US stocks rallied after UK tax cuts were reversed.

• US stocks rallied after UK tax cuts were reversed.

• The odds of a US recession in the next year are 100%.

• The chip shortage may be coming to an end.

• A Federal Reserve official ponders a jumbo rate hike.

• UK markets rally and investors pin their hopes on US assets. 

• Goldman is shaking up its leadership ranks yet again.

• Jeremy Hunt completely reverses UK fiscal plan, markets rejoice.

• EU approves new sanctions on Iran for human-rights violations.

• Stocks rally as risk-hunger returns.

• China delays GDP data release.

• The EU Commission will release the details of a new energy-intervention package today as the bloc looks to tackle an unprecedented crunch.

• Measures of the trade-weighted dollar index are around 2.5% off their highs of the year. 

The USD has weakened slightly despite expectations of the Fed raising rates at its last two meetings this year by up to another 1.5% as they continue their battle against inflation. It seems the slight weakening is more likely from the UK reversing practically everything Liz Truss initially set out to do when she was voted in by the Tory party (not the public!), energy prices are easing with the potential of another strategic oil reserve release in the U.S, although 10 to 15 mn barrels is not that major, and gas storage has increased in the EU due to mild weather conditions so far.

Stocks are enjoying a good bounce despite central banks continuing their rate increases. Earnings so far have been solid with only 24% in the U.S missing estimates. Recession fears should prevent the markets going too far!

Global News

A big bounce. US stocks rebounded strongly after the S&P 500 breached a technical level that's triggered gains in the past, and risk appetite improved as more of Liz Truss's tax cuts were reversed. US-listed Chinese stocks and Asian equity futures advanced. BB

The bulls were proven right and wrong today. At one point more than 99% of companies in the S&P 500 were up, yet a recession is now inevitable within the next year, according to Bloomberg economists.

· The latter's unwelcome news for Joe Biden, who's been repeatedly saying that the US will avoid a recession and that any downturn would be "very slight."

· It also puts the Fed in a pickle. With consumer prices at record highs and the near-certainty of a recession, future interest rates might need to ratchet even higher—narrowing the path between persistent inflation (if it does too little) and outright recession (if it goes too far).

· A downturn may be the only way out, according to Larry Summers. The former Treasury Secretary said wage inflation probably won't come down significantly without "a meaningful recession."

· Years-long trends remain intact. The arrival of earnings season has historically served as a remedy for ailing equities, lifting the S&P 500 over three quarters of the time since 2013.

· This time was no different, with the S&P jumping 2.7%, after breaching a technical level that's triggered gains in the past.

· But just as history shows us that earnings season can be a godsend, it also tells us the bear market may be far from over. BB

Is the global chip shortage finally easing? Delivery times for the vital technology shrank by four days in September, the biggest drop in years. Wait times contracted for all key product categories, with power-management and analog chips seeing the biggest declines. Pockets of supply constraints remain, but now chipmakers are worried about the exact opposite problem: Inventory getting too high.BB

A recession in the eurozone has now become the near-consensus view, with the IMF being the latest international institution to predict a contraction in the eurozone economy in 2023. The only question seems to be how severe this winter recession will be and when it will start.  ING

David Solomon is shaking things up—again. Goldman's third major reorganization in four years will re-combine its asset management and private wealth businesses in one unit, people familiar said. It'll also fuse together investment-banking and trading operations. BB

Retail traders are sour on US stocks. Small-lot options traders snapped up $19.9 billion of puts to open last week while buying only $6.5 billion in calls to open, Sundial Capital said. Goldman said there are some bargains in shares linked to quicker cash-flow generation, small caps and cyclicals, but the S&P remains expensive. Morgan Stanley expects a short-term rally until companies flag earnings capitulation or a recession arrives. BB

St. Louis Fed President James Bullard left open the possibility that the central bank would raise interest rates by 75 basis points at each of its next two meetings in November and December, while saying it was too soon to make that call. Meanwhile, in markedly less hawkish comments, Cecilia Rouse, chair of President Joe Biden’s council of economic advisers, remarked over the weekend that rate hikes aimed at bringing inflation under control were starting to work.BB

Ukraine latest: Central Kyiv was hit by drone attacks that damaged several residential areas. EU foreign ministers are set to agree to train around 15,000 Ukrainian personnel in the bloc as soon as mid-November and sign off on an additional €500 million in arms financing. BB

Joe Biden dismissed the risks of a strong dollar and blamed anemic growth and policy missteps elsewhere for dragging down global growth. "I'm not concerned about the strength of the dollar, I'm concerned about the rest of the world," he said. "Our economy is strong as hell." BB

The pound and UK bonds surged as investors speculated that Prime Minister Liz Truss’s administration will further backtrack from the expansive fiscal strategy that plunged markets into turmoil last month. Newly-minted Chancellor of the Exchequer Jeremy Hunt said income tax cuts the government had previously planned would be shelved indefinitely. He also reversed plans to slash dividend tax rates and scrap alcohol duties.BB

· Gilts extended their rally on Hunt's statement, and the pound gained more than 1%.

