Zero­Hedge News

• Tesla’s Ger­man Gigafac­tory Catches Fire, Prompt­ing Local Pro­tes­tors To Call For Pro­duc­tion Shut Down
  Tesla’s Ger­man Gigafac­tory Catches Fire, Prompt­ing Local Pro­tes­tors To Call For Pro­duc­tion Shut Down

  A major fire appears to have bro­ken out at Tesla’s Berlin recy­cling plant, prompt­ing a local group of envi­ron­men­tal­ists who have been fight­ing the com­pany to call for Tesla to stop production.

  Overnight elec­trek reported that Tesla’s on-​site fire brigade called in help from the local fire depart­ment for an inci­dent that took place at Gigafac­tory Berlin in the munic­i­pal­ity of Grünheide.

  Local news reported that a “a large pile of card­board and wood caught on fire at the recy­cling facil­ity located at the fac­tory”. The report said that 800 cubic meters of paper, card­board and wood caught fire.

  The blaze took 50 fire­fight­ers “hours” to get under con­trol. 12 fire­fight­ers from Tesla’s own brigade assisted with the fire. No injuries were reported and the fire did not spread to else­where on the facility.

  But one blaze set off another: envi­ron­men­tal­ists, who have been fight­ing Tesla every step of the way on the Ger­man plant, are now call­ing for a stop in pro­duc­tion. A group called the cit­i­zens’ ini­tia­tive Grün­heide (BI) is call­ing for an “imme­di­ate stop” to pro­duc­tion, elec­trekwrites.

  A rep­re­sen­ta­tive from the group com­mented: “Our worst fears have come true. We demand a pro­duc­tion stop until the causes and cir­cum­stances have been clar­i­fied and all safety-​related mea­sures in the water pro­tec­tion area have been implemented.”

  Tesla has not issued an offi­cial com­ment as of yet.

  Tyler Dur­den Mon, 09/​26/​2022 — 08:45
• Blain: The UK’s Mon­u­men­tal Pol­icy Mis­take — How Bad Will It Get?
  Blain: The UK’s Mon­u­men­tal Pol­icy Mis­take — How Bad Will It Get?

  Authored by Bill Blain via Morn​ing​Por​ridge​.com,

  “This is the man who bet it all on Red and it came up Black…”

  What a mess. Kwasi Kwarteng’s Spe­cial Fis­cal Oper­a­tion failed to sta­bilise UK mar­kets and has zero prospect of dri­ving growth. The new gov­ern­ment stum­bled at the first jump. How bad will it get? What are the impli­ca­tions? Who is next for the Chancellor’s job?

  There are pol­icy mis­takes, and there are Pol­icy Mis­takes, but few com­pare to the mar­ket Jud­der on Fri­day morn­ing…. In terms of scream­ing, all-​in POL­ICY MIS­TAKES new UK Chan­cel­lor Kwasi Kwarteng’s not-​a-​budget, his “Spe­cial Fis­cal Oper­a­tion”, went down about as well as a bat­tal­ion of Russ­ian choco­late tea-​pots on the road to Kyiv. It was moment con­fi­dence in the UK’s Vir­tu­ous Sov­er­eign Trin­ity snapped. Ster­ling Crashed. Gilt yields capped wider.

  It ain’t over yet, this morn­ing Ster­ling traded below 1.03 for the first time ever dur­ing an Asian flash crash. I will post reg­u­lar updates on the com­ments page and Twit­ter as this cri­sis unfolds. The work­ing assump­tion is even if Gilts and Ster­ling sta­bilise – the dam­age is already done. Expect… volatile pol­i­tics and markets.

  This is going to be a crit­i­cal week for ster­ling. There are calls for the Bank of Eng­land to jump in with a 100 bp rate hike and cur­rency inter­ven­tion to stem the crip­pling cur­rency losses. There are even rumours of yet another inter­nal Tory coup being scoped in West­min­ster. Min­is­ters try­ing to talk up export prospects on the back of the cur­rency col­lapse knew they were defend­ing the inde­fen­si­ble – the UK is a re-​exporter and is import­ing fur­ther infla­tion at speed.

  I warned three weeks ago that new UK Pre­mier Liz Truss and Kwarteng had “5 days to Avert a Con­fi­dence Cri­sis in the UK”. She got a time exten­sion because of the Royal Funeral. Turns out I was right to worry about mar­kets. On Fri­day morn­ing it hap­pened – a 0.7% jump in Gilt Yields and the 3% tum­ble in Ster­ling. The response to the not-​a-​budget con­firmed just how badly mar­ket con­fi­dence in the UK’s polit­i­cal com­pe­tence, ster­ling sta­bil­ity and gilt mar­ket sus­tain­abil­ity has been shaken.

  Kwarteng’s response to the may­hem? “I don’t com­ment on mar­ket movements.”

  Fair enough. When you know noth­ing and peo­ple sus­pect you are an idiot it’s best to stay quiet so as not to con­firm it.

  But is he aware of the con­se­quences of what he’s done? The UK’s rep­u­ta­tion for fis­cal pru­dence has been sac­ri­ficed on the altar of polit­i­cal expe­di­ency. This is going to hurt. The week­end analy­sis was harshly crit­i­cal – it was right to be so. Dr Doom, Nouriel Roubini, tweeted “Truss and her cab­i­net at clue­less.” For­mer US Trea­sury Sec­re­tary Larry Sum­mers said the UK will be remem­bered for the “worst macro-​economic poli­cies of any major coun­try in a long-​time..” He called the poli­cies naïve, and the UK was an emerg­ing mar­ket turn­ing into a sub­merg­ing mar­ket. I could fill the rest of this morning’s Por­ridge with sim­i­lar neg­a­tive pun­ditry and doom­ster sound­bites from ana­lysts pre­sent­ing vari­a­tions on the same thing.

  If there is a sin­gle pos­i­tive eco­nomic com­ment writ­ten by some­one not called Patrick Min­ford or Ger­ald Lyons – please post it in the com­ments sec­tion, because I can’t find it.

  Of course, there is always a chance events may yet bail Kwarteng out. Dol­lar strength might sud­denly reverse if the Fed joins other banks to scale back the Greenback’s inex­orable rise, or maybe things may sud­denly change re Ukraine/​Russia to reduce energy cri­sis pres­sures.. but these are hopes.

  Its best to know where the lifeboats are before the ice­berg, rather than look­ing for them while swimming.

  Kwarteng’s bud­get failed on two crit­i­cal ele­ments. First, it was incred­i­bly tone deaf – and likely to prove an unfor­giv­able elec­toral mis­take by a new chan­cel­lor who, by his com­ment about his new gov­ern­ment only being in office 19 days, seems to have for­got­ten it’s been his party run­ning the nation for the last 12 years. Sec­ondly, the pol­icy choices were largely for show to cre­ate a sense of shock and awe. He suc­ceeded in mak­ing him­self look stu­pid and inex­pe­ri­enced. Hubris.

  Let’s start off by mak­ing a num­ber of things clear:

  • The new UK gov­ern­ment of Liz Truss and Kwasi Kwarteng had to act. There was no alter­na­tive but to alle­vi­ate the mas­sive con­sumer and busi­ness cri­sis trig­gered by infla­tion and the energy cri­sis. The market’s sell off on Fri­day reflects how badly they got the solu­tions wrong. Mis­takes of Friday’s degree are not eas­ily for­given or quickly forgotten.

