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  • OPEC+ talks cut in prod / CS / Fixed Income and Eq in Q3 / UK mini U-turn / USDJPY 145 again / M2!

    OPEC+ to consider oil cut of 1.5 million barrels per day Q3 had a brutal price action in Fixed Income and equity markets, as we got confirmation os the highest inflation is 30-40years, it forced a rapid central bank reversal on rate hikes, and various tightening activities >>> all of which creates higher volatility while the market find the new more natural levels given rates/QT/inflation/softer earnings etc and various geo-political events clearly didn’t help sentiment during last 3months specially. The unwinding turned into a rout, a lot more like systematic selling, systemic risk, dysfunctional markets and this ‘’forced’’ various CB to ‘step-in’ to smooth things up into the end of the quarter last 2 weeks, possibly the most amazing fact is that for the first time since 1938, the S&P 500 closed a quarter negative after being up more than 10%. Finally, M2 (chart & thread below) money supply is really what it is all about, the amount of cash-like assets in the financial system/direct correlation with the rise and fall of the most speculative assets UK : U-turn started - Former Cabinet ministers Michael Gove and Grant Shapps attack "plan to scrap the 45p top rate of tax, with the latter writing in The Times it is "tin-eared". George Osborne: It’s ‘touch and go’ if Kwasi Kwarteng survives >> Instant response to the change of mind on the 45p rate in money markets. Traders no longer pricing in 6% interest rates by next year. Now somewhere between 5.5% and 5.75% 'I think I underestimated the ability of the government to blow itself up in its first few weeks of office' Fedspeak: Barkin who has been a centrist of the Committee, said that at this point, the risk of doing too little is bigger than the risk of doing too much. Conversely earlier on Friday, Vice Chair Brainard stressed that risks may become more "two-sided" at some point and the Fed should proceed "deliberately", which probably reflects her dovish bias, in our view. Also, she seemed to be leaning toward more gradual rate increases than the median dot suggests, saying "proceeding deliberately and in a data-dependent manner" would be needed to assess the appropriate levels of policy rate >>>FED speakers this week will have a chance to give their own views, Jefferson tomorrow and Cook on Thursday, ISM later on this week, perception is FED is non-data dependent an rising rates no matter what, question is whether they try to change this view, as KING dollar is sucking up all liquidities and creating issues around the globe, UK (bond intervention, PBOC, Korea, HKMA and few others EZ core CPI reached a new high – market now gaining momentum for at least 75bps from ECB at next meeting, meanwhile in CH : Swiss inflation down to 3.3% in September, core stable at 2% Brazil election enters runoff as Bolsonaro dashes Lula's hope of quick win USD : Foreign Central Bank holdings across the globe, dropped about 40bn last week alone (chart) Credit Suisse executives spent the weekend calling investors and clients in a bid to reassure them about bank’s financial strength German Gas price cap needs consumption limit, Goldman says: Given severity of gas deficit, implementation of price cap should be accompanied by consumption limits, w/any consumption beyond that limit being charged at much higher prices like in Brazil during electricity crisis '01 Markets : The perhaps slightly positive view from here is that we have a lot of shorts in SPX, sentiment is as low as can be given usual various sentiment indicators, the market was forced to unwind a lot of risk into quarter-end too Cude WTI likely to hold $80 area, OPEC+ cuts coming USD ‘weakened’ in the last few days of the quarter, usual month-end flows + profit taking on consensus ‘ long usdollar’, back to King dollar and risk will struggle, slightly softer usdollar as we pick up Q4, might well give a chance for risk to recover in short-term. USDJPY is back at 145, where the BoJ got involved and intervened 3 weeks ago. About 40bp priced in for RBA this week Bonds similar picture, they rallied into month-end (as per usual), after some of the fastest and largest down move in decades (or ever..)