· But the political pressure is still on: Liz Truss says she won't resign, even as another MP called for her to step down. BB

The EU approved new sanctions on Iran for human-rights violations related to the death of a woman in police custody. The bloc's also discussing possible Russian use of Iranian drones in Ukraine, Central Kyiv was hit by drone attacks that damaged several residential areas.

·        In a further gesture of support, EU foreign ministers are set to agree on a program to train around 15,000 Ukrainian personnel in the bloc by mid-November and sign off on an additional €500 million in arms financing.BB

Mercedes unveiled a new electric SUV aimed at rivaling Tesla's Model Y. The EQE—with a starting price of about €70,000—may go on sale this year. BMW confirmed it'll stop making electric versions of its Mini hatchbacks in the UK and shift manufacturing to China. BB

Germany is facing an $85 billion hit to its economy as an acute labor shortage compounds problems for manufacturers. Recent surveys have found a record 50% of firms are cutting output given the lack of qualified workers, brought on by an aging population and exacerbated by the pandemic. BB

China delayed the release of economic data due this week—including quarterly GDP and monthly activity numbers planned for today—without giving a reason or a revised schedule. The original dates overlapped with the Communist Party congress. Meanwhile, yuan funding costs fell to a 14-year low in the swaps market, increasing the incentive for some traders to borrow the currency cheaply and short it against the dollar.BB

Chinese President Xi Jinping’s fiery Taiwan rhetoric is raising the risk of war. His vow that China can realize unification with the island “without a doubt” got some of the loudest applause from the 2,400 delegates at his party congress speech on Sunday, reflecting growing nationalistic fervor. Secretary of State Antony Blinken said on Monday that China has made a decision to seize Taiwan on a “much faster timeline” than previously thought. BB

European energy latest. Olaf Scholz extended the life of Germany's three remaining nuclear plants to mid-April, reversing his energy minister's decision and attempting to end a standoff between his coalition partners. The EU will unveil interim gas market steps today but will refrain from immediate gas-price caps. BB

CHINA

President Xi Jinping delivered a wide-ranging speech Sunday laying out the Communist Party’s agenda for China over the next five years, covering everything from Taiwan to tech policy.

Here are the key takeaways:

Foreign Policy

Xi: “China’s international influence, appeal and power to shape the world has significantly increased.”

“Confronted with drastic changes in the international landscape, we have maintained firm strategic resolve and shown a fighting spirit. Throughout these endeavors, we have safeguarded China's dignity and core interests and kept ourselves well-positioned for pursuing development and ensuring security.”

The context: Xi declared China would be “standing tall and firm in the East” at the last congress in 2017, departing from former leader Deng Xiaoping’s “hide and bide” strategy. That shift along with Beijing’s moves to crush dissent in Hong Kong and Xinjiang, lack of transparency on Covid’s origins, partnership with Russia and more aggressive posture toward Taiwan and the South China Sea, has put China on a collision course with the West.

Development Model

Xi: “Chinese modernization offers humanity a new choice for achieving modernization.”

The context:  China had long stressed that its development path is unique and does not follow traditional Western approaches based on capitalism. Xi elaborated on what the Chinese model is, saying it was peaceful and based on maintaining the leadership of the party, realizing high quality growth and achieving "common prosperity." While officials previously stressed the country does not seek to export its development model, Beijing has shown increasing ambition to reform the global governance system by offering alternatives.

Frugality

Xi: “We will foster an ethos of work, enterprise, dedication, creativity, and frugality throughout society and cultivate new trends and new customs for our times.”

The context: In recent years. Xi has warned against food waste and binge-eating videos have been banned. Now, it seems he's further encouraging frugality, a term that didn't appear in his congress speech five years ago.

CHINA-POLITICS-CONGRESS

Common Prosperity

Xi: "We will steadfastly push for common prosperity. We will improve the system of income distribution. We will ensure more pay for more work and encourage people to achieve prosperity through hard work. We will promote equality of opportunity, increase the income of low income earners and expand the size of the middle income group. We will keep income distribution and the means of accumulating wealth well regulated."

The context:  Xi elevated the common prosperity slogan last year amid crackdowns on the big tech, education and real estate sectors, drawing unease from investors who saw heavy losses from sudden policy shifts. That campaign to narrow China’s wealth gap fell out of the limelight this year as Covid lockdowns battered the economy. Today, Xi made clear it’s still high on the priority list.