  • Polit­i­cal insta­bil­ity will likely remain at cri­sis level in the UK. Already there are rumours of a no-​confidence motion. Kwarteng and Truss were not the first choice of the major­ity of Tory MPs. Tory grandee Ken­neth Clark was one among many crit­i­cis­ing the bud­get. When (if) Truss realises the scale of the mar­ket deba­cle its not incon­ceiv­able we’ll get yet another New Chancellor.

  On the other hand:

  • The UK is not going to default.

  Although the UK’s credit default swap price has gapped wider in recent weeks, (up 170% last week!) the UK retains con­trol of its finan­cial sov­er­eignty. The vast bulk of the national debt is denom­i­nated in Ster­ling. If the worst hap­pens, we can sim­ply print more money to repay cur­rent debt – which will have mas­sive con­se­quences on the cur­rency and inter­est rates, but con­fers enor­mous advan­tages and like­li­hood of long-​term sta­bil­ity – unlike nations that have bor­rowed in cur­ren­cies not of their own control.

  • The UK is not a finan­cial bas­ket case.

  Despite what ana­lysts were say­ing about Blighty now being doomed by polit­i­cal incom­pe­tence, we are actu­all a thriv­ing, inven­tive, inno­v­a­tive, well-​educated and vibrant econ­omy.. Ignore Dr Doom’s week­end pre­dic­tion of an immi­nent trip to the IMF – the UK’s sov­er­eign finances aren’t so dire. Yet.

  • The UK will mud­dle through. We always do. This is a polit­i­cal and eco­nomic cri­sis. We can solve the sec­ond one after we solve the first. We may have to shoot a Chan­cel­lor pour le encour­age les autres, but at some point UK Inc stocks and UK Sov Plc debt are going to be mas­sive buys.

  How­ever, before we get to that stage, lets reflect on the real­ity of what really hap­pened last week?

  Kwarteng’s plan was to deliver two goals:

  • Sta­bil­ity and con­fi­dence through cogent and coher­ent policies.

  • Growth to stall a reces­sion through a tax giveaway.

  He failed mas­sively on the first, and will fail on the sec­ond. He chose to grand­stand the poli­cies and spin con­fab­u­la­tions about growth prospects. He has utterly lost the trust of the mar­ket – impres­sive after only three weeks in office. More to the point, the Bank of Eng­land and the Trea­sury will strug­gle to con­ceal their delight in Kwarteng being brought low after he brow­beat BOE Gov­er­nor Andrew Bai­ley and sacked the Trea­sury sec­re­tary for not being rad­i­cal enough. Hubris indeed.

  Kwarteng played pol­i­tics – the Banker Bonus a des­per­ate attempt to gas-​light a Brexit div­i­dend, while the abo­li­tion of the top tax rate played to Tory faith­ful (who will ben­e­fit most). They were point­less, tone-​deaf polit­i­cal sig­nals. He thought he was being clever. What the mar­ket saw was the cost to the UK of financ­ing the energy bailouts and stim­u­lat­ing recov­ery through increased bor­row­ing being used to back point­less tax bribes, an unnec­es­sary increase in the national debt, regres­sive taxes and no attempt to look at bet­ter alter­na­tives. ²⁄₁₀ on his test paper.

  In terms of UK Finan­cial Stability:

  Fri­day increased the poten­tial for the UK to enter a destruc­tive cycle of eco­nomic insta­bil­ity. Using the Vir­tu­ous Sov­er­eign Trin­ity anal­ogy: as con­fi­dence in the pol­i­tics weak­ens, then the cur­rency and bond mar­ket will wobble.

  Gilt Yields jumped – inter­est rates rose, even as the cur­rency crashed. As the cur­rency falls, infla­tion via imported goods rises, caus­ing the Bank of Eng­land to fur­ther raise inter­est rates, caus­ing the bond mar­ket (Gilts) to sell off. The UK is a re-​exporter, mean­ing a lower cur­rency does noth­ing to boost exports. At the same time, the cost of debt fund­ing rises, the mar­ket wor­ries more, and the cur­rency con­tin­ues to fall, reflect the market’s dis­trust of pol­icy and consequences.

  The UK is now caught in a neg­a­tive feed­back loop that could spawn a bunch of sec­ondary con­se­quences. Not the least of these is chronic cur­rency insta­bil­ity will cause investors to switch out of ster­ling – includ­ing the folk who got the biggest tax breaks last week. They will be invest­ing their tax wind­falls out­side the UK. So much for the trickle-​down effect. (I wrote about the trickle-​down fal­lacy last week.) Mean­while, cor­po­rates retain their increased prof­its from lower cor­po­ra­tion taxes and decide the prospect for returns in the UK are less than more sta­ble eco­nomic zones.

  The sec­ond aspect is growth:

  Truss and Kwarteng have told us this was bud­get for growth, putting money into the econ­omy to engen­der a boom. That is not going to hap­pen. Unlike the Bar­bour Boom of the early 1970s – which was founded on the back of a ris­ing econ­omy, this bud­get “give­away” was money thrown into an already tum­bling econ­omy. The oppor­tu­nity to boost growth was many many months ago. In effect Kwarteng threw good money after bad.

  The aver­age UK house­hold has an pre-​tax income £36,000 will see a £526 reduc­tion in their tax and national insur­ance. (68% of UK house­holds earn less than the aver­age.) But, their aver­age energy bill has risen from last year’s Energy Price Cap of £1277 to £2500. Infla­tion has already cut the pur­chas­ing power of the aver­age salary by over £1500 in the last 12 months. Their mort­gages and credit card debt is already more expen­sive. In real terms “aver­age” UK house­holds have seen their net post tax spend­ing power of nearly £29,000 reduced down to £26,000 from £28,000 last year – even after their tax bribe from Kwarteng.

  That’s a mas­sive real cut to real income – and leaves the bulk of the UK pop­u­la­tion with sig­nif­i­cantly less dis­cre­tionary spend­ing power to insti­gate the boom Kwarteng has promised. There is no con­sumer money to fuel a boom. It’s a sim­i­lar story in UK SMEs.

  At the other end of the spec­trum, the top 1% of UK house­holds, those with yearly earn­ings in excess of £160k, will see a £2720 tax cut, which will also be more than swal­lowed by higher energy costs and infla­tion. Higher mort­gage rates and ris­ing bills, (I not our Vir­gin Media inter­net bill has just gone up by 53%!) will hit their dis­cre­tionary spending.

  I was in Wales over the week­end – the BBC Welsh news observed less than 9,000 Welsh Cit­i­zens out of a nation of 3.2 mil­lion pay the higher 45% tax rate. The abo­li­tion of the 45% Higher Earn­ers Tax Rate was hailed by Tories as the show­stop­per, Rab­bit out the Hat, icing on the cake of Kwarteng’s tax bonanza. It was a slap in the face with a ran­cid hal­ibut to most citizens.

  What should the Tories have done?

  At the end of the day, the tax cuts in Stamp duty, Income Tax, National Insur­ance and Cor­po­ra­tion taxes will cost £45 bln. He will bor­row a fur­ther £30 bln plus to cover energy bailouts. The costs of fund­ing that debt have dou­bled in recent months. There are no fig­ures on just how much we expect the energy bailout lia­bil­ity to cost long-​term. The tax cuts and bailout will not stop a reces­sion that is already upon the UK – and will be lit­tle more than a minor alle­vi­a­tion. While £525 a year will be wel­come for the aver­age fam­ily it will be swal­lowed by ris­ing bills. Effec­tively the tiny sums lower earn­ers will not pay in taxes will make zero dif­fer­ence to their dimin­ish­ing dis­cre­tionary spending.

