Traders Market Weekly: October 10 – 16 2021

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FEAR NOT Brave Investors

 Strange times But remember The Joker once served as the Iranian ambassador for the United Nations.

Bankers, Energy Inflation and China

The Week That Was – What Lies Ahead?

Editorial

Another week of drama while China was out on National Golden Week so there was no news on Evergrande. We still got the pathetic show in Washington DC, delta worries, multiyear highs in crude oil, coal and natural gas, and a much weaker than expected NFP report, though pockets of strength, such as higher earnings, lower unemployment and higher NFP revision. What is clear is the lack of fear and risk observation. FOMO runs deep. Earnings season kicks off next week with big bank earnings. JPMorgan Chase, Bank of America, Morgan Stanley, Citigroup, PNC and Goldman Sachs ae all set to report.

A key guage of Commodities prices, Bloomberg Commodity Spot Index. which tracks 23 energy, metals and crop futures contracts continued to surge higher over record highs set in 2011. Incredibly since hitting a four-year low in March 2020 the index has surged more than 90%. Inflation is transitory we are led to believe. How much are energy prices up? Well we got a hint from Australia’s trade balance for August which revealed a massive surplus of AUD15,077 million (expected surplus AUD10,650 million a record high. Exports climbed 4.1% in the month to A$48.5 billion led by LNG, hard coking coal and thermal coal. Imports fell 1.5% in August to A$33.4 billion

Taper is the buzz word, but a reminder it is a taper of a massive $120 billion in monthly bond purchases that have supported the recovery. In plain English there will be still huge amounts of bond purchases.

Valuations defy gravity, the S&P 500’s price-to-earnings ratio on a forward 12-month basis stands at 21.3, a 35% premium to its 20-year average, according to Refinitiv Datastream.

The discount of risk continues; “Private equity firms are offering the highest premiums for listed companies in more than two decades, paying almost 70% above the prior share price in some cases, in a sign of the widening gap between cash-rich buyout groups and public market investors. Buyout groups paid an average premium of 45% for European companies in 2021, the highest since the data company Refinitiv’s records began in 1980. In the US, the premiums hit 42% this year, the highest since 1999.” Financial Times

In Fed Chair Powell’s Jackson Hole speech  he feels substantial further progress has been met on inflation but not yet employment, which suggested tapering will start later this year and is data dependant. Powell also differentiates tapering criteria from rate-hike criteria.

Some sage advice from your parents, “Know what’s under your hood, not what they tell you, learn to drive a manual first before driving an automatic”

Powell is struggling to justify ongoing historic monetary inflation as transitory with intense inflationary moves abound. Perhaps with so many destroyed economically and living on the breadline the Fed is well away they are surviving at best and aware such lack of demand will become deflationary as supplies normalise.

Public confidence is eroding sharply with the US Administration and the Fed seems to be the last hope for many. What happened if the insular American masses gather what is unfolding globally?

ETF Market Mania

This is a market like no other with more wide spread participation than at any time in history 

ETFGI reported om September 10 that inflows into exchange traded funds are above 2020’s record total globally. Worldwide net investor inflows reached $834.2bn at the end of August, already surpassing the last year’s total of $762.8bn. Global assets held in ETFs have soared to $9.7tn, more than double the $4.8tn managed in the funds and products at the end of 2018.

The bulk of the $9tn exchange traded funds industry consists of plain vanilla index trackers focused on mainstream assets. However higher risk such as Cryptocurrency ETFs have taken off in non US other jurisdictions including Canada, Switzerland, Germany and Jersey. Total assets in these funds tripled from $3bn at the end of last year to $9bn as of June.

The sums committed to leveraged and inverse exchange traded products,designed to amplify gains from market rises or conversely profit from falling asset prices has risen from $79bn at the end of 2019 to a record $109bn, ETFGI reported

The three credit events that have our attention remain our key watches.

Firstly credit spreads on corporate bonds.

U.S. high-yield spreads (to Treasuries) and CDS have also turned more closely correlated to Chinese Credit developments.

Inflation Angst; Ten-year Treasury yields surged 15 bps this week to a four-month high 1.61%. Five-year yields back above 1% for the first time since February 2020, jumping 13 bps to 1.06%, Benchmark MBS yields jumped 14 bps to an almost seven-month high 2.05%.

The five-year Treasury “breakeven” rate (market inflation gauge) jumped 12 bps this week to a five-month high 2.67%. WTI crude trade above $80 for the first time since October 2014, with a year-to-date gain of 64% (gasoline futures up 68% y-t-d). The Bloomberg Commodities Index jumped another 1.7% this week, increasing 2021 gains to 31.5%.

The second the world’s most indebted developer, China Evergrande Group shares and bonds.

Evergrande has over $300 billion of debt. Creditors are banks and non-bank financial institutions, domestic and international bond holders, suppliers and apartment buyers. It has bank borrowings of $90 billion, including from Agricultural Bank of China, China Minsheng Banking Corp and China CITIC Bank Corp (reports have 128 banks with exposure). Thousands of suppliers are owed around $100 billion. Evergrande and the faltering apartment Bubble remain a clear danger.

October 8 – Bloomberg: “Chinese property shares fell after a report that more than 90% of China’s top 100 property developers’ sales declined in September by an average of 36% from the same period last year… Sept. sales totaled 759.6b yuan, -36.2% from September 2020 and 17.7% lower from the same period in 2019: Shanghai Securities News, citing China Real Estate Information Corp. Research. Among companies, 60% of developers saw sales decrease by more than 30% y/y in Sept. (More than 90 developers saw a decline in their sales from a year ago). Beijing, Shenzhen and Guangzhou saw transaction volume of residential properties decline 30% y/y, while Shanghai fell 45%.”

Many major developers have lost access to new finance, while real estate transactions throughout China have slowed dramatically. Mounting evidence suggests China’s historic apartment Bubble has popped.  Country Garden Holdings, China’s largest developer, saw yields (7.25%, 2026) surge 181 bps this week to 7.60%. Yields for this perceived pristine, investment-grade credit began September at 4.74%. An index of Chinese high-yield dollar bonds was smashed with yields surging 310 bps this week to 17.5%. This index yielded 8.20% at the end of May, and 12.0% to conclude August. For further perspective, this yield briefly spiked to 14.0% during the March 2020 pandemic crisis (back down to 8% by August).

The third is massive monetary inflation, the Fed’s Q2 2021 Z.1 “flow of funds” report.

Treasury borrowings continue to command system Credit growth. Outstanding Treasuries gained nominal $359 billion during Q2 to a record $24.302 TN. Treasuries surged $6.487 TN, or 36%, over the past two years. Treasuries to GDP slipped slightly during the quarter to 107%. This ratio ended 2007 at 41% and was up to 87% prior to the pandemic.

Agency (GSE) Securities gained another $181 billion during the quarter to a record $10.408 TN. At $663 billion, one-year growth was the strongest since 2007. Agency Securities jumped $1.144 TN over the past two years. Combined Treasury and Agency Securities swelled an unparalleled $7.631 TN over two years to a record $34,709 TN (153% of GDP).

Total Mortgage borrowings rose $308 billion during the quarter, more than double Q2 2020 growth to the largest increase since Q3 2006 ($343bn). Home Mortgages rose $238 billion during Q2 (strongest since Q3 ’06) and $687 billion for the year (largest since 2006).

Household Assets jumped $6.196 TN, or 16.2% annualize, during Q2 to a record $159.342 TN. Household Assets inflated $24.269 TN over the past year. Household Liabilities rose $347 billion during the quarter to $17.674 TN, the strongest growth since Q1 2006. Liabilities were up $1.093 TN over four quarters, the strongest annual growth since 2006.

After this week’s FOMC it’s worth reminding ourselves of  this insight from the The Economic Affairs Committee of the U.K.’s House of Lords report, “Quantitative Easing: A Dangerous Addiction?”

“No central bank has managed successfully to reverse quantitative easing over the medium to long term. In practice, central banks have engaged in quantitative easing in response to adverse events but have not reversed the policy subsequently. This has had a ratchet effect and it has only served to exacerbate the challenges involved in unwinding the policy. The key issue facing central banks as they look to halt or reverse quantitative easing is whether it will trigger panic in financial markets, with effects that might spill over into the real economy.”

In light of  recent ECB and FOMC meet and greets an important realisation that the Central Bankers are well of aware of the consequenses here.

“We have a market trying to interpret the Fed who is trying to find out how they can interpret their long-only portfolio at a risk parity where rates cannot rise.” – MoneyNeverSleeps

There is the prospect of an overheating U.S. economy, but remember we are coming off a low base and the lockdown has decimated many sectors of the economy and people’s lives. The relevaton from the speed of technology adapting and disrupting to a new world with the lockdown is transformative. The shift has enabled and transformed the traditional economy that we measure future outcomes off.

