but think about cutting off your nose to spite the face. I could almost see Powell starting the press conference with “this is going to hurt me more than it is going to hurt you,” which based on my experience, is rarely true. Inflation - Food To expect monetary policy to reduce food prices seems like a stretch. We all must consume some basic level of food regardless of our income level. Sure, maybe the rich eat more Kraft dinners with fancy ketchup [apologies to the Barenaked Ladies], but food consumption seems relatively inelastic. Maybe lowering the cost of fuel will help reduce the cost of food [shipping, the farmer's use of diesel, etc.], but I'm not sure that will happen quickly enough [or be impactful enough] to help the average consumer in the meantime. Many of those consumers are now facing higher costs of funding - anything from credit cards to ARMs, or any new loan that they are looking at. The supply chain disruption in primarily wheat [and other basic groins due to the Russian invasion of Ukraine] is real and is likely to lost into next year. The longer that lasts, the more stockpiles will be eroded. That is a problem not impacted much one way or the other by interest rates. The shortage of fertilizer [a topic of conversation] will admittedly be helped by reduced energy prices [if the Fed achieves that], but again, I'm not sure this provides much near-term relief, Food, which may or may not be accurately reflected in official inflation measures [when I write may or may not I mean definitely not, but don't want to sound too aggressive] is unlikely to see price declines to the point where the consumer is helped materially. While the official data may or may not be accurate, the consumers know the "real world'' costs and that is affecting their behavior, their sentiment, their outlook, and ultimately their spending, I remain extremely worried about food inflation. Inflation - Energy I'm not sure that even the "after school" specials that used to air on broadcast TV [that always had a morality message] could come up with a plot where the "hero" beats up on the "villain" for most of the show, only to realize that the "villain" has something they need, Then the "hero" reaches out to the "villain" to strike a "mutually" beneficial deal and the "villain," which is so overjoyed to become part of the "good team," immediately acquiesces to that and ignores all the previous messaging, Weirdly, it is a plot too unbelievable for a children's special, but one that "we" (collectively] seem to think will work with Iron, Venezuela, and the Saudis. I won't even touch on the "side plot" of the long-overlooked friend, eagerly waiting for o word of encouragement from the "hero" and ready to step up and deliver, finding itself being treated worse than the "villain" at a time of need. If you missed the Academv Podcast that was "dropped" (I think that's the cool term for it] on Friday, I highly recommend listening to it, General Kearney [ret,] leads the conversation, along with Rachel Washburn, Michael Rodriguez [from an ESG perspective], and me, on nuclear proliferation, the nuclear geopolitical landscape, and also, crucially important, thoughts on the future of nuclear energy, But I've digressed, as those energy issues are really more issues related to D.C. and policy rather than anything controlled by interest rates and Fed policy, But maybe after all I didn't digress that much because I don't see how Fed policy helps reduce energy prices, other than if they are "successful” in derailing the economy. Again, much like food, individuals can only tinker with their need for energy. All of this has a limited impact on overall consumption: keeping the house warmer in the summer, colder in the carpooling a winter, carpooling a bit more, being more organized on errands, convincing the bosses that WFH is good for the environment, etc. Higher energy costs are already causing the demand shrinkage from consumers and I don't see any direct way that higher rates will help reduce gas demand or prices, unless, again, the Fed is "successful" in making the economy worse by a significant margin. On the other side of the coin, higher interest rates seem likely to increase the cost of new production and storage. Any company tying up working capital or expanding production is now experiencing higher interest costs and logic dictates that they will try and pass some of those costs on or not embark on some projects due to the higher cost of funds, So, the rate hikes’ direct impact on energy prices is to probably push them higher as the production and distribution systems face higher costs. Reducing Energy Prices, aka, Hitting the Economy Hard If interest rates are going to reduce energy prices it is going to come from cratering demand for anything and everything that uses energy that can be affected by interest rates! Housing/Real Estate/Construction. I have no idea how much energy goes into building a new home, but I assume a non-trivial amount, The materials that go into constructing a building can be energy intensive [copper piping, etc,], The transportation of these materials to the building site is also expensive, We are already seeing negative data in the housing sector [new home permits are down, expectations for new home sales are declining, the Fannie Mae Home Purchase Sentiment Index is at its lowest level in a decade [except very briefly in March 2020 during the Covid lockdowns], I'm sure I could find more dato pointing to housing slowing, but maybe highlighting that the Bankrate.com 5/1 ARM national average is at 4.1% versus 2.75% at the start of the year, is sufficient, We could look at 30-year mortgages and really shock you, but I think that the 5/1 is as interesting as the rate environment because it demonstrates that there is little relief anywhere along the curve for those needing new mortgages. Autos. Annualized total U.S, auto sales [published by WARD'S automotive] have fallen recently. This measure has been "choppy" to say the least as auto sales have clearly been hit by supply issues. For many makes and models, I'm hearing the wait time is 6 months for a car where you pick the features and it is built to your specifications [which had become the "normal" way of buying cars]. So, maybe, just maybe, the sales here are still being impacted by that, but I’d have to guess that rising auto loan costs are playing a role as well. The Manheim used vehicle value index is still very high, but has stabilized of late. If that stabilization is related to higher loan costs, then it is bad for the auto industry. If it is related to new cars and trucks being more readily available, it isn't a great sign, since that means the new auto sales indications cannot be entirely explained away by supply constraints. My understanding, given the steel and other components, is a lot of energy goes into producing a new automobile. So, I guess it is "good" news that slowing auto sales [and presumably production] will curb energy demand? Consumer Purchases and Delivery, Everywhere you turn there are stories and anecdotes about consumer purchasing slowing down, CONsumer CONfidence [as discussed last weekend] is atrocious! Not only does energy go into the production of the goods that the consumer was purchasing, but with home delivery being such a feature of today's purchasing behavior, energy consumption should go down as delivery services slow down [and as they continue to become more efficient - a process spurred on by higher gas prices]. I’m not sure whether to laugh or cry. Higher interest rates will "help" reduce demand for autos, housing, and general consumer consumption, Apparently, that is good, because it reduces demand for energy and energy inflation [as well as inflation for those products]. I can see that, but I cannot help but think that we need to Be Careful What You Wish For! A Special Place in Hell for Inventories I fear that inventories were a big part of the rise in inflation and would contribute to stabilizing prices [all else being equal] and that recent rate hikes are going to turn a "normal" normalization into something far more dangerous, Manufacturing and Trade Inventories grew from 2014 until COVID at a steady pace, This seemed to correlate nicely with the growing U.S. and global economy. They dropped with supply chain issues, but were back to pre-COVID levels by last summer. Then, from late last summer until the end of April [most recent data point for this series], these inventories grew rapidly! Companies worried about supply chain issues overstocked. This could lead to much lower future orders. Companies shifting to "just in case" from "just in time" need higher inventories, so that part would be stable, but costs of carrying inventory have increased, Maybe companies used straight line extrapolation to accumulate inventory to meet expected consumer demand. That is bad for inventories if the demand isn't materializing! It is extra bad if consumers pulled forward demand in response to their supply chain concerns, meaning that any simplistic estimate of future demand [always problematic, though easy] is even further off the mark as the extrapolation was based on a faulty premise [which is not thinking consumers responded to supply chain issues]. We may have an inventory overhang in the economy. While inventories are significantly higher than pre-COVID levels, the number of people working has still not returned to pre-COVID levels, Yeah, I get that it is far easier to "spend now, pay later" than it used to be through a variety of fintech solutions [ignoring rising interest costs] and that the "wealth effect" and "gambling" culture allows for more spending per job [or maybe it did a few months ago, but not now?] Maybe I'm just a stick in the mud, but... When I look at this chart, I see the correlation between total number of people working and inventory has been completely dislocated! [It also makes me question some of the supply chain issues we allegedly have]. Again, this potential inventory overhang is "amazing" if you want to slow orders and "fix" inflation by having to work off excess inventory rather than adding more. Apologies, if you're tired of reading my snarky comments about things being "good" for inflation fighting. I'm tired of writing them, but cannot think of what else to do. But the Economy is So Resilient? More on this later,,. The "Disruptive Portfolio" Wealth Destruction We have examined the concept of Disruptive Portfolio Construction and continue to think that this is playing a major role in how markets are trading, but increasingly this creates a potential shock to the economy, Let's start with crypto, Bitcoin briefly dropped below $19,000 Saturday morning. I have no idea where it will be by the time you are reading this, but I am targeting $10,000 or less for bitcoin within a month or so. First the "altcoins" [some of which are derisively referred to as "sh*t-coins"] are a complete mess. Solana is down 88% from its November 2021 highs and is roughly back to where it "debuted" in June 2012. Dogecoin, which I think was originally created as a joke, but rose to 70 cents [I think the weekend of Elon Musk's Saturday Night Live appearance] is back to 5 cents, which I guess is still good for something that was originally created as a joke. Ethereum, a "smart contract" that has some use cases very different than bitcoin and was often talked about as a superior product, is down 80% from its November 2021 highs. Under the Bloomberg CRYP page there are 25 things listed as "Crypto Assets". Maybe if I looked at each one I'd find some with a different story, but somehow, I doubt it. Okay, I lied, I couldn't resist, I had never heard of Polkadot, but it looks like it was launched in April 2021 at $40, declined to $11, rallied to $54 in November 2021, and is now down to $7 [at least the name is still cute]. But bitcoin is the story I’m looking at because it is the biggest and the one that seems to have the most direct ties to the broader market. Crypto, to me, is often about adoption. It was why I got bullish a couple of years ago and caught at least part of the wave. Back then, every day some new, easier, better way to own crypto was being announced. Companies and famous billionaires were putting it on their corporate balance sheets. FOMO was everywhere with people racing to put ever higher targets on its future price and those who didn't have anyone to jump on to the bandwagon with were hiring people who could put on an ever-higher price target with a straight face. That ended a while ago and we are in the "disadoption" phase [spellcheck says disadoption isn't a word, but I'm sticking with it]. Or as I wrote the other day, which the FT picked up on, we have moved from FOMO [Fear Of Missing Out] to FOHO [Fear of Holding On]. Even more concerning is a world where HODLING [originally either a mistype of HOLDING that gained traction or short for Holding On for Dear Life] is more prevalent and many people are now unable to exit their positions even if they wanted to. There are some serious "plumbing" issues right now in the crypto space. Maybe the decentralized nature of crypto will work and be extremely resilient [I cannot fully discount that possibility] but maybe, just maybe, there is a reason banks and exchanges have regulators who enforce rules to protect everyone [yes, I can already see the flame mail accusing me of FUD and not understanding how self-regulating is better, etc, but then all I do is spend about 10 minutes looking at some of the shills out there and fall back to thinking "adult supervision" might be wise]. Stablecoins. Stablecoins are what I would call a "thunk" layer in programming language, It is an intermediate layer between two things, in this case, cryptocurrencies and fiat, Terra/LUNA got wiped out, but it was an "algo" based stablecoin which many, in hindsight, say was a flawed design [clearly it was], but that didn't stop it from growing to $20 billion with some big-name investors engaged. Tether is the one garnering a lot of attention now. It is still the largest stablecoin and it did survive on "attack" of sorts after the Terra/LUNA fiasco. The issue with Tether is that it purports to be fully backed by "safe" assets, yet will not produce audited financials. The disarray in stablecoins should at the very least slow adoption. Freezing Accounts. Celsius blocked withdrawals 5 days ago and as of the time I'm typing this, it was still frozen. Babel Finance announced Friday that it would stop withdrawals. I found this one particularly interesting, as in May, according to news reports, it raised $80 million in a Series B financing, valuing it at $2 billion. Maybe needing to suspend withdrawals isn't a big issue, or maybe it is a sign of how rapidly things can change in the space? Right now, I’d be more worried about extracting value from the system rather than adding to the system. Yes, these are isolated cases [so far] and there are some big players in the space which presumably are not at risk of such an event, but having lived through WorldCom and Enron, and then the mortgage fiasco of 2008, I'm heavily skewed to believing that the piping issues will spread and get worse before they get better. Industry Layoffs. In a rapidly evolving industry, one with so much potential, it makes me nervous how quickly we are seeing layoffs announced publicly or finding out about them privately. Maybe I'm cynical, but to me that signals that the insiders aren't seeing adoption increase, which for anything as momentum dependent as crypto has been, seems like a signal for more pain. The big question is how many of the "whales" and big "hodlers" will buy here to stabilize their existing holdings or whether some level of risk management is deemed prudent. You cannot go more than two minutes talking to a true believer without "generational wealth" being mentioned [trust me, I've tried]. At what point does wanting to stay really rich become the goal rather than trying for generational wealth, even if it means converting back ("cringe") to something as miserable as fiat? I expect more wealth destruction in crypto and that will hurt the economy! The wealth itself is gone, curbing spending [I'm already noticing how much I miss the Lambo photos all over social media]. The jobs are now disappearing, curbing spending. The advertising will likely slow down [though not having to watch Matt Damon or LeBron wax on about crypto might be a good thing for our sanity]. But seriously, ad dollars from this lucrative source [I'm assuming it's lucrative given how often ads appear in my social stream, during major sporting events, and even in an arena [or two] could be drying up just as retailers are also struggling. It seems that every week there is a conference somewhere dedicated to crypto [with Miami and Austin seemingly becoming a non-stop crypto conference/party]. This could turn out to hurt many companies and even some cities, Semiconductor purchases could decline. Mining rigs have been a big user of semiconductors, All you have to do is pull up a chart of bitcoin versus some select semi-conductor manufacturers and the correlation is obvious, Energy usage could decline. If mining slows [as a function of lower prices and less activity] then we might see less energy used by the crypto mining industry [the public miners are in some cases down almost 90% from their November 2021 highs, presumably because the industry is less profitable]. Ultimately this could reduce energy prices and semiconductor prices/backlogs, which would generally be good for the broader economy and would help the Fed on their inflation fight, but could hurt some individual firms that rely on this industry. My outlook for crypto is that we have more downside in sight and that will hurt broader markets and might do far more damage to the economy than many of the crypto haters realize. It is fine to dislike crypto, but it is naïve not to realize how much wealth was there helping spending and how impactful a slowdown on this industry could be! Which brings me briefly to "disruptive" stocks. The wealth created by these companies was simply astounding, Whether remaining in the hands of private equity or coming public through IPOs or via a SPAC, there was incredible wealth generated, Investors were rewarded, but so were the founders, sponsors, and employees! There was great wealth created as these innovators and disruptors [along with a mix of more traditional companies] were rewarded. I am extremely concerned about the employee wealth lost. I cannot imagine the personal wealth destruction that has occurred for many, especially mid-level to mildly senior employees. Just enough of a taste of the equity exposure to do well.  Many have restrictions so have not exited and many had options, not all of which were struck at zero, so they may be back to zero, That wealth lost has to translate into lower economic activity, especially as the losses seem more persistent than they might have been a few months ago! But investors have also been hit hard, and possibly harder than most people factor in. I will use ARKK here to illustrate an important point and why a subset of investors is in far more financial difficulty than might be apparent [assuming "traditional" portfolio construction]. ARKK, not accounting for dividends, is back to where it traded in the aftermath of the COVID shutdowns in March 2020. The number of shares outstanding have almost tripled since then. Yes, the number of shares traded daily is large and they frequently change hands, but on average, this shows that some large number of shares were issued as the fund price rallied. Many of those investors [on average] were originally reworded, but now, on average, those shares are somewhere between small losses and serious carnage. ARKK is down to $7.7 billion in AUM as of Friday from a peak of $28 billion in March 2021. The bulk of that change in market cap can be attributed to performance as shares outstanding are still near their peak. I highlight ARKK because I don't feel like talking about individual companies, the portfolio has changed so much, the performance is more generic than company specific, and ETFs are often just the observable "tip of the iceberg" of major trends that are more difficult to observe, but are still happening, TQQQ, the triple leveraged QQQ, exhibits a similar pattern and all the gambling stocks are doing poorly, which I attribute to incredible wealth destruction for a subset of investors, The three groups that I believe were most hurt are: Relatively young people, who took a very aggressive approach to trading/gambling [with relatively small amounts of money] that they can make back via their job earnings over time [or they might now need a job if they were living off of the trading/gambling money]. I don't see a material economic impact from this group, It may even encourage workforce participation, Aggressive disruptive investors. Many people went all-in on some version of a disruptive portfolio [I didn't even bring up those who treated mega-tech stocks as a bank account with dividends and upside], There could be some serious wealth lost here that will affect the economy [and is likely already affecting the economy], Employees, some of whom also adopted disruptive portfolios. As the likelihood of a near-term rebound recedes, there will be wealth preservation as a focus. The number of IPOs and SPACs that are not just below their all-time highs, but below their launch prices, is scary, and that really hurts the employees, or at least those who couldn't sell, didn't sell, or sold, but diversified into a disruptive portfolio. This is all deflationary (which I’m told is a good thing] but I cannot see how this is a good thing for the economy or broader markets! But the Economy is So Resilient? I challenge this. If we have an inventory overhang, the economy may grind to a halt far quicker than many are expecting. If banks start tightening lending practices [clear evidence this is occurring and will likely get worse than better] we will see credit contraction and that will feed into the economy, rapidly. We have NEVER gone from low rates and QE to higher rates and QT successfully [we haven't had many attempts, but I remain convinced that QE is very different than rate cuts and that it affects asset prices quite directly - see Stop Trying to Translate Balance Sheet to BPS. The wealth effect must be bad overall and devastating to some segments. My view is that: Things definitely hit faster than people realized. Often the inflection point has already occurred while many are still applying straight line extrapolation to what they perceive to be the still “existing" trend. "Gumming" up the piping often leads to more problems, rather than a quick solution [and I completely believe the current high levels of volatility in markets and lack of depth in liquidity is a form of gumming up the pipes]. If the problem hits the financial sector it is too late (unless immediate/strong support from central banks is provided). So far, the banking sector is looking good, though Europe is lagging the U.S, in that respect. The ECB came up with half-hearted efforts to reduce Italian bond yields relative to others. The JGB stuck to their yield curve targeting, but markets will soon just expect that to get reversed at their next meeting. Finally, the Fed, unlike in March 2020, will have difficulty reversing course and helping. The good news is so far this isn’t hitting the banking system, but I am watching this sector closely, especially in Europe. Risk happens fast! It's a phrase often said, but often ignored. I'm not ignoring it right now. Commodity Wars? This is a bigger question, and one that is coming up more frequently, but have we entered into a global "war" to secure natural resources? I think that, increasingly, this is the reality we live in and that will be inflationary, just like reshoring, onshoring, securing supply chains, and “transforming“ energy production/ distribution, etc., will all be inflationary longer-term as well, But I've taken up too much space already today and that isn’t a question that needs to be answered to drive my current thinking, Bottom Line I am including what I wrote last week because it largely worked and my views haven't materially changed, I added some color and exactness on the views while definitely shifting from DEFCON 3 to DEFC0N2. I want to own Treasuries here at the wide end of the range, but for the first time, I'm scared that we could break out of this range (big problem]. The 10-year finished almost unchanged on the week, going from 3.16% last Friday to close at 3.23% (it did gap to 3.48% on Tuesday]. The swings in the 2-year were even more "insane" given the level and maturity. So, as recession talk heats up, yields should go down, but I’d spend a bit of option premium protecting against a rapid gap to higher yields. Credit spreads should outperform equities here, though both may be weak, (Verbatim from last week]. Equities could be hit by the double whammy of earnings concerns and multiple reduction. I am told there is a lot of support, but I think that we see new lows this week unless central banks change their tune, which seems incredibly unlikely). I still find it mind boggling that we prefer recession to inflation. Crypto should remain under pressure. I think bitcoin will be sub $20k< before it reaches $35k. Now I think it will be $12,000 before $24,000. Have a great Father's Day and enjoy the Juneteenth long weekend! (Though, I have to admit, I kind of wish markets were open on Monday because this is the trading environment that deep down, I have to admit, I enjoy!] Tyler Durden Tue, 06/21/2022 - 07:20.....»»

