Amazon raises hourly wages.

Headlines

• Nord Stream pipes have four leaks.

• Amazon raises hourly wages.

• Peak oil has finally arrived. 

• Yellen says she’ll stay past November midterms. 

•  Inflation and recession woes stalk markets as Britain's PM defends her plan. 

• Stocks plunge, hitting "Buy The Dip" investors.

• China gets ready to take on Boeing and Airbus.

• Japan will devise a stimulus package by the end of October to tackle inflation and the weak yen, and aid growth, PM Fumio Kishida said.

• Chinese firms probably won't succeed in keeping their US listings just by hiring American auditors, the SEC's top accountant said.

• Ian's tropical storm downgrade will be short-lived.

• Meta's once speedy expansion comes to a halt.

• The pound is rallying back on hopes of a policy pivot.

• Joe Biden condemns Russia's planned annexation of Ukrainian territory.

• Apple suffers a $120 billion stock wipeout.

• Mark Zuckerberg outlines job cuts at Meta. 

My View

Buying dips is proving expensive for investors unless its gold which is finally regaining its status as a risk-off asset. Oil too has steadied back above $80. As I mentioned recently, this could be the U.S replacing its strategic reserves. They are supposed to release more in November, however, I doubt this will happen unless oil rallies above $100 again…remember, just my view!

Today is the last day of the month and also Q3 so we should expect some rebalancing in stocks. GDP data released in October is going to be very interesting. One thing for sure is rates are still going to rise almost everywhere until the end of the year, and possibly beyond.

I doubt the UK government will make a u-turn on policy so early in office. Possibly water it down to appease the critics, but I am not so sure they will even do that. Truss desires to help households (when was the last time, we had a politician want to do that!) and generate growth with a soft landing, while central banks want to force inflation lower by destroying demand…let the battle commence!

Speaking of central banks, the Fed gets to see its favourite inflation indicator today with the core PCE probably showing inflation quickened to ~4.7% in August.

Global News

Global markets: The bounce didn’t last long. Both S&P500 and NASDAQ fell sharply again on Thursday, the S&P by 2.11% and the NASDAQ by 2.84%. That puts year-to-date losses at respectively 23.62% and 31.37%. And we’d be inclined to argue that we haven’t yet seen the bottom. The S&P500, for example, is sitting just around its June lows, so any break below this level sets the scene for some substantial further declines. On the positive side, equity futures are pricing in small gains at today’s open, but that's a long way from saying that stocks will rally into the weekend and the end of the quarter. UK Gilts gave back some of their gains yesterday on the Truss government’s insistence on sticking to its mini-budget, and yields have risen across the UK curve, though this doesn’t seem to have the market’s eye in the same way it did earlier this week. 2Y US Treasury yields headed up 5.8bp to 4.192% and the yield on the 10Y bond rose a similar amount to 3.786%. 10Y Bunds rose 5.8bp to 2.14%, hurt by a 10% YoY September inflation print (10.9% for the harmonized index). And while this is cementing thoughts of a 0.75% rate increase at the next ECB meeting, that seems like a lame response in a month where the price index rose by 2 percentage points. For now, currency markets seem to disagree, and the EURUSD has risen to 0.982, though this seems a little incongruous against the data backdrop. Other G-10 currencies also did better against the USD. The AUD is now back up above 65 cents, while the GBP has risen to 1.1145 – a long way from the 1.035 low of the week (and approx. last 4 decades!). Can this last? It seems a long shot as there’s plenty more bad news to be priced in. The JPY has also had a reprieve, and is back to 144.42, while the CNY led APAC’s FX gains, gaining by more than a per cent to 7.1249 onshore. ING

The UK's financial crisis is threatening to tip the economy into recession, with Prime Minister Liz Truss digging her heels in, defending the historically large tax-cut package and describing it as the "right plan." The crisis was years in the making, with last week’s mini-budget throwing sharper focus on long-standing vulnerabilities including a wide current account deficit and a fractious relationship with its largest trading partner. BB

The pound advanced to the highest in a week after the Guardian reported Liz Truss and Kwasi Kwarteng will hold emergency talks today with the OBR. Truss faces rising pressure to pivot on her tax and borrowing plans after a new YouGov poll for The Times showed Labour has a 33-point lead over the Tories—the biggest gap since the 1990s.BB

The weak pound is providing a big tailwind to UK large-cap earnings, with 75% of FTSE 100 revenues coming from overseas. That means the blue-chip index may continue to outperform the mid-cap FTSE 250, Liberum Capital said.BB

