Investors Will Simply Count Down to Tomorrow's Official Job Report

Summary:

US data came in strong yesterday. The September ADP job report hit the bar (208k with a 53k upward revision for August).

Markets

US data came in strong yesterday. The September ADP job report hit the bar (208k with a 53k upward revision for August). The US non-manufacturing ISM stabilized at a strong 56.7 (vs 56 expected), contrasting with the below-consensus outcome of Monday's manufacturing gauge. The numbers came amid hawkish Fed speech from the likes of SF Fed Daly and Atlanta Fed Bostic. This helped sustain a rebound in core bond yields after a few days correcting lower, although most tenors (in the US) finished below their intraday highs. US yields rose between 5.6 and 12.3 bps with the belly of the curve underperforming. Bund yields added 12.2-16.3 bps across the curve. The 10y yield took out the 2% mark again. Italy significantly underperformed regional peers. The 10y yield soared 30 bps and spreads vs Germany's 10y shot up 13 bps. It followed ECB data showing less support for BTP's in August via its flexible PEPP reinvestments (as compared to July) and Moody's surprise warning for a potential downgrade after the right-wing election victory. Higher rates pushed stocks in the defensive, declining 1% in Europe. US equities slumped up to 2.4% before staging a rebound that capped losses to just 0.2%. Energy companies rallied following a big 2m b/d OPEC+ production cut. Brent oil rose 1.7% to $93.4. The dollar appreciated, with the technical deities helping a hand. EUR/USD reversed course after hitting the top of the downward trend channel. The pair slipped from 0.998 to 0.988. Trade-weighted DXY bounced off 110 to 111.21. USD/JPY sticks south of 145. Sterling was sold. GBP/USD dropped from 1.15 to 1.132. EUR/GBP bottomed out further with gains to 0.873 and capturing lost support at 0.8721 again.

Asian news flow is thin this morning and that may not change today. The ECB meeting minutes usually don't contain as much clues as those from the Fed do but it's worth mentioning anyway. Other than that investors will simply count down to tomorrow's official job report (payrolls) to check whether it chimes with their recent repositioning for a slightly softer Fed. Current market mood is cautiously optimistic. Asian equities put comfort from WS's intraday reversal. South Korea outperforms (+3%). European stock market futures point to a higher opening to the tune of 1.5%. Core bonds inch higher but conviction is low. The dollar takes a breather after surging yesterday. EUR/USD recoups some losses to trade around 0.992. The British pound is not much affected by Fitch's cut in the outlook of the UK (see below). EUR/GBP is currently running a three-day winning streak (0.874).

News Headlines

The National bank of Poland yesterday unexpectedly left its policy rate unchanged. A majority of market participants and analysts expected a rate hike to 7.0%. Inflation in Poland in September remained elevated at 17.2% Y/Y. 'The Council assessed, that the hitherto significant monetary policy tightening by NBP and the expected economic activity growth slowdown … will contribute to curbing demand growth in the Polish economy, which will support a decline in inflation in Poland towards the NBP inflation target'. However, given persistence of the current shocks that remain beyond the impact of domestic monetary policy, a return of inflation towards the NBP inflation target will be gradual. A zloty appreciation more in line with the fundamentals of the Polish economy also could ease inflationary pressures. Further policy steps will be data dependent. The NBP also reiterates that it may intervene in the currency market to limit fluctuations of the zloty that are inconsistent with the direction of monetary policy. The zloty initially weakened to the EUR/PLN 4.84 area, but regained part of that loss later to close near EUR/PLN 4.82.

Rating agency Fitch lowered the outlook on its UK's long term Long Term foreign currency rating from stable to negative. The credit rating stands at AA-. The revision amongst others was driven by the large and unfunded fiscal package announced as part of the government's growth plan which could lead to a significant increase in fiscal deficits over the medium term. Without compensatory measures, the agency sees the government deficit at an elevated 7.8% of GDP in 2022, increasing to 8.8% in 2023. The general government debt to GDP ratio might go to 109% in 2024 from 101% this year. The rating agency also mentions increased policy uncertainty as the large fiscal stimulus and the inconsistency between fiscal and monetary policy stance, according the agency, negatively impacted financial markets' confidence and credibility of the policy framework.