Category: dealsSource: nytJun 21st, 2022

Another crypto lending platform is freezing withdrawals as the industry"s downward spiral continues

Babel Finance will temporarily stop allowing users to take out their crypto holdings, the second lending firm to do so this week behind Celsius. A trader works at the New York Stock Exchange NYSE in New York, the United States, on March 9, 2022.Michael Nagle/Xinhua via Getty Crypto lender Babel is freezing withdrawals for users due to "unusual liquidity pressures." It's the second major platform to do so this week as the crypto market faces a massive selloff.  Celsius previously stopped letting customers withdraw their holdings on Sunday.  Another major crypto lending platform has stopped letting people take out their holdings.Babel Finance, which is based in Hong Kong and boasts a customer base of 500, said Friday that withdrawals from its services will be "temporarily suspended" as cryptocurrencies face a brutal and widespread selloff."The crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events," Babel said on its website. "Due to the current situation, Babel Finance is facing unusual liquidity pressures."Babel did not immediately respond to Insider's request for comment.The firm was last valued at $2 billion in May, Reuters reported, and only allows the trading and lending of bitcoin, ethereum, and stablecoins.It's also not the only lending platform to halt withdrawals as liquidity pressures mount amid a worsening market rout. Celsius Network said Sunday that it was doing the same for its 1.7 million customers, citing "extreme market conditions." Celsius users told Insider this week that they're anxious about their holdings currently trapped on the platform. One user said he has $105,000 worth of crypto stuck on the app. Another said she may have lost two years' worth of income.The price of bitcoin, still the largest and most well-known cryptocurrency, has declined 70% from a November 2021 peak. The slump has dragged down the entire market's value below $1 trillion for the first time since February 2021. The rout's also impacted hedge funds like the 10-year-old, crypto-focused Three Arrows Capital, also known as 3AC. The firm has hired "legal and financial advisers," the Wall Street Journal reported, following massive losses sparked by a major investment in stablecoins that later tanked. 3AC is also now faced with $400 million in liquidations, according to The Block. Founders Zhu Su and Kyle Davies, meanwhile, have "ghosted" their business partners as they grapple with concerns over insolvency, Vice reported.Read the original article on Business Insider.....»»

