October 24 – 30 2021Where 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.
Record Highs, Inflation and Tech Earnings
The Week That Was – What Lies Ahead?Editorial The Risk On sweep higher that came alive last Thursday continued unabated this week, closing Friday with the Dow Jones hitting a new record high on strong earnings. A big shift underneath came about with Snap collapsing 26% after the social-media company said it expects growth to slow following new guidelines of Apple’s IOS privacy that will impact company advertisements. Former glory chip company Intel plunged around 12% after the company reported weaker-than-expected sales as computer shipments were impacted by components shortage. On the flip side we saw manic buying of SPAC DWAC from $10 to $175 to settle around $85 after it was announced it would be funding Donald Trump’s new social media operation, Truth. The action highlighted the split world we live in with comments from SPAC investors jumping ship and the price action from those buying in.
Snap!Extra focus on the big technology earnings ahead this week from Apple, Amazon, Alphabet and Microsoft being among the 30% of the S&P 500 companies reporting earnings in the week ahead. Will we get significant stock declines, as in the case of Snap and Intel. Snap’s advertising issues put the focus on other social media companies, like Facebook and Twitter, which report in the week ahead. Another week of oil prices multiyear highs in crude oil. 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 but dont worry the Fed is comfortable with inflation for now and Presidet Biden says he wants energy prices down. . 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 This week we have more big Tech. 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 ManiaThis 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.Inflation U.S. high-yield spreads (to Treasuries) and CDS have also turned more closely correlated to Chinese Credit developments. The New York Fed’s one-year inflation expectations reading rose to 5.3%, the high for data going back eight years. Excluding the summer of 2008, the University of Michigan one-year consumer inflation expectations (4.8%) were the highest since 1982. The five-year Treasury “break even” inflation rate this week jumped 15 bps (23bps in two weeks!), surpassing 2.9% for the first time in at least two decades. 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. October 15 – CNN (Michelle Toh): “Evergrande’s unraveling is still commanding global attention, but its troubles are part of a much bigger problem. For weeks, the ailing Chinese real estate conglomerate has made headlines as investors wait to see what will happen to its enormous mountain of debt. As the slow-moving crisis unfolds, analysts are pointing to a deeper underlying issue: China’s property market is cooling off after years of oversupply… Mark Williams, chief Asia economist at Capital Economics, estimates that China still has about 30 million unsold properties, which could house 80 million people… On top of that, about 100 million properties have likely been bought but not occupied, which could accommodate roughly 260 million people, according to Capital Economics estimates. Such projects have attracted scrutiny for years, and even been dubbed China’s ‘ghost towns.’” . After trading to 75% earlier in the week, Evergrande bond yields dropped to 67.4% after holding default at bay. An index of Chinese high-yield dollar bond yields dropped from 20% to 17.8%, after beginning September at 12%. China’s sovereign CDS fell from 49 to 46.5 bps, with most Chinese bank CDS also declining moderately. 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 MarketsHighlights – USA
- The S&P500 gained 1.6% (up 21.0% y-t-d)
- Dow rose 1.1% (up 16.6%).
- Nasdaq100 increased 1.1% (up 16.0%).
- The S&P 400 Midcaps jumped 1.8% (up 21.3%)
- Small cap Russell 2000 gained 1.1% (up 16.0%).
- Utilities jumped 2.5% (up 7.4%).
- Transports advanced 3.8% (up 26.1%).
- Semiconductors rose 1.7% (up 20.6%).
- Biotechs slipped 0.4% (down 2.2%).
- With bullion jumping $25, the HUI gold index gained 1.7% (down 13.3%).
- Banks surged 4.1% (up 45.7%),
- Broker/Dealers rose 1.7% (up 32.9%).
Highlights – Europe Stocks
- U.K.’s FTSE equities index dipped 0.4% (up 11.5% y-t-d).;
- France’s CAC40 was little changed (up 21.3%).
- German DAX equities index dipped 0.3% (up 13.3%).
- Spain’s IBEX 35 equities index fell 1.0% (up 10.3%).
- Italy’s FTSE MIB index added 0.3% (up 19.5%).
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 declined 0.9% (up 5.0% y-t-d).
- South Korea’s Kospi index slipped 0.3% (up 4.6%).
- India’s Sensex equities index declined 0.8% (up 27.4%).
