The UK state funeral for Queen Elizabeth II with world leaders gathering

Headlines

• The US yield curve inverted

• FedEx had the biggest drop in over 40 years

• Ether (ETH) becomes a sell-the-news event.

• The GBP dropped to the lowest since 1985.

• Germany seizes Rosneft assets.

• World’s $1 trillion La Nina problem.

• Germany moves to sever its dependence on Russian energy.

• China skirts US tariffs with help from Mexico.

• India opts out of trade talks with American-led group.

• South Korea exports show memory chip demand fading.

• The UK state funeral for Queen Elizabeth II with world leaders gathering

• The Fed is poised to make another jumbo rate hike.

• Chengdu unfreezes itself

• Central banks around the world are forecast to deliver interest-rate hikes adding up to more than 500 basis points combined this week. 

• Bezos loses spot as world’s second richest person to Adani.

• Dubai’s future lies in the hands of two very different princes.

• Hedge funds ramp up bearish yen bets.

My View

This is a big week for central banks, with more rate hikes on the way. The Fed is expected to increase by 75 bps, however they could go for shock treatment and make it 1%. The BoE has more of a balancing act to manage with the economy struggling but high inflation…stagflation perhaps! Chinas one-year loan prime rate is expected to stay at 3.65% tomorrow.

Markets are lower and BTC just above $18k. USD beginning to strengthen yet again and it is difficult to see an alternative to the USD for the moment.

RIP Queen Elizabeth II, never forgotten.

Global News

Biden will join world leaders in London for Queen Elizabeth II's funeral, as mourners worldwide tune in watch the proceedings. King Charles III hosted a reception at Buckingham Palace yesterday evening for the assembled dignitaries. Liz Truss was scheduled to meet the US president but that meeting was postponed to Wednesday, at the UN General Assembly, Politico reported. London markets are closed today. BB

FedEx withdrew its earnings forecast on worsening business conditions, dragging the broader market down in a potentially worrying sign for the global economy. The package-delivery giant flagged weakness in Asia and challenges in Europe and said conditions could deteriorate further in the current period. General Electric’s finance chief warned that supply-chain challenges are weighing on its third-quarter performance. The global economy may face a recession next year caused by an aggressive wave of policy tightening that could yet prove inadequate to temper inflation, the World Bank said in a new report.BB

The market was favouring a 75bp FED hike ahead of the August CPI report, but the higher-than-expected inflation numbers, that saw the core rate accelerate to 6.3% from 5.9%, have led the market to price a 20% chance that the Fed go over and above that and opt for a 100bp move. 75bp is still our favoured call and the overwhelming majority of economists appear to think the same.

Inflation does indeed appear to be stickier than we'd first thought and it remains broad-based. That said, there isn’t a great deal the Fed can do about current inflation so its response will depend on where it sees inflation heading. The jobs market remains strong, and near-term activity data has been holding up, but there are encouraging signs on both market and household inflation expectations, and also corporate price plans which suggest inflation may not be as embedded as some in the market fear. ING

Our Bank of England call

We narrowly favour a 50bp hike on Thursday, taking the Bank Rate to 2.25%, although 75bp is clearly on the table and we would expect at least a couple of policymakers to vote for it. It's even possible we get a rare three-way vote – the first since 2008 – if dovish committee member Silvana Tenreyro votes for a 25bp hike as she did in August. If our call is correct, then we expect another 50bp move in November and at least another 25bp in December. That would take Bank Rate to the 3% area. ING

The dollar is the only possible hedge for what's turning into the biggest destruction of shareholder value since the financial crisis, Citi said. Global stocks have lost $23 trillion this year, so its inverse relationship with risk assets makes it the only option for the rest of 2022. All hail king dollar.

Treasuries also flash warning signs. A key part of the yield curve risks inverting to a level last seen in the early 1980s as the US inches closer to a recession, Allspring Global Investments said. Two-year yields will surge in the next six months, it projects, increasing the inversion with 10-year yields to at least 100 basis points, from about 44 bps.  BB

It’s hard to categorize the US economy these days. Inflation remains quite high, retail sales are moderating but unemployment is at historic lows. The Federal Reserve is stuck navigating these crosscurrents as it attempts to squeeze demand while avoiding recession. Indeed, policymakers are poised for another aggressive hike next week, and where the tightening will end is anyone’s guess. Bridgewater’s Ray Dalio argues inflation may eventually force rates into the 4.5%-6% range, and with that trigger a 20% plunge in equity prices. The Fed’s moves have been reverberating the world over, with officials in Asia pushing back against a surging dollar in a bid to stem losses to their currencies. FedEx flagged weakness in Asia and challenges in Europe as it pulled its prior outlook on worsening business conditions—a dark sign for the global economy. Marcus Ashworth wonders in Bloomberg Opinion whether the Fed’s “cure” might be worse than the disease.BB

