Traders Market Weekly: October 3 – 9 2021

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FEAR NOT Brave Investors

Working

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

Jobs, Inflation and Evergrande

The Week That Was – What Lies Ahead?

Editorial

Fear crept into the market again this week, and bulls and bears gave different rationale for the end of the world or everything is beautiful. It simple terms there are cracks everywhere, you should expect that with 2 years of shutdown, fear merchants in charge of media and politics. Multiple societies are broken and then just look at the incompetency’s of Federal Governments, the US the poster child of this. We head into a week ahead further down on a default countdown with Evergrande, energy price crisis before the Northern Winter and we finish with a look at US Jobs in the week ahead. We take the view that it’s a good thing fear has crept in, some rational thought so to speak.

We have warned of the unexpected consequences of populist decision making in energy policy, transition and blind ignorance from the ESG fear police. Just because you say something over and over doesn’t make it true. Leadership and experience does count for something in a changing energy world. What ths movement has done brilliantly is scare the world, make buckets of money and use that fear to coverup other problems as has Covid lockdowns for that matter. We live in dangerous, some would say fiction based times. How many will die from this and will it get the correct media exposure or does that not fit the political power objective?

Much of the world’s overhang is encapulated by this snippet from Bloomberg on Bloomberg: “The world’s second-biggest economy is caught in the grips of a widening power crisis that’s threatening to stymie growth and further tangle already snarled global supply chains. At least 20 Chinese provinces and regions making up more than 66% of the country’s gross domestic product have announced some form of power cuts, mostly targeted at heavy industrial users. The reasons are two-fold — record high coal prices are causing power generators to trim output despite soaring demand, while some areas have pro-actively halted electricity flows to meet emissions and energy intensity goals.”

Back to the last FOMC the Fed for its part was a little more hawlish bringing forward a taper to November and to be completed by mid 2022 ahould the economy remain steadfast. What many bulls and bears alike miss is that it was important to be somwewhat hawkish to signify the economy is improving. Confidence is low for consumers and businesses alike and Powell is most aware of that.

Confidence is key, we have little doubt that Kaplan and Rosengren being pushed out if their trading escapades was a fed up (pardon the pun) Powell with such bad character to try and restore confidence in the Central Bank. Then we had Senator Warren, who to many is the epitome of ignorance and political expediency saying she did not trust Powell. She added he was dangerous and would not vote for him. For someone who ran for President the willful ignorance of the last two years is both mindblowing and telling of the political elite and even more so the blind ignorance of the their supporters.

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. Other factors concerning the Fed, and the market is negative sentiment around President Biden. He appears unable to get Senator Manchin (D-WV) on board with the $3.5 trillion infrastructure plan, a warning from the White House that not increasing the debt limit could cause a recession.

Last week we wrote “Monday is the tentative deadline for the House vote on the bipartisan infrastructure package. Thursday is the deadline for Congress to pass a stopgap funding bill that will avert a government shutdown. The debt ceiling standoff will likely go down to the wire, but expectations are still optimistic”

Yet this has now become a bunfight between the so called Progressive left and centrist blends of the Democrat party, forget realities once again. This is more than just the usual pathetic Republican versus Democrat gameshow. To the point Fitch warned debt limit games could put US AAA rating at risk. If US debt limit were not raised or suspended in time, political brinksmanship and reduce the financing flexibility could increased risk of sovereign default United States of America at ‘AAA’

Powell did not really address the fact Federal Reserve Presidents Kaplan and Rosengren have been trading stocks and bonds. He said he was unaware and look into it. This comes after said they will sell individual stock holdings after the press questioned their ethics. This comes at a time of taper concerns and market top calls.

Clearly high prices have led to a decline in assessments of buying conditions for homes, vehicles, and household durables. How much does this affect spending activity in the future is the big question mark. If consumers hold off on purchases either because they think prices will come down if they wait longer or if they resist paying persistently high prices altogether in the absence of offsetting income gains. This and tapering talk after a dismal unemployment report underscore how disconnected these bankers and politicians are from main street and ethical reality.

What is also feeding risk adverse positioning is the major market has gone 292 calendar days without a decline of 5% or more. This is nearly three times the average since World War II, according to data from CFRA’s Sam Stovall. Granted this is because of the base effect from the Covid collapse and trillions of dollars pumped into it since, however it is an extraordinary move nevertheless.