Category: smallbizSource: nytJun 17th, 2022

Bond Meltdown"s Next Driver Is BOJ Policy Implosion

Bond Meltdown's Next Driver Is BOJ Policy Implosion By Garfield Reynolds, Bloomberg Markets Live Commentator and Reporter The pace of this week's Treasuries rout - and post-FOMC relief - has focused most eyes squarely on US markets, but the real action going forward is just as likely to be in Tokyo. The Bank of Japan’s massive debt purchases to cap yields may have already passed their use-by date, and that threatens to unleash fresh storms on global bond markets that are about as stressed as they have ever been. As everyone is focused on crypto, the real war is taking place in Japan pic.twitter.com/1IIvmCjI9M — zerohedge (@zerohedge) June 15, 2022 While the Fed’s 75-basis-point hike came with mild-enough forward guidance to soothe panicked markets, the BOJ still faces pressure from a widening policy gap to at least acknowledge it’s time to tweak its own settings when it concludes its own meeting on Friday. BOJ Governor Haruhiko Kuroda is nothing if not determined, and he has been sticking to his line that the recent pickup in Japanese inflation will be transitory -- a word that has fallen out of favor with his peers -- meaning that he considers it premature to adjust the world’s loosest policy. The central bank is doubling and tripling down on buying up ever-greater chunks of what is left of the Japanese bond market to cap 10-year yields at 0.25% and maintain curve control. This week has seen cries that this can’t go on for much longer reach a crescendo. The yen tumbled through 135 per dollar this week to a 24-year low, which adds to the stickiness for inflation as well as taking the currency down so far that the real-world impacts counteract much of the benefits of easier policy, including by crippling consumer confidence. The currency’s plunge also spreads turmoil because it means Japan’s deep- pocketed investors -- long a key player in Treasuries and other major developed bond markets -- need to hedge investments abroad at a time when BOJ-Fed policy divergence is so stark that 10- year US yields are actually negative for yen-based investors. Expect to see the unexpected “buyers’ strike” from Japanese investors -- the largest foreign holders of Treasuries -- to go on, exacerbating the unprecedented rout in US sovereign securities and other notes. As for Japan’s bond market, foreigners are fleeing, except for a few managers willing to take on the BOJ in a classic widow-maker trade and short JGBs. Liquidity deteriorated to the worst since Kuroda took office in March 2013, and JGB futures recently tanked by the most since that year. Source: Zero Hedge There may be no good choices left for Japan’s central bank. If it sticks to its guns it risks further yen declines, adding to rampant dollar strength that is a key pain point for numerous currencies, markets and economies worldwide. The BOJ would also likely end up holding more than half of all JGBs to make dysfunction the norm in one of the developed world’s second- largest bond markets. But a shift away from curve control would bring its own dangers by turning JGBs from an island of stable returns into yet another bond meltdown. That would be especially cruel for private holders of the debt after curve control saw JGBs miss out on the massive gains Treasuries experienced amid pandemic stimulus. Japan’s insurers hold about 20% of the country’s 1.2 quadrillion yen ($9 trillion) government bond market, so the potential for severe value-at-risk shocks is massive -- this in a market that still shudders at the memories of the 2003 VaR meltdown. The last thing bruised global markets need is for some of the managers holding Japan’s $1.2 trillion of Treasuries to need to liquidate some of their assets to cover losses. Tyler Durden Thu, 06/16/2022 - 13:25.....»»

Category: worldSource: nytJun 16th, 2022

Carnage!

Carnage! Well that escalated quickly. Apart from crude oil, almost all asset classes were clubbed like baby seals today as event risk anxiety (ahead of FOMC) combined with OpEx technicals ($3.4 trillion options expiration) and European 'fragmentation' fears and all the usual geo-political, geo-economic factors that are holding back the dip-buyers as the S&P drops into a bear market and US equities broadly test 2022 lows (while TSY yields push multi-year highs). The S&P closed down 22% from its highs and at its lowest since Jan 2021... "...millions of voices suddenly cried out in terror and were suddenly silenced..." As Bill Blain noted earlier, the summer somnambulance should be upon us – investment desks and traders sitting back to watch their carefully composed portfolios and positions cruise through the summer before the markets get hot again in September. At least, that’s how I remember the long-balmy days of my market childhood back when I was a young banker…. Not this year. Too many fundamental tremblors threaten to rock the markets: Inflation, Inflation, Inflation Supply Chains, Covid and China Europe and the ECB Recession/stagflation War vs Jaw Central Banks tightening Stock Resets and Earnings Bond Market Meltdown Global Trade Reset and De-Globalisation The US, The Dollar and Trump I predict a stormy Q3 – the usually calm languid dog-day markets of July and August being replaced by lumpy seas of bad numbers, grey storm skies as markets struggle with the acceleration of negative news-flow on inflation, corporate earnings, markets and increasingly wobbly politics, and few sharp pointy rocks of financial destruction. Financial Conditions are tightening once again, ratcheting down as The Fed stomps on the brake, surveys the damage, lifts off briefly, then re-stomps on the brake... Source: Bloomberg Recession risks are rising as signaled by Energy, Consumer Discretionary, and Materials all lagging a sharply down market. And on the too-high inflation and higher rates side of the pendulum, Real Estate and Tech are also selling off today. Source: Bloomberg US equity markets were notably weaker overnight and extended losses at the open. The European close - and the end of BTP selling - sparked some relief that sent crypto and US stocks higher but the algos could not build on it. Witho about 30 minutes to go a major sell order hit all the markets - bonds and gold were dumped and stocks pushed to the lows of the day. Dow -3%, S&P -5%, Nasdaq -4.6%, Small Caps -5% The last time the S&P had a 4-day stretch this bad (-1.08%, -2.38%, -2.91%, -3.23%) was March 23, 2020 when the Fed unleashed $1 trillion in QE, repo and corporate bond purchases And some context for the move in the last 3 days... 2017 biggest drawdown: 3% 2021 biggest drawdown: 5%$SPY -8% last 3 days. pic.twitter.com/vMlcYKnwLJ — Mike Zaccardi, CFA, CMT (@MikeZaccardi) June 13, 2022 The market cap of FANG stocks has no plunged to 'just' $3 trillion (it was at $5.11 trillion on 11/18/21)... Source: Bloomberg European stocks collapsed to their lowest since March 2021, now well below the pre-COVID-peak levels... Source: Bloomberg European bond markets were a shitshow with BTPs spiking above 4.00% for the first time since 2014... Source: Bloomberg Spreads are blowing out amid 'fragmentation' risk... Source: Bloomberg And "Italeave" fears are rising... Source: Bloomberg In the US, Treasuries were clubbed like a baby seal with the short-end underperforming. The short-end exploded higher in yield today (2s thru 5s up over 30bps) with the long-end up 'only' around 20bps (with a late-day acceleration hot helping at all). Since right before Friday's CPI print, 2Y yields are up over 55-60bps, 30Y up around 20bps... These moves are just un-fucking-believable! Today was the biggest 2y yield spike since the day Lehman filed. Source: Bloomberg The yield curve is now fully inverted 1y forward and the spot curve is above 3.00% from the 1y maturity on... Source: Bloomberg Yields are literally going vertical with the short-end at their highest since 2008... Source: Bloomberg And the all-knowing 2s10s curve inverted again today... Source: Bloomberg Late in the day, the curve flattened again drastically as the short-end blew out... Source: Bloomberg US rate-hike expectations are soaring (market now pricing in at least 10 x 25bps more hikes into year-end) ... and so are the subsequent rate-cut expectations as Powell pushes America into recession...   Source: Bloomberg The market is now more than certain that The Fed will hike by 75bps at one of June's or July's meetings (and at least 50bps at the other). Source: Bloomberg And the market is pricing a 85% chance of a 75bps hike this week. Source: Bloomberg US credit markets are breaking bad with IG now at its lowest price since the COVID lockdown collapse... Source: Bloomberg US 30Y mortgage rates topped 6.00%... Source: Bloomberg And HY spreads rocketing higher... Source: Bloomberg The dollar index rose for the 4th straight day (up 8 of the last 10 days) to its highest close since April 2020... Source: Bloomberg Cryptos were slammed lower amid the general derisking and not helped by systemic issues from Celsius and Binance with Bitcoin puking back below $23,000 at its lows... the lowest price since Dec 2020... Source: Bloomberg Total crypto market cap dropped back below $1 trillion today for the first time since Jan 2021 (down $2 trillion from its highs)... Source: Bloomberg Gold (priced in JPY) reached a new record high on Friday, and reversed off that level today... Source: Bloomberg Gold (in USD) puked back all of Friday's gains, falling back below $1850 once again... Oil ended the day practically unchanged as recession fears (demand) dragged prices lower while Libya output cuts (supply) briefly spiked prices... Dr.Copper was also weaker, back near one month lows... Finally, Small Business optimism is starting to catch down to 'average Joe' American's Source: Bloomberg Is that all Putin's fault too? *WHITE HOUSE WATCHING STOCK MARKET CLOSELY: JEAN-PIERRE Tyler Durden Mon, 06/13/2022 - 16:00.....»»

Category: blogSource: zerohedgeJun 13th, 2022

This Is Worse Than Anyone Realizes: A Dire Outlook From Wall Street"s Biggest Bear

