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Oct 12, 20226 min read

UK, BoE, Gilts / RBA / IMF cuts '23 growth forecast / FOMC minutes tonight & U.S CPI tomorrow


  • UK markets , Gilts and more. What was the real reason for the Bank of England's gilt market intervention? After last night’s headline from Bailey, earlier this morning in FT : Bank of England signals to lenders it is prepared to prolong bond purchases. Officials have privately indicated flexible approach if market volatility flares up >> maybe what Bailey thinks he is doing, and FT is about what he has to do… They are there to actually step-in if/when markets are disruptive, he can’t and shouldn’t say much more than this in this situation… Net net, it shows how Bailey is uncomfortable to buy Gilts under the ‘’financial stability’’ button, while trying to tighten monetary policy with inflation at 10pct…Almost an impossible mission, and all this due to the silly QE for years AND failing to hike much earlier when it was all pretty clear that inflation was popping its head back! .The reason, this UK scenario is interesting for all CB’s, is that it can easily happen elsewhere eventually (already has in parts)

  • U.S : Used Vehicle Index has gone negative for first time since May 2020

  • Uber, Lyft shares sink after Labor Department issues proposal on gig workers (not what majority of Uber drivers voted for 2y ago)

  • U.S CPI : IMHO, it is clearly going to take more than this week’s print or even more than 2months worth of data to shift most of the Fed’s view overall, but evidence keeps accumulating that ‘worst’ is very most likely behind us (from housing in particular, services, crude ish (crude back down to pre OPEC+ cut levels the other day and other commodities , 2-5y fwd inflation expectations much lower overall, IMG downgrades on growth, retail inventory glut etc etc…)… so definitely some pretty decent signs of softness out there

  • JGB’s trading – or lack off ‘’JPN’s 10y government bonds did not trade for 3rd day in a row’’

  • Countering Brainard previous day, yesterday Fed’s Mester said : I do not expect the Fed to lower rates in 2023, Size of Fed rate hikes will depend on economic conditions, I anticipate slow growth in the coming years, The biggest risk is that the Fed does not raise interest rates dufficiently, The economy's biggest challenge continues to be high and persistent inflation, The Fed has made no progress on lowering inflation.. >>>> a reminder that most of them 12months ago said, there will be no rate hikes in 2022…(a transition might be round-the-corner but they won’t flip till it's too late…)

  • Saudi Arabia Defied US Warnings Ahead Of OPEC+ Production Cut – WSJ… U.S. Officials Asked Saudi Arabia to Delay OPEC+ Production Cut for a Month

  • RBA Assistant Governor Luci Ellis gave a speech this morning detailing the RBA's thinking around the neutral cash rate, which it estimates to be around 2.50%. With the cash rate at 2.60% following the October 25bp hike, the RBA is therefore right near neutral according to Ellis, which was a large part of the reason for the central bank reducing the pace of its rate hikes from 50bp to 25bp. Ellis reinforced the message that the RBA is going to be a bit more cautious with its rate hikes going forward given the cash rate will be moving into restrictive territory.

  • The IMF cut its 2023 global economic forecast. Growth is projected to slow to 2.7% as the war in Ukraine, inflation, and covid recovery weigh on the global economy. IMF criticises Kwasi Kwarteng again saying govt’s tax cuts and energy support package has made the Bank of England’s battle against inflation more difficult

  • Bank of Korea hiked 50bps to 3%

  • Retail Inventory glut is about to get ugly/Forbes

  • "Flows suggest investors believe market may have bottomed: client flows into US equities last week were 3rd-largest since '08... Our view? More volatility likely ahead." - BofA


 

Markets :


  • USDJPY 146+ to some 24ywar lows, BoJ ‘intervened’ near 145 last month – Hard to fight on your own against the mighty USD while Fed is in hiking mode, FOMC minutes becoming always ever so important, and with G20 coming up in mid-November – long way away in these markets. Another mini run on GBP and it is really getting into cheap long-term levels, doesn’t look that way right now, but it never does in the short-term storm. The USDollar is too strong overall and is clearly starting to kill growth in the rest of the world

  • 1 to 2 year time deposit also getting really attractive for small investors, when you start getting into the 5pct 2y fix deposit, this isn’t bad (UK)