We still need to add almost 20 million jobs in the US alone to get back to par. Europe is in worse shape, so overheating at this point isnt a concern for most policymakers.  The unparalleled government monetary inflation has inflated many price levels and distorted asset markets BUT that was intended as to increase confidence in the ‘guts’ of the economy, homeowners and 401k holders. This point is missed by the uber bear community. From here is the big question. The RBA stability report gives us an insight into central banker thinking, they concluded Australian banks are in strong financial position coming out of pandemic and have abundant liquidity and funding,

The downside is clear with the absence of moral hazard from repeated Federal Reserve market bailouts in an environment of some would say obscene liquidity pumps. Pure greed is the other part, not wanting to miss out on fees. The obvious question is, how deeply ingrained is this attitude through the markets? How do we ween the markets off tis continuos dip feed? At this point the Central Banks have kicked that answer down the road.

After the monthly and weekly employment data the market will be going though whether the recent stimulus rounds are working with in the background of the Federal Reserve Continuing to downplay inflation risk.

Of note during the Arctic Blast with the EV mania and the Biden Admin Green deal push we noted the spike in spot Texas electricity prices pushing the cost of electricity not on fixed plans to unheard of levels. Bloomberg reported on recharging a Tesla from about $18 to $900. Yes the price spike was fleeting but it should remind the sane amongst us the broader issue of the disconnect between the push toward electrification and our massively inadequate energy infrastructure. This is the area that needs investment, not just for our glorious EV but for all energy and possible disasters like we just saw.

Comments from Yellen and others on the same page suggest that low rates conveniently push potential debt instability far out into the future. The Fed is poised to expand its balance sheet, by adding liquidity to the tune of $1.5 TN this year with no regard for rampant asset price inflation and bubbles. Now the new administration has control of the blank checkbook and is determined to us it with no long-term thinking or planning; everything is short-term focused. Washington is gambling with our nation’s future, from kicking cans down the road to rolling drums down a hill. 

Contents

• Part A: Stockmarkets
• Part B: Bonds
• Fed and Banks
• Part C: Commodities
• Energy – Oil and Gas
• Gold and Silver
• Part D: Foreign Exchange
• Geopolitics and Economics
  
• Economy Week ahead

PART A – Stock Markets

Highlights – USA

• The S&P500 recovered 0.8% (up 16.9% y-t-d)
• Dow rose 1.2% (up 13.5%)
• Nasdaq100 increased 0.2% (up 15.0%)
• S&P 400 Midcaps added 0.2% (up 16.6%),
• Small cap Russell 2000 slipped 0.4% (up 13.1%).
• Semiconductors declined 0.5% (up 16.1%).
• Biotechs lost 1.2% (down 2.4%)
• Utilities jumped 1.6% (up 3.4%).
• Transports advanced 2.7% (up 17.1%)
• Banks gained 2.3% (up 39.3%),
• Broker/Dealers jumped 2.9% (up 29.4%)
• With bullion gaining $4, the HUI gold index rallied 5.4% (down 19.7%).

Highlights – Europe Stocks

• U.K.’s FTSE equities index gained 1.0% (up 9.8% y-t-d).
• France’s CAC40 added 0.6% (up 18.2%).
• German DAX equities index increased 0.3% (up 10.8%).
• Spain’s IBEX 35 equities index rallied 1.8% (up 10.9%).
• Italy’s FTSE MIB index recovered 1.7% (up 17.2%)

Germany’s benchmark Blue Chip DAX 30 index (Deutscher Aktienindex) expanded to 40 companies on 20 September adding 10 new members to the German stock index from the MDAX which will be reduced from 60 to 50 members.

 Highlights – Asia Stocks

• Japan’s Nikkei Equities Index dropped 2.5% (up 2.2% y-t-d)
• South Korea’s Kospi index dropped 2.1% (up 2.9%).
• India’s Sensex equities index jumped 2.2% (up 25.8%).
• China’s Shanghai Exchange rallied 0.7% (up 3.4%).

 Highlights – Australian Stocks

Australia’s S&P/ASX200 finished at 7320.1, up 1.9% for the week.

BHP posted gains of more than 3% Friday. Macquarie analysts highlighted in a note that they expect met coal to rise from around 11 per cent of earnings over the past 5 years to as much as 26 per cent of BHP’s earnings by 2023 based on current spot prices.

Energy stocks finished 1% on Friday with Morningstar analysts suggesting this sector is the only segment of Australian equities which is currently undervalued.

 Highlights – Emerging Markets Stocks 

• EM equities soft.
• Brazil’s Bovespa index was little changed (down 5.2%),
• Mexico’s Bolsa was about unchanged (up 16.0%)
• Turkey’s Borsa Istanbul National 100 index slipped 0.2% (down 5.3%).
• Russia’s MICEX equities surged 3.9% (up 28.9%).

IPO and SPAC mania having break but remains in full force.

Stock valuations, as measured by forward price-to-earnings ratios are near their highest level since the 2000 dot-com boom.

Biggest SPX Stock Winners and Losers Last Week

 S&P 500 Index Technical Analysis via @KnovaWave

SPX showed impulse in 3 to the bottom of the daily cloud after it broke the Tenkan after rejected top channel. From the there bounced with impulse to channel re-catch. We watch if this low was a (a) or C Will determine if sharp ABC completed to all time highs around +2/8. We have to respect the number of alternatives of degree of 5. With such trends keeps it simple support is Tenkan and Kijun and watch for ABC. No fear is the driving element

The break up was from above the 200dma. The balance from sharp reversal after the initial 3 wave down from the SPX wave 5 extension as Covid19 fed impulse accelerated under the tenkan. From there we had seen the ABC or 1-2-3 spinning around the 61.8% of the move. Support began at the October 2019 lows. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in

After #SPX failed to break weekly highs it reversed to test recent break up at Tenkan. Each new high has evolved after testing Tenkan key support. We had a false break to close back over for the week, we watch for a spit of a spit otherwise ATH Look for failure if that doesn’t hold. Extensions are difficult to time, keep it simple. #ES_F #SPY

Key for the impulse higher was the spit or retest of MM 8/8 and Tenkan San, which held with the previous highs and Tenkan.  To repeat  “We look for 3 waves down and reactions to keep it simple with the alternatives in the daily.”  Keep an eye on the putcall ratio with recognition to the sheer size of contracts AND keep in mind the stimulus distortion. The spit per channel fractal and Adams rule launched back over the cloud where we were encased AND we are back testing it. Watch if a spit or clear break support as chickou rebalances

A reminder that Apple Inc $AAPL, Microsoft Corp $MSFT, Amazon.com Inc $AMZN, Facebook Inc $FB, and Google-parent Alphabet Inc $GOOGL make up approximately 23% of the total weight of the S&P 500. With that comes gyrations that are an outsized impact on broader markets.

 NASDAQ 100

Nasdaq tested and rejected to top of the upward channel to test the consolidation triangle. Support Tenkan to Kijun which has helped fuel the more extreme moves. Watch Chikou for divergence for continuation or failure. Divergence with Russell also a clue.

Russell 2000

 The small cap Russell RUT has been developing a large flag which it spat though last week, only to close above the Tenkan. We need Kijun to close thru to get power to retest highs. Support the cloud should it fail.

Semiconductors SMH

The Semiconductor segment represented by $SMH cleanly with Murray Math levels & Tenkan keys. Previous high above +4/8 and Chikou rebalance patterning. Powered by Kijun spit to as the reaction from above reverted with the retest at triple top patterning. Reaction from above reverted with $TSM $NVDA $ASML $AMD $QCOM $AVGO $TXN $INTC $AMAT $LRCX mainly pushing up

NVidia $NVDA

Following the announcement of NVDA 4/1 split some levels off the energy break. NVidia hasn’t looked back since the $NVDA 4/1 split, We saw a power move off the $200 retest (old $800)! It is a clear leader of #SOX #SMH look for cues there and ABC failures for changes.

Apple $AAPL

Apple’s Friday dump appears to be a healthy rinse on the weekly. Support from previous highs, resistance is ATH. Potential impulse from upcoming #AppleEvent Remember the impact $AAPL has, at least short term on all the major indices.

Amazon $AMZN

Amazon high locked at Kijun seems …MM +3/8 and from there has built a large weekly flag after failing near the previous high. Watch Tenkan through Kijun for a bigger move down. Support is weekly cloud and resistance previous flag and Tenkan.