Treasuries slumped Thursday to unwind some of the previous day’s swift gains. Some big bond investors say don’t be deceived by the Treasury market’s torrid rally Wednesday. The hawkish signals still coming out of the Federal Reserve are what matters, and the rest is noise. That the Fed must keep pushing interest rates higher to contain inflation despite rising volatility in global financial markets, Chicago Fed President Charles Evans said. UK bonds extended losses after Truss defended the unfunded tax cuts. BB

Risk-off sentiment returned to markets on Thursday. The dollar climbed versus all of its Group-of-10 peers. S&P 500 futures dropped 0.8% as of 5:56 am New York time, and European stocks also fell. UK gilt yields rose. European bond yields also climbed as investors digested the latest inflation data and commentary from European Central Bank officials. How much damage is a strong dollar causing? BB

US stocks plunged to the lowest since November 2020, dealing a harsh lesson to traders as Liz Truss doubled down on UK tax cut pledges and Fed officials kept up tightening talk. Treasuries dropped. Asian equity futures are also in the red.BB

Ian weakened, but more than 2 million homes and businesses are still without power even as the storm moves across central Florida and toward the Atlantic. It is expected to cause more than $67 billion in damages and losses, making it one of the US' costliest ever. BB

Vladimir Putin vowed to go ahead with the annexation of the parts of Ukraine that its troops currently control after sham votes, putting the Kremlin on a fresh collision course with the US and its allies. Russia will sign treaties to absorb the four regions Friday BB

The drop from 97.3 to 93.7 in the eurozone economic sentiment indicator indicates a likely contraction in the economy in the third quarter. Selling price expectations have been on the rise again, increasing the risk of a longer period of stagflation in the eurozone economy.

The eurozone economy is slowing rapidly as high prices reduce business activity and dampen consumer demand. We expect that a recession could, therefore, have already started.

For industry, production expectations dropped sharply in September. Backlogs of work have fallen as new incoming orders disappointed in recent months and in some industries production is reduced as high energy costs impact the profitability of production. With energy costs still at unsustainably high levels for some industrial sectors, this is adding to the bleaker outlook for industrial production.

For the services sector, confidence fell even more as the post-pandemic catch-up demand is fading and the purchasing power squeeze is starting to bite. The services indicator dropped from 8.1 to 4.9 as businesses indicate that demand has recently weakened and they are becoming gloomier about demand in the months ahead.

Despite the clear slowing of the economy, selling price expectations are increasing again as businesses face higher energy costs again due to the spike in prices in August. This is particularly worrisome as it could prolong a period of stagflation in the eurozone economy. For the ECB, the path is already quite clear: the central bank is set to hike in the coming meetings regardless of a slowing economy. The increase in selling price expectations will only strengthen that view for the October meeting. ING

China is stepping up action. The PBOC will allow some cities to cut mortgage rates for first time home buyers, and will expand a special lending program to ensure delivery of delayed housing projects. It also told major state-owned lenders to prepare to sell dollars to support the yuan. BB

China's factory activity picked up more than expected this month, while the sector sector sagged more than forecast. The official manufacturing PMI rose to 50.1 from 49.4 in August, beating estimates and moving in to expansionary territory.BB

Made in China takes off? Beijing appeared to certify Comac's C919, allowing it to take on Boeing and Airbus in making narrowbody jets, according to photos of a ceremony that circulated on social media.

·  However, neither the regulator nor the manufacturer have confirmed that the plane had been approved to begin commercial service.

·  It's also not clear when, if ever, the aircraft will be a competitive threat to the global duopoly.BB

Stronger-than-expected industrial production and solid labour market data suggest Japan's economy continued to recover in the current quarter. A further easing of border restrictions and resumption of domestic travel aid programmes will support next quarter's growth as well. Thus, we upgrade 2022 GDP growth to 1.6% YoY from 1.2% previously BB

Liz Truss must stop trying to be exciting, Bloomberg's editors write. That means quietly coordinating with BOE officials in charge of curbing inflation and restoring financial stability. The Treasury can't be seen as being at odds with the central bank. The PM also needs to make a fast political course correction, making her tax-cut plans more contingent.BB

Vladimir Putin may not have long to wait for the first major test of his attempt to claim a large section of eastern Ukraine as his own. While the Kremlin plans a ceremony marking the results of sham votes held by Moscow-aligned rebels, Kyiv’s forces are threatening to encircle a pocket of the region Russia set out to occupy, including a key transport hub that could further facilitate the repulsion of Russian soldiers. It would also force Putin to decide whether to follow through on his Sept. 21 threat to use all means to protect Russian territory, and whether that threat includes newly claimed Ukrainian territory.BB