This Is Worse Than Anyone Realizes: A Dire Outlook From Wall Street's Biggest Bear There was a (very) brief period in which BofA's Michael Hartnett - whom we long ago dubbed Wall Street's biggest bear - turned ever slightly more bullish, when he told clients that while the bear market is far from over (recall he expects that to end some time in October with the S&P plunging down to 3,000) a powerful bear market rally had taken hold around the time we saw the biggest equity inflow in 10 weeks; even so, his advice to clients was simple: "fade all rallies." All that's over, and in his latest Flow Show note (available to ZH pro subscribers), Hartnett asks "Where's my bear market rally gone" and for good reason: both credit and stocks are massively oversold, BofA's Bull & Bear Indicator is in deep "contrarian bullish" territory  - falling to 0.3 from 0.4, more deeply in "extreme bearish" territory, and just shy off all time lows - and yet, despite this latest buy signal for risk assets having been triggered almost one month ago on May 18th, the S&P has gone from 3800 to 4200 and now back again to 3900. But before we answer Hartnett's rhetorical question, a quick look back two years ago to June 8, 2020, when as Hartnett notes, NYC announced stage 1 "reopening" after 13-week COVID lockdown, permitting curbside pickup from retail outlets. As the BofA strategist puts it, "if you had said then that two years later US retail sales would be up 67%, unemployment would fall by 17 million, inflation would surge from 0.1% to 8.3%, oil would soar from $12/b to $120/b, that a pandemic would be followed by war & famine, you would have been thought utterly mad; but that’s what happened."  For those looking for catchy Wall Street soundbites, here is from Hartnett: "2020 marked a secular low in inflation & yields, the beginning of regime change and a decade of social, political, economic & financial volatility." And speaking of regime change, there have been few clearer examples of that then the “inflation shock” we have now: natural gas 141% gasoline 91% oil 61% iron ore 45% wheat 39% nickel 39% soybean 33% corn 30% cotton 30% YTD And with the triple whammy of COVID, monetary & fiscal stimulus, and war, we have seen "massive 18-month outperformance of inflation assets" but watch for low in biotech (deflation) vs real estate for a trend reversal, according to the BofA strategist. Which is not to say that everyone is fighting a war with inflation: there is always Japan, the perpetual outlier. According to Hartnett, the BoJ is the last central bank left fighting the last deflation war (i.e., the "Shoichi Yokoi" trade), which has sent the yen plunging 14% YTD as Kuroda repeatedly vows unlimited bond buying to defend YCC policy which in the past 6 years has led to… wait… 0.0% Japan GDP growth & 0.2% CPI. That dismal math then leads us to another even scarier equality from Hartnett, one which has anything but a happy ending: investor "policy incredulity" = yen collapse = (Asia FX war) = BoJ FX intervention = capital repatriation to Japan = potential catalyst for summer global risk-off trade. Meanwhile, turning attention to Europe, we find one currency but with many interest rates: As we noted earlier this week, with EU CPI at 8.1% and PPI at 37.2%... ... the ECB boldly decided to…not raise rates, leaving policy rate at -0.5%, and to continue QE until July 1st. Yet despite the ECB's failure to "wake up" and "go-go", Greece 10-year yields exploded above 4%, and Italy 5-year yields shot to fresh 8 years highs, above 3% and blowing away the March 2020 highs as BTP-Bund spreads soar wider than 200bps. Meanwhile, as we also said earlier today... 10Y Italian BTPs close up 16bps at 3.763%, highest since 2014. Either the ECB is about to fire Berlusoni again or Europe is on the verge of another sovereign debt crisis. In any case, this little rate hike experiment won't last long pic.twitter.com/4qYnH7ofiX — zerohedge (@zerohedge) June 10, 2022 ... and as Hartnett echoed "markets stop panicking when policy makers start panicking"... but the reason why there is still no bid for risk assets is that "there is not enough inflation panic yet, policy credibility waning, higher risk premium required." One final observation on the Bear Market: one third, or 33% (952 of 2910 stocks) of the MSCI All World ACWI index currently trades below their 2018 highs, 40% of Nasdaq (1496 of 3760 stocks) trading below their 2018 highs; and some more staggering math: global equity market cap peak to trough down $23.4tn since Nov'21 = 1 US economy (US GDP $24.4tn); meanwhile, in a sign that things are indeed about to snap, distressed EM bonds trading at the Lehman/GFC lows of 2008, almost as if EMs are competing with Europe who blows up first. Which brings us back to answering the key question posed by Hartnett: "Where my Bear Market Rally gone", and why despite massively oversold conditions and record revulsion, are stocks unable to bounce? His answer: In short, inflation shock not over, rates shock just starting, growth shock coming, no release valve from peak in yields, bear market ralliy too consensus. Inflation: geopolitics, end of globalization, extraordinarily misguided G7 energy policies across the G7 = 2 standard deviation commodity shock unlike any other since 1973/74. Recession: we’re in technical recession but just don't realize it; US Q1 GDP -1.5%, Atlanta Fed GDPNow forecast for Q2 just 0.9%, a couple of bad data points away from “recession”; consumer data getting murkier. Household and consumer balance sheets point to shallow recession, what can turn shallow into deep is the great unknown of the shadow banking system. Stagflation: Hartnett says growth is returning to trend, but inflation won’t as stagflation is incompatible with “goldilocks” SPX PE of 20x past 20 years, and should be closer to 20th century PE of 15x. Events: the occasions (all of which saw BofA Bull & Bear Indicator at 0) when very bearish sentiment not enough to turn markets were 2 standard deviation events caused “liquidations”: WorldCom Jul'02, Lehman Sep'08, US debt downgrade Aug'11, China devaluation Aug'15; Nagging worries that QT just beginning: to expose fragilities in EM, crypto, tech, VC/PE, risk parity, CTAs. As a result of the above, Hartnett is convinced that no matter how strong the intervening bear market rallies - whether it is a benign CPI print (clearly not todays') or something else, and narrative flips back to peak inflation - his ultimate bear market targets remain 30Y TSY at 4% and SPX at  3600 (markets always overshoot/undershoot, and we assume no systemic crisis). And with the market on its way to said lows, the BofA strategist warns that the most vulnerable assets to own are Big Tech (positioning, secular loser), REITs (inflation hedge), resources (they are in secular bull but at lows investors forced to sell winners), and US dollar (will discount peak yields). Finally, once we finally do hit the lows, these are the assets that will be bought: long-duration Treasuries (for obvious deflationary reasons), HY bonds (where risk deployed first)... ... EM bonds & stocks (distressed, weak dollar beneficiaries), small cap (the surprise bull coming), industrials (according to Hartnett the next policy stimulus will be fiscal not monetary, but we disagree: after November, the US will have a Dem President and Republican Congress, and the two sides will not reach a bipartisan agreement on a stimulus, leaving only the Fed) and of course the widely lamented 60-40 strategy: all these will be the most likely winners at end of bear market, some time in late 2022. More in the full note available to professional subs. Tyler Durden Sun, 06/12/2022 - 07:51.....»»

Category: blogSource: zerohedgeJun 12th, 2022

Higher-Rates Blamed... But There"s More Going On Than That

Higher-Rates Blamed... But There's More Going On Than That Authored by Peter Tchir via Academy Securties, Monday’s price action and themes seemed to fit in well with this weekend’s Damned If You Do, Damned If You Don’t theme. Stocks rallied strongly overnight and into the morning and started to fade as Europe closed and limped home. Higher rates were allegedly the culprit, but there seemed to be more going on than that. Not to mention that overnight has a “risk-off” tone with rates doing better while stocks are weak. The theme that corporate credit was hanging in well seemed to work yesterday as spreads seemed stable in bond land, though leaked, again, in CDS land.  Keep a close eye on credit here! Both ARKK and TQQQ had more outflows. I want to see some outflows in these “speculative” funds as a sign of more capitulation. Both funds have now seen some steady outflows are near their 2 week lows in terms of shares outstanding. But, and this is a big but, they have taken in significant flows since the beginning of April, so there is more room to fall here. Especially if our Disruptive Portfolio theory is accurate. Which brings us back to crypto. Legislation was introduced. Here is a quick summary from Bitcoin Magazine. It seemed to get some heavy circulation within the crypto twitter community and seemed reasonable at first glance (I’m assume a slight bias to the positive given the source, but still seemed like a decent summary). I strongly believe that crypto needs to go through regulation AND emerge from that regulation to reach new highs. We finally have the semblance of what could be a legislative framework for that regulation. It still needs to be passed and implemented for the first clause of my conditional success story to be met. Then we have the more difficult hurdle of crypto emerging from that regulation. My quick two cents on this are: Regulation tends to favor the biggest and those with the deepest pockets. They are more likely to influence final rules and to navigate through them. Given the amount of time, money and energy firms across industries spend trying to avoid regulation, it is far from a given that crypto will emerge stronger from this. There is a real risk that as regulators across the globe focus on crypto many of the “benefits” will be curtailed if not eliminated. More on crypto later this week, but this is an interesting development to watch and I continue to see more downside as the potential impact sinks in. The fact that in addition to the SEC and CFTC we are adding the Federal Energy Regulatory Commission and Government Accountability Office to the mix seems particularly daunting for crypto to makes its way through this new framework quickly and unscathed. I’m still waiting to buy this dip (i.e. want to be bullish but cannot convince myself that bullish is correct here). *  *  * In the meantime, tune in at 12 pm EST to watch Rachel Washburn and General Walsh (ret.) give the inside scoop on what Top Gun school is really like (registration) and all about. General Walsh served as an instructor at the Top Gun school and has some great stories about “tie-pin cameras and espionage”! Tyler Durden Tue, 06/07/2022 - 08:52.....»»

Category: blogSource: zerohedgeJun 7th, 2022

"Risk Is Back In Business": Futures, Bitcoin, Oil Jump As China Eases Covid Curbs