ARKK ETF

The $ARKK ETF trading clinically, tested triangle breakdown & Tenkan after bouncing off 50 WMA. Support cloud, needs to clear Tenkan to test Kijun for bulls. We saw ATH in Nasdaq and #SPX and a big week for #RUT – needs to flow through to #ARK to break up soon rather than later.

US Stocks Watch

Earnings Week Ahead

This three-month period is the second to be compared to year earlier profits that were affected by the pandemic. According to Refinitiv, earnings for the second quarter are looking to be up 78.1%. With the US stock markets at record highs the downside to increasing profit expectations is the potential for some disappointments and that could cause adverse or stalled markets potentially.

Investors (and algos) will focus on the conference calls and outlooks. Last quarter everyone expected the worse, we saw critical updates on production in coronavirus impacted regions and if there is extended halting of operations weighing on multi-nationals. 

Last week we heard from:

SNP China Petroleum Chemical HIVE Hive Blockchain GREE Greenidge Generation KRT Karat NAPA Duckhorn CMTL Comtech Telecommunications PEP PepsiCo TSCO TSCDY Tesco STZ Constellation Brands LEVI Levi Strauss & Co RPM RPM International AYI Acuity Brands LW Lamb Weston Holdings Inc AONNY Aeon CAG Conagra Foods HELE Helen Of Troy ASXFY ASX ADR

This week we hear from:

Monday starts us off with

• Earnings:
• Analyst meeting:

Tuesday with Earnings from

• Earnings:

Fastenal

• Analyst meeting:

Wednesday Earnings Include

• Earnings:

JPMorgan Chase, BlackRock

• Analyst meeting:

Thursday Earnings Include

• Earnings:

Bank of America, Morgan Stanley, Citigroup, Walgreens Boots Alliance, Wells Fargo, Domino’s Pizza, U.S. Bancorp, UnitedHealth

• Analyst meeting:

Friday Earnings include

• Earnings:

Goldman Sachs, J.B. Hunt, PNC Financial

• Analyst meeting:

These are the highlighted earnings for the US this week. Please check daily schedules for more reports.

“U.S. companies are rushing to cash in on soaring stock prices. It isn’t just the white-hot market for initial public offerings. Companies are returning to the public markets to issue shares and raise cash from investors at the same time that existing shareholders are tapping the public market to unload their stockholdings at a record clip. Companies including Zoom Video Communications Inc. and Norwegian Cruise Line Holdings Ltd. have sold billions of dollars of shares this year… There have been 556 follow-on offerings, or stock sales by companies or existing shareholders, among U.S. companies this year, the most since 1996, according to Dealogic… They have raised a total of $133 billion. Behind the boom in share issuance? An ascendant stock market.”  August 25 – Wall Street Journal (Gunjan Banerji):

IPO Wrap

Healthcare and Canadian crosslistings lead an 8 IPO week

Eight IPOs joined the public market this past week, joined by ten SPACs. Two companies postponed, both citing market conditions: fitness equipment brand iFIT Health & Fitness (IFIT) and drug developer AEON Biopharma (AEON). New filers continued to flood the pipeline, with 22 IPOs and 12 SPACs submitting initial filings.

Canada-listed Nuvei (NVEI) raised $369 million at a $17.5 billion market cap. Nuvei is a global provider of payment technology solutions to merchants and partners in North America, Europe, Asia Pacific, and Latin America. Its technology platform allows merchants and partners to securely accept payments in over 200 markets worldwide with local acquiring in 45 markets and nearly 150 currencies. Nuvei finished up 7%.

Alzheimer’s biotech Cognition Therapeutics (CGTX) upsized and priced at the midpoint to raise $45 million at a $304 million market cap. Cognition’s lead program, CT1812, is a small molecule antagonist designed to penetrate the blood-brain barrier and bind selectively to the S2R complex. CT1812 is currently in enrolling patients in a Phase 2 trial in patients with mild-to-moderate Alzheimer’s disease. Cognition finished up 6%.

Biotech Theseus Pharmaceuticals (THRX) upsized and priced at the high end to raise $160 million at a $660 million market cap. Theseus’ lead candidate is a pan-variant inhibitor of all major classes of activating/resistance mutations of the KIT kinase for of gastrointestinal stromal tumors (GIST). The company recently submitted an IND for advanced GIST and plans to initiate a Phase 1/2 trial between late 4Q21 and mid 1Q22. Theseus finished up 5%.

Canada-listed Tricon Residential (TCN) raised $446 million at a $3.3 billion market cap. Tricon is a residential real estate company primarily focused on owning and operating rental housing in the US and Canada. The company owns and operates one of the largest portfolios of single-family rental homes in the Sun Belt, with approximately 25,000 homes in 19 markets across 10 states. Tricon finished up 3%.

Fitness chain Life Time Group Holdings (LTH) downsized and priced at the low end to raise $702 million at a $3.6 billion market cap. Taken private in 2015, Life Time operates more than 150 “centers” across 29 US states and one province in Canada, serving nearly 1.4 million individual members as of 7/31/21. The company was hit hard by the pandemic, and the membership rebound it has seen in 2021 may be slowing. Life Time finished down 4%.

Tumor biotech Pyxis Oncology (PYXS) upsized and priced at the high end to raise $168 million at a $562 million market cap. Pyxis is developing a broad portfolio of novel ADC candidates and mAb preclinical discovery programs for difficult-to-treat solid and hematologic tumors. The company anticipates submitting INDs for two of its ADC candidates by mid-2022, and another candidate by 2023. Pyxis finished down 18%.

Proteomics platform IsoPlexis (ISO) priced at the midpoint to raise $125 million at a $648 million market cap. IsoPlexis believes its platform is the first to employ both proteomics and single cell biology to characterize and link cellular function to patient outcomes. While it is still in the very early stages of commercialization, the company’s customers include the top 15 global biopharmas and nearly half of the comprehensive cancer centers in the US. IsoPlexis finished down 23%.

The week’s best performer, micro-cap Volcon (VLCN) priced at the high end to raise $17 million at a $123 million market cap. Founded in 2020, the company currently offers two off-road motorcycles, and had expected to begin making deliveries in the third quarter. It plans to expand its offerings with a UTV in 2022, followed by a high-performance long-range UTV in 2023. Volcon finished up 66%.

Ten SPACs raised $1.7 billion this past week led by Enphys Acquisition (NFYS.U), which raised $300 million to acquire a renewable energy business in Ibero-America.

US IPO Week Ahead:

Software, payments, telecom towers, and more in an 8 IPO week

The Fall IPO market is expected to stay busy with eight IPOs schedule to raise $1.9 billion in the week ahead.

Software development platform GitLab (GTLB) plans to raise $598 million at a $9.4 billion market cap. This founder-led company provides an end-to-end DevOps platform to accelerate the software development cycle from weeks to minutes and enable rapid, continuous updates. Although it competes with large players, Gitlab has delivered strong revenue growth and net retention.

B2B payments platform AvidXchange (AVDX) plans to raise $528 million at a $4.7 billion market cap. This SaaS provides an end-to-end billing and payment software platform to over 7,000 mid-market businesses. Avidxchange is growing but highly unprofitable with negative cash flow.

IHS Holding (IHS) plans to raise $506 million at a $7.6 billion market cap. This telecom giant is Africa’s largest independent operator and developer of shared telecom infrastructure, operating over 30,000 towers across five countries in Africa. Growing and profitable, IHS is the largest tower operator in six of the nine markets in which it operates.

Orthopedic medical device company Paragon 28 (FNA) plans to raise $125 million at a $1.3 billion market cap. This medical device company is developing orthopedic implants and related medical devices for foot and ankle ailments. Growing and profitable, Paragon 28 offers a suite of surgical solutions with over 7 product systems and approximately 8,700 SKUs.

Medical diagnostics company Lucid Diagnostics (LUCD) plans to raise $75 million at a $575 million market cap. This company makes diagnostic tests for esophageal precancer and cancer in gastroesophageal reflux disease (GERD) patients. Lucid Diagnostic states that its lead product is the first and only commercially available screening tool to prevent esophageal adenocarcinoma through early detection.

ADHD drug developer Cingulate (CING) plans to raise $50 million at a $225 million market cap. Its two candidates, CTx-1301 and CTx-1302, are being developed for the treatment of ADHD. The company announced positive results from a Phase 1/2 study of CTx-1301 in October 2020, and plans to initiate Phase 3 trials in the 4Q21 with results expected in late 2022.

Managed health plan provider Marpai (MRAI) plans to raise $25 million at a $142 million market cap. Marpai provides and manages a health plan platform for self-insured employers that pay for their employees’ healthcare benefits. Growing but highly unprofitable, this health plan platform uses AI to predict costly events to optimize employee care and employer savings.