- China’s Shanghai Exchange increased 0.3% (up 3.2%).
- Australia’s S&P/ASX200 closed the week +0.7% at 7415.5 ahead for the third straight week.
- Tough for mining stocks with substantial commodity price falls, Spot iron ore price skidded 5.6%, copper 3.8%, aluminium 5.2% and nickel 4.9%. BHP declined 2.16%, Rio Tinto 1.82% & Lynas Rare Earths sank 8.06%
- EM equities bounced.
- Brazil’s Bovespa index sank 7.3% (down 10.7%),
- Mexico’s Bolsa dropped 1.7% (up 17.8%).
- Turkey’s Borsa Istanbul National 100 index surged 5.0% (up 0.2%).
- Russia’s MICEX equities index fell 1.5% (up 27.6%).
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 @KnovaWaveSPX continued from the power impulse 3 to the bottom of the daily cloud after it broke the Tenkan and back to rejected channel to new ATH. Bulls this is a 3 of degree off a C, Bears this a B flat 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
Reenergized after #SPX tripped in 3 to test recent break up at Tenkan from there we have had a powerful rally to ATH. Each new high has evolved after testing Tenkan key support. We watch for a spit of a spit Extensions are difficult to time, keep it simple.
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 100Nasdaq tested and held the weekly Tenkan to close testing swing channel but short of ATH which both DJIA and SPX saw Support Tenkan to Kijun. Watch Chikou for divergence for continuation or failure. Divergence with Russell also a clue.
Russell 2000The 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 SMHSemiconductors SMH clean with Murray Math levels & Tenkan keys. Previous high above +4/8 & Chikou rebalance patterning. Powered by Kijun spit to reaction from above reverted with the retest at triple top patterning. Earnings from above $TSM $NVDA $ASML $AMD $QCOM $AVGO $TXN $INTC $AMAT $LRCX
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 $AAPLApple’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 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 ETFThe 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 DOW & SPX a – needs to flow through to ARKK 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: Albertsons, State Street, Zions Bancorp, FNB, Steel Dynamics, Netflix, Johnson & Johnson, Procter & Gamble, Travelers, United Airlines, Synchrony Financial, Halliburton, Manpower Group, Kansas City Southern, Bank of NY Mellon, Fifth Third, Intuitive Surgical, 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, 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, Honeywell, American Express, Schlumberger, Regions Financial, Roper, VF Corp, HCA Holdings, Seagate Technology
This week we hear from:Monday starts us off with
- Analyst meeting:
- Analyst meeting:
- Analyst meeting:
- Analyst meeting:
- Analyst meeting:
“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):
Portillo’s gains 87% in an 11 IPO weekThe fall IPO market kept a brisk pace this past week with 11 IPOs, led by restaurant chain Portillo’s (PTLO). SPACs also stayed active, with 18 blank check IPOs. There was one postponement: winery Winc (WBEV). New filers continue to flood the pipeline, with 14 IPOs and X SPACs submitting initial filings. Portillo’s (PTLO) priced at the high end to raise $405 million at a $1.4 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. After popping 46% on its first day, Portillo’s finished up 87%. Micro-cap biotech Context Therapeutics (CNTX) raised $25 million at a $51 million market cap. Its sole clinical candidate is being developed for ovarian, breast, and endometrial cancer in multiple clinical trials. The company expects preliminary results of its Phase 2 trial in ovarian cancer patients with high levels of progesterone receptor in the 2H21. Context finished up 40%. Crypto miner Stronghold Digital Mining (SDIG) upsized and priced above the range to raise $127 million at an $875 million market cap. Stronghold wholly-owns and operates a low-cost, environmentally-beneficial coal refuse power generation facility, boasting approximately 3,000 crypto asset mining computers. The company is unprofitable, and it depends on the volatile Bitcoin market. Stronghold finished up 33%. Software provider Enfusion (ENFN) priced at the high end to raise $319 million at a $2.3 billion market cap. This company provides end-to-end cloud-based investment management software. The company is profitable with strong growth, though it is small and operates in a competitive industry with larger players. Enfusion finished up 17%. Inflammatory disease biotech Ventyx Biosciences (VTYX) upsized and priced at the midpoint to raise $152 million at an $842 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. Ventyx finished up 17%. Aris Water Solutions (ARIS) priced well below the range to raise $229 million at a $704 million market cap. Aris’ integrated pipelines and related infrastructure deliver water management, recycling, and supply solutions to operators in the core areas of the Permian Basin, including affiliates of ConocoPhillips and Exxon Mobil. The company is leveraged post-IPO. Aris finished up 10%. Formerly listed on the OTC, P10 (PX) priced below the range to raise $240 million at a $1.5 billion market cap. P10 is a multi-asset class middle/lower-middle private market-focused asset manager with over $14 billion fee-paying AUM. While the company has grown AUM at a 60%+ CAGR since 2018, increasing competition for suitable investments could impact returns. P10 finished flat. Solid tumor biotech Xilio Therapeutics (XLO) priced at the