Traders Market Weekly: Bitcoin, Earnings & Commodities

Join us in our weekly market thread.

October 17 – 23 2021

Where have we been and where are we going? Join our weekly market thread on Traders Community…

FEAR NOT Brave Investors

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

Bitcoin, Earnings and Commodity Prices

The Week That Was – What Lies Ahead?

Editorial Risk On came alive Thursday and Friday this week after Chinese Credit stress and U.S. options expirations proved a combustible blend with a violent reversal and rally into expiration. The market is oblivious to risk and world chaos and disorder. This is best epitomized by Bitcoin this week heading into the SEC approving first Bitcoin Future ETF, opening crypto to a wider investor base. The first product will track bitcoin futures, rather than the price of bitcoin directly given the multiple exchanges.  SEC Chair Gensler indicated he believes futures-based products might provide stronger protection.

Chart via @Schuldensuehner

US 2-year yields rose above 0.40% for the first time since the pandemic as bonds continue to price in rate hikes. US 2-year yields up 4.5 basis points to 0.40% Friday, the highest since the start of the pandemic as the front end of the curve shifts. A September 2022 hike is now 80% priced in ‘transitory’ or not. Another week of energy prices surging with multiyear highs in crude oil, coal and natural gas.  Not to sound like a broken record but here we see the disconnect between the actual cost of energy, how to make energy and the cost to the consumer. Earnings season kicked off with big bank earnings nearly all reporting better than expected numbers. JPMorgan Chase, Bank of America, Morgan Stanley, Citigroup, Wells Fargo, PNC and Goldman Sachs all reported 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. The five-year Treasury “breakeven inflation rate” jumped seven bps this week to 2.75%, nearing the high since 2005. University of Michigan’s consumer survey had One-year Inflation Expectations rising to 4.8%, the high since the 2008 crude-induced inflation spike. Ignoring May, June and July 2008, consumer inflation expectations have not been higher since 1982. It’s worth noting that 10-year Treasury yields traded up to 4.25% in the summer of 2008, were above 4.6% in November 2005, and sat at 14% in June 1982. 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. Acute instability for bonds of a sector that, according to Nomura analysts, has accumulated a frightening $5 TN of debt. Kaisa Group bond yields surged to almost 51% in Wednesday trading, up from 36% to begin the week (20% to start the month). Yields closed the week at 44.7%. Yuzhou Group bond yields surged to almost 38% in Thursday trading, after beginning the week at 23.3% (October at 16.6%), before reversing sharply lower to end Friday’s session at 27.7%. China Aoyuan yields began the week at 16.6%, jumped to almost 20% on Thursday, but were back down to 17% by week’s end. Evergrande yields ended the week at 75%. October 13 – Reuters (Andrew Galbraith and Marc Jones): “The rumbling crisis at China Evergrande Group and other major homebuilders drove debt market risk premiums on weaker Chinese firms to a record high on Wednesday and triggered a fresh round of credit rating downgrades… The $5 trillion property sector accounts for around a quarter of the Chinese economy by some metrics. In the clearest sign yet that global investors’ worries are growing, the spread – or risk premium – on investment grade Chinese firms… jumped to its widest in more than two months. The spread on the equivalent high-yield or ‘junk’-rated index… surged to a new all-time high of 2,337 bps.

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 last 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

• S&P500 reversed up 1.8% (up 19.0% y-t-d)
• Dow rose 1.6% (up 15.3%)
• Nasdaq100 advanced 2.2% (up 17.5%)
• S&P 400 Midcaps jumped 2.2% (up 19.1%)
• Small cap Russell 2000 gained 1.5% (up 14.7%).
• Semiconductors rose 2.1% (up 18.6%)
• Biotechs added 0.6% (down 1.8%).
• Utilities gained 1.4% (up 4.8%)
• Transports surged 3.8% (up 21.5%)
• Banks added 0.5% (up 40.0%)
• Broker/Dealers increased 1.0% (up 30.7%)
• With bullion gaining $10, the HUI gold index surged 6.2% (down 14.7%).