"Risk Is Back In Business": Futures, Bitcoin, Oil Jump As China Eases Covid Curbs While US cash markets are closed today, the rest of the world - as well as US futures - are busy levitating amid renewed optimism that China has finally managed to contain its latest Covid breakdown after Beijing said the outbreak is now under control and the country eased more virus curbs. The upside momentum was also boosted by the best week on Wall Street since November 2020, which was catalyzed by speculation that the Fed will pause its hiking plans in September (and then proceed to ease once the recession is official). At 730am ET, emini futures trade 30 points higher or 0.70%, while Nasdaq futures jumped 1.2% higher. Oil climbed in response to the easing of Chinese lockdowns and as the European Union worked on a plan to ban imports of Russian crude, while the dollar fell for a third day. While US markets are closed, the S&P 500 wiped out its May losses and snapped a string of seven weekly declines as institutional investors rebalanced portfolios into the end of the month. “Risk is back in business it seems,” said AJ Bell investment director Russ Mould. “A reopening of key economic hubs in China and suggestions the US Federal Reserve might slow the pace of interest rate hikes are helping to boost sentiment, at least in the short term.” Traders will be pondering whether the bottom of the selloff is near as investors have been buying the dip after one of the worst starts to the year for equities. However, as Bloomberg notes, a wall of worries remains from hawkish central banks underscoring fears of a recession, escalating food inflation from the war in Ukraine and China’s lockdowns stunting economic activity.   “We are in the middle of a bear-market rally,” said Mahjabeen Zaman, Citigroup Australia head of investment specialists, said on Bloomberg Television. “I think the market is going to be trading range-bound trying to figure out how soon is that recession coming or how quickly is inflation going down.” She added that Treasury yields are set to peak this year. European bourses enjoyed a fourth day of gains, extending their longest winning streak since late March and driving the Stoxx 600 index to the highest in more than three weeks. Luxury stocks outperformed Monday as China’s reopening plans boosted sentiment. The Euro Stoxx 50 rose 0.9%, with Spain's IBEX lagging, dropping 0.2%. Consumer products, tech and travel are the strongest-performing sectors. Shares in European crypto stock rose as the price of Bitcoin jumped to almost $31,000, as risk-on appetite returns with China easing Covid restrictions.Bitcoin was up 5.2% and trades at $30,660.69 as of 730am ET, set for its biggest gain in two weeks. Stocks such as Northern Data soared as much as 5.1% Argo Blockchain 2.6%, Arcane Crypto +6.3%, Safello Group +2.8%. Spanish inflation unexpectedly quickened, while regional German inflation data also pointed to a concerning picture ahead, denting hopes that the eurozone’s record inflation surge has peaked and piling more pressure on the ECB to act. German bunds fell the most in two weeks. Equities across Asia Pacific rose as China rolled back some strict pandemic-triggered restrictions and after US 10-year Treasury yields capped a third week of declines.  The MSCI Asia Pacific Index extended gains to 2.1%, the biggest jump this month, led by consumer discretionary and tech shares. Benchmarks in Japan and Taiwan advanced the most. Chinese shares including tech names climbed as local authorities eased curbs on movement in key cities after virus cases fell. The Asian measure is close to erasing losses for May, which would mark its first monthly advance this year as a reopening of China’s economy boosts growth prospects for the region. That, along with stabilizing global bond yields, have supported regional shares. Still, concerns about slowing global growth and high inflation remain, with foreign investors dumping Asia’s tech-heavy markets this year. With US markets closed for a holiday Monday, traders are turning their attention to China’s purchasing managers’ index figures for May, scheduled for release Tuesday.  “The focus will be on how much the May data has improved from April, given the number of cities under some sorts of lockdown” has fallen to 26 from 44, accounting for 20% of national GDP, Charu Chanana, a market strategist at Saxo Capital Markets, wrote in a note. European bonds tumbled after Spanish inflation came in hotter than expected, while regional German inflation data also pointed to a worrisome picture ahead, with more CPI prints out of the euro area due later Monday and Tuesday. Money markets raised ECB rate-hike bets, pricing 114 bps of hikes by the end of the year. Bunds yield curve bear-flattens, 5y underperforms, cheapening ~9bps to near 0.75%. Peripheral spreads widen to Germany with 10y BTP/Bund widening 3bps to ~195bps. Gilts follow suit, with the 10-year yield up some 6bps to 1.975%. US 10-year note futures decline 12 ticks to 119-24+ with cash Treasuries closed for US holiday. In FX, the dollar slipped for a third day versus major peers as havens lost their appeal amid the improved mood. The Bloomberg dollar spot index fell 0.2%. JPY and CHF are the weakest performers in G-10 FX, SEK and NOK outperform. China’s yuan outperformed after the nation reported fewer Covid-19 cases in Beijing and Shanghai. China’s reopening moves prompted a gauge of emerging-market stocks to rise to the highest since May 5. Bitcoin posted its biggest gain in two weeks, climbing close to $31,000, with ethereum regaining $1900. In commodities, oil climbed as China eased anti-virus lockdowns and the EU worked on a plan to ban imports of Russian crude; Brent is heading for its sixth monthly gain, the longest winning streak since April 2011; US gasoline prices surged to another fresh record. WTI drifted 0.5% higher to trade above $115 while Brent rose above $120. Spot gold is off best levels, up some $4 to $1,857/oz. Most base metals trade in the green; LME nickel rises 6.5%, outperforming peers. There is nothing on the US calendar due to the Memorial Day holiday. DB's Jim Reid concludes the overnight wrap Everything was going so well at lunchtime on Saturday. In my big 36-hole tournament I was poised and ready to pounce just outside the top ten. However I then had one of my worse rounds for years as my back seized up and then, immediate after, watched Liverpool lose the biggest match of the season. I went to bed wondering if Liverpool could ever recover from this and whether my back would ever allow me to play the type of competitive golf I want to again. It was a low moment. Then in another competition on Sunday my back eased and I shot my best competition round for as long as I can remember. Annoyingly I finished second and missed out on the cup. A bit like Liverpool. It’s going to be a bit of a stilted week with the US off for Memorial Day today and the UK off on both Thursday and Friday to celebrate the Queen’s Platinum Jubilee. However there’s lot of important data from both a growth and inflation perspective this week with the monthly jobs report from the US (Friday) and a slew of May CPIs from Europe. Industrial activity will be in focus too with the Chicago PMI, the Dallas Fed manufacturing activity index (Tuesday), the ISM index (Wednesday) and several European PPIs due. On Wednesday, markets will also be especially focused on central banks with the start of the Fed's balance sheet run off, the BoC decision and the Beige Book release. In Asia, next week will be packed with data for Japan and PMIs from China will be due. Given the recent rally in bond markets, one of the most important prints could be German inflation today with estimates slightly higher than last month which on one measure was the joint highest since 1950. We’ll get the regional prints this morning and then the country wide aggregate at lunchtime. On the EU harmonised reading consensus is at 8.1% up three tenths from those record levels. As we go to print the NRW region in Germany has seen the YoY rate climb four tenths from last month to 8.1%. France, Italy and the Eurozone sees their CPI releases tomorrow. Producer prices will also be released across the continent, with April PPI due from Italy (today), France (tomorrow) and the Eurozone (Thursday). Finally, labour market indicators will be released throughout the week for Germany (tomorrow), Italy and the Eurozone (Wednesday). Over in the US, all roads lead to payrolls on Friday with our US economists projecting gains of 325k vs last month's 428k reading that came in above of the median estimate of 380k on Bloomberg. The JOLTS and ADP reports will be due on Wednesday and Thursday, respectively. The JOLTS report is our favourite for looking at labour market tightness but it is a month behind the less useful payroll report. Another important set of indicators will come for industrial activity, including the Chicago PMI and the Dallas Fed manufacturing activity index tomorrow, the ISM manufacturing index on Wednesday and April factory orders on Thursday. These follow misses on PMIs, the Richmond index and the durable goods orders last week, so markets will be paying attention as to whether these metrics will come in softer than expected as well. Finally, Conference Board's consumer confidence index, tomorrow, will be assessed in conjunction with the labour market data to gauge the strength of the consumer. From central banks, investors will be awaiting this Wednesday when the Fed is due to start its balance sheet run off in order to gauge the preliminary impact on the markets. Elsewhere, the Bank of Canada's decision will also be due on Wednesday, following a +50bps move at the last meeting on April 13th. Analysts are expecting another 50bps. Finally, the Fed will also release its Beige Book that day and its insights about current economic conditions will be digested together with the other timely US indicators. In speakers, this week, similar to last, will be packed with those from the ECB. Their views in light of the week's CPI prints will be of great importance. Fed speakers are detailed alongside those from the ECB and all the key data releases in the day-by-day calendar at the end. In Asia, the highlight will be May PMIs for China released tomorrow and Wednesday and much attention will be paid to the growth dynamics after dismal industrial production and retail sales numbers released two weeks ago. Talking of Asian, stock markets are edging higher at the start of the week following Friday’s gain on Wall Street coupled with a weaker US dollar and fresh stimulus from Beijing. The Nikkei (+1.97%) is leading gains regionally with the Hang Seng (+1.90%) also significantly higher. Over in mainland China, the Shanghai Composite (+0.31%) and CSI (+0.44%) are modestly up after the Shanghai administration announced that it would remove 'unreasonable curbs' on businesses and manufacturers from 1 June to stimulate sagging growth. At the same time, the city unveiled fresh economic support measures by offering tax rebates for companies and allowing all manufacturers to resume operations from June. Among the 50 policy measures in eight categories announced by Shanghai officials the city will cut some purchase taxes, issue more quotas for car plates, and subsidise electric vehicle purchases. Outside of Asia, equity futures in the DMs point to further gains with contracts on the S&P 500 (+0.46%), NASDAQ 100 (+0.81%) and DAX (+0.46%) trading higher. Oil prices are higher in Asia with Brent futures up +0.53% to $120.06/bbl, as I type. Over the weekend, EU diplomats failed to come to an agreement on the EU's proposed ban on Russian oil ahead of a 2-day summit with EU leaders starting today. Meanwhile, OPEC+ are set to meet on Thursday to discuss their production policy for July. Turning to a recap of last week now. The S&P 500 finally managed to break its nearly two month long losing streak, gaining +6.58% (+2.47% Friday) over the week. Consumer discretionary stocks led the way, gaining +9.24% (+3.47% Friday), after being the worst performer YTD. The outperformance was twofold, one was better earnings news from discount retailers this week, the second was a continued reappraisal toward a softer Fed policy path, which saw cyclical stocks outperform in general. Nevertheless, all sectors were higher, bringing the S&P 500 to -12.76% YTD. US indices were green across the board, including the NASDAQ (+6.84%, +3.33% Friday), the Russell 2000 (+6.46%, +2.70% Friday), FANG+ (+7.83%, +3.15% Friday) and Dow Industrials (+6.24%, +1.76% Friday). European stocks lagged slightly, as the drum beats on toward more ECB tightening, but nevertheless were also higher over the week, with the STOXX 600 gaining +2.98% (+1.42% Friday) while the DAX and CAC were +3.44% (+1.42% Friday) and +3.67% (+1.64% Friday), respectively. On the rates side, Treasury yields retreated in light of the continued growth fears and potential for a shallower Fed path, with terminal fed funds rate pricing closing below 3%. Regular readers will know I don’t think the Fed is set to pause, or that terminal rates that low will ultimately rein in inflation at current levels. So we will see. Indeed, Core PCE in the US from April was released Friday, printing at 0.3% MoM, in line with expectations and showing no signs of deceleration. Nevertheless, 2yr Treasury yields fell -10.5bps (flat Friday), while 10yr yields were -4.3bps lower (-0.9bps Friday) in one of the least volatile weeks for Treasury trading this year. In Europe, 2yr bund yields increased +1.1bps (-0.3bps Friday) while 10yr yields gained +1.9bps (-3.5bps Friday), as the consensus behind a July liftoff and positive policy rates by year end grows among ECB officials. Elsewhere, brent crude climbed +6.12% (+1.74% Friday), while the dollar came down from its lofty heights, with the broad dollar index retreating -1.45% (-0.17% Friday). Tyler Durden Mon, 05/30/2022 - 08:08.....»»