low end to raise $118 million at a $457 million market cap. Xilio’s most advanced candidates are XTX101, an anti-CTLA-4 mAb, and XTX202, an IL-2 therapy. The company recently initiated a Phase 1 trial of XTX101 for solid tumors, and in September 2021, submitted an IND to evaluate XTX202 in patients with solid tumors. Xilio finished flat. Autonomous vehicle play Cyngn (CYN) priced at the low end to raise $26 million at a $254 million market cap. Backed by Benchmark Capital, the pre-revenue company’s Enterprise Autonomy Suite (EAS) is not commercially available yet. It intends to begin marketing EAS to customers in 2022. Cyngn finished down 1%. Coconut water brand Vita Coco (COCO) priced well below the range to raise $173 million at an $859 million 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. Vita Coco finished down 7%. Minerva Surgical (UTRS) priced well below the range to raise $75 million at a $350 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. Minerva finished down 25%. 18 SPACs went public this past week led by sports-focused Iconic Sports Acquisition (ICNC.U), which raised $300 million.
US IPO Week Ahead:Semiconductors, energy storage, designer apparel, and more in a 12 IPO week Semiconductor foundry GlobalFoundries (GFS) plans to raise $2.4 billion at a $24.6 billion market cap. Backed by Abu Dhabi’s Mubadala, US-based GlobalFoundries is one of the world’s leading specialty semiconductor foundries. Unprofitable with lumpy growth, the company states that it is the only scaled pure-play foundry with a global footprint that is not based in China or Taiwan. Enterprise cloud data management platform Informatica (INFA) plans to raise $885 million at an $8.7 billion market cap. This company provides data integration services on its AI-powered platform to over 5,700 customers through both licenses and subscriptions. Although it will be highly leveraged post-IPO, Informatica is a recognized leader in the global data management market and saw strong subscription ARR growth in the 1H21. Energy storage provider Fluence Energy (FLNC) plans to raise $698 million at a $3.8 billion market cap. Formed by Siemens and AES, this company sells energy storage products and services to utilities, independent power producers, project developers, and commercial and industrial customers. Fast growing but unprofitable, Fluence Energy deployed 942 MW of storage products as of 6/30/21. Revenue cycle management platform Ensemble Health Partners (ENSB) plans to raise $605 million at a $3.6 billion market cap. This platform provides revenue cycle management solutions to the healthcare industry. Profitable with accelerating growth in the 1H21, Ensemble Health has over $20 billion in annual client net patient revenue under management. Hiring solutions provider HireRight Holdings (HRT) plans to raise $500 million at a $1.8 billion market cap. This company provides background checks, verification, identification, monitoring, and drug and health screening services to over 40,000 customers. HireRight was profitable on an EBIT basis in the 1H21, though cash flow swung negative. Online education marketplace Udemy (UDMY) plans to raise $406 million at a $4.3 billion market cap. This education platform provides over 183,000 courses in 75 languages to over 44 million customers in over 180 countries. Growing but unprofitable, Udemy has registered more than 73 million users since its inception. Chinese drug in-licensor LianBio (LIAN) plans to raise $325 million at a $1.8 billion market cap. Focused on China and other Asian markets, this biopharmaceutical company develops and commercializes drugs for a variety of indications. LianBio’s pipeline currently consists of nine product candidates across five different therapeutics areas. Rent the Runway (RENT) plans to raise $293 million at a $1.4 billion market cap. This apparel rental company originally focused on a-la-carte rentals of dresses for events, but has gradually transitioned to mostly generating revenue from monthly subscription boxes. While the company has seen active subscribers and revenue rebound in the last two quarters, it is unprofitable and leveraged post-IPO. Aesthetic medical device maker Candela Medical (CDLA) plans to raise $250 million at a $1.7 billion market cap. Selling products directly in 18 countries and indirectly in 66 countries, this company develops medical devices for elective aesthetic procedures. Despite being hard hit by the pandemic, Candela Medical saw strong growth and turned profitable in the 1H21. Fire pit brand Solo Brands (DTC) plans to raise $200 million at a $1.5 billion market cap. Solo Brands sells fire pits, camp stoves, and other outdoor gear through its DTC platform. Fast growing and profitable, this outdoor e-commerce has an installed base of more than 2.3 million customers. Body contouring provider AirSculpt Technologies (AIRS) plans to raise $160 million at an $886 million market cap. This company provides minimally-invasive body contouring procedures through 16 centers across 13 states in the US. AirSculpt Technologies is profitable with solid growth, and has seen an increase in same-center case volume as a result of lessening effects of COVID-19. Technology firm Arteris (AIP) plans to raise $75 million at a $555 million market cap. This technology company develops and licenses interconnect intellectual property that manages the on-chip communications in System-on-Chip semiconductor devices. Arteris is unprofitable but saw growth accelerate in the 1H21.