Highlights – Europe Stocks

• France’s CAC40 rose 2.6% (up 21.2%).
• German DAX equities index jumped 2.5% (up 13.6%).
• Spain’s IBEX 35 equities index added 0.5% (up 11.4%).
• Italy’s FTSE MIB index gained 1.7% (up 19.1%).

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 rallied 3.6% (up 5.9% y-t-d).
• South Korea’s Kospi index advanced 2.0% (up 4.9%)
• India’s Sensex equities index rose 2.1% (up 28.4%)
• China’s Shanghai Exchange slipped 0.6% (up 2.9%).

Highlights – Australian Stocks

Australia’s S&P/ASX200 rose 0.6% for the week.

Technology and mining stocks led after Wall Street had its biggest rally in seven months. BHP, Afterpay and Macquarie Group led the advance. Rio Tinto was lower on an ironore downgrade.

Last week Morningstar analysts suggested the Energy this sector is the only segment of Australian equities which is currently undervalued.

 Highlights – Emerging Markets Stocks 

• EM equities bounced.
• Brazil’s Bovespa index rallied 1.6% (down 3.7%)
• Mexico’s Bolsa surged 3.2% (up 19.8%).
• Turkey’s Borsa Istanbul National 100 index increased 0.8% (down 4.5%)
• Russia’s MICEX equities added 0.6% (up 29.6%).

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: Fastenal, JPMorgan Chase, BlackRock, Bank of America, Morgan Stanley, Citigroup, Walgreens Boots Alliance, Wells Fargo, Domino’s Pizza, U.S. Bancorp, UnitedHealth, Goldman Sachs, J.B. Hunt, PNC Financial

This week we hear from:

Monday starts us off with

• • Earnings:

Albertsons, State Street, Zions Bancorp, FNB, Steel Dynamics

• Analyst meeting:

Tuesday with Earnings from

• • Earnings:

Netflix, Johnson & Johnson, Procter & Gamble, Travelers, United Airlines, Synchrony Financial, Halliburton, Manpower Group, Kansas City Southern, Bank of NY Mellon, Fifth Third, Intuitive Surgical

• Analyst meeting:

Wednesday Earnings Include

• • Earnings:

Tesla, Verizon, IBM, Lam Research, CSX, Baker Hughes, Abbott Labs, Nasdaq, Biogen, Knight-Swift Transportation, Canadian Pacific Railway, Northern Trust, Tenet Healthcare, PPG Industries, SLM 12:00 p.m. Atlanta Fed’s Bostic

• Analyst meeting:

Thursday Earnings Include

• • Earnings:

AT&T, Intel, Blackstone, Union Pacific, Chipotle Mexican Grill, Snap, Whirlpool, Celanese, Southwest Airlines, AutoNation, American Airlines, KeyCorp, Crocs, Marsh and McLennan, Ally Financial, Freeport-McMoRan, Nucor, Quest Diagnostics, Mattel, Genuine Parts, Alaska Air, Tractor Supply

• Analyst meeting:

Friday Earnings include

• • Earnings:

Honeywell, American Express, Schlumberger, Regions Financial, Roper, VF Corp, HCA Holdings, Seagate Technology