Category: blogSource: zerohedgeMay 30th, 2022

Futures Jump After Biden Says Trump"s China Tariffs Under Consideration

Futures Jump After Biden Says Trump's China Tariffs Under Consideration US stock futures advanced for a second day after staging a furious rally late on Friday having slumped into a bear market just hours earlier, after President Joe Biden said China tariffs imposed by the Trump administration were under consideration, although concerns about hawkish central banks and record Covid cases in Beijing continued to weigh on the sentiment.  Contracts on the S&P 500 were up 1% by 7:15 a.m. in New York, trimming earlier gains of as much as 1.4% following remarks from Christine Lagarde that the European Central Bank is likely to start raising interest rates in July and exit sub-zero territory by the end of September which sent the euro sharply higher and hit the USD. Meanwhile, Beijing and Tianjin continue to ramp up Covid restrictions as cases climbed. Nasdaq futures also jumped, rising 1.1%. Europe rose 0.6% while Asian stocks closed mostly in the green, with Nikkei +1% and Hang Seng -1.2%. The dollar and Treasuries retreated, while bitcoin jumped to $30,500 as the crypto rout appears over. Traders interpreted Biden’s comments that he’ll discuss the US tariffs on Chinese imports with Treasury Secretary Janet Yellen when he returns from his Asia trip as a signal there could be a reversal of some Trump-imposed measures, sparking a risk-on rally.  “Today’s appetite for risk has been sparked by the US President’s announcement that trade tariffs imposed on China by the previous Trump administration will be discussed,” said Pierre Veyret, a technical analyst at ActivTrades. “Investors see this as a possible de-escalation of the trade war between the two economic superpowers, and this has revived trading optimism towards riskier assets.” Among the notable movers in premarket trading, VMware surged 19% after Bloomberg News reported that Broadcom is in talks to acquire cloud-computing company; Broadcom fell 3.5% in premarket trading. Here are some other notable premarket movers: Software stocks, such as Oracle (ORCL US), Splunk (SPLK US), ServiceNow (NOW US), Check Point Software Technologies (CHKP US), are in focus after the report on Broadcom and VMware setting up for a blockbuster tech deal. Antiviral and vaccine stocks rise in US premarket trading amid spreading cases of the monkeypox virus. SIGA Technologies (SIGA US) jumps 39%; Emergent BioSolutions (EBS US) rises 15%, Chimerix (CMRX US) gains 15%, Inovio Pharmaceuticals (INO US) +13% Dow (DOW US) shares fall as much as 1.3% premarket after Piper Sandler downgraded the chemicals maker to neutral from overweight, along with peer LyondellBasell (LYB US), amid industry concerns. TG Therapeutics (TGTX US) shares are down 3.3% premarket after falling 11% on Friday, when BofA started coverage on the biotech company with an underperform rating and $5 price target. Upwork (UPWK US) could be in focus as RBC Capital Markets analyst Brad Erickson initiates coverage of the stock with a sector perform recommendation, saying some near-term negatives for the online recruitment services firm are well discounted. US stocks have been roiled in the past two months by concerns the Fed's tightening will push the economy into a recession. A late-session rebound lifted the market from the session’s lows on Friday, though the S&P 500 still capped a seventh straight week of losses - the longest since 2001 - and briefly dipped into bear market territory, while the Dow dropped for 8 consecutive weeks, the longest stretch since 1923! “As we have seen time and time again recently, any attempted rallies appear to be short-lived with the backdrop of macroeconomic uncertainty, and any bullish breakouts have failed to endure with overall market sentiment biased toward the bears,” said Victoria Scholar, head of investment at Interactive Investor. The string of weekly losses has seen the S&P 500’s forward price-to-earnings ratio drop to 16.4, near the lowest since April 2020. This is below the average level of 17.04 times seen over the past decade, making the case for bargain hunters to step in. Separately, Biden said the US military would intervene to defend Taiwan in any attack from China, comments that appeared to break from the longstanding US policy of “strategic ambiguity” before they were walked back by White House officials. Meanwhile, his administration announced that a dozen Indo-Pacific countries will join the US in a sweeping economic initiative designed to counter China’s influence in the region. Minutes of the most recent Fed rate-setting meeting will give markets insight this week into the central bank’s tightening path. St. Louis Fed President James Bullard said the Fed should front-load an aggressive series of rate hikes to push rates to 3.5% at year’s end, which if successful would push down inflation and could lead to easing in 2023 or 2024 In Europe, the Stoxx 50 rose 0.3%. The FTSE 100 outperformed, adding 0.9%, FTSE MIB lags, dropping 1.1%. Energy, miners and travel are the strongest performing sectors. European energy shares vie with the basic resources sector to be the best-performing group in the Stoxx Europe 600 benchmark on Monday as oil stocks rise with crude prices, while Siemens Gamesa rallies after Siemens Energy made a takeover offer. Shell rises 1.7%, BP +2.4%, TotalEnergies +2.1%. Elsewgere, the Stoxx Europe Basic Resources sub-index rallies to the highest level since May 5 to lead gains in the wider regional benchmark on Monday as metals rise amid better demand outlook. Aluminum, copper and iron ore extended rebound after China cut borrowing rates last week, dollar weakened and as investors weighed outlook for lockdown relief in Shanghai. The euro rose to its highest level in four weeks and most of the region’s bonds fell after European Central Bank President Christine Lagarde said the ECB is likely to start raising interest rates in July and exit sub-zero territory by the end of September. Here are the most notable European movers: Siemens Gamesa shares gain as much as 6.7% after Siemens Energy made an offer to acquire the shares in the wind-turbine maker it does not own. Kingfisher shares advance as much as 4.9% after the B&Q owner reported 1Q sales that beat estimates and announced plans for a further GBP300m share buyback. Deutsche EuroShop shares jump as much as 44% after Oaktree and CURA offered to acquire the German retail property company in a deal valuing it at around EU1.39b. Moonpig Group gains as much as 14% as Jefferies analysts say its plan to buy Smartbox Group UK is a good use of the online greeting card company’s strong cash generation. Kainos Group shares jump as much as 25%, as Canaccord Genuity raises the stock’s rating to buy from hold following FY results, saying cost-inflation headwinds are priced in. Intertek shares fall as much as 5.3%, with Stifel cutting its rating on the company to hold from buy, saying none of the key elements of its positive thesis are still intact. Leoni shares drop as much as 7.3% after the wiring systems manufacturer said it was in advanced talks on further financing. Earlier in the session, Asian stocks were mixed as traders assessed Chinese authorities’ efforts to support the economy amid ongoing concerns over its Covid situation. The MSCI Asia Pacific Index was up 0.4%, supported by healthcare and industrials, after paring an early gain of as much as 0.7%. Japanese stocks outperformed and US index futures advanced.  Chinese shares slid after Beijing reported a record number of coronavirus cases, reviving concerns about lockdowns. Covid concerns offset any positive impact from last Friday’s greater-than-expected reduction in a key interest rate for long-term loans in an effort to counter weak demand. Investors may be turning more upbeat on Asian stocks, with the regional benchmark beating global peers last week by the most in more the two years, snapping a streak of six weekly losses. Still, the region faces the same worries about inflation and rising US interest rates that have been rattling markets around the world this year. “The energy crisis in the EU and policy tightening in the US, combined with China’s economic soft patch” are potential headwinds for Asian equities and may lead to “weak external demand for more export-oriented economies like Taiwan and Korea,” Soo Hai Lim, head of Asia ex-China equities at Barings, wrote in a note. Japanese equities climbed as US President Joe Biden’s comments during his visit to the country lifted market sentiment. Biden said a recession in the US isn’t inevitable, and reaffirmed close ties between the two countries. He also said China tariffs imposed by the Trump administration were under consideration, helping to lift regional stocks.  The Topix Index rose 0.9% to 1,894.57 as of market close, while the Nikkei advanced 1% to 27,001.52. Tokio Marine Holdings contributed the most to the Topix Index, increasing 7.6%. Out of 2,171 shares in the index, 1,681 rose and 415 fell, while 75 were unchanged. Defense stocks also got a boost after Prime Minister Fumio Kishida said President Biden supports Japan’s plan for an increase in its defense budget Stocks in India mostly declined after the central bank chief said the Reserve Bank is taking coordinated action with the country’s government to tackle inflation and a few interest rate hikes will be in store in coming months. His comments came soon after the government unveiled measures that will cost the exchequer $26 billion and will probably force the government to issue more debt to bridge the yawning budget deficit. The S&P BSE Sensex ended flat at 54,288.61 in Mumbai after giving up an advance of as much as 1.1%. The NSE Nifty 50 Index dropped 0.3%, its third decline in four sessions. Gauges of mid-sized and small stocks also plunged 0.3% and 0.6%, respectively. Out of the 30 stocks in the Sensex index, 20 advanced while 10 ended lower, with Tata Steel being the biggest drag. Eleven of 19 sector sub-indexes compiled by BSE Ltd. declined, led by metal stocks. Steel stocks plunged after the new rules imposed tariffs on export of some products. Auto and capital stocks were the best performers.  Investors remain wary of the policy decisions the central bank could take in the near-term to tackle in rising inflation, according to Arafat Saiyed, an analyst with Reliance Securities. “Changes in oil prices and amendments to import and export duties might play a role in assessing the market’s trajectory.” In rates, Treasuries dropped as investors debate the Federal Reserve’s tightening path amid mounting worries about an economic slowdown. US bonds were cheaper by 3bp-5bp across the curve with belly leading declines, underperforming vs front- and long-end, following weakness in bunds. 10-year yield around 2.83%, higher by ~5bp on day, and keeping pace with most European bond markets; belly-led losses cheapen 2s5s30s fly by ~1.5bp on the day. US IG credit issuance slate empty so far; $20b-$25b is expected this week, concentrated on Monday and Tuesday. European fixed income faded an initial push higher after Lagarde’s comments while money markets up rate-hike bets. Bund futures briefly trade above 154 before reversing, cash curve bear-flattens with the belly cheapening ~6bps. Peripheral spreads tighten to Germany, 10y Bund/BTP spreads holds above 200bps. In FX, the Bloomberg Dollar Spot Index fell as the greenback traded weaker against all of its Group-of-10 peers. The euro jumped to a session high of $1.0635 and bunds reversed an advance after ECB President Christine Lagarde said the central bank is likely to start raising interest rates in July and exit sub-zero territory by the end of September. The EUR was also bolstered by Germany IFO business confidence index rising to 93.0 in May vs estimate 91.4. The Aussie and kiwi were among the pest G-10 performers as they benefitted from Biden’s comments about the tariffs on China. Aussie was also supported after the Labor Party won the weekend election and is increasingly hopeful of gaining enough seats to form a majority government.  The pound advanced against the dollar, touching the highest level since May 5, amid broad-based greenback weakness. While asking prices rose to a new record for the fourth-straight month, there are signs the housing market is slowing, according to Rightmove. Yen steadied after gains last week as traders sought clues on the global economy. Japanese government bonds were mostly higher. The purchasing power of the yen fell to a fresh half-century low last month. In commodities, WTI rose 1.1% to trade just below $112. Most base metals are in the green; LME aluminum rises 1.4%, outperforming peers. LME nickel lags, dropping 4.2%. Spot gold climbs roughly $18 to trade around $1,865/oz Looking at today's calendar, at 830am we get the April Chicago Fed Nat Activity Index (est. 0.50, prior 0.44). CB speakers include the Fed's Bostic, ECB's Holzmann, Nagel and Villeroy and BoE's Bailey. Market Snapshot S&P 500 futures up 0.6% to 3,922.50 STOXX Europe 600 up 0.6% to 433.69 MXAP up 0.4% to 165.23 MXAPJ little changed at 539.33 Nikkei up 1.0% to 27,001.52 Topix up 0.9% to 1,894.57 Hang Seng Index down 1.2% to 20,470.06 Shanghai Composite little changed at 3,146.86 Sensex up 0.4% to 54,556.08 Australia S&P/ASX 200 little changed at 7,148.89 Kospi up 0.3% to 2,647.38 German 10Y yield little changed at 0.97% Euro up 0.5% to $1.0622 Brent Futures up 0.9% to $113.61/bbl Gold spot up 0.7% to $1,859.91 U.S. Dollar Index down 0.63% to 102.50 Top Overnight News from Bloomberg President Joe Biden said the US military would intervene to defend Taiwan in any attack from China, some of his strongest language yet seeking to deter Beijing from an invasion The Biden administration announced that a dozen Indo-Pacific countries will join the US in a sweeping economic initiative designed to counter China’s influence in the region, even as questions remain about its effectiveness The US Treasury Department is expected to tighten sanctions this week on Russia, threatening about $1 billion owed to bondholders for the rest of this year and putting the country once again on the edge of default The ECB is poised to get the power to oversee so-called transition plans by 2025, in which lenders map out their path to a carbon-neutral future. Yet several national officials who sit on the ECB’s supervisory board are skeptical that climate risks merit new rules to address them, and some are wary that the initiative exceeds the central bank’s mandate Russia is considering a plan to ease a key control on capital flows which has helped drive the ruble to the highest levels in four years as the rally is now threatening to hurt budget revenues and exporters Natural gas prices in Europe fell as much as 5.6% to the lowest level since the start of the war in Ukraine, as storage levels across the continent rise to near-normal levels As the biggest selloff in decades shook the world’s bond markets this year, some extraordinarily long-dated debt went into free fall, tumbling even more than Wall Street’s usual models predicted. To Jessica James, a managing director with Commerzbank AG in London, it wasn’t a surprise. In fact, it was validation A more detailed look at global markets courtesy of Newsquawk APAC stocks were mixed as momentum waned due to China's COVID woes and record Beijing infections. ASX 200 was just about kept afloat before ebbing lower after initial strength in mining names and the smooth change of government in Australia. Nikkei 225 advanced at the open with Tokyo said to be planning to revive its travel subsidy plan for residents. Hang Seng and Shanghai Comp were pressured by ongoing COVID concerns after Beijing extended its halt of dining in services and in-person classes for the whole city, as well as reporting a fresh record of daily COVID infections, while Shanghai restored its cross-district public transport on Sunday but ordered supermarkets and shops in the central Jingan district to shut and for residents to stay home until at least Tuesday Top Asian News Beijing reported 83 new symptomatic cases and 16 new asymptomatic cases for May 22nd with the city's total new cases at a new record, according to Bloomberg. It was also reported that thousands of Beijing residents were relocated to quarantine hotels due to a handful of infections, according to the BBC. Beijing is mulling easing its hotel quarantine requirement to one week in a hotel and one week at home from a previous hotel requirement of ten days and one week at home for international travellers, according to SCMP. Shanghai reported 570 new asymptomatic cases, 52 asymptomatic cases, 3 new COVID-related deaths and zero cases outside of quarantine, according to Reuters. Shanghai’s central district of Jingan will require all supermarkets and shops to close, while residents will be