Part B : Bond MarketsHighlights – 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 0.05%.
- Two-year government yields jumped six bps to 0.455% (up 33bps y-t-d).
- Five-year T-note yields gained seven bps to 1.20% (up 83bps).
- Ten-year Treasury yields rose six bps to 1.63% (up 72bps)
- Long bond yields added three bps to 2.07% (up 42bps).
- Benchmark Fannie Mae MBS yields surged nine bps to 2.12% (up 77bps).
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 four bps to a six-month high 3.09% (up 29bps y-o-y). Fifteen-year rates gained three bps to 2.33% (unchanged). Five-year hybrid ARM rates slipped a basis point to 2.54% (down 33bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates down three bps to 3.18% (up 9bps).
- Federal Reserve Credit last week surged $85.3bn to a record $8.517 TN. Over the past 110 weeks, Fed Credit expanded $4.791 TN, or 129%. Fed Credit inflated $5.707 Trillion, or 203%, over the past 467 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week slipped $1.3bn to $3.482 TN. “Custody holdings” were up $79bn, or 2.3%, y-o-y. Total money market fund assets declined $7bn to $4.518 TN. Total money funds increased $155bn y-o-y, or 3.5%. Total Commercial Paper jumped $17.2bn to $1.190 TN. CP was up $216bn, or 22.2%, year-over-year.
- Greek 10-year yields jumped 12 bps to 1.03% (up 40bps y-t-d). Ten-year Portuguese yields gained six bps to 0.41% (up 38bps). Italian 10-year yields surged 13 bps to 1.00% (up 46bps). Spain’s 10-year yields rose seven bps to 0.53% (up 48bps). German bund yields jumped six bps to negative 0.11% (up 46bps). French yields gained six bps to 0.23% (up 57bps). The French to German 10-year bond spread was unchanged at 34 bps. U.K. 10-year gilt yields rose four bps to 1.15% (up 95bps). U.K.’s FTSE equities index dipped 0.4% (up 11.5% y-t-d).
- Japanese 10-year “JGB” yield added a basis point to 0.09% (up 8bps y-t-d).
Part C: CommoditiesHighights
- Bloomberg Commodities Index declined 0.9% (up 32.9% y-t-d).
- WTI crude gained $1.48 to $83.76 (up 73%). Gasoline slipped 0.2% (up 76%),
- Natural Gas fell 2.4% (up 108%).
- Copper sank 4.9% (up 28%).
- Wheat jumped 3.0% (up 18%),
- Corn rose 2.3% (up 11%).
- Bitcoin fell $630, or 1.0%, this week to $60,621 (up 109%).
BDI Freight Index
- The Baltic Exchange Dry Index fell 5.2% to 4,410 on Friday, its lowest since September 21th and the steepest decline since late January, amid weakness in the capesize vessel segment. The Baltic Dry Index recorded a weekly loss of 9.1%, the biggest since the week ending May 24th.