  The end­ing of the Banker bonus restric­tions is point­less. Most bankers saw their salaries increased years ago to com­pen­sate lower bonuses. The optics of banker bonuses are ter­ri­ble – no mat­ter how much the City applauds it.

  The abo­li­tion of the 45% tax rate will make the top 1% of the pop­u­la­tion smile, and buy a few more bot­tles of Bolly. The mar­ginal worth to them is mean­ing­less. If they are clever enough to be earn­ing that much, they will be clever enough to be invest­ing out­side ster­ling. Again, the optics are beyond terrible.

  In bru­tal terms the tax cuts to stem a reces­sion that is already here were point­less. Kwarteng would have been bet­ter to have never men­tioned them – and reduced the amount to be bor­rowed. Kwarteng was wrong. Rishi was right. The Gov­ern­ment would have been bet­ter to have refo­cused tax cuts solely on sup­port­ing the low­est earn­ers. A con­sid­ered state­ment about rais­ing the tax thresh­old to start pay­ing taxes, while rais­ing high earner taxes would have had milage in terms of the mar­ket, and wide­spread polit­i­cal acceptance..

  Fund­ing the energy bailouts via Gilt fund­ing, rather than a wind­fall tax was polit­i­cal largesse from Truss and Kwarteng to their sup­port­ers and a clumsy attempt to dif­fer­en­ti­ate them­selves from Labour and Rishi Sunak. Although a wind­fall tax on Energy com­pa­nies would have con­se­quences, the mas­sive increase in fund­ing Truss and Kwarteng have com­mit­ted them­selves to – over £250 bln in the next three years – could have been sig­nif­i­cantly lower, and would have taken the future tax bur­den off households.

  Kwarteng’s Growth Offen­sive was a mas­sive fail.

  When the new Gov­ern­ment came in 3 weeks ago they promised to sort the econ­omy and the NHS. I will write about the NHS later this week. Based on the ABCD Health Plan announced last week – it’s going to be another mas­sive disappointment.

  What would sort the UK? A snap elec­tion…. Oh dear… Instead, Kwarteng will try to brazen this out… oh dear squared.

  Tyler Dur­den Mon, 09/​26/​2022 — 08:25
• “Global Gloom”: World Mar­kets Plunge To Start The Week As Global Cur­rency Crash Hits Max Pain And Beyond
  “Global Gloom”: World Mar­kets Plunge To Start The Week As Global Cur­rency Crash Hits Max Pain And Beyond

  The rout which ham­mered stocks on Fri­day, nearly push­ing them to close at a new 2022 low, resumed overnight when the global FX cri­sis returned with a bang, and a flash crash in the British pound which as noted late last night, plum­meted 500pips in thin trad­ing, to fresh record lows fol­low­ing Friday’s shock­ing mini-​budget announce­ment which con­firmed the UK has no idea what it is doing and will cut rates and issue more debt just as the BOE is des­per­ately try­ing to tighten finan­cial conditions.

  The plunge in cable was how­ever just one symp­tom of a big­ger malaise, namely the relent­less surge in the dol­lar which overnight hit fresh record highs as the BBDXY rose as high as 1,355 before briefly fad­ing the surge…

  … as every dollar-​denominated debt issuer in the world is suf­fer­ing crip­pling pain and beg­ging Pow­ell to do some­thing to ease the unprece­dented shock of the strongest dol­lar in his­tory just as the world slumps into a global depression.

  Alas, so far there is noth­ing but silence from the Fed — which will likely have to make some announce­ment on cen­tral bank cur­rency swaps at some point before the open today to avoid an even more epic FX rout — and as traders await some­thing to break big time across global markets…

  This is the week of the bar­bell trade: deep OTM calls and puts as things either break or CBs panic.

  — zero­hedge (@zerohedge) Sep­tem­ber 26, 2022

  …this morn­ing futures have tum­bled another 0.7%, as eminis drop to 3,683 while Nas­daq futures are down 0.8% to 11,290 on fears that Fed­eral Reserve rate hikes to com­bat per­sis­tently ele­vated infla­tion will crush the econ­omy into a full-​blown reces­sion, or depres­sion, and the VIX soared above 32.

  It wasn’t just FX and stocks crash­ing: British bonds also cratered as yields surged to the high­est in more than a decade, spark­ing talk of emer­gency action by the Bank of Eng­land. For one exam­ple of the total chaos look no fur­ther than 5Y UK Gilts which have exploded 51bps higher and last traded around 4.58% as the mar­ket now prices in

  Sim­i­lar implo­sions were observed in US TSYs, where the 10Y traded just shy of Friday’s mini blowout, and was last seen at 3.7828% as bond traders are hit by VaR shocks at the same time in every pos­si­ble market.

  Turn­ing back to stocks, the rout wasn’t iso­lated to just one mar­ket and an index of global stocks traded to the low­est since 2020.Euro­pean equi­ties extended declines after slid­ing into a bear mar­ket on Fri­day, with min­ing and energy stocks under­per­form­ing as met­als and oil fell.

  “We’re in a period of global gloom, with pes­simism blan­ket­ing dif­fer­ent coun­tries for dif­fer­ent rea­sons,”said Ed Yardeni, pres­i­dent of his epony­mous research firm, who warned of grow­ing storm clouds for the US econ­omy. “The lat­est data jibe with our growth reces­sion sce­nario, but the risks of a full-​blown reces­sion are obvi­ously increas­ing,” he wrote in a note Monday.

  In pre­mar­ket trad­ing, major US tech and inter­net stocks includ­ing Apple, Ama­zon and Microsoft tum­bled. Here are some other notable pre­mar­ket movers:

  • Far­fetch (FTCH US) shares fall as much as 4.43% in US pre­mar­ket trad­ing, after Citi begins cov­er­age of the lux­ury online retailer with a sell rat­ing, with bro­ker flag­ging “weak” under­ly­ing profitability.
  • Shares of US-​listed Macau casi­nos jump in pre­mar­ket trad­ing, after Macau gov­ern­ment said tour groups from main­land China could resume as early as Novem­ber. Wynn Resorts (WYNN US) jumps 5.4%; Las Vegas Sands (LVS US) +6.9%, Melco (MLCO US) +9.6% and MGM resorts (MGM US) +1.6%
  • Cryptocurrency-​exposed stocks edged higher in pre­mar­ket trad­ing on Mon­day as Bit­coin rose above $19,000.
  • Marathon Dig­i­tal (MARA US) +1.9%, Coin­base (COIN US) +0.4%
  • Keep an eye on Diana Ship­ping (DSX US) and Safe Bulk­ers (SB US) as Jef­feries down­graded them to hold from buy and low­ered dry bulk esti­mates to reflect the decline in dry bulk char­ter rates.

  Euro­pean shares extended their fall to Dec. 2020 lows; slid­ing 1% and extend­ing losses as investors priced a major eco­nomic shock and reces­sion. The Stoxx 600 Index was down 1% by 10:50am in Lon­don, touch­ing its low­est since Decem­ber 2020, with real estate and banks among the worst per­form­ing sec­tors, while tech­nol­ogy shares out­per­formed. Italy’s FTSE MIB bucked broader Euro­pean declines to trade lit­tle changed, after Gior­gia Mel­oni won a clear major­ity in Sunday’s elec­tion, in line with expectations.