required to stay at home and conduct mass testing from May 22nd-24th, according to Reuters. China NHC Official says the COVID situation, overall, is showing a steady declining trend. Japanese PM Kishida said it is very disappointing that China is unilaterally developing areas in the East China Sea when borders are not yet set which Japan cannot accept, while it has lodged a complaint against China through diplomatic channels, according to Reuters. Japanese PM Kishida told US President Biden that they must achieve a free and open Indo-Pacific together, while President Biden said the US is fully committed to Japan's defence and that the IPEF will increase cooperation with other nations and deliver benefits to people in the region, according to Reuters. US-South Korea joint statement noted they agreed to discuss widening the scope and scale of joint military exercises and the US reiterated its commitment to defending South Korea with nuclear, conventional and missile defence, as well as reaffirmed its commitment to deploy strategic military assets in a timely and coordinated manner as necessary. The sides also condemned North Korea’s missile tests as a grave threat and agreed to relaunch a high-level extended deterrence strategy and consultation group at the earliest date, while they noted the path to dialogue with North Korea remains open and called for a resumption of negotiations, according to Reuters. US President Biden said the US-South Korea alliance has never been stronger and more vibrant. President Biden added they are ready to strengthen the joint defence posture to counter North Korea and are ready to work toward the complete denuclearisation of North Korea, while he offered vaccines to North Korea and said he would meet with North Korean leader Kim if he is serious, according to Reuters. South Korean President Yoon said North Korea is advancing nuclear capabilities and that US President Biden shares grave concerns regarding North Korea’s nuclear capabilities, while Yoon said they discussed the timing of possible deployment of fighter jets and bombers, according to Reuters. European bourses are mixed/modestly-firmer, Euro Stoxx 50 +0.3%, as the initial upside momentum waned amid fresh China COVID updates and hawkish ECB commentary. Note, the FTSE MIB is the noted underperformer this morning, -1.0%, amid multiple large-cap names trading ex-divided. Stateside, futures are firmer but similarly off best levels, ES +0.5%, with recent/familiar themes very much in focus ahead of a thin US-specific docket. XPeng (XPEV) Q1 2022 (USD): EPS -0.32 (exp. -0.30), Revenue 1.176bln (exp. 1.16bln); Vehicle Deliveries 34.56k, +159% YY. -2.8% in pre-market JPMorgan (JPM) has reaffirmed its adjusted expenses guidance; credit outlook remains positive; sees FY22 NII USD 56bln (prev. USD 53bln) Top European News EU’s infectious-disease agency is to recommend member states prepare strategies for possible vaccination programmes to counter increasing monkeypox cases, according to FT. It was also reported that Austria confirmed its first case of monkeypox and that Switzerland also confirmed its first case of monkeypox in the canton of Bern, according to Reuters. EU policymakers are reportedly renewing efforts to push for real-time databases of stock and bond trading information as they believe that a 'consolidated tape' will make EU exchanges more attractive for investors, according to FT. EU Commission has proposed maintaining EU borrowing limits suspension next year amid the war in Ukraine; expects to reinstate limits in 2024; Germany supports the suspension. Fixed Income Bunds and Eurozone peers underperform as ECB President Lagarde signals end of negative rates by September. 10 year German bond nearer 153.00 having topped 154.00, Gilts around 1/4 point below par after trading flat at best and T-note shy of 120-00 within 120-03+/119-21+ range. EU NG issuance covered 1.38 times and Austria announces leads for 2049 Green syndication. In FX Euro joins Kiwi at the top of G10 ranks as President Lagarde chimes with end of NIRP by Q3 guidance, EUR/USD sets fresh May peak near 1.0690. Bulk of NZIER shadow board believe RBNZ will deliver another 50bp hike on Wednesday, NZD/USD hovers comfortably above 0.6450 in the run up to NZ Q1 retail sales. DXY in danger of losing 102.000+ status as Euro revival boosts other index components. Aussie up with price of iron ore and extended Yuan recovery gains with change of PM and Government regime taken in stride; AUD/USD probes 0.7100, USD/CNH not far from Fib support sub-6.6500, USD/CNY a tad lower. Sterling eyes 1.2600 awaiting BoE Governor Bailey at a PM panel discussion, Loonie and Nokkie glean traction via firm WTI and Brent, USD/CAD under 1.2800, EUR/NOK beneath 10.3000. Lira languishing after CBRT survey showing higher end 2022 forecasts for Turkish CPI, current account deficit and USD/TRY circa 17.5690 vs just shy of 16.0000 at present. Commodities WTI and Brent are firmer and in-proximity to session highs amid USD action offsetting the earlier drift with risk sentiment/China's mixed COVID stance. Currently, the benchmarks are just off highs of USD 111.96/bbl and USD 114.34/bbl respectively, vs lows of 109.50 and 111.97 respectively. Saudi Arabia signalled it will stand by Russia as a member of OPEC+ amid mounting pressure from sanctions, according to FT. Iraq’s government aims to set up a new oil company in the Kurdistan region and expects to enter service contracts with local oil firms, according to Reuters. Iran’s Oil Minister agreed to revive the pipeline laying project to pump Iranian gas to Oman which was stalled for nearly two decades, according to IRNA. Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman Al Thani said Iran’s leadership has matters under review regarding “the Iranian nuclear file” and said that pumping additional quantities of Iranian oil to the market will help stabilise crude prices and lower inflation, according to Al Jazeera TV. India cut its excise duty on petrol by INR 8/litre and diesel by INR 6/litre which will result in a revenue loss of about INR 1tln for the government, while Indian Finance Minister Sitharaman announced subsidies on cooking gas cylinders, as well as cuts to custom duties on raw materials and intermediaries for plastic products, according to Reuters. Indian oil minister says oil remaining at USD 110/bbl could lead to bigger threats than inflation, via CNBC TV18. Central Banks ECB's Lagarde says based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter; against the backdrop of the evidence I presented above, I expect net purchases under the APP to end very early in the third quarter. This would allow us a rate lift-off at our meeting in July, in line with our forward guidance. The next stage of normalisation would need to be guided by the evolution of the medium-term inflation outlook. If we see inflation stabilising at 2% over the medium term, a progressive further normalisation of interest rates towards the neutral rate will be appropriate. ECB President Lagarde indicated that July is likely for a rate increase as she noted that they will follow the path of stopping net asset purchases and then hike interest rates sometime after that which could be a few weeks, according to Bloomberg. Bundesbank Monthly Report: German GDP is likely to increase modestly in Q2 from current standpoint. Click here for more detail. RBI Governor Das says, broadly, they want to increase rates in the next few meetings, at least at the next one; cannot give a number on inflation at present, the next MPC may be the time to do so. CBRT Survey (May), end-2022 Forecasts: CPI 57.92% (prev. 46.44%), GDP Growth 3.3% (prev. 3.2%), USD/TRY 17.5682 (prev. 16.8481), Current Account Balance USD -34.34bln (prev. USD -27.5bln). US Event Calendar 08:30: April Chicago Fed Nat Activity Index, est. 0.50, prior 0.44 12:00: Fed’s Bostic Discusses the Economic Outlook 19:30: Fed’s George Gives Speech at Agricultural Symposium DB's Jim Reid concludes the overnight wrap After a stressful couple of hours in front of the football yesterday afternoon, there's not too much the market can throw at me this week to raise the heart rate any higher than it was for the brief moments that I thought Liverpool were going to win the Premier League from a very unlikely set of final day circumstances. However it is the hope that kills you and at least we have the Champions League final on Saturday to look forward to now. There will be a lot of market water to flow under the bridge before that. This all follows a fascinating end to last week with the S&P 500 in bear market territory as Europe went home for the weekend after the index had fallen -20.6% from its peak going into the last couple of hours of another brutal week. However a sharp late rally sent the index from c.-2.3% on the day to close +0.01%. There was no catalyst but traders clearly didn’t want to go home for the weekend as lightly positioned as they were. Regardless, this was the first time we’ve seen seven successive weekly declines in the index since the fallout from the dotcom bubble bursting in 2001. Watch out for my CoTD on this later. If you’re not on my daily CoTD and want to be, please send an email to jim-reid.thematicresearch@db.com to get added. For what it's worth the Dow saw the first successive 8 weekly decline since 1923 which really brings home the state of the current sell-off. After having a high conviction recession call all year for 2023, I can't say I have high conviction in the near-term. I don't expect that we will fall into recession imminently in the US or Europe and if that's the case then markets are likely to eventually stabilise and rally back. However if we do see a H2 2022 recession then this sell-off will likely end up at the more severe end of the historical recessionary sell-offs given the very high starting valuations (see Binky Chadha's excellent strategy piece here for more on this). However if I'm right that a 2023 recession is unavoidable then however much we rally back this year we'll be below current levels for equities in 12-18 months' time in my view. Given that my H2 2023 HY credit spread forecast is +850bp then that backs this point up. Longer-term if we do get a recession and inflation proves sticky over that period then equities are going to have a long period of mean reversion of valuations and it will be a difficult few years ahead. So the path of equities in my opinion depends on the recession timing and what inflation does when we hit that recession. Moving from pontificating about the next few years to now looking at what's coming up this week. The global preliminary PMIs for May tomorrow will be front and centre for investors following the growth concerns that have roiled markets of late. Central banks will also remain in focus as we will get the latest FOMC meeting minutes (Wednesday) and the US April PCE, the Fed's preferred inflation proxy, on Friday. An array of global industrial activity data will be another theme to watch. Consumer sentiment will be in focus too, with a number of confidence measures from Europe and personal income and spending data from the US (Friday). Corporates reporting results will include spending bellwethers Macy's and Costco. After last week’s retail earnings bloodbath (e.g. Walmart and Target) these will get added attention. On the Fed, the minutes may be a bit stale now but it’ll still be interesting to see the insight around the biases of 50bps vs 25/75bps hikes after the next couple of meetings. Thoughts on QT will also be devoured. Staying with the US, for the personal income and spending numbers on Friday, our US economists expect the two indicators to slow to +0.2% and +0.6% in April, respectively. The Fed’s preferred inflation gauge, the PCE, will be another important metric released the same day and DB’s economics team expects the April core reading to stay at +0.3%. Other US data will include April new home sales tomorrow and April durable goods orders on Wednesday. A number of manufacturing and business activity indicators are in store, too. Regional Fed indicators throughout the week will include an April gauge of national activity from the Chicago Fed (today) and May manufacturing indices from the Richmond Fed (tomorrow) and the Kansas City Fed (Thursday). In Europe, the May IFO business climate indicator for Germany will be out today, followed by a manufacturing confidence gauge for France (tomorrow) and Italy (Thursday). China's industrial profits are due on Friday. This week will also feature a number of important summits. Among them will be the World Economic Forum’s annual meeting in Davos that has now started and will run until next Thursday. It'll be the first in-person meeting since the pandemic began and geopolitics will likely be in focus. Meanwhile, President Biden will travel to Asia for the first time as US president and attend a Quad summit in Tokyo tomorrow. Details on the Indo-Pacific Economic Framework are expected. Finally, NATO Parliamentary Assembly’s 2022 Spring Session will be held in Vilnius from next Friday to May 30th. In corporate earnings, investors will be closely watching Macy's, Costco and Dollar General after this week's slump in Walmart and Target. Amid the carnage in tech, several companies that were propelled by the pandemic will be in focus too, with reporters including NVIDIA, Snowflake (Wednesday) and Zoom (today). Other notable corporates releasing earnings will be Lenovo, Alibaba, Baidu (Thursday) and XPeng (Monday). Overnight in Asia, equity markets are weak but US futures continue to bounce back. The Hang Seng (-1.75%) is the largest underperformer amid a fresh sell-off in Chinese listed tech stocks. Additionally, stocks in mainland China are also weak with the Shanghai Composite (-0.47%) and CSI (-0.99%) lower as Beijing reported record number of fresh Covid-19 cases, renewing concerns about a lockdown. Elsewhere, the Nikkei (+0.50%) is up in early trade while the Kospi (+0.02%) is flat. S&P 500 (+0.80%), NASDAQ 100 (+1.03%) and DAX (+0.96%) futures are all edging higher though and 10yr USTs are around +3.5bps higher. A quick review of last week’s markets now. Growth fears gripped markets while global central bankers retrenched their expectations for a strong dose of monetary tightening this year to combat inflation. The headline was the S&P 500 fell for the seventh straight week for the first time since after the tech bubble burst in 2001, tumbling -3.05% (+0.01% Friday), after back-and-forth price action which included an ignominious -4% decline on Wednesday, the worst daily performance in nearly two years. The index is now -18.68% from its YTD highs, narrowly avoiding a -20% bear market after a late rally to end the week, after dipping into intraday on Friday. Without one discreet driver, an amalgamation of worse-than-expected domestic data, fears about global growth prospects, and poor earnings from domestic retail giants that called into question the vitality of the American consumer soured sentiment. Indeed, on the latter point, consumer staples (-8.63%) and discretionary (-7.44%) were by far the largest underperformers on the week. European stocks managed to fare better, with the STOXX 600 falling -0.55% (+0.73% Friday) and the DAX losing just -0.33% (+0.72% Friday). The growth fears drove longer-dated sovereign bond yields over the week, with 10yr Treasuries falling -13.7bps (-5.6bps Friday). Meanwhile, the front end of the curve was relatively anchored, with 2yr yields basically unchanged over the week (-2.7bps Friday), and the amount of Fed hikes priced in through 2022 edging +3bps higher over the week to 2.75%, bringing 2s10s back below 20bps for the first time since early May. Chair Powell reiterated his commitment to bring inflation back to target, suggesting that getting policy rates to neutral did not constitute a stopping point if the Fed did not have “clear and convincing” evidence that inflation was falling. In Europe the front end was also weaker than the back end as Dutch central bank Governor Knot became the first General Council member to countenance +50bp hikes. 10yr yields didn't rally as much as in the US, closing the week at -0.4bps (-0.5bps Friday). The spectre of faster ECB tightening and slowing global growth drove 10yr BTPs to underperform, widening +15.2bps (+10.2bps Friday) to 205bps against bund equivalents. Gilts underperformed other sovereign bonds, with 10yr benchmarks selling off +14.9bps (+2.8bps Friday) and 2yr yields increasing +25.8bps (+1.6bps Friday). This came as UK CPI hit a 40yr high of 9.0% in April even if it slightly missed forecasts for the first time in seven months. Oil proved resilient to the growth fears rumbling through markets, with both brent crude (+0.90%, +0.46% Friday) and WTI futures (+2.48%, +0.91% Friday) posting modest gains over the week. Tyler Durden Mon, 05/23/2022 - 07:49.....»»