- The capesize index, which tracks iron ore and coal cargos of 150,000-tonnes, plunged 10.3% to 6,205, the biggest decline since January 27th The supramax index fell 40 points to 3,584, snapping a winning streak of 13 sessions. The panamax index which tracks cargoes of about 60,000 to 70,000 tonnes of coal and grains, went up 0.5% to 4,327, its highest in over 11 years.
CopperCopper 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.
SoybeansSoybeans 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 oil stayed above the 240 cloud after testing the old channel break to new highs. This is a market that is reflective of fear and greed, note the reaction when Kijun and Tenkan cross or touch and support of the 50ma around Murrey Math confluence.
Daily: Potent WTI price action indicative of 3rd wave energy highlighted by spits of the Tenkan to new highs. Continued from daily cloud twist retest to close back at Chikou & ATH. Support Tenkan, 50dma and Kijun, fractals continue with #oil 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 crude #Oil futures continued with it’s measured move & settled at fresh 7-year high. Long term 61.8% target fueled by ABC bull flag after rebalanced Chikou. Weekly Tenkan Kijun gave support & power to take out new high 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:: A look at that daily ABC on the 240 shows the waves clearly in the Murrey Math grid with the cloud the guide for higher (the IV) or Lower the A – meaning this is a B. Note impulses off Kijun/Tenkan crosses Recall 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 has completed 3 waves correcting the daily 8/8 spit after a classic euphoria wave 5 to comeback to test Kijun and bounce between it and Tenkan with power before spitting the 50dma in a corrective ABC pennant of a (IV). Alts are IV or A at this juncture 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: Going out further we see a spit of the weekly Tenkan for Natural gas continued off 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 energized 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
- Spot Gold rose $25 to $1,793 (down 5.6%).
- Silver surged 4.3% to $24.32 (down 7.9%).
GoldGold 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 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 declined 0.3% to 93.64 (up 4.1% y-t-d)
- Majors for the week on the upside, the Swiss franc 0.8%, the Japanese yen 0.6%, the Australian dollar 0.6%, the euro 0.4%, Chinese renminbi gained 0.79% versus the dollar (up 2.23% ytd)
- Minors for the week For the week on the upside the New Zealand dollar increased 1.3%, the Norwegian krone 0.8%, the Mexican peso 0.7%, the Swedish krona 0.5%, the South Korean won 0.5%. For the week on the downside, the Brazilian real declined 3.3%, and the South African rand fell 1.5%.
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 – USDGBPBritish 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
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
Geopolitical Tinderbox Radar
Economic and Geopolitical Watch
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?
- October 22 – Financial Times (James Politi, Demetri Sevastopulo and Andy Bounds): “President Joe Biden vowed to defend Taiwan from Chinese military action, in comments that contradicted US policy to maintain an ambiguous stance over whether it would come to its rescue. Asked whether the US military would defend the country in the event of a Chinese attack, the president said: ‘Yes, we have a commitment to do that.’ Biden made the comments during a wide-ranging CNN town hall… They appeared to upend a decades-long policy of ‘strategic ambiguity’, under which the US refuses to say whether it would defend it from a Chinese attack. The policy is designed to discourage Taipei from declaring independence and to give Beijing pause about taking military action to seize the country, which it views as Chinese territory.” October 18 – Associated Press (Jonathan Lemire and Zeke Miller): “President Joe Biden is entering a crucial two weeks for his ambitious agenda, racing to conclude contentious congressional negotiations ahead of both domestic deadlines and a chance to showcase his administration’s accomplishments on a global stage. Biden and his fellow Democrats are struggling to bridge intraparty divides by month’s end to pass a bipartisan infrastructure bill and a larger social services package. The president hopes to nail down both before Air Force One lifts off for Europe on Oct. 28 for a pair of world leader summits, including the most ambitious climate change meeting in years. But that goal has been jeopardized by fractures among Democrats, imperiling the fate of promised sweeping new efforts to grapple with climate change.” October 16 – Wall Street Journal (Richard Rubin and Ken Thomas): “Many Democrats are willing—even eager—to enact tax increases on high-income households and big businesses and campaign on them in next year’s midterm elections, embracing a stance that the party has struggled with in the past. Although Democrats’ slim majorities have forced them to abandon some of their most sweeping tax proposals, President Biden and congressional Democrats are still seeking to raise about $2 trillion over a decade from businesses and high-income households. Democrats say their focus on the top tier of households would help combat growing wealth inequality. The money would help pay for the healthcare, education and climate-change programs…”
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 WatchSeptember 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 WatchHot 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 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 21 – CNBC (Holly Ellyatt): “A newly-discovered mutation of the delta variant is being investigated in the U.K. amid worries that it could make the virus even more transmissible and undermine Covid-19 vaccines further. Still, there are many unknowns surrounding this descendent or subtype of the delta variant — formally known as AY.4.2 — which some are dubbing the new ‘delta plus’ variant.” October 19 – Yahoo Finance (Aarthi Swaminathan): “The coronavirus pandemic hit the education sector exceptionally hard, and college enrollments plunged in 2020 to the lowest level since 2007. According to… the U.S. Census Bureau…, enrollment in schools dropped by 2.9 million from 2019 to 2020 and colleges by 615,000. Enrollment among those aged 35 and below has also dipped to the lowest level in over 20 years, with community colleges leading the decline.””
