Search:dow jones

Authored by Tom Luongo via Gold, Goats, 'n Guns blog,

Consider this, Consider this the hint of the century
Consider this, the slip, that dropped me to my knees, failed.
What if all these fantasies come flailing around?
And now, I’ve said…. too much

- R.E.M. – Losing My Religion

I probably should have codified these before the turn of the new year but I didn’t even think of doing one of these lists until someone mentioned it on Twitter a few days ago.

So, here it goes.  

My predictions for 2023 and all center around the big theme of 2023, the loss of confidence in the world we’ve always known.

In other words 2023 will embody the phrase we use down here in the South, “Losing my Religion.”

1)  Inflation will return with a vengeance. 

What we’ve experienced so far came from the big commodity pump-and-dump post-COVID.  Commodities went through a massive run as more money chased broken supply chains in 2020-21. Then in 2022 the inevitable bust happened, but left us with commodity prices across the board at levels which used to be resistance on the long-term price charts which has now become support.

The next round of commodity-based cost-push inflation will mix dangerously with the growing realization that we can’t avoid things breaking.  There will be no ‘soft landing.’ The hard landing may not happen in 2023, but the set up for it will certainly take place. 

Cost-push will mix with Loss of Institutional Confidence to light the fire of real inflation versus tangible assets in a way we haven’t seen since the late-1970’s.  We should see a return to increasing YoY CPI levels beginning in Q2 after the baseline effects are past and China’s reopening keeps a bid under commodities.

January will not set the tone for commodities in 2023, but more likely be a ‘false move’ overcorrecting against the primary trend, which is clearly higher.

2) The Fed’s terminal rate is closer to 7% than the ~5% the markets are handicapping.

The Fed hiked by 50 bps in Dec.  The markets are signaling 25 bps on Feb. 1st.  I think it will be another 50.  In fact, my base case now is four 50 bp hikes followed by four 25’s by December for a terminal rate of 7% by this time next year.  

Even I was surprised by the violence of Powell’s hawkishness in 2022.  He did what I wanted him to do, be aggressive and attack the source of Davos’ power, the leveraged offshore dollar markets.  He forced out into the open the unsustainability of a weaker dollar based on the clown show on Capitol Hill being worse than the real collapsing governments across Europe.

Powell’s plan has worked so far, forcing everyone to climb the wall of worry that The Fed Put is dead. That so many refuse to accept this is why markets this January, like last January, are completely mispriced. Until this is accepted, Powell will use every excuse to keep raising rates as fast as he can to ‘finish the job.’

Today’s job’s number and unemployment rate support this. Revised Q3 2022 GDP at +2.6% is another. The market keeps wanting to believe in a 5.25% to 5.50% terminal rate for this move. But if I’m right about #1 and structural inflation returns in Q2, the Fed will not slow down until we reach near parity with, of all people, the Bank of Russia.

Rising inflation makes this prediction a slam dunk

3) The Euro will collapse to $0.80 or lower

The ECB is trapped.  It can’t accept higher rates but it can’t afford for the euro to collapse either.  A falling euro means energy input costs skyrocket in real terms.  While a zombie banking system and Sovereigns in debt to someone else’s eyeballs (e.g. $1.1+ trillion in TARGET2 liabilities) see budgets blow out with higher debt servicing costs.

ECB Chair Christine Lagarde bought herself some time in 2022 with the TPI — Transmission Protection Instrument — and some big moves to subvert the UK government, putting Brexit on the ropes.  She’s behind the inflation curve worse than Powell is.  But she can’t attract capital today without big rate moves, Powell’s beat her to that punch.

Ultimately, Lagarde will protect credit spreads while letting the euro go.

The EU still believes it can bolt on more problems like the UK and now Croatia (#20 in the euro-zone) to stave off the collapse of the euro by expanding its reach. We ended 2022 with the euro ‘painting the tape’ at $1.07. It’s already given us a preview of the volatility we should expect in this first week of trading.

The Eurocrats in Brussels still believe in the EU’s inevitability, not because it is true, because they have to. The EU is a religion to the political class of Europe and its Davos paymasters.  They, like real communists, see this period as the end-state of capitalism and that the dialectic is true.  History was written, as it were.

They are wrong.  And the beginning of the end of the European Union starts in 2023 with another 20% to 25% collapse of the euro.