  Banks and real estate stocks were the worst-​performing sec­tors in Europe on Mon­day, with declines led by UK stocks as the pound and UK bonds slump. The Stoxx 600 Banks Index and the Stoxx 600 Real Estate are both down at least 2.5% while the bench­mark gauge is 1.1% lower. The bank index decline is led by UK names includ­ing Vir­gin Money (-10%), Lloyds (-4.6%) and NatWest (-4.5%). Vir­gin Money was today resumed with a hold rat­ing at Beren­berg; bro­ker said that the lender is expected to see rev­enue declines and a sec­tor– lag­ging return on tan­gi­ble equity which will affect abil­ity to re-​rate. Among real estate stocks, the UK’s Safe­store Hold­ings (-4.2%), Assura (-3.9%) and Der­went Lon­don (-3.8%) are among the worst per­form­ers; non-​index mem­ber house­builders, includ­ing Per­sim­mon, Bell­way and Tay­lor Wim­pey, are also plung­ing as the pound’s slump prompts talk of emer­gency action by the Bank of Eng­land. Here are the most notable movers today:

  • The Stoxx 600 Tech Index rises as much as 2.4%, set for its biggest one-​day out­per­for­mance against the broader Stoxx 600 since early-​August, with semi­con­duc­tor stocks lead­ing gains. Among chip stocks, ASML rose as much as +3.7% after San­tander upgraded the stock to neu­tral from underperform
  • Italy’s FTSE MIB index gains, buck­ing weaker mar­kets in Europe, after Gior­gia Mel­oni won a clear major­ity in Sunday’s elec­tion. While the out­come was in line with expec­ta­tions, the fact that the coali­tion didn’t obtain a super major­ity needed to change the con­sti­tu­tion reas­sures investors. Tele­com Italia rose as much +7.4%, FinecoBank +5.1%, Mon­cler +4.4%
  • Unilever shares rise as much as 3.7% after it announced that CEO Alan Jope will retire from the com­pany at the end of 2023, in a move that Jef­feries ana­lyst Mar­tin Deboo (buy) sees as a pos­i­tive development.
  • RPS Group shares rise as much as 13% after Tetra Tech’s agreed deal to buy the com­pany at 222p/​share in cash, rep­re­sent­ing a 7.8% pre­mium to an offer WSP made in August. Liberum does not rule out a counterbid.
  • Belimo shares rise as much as 8.5% since the mar­ket isn’t fully pric­ing in its growth out­look, Beren­berg says in a note, mov­ing to buy and estab­lish­ing a Street-​high CHF440 tar­get. The stock gains as much as 8.1%, the most since March 2021.
  • Zalando shares rise as much as 4.8% after Citi ana­lyst says they like the long-​term invest­ment story, short-​term earn­ings risks are still high.
  • UK Domes­tics: the most remark­able reac­tion to Friday’s not-​so-​mini bud­get, how­ever, might be in lenders’ shares. The decline in bank­ing stocks reflects investors’ pes­simistic view on Britain’s econ­omy. HSBC fell as much as 2.9%; Lloyds –4.3%, NatWest –4.7% and Bar­clays –3.0%.
  • Vir­gin Money UK shares drop as much as 10% after Beren­berg resumed a hold rat­ing in note, stat­ing that in many ways the UK small banks are “more dif­fer­ent than they are alike.”
  • Util­i­ties are the day’s worst-​performing Euro­pean sec­tor. Citi ana­lyst Piotr Dzieci­olowski says the EU’s fund­ing for its pol­icy response has so far been insuf­fi­cient and also expects uncer­tainty to per­sist for UK names. United Util­i­ties fell as much as –3.4%, Drax –3.8%

  Geopo­lit­i­cal risks from the war in Ukraine to esca­lat­ing ten­sions over Tai­wan and unrest in Iran also weighed on sen­ti­ment. Mean­while, the OECD cut almost all growth fore­casts for the Group of 20 next year while antic­i­pat­ing fur­ther interest-​rate hikes, and a gauge of Ger­man busi­ness con­fi­dence deteriorated.

  Ear­lier in the ses­sion, a rout in Asian stocks extended into Mon­day as ris­ing con­cerns about a global reces­sion and weak demand hit the region’s exporters and mate­ri­als pro­duc­ers. The MSCI Asia Pacific Index declined as much as 2.3% to the low­est since April 2020, dragged lower by TSMC, BHP and Toy­ota Motor. All but one sec­tor traded lower with mate­ri­als lead­ing the slump. South Korean stocks fell the most in the region, with the bench­mark tum­bling 3% to more than a two-​year low. The Korean market’s heavy tech expo­sure has proven costly amid ris­ing rates and a stronger dol­lar, with fears that a loom­ing reces­sion may wreak havoc on global demand. Gauges in Hong Kong and China reversed ear­lier gains as the region’s sell­off inten­si­fied. Korea Assets Are Asia’s Biggest Losers on Global Reces­sion Angst “Investor sen­ti­ment is again at the stage of extreme fear,” said Lee Kyoung-​Min, an ana­lyst at Daishin Invest­ment. “It is becom­ing solid and clear that Kospi and other global stock mar­kets are on a mid-​to-​long term down­ward trend.”

  Asian stock bench­marks are being buf­feted by global head­winds as well as risks of their own. The Fed­eral Reserve’s relent­less rate hike cam­paign is push­ing Asian cur­ren­cies lower and rais­ing the risk of cap­i­tal out­flows, while China’s adher­ence to Covid Zero is hurt­ing growth in the region’s eco­nomic giant. If Monday’s losses are extended through the week, the MSCI Asia Pacific Index will see its longest run of declines since 2015. Japan stocks declined more than 2% as the nation resumed trad­ing after a hol­i­day on Fri­day. The Philip­pine stock mar­ket was closed Mon­day as Super Typhoon Noru bar­reled into the main Luzon island. Among the key issues investors are watch­ing this week are speeches by cen­tral bank offi­cials in US and Europe, includ­ing Fed Chair Jerome Pow­ell on Tuesday.

  Japan­ese equi­ties tum­bled as the mar­ket reopened fol­low­ing a three-​day week­end, track­ing US peers lower after the Fed’s hawk­ish com­ments last week deep­ened fears of a global down­turn. The Topix fell 2.7% to close at 1,864.28, while the Nikkei declined 2.7% to 26,431.55. Toy­ota Motor con­tributed the most to the Topix decline, decreas­ing 3.2% after its monthly pro­duc­tion update lagged expec­ta­tions. Out of 2,169 stocks in the index, 145 rose and 1,985 fell, while 39 were unchanged. “There is a pos­si­bil­ity that infla­tion will not sub­side and inter­est rates will rise fur­ther, which the mar­kets will not like,” said Shoji Hirakawa, a chief global strate­gist at Tokai Tokyo Research.

  In Aus­tralia, the S&P/ASX 200 index fell 1.6% to close at 6,469.40, as energy and min­ing shares plum­meted. An energy gauge includ­ing oil and coal linked secu­ri­ties declined by the most since March 2020. The New Zealand mar­ket was closed for a holiday

  In India, key stocks gauges plunged to their low­est clos­ing lev­els in almost two months as the global equity rout con­tin­ues. The S&P BSE Sen­sex dropped 1.6% to 57,145.22 in Mum­bai to its low­est since July 28. The NSE Nifty 50 Index fell 1.8%, its biggest single-​day plunge since Sept. 16. Both the indexes, down in four of the past five weeks, have lost almost 6% since this month’s peak. Volatil­ity in domes­tic equi­ties is likely to remain ele­vated this week, pend­ing monthly deriv­a­tives expiry on Thurs­day. Of 30 shares in the Sen­sex index, 24 fell and 6 advanced. All but one of the 19 sec­tor sub-​indexes com­piled by BSE Ltd. declined, led by util­i­ties and power com­pa­nies. The Indian rupee weak­ened to a new record against the dol­lar amid surg­ing US Trea­sury yields. The Reserve Bank of India’s rate-​setting panel will announce mon­e­tary pol­icy later this week.