Dermatological drug spinoff Biofrontera (BFRI) plans to raise $18 million at a $66 million market cap. This pharmaceutical company commercializes dermatological drugs, specifically ones used to treat diseases caused by sunlight exposure that results in skin damage. Biofrontera’s principal product, Ameluz, is currently approved by the FDA for use in treating actinic keratosis.

Part B : Bond Markets

Highlights – Treasuries

Why the angst in the bond market?

The After the FOMC presented new economic projections including a forecast of 6.5% for gross domestic product this year with PCE inflation going to 2.4% this year, but falling to 2% next year. Powell reiterated that the Fed sees only a temporary pickup in inflation this year because of the base effects against last year’s numbers when prices fell. The Fed will target an average range of inflation around 2%, meaning it could exceed that threshold for some time which is a change to the Fed’s ground rules. The majority of Fed officials did not see any interest rate hikes through 2023.

What concerns bond holders and impacts stocks over the past weeks is the Fed appears to be too Blaise about inflation. This view got added weight when crude oil hit the highest prices since 2019 after OPEC decided to stay pat on production for April. But since then Crude has fallen over 12% in just a week from those highs. Hence why Powell has said “We’re going to wait to see signs of actual inflation or the appearance of other risks that could threaten the achievement of our goals. And we’ve seen that the economy can sustain exceptionally low levels of unemployment without inflation.”

There is a view that Powell also refuses to be dictated to and set the bond bullies up for failure. The V reversal this month suggests that. Air needs to come out of the market, particularly Tech, this is best illustrated by the ARK Funds and Semi-Conductor SMH ET’s (see below). From here we have another massive $1.9 Trillion stimulus. Is that enough to keep asset prices elevated, hard to fight the Fed and that kind of cash floating around. Watch the argument from analysts that higher yields mean the economy is growing, stocks are value versus hyperinflation is on its way.

Raise your eyes and look at the stopped car in front of you you may want to hit the brakes.The pandemic is not close to our greatest worry, nor is energy it seems. The  runaway credit bubble in the era of delusion and entitlement has multiple unintended consequences or are they intended? The stockmarket has lost rationality  the danger is should the bubble pop the consequences of a historic debt crisis in a deeply divided nation and unprepared social and geopolitical backdrops could be earth shattering as the Fed disregards asset inflation and bubble dynamics.

Investment-grade bond funds saw outflows of $2.537 billion, and junk bond funds posted negative flows of $294 million (from Lipper).

• Three-month Treasury bill rates ended the week at 0.045%.
• Two-year government yields jumped six bps to 0.32% (up 20bps y-t-d).
• Five-year T-note yields rose 13 bps to 1.06% (up 72bps).
• Ten-year Treasury yields surged 15 bps to 1.61% (up 70bps).
• Long bond yields jumped 14 bps to 2.17% (up 52bps).
• Benchmark Fannie Mae MBS yields rose 14 bps to 2.05% (up 71bps).

All good while markets hold up but take note that the loosest financial conditions in history have supported a record $1.4 trillion of corporate debt issuance. While easy credit availability has supported economic activity,  funding new investment whilst keeping vulnerable companies afloat. THe combination of urban shifts through virus and riots fears has fueled a booming MBS market and record low mortgage rates pushing strong housing markets into Bubble risk territory.

Highlights – Mortgage Market

Unprecedented cash payments by the U.S. government to households, changing consumer preferences and lowest mortgage rates in history have fueled a pandemic boom in housing, the fastest pace of increase on record in data from 1988 and prices surpassing the peak from the last property boom in 2005. The S&P CoreLogic Case-Shiller U.S. National Home Price Index rose 14.6% in the 12 months through April, according to the latest available numbers, marking the fastest pace of increase on record in data from 1988.

• Freddie Mac 30-year fixed mortgage rates slipped two bps to 2.99% (up 12bps y-o-y).
• Fifteen-year rates fell five bps to 2.23% (down 14bps).
• Five-year hybrid ARM rates rose four bps to 2.52% (down 37bps).
• Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down five bps to 3.15% (up 7bps).

Highlights – Federal Reserve

• Federal Reserve Credit last week declined $9.3bn to $8.416 TN. Over the past 108 weeks, Fed Credit expanded $4.689 TN, or 126%. Fed Credit inflated $5.605 Trillion, or 199%, over the past 465 weeks. 
• Fed holdings for foreign owners of Treasury, Agency Debt last week declined $6.6bn to $3.478 TN
•  “Custody holdings” were up $68bn, or 2.0%, y-o-y.
• Total money market fund assets declined $13.2bn to $4.531 TN.
• Total money funds increased $148bn y-o-y, or 3.4%. Total Commercial Paper fell $9.5bn to $1.175 TN. CP was up $211bn, or 21.9%, year-over-year.

We do know we have massive speculation pockets, viz a viz the Meme or GameStop, Weed stocks and cryptocurrency spectacles in just the matter of weeks. The Fed is today throwing additional fuel on historic speculative manias.

The Fed QE infinity programme is a yield curve control policy with long government bond yields coming down. Bond supply and continued central bank resistance to more negative policy rates limits the move. Central banks have been cutting rates and adding liquidity to avoid systematic failure.

Highlights – European Bonds

• Greek 10-year yields gained six bps to 0.89% (up 27bps y-t-d). Ten-year Portuguese yields rose six bps to 0.38% (up 35bps). Italian 10-year yields increased six bps to 0.88% (up 33bps). Spain’s 10-year yields jumped seven bps to 0.49% (up 44bps). German bund yields rose seven bps to negative 0.15% (up 42bps). French yields gained seven bps to 0.19% (up 53bps). The French to German 10-year bond spread was unchanged at 34 bps. U.K. 10-year gilt yields surged 17 bps to 1.16% (up 93bps). U.K.’s FTSE equities index gained 1.0% (up 9.8% y-t-d).

Highlights – Asian Bonds

• Japanese 10-year “JGB” yields gained three bps to 0.09% (up 7bps y-t-d)

Part C: Commodities

Highights

• The Bloomberg Commodities Index gained 1.7% (up 31.5% y-t-d).
• WTI crude surged $3.47 to $79.35 (up 64%).
• Gasoline jumped 5.2% (up 68%),
• Natural Gas slipped 1.0% (up 119%). Copper gained 2.1% (up 22%).
• Wheat dropped 2.8% (up 15%).
• Corn fell 2.0% (up 10%).
• Bitcoin gained $5,705, or 11.8%, this week to $54,106 (up 86%).

Risk markets continue to respond to a Conronvirus outbreak and failed negotiations between Congress and the White House over an additional economic stimulus package to boost economic demand.

U.S. producers production still under pre Laura levels.

Higher crude prices prompt some U.S. producers start drilling again with rigs up for the ninth week in a row.

BDI Freight Index

• The Baltic Exchange Dry Index rose 0.7% to 5,202 on Friday, its highest level since September of 2008. The Baltic Dry Index gained 12% on the week and about 53% in the third quarter of 2021, largely driven by high iron ore exports and abundant coal imports along with shipping constraints, in particular congestion in China.
• The capesize index, which tracks iron ore and coal cargos of 150,000-tonnes, went up 1.4% to 9,066, also scaling a 13-year peak; 
• Panamax index which tracks cargoes of about 60,000 to 70,000 tonnes of coal and grains, dropped 0.5% to 3,992.
• Among smaller vessels, the supramax index edged up 1 point to 3,383. Source: Baltic Exchange

Copper

Copper rebounded sharply off the 50wma pulled up by the flattening Tenkan and Kijun to close right at the channel break – a key juncture. #HG shrugged off demand concerns from resurgence in Covid-19 supply disruptions. The power spits of +8/8 and +2/8 were rebalanced by the Tenkan breaking the Kijun with 50wma and cloud below. Copper had been a leader in the risk on movement for commodities.

 Corn

 Lumber

Soybeans

Soybeans keep hitting weekly lows well into weekly cloud and well under 50wma. – Ahead of USDA’s October #WASDE report analysts expect higher 2021 production from 4.374 billion bushels in September up to 4.415 billion bushels. – Watch for impulse

US Crude Oil (WTI)

4 Hour:: WTI stayed above the cloud and after testing the old channel break soared to new highs. This is a market that is reflective of fear and greed, note the rection when Kijun and Tenkan cross or touch and the rebalance of the Chikou to close the week. Continue to watch Kijun reactions and Murrey Math confluence.

Daily: WTI Price action is potent, indicative of 3rd wave energy highlighted by the violent spit of the tenkan to new highs.  Important to grasp the move continued from last week’s WTI completing its correction of the May breakup in 3 waves (or X) Rebounded from daily cloud twist to close back at Chikou. Support Tenkan, 50dma and Kijun, fractals continue with oil.