Source: KBC Bank

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Comments

Add to Favorites

King Ten

Market movers today

Another quiet day on data front. The euro area retail sales for August are expected to reflect a fall in household real income with consensus expecting a 0.4% drop from July.

Also, the ECB minutes are out this afternoon. There we will get a bit more colour on why the Governing Council decided to hike rates by 75bp in September and also what their expectations are for further rate hikes ahead.

We also have Fed Evans, Cook and Kashkari speaking in the evening.

The Norwegian 2023 fiscal budget will be published today (see more details in Nordic section).

The 60 second overview

OPEC+ yesterday decided on relatively large output cuts, planning to collectively reduce production by 2 million barrels a day, equivalent to about 2% of global consumption. The actual cut may however be smaller, probably closer to 1 million barrels as many smaller members such as Nigeria are already producing below their targets. The intended production cuts drew criticism from the US, fearing that higher oil prices will hit the global economy at a fragile moment. Oil prices continued their rise yesterday to USD 93 per barrel and have now increased almost 10% over the past week. We see the Brent oil price hovering around USD 100 per barrel in Q4.

The higher oil prices were one of the key drivers behind weaker global risk sentiment after the last few days' strong sessions, sending equities lower while global bond yields rose on the back of higher market implied inflation expectations. The hit to risk sentiment also supported the USD with EUR/USD falling back below 99 but the cross has rebounded somewhat this morning. Credit markets also reflected market concerns with the iTraxx Xover widening 18bp while Main widened 3.5bp.

In equity markets, defensives back in style, especially the energy sector after the OPEC+ production cut. Interestingly, growth- and quality stock outperformed despite long-end yields ticking higher. Health care and tech were among the best sectors, while banks were among the worst. Dow, S&P and Nasdaq closed down -0.2%. US futures are somewhat higher again this morning.

In fixed income markets, the volatility in the financial markets continue as shown by yesterday's significant rise in the interest rates across markets as well as the rebound in the 5y5y EUR forward inflation swap. The change in the 5y5y inflation swap is most likely to due to the rise in the oil price on the back of the production cut from OPEC. Furthermore, the spread between Italy and Germany widened on the back of rating concerns given the recent comments from Moody's regarding a possible downgrade of Italian debt. The German ASW-spreads also widened on the back of the higher rates and wider credit spreads.

FX: The cross-asset rally came to an end yesterday as noticeably EUR/USD failed to break through 1.00 and fell back to the 0.98-levels; equally, equities soured a tad. The OPEC+ meeting ended with an agreement to cut production by 2m barrels/day. Naturally, oil equities saw some support and the Biden administration is publicly criticising the OPEC+ decision.

Credit: Following the last days' substantial tightening, credit indices changed direction yesterday and iTraxx Xover widened 18bp while Main widened 3.5bp.

Nordic macro

The Danish Prime Minister yesterday called a general election for November 1. Polls point to a close race between the main blocks, much depends on whether some smaller parties will make the threshold and it is not clear what coalitions are possible. Still, there appears to be broad agreement about the macroeconomic framework among the main parties, so there should be no near-term market impact. It was widely expected that an election would be called this autumn.

The Norwegian 2023 fiscal budget will be published today. The signals from the government ahead of the publication have been crystal clear: the government plans to cover all the extraordinary expenses, not only for the electricity subsidy, but also for other extraordinary expenses. The funding is of course made easier by the fact that a significant proportion is covered by taxing the profits in the power industry. But in any case, the fiscal policy in Norway will most likely contribute to ease the pressure on Norges Bank.