…let’s see what FED says, clearly PCE data late last week wasn’t great for those looking for a peak in inflation, yet anyway Equity markets closed on lows into quarter-end, technically pretty oversold and sentiment as bad as can be (almost), but markets need some kind of good news / trigger to turnaround, or perhaps simply one of those ‘short covering rally’ over next few days/weeks…(lower NatGas -chart below-priced for winter across Europe, pause in hostilities in UKR/RU, may offer some sort of relief, but all pretty binary!), elsewhere : Hang Seng Index is now below 17000. The index is at nearly half the level from 4 years go. SPX will need to regain June 2022 lows around 3645 to create to ‘short covering’ The chart that many analysts are watching closely: the M2 money supply, or the unprecedented rise and fall of the amount of cash-like assets in the financial system. This has fairly directly correlated with the rise & fall of more speculative assets, like bitcoin. General point is clear…although take note.. This is just a chart of “percentage” change from a year ago, not the actual M2 supply. Supply is still UP. All this shows is that they are currently not printing like they were the past 2 years. Misleading tweet. The ECB needs a change in narrative. Inflation is high, but that's because Putin is waging an energy war, not because there's overheating. Rate hikes won't dampen Putin's energy war inflation, they'll only make Euro zone recession deeper. Time for the ECB to change its story... Summary: Market sentiment continued to deteriorate late last week on geopolitical concerns and despite the Bank of England’s intervention helping to at least temporarily stabilize global sovereign bond markets after their aggravated slide of late. The week ahead features a busy economic calendar from the US, capped by Friday’s September jobs report as markets wonder whether the US labor market will allow the Fed any chance to change its hawkish tune. Tory revolt forces Liz Truss to delay 45p tax rate vote U-turn has started, but none of them saying sorry this morning, none (as far as I can tell so far)… for ruining the life of most last few days, weeks and months ‘’’ Liz Truss claims that the interest rates in United States are rising because of Russia’’…really..?...nothing to do with all the QE and debt created by ALL of you in governments in recent 10+years¨¨?? >>> BBCLauraKunsberg ‘’People in UK are worried about their mortgages, rents, business loans. Do you feel any responsibility for that anxiety?...Liz Truss: I understand how worried people are. But we’ve got Putin George Osborne: It’s ‘touch and go’ if Kwasi Kwarteng survives 'I think I underestimated the ability of the government to blow itself up in its first few weeks of office' S&P revised the UK debt’s outlook to negative from stable, affirmed AA credit rating, saying recent tax-cutting plans could weaken the UK’s fiscal position. A negative outlook is often, but not always, a precursor to an actual downgrade. >>> probably the main reason for the U-turn! And that is SO toxic… Kwasi Kwarteng admits attending banker champagne reception after mini-Budget ‘wasn’t best idea’ OPEC+ to consider oil cut of over than 1 million barrels per day Putin threat to go nuclear in Ukraine may not be a bluff, says US 100 years of history show that recessions were ALWAYS able to bring inflation down to <2% If you hit demand bad enough, you'll get there How long does it take to slow CPI from 6-10% to 2%? Using 1948, 1969, 1990, 2008 as examples, anywhere between 5-30 months (16 on average) Credit Suisse shares tank 10% on restructuring, capital concerns. Financial Times reported the Swiss bank’s executives are in talks w/its major investors to reassure them amid rising concerns over the Swiss lender’s financial health. Unlike former UBS executives Marcel Ospel and Peter Wuffli, former Credit Suisse Chairman Urs Rohner sees no reason to repay elements of his salary to his former employer….why not?....accountability !! Credit Suisse is not the only major bank whose price-to-book is flashing warning signals. The list below is of all G-SIBs with PtBs of under 40%. A failure of one of them is likely to call the survival of the others into question….might be fairly similar to DB, but debt levels much higher at CS… In early stages of bank credit contraction, the easy credit withdrawal is in financial assets. Leveraged loans and collateral get sold into the market. Withdrawing credit from non-financials is next step. Chart shows the effect on financial loans so far. Another $700bn to go... Although nominal yields have risen well >2%, inflation has also increased to 10%. Real yields (10y Bunds-#inflation) at -7.9%, at All Time Low. Real yields are now NEGATIVE for 77 consecutive months. IF ever you think rates are ‘peaking’ and/or that ‘inflation is peaking – some of these names could snap back

  • Financial drawdowns / Fed 2y BE's <2% / $32trn lost / Panic followed by CB action / GBP!..