The key is crowd behavior to help tell the story which in energy is often around geopolitics. A great example of why we watch ABC corrections and from here we get the energy from the break being balanced. This move that was powered by 50 dma Tenkan spit of a spit – hence the fractal energies reverberations. Support is previous lows, Murrey Math levels and Fib cluster. Support is the 50dma, kijun, tenkan and prev high confluence. ;

Weekly:  Oil did a measured move to our long term 61.8% target fueled by that ABC bull flag after the rebalanced Chikou indicative of crowd behavior and 50% fib failure at 70.29 over 7/8. The weekly Tenkan gives us a clearer view of the rally off the clear ABC off 50wma and the acceleration and recapture of Tenkan and Kijun. We watched 3 and 5 waves develop. Support below at Kijun and 50 wma. It must retain this energy to take out new high

These are special times, recall “After we regained the pattern 261.8% from the extreme (-$40) move. The climax of the larger acceleration lower after broke the weekly uptrend, a fractal of the sharp and all the way to all time lows to negative pricing we have seen mirror replications.” Support is previous channels, tenkan and Kijun. Above we have Murrey Math time and price 

US Natural Gas (Henry Hub)

4 Hour::  Natural gas spitting to +8/8 than +1/8 240 before retreating in 3 waves to spit violently the 50 4hr ma stayed above the cloud until the completive 5 and back in the channel in a continuation pattern since regaining the 240 cloud to rebalance the Chikou to close the week. Continue to watch Kijun reactions and Murrey Math confluence.

Daily: US Natural Gas spat the daily 8/8 in a classic euphoria wave 5 to comeback to test Kijun and bounce between it and tenkan the power came from a  corrective ABC pennant of a (IV).  Notice the fractals of the move after completing the C of 4 bullish scenario has played out the consolidation phase since it completed its IV ( Bull Case) last year since then a series of 3 waves. Should the highs be a (iii) looking at possibilities we have the 161.8% at 7.026 if we get ‘silly’ 50dma support.

Like the larger wave on the way up it accelerated through previous highs (flat topped triangle energy) and over the resistance at 8/8 and new highs. We successfully tested that break in a pennant ABC. Previous highs (flat topped triangle energy) and 8/8 and new highs underscore the structure that fed the move and is key longer term.

Weekly:  Natural gas continued to it’s major target, the double top potential from 2014 which equated nicely to over 8/8 Weekly and showed true impulse off that to rebalance Chikou.  It’s now a question of degree, 3 or 5?  Impulse just shy of the 8/8 and Tenkan confluence.  Recall the impulse wave powered from the spit of 50wma to get over weekly Kijun and Tenkan.  This was energised  with a series of fractals between old 38 and 50% channel, as you would expect in a seasonal commodity with weather a prime mover. Resistance is Fib/Murrey confluence, support Tenkan, Kijun – as always count your ABC’s

Key Energy Reports

Into The Vortex – EIA Reports Build of 49 Bcf in Natural Gas Inventories

Around The Barrel – Crude Stocks at Cushing Lowest Since Jan 2020

Halliburton Earnings Rise as Multi Year Upcycle Unfolds

UAE and Saudi Arabia Reach Compromise For OPEC+ To Boost Oil Production

OPEC Monthly Oil Market Report June 2021

Precious Metals

Highlights

• Spot Gold slipped $4 to $1,757 (down 7.5%).
• Silver recovered 0.6% to $22.68 (down 14.1%).

Gold

Gold vulnerability remains, hanging on at base of weekly cloud after another rejection of the tenkan, Kihun and 50wma after wave (ii) alt gains favor. Still listless after manic rise to +5/8 weekly rebalance of Chikou in 5 waves. To be bullish we would need to get and stay above the cloud. Murrey Math resistance, watch Fibs & Chikou.

Silver

Silver is back at the cloud spitting 50wma providing support after reversed with a double top. The weekly Tenkan crossing the Kijun signaled downside and is now resistance. Major support is the 50wma
 

Part D: Forex Markets

John Maynard Keynes, 1920: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Highlights

• For the week,the U.S. Dollar Index was little changed at 94.07 (up 4.6% y-t-d).
• Majors for the week on the upside, the Canadian dollar increased 1.4%, the Australian dollar 0.7%, the British pound 0.5%, the Swiss franc 0.4%, For the week on the downside, the Japanese yen 1.1%, the euro 0.2%
• Minors for the week For the week on the upside the Norwegian krone 1.1%, the Singapore dollar 0.2%, and the Swedish krona 0.1%. For the week on the downside, the Brazilian real declined 2.6%, the Mexican peso 1.2%, the South Korean won 0.6%, and the New Zealand dollar 0.1%. The Chinese renminbi was little changed versus the dollar (up 1.30% y-t-d)..

Australian Dollar – AUDUSD

The Aussie dollar has corrected in 3 waves since completing a 5 at the pysch 80 level and it back break retest of wave 1 and the weekly cloud as one would expect after it completed 5 waves in emotive fashion. The Australian dollar fell to its lowest value since December under 73 US cents. Resistance the Tenkan and Kijun like many commodities. The AUDUSD old three year high of 0.7820 from January 6 is a key option energy point playing out.

New Zealand Dollar – NZDUSD

The Kiwi mirrored the AUD in its wave (iii) spit and has corrected at the cloud much of the FOMO muster wave and retested the 50% Fib & 4/8 confluence. Kijun and Tenkan Resistance, which is pivotal. Support previous break spits.

Canadian Dollar – USDCAD

The Loonie is holding the tenkan after a 3 year high in June and corrected that in 3 waves led by the AUD and NZD. #oil price impacting direction. Watch flat Kijun and Tenkan at -1/8. Use Fibs for support and resistance.

Euro – EURUSD

Euro continues to correct in what seems like eternal flags in the channel. We watch if Kijun (pink) testing Tenkan (orange) creates any impulse as #EURUSD consolidates in the cloud. Watch 3 waves to see development for continuation. Watch for impulse off Chikou rebalance. Again governed by EURGBP and Bund volatility.

British Pound – USDGBP

British pound classic retest of daily cloud break with magnet pull of cloud twist after ABC correction – will need Tenkan to break through Kijun for more strength. The upcoming week will be heavy on UK data, which could mean an eventful week for the British pound.

EuroPound – EURGBP

Back testing tenkan in a C or 3 after inconclusive X – symbolic of BREXIT? Kijun, 50wma and clouds resistance.

Japanese Yen – USDJPY

USDJPY continues to test wave i after the recent weakness with Treasury yields. The 108.00 level should remain massive support for dollar-yen. Any change will come from the weekly Kijun as it breaks through the old channel. Use your #USDJPY Murrey 4/8 8/8 grid for now. #EURJPY #AUDJPY will determine risk on/off

 Mexican Peso USDMXN

The Peso continues in the long triangle and consolidated despite outside uncertainty from oil and COVID19. Use the Gann octave and the extension fibs to help measure the noise.

Turkish Lire USDTRY

The Turkish Lire after falling in 5 waves closed under the Tenkan with the weekly cloud Kijun and 50wma below. The cloud and gap below offer targets with resistance tankan and USDTRY highs.

Bitcoin

Bitcoin corrected impulsively since completing 5 waves up at +2/8 Each Tenkan and Kijun tap saw an explosive kiss of death until we completed 3 waves to around 28,000. From there we saw extreme volatility. Bitcoin put in a high of $63,000 around Coinbase, the largest US crypto exchange successfully went public which signaled profit-taking . (Recall what happened after the CME and CBOE futures starts). From that high we have 2 alternatives a iii of a 1 down or (C) of IV meaning the recent high was a (ii) or 1 of a (v)

We have seen what you would expect from a 5 wave impulse peak, a violent correction or completion. Use Murrey Math levels for corrections and targets as algos control the herd here, support is the cloud and sharp ABC, 1-2 moves.

On the Risk Radar

Fed Warnings on Possible Medium To Long Term Risks

Geopolitical Tinderbox Radar

Economic and Geopolitical Watch

Job Losses

Each Thursday the Labor Department reports high numbers of Americans that applied for unemployment benefits.  With the Covid shutdown we lost over 22 million jobs in March and April. Still a huge shortfall in jobs, and the big question is will they come back?