• 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

DevOps platform GitLab leads a 7 IPO week

The IPO market remained active this past week as seven IPOs raised $2.1 billion. SPAC activity kept steady with 10 blank check IPOs raising $1.6 billion. New filers continued to pour into the IPO pipeline, with 12 IPOs and nine SPACs submitting initial filings. Software development platform GitLab (GTLB) priced above the upwardly revised range to raise $801 million at a $12.7 billion market cap. This founder-led company provides an end-to-end DevOps platform to over 3,500 customers. Fast growing and highly unprofitable, GitLab competes with large players such as GitHub. GitLab finished up 49%. B2B payments platform AvidXchange (AVDX) upsized and priced at the high end of the upwardly revised range to raise $660 million at a $5.1 billion market cap. AvidXchange provides accounts payable software solutions to over 7,000 middle market businesses. Growing but substantially unprofitable, the company facilitated 53 million transactions and $38 billion in payment volume in 2020. AvidXchange finished down 7%. Telecom tower giant IHS Holding (IHS) downsized and priced at the low end to raise $378 million at a $7.1 billion market cap. This emerging markets-focused telecom tower owner and operator has over 30,000 towers across nine countries in Africa, the Middle East, and Latin America. Despite strong margins and cash flow, IHS has significant capex needs. IHS Holding finished down 21%. Orthopedic medical device company Paragon 28 (FNA) priced at the midpoint 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. Paragon 28 experiences seasonal business and while growth accelerated in the 1H21, it is expected to slow in the 3Q. Paragon 28 finished up 17%. Medical diagnostics company Lucid Diagnostics (LUCD) priced at the low end to raise $70 million at a $537 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. Lucid Diagnostics finished down 33%. Allogeneic T cell biotech MiNK Therapeutics (INKT) downsized and priced at the low end to raise $40 million at a $446 million market cap. This biotech is developing allogeneic natural killer T cell therapies for cancer and other immune-mediated diseases. Its lead candidate is in a Phase 1 trial for multiple myeloma and expects to report topline data in the 4Q21. MiNK Therapeutics finished flat. Healthcare IT platform Healthcare Triangle (HCTI) downsized and priced at the low end of the downwardly revised range to raise $13 million at a $146 million market cap. Slow growing and profitable, this company provides data science and AI-enabled software solutions, platforms, and services for the healthcare and life sciences industry. Healthcare Triangle finished down 13%. 10 blank check companies raised $1.6 billion this past week led by cloud-focused Founder SPAC (FOUNU), which raised $275 million.

US IPO Week Ahead:

Consumer issuers remain active as hot dogs headline a 10 IPO week 10 IPOs are slated to raise $1.9 billion led by restaurant chain Portillo’s (PTLO). The diverse group also features investment management software, water pipelines, coconut water, and crypto mining.. Portillo’s (PTLO), known for its Chicago-style hot dogs, plans to raise $375 million at a $1.3 billion market cap. Acquired by Berkshire Partners in 2014, Portillo’s owns and operates a fast casual chain with 67 restaurants primarily in the Chicago metro area. While the company has seen guest traffic fall slightly in the 3Q21, it believes its concept can support 600+ locations in the US over time. Software provider Enfusion (ENFN) plans to raise $300 million at a $2.2 billion market cap. Focused on the investment management industry, the company’s solution allows clients to see and interact with all parts of the investment management lifecycle. Profitable with solid growth, Enfusion had 635 global clients, with 106 new clients in 2021, and a net dollar retention rate of 122% as of 6/30/21. OTC-listed P10 (PX) plans to raise $300 million at a $1.8 billion market cap. P10 is a multi-asset class private market solutions provider in the alternative asset management industry. Its existing portfolio of private solutions include Private Equity, Venture Capital, Impact Investing, and Private Credit. As of 6/30/21, the company had fee-paying assets under management of more than $14 billion. Aris Water Solutions (ARIS) plans to raise $300 million at a $920 million market cap. Aris’ integrated pipelines and related infrastructure deliver high-capacity, comprehensive produced water management, recycling, and supply solutions to operators in the core areas of the Permian Basin, including affiliates of ConocoPhillips and Exxon Mobil. Aris will be leveraged post-IPO at 3.5x net debt/LTM adj. EBITDA. Coconut water brand Vita Coco (COCO) plans to raise $224 million at a $1.1 billion market cap. Its portfolio is led by Vita Coco, the leader in the global coconut water category with a 40%+ share of the US market. The company has maintained profitable growth coming out of the pandemic, though it saw margin contraction in the 1H21. Inflammatory disease biotech Ventyx Biosciences (VTYX) plans to raise $125 million at an $815 million market cap. Its lead candidate is VTX958, an oral, selective tyrosine kinase type 2 inhibitor initially being developed for psoriasis, psoriatic arthritis, and Crohn’s disease. VTX958 has completed the single-ascending dose portion of its Phase 1 trial, with the multiple-ascending dose part expected to begin in the 4Q21. Crypto miner Stronghold Digital Mining (SDIG) plans to raise $100 million at a $770 million market cap. The company wholly-owns and operates a low-cost, environmentally-beneficial coal refuse power generation facility, boasting approximately 3,000 crypto asset mining computers with hash rate capacity of approximately 185 PH/s. Stronghold is unprofitable, and it depends on the volatile Bitcoin market. Minerva Surgical (UTRS) plans to raise $100 million at a $473 million market cap. Minerva is focused on developing, manufacturing, and commercializing minimally invasive solutions for uterine healthcare. Fast growing and highly unprofitable, Minerva has a broad product line of hysterectomy alternatives designed to address abnormal uterine bleeding (AUB) in most uterine anatomies. Winery Winc (WBEV) plans to raise $75 million at a $254 million market cap. The company states that it is one of the fastest growing at scale wineries in the US, selling of over 430,000 cases in 2020, and a pandemic-related increase in DTC demand caused a jump in revenue in 2020. As of 6/30/21, the company had approximately 120,000 Winc.com members and a wholesale presence that serviced over 7,700 retail accounts in 2020. Holdover 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 inflows of $882 million, while junk bond funds posted negative flows of $1.802 billion (from Lipper).

