Central banks (almost) everywhere join the Fed's hawkish parade.

• Fed tightening… spreads around the world… and FX intervention...

• The Swiss National Bank raised interest rates by 75 basis points to bring borrowing costs above zero for the first time in almost eight years, following recent moves in the euro region.

• Japan intervened in the foreign-exchange market for the first time since 1998, spurring a rally in the yen.

• Today the pace picks up again with PMI readings.

• Central banks (almost) everywhere join the Fed's hawkish parade.

• Ukraine agreed a major prisoner swap with Russia, including a key Putin ally.

• Tesla recalls almost 1.1 million vehicles over window glitch.

• Bond yields hit records and stocks fell amid a rate-hike race.

• The BOE delivered a second straight 50-bp increase, with three officials pushing for a bigger move.

• The SNB exited negative rates and hiked by 75 bps, as expected.

• The SARB lifted rates by 75 bps, while Turkey shocked investors with a 100-bp cut. Egypt stood pat.

• Singapore trumps Hong Kong in financial city ranking.

The blitz of central-bank meetings is receding, and traders will try and make sense of it all. It’s really simple…a recession is something the central banks can manage and inflate the economy when the time is right, whereas inflation is out of their control. Therefore, drive the economy into recession, leave rates elevated until inflation is back around their desired 2%, then slowly add stimulus to bring the economy out of recession, which I expect to be the back end of 2023 or possibly even 2024. The housing market will suffer and I expect the jobs market to reverse from a lack of workers to job losses.

Goldman cut its target for the S&P 500 to 3,600 from 4,300, which is great as I bought the 4300 puts (options) in mid-August on the rally as it was the previous high from April-May.

Global News

The third decline in a row for the eurozone PMI indicates that business activity has been contracting throughout the quarter. This confirms our view that a recession could have already started. At the same time, the August increase in energy prices is translating into stronger price pressures ING

Global bond yields surged, hitting multiyear highs after a slew of central banks joined the Fed in raising interest rates. Yields on 10-year Treasuries and 10-year gilts both surged to the highest since 2011. US stocks fell; Asian equity futures point down.BB

The Feds 75 basis-point hike was only part of the story as it admitted there will be below-trend growth for a period. Seema Shah of Principal Global Advisers says this should be interpreted as central bank speak for "recession". The Dot Plot was revised higher, with FOMC members expecting rates to reach 4.4% this year and 4.6% next year.BB

Japanese authorities intervened to sell USD/JPY for the first time since 1998. With the Fed turning ever more hawkish and the BoJ still printing money, it looks like the Japanese government wanted to stop a quick run to 150. Japanese authorities could well be doing battle with the FX market for the next 6-9 months as the dollar stays strong ING

Norway’s central bank raises rates by 50bp and signals another hike will likely be delivered in November. Somewhat surprisingly, the statement hints at a slower pace of tightening from now on, but we still don't rule out another 50bp hike in November. Like in Sweden, attempts to lift NOK via higher rates should keep failing in the near term ING

The US housing market has gone from FOMO to just plain fear. Prices are falling from peak levels, with expensive West Coast markets recording the steepest declines. Bidding wars are fading and sellers are ratcheting down expectations. It should all add up to an opportunity for would-be buyers who have been waiting to gain the upper hand after a years-long market frenzy. Instead, they’re facing the worst affordability in almost four decades. The abrupt end to the pandemic housing boom, driven by the Federal Reserve’s aggressive interest-rate hikes, is leading to a sense of paralysis in the market — a sign price declines will accelerate. With mortgage rates at the highest level since 2008, house hunters have gone scarce, priced out or worried about overpaying as America braces for a potential recession. Even big Wall Street buyers are holding fire, waiting for lower values ahead. “Everyone is coming to the view that prices are going to decline,” said Mark Zandi, chief economist for Moody’s Analytics. “Until that happens, nobody is going to buy.” BB

Treasury yields hit multiyear highs and stocks fell as a parade of central banks joined the Federal Reserve in boosting rates to curb scorching levels of inflation at the expense of economic growth. Ten-year US yields hovered near 3.7%, the highest since February 2011. The S&P 500 closed at the lowest since June, with some Wall Street voices predicting the gauge may soon test its June bottom that stands about 2.5% below current levels. BB

President Vladimir Putin’s order to call up as many as 300,000 reservists to fight in Ukraine triggered alarm and demonstrations as Russians were forced to confront the reality of the deadly conflict.