US Politics

• October 6 – Associated Press (Alan Fram): “President Joe Biden and congressional Democrats’ push for a 10-year, $3.5 trillion package of social and environmental initiatives has reached a turning point, with the president repeatedly conceding that the measure will be considerably smaller and pivotal lawmakers flashing potential signs of flexibility. In virtual meetings Monday and Tuesday with small groups of House Democrats, Biden said he reluctantly expected the legislation’s final version to weigh in between $1.9 trillion and $2.3 trillion… He told them he didn’t think he could do better than that…, reflecting demands from some of the party’s more conservative lawmakers.” October 4 – CNBC (Amanda Macias): “U.S. Trade Representative Katherine Tai slammed China’s unfair trade practices and vowed to protect U.S. economic interests…, adding that the Biden administration will rally allies in order to push back on the world’s second-largest economy. ‘Our objective is not to inflame trade tensions with China,’ Tai said… ‘But above all else, we must defend to the hilt our economic interests and that means taking all steps necessary to protect ourselves against the waves of damage inflicted over the years through unfair competition,’ said Tai, the nation’s top trade official.” October 5 – Wall Street Journal (Paul Kiernan and Dave Michaels): “Wall Street’s new overseer has outlined an aggressive regulatory agenda that threatens to squeeze the financial industry’s profit margins. Securities and Exchange Commission Chairman Gary Gensler is working on tougher rules for high-speed trading firms, private-equity managers, mutual funds and online brokerages. Mr. Gensler… says he wants to make the capital markets less costly for companies raising money as well as for ordinary investors saving for retirement. His main targets are what he says are profits and salaries earned above what a purely competitive market would allow, known as economic rents. ‘I hope that we address, and try to lower, the economic rents in our capital markets,’ Mr. Gensler said. He noted that finance as a share of U.S. economic output had more than doubled since the 1950s to roughly 8% of today’s gross domestic product. ‘If we ever got back to what it was,’ he said, ‘that’s a lot of savings.’”

The virus and psychological affect on domestic and trade relationships have impacted growth strategies with unexpected consequences   In a  fully fledged stock mania, nothing matters until it does. That is the feral nature of greed.

Drought Watch

September 1 – Reuters (Gabriel Stargardter and Lisandra Paraguassu): “Brazilian Vice President Hamilton Mourao said… a severe drought could lead to energy rationing in Brazil, contradicting other officials who have said that such a step would not be necessary. Brazil, one of the world’s agricultural superpowers, is suffering from one of its worst droughts in a century. The lack of rainfall has emptied hydroelectric reservoirs, fanned inflation and hurt farmers. The government has given incentives to use less energy but says rationing is not expected. ‘There may have to be some rationing,’ Mourao told reporters in Brasilia, although he said the government had taken necessary measures to prevent blackouts.”

August 24 – Wall Street Journal (Kirk Maltais): “Drought is blistering key U.S. cash crops, further elevating prices for staples including corn and wheat. The punishing dynamics of a torrid summer were evident this month on the Pro Farmer Crop Tour… Driving along state Route 14 outside of Verdigre, Neb., Randy Wiese turned to see a farmer harvesting hay. The piles were small. ‘That farmer is sick to his stomach,’ said Mr. Wiese, who farms 800 acres of soybeans and corn… Extreme heat is baking most of the U.S. North Dakota, South Dakota, Minnesota, Iowa and Nebraska all contain areas of extreme drought… North Dakota and Minnesota, in particular, are experiencing near-record lows in soil moisture… As a result, many crops planted this spring are wilting. Some 63% of the U.S. spring wheat crop is in poor or very poor condition, versus 6% at this time last year…”

August 23 – Bloomberg (Lauren Coleman-Lochner): “The extreme drought that has gripped much of the western United States has shriveled crops, stoked wildfires, and drained reservoirs across several states. According the U.S. Drought Monitor, more than 60 million people are currently living under drought conditions in the region. For some cities, lack of water could be a fiscal as well as an environmental disaster: Prolonged droughts are threatening the creditworthiness of local governments, utilities and irrigation districts. According to a new report from S&P Global Ratings…, drought-struck municipalities may generate less income from their water systems because there’s less to sell or they may have higher costs to provide adequate supplies.”

August 8 – Axios (Rebecca Falconer): “More than 100 large wildfires are burning across nearly 2.3 million acres of the U.S. West, as forecasters warn Americans to brace for another extreme heat wave this week. Driving the news: ‘Widespread air quality alerts and scattered Red Flag Warnings stretch from the Northwest and Northern Rockies to the High Plains, as well as throughout parts of central California,’ the National Weather Service said…”

August 11 – Associated Press (Nicholas K. Geranios): “The wheat harvest on Marci Green’s farm doesn’t usually begin until late August, but a severe drought stunted this year’s crop and her crews finished harvesting last week because she didn’t want what had grown so far to shrivel and die in the heat. It’s the same story across the wheat country of eastern Washington state, a vast expanse of seemingly endless stretches of flatlands with rolling hills along its edges that produces the nation’s fourth largest wheat crop. It’s been devastated by a drought the National Weather Service has classified as ‘exceptional’ and the worst since 1977. ‘This is definitely the worst crop year we have had since we started farming 35 years ago,’ said Green, whose family is the sixth generation on the same farming land just south of the city of Spokane.”

July 24 – Bloomberg: “Extreme weather is slamming crops across the globe, bringing with it the threat of further food inflation at a time costs are already hovering near the highest in a decade and hunger is on the rise. Brazil’s worst frost in two decades brought a deadly blow to young coffee trees in the world’s biggest grower. Flooding in China’s key pork region inundated farms and raised the threat of animal disease. Scorching heat and drought crushed crops on both sides of the U.S.-Canada border. And in Europe, torrential rains sparked the risk of fungal diseases for grains and stalled tractors in soaked fields.”

June 4 – CNBC (Emma Newburger): “Nearly three-fourths of the U.S. West is grappling with the most severe drought in the recorded history of the U.S. Drought Monitor, as hot and arid conditions are set to exacerbate the threat of wildfires and water supply shortages this summer. Parts of California, Nevada and Washington experienced sweltering triple-digit temperatures over the past week amid the drought… Conditions this spring are much worse than a year ago. In fact, nearly half of the continental U.S. is in a moderate to exceptional drought, marking the most significant spring drought in the country since 2013, according to… the National Oceanic and Atmospheric Administration.”

June 10 – Reuters (Andrea Januta and Daniel Trotta): “The reservoir created by Hoover Dam… has sunk to its lowest level ever, underscoring the gravity of the extreme drought across the U.S. West. Lake Mead, formed in the 1930s from the damming of the Colorado River at the Nevada-Arizona border about 30 miles (50 km) east of Las Vegas, is the largest reservoir in the United States. It is crucial to the water supply of 25 million people including in the cities of Los Angeles, San Diego, Phoenix, Tucson and Las Vegas. As of 11 p.m. PDT Wednesday, the lake surface fell to 1,071.56 feet above sea level, dipping below the previous record low set on July 1, 2016.”

June 18 – Wall Street Journal (Katherine Blunt and Jim Carlton): “States across the West are at risk of electricity shortages this summer as a crippling drought reduces the amount of water available to generate hydroelectric power. Some of the region’s largest reservoirs are at historically low levels after a dry winter and spring reduced the amount of snowpack and precipitation feeding rivers and streams. The conditions are especially dire in drought-stricken California, where officials say the reservoir system has seen an unprecedented loss of runoff this spring—800,000 acre-feet, or enough to supply more than a million households for a year.”

June 16 – CNBC (Emma Newburger): “An extreme heat wave gripping the western United States will intensify and spread this week, creating dangerous conditions amid the worst drought in the last two decades and raising concerns about severe wildfires and electrical grid failures. More than 40 million people in the country are forecast to experience triple-digit temperatures this week, and roughly 200 million people are projected to see temperatures over 90 degrees Fahrenheit. More than three-fourths of the West is in severe drought… Temperatures in some areas could surpass 120 degrees, and excessive-heat warnings are in place for several states. Nevada and Arizona are forecast to see record temperatures of 125 and 128 degrees, respectively.”

