Russian convicts offered freedom — if they join Putin’s war on Ukraine

Headlines

• Next week’s Fed decision

• The U.S railway strike is off

• US railroad companies and unions representing more than 100,000 workers reached a tentative agreement, the government said.

• The threat of power outages in Europe.

• It’s not looking good for China.

• Putin's war machine is boosting Russia.

• UK wants to scrap banker bonus caps.

• Now Twitter is being sued.

• Global debt in US dollar terms shrank for the first time in four years to $300 trillion in the second quarter 

• The yuan slides below a key mark

• Russian convicts offered freedom—if they join Putin’s war on Ukraine.

• Adobe tumbles after deal to buy design startup Figma for $20 billion.

• Ethereum finishes its long-awaited energy-saving “Merge” upgrade

• US mortgage rates climb above 6% for the first time since 2008.

• US pledges more support to Ukraine amid claims a mass burial site was discovered.

• The World Bank warns of global recession.

• Disney scraps a Star Wars movie scheduled for release next year.

• Xi and Putin meet in Uzbekistan.

• China's economy shows signs of recovery in August.

• RBA chief says case for large hikes has lessened.

La Nina creates havoc with global weather as have seen this year, and it looks set to continue into next year as the weather often remains active for two years. This causes tops-turvy weather conditions, where dry can become wet etc.

Markets remain under pressure and gold and oil followed yesterday. Investors and traders are now realising recession is not a case of if but when!

GBP is weak again today, hitting fresh lows. The Euro is clinging to parity to the USD. Oil has been dropping, however, if it gets back to around $80 we could see the U.S begin to refill its strategic reserves!

Global News

Markets have continued to push their Fed peak rate expectations further, and now see 4.50% in March 2023. A more inverted yield curve has triggered a textbook reaction: fears of slower demand have hit oil and commodity currencies and offered a floor to the dollar possibly into Wednesday's FOMC. Today, the focus will be on Uni Michigan surveys and Lagarde ING

Two-year Treasuries offered yields of as much 35 basis point over the 30-year rate on Thursday, sending the inversion of the curve to levels last seen in 2000. Meanwhile, US stock futures drifted and the dollar held steady ahead of jobs, manufacturing and retail numbers due later Thursday. Banks led a small gain in European stocks. Oil fluctuated as traders grappled with concerns about global demand and assessed comments from the US on refilling strategic reserves. BB

US retail sales rose 0.3% month-on-month in August, much better than the 0.1% fall that was expected, but there have been quite a few revisions to the history that hint of a softer trend in spending. Moreover, the control group, that excludes volatile items such as autos, building supplies and food service, which better matches broader consumer trends as measured within GDP, was considerably softer than predicted. Spending was flat on the month rather than rising 0.5%, while July’s figure was revised down to growth of 0.4% having initially been reported as +0.8%.

The detail show gasoline station sales falling 4.2% given the steep price falls, but the furniture (-1.3%), electronics (-0.1%) health/personal care (-0.6%) and non-store retail (-0.7%) also fell. On the positive side, eating and drinking out rose 1.1%, in line with restaurant dining data, while building materials rose 1.1% and miscellaneous stores posted a 1.6% gain. Auto sales rose 2.8%, despite lower volumes numbers, underscoring what we saw within the CPI report that vehicle pricing remain robust. ING

Federal Reserve officials are unlikely to raise interest rates by a super-sized 100 basis points when they meet next week, according to JPMorgan Chase & Co. chief US economist Michael Feroli. Investors fully expect a 75 basis-point increase when Fed officials gather Sept. 20-21 and see a roughly one-in-three chance they will opt for the bigger move, according to pricing in federal fund futures contracts. Bridgewater's Ray Dalio said inflation may eventually force rates into the 4.5%-6% range and warned even an increase to the lower end of that band would lead to a roughly 20% plunge in stocks.BB

The yuan weakened past the key 7 per dollar level in offshore trading for the first time since July 2020. China's economy looks fragile amid Covid lockdowns and slowing exports, as the greenback strengthens on expectations of another jumbo Fed hike. Asian equity futures retreated after US stocks tanked in another choppy session.BB

China's biggest banks lowered benchmark deposit rates across the board for the first time since 2015, seeking to boost lending and shore up growth. Some cut payments on one-year deposits by 10 bps to 1.65%. There's now a higher chance lenders may trim the mortgage reference in coming months,BB

Biden’s poll numbers have recovered sharply from a summer low following a string of landmark legislative successes and a decline in gasoline prices, a new survey shows.BB

Vladimir Putin’s war on Ukraine, now almost seven months in and having claimed the lives of possibly tens of thousands of Ukrainians, appears to be lifting Russian industrial production and helping his economy outperform many of the worst forecasts amid sanctions.