  As noted above, while stocks are ugly, rates are a hor­ror­show as Trea­suries extended their worst bond slide in decades as a dol­lar gauge rose to yet another record.Trea­suries extended losses in a bear flat­ten­ing move with yields cheaper by up to 10bp across the belly of the curve. US 10-​year yields around 3.78%, cheaper by 6bp on the day with 5s30s spread flat­ter by 5bp, drop­ping as low as –45.4bp in Euro­pean ses­sion;UK yields cheaper by 60bp to 25bp from front– end out to long-​end of the curve. The Move comes as mar­ket par­tic­i­pants brace for accel­er­ated pol­icy tight­en­ing from global cen­tral banks and head­lines such as this:

  • *TRADERS PRICE IN UP TO 200BPS OF BOE RATE HIKES BY NOVEMBER

  Yields on 2-​year gilts are 60bp cheaper head­ing into early US ses­sion, while the pound recov­ers slightly after reach­ing a fresh all-​time low. US ses­sion focus on 2-​year auc­tion, while a bar­rage of Fed speak­ers are expected for the week. Periph­eral spreads widen to Ger­many with 10y BTP/​Bund widen­ing 7bps to 238bps.

  FX, of course, is a dis­as­ter, with the Bloomberg Dol­lar Spot Index ris­ing a fifth con­sec­u­tive day as the green­back advanced ver­sus most of its Group-​of-​10 peers.

  • The pound plunged almost 5% to $1.0350 in Asian trad­ing, the low­est recorded in Bloomberg data going back to 1971, while gilts crashed after the UK gov­ern­ment vowed to press ahead with more tax cuts, stok­ing fears that new fis­cal poli­cies will send infla­tion and debt soar­ing, trig­ger­ing emer­gency rate hikes. The options mar­ket sig­nals no respite even as the pound rebounded from a record low hit dur­ing the Asia ses­sion. The yield on two– year bonds surged more than 55 basis points to 4.51%, while the 10-​year yield rose 37 basis points to 4.19%. Money mar­kets price in more than 150 basis points of rate increases by the BoE’s next pol­icy meet­ing in November
  • The euro stead­ied after ear­lier drop­ping to $0.9554; Euro­pean bond yields rose; Ital­ian bonds under­per­formed Ger­man peers. Gior­gia Mel­oni won a clear major­ity in Sunday’s Ital­ian elec­tion, set­ting her­self up to become the country’s first female prime min­is­ter at the head of the most right-​wing gov­ern­ment since World War II. Germany’s IFO busi­ness expec­ta­tions slid to 75.2 in Sep­tem­ber from 80.3 in August. That’s the low­est since April 2020. Ana­lysts had pre­dicted a drop to 79. An index of cur­rent con­di­tions also fell.
  • The Aus­tralian and New Zealand dol­lars pared some losses after ear­lier touch­ing fresh 2-​year lows. Aussie bond yields rose by up to 13bps, led by the front end
  • The yen weak­ened amid a broadly stronger dol­lar. Bank of Japan Gov­er­nor Haruhiko Kuroda said the government’s inter­ven­tion in the for­eign exchange mar­ket last week was appro­pri­ate given the recent volatil­ity in the yen

  The currency’s rally is “unten­able” for risk assets, accord­ing to a note by Mor­gan Stan­ley strate­gists led by Michael Wil­son, while Sian Fen­ner, senior Asia econ­o­mist for Oxford Eco­nom­ics, said that “It’s a king US dollar…“It’s adding to infla­tion­ary pres­sures and more cen­tral banks rais­ing rates more than we have his­tor­i­cally seen.”

  In com­modi­ties, WTI slides almost 1% to trade near $78/​bbl. Spot gold mostly unchanged near $1,643/oz. Bit­coin climbs above $19,000.

  Trad­ing this week will be punc­tu­ated by a num­ber of eco­nomic reports includ­ing US ini­tial job­less claims and gross-​domestic-​product data, along with PMI fig­ures from China. Chop­pi­ness in price moves is likely with a steady stream of Fed­eral Reserve offi­cials speak­ing through the week.

  Look­ing at today’s cal­en­dar, we get the Sep­tem­ber Dal­las Fed man­u­fac­tur­ing activ­ity index, and the August Chicago Fed national activ­ity index. Cen­tral bank speak­ers include the Fed’s Bostic, Collins, Logan and Mester; ECB’s Lagarde also speaks as does Nagel, Guin­dos, Cen­teno and Panetta speak, BoE’s Ten­reyro speaks.

  Mar­ket Snapshot

  • S&P 500 futures lit­tle changed at 3,706.25
  • MXAP down 2.0% to 142.24
  • MXAPJ down 1.4% to 463.08
  • Nikkei down 2.7% to 26,431.55
  • Topix down 2.7% to 1,864.28
  • Hang Seng Index down 0.4% to 17,855.14
  • Shang­hai Com­pos­ite down 1.2% to 3,051.23
  • Sen­sex down 1.2% to 57,378.30
  • Aus­tralia S&P/ASX 200 down 1.6% to 6,469.41
  • Kospi down 3.0% to 2,220.94
  • STOXX Europe 600 down 0.2% to 389.70
  • Ger­man 10Y yield lit­tle changed at 2.08%
  • Euro lit­tle changed at $0.9683
  • Brent Futures down 0.7% to $85.59/bbl
  • Brent Futures down 0.7% to $85.59/bbl
  • Gold spot up 0.1% to $1,645.98
  • U.S. Dol­lar Index lit­tle changed at 113.22

  Top Overnight News from Bloomberg

  • Chan­cel­lor of the Exche­quer Kwasi Kwarteng must do more to reas­sure the mar­kets about his plans for the econ­omy after a sell­off sent the pound crash­ing to an all-​time low against the dol­lar, said Ger­ard Lyons, an exter­nal adviser to Prime Min­is­ter Liz Truss
  • The UK’s for­eign cur­rency hold­ings are a frac­tion of the huge stock­piles built up by some of its peers, mak­ing uni­lat­eral inter­ven­tion in the mar­ket to prop up the plung­ing pound a tall order for UK pol­i­cy­mak­ers. The UK had $108 bil­lion in for­eign cur­rency reserves at the end of August, accord­ing to data from the IMF
  • Hedge funds ramped up bull­ish bets on the pound just days before the UK government’s unex­pect­edly large tax cuts sent the cur­rency tumbling
  • The ECB’s newest pol­icy maker, Boris Vuj­cic, says “it’s clear that this is the right way to go,” back­ing this month’s 75-​basis point interest-​rate hike
  • ECB Vice Pres­i­dent Luis de Guin­dos said the biggest prob­lem fac­ing the continent’s econ­omy is record infla­tion, which is becom­ing more broad-​based, threat­en­ing invest­ment and con­sumer spending
  • ECB Gov­ern­ing Coun­cil mem­ber Yan­nis Stournaras says the cen­tral bank must main­tain the main prin­ci­ples of grad­u­al­ism and flex­i­bil­ity, since the prob­lem it faces is dif­fer­ent from the one that the US Fed faces
  • China made it more expen­sive to bet against the yuan in the deriv­a­tives mar­ket, ramp­ing up sup­port for the cur­rency as it slides toward the weak­est level since the 2008 finan­cial crisis