Category: blogSource: zerohedgeMay 23rd, 2022

Crypto blockchain hackers have stolen almost $700 million in just 3 months this year, with solana and Binance smart chain hit hard

Attacks on the solana and Binance smartchain ecosystems accounted for well over half of the amount lost, according to Atlas VPN. Blockchain and crypto conceptGetty Images stock photo Hackers stole almost $700 million in 72 attacks in the first quarter of 2022, Atlas VPN said. Attacks on the solana and Binance Smart Chain ecosystems accounted for over half of these losses. NFTs were the top targets for hackers, leading to a near-$49 million loss. Crypto blockchain hackers stole almost $700 million in 2022, and attacks on the solana and Binance smart chain ecosystems accounted for well over half of that total, according to a report on Tuesday from Atlas VPN said.Cybercriminals stole $682 million from 72 attacks in the first three months of the year, the report said. Hacks of the solana and BSC networks led to almost $500 million in stolen funds, with $400 million stolen from solana and $100 million from Binance smart chain, according to Atlas VPN's data, which was based on figures from Hacked Slowmist.NFTs were the top target, with the highest number of hacks at 20, netting a near-$49 million loss. Some attackers used phishing attacks on Discord to steal victims' NFTs, the report said."With the rise of new crypto ecosystems, cybercriminals get more targets they can exploit. In addition, the surging NFT trend attracted even more scammers to the industry," Atlas VPN said.Monetary losses were calculated based on the conversion rate of a particular cryptocurrency when the attack took place.The BSC ecosystem had 12 hacks while the solana ecosystem was hacked 4 times. Wormhole, a communication bridge between solana and other decentralized finance (DeFi) networks, was the target of the biggest hack in February of this year."An attacker exploited a signature verification vulnerability in the network to mint 120K Wormhole-wrapped ether on solana, worth about $334 million," Atlas VPN said.The ethereum ecosystem experienced 16 hack attacks in 2022 and lost nearly $25 million. It experienced the same number of hackings in the first quarter of last year, making it the top target for hackers.Exchanges were hacked three times, losing $42 million. Other types of hacks on blockchain caused $52 million in losses in 9 instances.Most blockchain-related hacks occur when cybercriminals exploit flaws in the project code. Successful hack can cause massive losses to creators and investors on crypto platforms.Blockchain-related hacks have reached a record-high in the first quarter of 2022, showing an 118% increase compared with the same quarter last year, the data showed."The growing market of cryptocurrencies entices not only legit people interested in the technology, but also cybercriminals who want to exploit it," Atlas VPN said.Hackers stole with more than $4 billion worth of cryptocurrencies in 2021, according to a report by Crystal Blockchain, almost triple the amount stolen in 2020.And last week, a crypto hacker pulled off one of the largest heists in history, stealing $625 million worth of ether and stablecoin USDC after targeting Axie Infinity's Ronin Network.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderMar 31st, 2022

Novogratz Sees Bitcoin Bottom Around $38-$40K, Waiting To Buy

Novogratz Sees Bitcoin Bottom Around $38-$40K, Waiting To Buy Crypto-billionaire Mike Novogratz, CEO and founder of Galaxy Digital Holdings, told CNBC he is waiting a little bit longer to buy crypto and that on a Bitcoin chart it seems the $38k-$40k level is where Bitcoin would find support and a bottom after a "monster year." "I know big institutions who are going through their process to put positions on. They're going to see those as attractive levels to buy." "I know big institutions who are going through their process to put positions on. They're going to see those as attractive levels to buy," says @novogratz on calling for a #bitcoin bottom at $38,000. pic.twitter.com/wsUM68Fvpx — Squawk Box (@SquawkCNBC) January 6, 2022 Novogratz said that Bitcoin is going to be volatile over the next few weeks but he is not nervous in the medium term on the crypto currency, as the long-term story remains intact.  He believes that part of the Bitcoin story was the debasement of fiat currencies and as the Fed becomes hawkish “some of it comes off.” Additionally, Bitcoin is still correlated to the Nasdaq which has come off from the highest levels. "Crypto had a monster year last year. It's hard to think you're going to grow to the sky nonstop. This is a pullback. We see a tremendous amount of institutional demand on the sidelines. I'm not nervous in the medium-term," says @novogratz on #crypto #btc sell off. pic.twitter.com/qCKamdoqp9 — Squawk Box (@SquawkCNBC) January 6, 2022 Novogratz said the latest move down has been on low volume, adding that there is a “tremendous amount of institutional demand on the sidelines." Tyler Durden Thu, 01/06/2022 - 10:15.....»»

Category: smallbizSource: nytJan 6th, 2022

The top 5 wildest crypto moments of 2021

To say 2021 was a crazy year for cryptocurrencies is an understatement. Insider takes a look back at the key moments. Getty Images To say 2021 was a crazy year for cryptocurrencies is an understatement. Insider takes a look back at the five wildest crypto moments. They include El Salvador making bitcoin legal tender and an NFT selling for $69 million. Sign up here for our daily newsletter, 10 Things Before the Opening Bell To say 2021 was a crazy year for cryptocurrencies is an understatement.Bitcoin soared to new highs but also achieved full legitimacy in one country. Meanwhile, meme tokens like shiba inu and dogecoin went from being jokes to delivering mind-blowing gains. The number of cryptos ballooned to more than 16,000, and the overall market cap hit $3 trillion at one point. In other parts of the space, a non-fungible token stunned the art world when it fetched a staggering $69 million to become the most expensive work of digital art in history. Insider takes a look back at the top five wildest crypto moments in 2021:El Salvador made bitcoin legal tenderNo one thought it would happen -- until it did. Nayib Bukele, El Salvador's 40-year-old president, first floated the idea of making bitcoin legal tender in June during the Bitcoin 2021 Conference in Miami. He said he hoped introducing bitcoin would be the catalyst for El Salvador's shift from being a developing country to becoming an industrialized, advanced nation. Just days after, a resolution dubbed Bitcoin Law was approved in June by a supermajority. Then, in September, El Salvador became the first country in the world to make bitcoin legal tender, elevating it to the same status as the US dollar, which replaced the colon in 2001 as the local currency.Dogecoin cracked the top 10 biggest cryptosDogecoin started as a joke in 2013. But today, the joke is on all investors who doubted the meme token. The shiba-inu-themed coin muscled its way to the top 10 cryptos by market cap in 2021, thanks in part to random boosts from staunch advocates such as Elon Musk. The coin's transformation has been astonishing. At present, dogecoin is the most searched crypto on Google and can even be used to buy certain things, including some Tesla merchandise and an AMC gift card.Shiba inu surpassed dogecoinRiding on the back of dogecoin's popularity is a spin-off that achieved even more dizzying heights. Shiba inu, the self-proclaimed dogecoin killer, vaulted out of nowhere and at one point surpassed dogecoin's market cap to join the top 10. It's now $18 billion, trailing dogecoin's $23 billion.Shiba inu, created in August 2020, saw an astronomical rally thanks in large part to its Shib Army, an overenthusiastic group of investors backing the token. In fact, shiba inu's price rocketed 44,540,000% this year, while dogecoin surged about 3,600%.An NFT sold for $69 millionIn March, artist Mike Winkelmann, better known as Beeple, sold the most expensive work of digital art in history. His "Everydays: The First 5,000 Days" NFT, which comprises 5,000 days of work, fetched a whopping $69.3 million at auction. He told Insider he did not really think much of it; he just kept producing art.The mania behind this staggering purchase is emblematic of the surge in popularity of NFTs, digital representations of artwork tied to a blockchain, typically on ethereum. When people buy NFTs, they gain the rights to the unique token on the blockchain, making these next to impossible to alter.A bunch of randos almost bought the ConstitutionA decentralized autonomous organization -- essentially a group of internet friends with a common goal -- raised around $46 million in November to buy an extremely rare print of the US Constitution. It may have sounded absurd, but the DAO actually came close to winning the Sotheby's auction until Citadel CEO Ken Griffin dashed their hopes and bought it for himself.ConstitutionDAO, the loosely organized group of around 17,000 people, still made headlines for the attempt. And while the DAO disbanded after losing the bid, it did lay bare the power of decentralization.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJan 1st, 2022