Source: Danske Bank

Risk Warnings and Disclaimers

Comments

Add to Favorites

Owen Li

BoE and ECB let markets fly on their own

If financial stability no doubt registers on central banks' consciousness, it is doubtful that they see policy implications. The Bank of England (BoE) balking at buying long-end gilts for the second day in a row clearly confirmed that it sees its operation as a temporary backstop, and not something that should dilute its monetary policy stance. Along the same lines, the European Central Bank's (ECB) reluctance to support peripheral bond markets in August and September 2022 by using PEPP reinvestment flexibility sends a similar message.

In the BoE's case, the gilt long-end received the message loud and clear. 10s30s is racing back towards the levels prevailing before the mini budget and subsequent BoE intervention. If the shape of the curve is the best sign that markets are pricing out BoE intervention, it is the speed of the sell-off that should keep investors up at night. 30Y yields are up almost 40bp this week. Let us hope that pension funds and other structural swap receivers managed to reduce their exposure, or found funding sources for inevitable collateral calls.

The glass half full take on European Central Bank (ECB) intervention, or lack thereof, is that spreads remained contained without its help. This is particularly notable in a context of rising core rates and rates volatility. The problem with this take is that markets are forward-looking, and that there are no ECB purchases for them to look forward to. It seems, the bar for purchases is higher than previously thought and could get even higher as hawks seem intent on pushing discussions on quantitative tightening (QT). Rates Spark: Buckle up_1

Gilt 10s30s is steepening back to its pre-BoE intervention level

Central banks can't afford to be complacent on financial stability

A look at wider market stress indicators in rates and credit yields a similar conclusion. For the most part, peripheral and core rates are already at crisis levels, but not yet at a breaking point. This is hardly encouraging. A bright spot so far has been short-term funding and money markets but, each time, it is clear that the ECB's heavy hand is responsible. This is all well and good but the expiration of TLTRO loans, tiering, and the looming QT discussion means markets cannot count on ECB support going forward.

We think it would be wrong to take comfort in still (barely) functioning markets and that central banks should pay greater attention to financial stability. Balance sheet reduction programmes are adding to financial instability and could ultimately make their fight against inflation harder, not easier, if they are forced to choose between rescuing financial institutions and cooling the economy. Despite the BoE's intervention last week, we keep a cautious outlook on bond markets. We expect to see new highs in yields and spreads as a result of central bank intransigence. Rates Spark: Buckle up_2

The ECB barely intervened to support spreads in August/September 2022

Source: think.ing

Risk Warnings and Disclaimers

Comments

Add to Favorites

FastBull Featured

Remarks of Officials

Atlanta Fed President Raphael Bostic spoke Oct. 5 on the theme "Staying Purposeful and Resolute in the Battle against Inflation," with the following key takeaways.

Price pressures remain widespread, with growth in goods prices currently slowing, but service prices are climbing rapidly and are likely to continue to rise. Service price increases tend to be more persistent than commodity price increases and account for two-thirds of the consumer basket, so we must remain vigilant about this as the battle for inflation may still be in its early days.

Despite the "glimmers of hope" in the recent data, my message is that we are still deep in an inflationary rut and are not out of it yet. the August inflation report reminded us that price pressures remain broad-based and stubborn. In the coming months, as the monetary policy takes hold, we will see aggregate demand slacken as we seek to bring demand in alignment with supply, a gradual easing of the labor market, and a weakening of economic activity, which is necessary to reduce inflation. But we should not let these factors stop us from reducing inflation. We must avoid inflation becoming entrenched in people's minds, as it will then be more difficult to eliminate. At the same time, if price stability is not achieved, then it will be extremely difficult to achieve sustained full employment.

My baseline outlook is for GDP to grow about 1 1/4 percent in the second half of 2022, and about 1 percent in 2023. I think we will end 2022 with an unemployment rate in the neighborhood of 3.7 percent, which is about where we are now and still low by historical standards. An unemployment rate slightly above 4% represents a full employment level, so we may have accomplished one of our dual missions at this stage. This is especially true given the current large gap between labor demand and labor supply. This means that we still have plenty of room to continue tightening policy without causing unnecessary damage to the labor market.