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.

Inflation isn’t going away, Annual CPI continues is elevated at 5.3% in August, near the highest since August 2008. M/M CPI +0.3% lower than expected +0.4%. Core m/m +0.1% vs +0.3% exp. Transitory? lowest since Feb and +4.0% vs +4.2% y/y expected. Last week August’s producer price index showed a jump of 8.3% year over year, due in part to supply chain constraints, after July’s largest annual increase in over a decade. . The coronavirus Delta variant is hindering growth with these price rises and consumer restraint.

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.

October 1 – Bloomberg (Adam Tempkin and Charles Williams): “Sales of U.S. collateralized loan obligations reached a fresh annual record on Friday, topping $131 billion, as investors clamor to buy securities that offer high ratings and protection against inflation. New issuance surpassed 2018’s record of $130.4 billion, and may not slow down in the coming months. Some banks are projecting that CLO sales can go as high as $160 billion, and there are some 200 short-term credit lines funding upcoming transactions.”

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.

September 30 – Bloomberg: “China stepped in to buy a stake in a struggling regional bank from China Evergrande Group as it seeks to limit contagion in the financial sector from the embattled property developer. Evergrande agreed to sell a 20% stake in Shengjing Bank Co. to the local Shenyang government for 10 billion yuan ($1.55bn), with the bank demanding that all proceeds go to settle debts with the lender…”

September 28 – Reuters (Clare Jim and Jing Xu): “Beijing is prodding government-owned firms and state-backed property developers such as China Vanke Co Ltd to purchase some of embattled China Evergrande Group’s assets, people with knowledge of the matter said. Evergrande, saddled with $305 billion in liabilities, is teetering on the brink of collapse. But the central government is unlikely to intervene directly to resolve Evergrande’s crisis in the form of a bailout, according to six people, including four in government and regulatory bodies. Authorities are hoping, however, that asset purchases will ward off or at least mitigate any social unrest that could occur if Evergrande were to suffer a messy collapse, they said, declining to be identified due to the sensitivity of the matter.”

 

Evergrande Property Collapse

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Contents

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

 

PART A – Stock Markets

Highlights – USA

  • S&P500 dropped 2.2% (up 16.0% y-t-d)
  • Dow fell 1.4% (up 12.2%).
  • Nasdaq100 dropped 3.5% (up 14.8%).
  • S&P 400 Midcaps dipped 0.6% (up 16.3%)
  • Small cap Russell 2000 slipped 0.3% (up 13.5%).
  • Utilities lost 2.0% (up 1.7%)
  • Transports declined 0.6% (up 13.9%).
  • Semiconductors sank 5.6% (up 16.7%).
  • Biotechs fell 4.0% (down 1.2%).
  • While bullion recovered $11, the HUI gold index declined 0.9% (down 23.8%).

US Indices W 10 1 2021

 

Highlights – Europe Stocks

  • U.K.’s FTSE equities index slipped 0.3% (up 8.8% y-t-d).
  • France’s CAC40 fell 1.8% (up 17.4%).
  • German DAX equities index dropped 2.4% (up 10.5%).
  • Spain’s IBEX 35 equities index declined 0.8% (up 9.0%).
  • Italy’s FTSE MIB index fell 1.4% (up 15.2%).

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

 Highlights – Asia Stocks

  • Japan’s Nikkei Equities Index sank 4.9% (up 4.8% y-t-d).
  • South Korea’s Kospi index dropped 3.4% (up 5.1%).
  • India’s Sensex equities index lost 2.1% (up 23.1%).
  • China’s Shanghai Exchange fell 1.2% (up 2.7%).

 Highlights – Australian Stocks

  • Australia’s S&P/ASX200 finished 7815.5 for the week to 2.1%, up 2% for the September quarter.
  • Every sector finished the quarter stronger except for mining stocks. The micro-cap S&P/ASX Emerging Companies was the only Australian size range to finish ahead in September rising 8% to close the quarter with a 19% gain.

ASX Emerging Companies W 10 1 2021

 

 

 Highlights – Emerging Markets Stocks 

  • EM equities soft.
  • Brazil’s Bovespa index slipped 0.3% (down 5.1%),
  • Mexico’s Bolsa was little changed (up 15.9%).
  • Turkey’s Borsa Istanbul National 100 index rose 1.2% (down 5.1%).
  • Russia’s MICEX equities gained 1.0% (up 2%).