    This week we had interventions in China (FX) and HKMA (FX), then UK (bonds), last week was in Japan (FX), Korea and few others – trying to get some results and a squeeze into quarter-end >>> clearly focus on UK this week, but the main üpiont to make is that it was totally flagged a while back…BoE was too far behind the curve and then the government did his things (was warned not to, they still did their mini budget..), but all in all there will be risk for other country too Another 13% drop for ocean freight rates this week (Shanghai-LA) OBR budget office to produce draft of new forecasts for Oct. 7 >>> this could be interesting…may well have to force an adjustment or scrap part of this ‘mini-budget’… Good News! The initially reported contraction in UK GDP in Q2 has been revised up to 0.2% growth Fed's Daly: no U.S. recession needed to defeat high inflation (…we were so wrong about inflation 1 to 2 year ago…never saw inflation coming, and now we have to create a recession..good job!) Mester and Bullard largely remained consistent with the message from recent Fed speakers, highlighting that the Fed has additional work to do to tame inflation, will hold rates at an elevated and restrictive level until realized inflation comes down, and that price stability is a perquisite for a healthy economy. Mester indicated that she does not believe policy is restrictive. We think this suggests her view for the near-term nominal neutral is above the current policy rate. Additionally, she made a point to highlight that a recession would not deter the Fed from hiking rates if inflation remains elevated. Mester’s perspective appears to be on the hawkish side of the FOMC. Bullard indicated that he does not believe rates have risen to restrictive levels, and prefers rates to rise and hold solidly above zero in real terms for some time. In terms of where the short-term nominal neutral rate is, there seems to be a notable disagreement between hawkish participants such as Mester/Bullard and others on the Committee. New York state plans to adopt California's rules approved in August that would require all new vehicles sold in the state by 2035 to be either electric or plug-in electric hybrids China's Sept factory activity unexpectedly expands - official PMI, 50.1 from 49.4, forecast was 49.6. PBoC Cutting Mortgage Rates for First Time Home Buyers: The PBOC is stepping up action on economic problems. China's central bank will allow some cities to cut mortgage rates for first-time home buyers until year-end, and will expand a lending program to ensure delivery of delayed housing projects. It also told major state-owned banks to prepare to sell dollars to support the yuan French services inflation, down to 3.2%, although the monthly drop was due to "more marked seasonal downturn in the prices of certain tourism-related services" and may reverse…still a welcome development! That said Dutch CPI up at 17%..ouch The 30-year mortgage rate in the US has moved up to 6.70%, its highest level since July 2007. The 3.69% spike in rates over the last year is the largest YoY increase since 1980-81….that’s going to put a break on a few things…! BELGIUM'S ENERGY MINISTER: EU'S GAS PROBLEM IS NOT A MATTER OF SUPPLY, BUT OF TOO HIGH PRICES……right..really!!?..economic 1-0-1 Meta CEO Mark Zuckerberg just told employees the company is implementing a hiring freeze, and warned there will likely be more restructuring and downsizing to follow Markets : Bonds – you can be sure some large ‘margin calls’ went through this week (not just in UK..), liquidation, mini panic, the surprise is quite why it took the markets so long to sell a few bonds!!! .. all got exaggerated probably because of quarter-end flows/re-adjustment >>> US investment-grade bond funds suffered their third-largest cash exit on record, with investors yanking $10.3 billion out of the funds in the week ended Sept. 28; Refinitiv Lipper. It marks the sixth straight week of withdrawals (chart) From the peak, $16 trillion in lost market cap for equities and high-grade bonds — “larger than the COVID shock, the Global Financial Crisis, or the aftermath of the Tech Bubble,” (chart) $32T in worldwide stock market value has been destroyed since Nov. 2021 (chart) – that’s a very decent correction done !--- market consensus in Eq is Very bearish..