The US dollar is steamrolling everything right now, causing issues for economies almost everywhere but America. That means that, for now at least, it’s not a US problem and the historic central-bank-fueled surge in the greenback is unlikely to abate anytime soon. By some measures, the US currency is already stronger than ever, eclipsing the highs of the early pandemic. The pain it’s inflicting has echoes of the mid-1980s, when foreign exchange chaos forced the world’s most important finance officials to impose a solution on markets. But right now, as far as America is concerned, it’s every country for itself. BB

The big reason the dollar will continue to pummel the rest of the world is that Fed Chair Jerome Powell is singularly focused on tackling inflation. The Federal Reserve has raised its benchmark interest rate from near zero to above 3% in record time. And at its most recent meeting, on Sept. 21, the central bank projected it would add an additional one and a half percentage points in the coming months. BB

Republicans are trying to block Biden from forgiving student loans for millions of Americans. In a lawsuit filed by six GOP-controlled states, they accuse the Democratic president of overstepping his authority. On Thursday, the administration reversed course on part of its plan, excluding privately held federal student loans. BB

Commodities

Germany’s network regulator warned that households and companies used too much gas over the past week as temperatures dropped and said savings of at least 20% are needed to avert a shortage of the fuel this winter. Gas consumption was well above average, increasing by 14.5% compared with the mean for 2018-2021, it said.BB

Crypto/Digital

Coinbase (COIN) shares plunged by more than 9.3% as U.S. markets opened on Thursday after Wells Fargo issued a profitability warning.

The multinational financial services company claimed rising competition and macro pressures will hurt the publicly traded crypto exchange, dubbing COIN a sell, according to a CNBC report.

Coinbase shares changed hands at $61.05 shortly after the opening bell, according to NASDAQ data (via TradingView). 

The world's biggest crypto exchange, Binance, starts converting users' stablecoin holdings to its own stablecoin, BUSD. And the ripple effects are already taking hold, with the market cap of Circle's USDC stablecoin slipping to $49 billion. Circle itself has announced plans to support five additional blockchains, and the launch of a Cross-Chain Transfer Protocol.

Inflation is rampant, the global economy is on the brink of a recession and stock markets have shed trillions of dollars

It was against that backdrop that Federal Reserve Chair Jay Powell, European Central Bank President Christine Lagarde and Agustín Carstens, head of the Bank of International Settlements, convened on Tuesday to discuss, of all things, the tokenization of finance. What followed was a string of admonishments about crypto’s pitfalls that the officials now have had months, or even years, to rehearse. 

Make no mistake: The last few months have shown beyond a shred of doubt that more oversight — and accountability — is desperately needed in digital assets. But the jaded observer might be excused for thinking that the warnings had a somewhat hollow ring to them. 

Statements ranged from the fairly bland (Powell: “There’s a real need for more appropriate regulation”) to the obvious (Banque de France Governor Francois Villeroy de Galhau: “We should be extremely mindful to avoid adopting diverging or contradictory regulations, or regulating too late”) to the self-deprecating (Singapore central bank chief Ravi Menon: “But who listens to central bankers, right?”). 

And while the central bankers had compelling reasons to repeat their warnings, policy makers are now faced with a number of acute crises to deal with — not least the global recession Powell & Co.’s monetary tightening appears to have made all but inevitable. 

What priority will German politicians assign to stablecoin regulation when factories may be without power this winter? Or new UK Prime Minister Liz Truss, faced with a currency in free-fall and the prospect of a credit rating downgrade? It wouldn’t be entirely surprising if overhauling crypto rules gets put on the back burner. 

That doesn’t mean crypto’s concerned observers should fret. The industry has been shaking out somewhat organically. Terra inventor Do Kwon is “on the run” — as Lagarde put it at Tuesday’s panel — and facing arrest in South Korea. Alex Mashinsky, whose bankrupt Celsius Network Ltd. has left creditors and customers in the lurch, just resigned. A string of other crypto CEOs have called it quits, chastened by vanishing profits and changing dynamics. And lawmakers and regulators are starting to take steps, however tentatively, to clarify policy, with legislative proposals for new rules emerging in the US and Europe. 

So maybe real change is afoot, after all. But whether it comes as a result of central bank chiefs trading truisms at conferences, or a zealous South Korean prosecutor pulling all-nighters in Seoul, is up for debate.BB

Market levels (all analysis is based on CME futures contracts)

DISCLAIMER.

The content of this daily newsletter should only be considered a guide and views, opinions or content contained in this email is provided solely for information purposes and does not constitute investment advice or a solicitation to trade or invest.

Chris Tubby

Senior Director Trading and Education

Symax Fintech