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

 TOP 5 SPX W 10 1 2021

 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

 SPX D 10 1 2021

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

SPX W 10 1 2021

 

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.

 NAS W 10 1 2021

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.

RUT W 10 1 2021 

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

SMH W 10 1 2021
 

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.

NVDA D 10 1 2021
 

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.

 AAPL D 10 1 2021

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.

AMZN W 10 1 2021
 

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.

ARKK W 10 1 2021
 

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:

Aurora Cannabis IHS Markit, Micron, Cal-Maine Foods, Thor Industries, United Natural Foods, FactSet and MillerKnoll Jabil, Cintas, Herman Miller Jefferies Financial, CarMax, Bed Bath & Beyond, Paychex and McCormick

This week we hear from:

Monday starts us off with

  • Earnings:
  • SNP China Petroleum Chemical TM Toyota Motor HIVE Hive Blockchain GREE Greenidge Generation KRT Karat NAPA Duckhorn CMTL Comtech Telecommunications

  • Analyst meeting:

Tuesday with Earnings from

  • Earnings:
  • PEP PepsiCo

  • Analyst meeting:

Wednesday Earnings Include

  • Earnings:
  • TSCO TSCDY Tesco STZ Constellation Brands LEVI Levi Strauss & Co RPM RPM International AYI Acuity Brands LW Lamb Weston Holdings Inc AONNY Aeon ADR

  • Analyst meeting:

Thursday Earnings Include

  • Earnings:
  • 13:00 CAG Conagra Foods HELE Helen Of Troy ASXFY ASX ADR

  • Analyst meeting:

Friday Earnings include

  • Earnings:
  • 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

The IPO market can see clearly now in a 4 IPO, 2 direct listing week

The IPO market remained active this past week as four IPOs raised $2.3 billion, joined by two direct listings. SPAC activity kept steady with nine blank check IPOs. New filers continue to pour into the IPO pipeline, with 17 IPOs and 10 SPACs submitting initial filings.

NYSE direct listing Warby Parker (WRBY) opened for trading at $54 (+35% vs. reference price) for an implied market value of $6.6 billion market cap. Warby Parker sells prescription glasses starting at $95 per pair through both its online store and in over 145 physical locations. Despite operating in an increasingly competitive space, this eyeglasses retailer has a track record of steady growth and a sticky customer base. Warby Parker finished up 34%.

Nasdaq direct listing Amplitude (AMPL) opened for trading at $50 (+43% vs. reference price) for an implied market value of $6.6 billion market cap. Amplitude provides a customer behavior analytics for over 1,200 customers to improve and optimize digital products and businesses. Growing but unprofitable, this digital optimization company has a large market opportunity. Amplitude finished up 56%.

Hair care brand Olaplex Holdings (OLPX) upsized and priced above the upwardly revised range to raise $1.5 billion at a $14.5 billion market cap. Backed by Advent, this company is a leading brand of prestige hair health products containing a patented repair ingredient. Olaplex operates in a crowded market, but has demonstrated explosive growth and robust profitability. Olaplex finished up 9%.

Tech services provider TDCX (TDCX) upsized and priced at the high end to raise $348 million at a $2.6 billion market cap. This Singapore-based company provides digital customer experience solutions globally in more than 20 languages. Despite operating in competitive markets, the company has delivered solid growth, and it has a multibillion-dollar opportunity. TDCX finished up 6%.

Drug discovery platform Exscientia (EXAI) upsized and priced at the high end to raise $305 million at a $2.7 billion market cap. This AI-driven biotech develops and licenses small molecule therapies, as well as its drug discovery platform. Exscientia has a large pipeline and collaborations with global pharmaceutical companies, though it is early stage and faces significant competition. Exscientia finished up 23%.

Restaurant chain First Watch Restaurant Group (FWRG) priced within the range to raise $170 million at a $1.1 billion market cap. Only serving breakfast, brunch, and lunch, this restaurant chain owns and franchises over 420 locations across the US. Despite continued labor and food shortages, First Watch Restaurant Group has had a strong recovery from the pandemic with double digit same-restaurant sales. First Watch finished up 23%.