  • SPX500 trading around those 200dma levels 3590 area, perhaps a make or break with FOMC minutes and U.S CPI tomorrow. Risk sentiment all very low/oversold and that might be the good news together with BofA comment above, earnings reports kicking off properly now too

  • The big issue with CB’s these days, not just UK, is that it’s run mostly by folks with little or NO long-term market experience, at the most important time in history (probably), since they themselves created this monster with the 25trn of QE the last 10+ years, ignoring that rate hikes were needed no later than 9-12months ago, that basically inflation was temporary and there were no need for hikes in 2022…And the Fed proceeded with the fastest and sharpest hiking cycle in the pace of 6months, ever…will they be wrong again by hiking too much now ?

  • Saxo/Steen and Co >>> ''start'' to consider/look for signs of peak inflation/peak FOMC/peak rates over next few months, USD is killing growth in RoW, clear signs of slow down economically, consumers retrenching etc, risk FED does too much now

 

https://www.coppolacomment.com/2022/09/what-was-real-reason-for-bank-of.html What was the real reason for the Bank of England's gilt market intervention?

https://www.ft.com/content/87a5b7bf-6786-427f-89d6-96b736dcb814 Bank of England signals to lenders it is prepared to prolong bond purchases

Officials have privately indicated flexible approach if market volatility flares up >>> many UK pension funds feel BoE intervention in the domestic bond market should be extended to Oct 31 ''and possibly beyond'', said the UK Pensions and Lifetime Savings Association (PLSA)


With yields on UK inflation-linked debt having risen by some 64 bps in just one day yesterday - the sharpest spike seen since 1992 - bond investors must be wondering what on earth is going on. Are the UK's problems isolated events? Not likely. http://spkl.io/60134nbMt

https://twitter.com/paulwaugh/status/1580100932724875265 Rees-Mogg claims that the market turbulence of past fortnight has nothing to do with the Govt.

"It's much more to do with interest rates than it is do with a minor part of fiscal policy"….of course he does… mind boggling


https://twitter.com/LizAnnSonders/status/1579432118446624768 Year/year % change for Used Vehicle Index has gone negative for first time since May 2020 – chart



https://twitter.com/BondHack/status/1579780468102541313 If all the Credit Suisse CDS tourists want to see an actually gnarly chart: here's French grocer Casino's five-year CDS going/gone to the moon



Zelensky called on G7 countries to speed up supplies of air defence systems and impose price caps on Russian energy exports as his country’s infrastructure and civilian neighbourhoods faced a second day of missile strikes. https://ft.com/content/5de6908c-c097-4a71-965a-66a56b234267


Power giants to face windfall tax after all as Liz Truss delivers U-turn


Nasa says its spacecraft managed to nudge the asteroid out of its natural orbit


https://www.welt.de/politik/ausland/article241531277/Greta-Thunberg-bezeichnet-moegliches-Abschalten-von-AKW-in-Deutschland-als-Fehler.html Greta Thunberg bezeichnet mögliches Abschalten von AKW in Deutschland als Fehler - Greta Thunberg calls the possible shutdown of nuclear power plants in Germany a mistake.


Top ! https://www.pv-tech.org/greece-runs-entirely-on-renewables-for-the-first-time-in-its-history/ Greece runs entirely on renewables for the first time in its history


https://www.rte.ie/news/newslens/2022/1011/1328450-new-zealand/ New Zealand outlines plans to tax livestock burps, farts!






https://saxostrats.podbean.com/e/all-eyes-on-boe-and-the-uk-gilt-market/ and Today's slide deck: https://bit.ly/3yyo7gp - Today we talk about the continuing weakness in equities with the latest jolt coming from BoE Governor Bailey's comments that UK pension firms must get their house in order by Friday as the central bank is planning to step away from the market. We also cover today's oil market and the expected forecasts from IEA and EIA, the grains markets and finally gold that attempting to bounce back from its recent decline. We also cover stocks to watch which today are Intel, Chr Hanse, and LVMH. Finally, we cover today's earnings release from PepsiCo and the economic calendar with a focus on US PPI figures and FOMC Minutes later tonight




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