Global Watch

Hot Spots

• September 16 – Bloomberg: “China slammed a move by the U.S. and U.K. to help Australia build nuclear submarines, saying the new partnership will stoke an ‘arms race’ as tensions heat up in Asia-Pacific waters. Prime Minister Scott Morrison joined with U.S. President Joe Biden and the U.K.’s Boris Johnson… to announce a new security partnership that will see Australia acquire nuclear-powered submarines. While it could take more than a decade for Australia to build one, the agreement shows the U.S. joining with key English-speaking allies to form a more cohesive defense arrangement to offset China’s rising military prowess. The partnership ‘greatly undermines regional peace and stability, aggravates the arms race and hurts the international non-proliferation efforts,’ Chinese Foreign Ministry spokesman Zhao Lijian told reporters… He also questioned Australia’s commitment to forgoing nuclear weapons, and said the U.S. and U.K. were ‘using nuclear exports as geopolitical gaming tool and applying double standards.’”
• September 16 – Reuters (Ben Blanchard and Yimou Lee): “Taiwan proposed… extra defense spending of T$240 billion ($8.69bn) over the next five years, including on new missiles, as it warned of an urgent need to upgrade weapons in the face of a ‘severe threat’ from giant neighbor China. Taiwan President Tsai Ing-wen has made modernizing the armed forces – well-armed but dwarfed by China’s – and increasing defense spending a priority, especially as Beijing ramps up military and diplomatic pressure against the island it claims as ‘sacred’ Chinese territory.”
• September 12 – Financial Times (Henry Foy and Richard Milne): “Russia plans to use war games this week with Belarus to deepen its control over its neighbour’s armed forces and increase its military capabilities on the borders of Nato member states, western defence officials have warned. The seven-day Zapad-2021 exercise, which began on Friday, involves tens of thousands of troops from both countries and conventional and strategic weapons tests to simulate conflict with a western enemy, and comes amid increased pressure from the Kremlin for deeper integration with Minsk. ‘Zapad fits into a broader pattern: a more assertive Russia, significantly increasing its military capabilities and its military presence near our borders,’ said Jens Stoltenberg, Nato secretary-general.”
• September 15 – Reuters (Hyonhee Shin and Josh Smith): “North Korea and South Korea test fired ballistic missiles on Wednesday, the latest volley in an arms race in which both nations have developed increasingly sophisticated weapons while efforts prove fruitless to get talks going on defusing tensions… North Korea fired a pair of ballistic missiles that landed in the sea off its east coast…, just days after it tested a cruise missile that analysts said could have nuclear capabilities. Japan’s defence ministry said the missiles landed inside Japan’s exclusive economic zone (EEZ)…”

Trade Wars

• Trade wars persist between Australia and China. The largest exporter of commodities and the worlds largest importer of commodities. China is experiencing record cold weather and it’s beligerance is hurting shooting itself in the foot. Regional partners such as Japan and India have supported Australia’s standing up to Chinese bullying.
• September 3 – Bloomberg (Jonathan Tirone): “U.S. and European efforts to coax Iran back into nuclear negotiations as soon as this month are being blunted by support the Islamic Republic’s already emboldened leaders are receiving from China and Russia. The result is that three years after former President Donald Trump imposed his ‘maximum pressure’ policy, Iran has enriched uranium close to weapons grade while its economy is showing some signs of stabilizing with the help of Beijing and Moscow, even as crucial oil exports remain heavily sanctioned.”

Coronavirus Fat Tail Virus Risk

• October 4 – Reuters (Manas Mishra): “The effectiveness of the Pfizer Inc/BioNTech SE vaccine in preventing infection by the coronavirus dropped to 47% from 88% six months after the second dose, according to data published… The analysis showed that the vaccine’s effectiveness in preventing hospitalization and death remained high at 90% for at least six months, even against the highly contagious Delta variant of the coronavirus.”September 26 – Reuters (Victor Jack): “The COVID-19 pandemic reduced life expectancy in 2020 by the largest amount since World War Two, according to a study… by Oxford University, with the life expectancy of American men dropping by more than two years. Life expectancy fell by more than six months compared with 2019 in 22 of the 29 countries analysed in the study, which spanned Europe, the United States and Chile. There were reductions in life expectancy in 27 of the 29 countries overall.” September 21 – Associated Press (Carla K. Johnson): “COVID-19 has now killed about as many Americans as the 1918-19 Spanish flu pandemic did — approximately 675,000. The U.S. population a century ago was just one-third of what it is today… But the COVID-19 crisis is by any measure a colossal tragedy in its own right, especially given the incredible advances in scientific knowledge since then and the failure to take maximum advantage of the vaccines available this time.” September 21 – Associated Press (Heather Holligsworth): “COVID-19 deaths in the U.S. have climbed to an average of more than 1,900 a day for the first time since early March, with experts saying the virus is preying largely on a distinct group: 71 million unvaccinated Americans. The increasingly lethal turn has filled hospitals, complicated the start of the school year, delayed the return to offices and demoralized health care workers.”
• Fauci believes 70%-85% of the population must be vaccinated to reach herd immunity.

Banks

The major money cents banks released earnings with many record results for Q1. Mainly from trading and fees from IPO’s and SPAC’s. Rising interest rates also help the bottom line.

Goldman Sachs Trading and SPACs Investment Banking Fees Pull in Record Revenue

Wells Fargo Beat Earnings With $1.05 Billion Reserve Release

JPMorgan Earnings Boosted By Trading and Release of Loan Loss Reserves

Blackrock Earnings Soar As Assets Under Management Rose to Record $9 Trillion

PNC Bank Earnings Beat Ahead of Completing BBVA USA Bancshares Acquisition

Citigroup Beats Earnings on Reserve Release, Exiting Most Consumer Banking in Asia, Europe, and Middle East

Bank of America Earnings Rise With Net Interest Yield and Release of Loan loss Reserves

Morgan Stanley Dealmaking and Trading Drive Record Profits

Banks stocks have benefited from the Federal Reserve partially lifting its hold on share buybacks, saying that banks can resume repurchases in the first quarter of 2021 as long they don’t exceed the average quarterly profits from their past four quarters. The change came after the Fed found that all major banks passed a second round of stress tests, indicating the firms can continue lending to businesses and households even if the economy dipped into a new recession.

Potentially the top six banks can buy back $11 billion in the first-quarter. Goldman Sachs shares after the announcement led the rally with a 7.7% increase. Morgan Stanley and JPMorgan jumped 6.4% and 4.9% at intraday highs. Within minutes of the announcement all three banks have announced plans to resume buybacks in the new year.

Banks are benefiting from the Federal Deposit Insurance Commission intending to ease the Volcker Rule, which restricts banks from making large investments into venture capital. The Volcker Rule was enacted in the wake of the 2008 financial crisis, and the new changes could potentially free up billions in bank capital. Bank stocks rose. otal Non-Financial Debt (NFD) expanded $737 billion during Q3 to a record $60.113 trillion.

Through the first three quarters of 2020, NFD surged an unprecedented $5.740 trillion, or 14.1% annualized. NFD was up $6.181 trillion over the past year (11.5%) and $8.817 trillion (16.7%) over two years. For perspective, NFD expanded on average $1.830 trillion annually over the past decade. NFD has ballooned 71% since the end of 2008.  

“Negative yields on long-dated government securities are more reflective of distorted market conditions than of stronger sovereign credit profiles, Fitch Ratings says. Lower interest service costs support sovereign creditworthiness, but this must be weighed against the impact of the economic conditions leading to lower yields and historically high government debt levels in a number of countries.- Fitch”

The Week Ahead – Have a Trading Plan

Keys this week are the FOMC minutes due Wednesday to see how much “progress” the Fed sees in the US economy and labor market as well as further hints on tapering timing. US consumer prices, retail sales, the preliminary estimate of Michigan consumer sentiment, producer and foreign trade prices, business inventories, JOLTs job openings, NY Empire State Manufacturing Index, and the government’s monthly budget statement.

Third-quarter earnings season will kick off, with big banks including JPMorgan Chase, Goldman Sachs, Bank of America, Wells Fargo, PNC, Citigroup and Morgan Stanley reporting.

The UK jobs report, monthly GDP data, foreign trade, industrial production and construction output. Eurozone industrial output and foreign trade. Germany’s ZEW survey of economic sentiment for October is expected to show investor morale fell for a fifth straight month, holding at the lowest level since the pandemic-fueled drop in March 2020. Other highlights include European Union car registrations; Germany wholesale inflation; Turkey current account, unemployment rate, industrial and retail trade data; Sweden and Norway inflation rates; and Greece unemployment.

In the Asia-Pacific, China will be publishing inflation data, foreign trade figures and monetary indicators for September. Japan releases machinery orders, producer prices and the final reading of industrial output

 Australia employment figures, NAB business confidence and Westpac consumer confidence. New Zealand is scheduled to publish Business NZ PMI and monthly food inflation. India consumer and wholesale prices, and industrial production; South Korea interest rate decision and unemployment rate; Malaysia industrial output and retail sales; and the Philippines trade figures.

Central Banker and Geopolitics Watch speeches, reports and rate moves. 