Nine SPACs raised $1.9 billion this past week led by industrial technology-focused Hennessy Capital Investment VI (HCVIU), which raised $300 million.

 

US IPO Week Ahead:

In the first full week of October, five IPOs are slated to raise $1.8 billion, led by two fitness companies

Fitness chain Life Time Group Holdings (LTH) plans to raise $901 million at a $4.1 billion market cap. Taken private in 2015, Life Time operates more than 150 “centers” across 29 US states and one province in Canada, serving nearly 1.4 million individual members as of 7/31/21. While the company was hit hard by the pandemic, operations have since improved dramatically, with revenue quadrupling in the 2Q21.

Fitness equipment brand iFIT Health & Fitness (IFIT) plans to raise $600 million at a $6.4 billion market cap. iFIT is the #1 provider of large fitness equipment in the US, selling under brands including iFIT, NordicTrack, ProForm, and Freemotion. Fast growing and unprofitable, the company serves a community of over 6.1 million members and 1.5 million subscribers in over 120 countries.

Proteomics platform IsoPlexis (ISO) plans to raise $125 million at a $648 million market cap. IsoPlexis believes its platform is the first to employ both proteomics and single cell biology to characterize and link cellular function to patient outcomes. Fast growing and highly unprofitable, the company’s platform has been adopted by the top 15 global biopharmas and nearly half of the comprehensive cancer centers in the US since its commercial launch in June 2018.

Biotech Theseus Pharmaceuticals (THRX) plans to raise $125 million at a $593 million market cap. Theseus’ lead candidate is a pan-variant inhibitor of all major classes of activating/resistance mutations of the KIT kinase for of gastrointestinal stromal tumors (GIST). The company recently submitted an IND for advanced GIST and plans to initiate a Phase 1/2 trial between late 4Q21 and mid 1Q22.

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

IPO Calendar W 10 1 2021
 

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 $1.495 billion, and junk bond funds posted positive flows of $536 million (from Lipper).

  • Three-month Treasury bill rates ended the week at 0.03%.
  • Two-year government yields slipped a basis point to 0.27% (up 14bps y-t-d).
  • Five-year T-note yields declined two bps to 0.93% (up 57bps).
  • Ten-year Treasury yields added one basis point to 1.46% (up 55bps).
  • Long bond yields rose four bps to 2.03% (up 38bps).
  • Benchmark Fannie Mae MBS yields declined three bps to 1.91% (up 56bps).

 

 TNX W 10 1 2021

 

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 surged 13 bps to a 14-week high 3.01% (up 13bps y-o-y).
  • Fifteen-year rates rose 13 bps to 2.28% (down 8bps)
  • Five-year hybrid ARM rates gained five bps to 2.48% (down 42bps).
  • Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up 15 bps to an almost six-month high 3.20% (up 9 bps).

Highlights – Federal Reserve

  • Federal Reserve Credit last week declined $13.1bn to $8.425 TN. Over the past 107 weeks, Fed Credit expanded $4.699 TN, or 126%. Fed Credit inflated $5.614 Trillion, or 200%, over the past 464 weeks. 
  • Fed holdings for foreign owners of Treasury, Agency Debt last week increased $0.7bn to $3.485 TN.
  • “Custody holdings” were up $72.5bn, or 2.1%, y-o-y.
  • Total money market fund assets jumped $29bn to $4.544 TN. Total money funds increased $140bn y-o-y, or 3.2%.
  • Total Commercial Paper slipped $3.1bn to $1.185 TN. CP was up $240bn, or 25.3%, year-over-year.

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

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

Highlights – European Bonds

  • Greek 10-year yields gained two bps to 0.83% (up 21bps y-t-d).
  • Ten-year Portuguese yields were unchanged at 0.32% (up 29bps).
  • Italian 10-year yields rose three bps to 0.81% (up 27bps).
  • Spain’s 10-year yield added a basis point to 0.42% (up 38bps).
  • German bund yields were unchanged at negative 0.22% (up 35bps).
  • French yields increased one basis point to 0.12% (up 46bps).
  • The French to German 10-year bond spread widened about one to 34 bps.
  • U.K. 10-year gilt yields jumped eight bps to 1.00% (up 81bps).

Highlights – Asian Bonds

  • Japanese 10-year “JGB” yields were little changed at 0.06% (up 4bps y-t-d).

