World currency reserves shrink by $1 trillion.

• The equity rally sputters, again.

• EU countries back a price cap on Russian oil. 

• OPEC+ agreed to slash oil output by 2 million barrels a day as it seeks to halt a slide in oil prices. It's the biggest cut since 2020.

• Strikes at French refineries are choking off European diesel supplies, exacerbating problems caused by traders shunning Russian barrels and leading some fuel pumps to run dry.  

• ECB minutes may offer hints for this month's rate decision.

• The UK is "uninvestable" after £300 billion of market value was erased in a month.

• World currency reserves shrink by $1 trillion.

My View

Since Covid, the U.S like many countries, now see less immigration and this is part of the problem they face with labour shortages which has employers struggling to fill jobs in many sectors including construction, hospitality, and services. This has also triggered higher wages, thereby adding to inflation.

Later today we will see jobless claims, but all eyes are on tomorrows NFP data. I prefer to focus on the hours worked and earnings as more related to inflation. The job openings in the U.S is dropping and is now only 1.65:1, and I expect this to continue to decrease and it will be a similar picture in most countries as expectations of a recession continue to increase.

Musk’s reversal yet again on Twitter is possibly due to any court hearings so far going Twitters way. It seems he does have plans for the app to turn it into much more than just its current offering, potentially copying WeChat which offers an array of services through its app.

The dollar has resumed its rally after two days of decline as talk of a Fed pivot fizzle out. As I mentioned several times now, the Fed still has a lot of work to do and see inflation as a much larger risk than a recession. They need an economic reset and then they will be prepared to stimulate again, however, it will be a slow a cautious process, nothing like we have seen in the past couple of decades.

Don’t be fooled by OPEC+ cut in production, they were not able to meet quotas anyway! The bigger danger is the EU energy price cap which provoke Russia into reducing supply further.

Global News

US stocks have only just begun to price in a recession, Citi's quant strategists said. The market has turned "decidedly defensive again." The bearish view echoes similar calls from Goldman and BofA who say the stocks rout hasn't run its course. BB

Ukraine latest: EU members reached a compromise on a new package of Russia sanctions that includes support for a price cap on oil sales to third countries. A formal agreement may come today.BB

Public debt outstanding in the US has surpassed $31 trillion for the first time ever, Treasury department data published Tuesday. A trillion dollars of debt was added just in the last eight months, and it’s close to reaching the $31.4 trillion debt ceiling Congress imposed on borrowing until early 2023.

French Industrial production rebounded more than expected in August, by 2.4% over the month, thanks to the easing of supply constraints. As a result, economic activity could narrowly avoid a contraction in the third quarter, but a recession remains more than likely for this winter

The rebound was particularly dynamic in automotive production, which increased by 15.6% over the month, thanks to the easing of supply constraints. ING

Spanish manufacturing and service sector PMIs have fallen below 50, signalling contraction. The services PMI, which measures sentiment among purchasing managers and is thus a good gauge of corporate activity, considerably weakened in September, falling to 48.5 from 50. It was the fourth consecutive fall, and the indicator is now below its neutral level of 50. ING

The world's best drinks spot is hidden behind a Barcelona pastrami shop. Paradiso topped the World's 50 Best Bars, the first time an establishment outside NY or London won. To get in, patrons pass a counter of cured meats before entering through a white refrigerator door. Try the smoked milk punch with bourbon and tahini.BB  (I have been there, it’s pretty good.

The EU backed that new package of sanctions against Russia including support for a price cap on oil sales to third countries. Due to come into force Thursday, the measures would also extend an import ban on goods including steel products, and block providing IT, engineering and legal services to Russian entities.BB

Russian forces are still being pushed back in parts of Ukraine’s east that the Kremlin has illegally claimed as its own. In Moscow, Vladimir Putin may be seeking to mollify domestic criticism by pledging to reoccupy Ukrainian territory it has ceded in recent weeks, and perhaps take more. In order to do this, military observers say, the hundreds of thousands of civilians and reservists Russia has called up will first need to be sent into combat. Then there’s the question of Russian ally Belarus. BB

Minutes of the ECB's September meeting will be parsed for hints as to the chances of another jumbo rate hike—though the bank's switch to making decisions on a meeting-by-meeting basis may mean clues are scarce. Bloomberg Economics sees it lifting all three policy rates by 75 basis points later this month.BB

Investors are dumping Italy’s bonds at the fastest pace since the pandemic first struck, following a surprise warning from Moody’s Investors Service about the nation’s finances. Benchmark 10-year borrowing costs soared as much as 30 basis points to 4.48%, with the rating agency pointing to policy risk from Italy’s new right-wing coalition.BB

Russian gas supplies to Italy via Austria resumed, bringing some temporary relief to prices in Europe. Gazprom said it has found a solution with Italian buyers to overcome the regulatory changes in Austria at the end of September that were preventing transit flows.BB

Global foreign-currency reserves are falling at the fastest pace on record as central banks intervene to support their currencies. Reserves have declined by about $1 trillion, or 7.8%, this year to $12 trillion. Part of the slump is simply due to valuation changes. As the dollar jumped to two-decade highs against other reserve currencies, like the euro and yen, it reduced the dollar value of the holdings of these currencies. But the dwindling reserves also reflect the stress in the currency market that is forcing a growing number of central banks to dip into their war chests to fend off the depreciation. BB

Commodities

OPEC+ agreed to cut output by 2 million barrels a day, the largest since 2020. President Biden called the move "shortsighted." Earlier, the EU approved a price cap on Russian crude sales; Deputy Russian PM Alexander Novak warned that the sanctions may lead to a temporary reduction in its production. Futures rose, with WTI closing near $88. Goldman raised its fourth-quarter Brent forecast by $10 to $110.BB

Von der Leyen proposed that the bloc step into the gas market to limit the price in relation to a key Dutch benchmark, which she said is no longer representative of the true cost. Such a cap would still require a broad reduction in energy usage in the bloc, she said.BB

Crypto/Digital

Crypto is top of the EU's agenda when it meets with US officials during next week's IMF-World Bank meetings. The bloc is moving ahead with legislation to regulate the sector across its 27 member states, but lawmakers are looking for more global engagement. BB

Crypto is top of the EU's agenda when it meets with US officials during next week's IMF-World Bank meetings. The bloc is moving ahead with legislation to regulate the sector across its 27 member states, but lawmakers are looking for more global engagement.

Cryptocurrency advocates and regulators can agree on one thing: Congress should pass new laws for crypto. Whether Congress can agree on what those laws look like remains uncertain.

The Financial Stability Oversight Council (FSOC) recommended lawmakers pass legislation to establish a federal framework for stablecoins, allow for direct oversight of cryptocurrency spot markets in bitcoin and ether, and pass legislation to increase transparency around digital asset projects. The report sets an ambitious agenda for lawmakers.

Stablecoin legislation is arguably the furthest down the road, due to the algorithmic stablecoin crash earlier this year and bipartisan talks that have lasted several months. The bill in its current form appears stalled, though Monday's report could restore momentum.

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