Xi: China Committed to Deepening Reform, Opening Up

Covid Zero

Xi: “In responding to the sudden attack of Covid-19, we put the people and their lives above all else and tenaciously pursued a dynamic Zero Covid policy. We have protected the people's health and safety to the greatest extent possible and made tremendously encouraging achievements in both epidemic response and economic and social development.”

The context: Anyone looking for signs of change in China’s Covid strategy, which has kept its virus death toll low at growing economic and social costs, would’ve been disappointed. Xi signaled the zero-tolerance strategy he’s made a cornerstone of his leadership is going strong, even as public tolerance for it appears to be cracking.

President Xi: China's Covid Measures Have Protected People

Economy

Xi: “High-quality development is the top priority of building a socialist modern country in all aspects. Development is the party’s top priority in governing. It's impossible to build a socialist modern strong country in all aspects without solid material and technology foundation.''

The context:  Despite some analysts suggesting there may be a slight shift in Xi's speech to elevate national security at the expense of economic growth, Xi repeated the slogan from previous congresses that development is the party's "top priority.'' Some China observers had expected Xi to give equal weighting to security and development, a signal that Beijing could tolerate slower economic growth in order to meet other policy goals. By sticking to earlier language, Xi's speech suggests no real departure from economic goals.

Taiwan

Xi:  “We will continue to strive for peaceful reunification with the greatest sincerely and the upmost effort, but we will never promise to renounce the use of force, and we reserve the option of taking all measures necessary. The wheels of history are rolling on towards China's reunification and the rejuvenation of the Chinese nation. The complete reunification of our country must be realized and it can without a doubt be realized.”

The context: Xi reaffirmed the party line on Taiwan, one of Beijing’s main points of acrimony with the US. Beijing sees the self-governing island as its territory and has ramped up military pressure over the past year. President Joe Biden has repeatedly said the US would come to the democracy’s aid if attacked, marking a shift in the policy of “strategic ambiguity” that guided US-China relations for decades — even as the White House insists nothing has changed.

Hong Kong

Xi: “In the face of turbulent developments in Hong Kong, the central government exercised its overall jurisdiction over the special administrative region as prescribed by China's Constitution and the Basic Law of the Hong Kong Special Administrative Region. It ensured that Hong Kong is governed by patriots. Order has been restored in Hong Kong, marking a major turn for the better in the region.”

The context: Beijing imposed a national security law on Hong Kong that bans terrorism, secession, subversion and collusion with foreign forces in June 2020 to quell anti-government dissent, after city-wide protests erupted a year prior. Several pro-democracy media outlets have since closed under a police pressure campaign and that legislation, which has been used to jail scores of opposition leaders, has been condemned by the US and other Western democracies for diminishing freedoms in the former British colony.

Tech Crackdown

Xi:  “We will focus on national strategic needs, gather strength to carry out indigenous and leading scientific and technological research, and resolutely win the battle in key core technologies.”

The context: China’s crackdown on its once-swaggering tech industry erased more than $1 trillion in combined market value, battering major firms such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. Xi’s speech struck a more optimistic note, instructing the sector to focus on innovation as the US moves to cut it off from cutting-edge chip capabilities. BB

Commodities

Russian ships are laundering tons of grain stolen from occupied Ukraine and passing them on as legitimate cargo, satellite images and maritime data show. Exporters are mixing grain from multiple ports and vessels, obscuring the origin of commodities such as wheat and barley, and allowing large volumes to be sold abroad without detection BB

The Biden administration is moving toward a release of another 10 million to 15 million barrels of oil from the nation’s emergency stockpile in a bid to balance markets and keep gasoline prices from climbing further, according to people familiar with the matter. The Strategic Petroleum Reserve release would be the latest tranche of a 180-million-barrel program that began in the spring. Heading into winter, the US has the lowest seasonal inventories of diesel, according to data back to 1982. The White House has been seeking to ease rising costs at the pump, one of the most visible signs of inflation. President Joe Biden in recent weeks has repeatedly warned oil companies against raising costs. BB

Rosneft moves into tanker chartering as EU ban looms - Russia's biggest oil exporter Rosneft has expanded its tanker chartering business to ease oil shipments for buyers amid looming Western sanctions on insurance of Russian oil shipments, three sources familiar with the matter said. Previously, state-controlled Rosneft, which produces more than 40% of Russian oil, would sell its oil at the port of loading, meaning the buyer would have to find tankers and handle freight and insurance costs for the voyage.