 

Part C: Commodities

Highights

  • The Bloomberg Commodities Index jumped 2.0% (up 29.3% y-t-d).
  • WTI crude surged $1.90 to $75.88 (up 56%).
  • Gasoline rose 2.9% (up 60%),
  • Natural Gas surged 9.3% (up 121%).
  • Copper dropped 2.3% (up 19%).
  • Wheat jumped 4.4% (up 18%).
  • Corn gained 2.8% (up 12%).
  • Bitcoin rallied $5,483, or 12.8%, this week to $48,402 (up 67%).

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

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

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

BDI Freight Index

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

 BDI W 10 1 2021

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.

 Copper W 10 1 2021

 Corn

Corn W 10 1 2021
 

 Lumber

 Lumber W 10 1 2021

Soybeans

Soybean futures have shown no life since hitting 35 week lows on IDA. Clear 5 waves down, look for 3 wave correction but needs to clear 50wma and cloud top with Tenkan pressing

 Soy W 10 1 2021

US Crude Oil (WTI)

4 Hour:: WTI stayed above the cloud and in the channel all week 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.

WTI 240 10 1 2021
 

Daily: WTI Price action 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. ;

WTI D 10 1 2021
 

Weekly: They key for #oil was 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 

 WTI W 10 1 2021
 

Oil 2020 2021

Oil 2014 2021

Oil 2020 2021

US Natural Gas (Henry Hub)

4 Hour::  Natural gas spitting to +2/8 before retreiving in 3 waves to spit the 50 4hr ma stayed above the cloud and back in thechannel  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.

WTI 240 10 1 2021
 

NG 240 10 1 2021

Daily: US Natural Gas after the daily 8/8 tested the daily Kijun in 3 and closed the week at the Tenkan. Another corrective ABC pennant of a (IV) for bulls, A or a (i) for bears.  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.

NG D 10 1 2021 

Weekly: Natural gas smoothly continued to it’s first target, it’s now a question of degree, 3 or 5? its move in a series of 3’s spitting the Weekly Tenkan for Chikou to rebalance. 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. Breaking recent highs on its 3rd attempt. 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.

 NG W 10 1 2021

  Key Energy Reports

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

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

Halliburton Earnings Rise as Multi Year Upcycle Unfolds

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

OPEC Monthly Oil Market Report June 2021

 

Precious Metals

Highlights

  • Spot Gold recovered $11 to $1,761 (down 7.3%).
  • Silver rallied 0.5% to $22.54 (down 14.6%).

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.

 Gold W 10 1 2021

 Gold 2 26 21 Fail

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
 Silver W 10 1 2021

 

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 gained 0.8% to a one-year high 94.04 (up 4.6% y-t-d).
  • Majors for the week on the downside, the euro 1.1%, the British pound 1.0%, the Swiss franc 0.7%, the Japanese yen 0.3%, and the Australian dollar 0.1%.
  • Minors for the week For the week on the upside the South African rand increased 0.5%, Chinese renminbi gained 0.33% versus the dollar (up 1.28% y-t-d). On the downside, the Mexican peso declined 1.9%, the Swedish krona 1.1%, the South Korean won 1.0%, the New Zealand dollar 1.0%, the Brazilian real 0.6%, the Norwegian krone 0.5%, the Singapore dollar 0.3%.

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.

AUD W 10 1 2021

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.

NZD W 10 1 2021

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.

 CAD W 10 1 2021

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.

 EUR W 10 1 2021

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.

GBP W 10 1 2021
 

EuroPound – EURGBP

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

 EURGBP W 10 1 2021

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

JPY W 10 1 2021

 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.

MXN W 10 1 2021

Turkish Lire USDTRY

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

 TRY W 10 1 2021

Bitcoin

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

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

BTC W 10 1 2021
 

 

 

On the Risk Radar

Fed Warnings on Possible Medium To Long Term Risks

 