Take Putin’s nuclear threat seriously, but not too seriously, writes Hal Brands for Bloomberg Opinion. “Few think the Russian leader would be foolish enough to escalate radically, but there’s also a strong argument to be made that he’s not bluffing,” he says. CBB

Japan will abolish a slew of Covid border controls from Oct. 11, Prime Minister Fumio Kishida said in New York, in a move that looks set to revive the tourism industry.BB

UK Kwasi Kwarteng's mini budget today will try to boost growth via tax reforms and deregulation. The chancellor is expected to reverse a recent increase in National Insurance contributions and to cancel a planned rise in corporate tax rates. Investors will await word on how the plan will be funded. Bloomberg Economics says the tax steps alone may cost around £35 billion in the medium term.BB

The pound is weaker again after UK consumer confidence slid to -49 in September, the worst in records going back to 1974. It was worse than expected, too, as economists had seen the measure improving a bit from July's -44. Consumers are buckling under the cost-of-living crisis BB

The EU's push to clinch a pact imposing a price cap on Russian oil has gained steam since Vladimir Putin announced a "partial mobilization" of troops, people familiar said. It'll probably feature alongside fresh sanctions in coming weeks. It will also lay out a plan next week to digitalize its energy grid. BB

Digital Grid | The commission will next week lay out a plan to digitalize its energy grid as it seeks to expand renewables to reduce its dependence on Russian sources. The “Digitalizing the Energy System” action plan will require a 565 billion-euro investment in infrastructure by the end of the decade, according to a draft document we’ve seen.BB

China's most locked-down city exemplifies the perils of endless Covid Zero. Ruili's residents saw seven lockdowns from March 2021 to April 2022 and have spent a total 119 days barred from leaving their homes for any reason—other than to test for Covid. Even today when they go out, all movements are tracked, partly by facial recognition cameras. And a once-porous border is now patrolled by thousands of guards, equipped with heat-seeking technology. BB

Europe is about to find out who Giorgia Meloni really is. The leader of Italy's far-right party Brothers of Italy party is poised for a resounding win in Sunday's general election. That would mark a stunning advance from the 4% of votes she garnered in the 2018 national vote. Meloni, 45, who has almost no government experience, has sought to reassure investors and voters that she would govern as a moderate. But a few slips in the final stages of the electoral campaign — including signals that she would try to renegotiate Italy’s plan to spend EU recovery funds — have raised fresh questions. If she wins, she’s expected to begin informal talks on a new government next week, and a key signal will be who she taps to oversee Italy’s fragile finances.BB

Commodities

Copper crunch. Investors are selling the metal on fears a global recession will stunt demand. But a massive shortfall may be on the horizon, and the recent downturn will probably make it worse

The price of copper has fallen by nearly a third since March. That slump is discouraging new investments which may lead to a massive shortfall in a few years.

We'll look back at 2022 and think, 'Oops,' said Wells Fargo's John LaForge. A squeeze as the world electrifies will hit everything from EVs to air conditioners.

It takes at least 10 years to develop a new mine and get it running, which means investment today, or lack thereof, will help shape supplies well into the future.BB

Spain completed tests at a natural-gas facility that will boost its export capacity by 18%, paving the way for France to buy more as it reduces its reliance on Russian supplies. More Spanish exports could particularly help France — normally an energy supplier to other parts of Europe — to tackle its own crisis fueled by nuclear outages at home as well as high gas costs.BB

Britain's power supplies risk running short for 10 hours this winter if it is unable to import power from the continent, according to the latest forecasts from leading energy analysts. LCP explored the "very possible" scenario that Europe won't be able to meet Britain's electricity needs this winter due to its own shortages. – Telegraph

India set to skip buying Russia's ESPO crude in Sept as freight costs jump - Indian refiners are set to skip purchases of Russia ESPO crude oil this month due to higher freight rates, turning to Africa and the Middle East instead, industry sources said. India, which rarely used to buy Russian oil, has emerged as Moscow's second biggest oil customer after China since Moscow's invasion of Ukraine in late February.