  A more detailed look at global mar­kets cour­tesy of Newsquawk

  Asia-​Pac stocks traded mostly neg­a­tive in a resump­tion of last week’s global stock rout amid the con­tin­ued surge in the dol­lar and higher yields,while there was also FX volatil­ity which saw a flash crash in GBP/​USD to a record low. ASX 200 was dragged lower amid losses in the commodity-​related sec­tors and with sen­ti­ment damp­ened by the col­lapse of poten­tial M&A deals involv­ing Ram­say Health-​KKR and Link Administration-​Dye & Durham. Nikkei 225 under­per­formed with Mazda Motors among the worst hit as it con­sid­ers exit­ing Russ­ian oper­a­tions. Hang Seng and Shang­hai Comp retraced most of their ini­tial losses with Hong Kong under­pinned fol­low­ing the scrap­ping of hotel quar­an­tine pol­icy and with casi­nos boosted as Macau is to resume tour groups from China, while the prop­erty indus­try ben­e­fits after China Con­struc­tion Bank formed a CNY 30bln hous­ing rental fund and some Twit­ter sources also cir­cu­lated that some China state banks were report­edly ordered to buy stocks to con­tain selling.

  Top Asian News

  • PBoC injected CNY 42bln via 7-​day reverse repos with the rate kept at 2.00% and CNY 93bln via 14-​day reverse repos with the rate kept at 2.15% for a net CNY 133bln injection.
  • There were rumours cir­cu­lat­ing on social media of a coup against Chi­nese Pres­i­dent Xi, although experts and jour­nal­ists in Bei­jing dis­missed the rumours and said there was no evi­dence to sup­port them, accord­ing to The Print.
  • Philip­pines Stock Exchange announced a trad­ing sus­pen­sion for Mon­day amid a typhoon in the cap­i­tal, accord­ing to Reuters.

  Euro­pean bourses are softer after a mixed cash open and despite a brief foray higher, Euro Stoxx 50 –0.5%, as sen­ti­ment remains sub­dued amid recession/​inflation con­cerns.The break­down fea­tures mod­est out­per­for­mance in the FTSE MIB as Ital­ian elec­tion results are in-​line with expec­ta­tions. State­side, futures are lower across the board in-​fitting with peers going into a week of Fed speak and infla­tion data.

  Top Euro­pean News

  • UK PM Truss said she is deter­mined to make the spe­cial rela­tion­ship with the US even more spe­cial and said she agreed with US Pres­i­dent Biden that it is vital to pro­tect the North­ern Ire­land Good Fri­day Agree­ment, while she wants to find a way for­ward with a nego­ti­ated solu­tion with the EU, accord­ing to Reuters and a CNN interview.
  • UK PM Truss is to review visa schemes in an attempt to ease UK labour short­ages, accord­ing to FT.
  • UK Chan­cel­lor Kwarteng hinted that more tax cuts are on the way and claimed his tax cuts “favour peo­ple right across the income scale” amid accu­sa­tions they mainly help the rich, accord­ing to Evening Standard.
  • UK Chan­cel­lor Kwarteng said he is focused on grow­ing the econ­omy and the longer term when asked about the mar­ket reac­tion to his state­ment on Fri­day. Kwarteng added that he shares ideas with BoE Gov­er­nor Bai­ley but added that Bai­ley is com­pletely inde­pen­dent and Kwarteng is con­fi­dent the BoE is deal­ing with infla­tion, accord­ing to Reuters.
  • UK oppo­si­tion Labour Party leader Starmer said they would rein­tro­duce the top rate of income tax at 45% which the gov­ern­ment announced to scrap last week, while he added that they will sup­port the gov­ern­ment plan to lower the basic rate of income tax to 19%, accord­ing to Reuters.
  • Italy’s right-​wing bloc is seen win­ning the national elec­tion with 43.3% and centre-​left bloc is seen win­ning 25.4%, accord­ing to the first pro­jec­tion by LA7 TV based on the actual vote count.. Click here for newsquawk snap analysis.
  • Italy’s Mel­oni said Ital­ians gave clear back­ing to a centre-​right gov­ern­ment led by the Broth­ers of Italy and said the sit­u­a­tion is dif­fi­cult and needs con­tri­bu­tion from every­one. It was sep­a­rately reported that Italy’s Demo­c­ra­tic Party con­ceded in the elec­tion and said it will be the main oppo­si­tion force, while Italy’s Mel­oni claimed lead­er­ship of the next Ital­ian gov­ern­ment, accord­ing to Reuters and AFP.

  FX

  • DXY climbed to a fresh YTD high of 114.58 before par­ing mod­estly, but remain­ing firmer, as GBP in par­tic­u­lar lifts off worst levels.
  • Cable suc­cumbed to a flash crash overnight, with GBP/​USD hit­ting an all-​time-​low around 1.0350 as par­tic­i­pants con­fi­dence in the econ­omy slips.
  • EUR suf­fers amid the men­tioned USD move but derives rel­a­tive ben­e­fit from GBP, while ECB speak­ers thus far have added little.
  • Antipodeans and CAD weighed on by broader risk and com­mod­ity pressure.
  • Japan­ese Finance Min­is­ter Suzuki said the gov­ern­ment and BoJ share views on con­cerns about a weak JPY, while he added that FX inter­ven­tion had a cer­tain effect and there is no change to the stance that they will respond to mar­ket moves as needed, accord­ing to Reuters.
  • PBoC set USD/​CNY mid-​point at 7.0298 vs exp. 7.0019 (prev. 6.9920)
  • PBoC imposed a 20% risk reserve require­ment for FX for­ward sales from Sep­tem­ber 28^th to rein in yuan weakness.

  Fixed Income

  • Gilts have retained some com­po­sure after slump­ing over 200ticks at the com­mence­ment of trade and have set­tled around halfway between intra­day extremes.
  • EGBs down­beat in sym­pa­thy while BTPs mar­gin­ally lag core-​EGB peers as Ital­ian as-​expected elec­tion results are digested with BTP-​Bund only mod­estly wider as such.
  • State­side, USTs are pres­sured in-​fitting with peers and also con­scious of the week’s sup­ply docket get­ting under­way via a 43bln 2yr.

