EU proposes price caps, mandatory cuts on energy as winter looms.

Headlines

• EZ July industrial production fell by 2.3%, reversing gains made in May and June.

• A semblance of calm returned to markets on Wednesday after the rout sparked by hotter-than-expected American inflation

• The bear market has a ways to go, according to Bernstein.

• A US rail strike threatens to halt key shipments. 

• Europe's top banks seek to lure Wall Street talent with WFH benefits.

• EU proposes price caps, mandatory cuts on energy as winter looms.

• Spanish supermarkets were urged to curb food prices or risk backlash from consumers.

• The EU pledged to boost Ukraine's economy with access to the bloc's single market.

• Google suffered a setback in its bid to topple a record €4.2 billion EU antitrust fine.

• Zara-owner Inditex said profits jumped after it raised prices above inflation.

• China's GDP forecasts trimmed by economists.

• Japan's trade deficit balloons to record.

• ETH Merge to happen today (if it goes to plan)

Tomorrow is quadruple witching when all the stock index futures, single stock futures, single stock options, index options, expire. This creates very high activity leading up to expiry.

We are seeing mixed hopes from investors. Some want the Fed to slow down their rate hikes to prevent them choking growth and others want the Fed to act more aggressively to get a hold on the economy. I still expect the Fed to continue with its rate hikes and hold them there until inflation is beaten, and if this leads to a recession so be it. The Fed believes it can reinflate the economy much easier than it can control inflation. If they destroy demand they can reboot the economy, whereas most inflation is driven from the supply side, and they cannot solve those issues. Low demand will balance low supply bringing inflation down.

Companies are increasing prices beyond inflation, and this has widened their profit margins to the highest level in decades. All I can say is, make hay while the sun shines, as when the recession arrives they will have to drop prices considerably…now is not the time to be holding high levels of inventory!

Global News

US President Joe Biden downplayed the slump in stocks after August inflation data, remarking that he wasn't worried about price growth not cooling as much as forecast. “The stock market doesn’t necessarily reflect the state of the economy," he told reporters. “Unemployment is low, jobs are up, manufacturing is good. So I think we’re gonna be fine.” Meanwhile, former Treasury Secretary Lawrence Summers called for the Federal Reserve to raise rates by 100 basis points next week, while DoubleLine Capital's Jeffrey Gundlach remarked that a 25-basis point move will suffice amid worries that the Fed may choke economic growth.BB

The US is preparing another package of aid to Ukraine, according to John Kirby, spokesman for the National Security Council. He cited a “shift in momentum” in the war after Ukraine said it recaptured more than 2,300 square miles of occupied territory. President Biden said it was too early to tell if the recent Ukrainian counteroffensive amounted to a turning point in the conflict. Vladimir Putin will hold bilateral meetings this week with the leaders of China, India, Turkey and Iran, using a summit in Uzbekistan to counter his diplomatic isolation by the US and its allies. Meanwhile, the head of the European Union’s executive pledged to work on giving Ukraine access to the bloc’s massive single market to help its war-torn economy.BB

European Commission President Ursula von der Leyen said the bloc could raise more than 140 billion euros ($140 billion) to cushion the cost-of-living blow for consumers by capping revenues from low-cost power producers. It’s part of a series of radical steps von der Leyen is setting out to stem the energy crisis by capping prices and reducing demand. The proposals fire the starting gun on what are likely to be fractious discussions between member states. Meanwhile, the German government may increase its stake in Uniper SE above 50% and is open to taking the historic step of fully nationalizing the country’s biggest gas importer if necessary to prevent a collapse of the energy system.BB

US stocks are nursing losses of $7.6 trillion this year, but if history is any guide, they're likely in for even more declines before the bear market is over, according to Bernstein quantitative strategists. An analysis of the 15 major routs since 1937 shows peak-to-trough price drops averaged 28%, deeper than the current drawdown of 20%.BB

Pump the brakes. DoubleLine's Jeffrey Gundlach is urging the Fed to slow its rate hikes as it risks choking off economic growth. He believes it'll probably tighten by 75 basis points at its September meeting but he would prefer just 25 bps. On the flipside, Larry Summers is among those saying the central bank needs to hike even faster to restore its credibility.BB

Google setback: The company lost most of the first round of its battle to topple a record €4.3 billion EU antitrust fine that struck at the heart of the firm's power over the Android mobile-phone ecosystem. But judges did cut the penalty to €4.1 billion after finding faults in some of the regulator's analysis and that Google's right to a fair hearing had partly been infringed.BB

US railroads are poised to stop shipments of key products as it braces for a possible labor strike.

· Norfolk Southern will halt shipments of key crops from tomorrow, before potential industrial action on Friday. The railroad will stop accepting autos for transit later today and others may follow.

· A pause to movement of grains, fertilizer, fuel and other crucial items threatens to hobble the economy at a time of rampant inflation and fear of a prolonged global economic slump.

· Food-supply chains are especially at risk as farmers gear up for harvest and need to get supplies to customers. Crops are in high demand due to shortages from the war in Ukraine and weather woes across the globe.BB

China is skirting US tariffs with some help from Mexico. As global supply chains get snarled and the costs of trade rise, Chinese firms are sending managers to set up plants and warehouses in places that benefit from close proximity to the US. BB

How bad was the August US inflation report? It was a terrible, horrible, no good, very bad day, John Authers writes. The headline rate fell very slightly but a range of underlying measures actually increased to fresh multi-decade highs, and this is far more important to the Fed. BB

The scale of learning loss is a national crisis and calls for aggressive interventions, Michael R. Bloomberg writes. Students should spend more time in class and schools should provide bonuses for teachers willing to work during the summer and weekends. Biden also needs to encourage more innovation. Needless to say, all this won't come cheap. BB

UK's headline inflation eased slightly from its fastest rate in four decades as petrol prices declined. The rate came in at 9.9% last month, slower than expected, but still uncomfortably high for the BOE. Adding to worries: UK firms still await details of the government's energy support package, without which costs will soar next month.BB

Ukraine's battlefield victories may stoke new tensions with the US, which will increase the closer Kyiv gets to victory, Hal Brands writes. If the military pushes too far and overextends itself, it could end up in a stalemate that consumes American resources. It also might prompt Vladimir Putin to deploy nuclear weapons to avoid his army's meltdown and the loss of Crimea.BB

Economists continue to lower their forecasts for China's economic growth. A survey projects GDP will expand by 3.5%, down from a previous estimate of 3.9% growth. If so it would be the weakest showing in four decades. Barclays, the latest, sees growth slowing to 2.6%, versus a previous estimate of 3.1%.

· PBOC holds. China's central bank drained liquidity from the banking system for a second month while leaving rates unchanged as it sought to ease pressure on the yuan from a widening policy divergence with the Fed. It offered 400 billion yuan ($58 billion) via its medium-term lending facility, in line with consensus.

· Word of warning. China's ambassador to the US used a visit to the Detroit auto show to highlight the "intertwined" interests of the world's two biggest economies. "To decouple with China means to disconnect from the world's largest market as well as the biggest opportunity," Qin Gang said.BB

Japan's trade deficit ballooned to a record 2.82 trillion yen ($19.7 billion) in August, highlighting the increasing pain of the weak yen as import costs spiral upwards. The gap was far larger than estimates and extends the sequence of red ink to 13 months. Imports rose 50% in value from a year ago, reaching a record, led by crude oil, coal, and LNG. BB

Commodities

Hot commodity. Iron ore rose on demand optimism amid easing of virus curbs in Chengdu and a report that many Chinese cities are taking steps to boost the property market. The steel-making ingredient traded near $102 a ton in Singapore.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