• Three-month Treasury bill rates ended the week at 0.0425%.
• Two-year government yields jumped eight bps to 0.40% (up 27bps y-t-d).
• Five-year T-note yields rose six bps to 1.13% (up 76bps).
• Ten-year Treasury yields fell four bps to 1.57% (up 66bps).
• Long bond yields sank 12 bps to 2.04% (up 40bps).
• Benchmark Fannie Mae MBS yields declined three bps to 2.02% (up 68bps).

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 rose six bps to a six-month high 3.05% (up 24bps y-o-y).
• Fifteen-year rates jumped seven bps to 2.30% (down 5bps).
• Five-year hybrid ARM rates added three bps to 2.55% (down 35bps).
• Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates gaining six bps to a six-month high 3.21% (up 15bps).

Highlights – Federal Reserve

• Federal Reserve Credit last week expanded $16.1bn to $8.432 TN. Over the past 109 weeks, Fed Credit expanded $4.705 TN, or 126%. Fed Credit inflated $5.621 Trillion, or 200%, over the past 466 weeks.
• Fed holdings for foreign owners of Treasury, Agency Debt last week rose $4.9bn to $3.483 TN.
• “Custody holdings” were up $72bn, or 2.1%, y-o-y.
• Total money market fund assets dipped $6.0bn to $4.525 TN.
• Total money funds increased $161bn y-o-y, or 3.7%.
• Total Commercial Paper slipped $2.9bn to $1.173 TN. CP was up $210bn, or 21.8%, 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 increased two bps to 0.91% (up 29bps y-t-d).
• Ten-year Portuguese yields fell three bps to 0.35% (up 32bps).
• Italian 10-year yields slipped a basis point to 0.87% (up 33bps).
• Spain’s 10-year yields fell three bps to 0.46% (up 41bps).
• German bund yields declined two bps to negative 0.17% (up 40bps).
• French yields fell two bps to 0.17% (up 51bps).
• The French to German 10-year bond spread was unchanged at 34 bps.
• U.K. 10-year gilt yields dropped five bps to 1.11% (up 91bps).

Highlights – Asian Bonds

• Japanese 10-year “JGB” yields were little changed at 0.08% (up 6bps y-t-d).

Part C: Commodities

Highights

• Bloomberg Commodities Index jumped 2.1% (up 34.2% y-t-d). WTI crude surged another $2.93 to $82.28 (up 70%). Gasoline jumped 5.1% (up 76%), while Natural Gas declined 2.8% (up 113%). Copper surged 10.6% (up 34%). Wheat was unchanged (up 15%), while Corn slipped 0.9% (up 9%). Bitcoin gained $7,145, or 13.2%, this week to $61,251 (up 111%).

