Daylight saving: the next threat to Europe’s energy crisis.

• The Fed grapples with billions of losses

• Wall Street is sinking billions into both ends of the yield curve

• Daylight saving: the next threat to Europe’s energy crisis 

• A new substitute for rare-earth metals could challenge China

• Sunak enters 10 Downing Street with warnings on economy and criticism of his team

• Alphabet, Microsoft lead big tech stocks lower.

• Elon Musk vows to seal the Twitter deal Friday.

• No. 10 Downing St. gets its first billionaire family.

• Consumer confidence fell in October by more than expected to a three-month low, decreasing to 102.5 from a 107.8 reading in September.

• In housing, US prices are falling the most since 2009 in August, capping off a second-straight month of declines.

• China’s broad fiscal deficit hit an all-time high in the first nine months of the year as Covid-19 outbreaks and a housing market slump continue to erode government income.

• How Xi’s shakeup shattered decades of succession rules in China.

• Outrage after Suella Braverman made home secretary by Sunak - just six days after being sacked for breaching the ministerial code.

The pound has only rallied slightly on Sunak being the third unelected PM the UK has had, with most of the rally coming from dollar weakness.

Expectations the Fed are preparing to slow down their rate hikes may be premature. Data is lagging and therefore we should start to see the series of rate increases this year begin to impact demand. However, I expect this to be limited and regardless, the Fed will keep rates higher for longer as inflation is far from being controlled. Thursday, we have key data including PCE that will confirm how strong inflation remains and if consumers are starting to cut back and the Fed meeting is next week before the NFP release.

Many articles are expecting Sunak to be the saviour of the UK due to his time working for Goldman Sachs and hedge funds, yet I read he was only an analyst, and I don’t think he has any qualifications that are required to handle investors’ money. The hedge fund I believe was set up by him, possibly a family fund, so he would have employed traders.

There is a lack of liquidity in the bond market as the ECB squeezed supply in Europe and this is leading to criticism of the ECB raising rates. Surely the simple answer is for the ECB to accelerate its balance sheet reduction by selling assets back to the market! We may find out tomorrow at the press conference after the ECB rate decision which is likely to be another 75 bps.

Global News

The Federal Reserve is among central banks that are now sitting on paper losses on their massive bond holdings, which were accumulated as part of their rescue efforts in recent years. The US Treasury will see a “stunning swing,” going from receiving about $100 billion last year from the Fed to a potential annual loss rate of $80 billion by year-end, according to Amherst Pierpont Securities LLC. BB

· Rather than just an accounting oddity, it's created a hole that may ultimately require the Treasury to fill via debt sales. The UK Treasury is already preparing to make up a loss at the BOE.

· The problem isn't the losses per se but the political backlash, said a former Swiss central banker. Central banks are increasingly likely to face more questions about mandates and independence. BB

US house prices recorded a second consecutive MoM decline in August, something that the market hasn't experienced since early 2012. Demand is weakening as mortgage rates surge while housing inventory for sale is on the rise, meaning further large price falls are probable. Bad news for new homeowners, but it can help to get broader inflation lower quickly.

US house prices nationally are up more than 40% since the start of the pandemic as huge fiscal and monetary stimulus fueled demand for homes while working from home also opened more alternatives of where to live. At the same time, supply was limited with new construction slow to catch up. However, we are now entering a very different environment.

The July S&P Case Shiller house price report recorded the first month-on-month fall in over 10 years and now we have the second. After July's 0.7% MoM drop they fell 1.3% in August in the 20 major cities, taking the year-on-year rate of appreciation down to 13.1% from 16%. Every city experienced a price fall, but once again most of the major pain is on the West Coast with Seattle down 3.9% MoM after a 3% fall in July while San Francisco fell 4.3% MoM after July's 3.5% decline. New York, Cleveland and Chicago saw much smaller falls, but then again prices didn’t rise as rapidly on the way up. ING

Scientists may have discovered a way of making magnets for wind turbines and electric cars without the rare-earth metals that are almost exclusively produced in China. A team from Cambridge University and colleagues from Austria found a new way to make tetrataenite, a possible replacement. BB

Elon Musk pledged to finalize the acquisition of Twitter by Friday, telling his bankers that he'd help market the $13 billion debt package to money managers after the deal closes, people familiar said. The Wall Street lenders, led by Morgan Stanley, have finished putting together the final credit agreement and are in the process of signing the paperwork.BB

The Sunaks will be the first billionaire family to ever live at 10 Downing Street. That's because the new PM’s wife Akshata Murty is worth about $1 billion, easily topping the estimated $400 million fortune of the late Queen Elizabeth II. Their wealth is likely to remain in the spotlight: Sunak takes the reins at a time when many in the UK worry about how to pay for heating or even groceries. BB

US President Joe Biden warned the Kremlin Tuesday against using any radioactive weapons in its war on Ukraine as tensions over a potential nuclear escalation by Moscow climb. Since before its invasion in February, Russia has been accused of trying to muddy the waters by accusing Kyiv of planned “provocations,” unsubstantiated claims that would ostensibly provide cover for Russian “false-flag” operations. Eight months later, widely rejected allegations by Vladimir Putin’s adjutants that Ukraine plans a radioactive “dirty bomb” attack on its own soil have the US and NATO wondering whether Putin is planning to detonate one himself. With Russia losing significant ground in the northeast and southeast of Ukraine in recent weeks, assessments that Putin may be considering a nuclear attack on Ukraine are growing in the West. Others contend this dirty-bomb brinkmanship is the latest Kremlin effort to scare off NATO when it comes to advanced military aid to Ukraine. But Kyiv authorities claimed Tuesday that they’ve seen suspicious activity by Russian forces at Ukraine’s occupied nuclear power plant that could indicate the gambit is real. Such games of chicken have been war-gamed for decades, and they have always had the capacity to spiral out of control. BB

Australia's 3Q22 CPI index rose at a 1.8%QoQ pace, no slowdown from the pace of growth recorded in 2Q22, and this took the headline inflation rate to 7.3%, beating the consensus expectations for a 7.1% inflation rate. But the bad news doesn't end there. Core measures of the inflation rate, which might have tempered any outsize rises in erratic items driving the headline index, also showed larger-than-expected rises.  Trimmed mean inflation is now 6.1%YoY, and the weighted median inflation rate is 5.0%. All three measures are considerably above the Reserve Bank of Australia's 2-3% target range. Within the CPI basket, the biggest drivers for the year-on-year gain were housing and food ING

The German government is close to reaching a compromise over a disputed sale of a stake in a Hamburg container terminal to China’s state-owned shipping conglomerate Cosco Shipping Holdings Co. Chancellor Scholz, previously the mayor of Hamburg, and his ministers may agree on a sale of a reduced 24.9% holding to Cosco, a source tells us. BB

Commodities

Europe suddenly has more gas than it can use. Starved of the Russian imports on which its long relied, Europe has rushed to import liquefied natural gas from around the world to fill up storage. Now, a combination of unusually warm weather and successful bidding for cargoes means facilities are almost full. BB

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

 
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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