- Fauci believes 70%-85% of the population must be vaccinated to reach herd immunity.
BanksMajor 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
“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 include the US first estimate of Q3 GDP, PCE price index; durable goods orders; third-quarter employment cost index; CB consumer confidence; new and pending home sales; Chicago Fed National Activity Index; Dallas Fed Manufacturing Index; Case-Shiller home prices; Chicago PMI; the advance estimates of goods trade balance and wholesale inventories; and the final reading of Michigan consumer sentiment.Other GDP updates to follow include those from the Eurozone, Sweden, Mexico and South Korea. In the UK Chancellor Rishi Sunak’s Autumn budget due Wednesday, which will probably reveal plans to support public services and revive the economy amid prospects of slower growth, rising inflation and interest rates, and an unravelling energy crisis. On the economic data front, Britain’s main releases include Bank of England’s monetary indicators, Nationwide house prices, CBI distributive trades, and car production.Central bankers at Bank of Canada is likely to leave interest rates at record-low levels when it meets on Wednesday, policymakers in Brazil are seen hiking interest rates again to curb rising inflation. ECB will also be deciding on monetary policy, Bank of Japan is expected to keep its policy interest rate at -0.1 percent when it holds a meeting on October 27-28.
Busiest third-quarter earnings season with reports from big firms including Apple, Alphabet, Amazon, Microsoft, Facebook, Twitter, Alibaba, CME Group, 3M, Caterpillar, Spotify, Gilead Sciences, Merck & Co, Mastercard, Visa, McDonald’s, Coca-Cola, Starbucks, Boeing, General Electric, General Motors, Ford Motor, Boeing, Exxon Mobil and Chevron.Central Banker and Geopolitics Watch speeches, reports and rate moves. Monday October 25, 2021
- 06:00 German Buba Monthly Report
- 09:00 MPC Member Tenreyro Speaks
- None Seen
- 10:00 BoC Monetary Policy Report
- 10:00 BoC Rate Statement
- 10:00 BoC Interest Rate Decision
- 11:00 BOC Press Conference
- 17:00 BRL Interest Rate Decision
- Tentative JPY BoJ Monetary Policy Statement
- Tentative JPY BoJ Outlook Report (YoY)
- 23:00 JPY BoJ Interest Rate Decision
- 07:45 ECB Deposit Facility Rate (Oct)
- 07:45 ECB Interest Rate Decision (Oct)
- 08:30 ECB Press Conference
- 12:00 Dallas Fed PCE (Sep)
- 15:00 Dallas Fed Services Revenues
- None Seen
- All Day Holiday New Zealand – Labor Day
- 01:00 JPY Leading Index
- 01:00 SGD CPI (YoY) (Sep)
- 04:00 EUR German Business Expectations (Oct)
- 04:00 EUR German Current Assessment (Oct)
- 04:00 EUR German Ifo Business Climate Index (Oct)
- 06:00 EUR German Buba Monthly Report
- 08:30 USD Chicago Fed National Activity (Sep)
- 08:30 CAD Wholesale Sales (MoM)
- 09:00 GBP MPC Member Tenreyro Speaks
- 10:30 USD Dallas Fed Mfg Business Index (Oct)