Be assured that I am not advocating a quick turn toward accommodation. On the contrary. You no doubt are aware of considerable speculation already that the Fed could begin lowering rates in 2023 if economic activity slows and the rate of inflation starts to fall. I would say not so fast. On monetary policy, I will continue to remain firm. We don't want to stir up more problems in an economy that is already churning with uncertainty. We want the public and the markets to know clearly that we will remain steadfast in returning inflation to the target level until the job is done.

The Committee should not overreact if inflation does not fall back to the 2 percent range quickly, even if we see a slowdown in economic activity. The Fed's federal funds rate target needs to rise to about between 4 and 4 1/2 percent by the end of this year—and then hold at that level and see how the economy and prices react to assess the direction of the economy.

Like Daly, Bostic's speech was full of relevance, and the market's expectations for a slowdown in Fed rate hikes were just rising, and were dispelled by the two Fed officials' speeches.

Bostic's Speech

Risk Warnings and Disclaimers

Comments

Add to Favorites

Kevin Du

On 23 August 2022, Malaysia's top court unanimously made Najib Razak the first former Malaysian prime minister to be jailed. It upheld his graft conviction and the 12-year jail sentence for looting investments from Malaysia's 1MDB state fund.

The verdict concludes four years of legal manoeuvrings, delaying tactics and backroom interventions by Malaysia's King and Prime Minister. There were even last-minute efforts to challenge the impartiality of Malaysia's top judge, Chief Justice Tengku Maimun Tuan Mat, in order to remove her from the final appeal.

Although the Najib case was widely documented, both in court and in the press, the outcome was still unexpected to most observers. In 2020, in the run-up to his trial and after the reformist Pakatan Harapan (PH) coalition under former prime minister Mahathir, which defeated Najib in 2018, lost power, the influence of Najib and the United Malays National Organisation-led (UMNO) coalition resurged. When prosecutors in the scandal abruptly settled with key actors and dropped corruption charges against a close ally of Najib, he looked likely to escape conviction.

Then came the shock — the five-member panel of the Federal Court argued that Najib's case was 'a simple and straightforward case of abuse of power, criminal breach of trust and money laundering'. The Court declared the appeal 'devoid of any merits', stating that 'the evidence … points overwhelmingly to guilt … so much so that it would have been a travesty of justice of the highest order … to find that the appellant is not guilty'. It found Najib guilty on all seven charges — validating the decisions of the trial judge and the Court of Appeal.

The verdict, remarkable in its clarity and assertiveness, focusses the spotlight on the Malaysian judiciary — an institution long thought to have succumbed to the executive. More than five decades of UMNO party dominance and the constitutional crisis in 1988 raised doubts about the independence and professionalism of the judiciary — particularly in high-profile political cases.

The surprisingly assertive judgment provided by the Federal Court has raised questions about the future of the Malaysian judiciary. Three interrelated factors may have influenced the Federal Court decision.

Growing competitiveness in Malaysia's political system since 2018 has given courts a much-needed stimulus. It has opened up space for judges to demonstrate their independence, particularly in cases where politicians are a party. Not only did the brief PH coalition government (2018–20) allow prosecutors to charge star political actors in the 1MDB scandal, but executive efforts to influence the judiciary have also become more difficult. Neither political camp has a firm grip on parliament — after all, three prime ministers have been elected in three years.

The composition of the Federal Court bench has also changed. Only 1 of the current bench of 13 judges was selected when Najib was prime minister. Another four judges were chosen by the current UMNO-led government, but the majority (the remaining eight) were appointed by the PH coalition government. Well-received appointments to the superior courts, including the Chief Justice, attest to the less visible but crucial role Malaysia's independent Judicial Appointments Commission has played since 2009 in recruiting qualified judges.

There is also the strategic behaviour of the Federal Court itself. While Najib's conviction continues to send shockwaves through Malaysia's political class, the few public protests suggest that the verdict resonated well with the public. But there has still been an outpouring of support among ethnic Malays on social media.

Prime Minister Ismail Sabri Yaakob has brushed off calls for the dismissal of the Attorney General or an immediate royal pardon for Najib. The conviction might be helpful for an internally-weakened UMNO seeking to distance itself from the scandal ahead of a possible general election at the end of 2022.