Exxon exits Russia empty-handed with oil project 'unilaterally terminated' - Exxon Mobil Corp said on Monday that it left Russia completely after President Vladimir Putin expropriated its properties following seven months of discussions over an orderly transfer of its 30% stake in a major oil project. Exxon did not say if it received any compensation for the assets, which it had valued at more than $4 billion. An Exxon spokesperson declined to comment on whether it will proceed to contest the seizure through an international arbitration process, a possibility flagged in August.

India has sufficient stocks of grains, could sell wheat in open market - India has sufficient stocks of rice and wheat and the government will sell wheat in the open market if needed to control prices, the most senior civil servant at the Ministry of Consumer Affairs, Food and Public Distribution, said on Monday. "We've enough stocks of rice and wheat and there's nothing to worry," Sudhanshu Pandey told a press conference.

Scarce rains in Argentina pile on trouble for grain crops - Scarce and patchy rain forecast for Argentina's main breadbasket regions will likely compound a difficult start to the season for key crops including wheat and corn, a farm weather expert said on Monday, as drought conditions mostly prevail. Rains are expected only for northern portions of the fertile Pampas region later this week, while key farming areas like northern Buenos Aires and southern Santa Fe provinces are likely to see no rainfall at all, said German Heinzenknecht, a CCA consultancy meteorologist.

Rio Tinto tempers annual iron ore shipments outlook as demand weakens - Rio Tinto forecast annual iron ore shipments at the lower end of its guidance on Tuesday, after third-quarter iron ore deliveries fell amid weak global demand, particularly in top metals consumer China. Rio has been battling with a surge in production costs, while iron ore prices are on track to end 2022 at their lowest in the last three or four years, as China and Europe cut steel output amid mounting pressure from additional supply.

Aluminium price drops on jump in LME stocks and Russian metal - Aluminium prices dropped on Monday as inventories in London Metal Exchange (LME) warehouses jumped, fuelling fears of unwanted Russian-origin metal in the LME system, traders said. Benchmark aluminium on the LME was down 2.3% at $2,252 a tonne at 1037 GMT.

Dozens of LNG-laden ships queue off Europe's coasts unable to unload - Dozens of ships carrying liquefied natural gas (LNG) circling off the coasts of Spain unable to secure slots to unload have prompted grid operators for the country to warn they may have to suspend loading to deal with this "exceptional situation". Europe is facing an energy supply squeeze as Russia has progressively cut gas flows after the West imposed sanctions in response to Russia's invasion of Ukraine in late February.

EU Commission to propose potential 'dynamic' gas price cap - The European Commission is set to propose this week a last-resort "dynamic" price cap for natural gas in the European Union and mandatory limits on the degree to which traded prices can fluctuate in a single day, according to a draft proposal. The EU is seeking to wean itself off Russian fossil fuels, but Moscow has in past months largely cut the bloc off from its gas pipelines, spiking prices and leading to supply concerns.

U.S. corn, soy exports lag normal autumn pace amid river shipping woes - U.S. soybean exports are trailing their normal autumn pace despite rising supplies from an accelerating harvest, as low river levels have slowed the flow of grain barges to export terminals, according to U.S. Department of Agriculture (USDA) data issued on Monday. Corn exports are also lagging their typical harvest-time rate, weekly USDA export inspections data showed.

Philippines bought about 165,000 tonnes Australian feed wheat - traders - An importer group in the Philippines is believed to have bought around 165,000 tonnes of animal feed wheat expected to be sourced from Australia in an international tender which closed late last week, European traders said on Monday. It was sought in three 55,000 consignments for shipment in 2023 in January, February and March.

Crypto/Digital

Mastercard wants to give you a chance to get into crypto. The payments giant told CNBC that it will assist financial institutions looking to offer cryptocurrency trading.

· Mastercard will act as a "bridge" with crypto platform Paxos, as well as providing regulatory compliance and security.

· The product will be piloted in the first quarter of 2023 before expanding to other locations.

· Mastercard cited polling that showed customers want exposure to digital currencies, but want to do so through traditional banks. That's why they've stepped in as that "bridge."

· Earlier this month, rival Visa said it was rolling out a debit card with FTX in 40 additional countries across Latin America, Europe and Asia. 

Don't mess with Texas. The state's financial regulators and attorney general appear to have FTX in their sights, saying they're looking into the exchange's U.S. operations for offering unregistered securities.   

· The news came to light as part of FTX's effort to purchase Voyager Digital assets, with the state asserting that the exchange shouldn't be allowed to do so while questions about its compliance remain.  

· Joseph Jason Rotunda, the Director of Enforcement Division of the Texas State Securities Board, said in a filing that he was able to sign up for an account and earn yield on FTX despite the company’s declaration that it doesn’t onboard people in the U.S.

· FTX won the auction for bankrupt lender Voyager Digital and its assets with a bid of around $1.4 billion late last month.

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