(and we never really broke the June lows..) - watch out for a correction early Oct, ANY signs or acceptance FED has done enough (relative to what’s priced in..) and markets will have a very decent recovery… Chinese equities – cheapest ever on a price to book ratio(chart) Clearly some panic took place in some parts of the markets this last week (s) and some CB’s started to get involved – smoothing Fed - Interesting to note that the 2-year inflation breakeven is now below 2%!!... (Chart) USD showing some sign of being overextended, profit taking on consensus longs forced by some Central Bank actions AND quarter-end… let’s how we behave in October >>> perhaps a sign risk can actually surprise and recover short-term, BONDS same story (profit taking and quarter-end..), thus both helping Equity markets, ‘’’’AND VIX never really rallied last few days..’’’’’ GBP : the twitter campaign for parity in Cable on Monday/Tuesday has gone very quiet….as mentioned on Monday, CABLE had been going down all year..already.,..that was likely the overshoot Video - PVM discussed "Growth vs Value", Single Stocks and our systematic approach to finding deep sustainable long term Value for our Client Portfolios. WATCH: UK markets have been in turmoil since finance minister Kwasi Kwarteng outlined a new economic agenda. What caused the plunge and what could be a possible way out? The 5 most awkward moments from Liz Truss's car crash BBC interviews a contrarian view, as always, from uber bear @albertedwards99 of SocGen on the UK financial crisis - he argues it is not the tax cuts that triggered the chaos but the Bank of England's quantitative tightening programme Fed's Daly: no U.S. recession needed to defeat high inflation After slamming Florida, Hurricane Ian barrels toward South Carolina China’s persistent zero-Covid policy is expected to remain in play in 2022 and beyond but when will the world’s second-largest economy finally reopen? Thread - US investment-grade bond funds suffered their third-largest cash exit on record, with investors yanking $10.3 billion out of the funds in the week ended Sept "EZ Inflation Likely Reached 10% in September, with 5% on the Core" @ClausVistesen India's current account deficit widens in April-June; seen worsening Thread - Fed 2y break-evens sub 2% (chart below) Putin raises stakes with Ukraine annexation plans Pentagon chief: Too soon to say who might be behind Nord Stream pipeline ruptures Hardly a surprise with rates.. Tech IPO market faces worst year since global financial crisis Musk said Russian media had "lot of bulls—, but some good points too" after Ukraine invasion Never thought about this one 😊

  • UK PF's : LDI / PBOC on CNH / ECB 'hawks' out / EZ Nuclear power / Druckenmiller / OPEC talks cuts

    Truss on this morning ‘’’I’m very clear the government has done the right thing, this is the right plan’’…BoE got a little desperate yesterday, tried to stabilize bond markets, although temporary, wielding a big stick it might do more later, they hope it’ll be enough, probably won’t, they also know they will have to raise rates to offset the unfunded tax cuts.. An unusual combination of Bank of England tightening, and easing, at the same time (see headlines below) >>> given the rather big fiscal ‘largesse’, markets are telling/asking BoE to tighten, instead they decided to play with markets and force real yields down, going to be a long battle, but market might end up seriously challenging the £, BUT, there was a big ‘margin call’ from some pension fund and/or other financial institution and so they ‘stepped in’ to try to calm things down….(into month-end also to squeeze established positions!!..) UK pensions : ‘’’LDI’’’ … LDI was an allowable risk. So everyone took it as a way to leverage to make underfunded liabilities look funded. Pushed by the structure creators and backed by the big consultants >>> or when you have to sell ‘stuff’ to reduce leverage and pay for margins, you have no money to buy other stuff that is ‘on sale’ Hang Seng Tech index is 70% below the highs in February 2021 PBOC : ‘Do not bet’: China’s central bank warns against yuan speculation, China Forex Regulator: "We will continue to maintain yuan exchange rate flexibility." >>>> So, now we have Japan, China, Hong Kong, Korea and Britain desperately trying to keep their bond and currencies in check Billionaire investor Stanley Druckenmiller on the Fed's policy: "And who really lost? Poor people in the United States ravaged by inflation, the middle