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Oct 11, 20225 min read

Fed's Brainard / UST 10y back to 4% / USDCNH 7.20 / BoE steps-in again / EZ NatGas prices 3mos low


  • Fed's Lael Brainard says monetary tightening will lower inflation over time. Federal Reserve Vice Chair Lael Brainard on Monday reiterated the U.S. central bank's plan to continue tightening monetary policy until there is clear evidence that inflation has slowed down, warning the U.S. economy will likely slow further as a result of elevated interest rates >>> Brainard is an economist, and is thus painting a slightly less hawkish picture than Powell of ‘lets hike and hike more because today’s CPI and NFP are still strong.. Brainard noted that Americans' savings have also dwindled faster than the Fed anticipated, suggesting there could be a pullback in spending soon – she remains definitely more dovish than most FOMC participants

  • GS : 99% of outstanding mortgages have interest below last week’s Freddie Mac survey rate

  • Food & Agri world food prices down again in Sep – that’s fastest 6months move down since GFC

  • BoE : pre-open this morning - The Bank has announced that it will widen the scope of its daily gilt purchase operations also to include purchases of index-linked gilts.[1] This enhancement to our operations will be in effect from 11 October 2022 until 14 October 2022. Index-linked gilts will be purchased via a separate auction each day (1st time ever BoE buys index-linked bonds), in addition to the Bank's existing daily conventional gilt purchase auctions >>> all this, now we also know that UK PM and Chancellor were warned by HIS think tank that they may need fiscal tightening of more than $60bn to stabilise UK’s public finances / Times >>> UK yields ‘dropped’ about 5bp after these measures, not exactly a great vote of confidence, yet anyway. Kwasi Kwarteng will be questioned by the House of Commons at 14:30 UK time, live on BBC Parliament (this is a scheduled session)

  • Jamie Dimon says UK government deserves benefit of the doubt after sparking market turmoil

  • Josep Borell (EU high Rep) : A surging US dollar is making basic goods in other countries unaffordable unless central banks follow the US Federal Reserve’s lead, he explained >>> the reality is ECB should have hike long ago, similarly to BoJ, they are printing still with YCC at 25bps and wondering why JPY is so weak, it is quite extraordinary really..

  • Bunds on the move too, 10y yields around 2.32 (from 2.22 yesterday), as German government mentioned yesterday to be more open to ‘joint issuance of European bonds’’, though the story was later denied

  • China gives clearest sign yet it will stick with zero-Covid strategy

  • The most powerful buyers in Treasuries are bailing – all at once. From Japanese pensions and life insurers to foreign governments and US commercial banks, where once they were lining up to get their hands on US government debt, most have now stepped away. And then of course there’s the Federal Reserve, which a few weeks ago upped the pace that it plans to offload Treasuries from its balance sheet to $US60 billion a month, is this not going to impact the USdollar eventually…?

  • US President Joe Biden and G7 leaders will hold a virtual meeting today to discuss their commitments to support Ukraine amid yesterday's series of missile attacks on Ukrainian cities, – White House

  • Scholz : ‘’we will discuss inflation reduction act with the U.S, there must be no customs war’’

  • MS : “.. companies will have to take more significant action on labor--i.e., layoffs. Early warning signs on that front are emerging as evidenced by the recent drop in job offerings” — which leads jobless claims by ~4 months. [Wilson]

 
Markets :

  • UST 10y back to 4% - lots of talk of buyers of Treasuries ‘on strike’ (very heavy hedging price for JPN investors for example..)