Geopolitical Tinderbox Radar

Trade Imbalances IMF

Italy CDS
Turkey Geopolitical

Economic and Geopolitical Watch

Job Losses

United States Unemployment Rate

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 1 – Associated Press (Lisa Mascaro): “Despite a long night of frantic negotiations, Democrats were unable to reach an immediate deal to salvage President Joe Biden’s $3.5 trillion government overhaul, forcing leaders to call off promised votes on a related public works bill. Action is to resume Friday. Speaker Nancy Pelosi had pushed the House into an evening session and top White House advisers huddled for talks at the Capitol as the Democratic leaders worked late Thursday to negotiate a scaled-back plan that centrist holdouts would accept. Biden had cleared his schedule for calls with lawmakers, but it appeared no deal was within reach, particularly with Democratic Sen. Joe Manchin. Manchin refused to budge, the West Virginia centrist holding fast to his earlier declaration that he was willing to meet the president less than halfway — $1.5 trillion.” September 28 – Financial Times (Colby Smith): “Treasury secretary Janet Yellen has warned that the US risks running out of money by October 18 as Senate Republicans blocked attempts to increase the borrowing limit and stave off a government shutdown. ‘At that point, we expect Treasury would be left with very limited resources that would be depleted quickly,’ she said in a letter to congressional leaders. ‘It is uncertain whether we could continue to meet all the nation’s commitments after that date. We know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come,’ she wrote.”

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

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

 

Banks

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

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

Wells Fargo Beat Earnings With $1.05 Billion Reserve Release

JPMorgan Earnings Boosted By Trading and Release of Loan Loss Reserves

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

PNC Bank Earnings Beat Ahead of Completing BBVA USA Bancshares Acquisition

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

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

Morgan Stanley Dealmaking and Trading Drive Record Profits

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

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

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

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

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

Akio Morita mistakes

The Week Ahead – Have a Trading Plan

Keys this week are are the ongoing charade that is the US debt and spending bills, an OPEC+ meeting and Friday’s US jobs report. We get a look at worldwide services PMI surveys; Eurozone retail trade; UK house prices; Australia business morale; and Japan household spending and current account. Central banks in Australia, New Zealand and India will be deciding on monetary policy.

Central Banker and Geopolitics Watch speeches, reports and rate moves

Monday: September 27 2021

  • 07:45 ECB Lagarde speak.
  • 08:00 FOMC member Evans speaks at the National Association for Business Economics’s 63rd annual meeting.
  • 12:00 FOMC Williams speaks about the economic outlook before the Economic Club of New York
  • 12:15 FOMC Brainard speaks at the National Association for Business Economics’s 63rd annual meeting.
  • 14:00 BOE Gov. Bailey speaks

Tuesday September 28 2021

  • South Africa SARB Quarterly Bulletin 09:00 Chicago Fed’s Evans
  • Treasury Secretary Yellen, BOE policy maker Catherine Mann to speak at the NABE conference. BOE Governor Bailey speaks at the Society of Professional Economists dinner.
  • 10:00 Fed Chair Powell and Treasury Secretary Yellen testify at the Senate Banking Committee hearing on “CARES Act Oversight of the Treasury and Federal Reserve.”
  • ECB President Lagarde to speak at the ECB Forum on Central Banking. Executive Board members Schnabel and Panetta, plus Vice President de Guindos, chair sessions.
  • 13:40 Fed Governor Michelle Bowman
  • 15:00 Atlanta Fed President Raphael Bostic
  • 19:00 St. Louis Fed President James Bullard

Wednesday September 29 2021

  • 11:45 Central Bank chiefs Bailey (BOE), Kuroda (BOJ), Lagarde (ECB) and Powell (Fed) speak on an ECB Forum panel. Riksbank’s Deputy Governor Breman will also attend. – ECB’s Visco speaks at a Sustainable Policy Institute event
  • 11:45 ECB’s Visco speaks at a Sustainable Policy Institute event
  • 14:00 Atlanta Fed’s Bostic

Thursday September 30 2021

  • 10:00 FOMC Williams speaks conference on the Fed’s pandemic response
  • 11:00 FOMC Bostic speaksat an event hosted by the Bendheim Center for Finance
  • 12:30 FOMC Evans speaks Thailand rate decision: Expected to keep Benchmark interest rate unchanged at 0.50% Fed Chair Powell and Secretary Yellen testify to House Financial Services Committee St. Louis Fed President Bullard speaks Mexico rate decision: Expected to raise Overnight Rate by 25 basis points to 4.75% Sweden Riksbank minutes

Friday October 1 2021

Philadelphia Fed President Harker talks about the economic outlook with the New Castle County Chamber of Commerce – ECB’s Schnabel speaks at a Fed conference.