Poland will only supply Germany's Schwedt refinery if Rosneft removed as shareholder - Poland will only help supply oil to Germany's PCK Schwedt refinery if Russia's Rosneft is completely removed as a shareholder, Poland's climate ministry said, raising pressure on Germany to completely nationalise the refiner. The German economy ministry is in talks with potential buyers, including a Polish company, two government sources in Berlin said. 

IGC raises forecast for 2022/23 global wheat crop - The International Grains Council (IGC) on Thursday raised its forecast for 2022/23 global wheat production, partly reflecting an upward revision for the crop in Russia. In its monthly update, the inter-governmental body saw global wheat production rising to 792 million tonnes in 2022/23, up from a previous projection of 778 million and now above the prior season's 782 million tonnes.

Crop merchant Louis Dreyfus' profits rise as it navigates Ukraine crisis - Global crop merchant Louis Dreyfus Company (LDC) reported higher first-half sales and profits, saying it had used its wider supply network to adapt to disruptions linked to the Ukraine war to boost volumes and benefit from higher prices. LDC, whose rivals include ADM, Bunge and Cargill, said net sales for the six months ending June 30 rose to $30.3 billion from $24 billion a year earlier, while net income rose to $662 million from $336 million. 

OZ Minerals to invest $1.1 bln in West Musgrave copper-nickel project - Australian miner OZ Minerals Ltd said it would invest about A$1.7 billion to develop the West Musgrave copper-nickel project in Western Australia, as it looks to cash in on increasing demand for battery metals. The final investment decision comes amid media reports that the world's largest listed miner BHP Group might be awaiting OZ's decision on West Musgrave to hike its takeover offer, more than a month after its $5.8 billion bid was rebuffed.

Mexico values its Sonora lithium deposits at $600 bln - A potentially vast lithium deposit in Mexico's northern Sonora state could be worth as much as 12 trillion Mexican pesos ($602 billion), according to a recent finance ministry report, or over a third of the country's projected economic output this year. Mexico hopes its reserves of the key battery component will help it benefit from a global shift toward electric vehicle production that has turbo-charged demand, but experts are skeptical it will be able to quickly mobilize its industry. 

EU watchdog proposes emergency brake for energy markets - A temporary brake on gas and electricity derivatives when prices spike could improve how energy markets operate, the European Union's securities watchdog proposed on Thursday, along with more fundamental changes over time. The European Securities and Markets Authority (ESMA) said the number of trading halts in energy derivatives has been very low in recent weeks despite rules on circuit breakers already in place and prices racing higher following Russia's invasion of Ukraine in February.

Ban on gas fracking in England lifted in push for energy independence - Britain on Thursday formally lifted a moratorium on fracking for shale gas in England that has been in place since 2019, saying strengthening the country's energy supply was an "absolute priority". Energy prices have soared in Europe after Russia invaded Ukraine, and Britain is subsidising bills for households and businesses at a predicted cost of more than 100 billion pounds.

India's Russian thermal coal imports set to fall for first time in 4 months - India's thermal coal imports from Russia are expected to fall for the first time in four months in September, two research consultancies said, potentially resulting in lower revenues for Moscow at a time it is mobilising more troops to fight in Ukraine. Indian consultancy Coalmint expects September thermal coal imports from Russia to decline 30% from August to 1.4 million tonnes, it said in a note to clients.

Philippines bought about 45,000 tonnes Australian feed wheat - traders  - An importer group in the Philippines is believed to have bought around 45,000 tonnes of animal feed wheat to be sourced from Australia in an international tender which closed on Thursday, European traders said in assessments on Friday. The wheat was purchased at about $355 a tonne c&f for January 2023 shipment, traders estimated.

Crypto/Digital

Kraken’s Jesse Powell, one of crypto’s most controversial CEOs, on Wednesday added his name to a growing cadre of executives who have relinquished their roles or are in the process of stepping down from leading some of the industry’s most high-profile companies. 

The messaging around the moves has sought for the most part to reassure, portraying the transitions as a natural progression. For MicroStrategy Inc.’s Michael Saylor, shifting from CEO to executive chairman was billed as a chance for him to focus on buying Bitcoin. For Alameda Research’s former co-CEO Sam Trabucco, it was about spending more time on a boat he’d purchased. And Jesse Powell? He said he wanted distance from day-to-day operations to think more about products, while also perfecting his sleep schedule.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