- 11:30 USD 3-Month Bill Auction
- 11:30 USD 6-Month Bill Auction
- 19:00 KRW GDP (QoQ) (Q3)
- 01:00 JPY BoJ Core CPI (YoY)
- 01:00 SGD Industrial Production (MoM) (Sep)
- 03:00 EUR Spanish PPI (YoY)
- 04:30 HKD Trade Balance
- 06:00 GBP CBI Distributive Trades Survey (Oct)
- 08:55 USD Redbook (YoY)
- 09:00 USD House Price Index (MoM) (Aug)
- 09:00 USD S&P/CS HPI Composite – 20 s.a. (MoM) (Aug)
- 10:00 USD CB Consumer Confidence (Oct)
- 10:00 USD New Home Sales (MoM) (Sep)
- 10:00 USD Richmond Manufacturing Index (Oct)
- 10:00 USD Richmond Services Index (Oct)
- 10:30 USD Dallas Fed Services Revenues (Oct)
- 10:30 USD Texas Services Sector Outlook (Oct)
- 13:00 USD 2-Year Note Auction
- 16:30 USD API Weekly Crude Oil Stock
- 17:00 KRW Consumer Confidence (Oct)
- 17:45 NZD Trade Balance (MoM) (Sep)
- 17:45 NZD Trade Balance (YoY) (Sep)
- 19:01 GBP BRC Shop Price Index (YoY)
- 20:00 NZD ANZ Business Confidence (Oct)
- 20:00 NZD NBNZ Own Activity (Oct)
- 20:30 AUD CPI (QoQ) (Q3)
- 20:30 AUD CPI Index Number (Q3)
- 21:30 CNY Chinese Industrial profit (YoY) (Sep)
- 02:00 EUR German Import Price Index (MoM) (Sep)
- 02:00 EUR GfK German Consumer Climate (Nov)
- 02:45 EUR French Consumer Confidence (Oct)
- 02:45 EUR French PPI (MoM) (Sep)
- 04:00 EUR Italian Trade Balance Non-EU (Sep)
- 04:00 CHF ZEW Expectations (Oct)
- 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 USD Durable Goods Orders (MoM) (Sep)
- 08:30 USD Goods Trade Balance (Sep)
- 08:30 USD Retail Inventories Ex Auto (Sep)
- 08:30 USD Wholesale Inventories (MoM)
- 10:00 CAD BoC Monetary Policy Report
- 10:00 CAD BoC Rate Statement
- 10:00 CAD BoC Interest Rate Decision
- 10:30 USD Crude Oil Inventories
- 11:00 CAD BOC Press Conference
- 13:00 USD 5-Year Note Auction
- 17:00 BRL Interest Rate Decision
- 19:50 JPY Foreign Bonds Buying
- 19:50 JPY Foreign Investments in Japanese Stocks
- 19:50 JPY Retail Sales (YoY) (Sep)
- 20:30 AUD Export Price Index (QoQ)
- 20:30 AUD Import Price Index (QoQ)
- Tentative JPY BoJ Monetary Policy Statement
- Tentative JPY BoJ Outlook Report (YoY)
- 23:00 JPY BoJ Interest Rate Decision
- 03:00 EUR Spanish CPI (MoM) (Oct)
- 03:00 EUR Spanish HICP (YoY) (Oct)
- 03:00 EUR Spanish Unemployment Rate (Q3)
- 03:55 EUR German Unemployment Rate (Oct)
- 03:55 EUR German Unemployment (Oct)
- 04:00 EUR Italian Business Confidence (Oct)
- 04:00 EUR Italian Consumer Confidence (Oct)
- 05:00 EUR Business and Consumer Survey (Oct)
- 05:00 EUR Business Climate (Oct)
- 05:00 EUR Consumer Confidence (Oct)
- 05:00 EUR Consumer Inflation Expectation (Oct)
- 05:00 EUR Selling Price Expectations (Oct)
- 05:00 EUR Services Sentiment (Oct)
- 05:00 EUR Industrial Sentiment (Oct)
- 06:00 EUR Italian PPI (MoM) (Sep)
- 07:00 EUR Spanish Business Confidence
- 07:45 EUR Deposit Facility Rate (Oct)
- 07:45 EUR ECB Interest Rate Decision (Oct)
- 08:00 EUR German CPI (MoM) (Oct)