  • USD remains strong(er), anyone who thinks ‘G20’ may say or do something, should play it via options. As long as other CB are not hiking and/or Fed tells everyone they ‘nearly’ done at least..it is going to be hard to turn

  • Equity markets, main indexes struggling on higher yields, bond market dislocation, these markets though also offer opportunities in many names, which are big solid cash flow generators, as markets (ETF’s) selling doesn’t discriminate between solid and weak balance-sheet, yet anyway

  • Gold should be one of the early movers, if/when market sense an issue with UST volatility and thus USDollar

  • Maybe a relatively weak earnings season (expected) with (pretty sure they will) large U.S companies blaming USD strength (amongst other things) ‘may’ shift the Fed tone sooner or later

  • ECB’s Lane, BoE’s Cunliffe and RBA’s Ellis due to speak today – amongst other things Economic Calendar (tradingeconomics.com)

 

https://www.foxbusiness.com/economy/feds-brainard-warns-higher-interest-rates-will-slow-us-economy Fed's Brainard warns higher interest rates will further slow US economy

Brainard: Interest rates will need to remain elevated for 'some time'

  • The economy has already cooled significantly in the U.S., with gross domestic product – the broadest measure of goods and services produced in a nation – contracting by 1.6% in the winter and 0.6% in the spring.

  • Brainard noted that Americans' savings have also dwindled faster than the Fed anticipated, suggesting there could be a pullback in spending soon.


Fire sale of UK plc underway: Goldman Sachs and Blackstone plotting to snap up British assets on the cheap as panicky UK pension funds flee http://dlvr.it/SZsqdf


https://saxostrats.podbean.com/e/back-at-the-brink-do-we-go-over/ Today we look at equity markets back at the cycle lows just ahead of earnings season as treasury yields and a strong US dollar continue to pressure. We also discuss unrealistic earnings expectations for the coming batch of earnings reports, the large banks' massive unrealized losses on bond portfolios that will hamper buyback programs and dividend generosity, the ongoing dicey situation for UK gilts and sterling as sentiment and policymaker credibility continue to struggle, crude oil & gas, FX focus, TSMC's ugly day and more


https://uk.finance.yahoo.com/news/fed-williams-sees-rates-heading-144604966.htmlLast Friday : Williams acknowledged that the Fed’s actions had international consequences and said he was in contact with his counterparts at foreign central banks, who also face high inflation. But he stressed that the Fed’s focus was its domestic goal to restore price stability.“We’re all working on our own to make the decisions to bring the economy back into balance,” he said >>> kind of emphasized that it is our USdollar (U.S) and it is your problem (RoW – rest of the world) >>> of course the right reaction would be for other central banks to hike (or to have hiked a lot sooner..) but in the face of recession, the have been very slow and hesitant to hike, even with inflation near 8pct say (headlines and yes I think we can agree things will moderate soon but still – they have been far too late and that’s partly -not only- reason for current messy situation)

https://www.thisismoney.co.uk/money/mortgageshome/article-11298863/House-prices-fall-12-2024as-average-mortgage-rates-reach-6.html House prices could drop 12% by 2024, analysts warn, as average mortgage rates reach 6% and limit what buyers can afford >>> house prices went up 15-20pct last 18months…so there is room for lower and back to pre Covid levels, if that’s so nothing too dramatic..





"Everybody’s running to increase interest rates — these will bring us to a world recession," EU’s top diplomat warns


https://www.cnbc.com/video/2022/10/10/we-are-getting-ready-to-deploy-our-recession-playbook-says-legendary-investor-paul-tudor-jones.html?__source=sharebar|email&par=sharebar We are getting ready to deploy our recession playbook, says legendary investor Paul Tudor Jones >>> recession last usually approx. 1year, stocks fall on average 10%, shirt-term rates like 2y UST will fall first to possibly signal FED stops hiking or hikes a lot slower, once the 2yUSt peak, the USDollar peaks


https://twitter.com/LizAnnSonders/status/1579432385073930240/photo/1 chart and more in the thread - Six consecutive monthly declines for global food prices … Food & Agriculture World Food Price Index fell by 1.1% in September and is decisively rolling over


https://www.cnbc.com/2022/10/11/jpmorgan-ceo-says-uk-government-deserves-benefit-of-the-doubt.html Jamie Dimon says UK government deserves benefit of the doubt after sparking market turmoil



https://uk.news.yahoo.com/berlin-no-plans-support-joint-172719472.html Berlin has no plans to support joint EU debt for loans – source


Public had expected shift away from stringent Covid-19 measures after 20th party congress

However, People’s Daily commentary signals leaders are determined to continue pandemic controls after pivotal political meeting this month




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