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, September 26, 2021

  • German federal elections
  • United Nations 76th General Assembly resumes
  • 12:45 EUR German Buba Mauderer Speaks
  • 19:50 JPY Corporate Services Price Index (CSPI) (YoY)
  • 21:30 CNY Chinese Industrial profit (YoY) (Aug)

Monday,October 4, 2021

  • All Day Holiday China – National Day
  • All Day Holiday Australia – Labour Day NSW ACT SA
  • All Day Holiday Australia – Queen’s Birthday QLD
  • 02:30 CHF Retail Sales (YoY) (Aug)
  • 02:30 CHF CPI (MoM) (Sep)
  • 03:00 EUR Spanish Unemployment Change
  • 04:30 EUR Sentix Investor Confidence (Oct)
  • 06:00 USD OPEC Meeting
  • 06:00 EUR Eurogroup Meetings
  • 08:30 CAD Building Permits (MoM) (Aug)
  • 09:00 SGD Manufacturing PMI (Sep)
  • 10:00 USD Durables Excluding Defense (MoM) (Aug)
  • 10:00 USD Factory Orders (MoM) (Aug)
  • 11:30 USD 3-Month Bill Auction
  • 11:30 USD 6-Month Bill Auction
  • 17:00 NZD NZIER Business Confidence (Q3)
  • 17:00 NZD NZIER QSBO Capacity Utilization (Q3)
  • 17:30 AUD AIG Construction Index (Sep)
  • 19:00 KRW CPI (MoM) (Sep)
  • 19:30 JPY Tokyo CPI (YoY) (Sep)
  • 19:30 JPY CPI Tokyo Ex Food and Energy (MoM) (Sep)
  • Tentative USD Total Vehicle Sales
  • 20:30 AUD ANZ Job Advertisements (MoM)
  • 20:30 AUD NAB Business Confidence (Sep)
  • 20:30 AUD Retail Sales (MoM)
  • 20:30 AUD Trade Balance (Aug)
  • 20:30 JPY Services PMI (Sep)
  • 20:30 NZD ANZ Commodity Price Index (MoM)
  • 21:00 AUD MI Inflation Gauge (MoM)
  • 23:30 AUD RBA Interest Rate Decision (Oct)
  • 23:30 AUD RBA Rate Statement

Tuesday, Tuesday, October 5, 2021

  • All Day Holiday China – National Day
  • 01:00 SGD Retail Sales (MoM) (Aug)
  • Tentative JPY BoJ Governor Kuroda Speaks
  • 02:45 EUR French Industrial Production (MoM) (Aug)
  • 03:15 EUR Spanish Services PMI (Sep)
  • 03:45 EUR Italian Composite PMI (Sep)
  • 03:45 EUR Italian Services PMI (Sep)
  • 03:50 EUR French Markit Composite PMI (Sep)
  • 03:50 EUR French Services PMI (Sep)
  • 03:55 EUR German Composite PMI (Sep)
  • 03:55 EUR German Services PMI (Sep)
  • 04:00 EUR Italian Public Deficit (Q2)
  • 04:00 EUR Markit Composite PMI (Sep)
  • 04:00 EUR Services PMI (Sep)
  • 04:30 GBP Composite PMI (Sep)
  • 04:30 GBP Services PMI (Sep)
  • 05:00 EUR PPI (MoM) (Aug)
  • 06:30 EUR Spanish Consumer Confidence
  • 08:30 USD Trade Balance (Aug)
  • 08:30 CAD Trade Balance (Aug)
  • 08:55 USD Redbook (YoY)
  • 09:45 USD Markit Composite PMI (Sep)
  • 09:45 USD Services PMI (Sep)
  • 10:00 USD IBD/TIPP Economic Optimism
  • 10:00 USD ISM Non-Manufacturing PMI (Sep)
  • 10:30 NZD GlobalDairyTrade Price Index
  • 11:30 USD 52-Week Bill Auction
  • 16:30 USD API Weekly Crude Oil Stock
  • 20:30 HKD Manufacturing PMI (Sep)
  • 21:00 NZD RBNZ Interest Rate Decision
  • 21:30 AUD RBA Chart Pack Release