  Cen­tral Banks

  • Fed’s Bostic (2024 voter) said infla­tion is too high and that they need to do all they can to bring it down and said demand is begin­ning to shrink which will ulti­mately pay div­i­dends in infla­tion lev­els. Bostic also stated that there are sce­nar­ios where they can avoid deep pain but there will likely be some job losses, accord­ing to Reuters.
  • BoJ’s Kuroda says the BoJ will main­tain accom­moda­tive mon­e­tary con­di­tions to sup­port com­pa­nies, hopes to sup­port a pos­i­tive eco­nomic cycle, long-​term infla­tion expec­ta­tions have begun to heighten, via Reuters. Inter­ven­tion from the MoF is an “appro­pri­ate” move, does not think gov’t inter­ven­tion and BoJ pol­icy are con­tra­dic­tory. Amamiya says the domes­tic econ­omy is pick­ing up, must care­fully watch how FX moves affect the econ­omy and prices.
  • BoJ Gov­er­nor Kuroda says when he stated that BoJ for­ward guid­ance will not change for 2-​3yrs, did not refer to guid­ance on keep­ing short and long-​term rates at present of lower lev­els via Reuters.
  • ECB’s de Guin­dos says Q3 and Q4 point towards growth rates being close to zero within the EZ, the sce­nario is mar­ket by high uncer­tainty, lower growth and higher inflation.
  • ECB’s Panetta says ECB is assess­ing the poten­tial of dis­trib­uted ledger tech­nol­ogy (DLT) and “the extent to which it could improve our services.”.
  • Cap­i­tal Eco­nom­ics calls for the BoE to “get on the front foot with a big rate hike”. Allianz’s El-​Erian says, on GBP, the fall is about extra tax cuts and Chan­cel­lor Kwarteng could recal­i­brate this. Alter­na­tive, would be for the BoE to hike at an emer­gency meet­ing. Adding, he would hike by 100bp.
  • BoE pub­lishes key ele­ments of the 2022 annual cycli­cal sce­nario stress test; includes a sce­nario where the Bank Rate is assumed to rise rapidly to a peak of 6% in early 2023 before grad­u­ally reduced to sub-3.5%.

  Com­modi­ties

  • WTI and Brent Novem­ber futures remain sub­dued in early Euro­pean trade fol­low­ing last week’s recession-​induced losses.
  • Spot gold trades in tan­dem with the Buck and sees resis­tance at around USD 1,650/oz after falling to USD 1,627/oz as a casu­alty of the Ster­ling flash crash overnight.
  • LME met­als are softer across the board with 3M cop­per futures hav­ing a hard time reclaim­ing USD +7,500/t sta­tus with upside capped by the Buck.
  • Iraq began trial oper­a­tions at the Kara­bala oil refin­ery which has a pro­duc­tion capac­ity of 140k bpd, accord­ing to a state­ment from the Oil Ministry.
  • Ger­man Chan­cel­lor Scholz signed a strate­gic agree­ment with UAE’s Pres­i­dent on accel­er­at­ing energy secu­rity and indus­trial growth, while UAE’s ADNOC signed an agree­ment with Germany’s RWE which includes ADNOC export­ing its first LNG cargo to RWE and will con­duct trial ship­ments of low-​carbon ammo­nia to Ger­many. Fur­ther­more, Chan­cel­lor Scholz said while vis­it­ing Doha that he talked with the Emir about LNG deliv­er­ies and that they want to achieve fur­ther progress, accord­ing to Reuters.
  • Ger­many is prepar­ing a national elec­tric­ity price cap to be imple­mented this fall in the sce­nario the EU falls to agree on a sim­i­lar move for the entirety of the bloc, via WSJ cit­ing officials.
  • Vitol’s CEO said at the Asia Pacific Petro­leum Con­fer­ence that Russ­ian gas sup­ply cuts put enor­mous strain on supply-​demand in Europe and that high gas prices are to impact 60%-80% of demand, while Ecopetrol’s CEO said they are increas­ing crude exports to Europe this year to replace Russ­ian sup­plies and are drilling 600 oil wells this year.
  • Anglo Amer­i­can (AAL LN) tight­ens cop­per pro­duc­tion guid­ance for Chile to 560k-​580k tonnes of cop­per (prev. 560k-​600k tonnes) due to lower through­put at Los Bronces caused by a com­bi­na­tion of water restric­tions and a change in ore char­ac­ter­is­tics, via Reuters.

  US Event Calendar

  • 08:30: Aug. Chicago Fed Nat Activ­ity Index, est. 0.23, prior 0.27
  • 10:30: Sept. Dal­las Fed Manf. Activ­ity, est. –10.0, prior –12.9

  Cen­tral Banks

  • 10:00: Boston Fed’s Susan Collins Speaks to Boston Cham­ber of…
  • 12:00: Fed’s Bostic Dis­cusses Income Inequality
  • 12:30: Fed’s Logan Speaks at Bank­ing Conference
  • 16:00: Fed’s Mester Dis­cusses Eco­nomic Outlook

  DB’s Jim Reid con­cludes the overnight wrap

  I won­der whether any research report has ever been writ­ten whilst watch­ing syn­chro­nised swim­ming? Well if not, then you’re read­ing the first ever as I’m get­ting a head start on the early morn­ing news by start­ing this on Sun­day evening watch­ing my daugh­ter Maisie do her sec­ond ses­sion after get­ting into the local club. Watch­ing this sport is going to take some get­ting used to after years of watch­ing foot­ball, cricket, golf, F1, ath­let­ics, rugby… actu­ally.… vir­tu­ally every sport bar syn­chro­nised swimming.

  I think every­one felt they were swim­ming in a tsunami of news­flow last week after one of the most incred­i­ble macro weeks in recent mem­ory in terms of breadth of events. Yes there have been more extreme weeks in crises but last week had a bit more vari­ety and was out­side of a cri­sis period. If over 500bps of global rate hikes wasn’t enough, you also had 2yr US yields mov­ing higher for the 12^th suc­ces­sive day on Fri­day (the longest steak since data begins in 1976), the BoJ inter­ven­ing in FX mar­kets for the first time since 1998, and what can only be termed as one of the darker days for ster­ling assets on record on Fri­day after a mam­moth tax give­away in what was a mini-​budget in name and not by nature.

  Henry and I put a note out on Fri­day night (link here) show­ing that it was the third worst day for Ster­ling (-3.57%) since Black Wednes­day in 1992, with the worst two since being the day after the Brexit vote (-8.1%) and after the ini­tial covid shock in 2020 (-3.71%) when there was a global flight to dol­lars. We also show a graph of daily Ster­ling moves back to 1862 and on that it was the 41^st worst day in his­tory span­ning 47,000 trad­ing days. Obvi­ously in the long era of fixed FX rates there were the occa­sional big deval­u­a­tions which were much big­ger than Fri­day. This morn­ing is Asia it fell around –4.5% at one point (1.0392) which was a record low against the Dol­lar. It’s around –2.78% as I type. This fol­lows a week­end inter­view where Chan­cel­lor Kwarteng sug­gested that more tax cuts were to come so that cer­tainly was a red rag to mar­kets. Will we hear from the upper ech­e­lons of the BoE today? Watch out for any com­ments, espe­cially at the mar­ket open. DB’s George Sar­ave­los sug­gested on Fri­day that the Bank of Eng­land need to do an inter meet­ing hike to restore pol­icy credibility.

  There’s also a graph in our note men­tioned above show­ing that Fri­day was the worst day for 5yr gilts (+50.3bps) since a +200bps hike in 1985 when ster­ling was also slump­ing. So maybe omens here.

  I sup­pose the only slight mys­tery is the tim­ing of the sell-​off as the mini-​budget in mag­ni­tude was broadly in-​line with the recent ele­vated fis­cal expec­ta­tions that had been build­ing. How­ever per­haps it was the unabashed revival of trickle-​down eco­nom­ics that had mar­kets a lit­tle aghast. It goes against the cur­rent eco­nomic ortho­doxy and the over­all zeit­geist of our imme­di­ate times. As such there is likely to be con­cerns of a cred­i­bil­ity issue.

  We are pub­lish­ing our long-​term study today with the title “How we got here, and where we’re going?”. In it we try to put the cur­rent macro woes into his­tor­i­cal con­text in an attempt to work out where we’re going. There are quite a few peo­ple who have proof-​read it on my team and they were all thor­oughly depressed at the end. I didn’t feel that way writ­ing it but maybe it’s a case of start­ing point per­cep­tions. Any­way, look out for it around the Euro­pean lunchtime.