Najib's conviction has sent a clear signal that Malaysia's judiciary led by Chief Justice Tengku Maimun is re-asserting itself as an independent institution. But whether Malaysia's judges can stay the course is not yet clear. In early September 2022, Kuala Lumpur's High Court sentenced Najib's wife, Rosmah Mansor, to 10 years in jail and a fine of RM970 million (US$216 million) for seeking and receiving bribes in exchange for a government contract. But it remains to be seen if judicial impunity will eventually die a natural death.

Najib is seeking a review of the Federal Court verdict, claiming that the case was rushed and the verdict leaked. He claims this constituted 'judicial misconduct of the highest order'. Indeed, these cases are fought as much in the court of public opinion as in courts of law. Public opinion could strengthen the efforts of his allies to seek a royal pardon and enable him to continue as a member of parliament. These efforts are being resisted by the current King, who is stepping down in 2024.

Many more cases of corruption and abuse of power by Malaysia's political class are now reaching court dockets — including four more against Najib. How the Federal Court and Malaysian judges navigate the inevitable political pressure they bring will be critical for the judiciary's institutional redemption and the future of the rule of law in Malaysia.

Source: eastasiaforum

Risk Warnings and Disclaimers

Comments

Add to Favorites

Devin

Ahead of the United Nations Climate Change Conference 2022 (COP27) that Egypt is hosting in November, the government is considering selecting 18 national green and sustainable development projects out of 6,281 projects competing in the National Initiative for Green and Sustainable Development to benefit from international or regional funding. The move falls within the scope of the government's plans to expand implementation and obtain adequate funding for climate adaptation and green sustainable development projects.

Egypt aims to implement these projects in tandem with hosting COP27 in an attempt to fulfill the climate change-related international commitments as per the Paris Agreement.

On Aug. 9, Prime Minister Mostafa Madbouly launched the National Initiative for Smart Green Projects, with the aim of mapping executable smart green projects across the republic and attracting the necessary investments during COP27, which Egypt will host in Sharm el-Sheikh in November on behalf of African countries.

As of Sept. 20, 6,281 projects from all governorates applied to the initiative that the Egyptian government labels as a globally unprecedented initiative that focuses on the implementation of projects on the ground.

According to UN Climate Change High-Level Champion for Egypt and Jury Chairman of the National Initiative for Smart Green Projects, Mahmoud Mohieldin, "Climate action must be local. It is normal for heads of state and experts to take part in conferences under the umbrella of international organizations, but ordinary citizens doubt the benefits of these conferences. It is necessary to think how the simple citizens in the villages of Egypt, who struggle daily with the challenges of poverty, unemployment and education, will benefit from Egypt hosting COP27."

In a press statement, Mohieldin explained, "The launch of the National Green Projects Initiative is a model for integrated climate action that combines development, combating poverty, providing job opportunities, while mitigating climate change."

The initiative divides competing projects into six categories according to the amount of financing required: mega projects; medium projects; small local projects, in particular projects related to women and the Decent Life Presidential Initiative; start-ups; development projects related to women, climate change and sustainability; and nonprofit social initiatives and participations.

Hussein Abaza, senior adviser to Egypt's minister of environment on sustainable development issues and member of the National Committee for Green Projects, told Al-Monitor, "The committee received pitches for 6,281 projects, which is not a large number in light of the needs of green development in the Egyptian governorates. But these projects are a good start that can be tapped into. Unsuccessful projects may be restructured and formulated to meet the standards and requirements for the green project."

In Egypt, weather fluctuations due to climate changes have caused severe damage to small farmers. The agricultural sector has been facing recurring crop damage and large agricultural areas have been submerged due to heavy rainfall, while frost has hit agricultural lands in the north of the Delta. These losses were borne by the farmers alone, amid lack of awareness of the mechanisms of adaptation to climate changes in the agricultural sector.

