Twitter’s shareholders approve Musk’s buyout

Headlines

·         UK unemployment rate at the lowest since 1974. 

·         More energy measures are in the works as industries struggle.

·         Still feeling the effects of Covid? You're not alone.

·         It was a sea of red across markets after the shock US CPI data.

·         Biden administration mulls oil reserve refill, train strike contingencies.

·         Your white collar job might be at risk in the next recession.

·         The French government lowered its economic growth forecast for next year,

·         Queen Elizabeth II’s coffin arrives in London to lie in state.

·         Tesla heads to trial over fatal Autopilot crash.

·         Twitter’s shareholders approve Musk’s buyout.

·         Yen rallies on report of BOJ precursor to intervention.

As we mentioned recently, the BOJ may intervene to prevent the Yen weakening further against its peers, especially the USD. The threat of action may be enough!

U.S inflation surprised on the upside and just demonstrates that investors should not get ahead of themselves pre-empting drops in inflation when there are so many factors in play. This could lead to the Fed raising rates by a whole 1% as they battle to drive inflation lower. At present they are losing and it seems they are prepared to drive the economy into recession to achieve their goal of regaining control of inflation and driving it back to their benchmark 2% level. This will require for rates to remain high for quite some time. I expect job losses and a slow recovery. The Fed can much easier inflate an economy than control an economy where many of the inflationary factors are out of their control.

Global News

Gasoline prices pulled headline inflation down to 8.3% YoY, but it was a smaller decline than hoped as housing, medical costs and vehicle prices lifted the core rate to 6.3% from 5.9%. This firmly backs a 75bp rate hike next week and the market now anticipate a terminal rate in the 4-4.25% range,

US consumer price inflation has certainly surprised on the upside and heighted the chances of the Federal Reserve hiking to an even higher terminal interest rate. The market (and ourselves to be fair) were looking for headline inflation to slow from 8.5% to 8%, but for lagged effects of house price gains to push up rents and move core inflation to 6.1% from 5.9%. Instead we got readings of 8.3% and 6.3% respectively. ING

Food and beverage companies keep running into supply chain issues

For US food and beverage manufacturers, many disruptions in their supply chains started with the pandemic. When it comes to consumption patterns the initial ‘Covid-impact’ has clearly receded. Spending on food service has recovered to normal levels and currently accounts for 52% of all food and beverage spending. However, demand continues to be dynamic as food inflation tightens household finances and leads some consumers to trade down from premium products to more budget offerings. This requires food makers to review things like product ranges, production volumes and marketing.

On top of that, there are still plenty of other issues that food processors have to deal with. Supplier delays are business as usual for many companies with labour shortages one of the biggest supply side problems. These shortages range from truckers to warehouse workers and from factory staff to grocery stockers and restaurant staff. This situation is aggravated by the fact that absence at work due to illness is still higher than before the pandemic. The lack of suitable workers is more pronounced in the US than in Europe. There are currently two job vacancies in the United States for every single unemployed American. In the UK it is one vacancy for every unemployed Briton while in Germany there are 0.4 job vacancies for every unemployed German.

Even though the food system in the US is largely a domestic affair, it’s not isolated from the things happening in the rest of the world. International trade accounts for 6% of all consumed calories in North America, compared to 20% in Europe. For US manufacturers, elevated price levels of raw materials, and non-food inputs such as packaging, energy and fuel are the result of strong domestic demand plus developments abroad. Larger backlogs in ports have caused additional difficulties for food producers over the past two years as they affected import flows of foreign ingredients and commodities (like coffee and cocoa) and export flows of US products. Longer lead times also made it harder to get the equipment, parts and packaging materials needed to keep production lines running smoothly. While the US is not particularly dependent on agricultural commodities from the Black Sea region, the knock-on effect of the war on global prices did trickle down to buyers of grains and vegetable oils in the US. ING

The EU is zeroing in on a plan to cap energy companies' profits and channel the cash to consumers, as it steps closer to energy rationing.

·  It wants to cap revenues from lower-cost power generators and introduce a levy on fossil fuel companies' excess profits, as well as a mandatory consumption cut—if member states can agree.

·  Germany stepped up its own plans to get a power price cap in place quickly but the gloom is growing. An investor confidence gauge, already beneath its pandemic low, deteriorated further.

·  Spain is looking to the rooftops for another solution. Solar installations in the country have increased tenfold so far in 2022. Compared to 2018, that's a 410% jump. Welcome to the Costa del Solar? BB

Long Covid hit at least 17 million people in Europe in the pandemic's first two years, with many still struggling, according to modeling by the University of Washington's School of Medicine. It was particularly hard on women, who were twice as likely as men to experience lingering effects. BB

White collar jobs might be at risk in the next recession. It's especially problematic for industries including tech, banking and real estate, which have way more staff than they did pre-pandemic. Companies like Netflix and Snap—which have already begun laying off workers—thought job demand was far higher than it was, making them more vulnerable in a downturn, a chief economist at the Milken Institute said. BB

Ukrainian forces have recaptured more than 6,000 square kilometers (2,300 square miles) in the east and south of the country so far this month in its counteroffensive against Russia, Ukrainian President Volodymyr Zelenskiy said. Western officials maintain it’s too early to say whether this is a turning point in the war, but the push was devised by US, UK and Ukrainian leaders. Ukrainian troops meanwhile are pressuring retreating Russian forces and recaptured Vovchansk—a town just 3 km from Russia seized on the first day of the war. BB

While Russia retreats on the ground, Vladimir Putin is using a summit this week with leaders of China, India, Turkey and Iran to counter his diplomatic isolation. It’s not just a key moment for Putin but also for China’s Xi Jinping, who for the first time in 1,000 days is traveling outside his country. BB

UK headline inflation will rise a little further having eased back below 10% in August, and it's likely to stay around 11% into early next year before falling back more dramatically. However, the Bank of England is watching wage growth more closely, as the hawks worry that worker shortages could lead to core inflation staying more persistently above target ING

Commodities

French farmers are collecting their smallest corn crop in more than three decades, highlighting the massive toll the summer drought has wrought on food supplies.BB

Oil clawed back some losses on news that the US is weighing refilling its emergency oil reserve when prices fall to about $80 a barrel. The government wants to stay mindful of domestic output growth, however, and preventing the market from plummeting.BB

Prolonged dry spells would pose even more problems for British farmers. Potato and other root crop growers are concerned about having enough water to irrigate their land, while low levels of rainfall have added to horticulture costs. Yields could be as much as 50% lower for foods such as onions, carrots, apples and sugar beets.BB

Google will today find out from the EU’s second-highest court if it won all, or a part, of its challenge against the EU’s record-breaking 4.3 billion-euro antitrust fine, as well as an order that struck at the heart of the U.S. tech giant’s power over the Android mobile-phone ecosystem. The decision, which is binding, can be appealed one more time.BB

Crypto/Digital

Some time between Wednesday and Thursday, depending on your global location, the Ethereum network is set to officially finalize a shift known as the Merge, which will see it adopt a different mechanism for creating tokens and ordering transactions. Sounds boring? Well yes, but the transformation could have significant consequences across the cryptosphere, from upending miner business models to shaking up institutional investors’ ESG rankings.

Currently, Ethereum uses a “proof-of-work” model similar to that employed by many blockchains including Bitcoin to order transactions on its network and create new tokens. This involves having computers compete to solve complex puzzles for a financial reward, a process that expends a great deal of energy. After the upgrade, the network will operate under a much less energy-intensive “proof-of-stake” model, with transactions ordered by “validators,” who lock up Ether on special wallets.  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