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 extended losses for a sixth straight session Friday, slipping 4.1% to 4,854 on Friday a weekly loss of 12.2% and its worst since the week ending January 29th. At its lowest since September 27th, as falling iron ore prices continued to weigh on capesize rates.
• The capesize index, which tracks iron ore and coal cargos of 150,000-tonnes, slumped 8.2% to 7,767, its lowest since September 27th
• The panamax index which tracks cargoes of about 60,000 to 70,000 tonnes of coal and grains, rose 1% to 4,065, its highest in three months.
• Among smaller vessels, the supramax index added 34 points to a fresh record high of 3,576, according to Refinitiv going back until 2017.

 

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:WTI crud eOil futures continued with it’s measured move and settled 1.2% higher at $82.3 a barrel on Friday, a fresh 7-year high, a 3.6% gain on the week. The long term 61.8% target was 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

• Around The Barrel – US Crude Oil Builds +6088Kbbl But WTI Cushing Around 2018 Lows
• Into The Vortex – EIA Reports Build of 81 Bcf in Natural Gas Inventories
• EIA Forecasts U.S. Natural Gas Inventories To Enter Winter Heating Season Below Average
• U.S. Natural Gas Consumption Down With Switch to Coal Due To Higher Gas Prices
• Desperate China Orders Inner Mongolia Coal Mines To Boost Production by 55%
• Natural Gas Flowing on Nord Stream 2 From Russia to Germany
• Natural Gas Volatilty a Lesson in The Reversal of Fortunes
• Record High Chinese Coal Futures Prices After Biggest Coal Producing Region Floods
• East China Manufacturing Hub Zhejiang Orders Production Suspensions to Meet Energy Targets
• ConocoPhillips Buys Shell’s Delaware Basin Assets for $9.5 bln in Cash.
• Europe Energy Crisis Years in the Making With Reactionary Environmental policy
• Oil Supply is Tighter Than Industry Estimates Morgan Stanley Says

Precious Metals

Highlights

• Spot Gold gained $10 to $1,768 (down 6.9%)
• Silver rallied 2.8% to $23.31 (down 11.7%)

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 93.94 (up 4.5% y-t-d).
• Majors for the week on the upside the Australian dollar 1.5%, the British pound 1.0%, the Canadian dollar 0.8%, the Swiss franc 0.5%, and the euro 0.3%. For the week on the downside, the yen declined 1.7%.
• Minors for the week For the week on the upside the South African rand increased 2.2%, the New Zealand dollar 1.8%, the Mexican peso 1.8%, the Chinese renminbi increased 0.13% versus the dollar (up 1.42% y-t-d)the Swedish krona 1.4%, the Norwegian krone 1.4%, the South Korean won 1.1%, the Brazilian real 0.9%, the Singapore dollar 0.5% .

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 reversed after falling in 3 waves to explode over the Tenkan with the weekly cloud Kijun and 50wma below. The cloud and gap below offer targets with the Lire at all time lows resistance  equates tp Murrey Math and Fibonacci possibilities

 

Bitcoin

Impulse begets inpulse. 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. From there prices agitted towards those ATHs as news of a Bitcoin ETF fueled the rally, sound familar?

 

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 13 – Reuters (Alexandra Alper, Steve Holland and Nandita Bose): “President Joe Biden… urged the private sector to help ease supply chain blockages that are threatening to disrupt the U.S. holiday season and said the White House plans a nationwide overhaul of the clogged system. Biden said the Port of Los Angeles would join the Port of Long Beach, two of the country’s busiest, in expanding round-the-clock operations to unload an estimated 500,000 containers waiting on cargo ships offshore. Walmart, Target and other big retailers would also expand their overnight operations at the ports to try to meet delivery needs, Biden said. It is a ‘big first step’ to revamping supply chains in the United States, the world’s biggest consumer market, Biden said, adding the government would be heavily involved.”
• October 8 – Reuters (Makini Brice): “One day after the Senate approved a temporary lift to the U.S. debt ceiling, Senate Republican Leader Mitch McConnell wrote in a letter to President Joe Biden that he would not aid Democrats again in raising the debt limit… Congress will need to find a longer-term solution in December. But McConnell has said the reprieve would give Democrats enough time to raise the debt ceiling through a procedural move known as reconciliation, which Democrats have rejected as an option for lifting the cap.”