In regard to the possibility of providing the necessary funding for the implementation of the winning projects, Abaza said, "We hope to secure funding from international institutions, but there will also be local funding alternatives through the national private sector, which will be encouraged to invest in green projects."

The Egyptian government is boosting the green economy as part of the economic development plans and pushing for the implementation of eco-friendly projects. Last year during COP26, Egypt rolled out its National Climate Change Strategy for 2050. The strategy revolves around five objectives for sustainable economic growth through low emissions development by increasing the share of renewable energy sources, maximizing energy efficiency, reducing greenhouse gas emissions from nonenergy activities, in addition to promoting local green banking and innovative financing mechanisms such as green bonds. On Sept. 29, 2020, Egypt became the first country in the Middle East and North Africa to issue a five-year sovereign green bond, for $750 million, with an interest rate of 5.75%.

The National Green Projects Initiative aims, in particular, to implement women-related development projects that drive empowerment and equal opportunities, and aim to enhance the role of women in the transition to the green economy.

In this vein, the National Council for Women launched campaigns to encourage and support women in the governorates to participate with projects that meet local needs and boost women's employment opportunities in green projects.

In an interview with Al-Monitor, Heba Hejres, member of the National Council for Women, said, "Enhancing the role of women and integrating them in sustainable green development projects in local communities is crucial. Just like men, women play a vital role in agricultural and small economic activities in villages."

She noted that more campaigns are needed to raise environmental awareness and provide information on healthy and sustainable alternatives. "I believe women will be the most responsive in remedying any climate change negative repercussions that may affect their interests," she added.

The National Initiative for Green Smart Projects panel of experts is expected to finalize the assessment and selection of projects in order to showcase 18 of them to the financing institutions at COP27.

Source: Al-Monitor

Risk Warnings and Disclaimers

Comments

Add to Favorites

Owen Li

Crypto analyst Cred opines that bitcoin may have hit a generational bottom, presenting a good buying opportunity for long-term holders.

On Oct. 5, 2022, Fidelity Investments purchased over $5 million worth of ETH for their institutional investors, not long after the New York Digital Currency Group raised $720 million for a bitcoin fund.

Could institutions be eyeing the long game?

Crypto analyst Cred opines that while it is a toss-up whether bitcoin has reached a so-called generational bottom, a long time horizon will mean you won't regret buying at $20,000. However, Cred points out that the confluence of macro events like the Covid-19 pandemic, a strong dollar, and increasingly hawkish tightening by the Federal Reserve are influencing bitcoin's price beyond traditional multi-year price cycles.

"Like how many times will these incredibly unique conditions repeat themselves where we get completely shut down and new economics from COVID, super-inflationary crazy fiscal and monetary policy post-COVID? I mean, that sequence of events is on its own just so unfathomable that, realistically speaking, we may only get one in our lifetime. And therefore, it also presents an opportunity, especially if you can stomach some drawdown." he declared.

According to Fidelity, investors indeed see an opportunity, albeit within the ambit of their risk appetites.

"We have continued to see client demand for exposure to digital assets beyond bitcoin," said a Fidelity spokesperson following the announcement.

The $5 million ETH purchase follows a $62 million fundraiser for the company's Wise Origin Bitcoin Index Fund. But it all started when quantitative digital asset trading firm Cambrian Asset Management bought $20 million worth of Bitcoin and Ethereum for investors on Sep. 22, 2022. These investments, along with NYDIG's fundraising, mark the first time in two years that institutional investors bought almost $1 billion in crypto in a fortnight.

Do institutional investors have inside information?

The current spate of investments could lead the broader market to believe that institutional investors have additional insights on how to survive a bear market.

While charts mainly remained flat between 2020 and the 2021 bull market and still are relatively stable, investment companies may now be observing interest from institutional players that typically look to crypto as a long-term part of their investment portfolios. These purchases don't move the price needle much, except in the cases of "whales" purchasing large amounts of crypto, which generally doesn't include the demographic catered to by investment companies.

But, as in previous bear markets, where others see mostly flat price behavior in the second year of the bear market, the reality could likely be a prolonged rise in price that culminates in a bull market.