Wednesday, October 6, 2021

  • All Day Holiday China – National Day
  • 02:00 EUR German Factory Orders (MoM) (Aug)
  • 03:00 EUR Spanish Industrial Production (YoY) (Aug)
  • 03:30 EUR IHS Markit Construction PMI (Sep)
  • 04:30 GBP Construction PMI (Sep)
  • 05:00 EUR Retail Sales (MoM) (Aug)
  • 07:00 USD MBA 30-Year Mortgage Rate
  • 07:00 USD MBA Mortgage Applications (WoW)
  • 07:00 USD MBA Purchase Index
  • 07:00 USD Mortgage Market Index
  • 07:00 USD Mortgage Refinance Index
  • 08:15 USD ADP Nonfarm Employment Change (Sep)
  • 09:00 USD FOMC Member Bostic Speaks
  • 10:30 USD Crude Oil Inventories
  • 11:30 USD FOMC Member Bostic Speaks
  • 17:30 AUD AIG Services Index (Sep)
  • 19:00 KRW Current Account (Aug)
  • 19:50 JPY Foreign Bonds Buying
  • 19:50 JPY Foreign Investments in Japanese Stocks

Thursday, October 7, 2021

  • All Day Holiday China – National Day
  • 01:00 JPY Coincident Indicator (MoM) (Aug)
  • 01:00 JPY Leading Index (MoM) (Aug)
  • 01:45 CHF Unemployment Rate s.a. (Sep)
  • 02:00 GBP Halifax House Price Index (MoM) (Sep)
  • 02:00 EUR German Industrial Production (MoM) (Aug)
  • 02:45 EUR French Current Account (Aug)
  • 02:45 EUR French Trade Balance (Aug)
  • 04:00 EUR Italian Retail Sales (MoM) (Aug)
  • 04:30 GBP Labour Productivity (Q2)
  • 07:30 USD Challenger Job Cuts (Sep)
  • 07:30 EUR ECB Publishes Account of Monetary Policy Meeting
  • 08:30 USD Continuing Jobless Claims
  • 08:30 USD FOMC Member Williams Speaks
  • 08:30 USD Initial Jobless Claims
  • 08:30 USD Jobless Claims 4-Week Avg.
  • 10:00 CAD Ivey PMI n.s.a (Sep)
  • 10:00 CAD Ivey PMI (Sep)
  • 10:30 USD Natural Gas Storage
  • 11:30 USD 4-Week Bill Auction
  • 11:30 USD 8-Week Bill Auction
  • 12:00 CAD BoC Gov Macklem Speaks
  • 15:00 USD Consumer Credit (Aug)
  • 19:30 JPY Average Cash Earnings (YoY)
  • 19:30 JPY Household Spending (MoM) (Aug)
  • 19:30 JPY Overtime Pay (YoY) (Aug)
  • 19:50 JPY Current Account n.s.a. (Aug)
  • 21:30 AUD RBA Financial Stability Review
  • 21:45 CNY Caixin Services PMI (Sep)

Friday, October 8, 2021

  • 01:00 JPY Economy Watchers Current Index (Sep)
  • 02:00 EUR German Current Account Balance n.s.a (Aug)
  • 02:00 EUR German Trade Balance (Aug)
  • 07:00 GBP BoE Quarterly Bulletin
  • 08:30 USD Average Hourly Earnings (MoM) (Sep)
  • 08:30 USD Average Weekly Hours (Sep)
  • 08:30 USD Building Permits (MoM) (Sep)
  • 08:30 USD Government Payrolls (Sep)
  • 08:30 USD Manufacturing Payrolls (Sep)
  • 08:30 USD Nonfarm Payrolls (Sep)
  • 08:30 USD Participation Rate (Sep)
  • 08:30 USD Private Nonfarm Payrolls (Sep)
  • 08:30 USD U6 Unemployment Rate (Sep)
  • 08:30 USD Unemployment Rate (Sep)
  • 08:30 CAD Employment Change (Sep)
  • 08:30 CAD Full Employment Change (Sep)
  • 08:30 CAD Part Time Employment Change (Sep)
  • 08:30 CAD Participation Rate (Sep)
  • 08:30 CAD Unemployment Rate (Sep)
  • 10:00 USD Wholesale Inventories (MoM)
  • 13:00 USD U.S. Baker Hughes Oil Rig Count
  • 15:30 USD CFTC speculative net positions

 

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

 

 

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