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

• U.S. COVID October 15 update: – New cases: 100,281 – Average: 85,004 (-2,170) – In hospital: 59,006 (-1,471) – In ICU: 16,083 (-477) – New deaths: 2,026 – Average: 1,580 (-67)
• October 6 – Bloomberg (Jason Gale): “Heart damage from Covid-19 extends well beyond the disease’s initial stages, according to a study that found even people who were never sick enough to need hospitalization are in danger of developing heart failure and deadly blood clots a year later. Heart disease and stroke are already the leading causes of death worldwide. The increased likelihood of lethal heart complications in Covid survivors… will add to its devastation, according to the study… The aftereffects of Covid-19 are substantial,’ said Ziyad Al-Aly, director of the clinical epidemiology center at the Veterans Affairs St. Louis Health Care System in Missouri, who led the research. ‘Governments and health systems must wake up to the reality that Covid will cast a tall shadow in the form of long Covid, and has devastating consequences. I am concerned that we are not taking this seriously enough.’”
• Fauci believes 70%-85% of the population must be vaccinated to reach herd immunity.

Banks

Major US Banks Deliver Stoic Results in Q3, 2021 The major money cents banks released earnings with many record results for Q3. Mainly from trading and loss reserve releases from the pandemic kitty.  Rising interest rates also help the bottom line.

• Goldman Sachs Advice on Mergers and Acquisitions Brought in a Record $1.65 billion Last Quarter
• Wells Fargo Earnings Suffer From Less Interest Income on Lower Loans
• JPMorgan Earnings Boosted By Trading and Release of Loan Loss Reserves
• Blackrock Earnings Beat Expectations With Record $ 9.5 Trillion Assets and ETFs Under Management
• PNC Bank Revenue Rises, Expects $900 million in Cost Savings From BBVA
• Citigroup Earnings Rise on Equity Trading and Loss Reserve Release
• Bank of America Earnings Lift With Higher Long Term Interest Rates And Steady Costs
• Morgan Stanley Acquisitions of E-Trade and Eaton Vance Boosted Wealth and Asset Management

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 also 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 2020 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 flash PMI surveys for the US, UK, Eurozone, Japan and Australia. Central banks in China, Indonesia, Turkey and Russia will be deciding on monetary policy. Other key data out includes US industrial output and housing data; UK inflation and retail trade; Eurozone consumer confidence; China third-quarter GDP; and Japan trade balance and inflation.

Third-quarter earnings season continues with reports including IBM, Netflix, Tesla, Intel, Snap, Johnson & Johnson, Procter & Gamble, Philip Morris International, American Express, Verizon Communications, AT&T and Schlumberger..

Central Banker and Geopolitics Watch speeches, reports and rate moves.  Monday October 18, 2021

• 05:30 USD FOMC Member Quarles Speaks
• 10:30 CAD BoC Business Outlook Survey
• 11:40 CAD BoC Gov Council Member Lane Speaks
• 21:30 AUD RBA Meeting Minutes

Tuesday, October 19, 2021

• 07:10 EUR ECB’s Elderson Speaks
• 08:00 EUR ECB’s Panetta Speaks
• 08:05 GBP BoE Gov Bailey Speaks
• 10:00 EUR ECB’s Lane Speaks
• 11:00 USD FOMC Member Daly Speaks
• 11:00 EUR German Buba Mauderer Speaks
• 13:15 USD FOMC Member Bowman Speaks
• 14:50 USD FOMC Member Bostic Speaks
• 15:00 USD Fed Waller Speaks
• 21:30 CNY PBoC Loan Prime Rate

Wednesday, October 20, 2021

• 03:20 EUR ECB’s Elderson Speaks
• 03:50 EUR ECB’s Elderson Speaks
• 13:00 USD FOMC Member Quarles Speaks
• 14:00 USD Beige Book

Thursday, October 21, 2021

• 06:00 EUR EU Leaders Summit
• 09:00 USD Fed Waller Speaks
• 15:00 AUD RBA Governor Lowe Speaks
• 21:00 USD FOMC Member Williams Speaks