4) The War in Ukraine Will Continue Dangerously

The West is suffering under many illusions about what’s going on in Russia and, by extension, its war in Ukraine.  The UK/US neocons believe, like the EU, that history is already written about Russia’s future –balkanization and collapse.

All pressure that the West places on Russia only exacerbates their demographic time bomb.  China’s as well.  And in that sense this is the race they are running.  Can they grind up enough Russians to ensure that even if Russia wins the war in Ukraine the West wins because the long-sought breakup of the USSR/Tsarist Empire will be achieved.

For this reason neither the UK/US Neocons nor Davos believe having a reverse gear vis a vis Russia is the right play.  This is their strategic vision, regardless of the costs to the West itself.

For Russia there is no other play for them but to continue increasing the costs on the West.  The longer the war goes on the deeper divisions within the EU get.  Those divisions then drive even more animosity within the Eurocracy towards the Brits and the Yanks, who some feel are taking advantage of the situation.

When as ardent an Eurocrat as Guy Ver Hofstadt is now frothing at the mouth about the costs of sanctions, you know the Mafiosi in Brussels are getting nervous. They are beginning to crack under the strain of this war of financial and political attrition Russia is so good at playing against its European partners.

Even though I’ve argued strenuously that the EU leadership walked into Ukraine with its eyes open, the 2nd tier of the Eurocracy did not.  And those are the ones having cold feet now and who the Russians are hoping will drive a pivot from Davos off Ukraine.  

At the same time, expect Putin to keep opening up new fronts for the US/UK to deal with, see my next point.

The UK/US Neocons’ only play, then, on the battlefield then is further escalation to the brink of a nuclear exchange, which these insane people think they can win.

The other option is assassinating Putin in the hopes that Russia goes mad, nukes someone and that justifies the unthinkable.

Either way we’re inching way too close to midnight for my tastes.

5) The US Will Leave Syria in 2023

The recent meeting between Russian, Syrian and Turkish Defense Ministers paves the way for a similar upcoming meeting between the three countries’ Foreign Ministers.  

Once that happens, Syrian President Assad and Turkish President Erdogan will presumably sit down with Russian President Putin and end Turkiye’s involvement in Syria.  This will hang their pet jihadists in Idlib out to dry and leave the US forces there heavily exposed. 

We’re already seeing them come under rocket fire though you’d never hear about this in the Western press.  I went over this in grave detail in a recent post.

By making the deals with Erdogan over becoming the new “Gas Hub” into Europe, Putin has effectively done to the US and UK what they always try to do to Russia, open up another front to distract it from the main problem, i.e. Ukraine.

Now Syria becomes the 2nd battleground for the US to decide if it will defend or will it suffer another ignominious retreat like Afghanistan?  

6) De-Dollarization Will Accelerate / USDX Will Rise.

Along with the collapse of the euro, the US dollar will lose more ground in the global payment system for international commodities and trade.  

These two dynamics will create a very weird moment where the USDX — the US Dollar Index — will rise but the US dollar will be under sincere pressure vs. gold, commodities, and other rising emerging/developed market currencies.

The USDX is heavily weighted towards the euro and the British pound but the Chinese yuan is not represented at all.  So, from one perspective the US dollar could be in a bull market but from another be in a bear market.

The one thing holding gold back has been its lack of bull market versus the dollar. It’s not a ‘secular’ bull market in gold until it’s rising versus all currencies. Even if the USDX does nothing but hold its ground in 2023 versus the rest of its fiat competition, a rally in gold will still be fed by people the world over ‘losing their religion’ with respect to the dollar.

That said, that fall in faith will likely not outpace the fall in faith of the “Fed Put.” I expect the ‘religion’ of the Fed Put is still stronger than the dollar itself which should put upward pressure on the US dollar overall. Because, let’s not forget that overseas US dollar synthetic short positions, known as US dollar-denominated debt, are still pretty biblical in size, keeping a strong bid under the dollar globally even as its position as a reserve and trade settlement currency erodes.

Because of all of these competing forces — inflation, de-dollarization, war, etc. — the last US dollar bull market for the foreseeable future should be on tap in 2023.  For how long? It’s a good question, I can’t answer.  