Monday October 11, 2021

• 21:00 South Korea Interest Rate Decision (Oct)

Tuesday, October 12, 2021

• none seen

Wednesday October 13 2021

• 10:30 GBP BoE MPC Member Cunliffe Speaks
• 14:00 USD FOMC Meeting Minutes
• 18:00 AUD RBA Assist Gov Debelle Speaks

Thursday October 14 2021

• 06:10 GBP MPC Member Tenreyro Speaks
• 10:00 USD FOMC Member Bostic Speaks
• 13:00 USD FOMC Member Barkin Speaks

Friday, October 15, 2021

• 11:00 USD IMF Meetings
• 12:20 USD FOMC Member Williams Speaks

Improvements in some economic indicators, such as home sales, manufacturing activity and  in employment data have bolstered investor confidence and helped extend the rally in stocks. Support in markets comes from the Fed’s balance sheet which has ballooned to $7.2 trillion, and the central bank committed to monthly purchases of $80 billion in Treasury securities and $40 billion in mortgage securities.

Economic Events in the Week Ahead:

Sunday October 10, 2021

• None Seen

Monday October 11, 2021

• All Day Holiday Canada – Thanksgiving Day
• Bank Holiday – Columbus Day – US Bond market closed
• 02:00 JPY Machine Tool Orders (YoY)
• 04:00 EUR Italian Industrial Production (MoM) (Aug)
• Tentative GBP NIESR GDP Estimate
• 10:00 USD CB Employment Trends Index (Sep)
• 11:30 USD 3-Month Bill Auction
• 11:30 USD 6-Month Bill Auction
• 17:45 NZD Electronic Card Retail Sales (MoM) (Sep)
• 19:01 GBP BRC Retail Sales Monitor (YoY) (Sep)
• 19:50 JPY Bank Lending (YoY) (Sep)
• 19:50 JPY PPI (MoM) (Sep)
• 20:00 AUD HIA New Home Sales (MoM)
• 20:30 AUD NAB Business Confidence (Sep)
• 20:30 AUD NAB Business Survey (Sep)
• 21:00 KRW Interest Rate Decision (Oct)
• 23:00 CNY Trade Balance (USD) (Sep)

Tuesday, October 12, 2021

• All Day Holiday Brazil – Our Lady of Aparecida Day
• 02:00 GBP Claimant Count Change (Sep)
• 02:00 GBP Employment Change 3M/3M (MoM) (Aug)
• 02:00 GBP Unemployment Rate (Aug)
• 05:00 EUR German ZEW Current Conditions (Oct)
• 05:00 EUR German ZEW Economic Sentiment (Oct)
• 05:00 EUR ZEW Economic Sentiment (Oct)
• 05:30 ZAR Gold Production (YoY) (Aug)
• 05:30 ZAR Mining Production (Aug
• )06:00 USD NFIB Small Business Optimism (Sep)
• 08:55 USD Redbook (YoY) 16.6%
• 09:00 RUB Trade Balance (Aug)
• 10:00 USD JOLTs Job Openings (Aug)
• 13:00 USD 10-Year Note Auction
• 13:00 USD 3-Year Note Auction
• 17:45 NZD FPI (MoM) (Sep)
• 19:00 KRW Unemployment Rate (Sep)
• 19:00 JPY Reuters Tankan Index (Oct)
• 19:50 JPY Core Machinery Orders (MoM) (Aug)
• 23:00 CNY Trade Balance (USD) (Sep)

Wednesday, October 13, 2021

• 02:00 GBP Construction Output (MoM) (Aug)
• 02:00 GBP GDP (MoM)
• 02:00 GBP Industrial Production (MoM) (Aug)
• 02:00 GBP Manufacturing Production (MoM) (Aug)
• 02:00 GBP Trade Balance (Aug)
• 02:00 EUR German CPI (MoM) (Sep)
• 02:00 EUR German HICP (MoM) (Sep)
• 05:00 EUR Industrial Production (MoM) (Aug)
• 07:00 USD MBA 30-Year Mortgage Rate
• 07:00 USD MBA Mortgage Applications (WoW)
• 07:00 USD MBA Purchase Index
• 07:00 USD Mortgage Market Index
• 07:00 USD Mortgage Refinance Index
• 07:00 USD OPEC Monthly Report
• 08:30 USD Core CPI (MoM) (Sep)
• 08:30 USD CPI (MoM) (Sep)
• 08:30 USD Real Earnings (MoM) (Sep)
• 10:30 GBP BoE MPC Member Cunliffe Speaks
• 11:00 USD Cleveland CPI (MoM) (Sep)
• 13:00 USD 30-Year Bond Auction
• 14:00 USD FOMC Meeting Minutes
• 16:30 USD API Weekly Crude Oil Stock
• 17:00 KRW Export Price Index (YoY) (Sep)
• 17:00 KRW Import Price Index (YoY) (Sep)
• 18:00 AUD RBA Assist Gov Debelle Speaks
• 19:01 GBP RICS House Price Balance (Sep)
• 19:30 AUD Westpac Consumer Sentiment (Oct)
• 19:50 JPY Foreign Bonds Buying
• 19:50 JPY Foreign Investments in Japanese Stocks
• 20:00 AUD MI Inflation Expectations
• 20:00 SGD GDP (QoQ) (Q3)
• 20:00 NZD ANZ Business Confidence (Oct)
• 20:30 AUD Employment Change (Sep)
• 20:30 AUD Full Employment Change (Sep)
• 20:30 AUD Participation Rate (Sep)
• 20:30 AUD Unemployment Rate (Sep)
• 21:30 CNY CPI (MoM) (Sep)
• 21:30 CNY CPI (YoY) (Sep)
• 21:30 CNY PPI (YoY) (Sep)

Thursday, October 14, 2021

• All Day Holiday Hong Kong – Chung Yeung Day
• 00:30 JPY Capacity Utilization (MoM) (Aug)
• 00:30 JPY Industrial Production (MoM) (Aug)
• 02:30 CHF PPI (MoM) (Sep)
• 03:00 EUR Spanish CPI (MoM) (Sep)
• 03:00 EUR Spanish HICP (MoM) (Sep)
• Tentative CNY M2 Money Stock (YoY)
• Tentative CNY New Loans
• Tentative CNY Outstanding Loan Growth (YoY)
• Tentative CNY Chinese Total Social Financing
• 04:30 GBP BOE Credit Conditions Survey
• 06:10 GBP MPC Member Tenreyro Speaks
• 08:30 USD Continuing Jobless Claims
• 08:30 USD Core PPI (MoM) (Sep)
• 08:30 USD Initial Jobless Claims
• 08:30 USD Jobless Claims 4-Week Avg.
• 08:30 USD PPI (MoM) (Sep) 0.6%
• 08:30 CAD Manufacturing Sales (MoM) (Aug)
• 10:00 USD FOMC Member Bostic Speaks
• 10:30 USD Natural Gas Storage
• 11:00 USD Crude Oil Inventories
• 11:30 USD 4-Week Bill Auction
• 11:30 USD 8-Week Bill Auction
• 13:00 USD FOMC Member Barkin Speaks
• 17:30 NZD Business NZ PMI (Sep)
• 19:55 KRW Trade Balance (Sep)

Friday, October 15, 2021

• All Day Holiday India – Dussehra
• 00:30 JPY Tertiary Industry Activity Index (MoM)
• 02:00 GBP Car Registration (MoM) (Sep)
• 02:00 EUR Italian Car Registration (MoM)
• 02:00 EUR German Car Registration (MoM) (Sep)
• 02:00 EUR German WPI (MoM) (Sep)
• 02:00 EUR French Car Registration (MoM) (Sep)
• 02:45 EUR French CPI (MoM) (Sep)
• 02:45 EUR French HICP (MoM) (Sep)
• 04:00 EUR Italian CPI (MoM) (Sep)
• 04:00 EUR Italian HICP (MoM) (Sep)
• 05:00 EUR Italian Trade Balance (Aug)
• 05:00 EUR Trade Balance (Aug)
• 08:15 CAD Housing Starts (Sep)
• 08:30 USD Export Price Index (MoM) (Sep)
• 08:30 USD Import Price Index (MoM) (Sep)
• 08:30 USD NY Empire State Manufacturing Index (Oct)
• 08:30 USD Retail Sales (MoM) (Sep)
• 08:30 CAD New Motor Vehicle Sales (MoM)
• 08:30 CAD Wholesale Sales (MoM) (Aug)
• 10:00 USD Business Inventories (MoM) (Aug)
• 10:00 USD Michigan Consumer Sentiment (Oct)
• 10:00 USD Retail Inventories Ex Auto (Aug)
• 11:00 USD IMF Meetings
• 12:20 USD FOMC Member Williams Speaks
• 13:00 USD U.S. Baker Hughes Oil Rig Count
• 15:30 USD CFTC speculative net positions

Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2020. One suspects it will be a year long Groundhog day for Trump, the GOP and the Democrats. 

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