Friday, October 22, 2021

• 06:00 EUR EU Leaders Summit
• 06:30 RUB Interest Rate Decision (Oct)
• 08:00 RUB CBR Press Conference
• 10:00 USD FOMC Member Daly 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 17, 2021

• 11:00 USD IMF Meetings
• 17:45 NZD CPI (QoQ) (Q3)
• 19:01 GBP Rightmove House Price Index (MoM)
• 20:30 SGD Trade Balance
• 22:00 CNY Fixed Asset Investment (YoY) (Sep)
• 22:00 CNY GDP (QoQ) (Q3)
• 22:00 CNY Industrial Production (YoY) (Sep)
• 22:00 CNY Retail Sales (YoY) (Sep)
• 22:00 CNY Chinese Retail Sales YTD (YoY) (Sep)
• 22:00 CNY Chinese Unemployment Rate
• 22:00 CNY NBS Press Conference
• 22:00 NZD RBNZ Offshore Holdings (Sep)

Monday October 18, 2021

• 05:30 USD FOMC Member Quarles Speaks
• 08:15 CAD Housing Starts (Sep)
• 08:30 CAD Foreign Securities Purchases (Aug)
• 08:30 CAD Foreign Securities Purchases by Canadians (Aug)
• 09:15 USD Capacity Utilization Rate (Sep)
• 09:15 USD Industrial Production (MoM) (Sep)
• 09:15 USD Manufacturing Production (MoM) (Sep)
• 10:00 USD NAHB Housing Market Index (Oc
• 10:30 CAD BoC Business Outlook Survey
• 11:30 USD 3-Month Bill Auction 11:30 USD 6-Month Bill Auction
• 11:40 CAD BoC Gov Council Member Lane Speaks
• 14:00 USD Federal Budget Balance
• 16:00 USD US Foreign Buying, T-bonds (Aug)
• 16:00 USD Overall Net Capital Flow (Aug)
• 16:00 USD TIC Net Long-Term Transactions (Aug)
• 16:00 USD TIC Net Long-Term Transactions including Swaps (Aug)
• 21:30 AUD RBA Meeting Minutes

Tuesday, October 19, 2021

• 02:00 CHF Trade Balance (Sep)
• 04:00 EUR Spanish Trade Balance
• 05:00 EUR Construction Output (MoM) (Aug)
• 07:10 EUR ECB’s Elderson Speaks
• 08:00 EUR ECB’s Panetta Speaks
• 08:05 GBP BoE Gov Bailey Speaks
• 08:30 USD Building Permits (MoM) (Sep)
• 08:30 USD Housing Starts (MoM) (Sep)
• 08:55 USD Redbook (YoY)
• 10:00 EUR ECB’s Lane Speaks
• 10:30 NZD GlobalDairyTrade Price Index
• 11:00 USD FOMC Member Daly Speaks
• 11:00 EUR German Buba Mauderer Speaks
• 13:15 USD FOMC Member Bowman Speaks
• 14:50 USD FOMC Member Bostic Speaks
• 15:00 USD Fed Waller Speaks
• 16:30 USD API Weekly Crude Oil Stock
• 19:30 AUD MI Leading Index (MoM)
• 19:50 JPY Adjusted Trade Balance
• 19:50 JPY Trade Balance (Sep)
• 21:30 CNY House Prices (YoY) (Sep)
• 21:30 CNY PBoC Loan Prime Rate