A pair of exchange-traded funds that track stock trading by members of Congress are in the works. The wonderfully named Unusual Whales Subversive Democratic Trading ETF and the Unusual Whales Subversive Republican Trading ETF will analyze financial disclosures of lawmakers from both parties, as well as their spouses and dependent children.BB

Germany is pressing ahead with tightening its control over energy as winter approaches. Authorities seized the local unit of Russian oil major Rosneft as the country moves to take sweeping control of its energy industry, with other companies in its sights.BB

The US housing market is facing a statistical anomaly. Higher mortgage rates are slowing the growth of home prices, which has resulted in a spike of months of supply. It now takes 4.1 months for the existing inventory of homes on the market to sell, up from a record love of just 2.1 months in January. There’s rarely been an increase of that magnitude, according to Morgan Stanley.BB

Chengdu resumes normal life today—ending a citywide lockdown imposed Sept. 1—but with mandatory weekly Covid testing. Dalian also exits restrictions. Hong Kong could as soon as this week reveal plans to end hotel quarantines for inbound travelers in favor of self-monitoring, the Oriental Daily reported. The city closed a vaccine passport loophole.BB

China's heated rivalry with the US over tech supremacy is adding fresh pain to the Chinese stock market. The MSCI China Index has fallen more than 7% this month, versus a 2.5% drop in the global gauge. 

· US initiatives to secure supply chains and solidify industrial superiority have prompted declines in Chinese manufacturers.

· Investors also worry that rising tension over Beijing's stance toward Russia and Taiwan may accelerate the economic decoupling.

· Meanwhile, Joe Biden said he warned Xi Jinping of an investment chill if Beijing violated sanctions on Russia. BB

Biden warned Vladimir Putin of a "consequential" US response if the Kremlin uses nuclear or chemical weapons. He said he also told Xi Jinping that it'd be a "gigantic mistake" to violate sanctions imposed on Russia. Ukraine's military claimed some Russian units lost 50% to 90% of their personnel during the recent retreat in Kharkiv. Russia has increased its targeting of civilian infrastructure, the UK said.BB

The EU is taking on perhaps the biggest threat to its unity — Hungary’s Viktor Orban. Drawing a line after years of democratic backsliding, the Commission proposed suspending 7.5 billion euros in funding for Hungary, using its new powers to do so for the first time. The EU’s concerns include irregularities in the government’s procurement system, conflicts of interest in public trusts and the independence of the judiciary. Orban has also undermined EU efforts to implement swift energy sanctions against Russia for its invasion of Ukraine, demanding exemptions for Hungary that only serve to increase his country’s dependency on Russian gas. EU governments must decide in the next few months whether to back the funding freeze.BB

Inevitable Slump | The risk of a euro-area recession has reached its highest level since July 2020 as concerns grow about fallout from a winter energy squeeze. Economists we polled put the probability of two straight quarters of contraction at 80% in the next 12 months, up from 60% in a previous survey.BB

Persistent Inflation | The ECB must be resolute in its response to inflation rates that may reach double digits later this year, said Bundesbank President Joachim Nagel. The central bank’s chief economist, Philip Lane, expects the ECB will likely need to hike rates “several” more times.BB

Commodities

La Nina. The world is hurtling toward $1 trillion in weather-disaster damages by the time 2023 wraps up. The floods, droughts, storms and fires will destroy homes, ruin crops, further disrupt shipping, hobble energy supplies and, ultimately, end lives.BB

Crypto/Digital

Ether led digital assets lower after a groundbreaking software upgrade of the token’s underlying network turned into what some market observers labeled a “sell-the-news” event. Ether is paring a rally since mid-June sparked in part by optimism about the Ethereum update -- the Merge -- to slash the network’s energy use. Crypto prices have tumbled this year along with other riskier investments, weighed down by  monetary tightening. The Merge, however, is viewed as a potential longer term catalyst for Ether as it improves the environmental profile of Ethereum.BB

US tech giant Amazon is among the five companies the ECB has chosen to develop a prototype for a digital euro. Spain’s CaixaBank, France’s Worldline, Italy’s Nexi and EPI, a consortium of banks and third-party acquirers, are the other contenders. BB

Cryptocurrencies fell to fresh lows on Monday on regulatory concerns and as investors globally turned shy on risky assets with interest rate rises looming around the world. Bitcoin , the biggest cryptocurrency by market value, fell about 5% to a three-month low of $18,387. Ether , the second largest cryptocurrency, dropped 3% to a two-month low of $1,285 and is down more than 10% in the last 24 hours. Most other smaller tokens were deeper in the red.

Market levels (all analysis is based on CME futures contracts)

DISCLAIMER.

The content of this daily newsletter should only be considered a guide and views, opinions or content contained in this email is provided solely for information purposes and does not constitute investment advice or a solicitation to trade or invest.

Chris Tubby

Senior Director Trading and Education

Symax Fintech