At the same time, the Kremlin is doing severe damage to European nations that have steadfastly opposed its aggression. Germany is in advanced talks to take over Uniper and two other large gas importers to avoid a collapse of its energy market. Surging gas prices and Moscow’s squeeze on supplies have already prompted a series of bailouts. But those measures are increasingly dwarfed by the scale of the crisis, and there’s a risk that systemic energy providers may collapse without more robust government support.BB

Russian President Vladimir Putin told Xi Jinping he understands Beijing’s “questions and concerns” about his invasion of Ukraine, as the Chinese leader said the two countries could “inject stability and positive energy to a world in chaos.” In their first in-person talks since the war began, Putin hailed “the balanced position of our Chinese friends on the Ukraine crisis.” He also blasted what he called “provocations by the US and its satellites in the Taiwan Strait.” On Friday Indian Prime Minister Narendra Modi will meet with Putin and rub shoulders with Xi in Uzbekistan. But he walks a delicate tightrope thanks to close ties with Russia, a key supplier of weapons and energy, and India’s membership of the Quad security forum, alongside the US, Australia and Japan.BB

The slew of data for August released by China got off to a bad start with a 0.29% MoM decline in new home prices. This marks the 12th consecutive month-on-month decline in Chinese home prices and takes house price inflation down to -2.1%YoY. As a major pool of Chinese household wealth, this won't help encourage spending. Residential property sales were not much better either, though at -30.3%YoY, they were at least marginally less bad than the July numbers (-31.4%YTD YoY). It will take some time for the pool of unfinished property construction projects to be completed with local government support for developers, and in turn, for Chinese households to consider investing in property in scale again. Consequently, these numbers are likely to remain a blot on the economic landscape for quite a while. ING

The US will give Ukraine as much as $600 million in additional weaponry from US stockpiles. Volodymyr Zelenskiy said "a mass burial site" was found in Izyum, a city recently recaptured from Russian forces. The US announced a fresh wave of sanctions against Russia's military intelligence and defense industry, as well as against people accused of stealing Ukrainian crops.BB

Ukraine’s startling advance into areas of its territory previously occupied by Russian forces has rekindled an uneasy debate in Europe: what volume and what kind of weapons should allies supply to help Kyiv press its advantage. For European Commission President Ursula von der Leyen, visiting the Ukrainian capital this week for a third time, the answer is simple: Ukraine should get all the military aid it’s asking for, she told us in an interview. That policy won’t necessarily be welcome everywhere. Some governments are seeking to strike a balance between helping Ukraine without appearing to directly participate in the war by supplying the heaviest or most sophisticated equipment in their arsenal. Germany, in particular, where von der Leyen was previously defense minister, has been less forthcoming with gear like heavy battle tanks than Ukraine would like. But pressure is mounting to provide more support to help maintain the counteroffensive’s momentum.CBB

Recession fears are sending investors scurrying toward defensive stocks. Among the most crowded sectors are food and beverages and household and personal goods, both trading at premiums of about 75% to the broader market in terms of forward PE multiples.

· That's similar to levels seen during the global financial crisis. The valuations are "terrifyingly high," analysts at Exane said. BB

Another year of La Nina spells more trouble ahead. The world is hurtling toward $1 trillion in weather-disaster damages by the time 2023 wraps up. The floods, droughts, storms and fires will destroy homes, ruin crops, further disrupt shipping, hobble energy supplies and, ultimately, end lives. BB

Japanese authorities look to be having at least some success in stalling the yen’s collapse after making it clear 145 is a barrier they don’t want to see crossed. All that’s done is shift the focus of the dollar’s rally to other key currencies — notably the yuan and the Australian dollar.BB