  Overnight in Italy, the right-​wing alliance led by Gior­gia Meloni’s Broth­ers of Italy party was on course to become the nation’s first woman prime min­is­ter after exit polls gave it a clear major­ity. With the full results due later today, she is pre­dicted to win up to 26% of the vote ahead of her clos­est rival Enrico Letta from the cen­tre left. The right wing alliance is slated to be on course for around 43% of the vote, enough for a major­ity if cor­rect. As I type, the euro is extend­ing its losses against the dol­lar for the fifth day, its longest streak since April 28, falling as much as –0.5% to 0.9638, albeit being over­shad­owed by Sterling.

  For this week we have an array of consumer-​driven eco­nomic data in the US and some impor­tant Euro­pean infla­tion prints. We will also get a num­ber of con­sumer sen­ti­ment indi­ca­tors across the key economies and PMIs from Asia. Away from the data, there are more than 30 cen­tral banker appear­ances across the Fed and the ECB to keep mar­kets busy. Tomor­row also sees ref­er­en­dums in the Russia-​annexed Ukrain­ian ter­ri­to­ries as the con­flict goes into its eight month.

  Going through the data in more details now. Start­ing with the US, the PCE and per­sonal income and spend­ing data will be front and cen­tre for mar­kets next week as they gauge the extent of infla­tion­ary pres­sures and the strength of the con­sumer. The Fed’s pre­ferred infla­tion gauge, the PCE, due Fri­day, will be watched for signs of price pres­sures we saw in last week’s CPI report. Our US econ­o­mists expect core PCE to edge higher by +0.5% MoM (vs +0.1% in July) which won’t allow the Fed to take the foot off the tight­en­ing pedal. For the other two data points, our team fore­casts a +0.1% MoM increase for both income and con­sump­tion. Final US Q2 GDP will also be released on Thurs­day and although DB expect no change to the –0.6% sec­ond read­ing, watch out for the annual bench­mark revi­sions back to Q1 2017. His­tory could be re-​written that could have some impli­ca­tions for how we all think about the econ­omy. In other US data, we will also get the con­sumer con­fi­dence index on Tues­day, along with durable goods orders, and inven­to­ries data on Wednes­day, with the Chicago PMI on Friday.

  Over in Europe, all eyes will be on September’s infla­tion data, includ­ing the Euro Area flash CPI release on Fri­day. Our econ­o­mists are expect­ing the mea­sure to hit a record +9.5%, up from the pre­vi­ous record of +9.1% in August. Other data in the region will include con­sumer and eco­nomic sen­ti­ment from Ger­many, France, Italy and the Euro­zone through­out the week. Mean­while, EU energy min­is­ters will meet again on Fri­day regard­ing the emer­gency inter­ven­tion amid ele­vated energy prices.

  Finally, next week’s earn­ings line up will fea­ture a num­ber of retail bell­wethers on Thurs­day. Among them will be Nike, H&M and Next. Micron will report that day as well. See our usual day by day guide to the week at the end which con­tains many of the key Fed and ECB speak­ers includ­ing Pow­ell and Lagarde.

  Stock mar­kets across Asia are mostly lower this morn­ing. The Kospi (-2.40%), Nikkei (-2.30%) and the S&P/ASX 200 (-1.40%) are lead­ing the declines. Mean­while, the Hang Seng (+0.11%) is swing­ing between gains and losses after ris­ing by +2.45% ini­tially with Chi­nese shares mixed as the Shang­hai Com­pos­ite (-0.10%) is trad­ing lower while the CSI (+0.46%) is up as we go to press. Stock futures in DMs are point­ing to fur­ther losses with con­tracts on the S&P 500 (-0.49%), NAS­DAQ 100 (-0.46%) and DAX (-0.33%) all mov­ing lower.

  Early morn­ing data showed that Japan’s man­u­fac­tur­ing sec­tor con­tin­ued to expand albeit at a slower pace as the lat­est au Jibun Bank man­u­fac­tur­ing PMI slipped to a 20-​month low of 51.0 in Sep­tem­ber from 51.5 in August, pulled lower by high energy and raw mate­r­ial prices that was exac­er­bated by a weak yen. At the same time, the au Jibun Bank ser­vices PMI returned to expan­sion, record­ing a level of 51.9 in Sep­tem­ber from August’s 49.5 final reading.

  Mov­ing on to China, in order to sta­bilise expec­ta­tions in the FX mar­ket, the People’s Bank of China (PBOC) today raised the risk reserve require­ment on for­eign exchange for­ward sales to 20% from 0% begin­ning Sep­tem­ber 28 as the yuan faces increas­ing depre­ci­a­tion pres­sure, in line with most major cur­ren­cies amid broad dol­lar strength.

  Look­ing back now on a week that will not be for­got­ten any­time soon. While there were his­toric cen­tral bank hikes all week, the biggest news came from the fis­cal author­i­ties, fol­low­ing the UK’s bud­get Fri­day, which had the largest tax cut pack­age since the 1970s.

  Gilt yields had their largest one-​day increase in decades with 2yrs +44.7bps, 5yrs +50.3bps, and 10yrs +33.3bps. As we men­tioned at the top, 5yrs yields saw their largest move since 1985 after a +200bps hike aimed at help­ing a plung­ing cur­rency. The pound fell –3.57% against the US dol­lar to within a per­cent­age point of the weak­est in the post-​Bretton Woods 51yr free float era.

  It was already a busy macro week before the block­buster bud­get, where we got more than 500bps of global cen­tral bank hikes and a cur­rency inter­ven­tion from Japan. In terms of the biggest play­ers, the Fed deliv­ered its third con­sec­u­tive 75bp hike while the BoE deliv­ered its sec­ond 50bp hike in a row, with both banks guid­ing toward yet more tight­en­ing, while the BoJ remained the out­lier by keep­ing its accom­moda­tive pol­icy in place, which isn’t going to help the yen turn­around even with intervention.

  When all was said and done, sov­er­eign bonds and equi­ties sold off in size, while yield curves flat­tened. 2yr Trea­suries (+33.4bps, +7.9bps Fri­day), 2yr Bunds (+38.5bps, +7.2bps Fri­day), 2yr Gilts (+82.1bps, +44.7bps Fri­day) reached their high­est lev­els since 2007, 2008, and 2008, respec­tively, as mar­kets priced in more tight­en­ing to over­come infla­tion­ary pres­sures (and in the case of the UK, fis­cal expan­sion). 10yr Trea­suries (+23.5bps, –2.9bps Fri­day) ended the week a touch lower on the day but hit their high­est lev­els since 2011 dur­ing the week, while 10yr Bunds (+26.8bps, +5.9bps Fri­day), and 10yr Gilts (+69.1bps, +33.3bps Fri­day) hit their high­est lev­els since 2013 and 2011, respectively.

  The mix­ture unsur­pris­ingly proved unpalat­able to risk assets, dri­ving the STOXX 600 and S&P 500 back to their lows for the year. The STOXX 600 retreated –4.37% on the week and –2.34% on Fri­day, the worst weekly and daily return since mid-​June. The S&P 500 fell –4.65% (-1.75% Fri­day), return­ing to bear mar­ket ter­ri­tory. The FTSE man­aged to stay above its YTD lows, but still fell –3.01% on the week, its worst weekly return since mid-​June as well, and retreated –1.97% on Fri­day, the worst daily return since early July.

  Tyler Dur­den Mon, 09/​26/​2022 — 08:08