- 08:00 EUR German HICP (MoM) (Oct)
- 08:30 USD Continuing Jobless Claims
- 08:30 USD Core PCE Prices (Q3)
- 08:30 USD GDP (QoQ) (Q3)
- 08:30 USD Initial Jobless Claims
- 08:30 USD PCE Prices (Q3)
- 08:30 USD Real Consumer Spending (Q3)
- 08:30 EUR ECB Press Conference
- 10:00 USD Pending Home Sales (MoM) (Sep)
- 10:30 USD Natural Gas Storage
- 11:00 USD KC Fed Composite Index (Oct)
- 11:00 USD KC Fed Manufacturing Index (Oct)
- 11:30 USD 4-Week Bill Auction
- 11:30 USD 8-Week Bill Auction
- 13:00 USD 7-Year Note Auction
- 18:00 KRW Manufacturing BSI Index (Nov)
- 19:00 KRW Industrial Production (MoM) (Sep)
- 19:00 KRW Service Sector Output (MoM) (Sep)
- 19:30 JPY Jobs/applications ratio (Sep)
- 19:30 JPY Tokyo CPI (YoY) (Oct)
- 19:30 JPY Unemployment Rate (Sep)
- 19:50 JPY Industrial Production (MoM) (Sep)
- 19:50 JPY Industrial Production forecast 1m ahead (MoM) (Oct)
- 19:50 JPY Industrial Production forecast 2m ahead (MoM) (Nov)
- 20:30 AUD Housing Credit (Sep)
- 20:30 AUD PPI (QoQ) (Q3)
- 20:30 AUD Private Sector Credit (MoM) (Sep)
- 20:30 AUD Retail Sales (MoM) (Sep)
- 22:30 SGD Unemployment Rate
- 01:00 JPY Construction Orders (YoY) (Sep)
- 01:00 JPY Household Confidence (Oct)
- 01:00 JPY Housing Starts (YoY) (Sep)
- 01:30 EUR French Consumer Spending (MoM) (Sep)
- 01:30 EUR French GDP (QoQ) (Q3)
- 02:00 EUR German Import Price Index (MoM) (Sep)
- 02:45 EUR French CPI (MoM)
- 02:45 EUR French HICP (MoM)
- 03:00 GBP Nationwide HPI (MoM) (Oct)
- 03:00 CHF KOF Leading Indicators (Oct)
- 03:00 EUR German Retail Sales (MoM) (Sep)
- 03:00 EUR Spanish GDP (QoQ) (Q3)
- 03:00 EUR Spanish Retail Sales (YoY) (Sep)
- 04:00 EUR Italian GDP (QoQ) (Q3)
- 04:00 EUR German GDP (QoQ) (Q3)
- 04:00 EUR Spanish Current account (Aug)
- 04:30 GBP BoE Consumer Credit (Sep)
- 04:30 GBP Mortgage Approvals (Sep)
- 05:00 EUR Italian CPI (MoM) (Oct)
- 05:00 EUR Italian HICP (MoM) (Oct)
- 05:00 EUR CPI (MoM) 05:00 EUR GDP (QoQ)
- 08:30 USD Core PCE Price Index (MoM) (Sep)
- 08:30 USD Employment Benefits (QoQ) (Q3)
- 08:30 USD Employment Cost Index (QoQ) (Q3) 0.7%
- 08:30 USD Employment Wages (QoQ) (Q3)
- 08:30 USD PCE price index (MoM) (Sep)
- 08:30 USD Personal Income (MoM) (Sep)
- 08:30 USD Personal Spending (MoM) (Sep)
- 08:30 USD Real Personal Consumption (MoM) (Sep)
- 08:30 CAD GDP (MoM) (Aug)
- 08:30 CAD IPPI (MoM) (Sep)
- 08:30 CAD RMPI (MoM) (Sep)
- 09:00 USD S&P/CS HPI Composite – 20 n.s.a. (MoM)
- 09:45 USD Chicago PMI (Oct)
- 10:00 USD Michigan 5-Year Inflation Expectations (Oct)
- 10:00 USD Michigan Consumer Sentiment (Oct)
- 10:00 USD Michigan Inflation Expectations (Oct)
- 10:00 USD Texas Services Sector Outlook
- 11:00 CAD Budget Balance (Aug)
- 12:00 USD Dallas Fed PCE (Sep)
- 13:00 USD U.S. Baker Hughes Oil Rig Count
- 15:00 USD Dallas Fed Services Revenues
- 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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