Google Win | A European court ruling this week that upheld a record antitrust fine against Google over its Android mobile operating system represents a clear “win” for regulators, EU competition chief Margrethe Vestager told us. “A huge majority of the case is completely upheld, which means that the court has confirmed our view,” Vestager said in an interview with Bloomberg TV. “Because of that, we also feel the encouragement to continue enforcing when it comes to Big Tech.”BB

RBA chief Philip Lowe said the case for large interest-rate increases has "diminished." The central bank will debate the merits of hiking by 25 bps or 50 bps at its Oct. 4 meeting, he told lawmakers. Money markets reckon the RBA will remain aggressive, pricing in a cash rate of 3.4% by year's end, from 2.35% at present, and a peak of 3.9% in 2023.

Commodities

What happens when the need for precious metals clashes with sacred ground? Rio Tinto found 18 million metric tons of copper beneath the Sonoran Desert in Arizona, which could be used to supply 275 million EVs. The problem? It's in the exact spot the Apache Nation holds its centuries-old Sunrise Ceremony—a four-day rite to mark young women's coming of age. The project's been stalled, challenging the Biden administration's efforts toward a greener economy. BB

The energy crunch in Europe is looking increasingly dire, with Germany’s network regulator warning about a gas shortage this winter and the government in Berlin considering  nationalizing three major gas importers. Chancellor Olaf Scholz’s administration announced today it’s taking control of Rosneft Deutschland, including the company’s stakes in oil refineries at Schwedt, Karlsruhe and Vohburg, to help secure energy supplies.

German Levy | Germany is also set to delay implementing a disputed gas levy, raising doubts about whether one of the government’s key efforts to stabilize its energy sector will ever take effect. Consumers won’t have to pay the levy for October and November until at least October 31, according to a draft we saw.

Norwegian Gas | Norway and its gas producers want to work with the EU to tackle the energy crisis. “It’s not in Norway’s interest that we have extraordinary gas-price hikes,” Prime Minister Jonas Gahr Store said. Local energy companies are most concerned about the handling of long-term contracts.BB

Crypto/Digital

Ethereum completed the crypto world’s biggest and most ambitious software upgrade to date, its co-founder Vitalik Buterin said in a Twitter post Thursday. Called the Merge, it replaced power-hungry computers that were used to order transactions on the network with a more energy-efficient setup using piles of native tokens, Ether, placed in special, so-called staking wallets. As a result, Ethereum’s energy consumption will decline by an estimated 99%. The Merge doesn’t change the end-user experience on Ethereum, but it’s a key stepping stone to more upgrades that will make the network faster and cheaper, and should further increase its stature and usage.BB

Now that Ethereum has completed its long-awaited network transformation, some are wondering whether Bitcoin might be next. In doing so, they are wading into a thorny debate.

Bitcoin maximalists say the argument against following in Ethereum’s footsteps goes right back to the token’s origins. Proof-of-work uses an economic incentive to encourage miners to stay honest, rewarding them with new Bitcoin tokens for ordering valid transactions and denying the bad ones. Ethereum’s staking option, on the other hand, relies on people buying a lot of Ether and then trusting them not to hurt the network. Apples and oranges. (Though to be sure: Validators can have their staked Ether taken away, or “slashed,” if they are deemed by others on the blockchain to be causing harm.)  

The two cryptocurrencies also have different purposes, making it harder to convince Bitcoiners that such a shift would be worth doing. Ethereum’s ability to operate smart contracts is why it’s used as the base layer for most decentralized-finance applications, Laboure said. Bitcoin, by contrast, is often touted as an alternative store of value, like gold. It’s a major win that NFTs created on Ethereum have become a lot less bad for the environment, but if people aren’t really building anything on Bitcoin, then why rush it? Meanwhile, the very fact that staked Ether may be considered an alternative to an interest-bearing security is already raising regulatory concerns.

Ultimately, though, it may not be up to Bitcoiners. Now that Ethereum has proved that a major network can switch to staking, it may only be a matter of time before regulators seek to apply pressure on other chains to do the same. And as the world grows more concerned about the climate crisis, investors will be getting tougher on which assets meet the bar for their portfolios. If Bitcoin isn’t forced to upgrade by rules, perhaps a growing flow of cash and market share to Ethereum will force it to shift on its own.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