Wednesday, October 20, 2021

• 02:00 GBP Core CPI MoM (MoM) (Sep)
• 02:00 GBP Core PPI Output (MoM) (Sep)
• 02:00 GBP Core RPI (MoM) (Sep)
• 02:00 GBP CPI (MoM) (Sep)
• 02:00 GBP PPI Input (MoM) (Sep)
• 02:00 GBP PPI Output (MoM) (Sep)
• 02:00 GBP RPI (MoM) (Sep)
• 02:00 EUR German PPI (MoM) (Sep)
• 03:20 EUR ECB’s Elderson Speaks
• 03:50 EUR ECB’s Elderson Speaks
• 04:00 EUR Current Account (Aug)
• 05:00 EUR CPI (MoM) (Sep)
• 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
• 08:30 CAD CPI (MoM) (Sep)
• 10:30 USD Crude Oil Inventories
• 13:00 USD 20-Year Bond Auction
• 13:00 USD FOMC Member Quarles Speaks
• 14:00 USD Beige Book
• 17:00 KRW PPI (MoM) (Sep)
• 19:50 JPY Foreign Bonds Buying
• 19:50 JPY Foreign Investments in Japanese Stocks
• 20:30 AUD NAB Quarterly Business Confidence
• 22:00 NZD Credit Card Spending (YoY)

Thursday, October 21, 2021

• 02:00 GBP Public Sector Net Borrowing (Sep)
• 02:00 EUR GfK German Consumer Climate (Nov)
• 02:45 EUR French Business Survey (Oct)
• 04:00 EUR Italian Industrial Sales (MoM)
• 04:30 HKD Unemployment Rate (Sep)
• 06:00 GBP CBI Industrial Trends Orders (Oct)
• 06:00 EUR EU Leaders Summit
• 08:30 USD Continuing Jobless Claims
• 08:30 USD Initial Jobless Claims
• 08:30 USD Jobless Claims 4-Week Avg.
• 08:30 USD Philadelphia Fed Manufacturing Index (Oct)
• 08:30 CAD ADP Nonfarm Employment Change
• 08:30 CAD New Housing Price Index (MoM) (Sep)
• 09:00 USD Fed Waller Speaks
• 10:00 USD Existing Home Sales (MoM) (Sep)
• 10:00 USD US Leading Index (MoM) (Sep)
• 10:00 EUR Consumer Confidence (Oct)
• 10:30 USD EIA Natural Gas Storage
• 11:30 USD 4-Week Bill Auction
• 11:30 USD 8-Week Bill Auction
• 13:00 USD 5-Year TIPS Auction
• 15:00 AUD RBA Governor Lowe Speaks
• 18:00 AUD Services PMI
• 19:00 AUD Manufacturing PMI
• 19:01 GBP GfK Consumer Confidence (Oct)
• 19:30 JPY National CPI (MoM)
• 20:30 JPY Manufacturing PMI (Oct)
• 20:30 JPY Services PMI
• 20:30 SGD URA Property Index (QoQ) (Q3)
• 21:00 USD FOMC Member Williams Speaks

Friday, October 22, 2021

• 02:00 GBP Retail Sales (MoM) (Sep)
• 03:15 EUR French Manufacturing PMI (Oct)
• 03:15 EUR French Markit Composite PMI (Oct)
• 03:15 EUR French Services PMI (Oct)
• 03:30 EUR German Composite PMI (Oct)
• 03:30 EUR German Manufacturing PMI (Oct)
• 03:30 EUR German Services PMI (Oct)
• 04:00 EUR Manufacturing PMI (Oct)
• 04:00 EUR Markit Composite PMI (Oct)
• 04:00 EUR Services PMI (Oct)
• 04:30 GBP Composite PMI (Oct)
• 04:30 GBP Manufacturing PMI (Oct)
• 04:30 GBP Services PMI (Oct)
• 04:30 HKD CPI (YoY) (Sep)
• 06:00 EUR EU Leaders Summit
• 06:30 RUB Interest Rate Decision (Oct)
• 08:00 RUB CBR Press Conference
• 08:30 CAD Retail Sales (MoM) (Aug)
• 09:45 USD Manufacturing PMI (Oct)
• 09:45 USD Markit Composite PMI (Oct)
• 09:45 USD Services PMI (Oct)
• 10:00 USD FOMC Member Daly Speaks
• 15:30 GBP CFTC GBP speculative net positions
• 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.

 

-comment section below data-

Subscribe and Follow

Find us at www.traderscommunity.com

Follow our contributors on Twitter @traderscom @thepitboss16 @knovawave @ClemsnideClem

Note these charts, opinons news and estimates and times are subject to change and for indication only. Trade and invest at your own risk.

Trade Smart!