class, and my guess is the U.S. economy for years to come..." )same in UK, Europe and many other places…CB’s were so wrong and asleep at the wheels for years… printing 25trn of money over few years was always going to blow a few things up eventually! Some consumer-related commodities have pulled back quite sharply in 2022 (chart) ECB's Rehn: Small rate hikes aren't enough in the current situation. Hawkish comments from some ECB speakers today (Muller, Simkus and Vasle) unable to deter stronger US dollar German Network Regulator: Recent Consumption Of Gas By Households Is Too High To Remain Sustainable - Gas Savings Of 20% Are Necessary To Avoid An Emergency Situation Germany / North Rhine-Westphalia, CPI has risen by 10.1%, which is a record in the statistics, compared to the previous month, #inflation increased 1.8%. Markets : Crude – OPEC to discuss a cut at next meeting FI and bonds : “Fixed Income does not equal Fixed Outcome”, as pointed this morning – thanks HM !... BoE bazooka in action: Yields on 30-year UK bonds down nearly 110 basis points from 5% to 3.95% today Equity markets had a nice little rally together with a slightly lower USD yesterday, as US yields dropped fairly sharply (all be it in an oversold bond markets) All that matters to markets still, are higher US yields and higher USdollar >>> price action was pretty clear yesterday (or in reverse this morning-overnight) BoE move today is being pointed at to imply both a put and a pivot. That's not a good interpretation. The BoE provided short-term liquidity to a distressed market to ensure solvent entities didn't go broke unnecessarily. That's a central bank serving as lender of last resort. out with a friend who is board member of a UK pension fund and advisor to many others. LDI was an allowable risk. So everyone took it as a way to leverage to make underfunded liabilities look funded. Pushed by the structure creators and backed by the big consultants Former Deputy Governor of the Bank of England Sir Paul Tucker expects interest rates to remain high for the foreseeable future. Nomura / BoE Pledged Unlimited Purchases of UK Long Bonds: BoE's actions were the "right thing to do" after the central bank stepped in to stem the gilt and sterling market rout. Just two days after ignoring calls to intervene, it pledged unlimited purchases of long-dated UK government bonds. While it only purchased just over £1 billion of the £5 billion it's prepared to buy at each daily auction, long gilts posted record rallies. Pressure is building on Chancellor Kwasi Kwarteng, who faces calls to reverse planned tax cuts. City execs also told him he needs to communicate more to calm markets. Liability Driven Investment (LDI*) – quick explainer And this morning, Lizzy doing the rounds on various Radio stations… 'We had to take urgent action to get our economy growing': Liz Truss defends economic plans >>> completely delusional ! outright avoiding issue and lying – as always USD : power brokers have now entered the next phase of reacting to the USD wrecking ball Druckenmiller sees 'hard landing' in 2023 with a possible deeper recession than many expect NATO, EU cite dangers to vital infrastructure after pipeline 'sabotage' Oil prices drop as dollar strengthens, demand weakens US embassy in Russia tells Americans to leave the country UK pensions hit with £100m margin calls as gilts and sterling slide At least three LDI managers request emergency capital as others consider unwinds to avoid default Part of why the BoE stepped in to prevent a gilt crash: Pensions were facing collateral calls on long-dated, liability-driven investment funds. “You have a bit of a death spiral potentially where pension funds in particular are being forced to sell.” Who gains most from Nord Stream sabotage? Baltics, Finland, Ukraine and US all have logical incentive to damage the pipelines, albeit with huge political, strategic and security risks ‘Do not bet’: China’s central bank warns against yuan speculation Taiwan to end COVID quarantine for arrivals, welcome back tourists set to backtrack on nuclear phaseout Economy Minister Robert Habeck is blaming France’s falling power production for the move. >>>> really ? who’s fault is it? Germany has spent years pushing to phase out Nuclear (Merkel..) and now it’s France’s fault? US embassy in Russia tells Americans to leave the country

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