But I do know that it’s tied to #7 and to the Fed’s need to keep raising rates…

7) Saudi Arabia will de-peg the Riyal 

In fact, I also expect the Hong Kong Dollar peg to fall, but maybe not in 2023.  It depends on the strength and rate of internationalization of the Chinese yuan this year.

Oil prices are going higher once China’s economy is past the Omicron 2.0 wave crashing over it right now. The Saudis have been tendered the offer by China’s Xi to begin weaning itself off the US dollar.  Crown Prince Mohammed bin Salman seems agreeable to this.  

When (not if) the Saudis put their first oil tender up for bid in Shanghai, that will signal the end of the currency peg that created the petrodollar.  It will be a subtle thing that will gain steam over time, just like Russia and China diversifying their holdings into each other’s debt and currencies has taken years to develop.

So, the petrodollar will continue to die by a thousand cuts.  The Saudis will lead OPEC+ out of the US dollar arena, validating both China’s onshore futures markets while also moving a significant amount of the gold trade away from London to Hong Kong.

By hedging their oil profits in gold on China’s international exchange they strengthen both the onshore (CNY) and offshore (CNH) yuan markets and laying the foundation for a much different financial future, including one where the Hong Kong dollar either floats or re-pegs itself to the yuan, likely the former.

8) Oil will Open 2023 Near the Yearly Low

The fundamentals for oil are truly bullish.  China ending Zero-COVID just after the EU put its idiotic price cap on seaborne Russian oil was a strategic move to subvert “Biden’s” wish to refill the now nearly depleted US Strategic Petroleum Reserve at or below $70 per barrel.  

He may get that from domestic producers for a while.  But Brent ended 2022 at $86 and a little downside momentum may be in place with early US dollar strength, but then fundamentals easily overcome this.

“Biden” will not refill the SPR at $70 per barrel now that China just blew up the entire “deflation through higher rates” narrative.  The US economy has held up better to the Fed than expected.  Even Q3 GDP wasn’t uniquely terrible. The jobs report and low unemployment rate, while possibly artifacts of a changing labor market, still give us signals that the US economy isn’t as bad as many want it to be at 4.5% Fed Funds Rate to validate their place in the commentariat.

Europe is getting a small reprieve with the extremely mild winter so far, pushing energy prices down, especially natural gas, for now.

The global recession talk is vastly overblown until something fundamentally breaks. Anyone looking at the end of the year book squaring in things like the Reverse Repo balance (+$300b in one week) is overthinking the problem. The banks are allowed to tailor their reserves to present whatever quarterly numbers they want. It’s been going on since the Bernanke Era.

As such, I see a kind of perfect storm for oil here.  Russia will pull production off the market and shift exports from St. Petersburg (Urals grade) to Kosmino, near Vladivostok (ESPO grade), nabbing higher prices in the long run.

Arab OPEC can’t hit its production quotas as it is and China’s reopening its entire economy.

The Davos demanded ESG investment protocols have the oil industry anywhere from $600b to $1trillion underinvested in exploration and production and that number is rising.

Increased demand, tight supply, low replenishment investment and WAR.  Even a moron or Joe Biden can see that $70 per barrel Brent is out of the question for any significant period of time.

9) Dow Jones 40,000+

As we enter 2023 the Dow Jones Industrials sit right around 33,000.  It was a tumultuous 2022. After hitting a new all-time high a year ago at 36952.53 it was all downhill for most equity indices.

The stronger USD fueled a lot of capital reorganization, interest rates were finally forced higher by the Fed and incessant talk of recession kept everyone selling first and asking questions later.

But in this ‘pivot-obsessed,’ low pain environment, relief rally after relief rally was snuffed out until finally in Q4 the Dow made everyone stand up and take a little notice as to what was happening… flight to quality into tangible assets with deep liquidity pools.

The Dow lost 8.7% in 2022.  The S&P 500?  15.8%.  The NASDAQ?  27.7%

For all of the bitching gold bugs did in 2022, gold was up 1.6% 

If we begin to move into the next stage of stagflation (#1) then the Dow will continue to outperform the broader US equity markets as well as major foreign equity markets.

2022 Foreign Performance:

• German DAX in 2022: -9.2%

• Euro Stoxxx 50: -7.2%

• FTSE 100: 1.2%

Are those indexes sustainable given the economic outlook for Europe and the ECB following the Fed up the rate curve lest everyone ‘lose their religion’ in it? Or will the still weakly expanding US economy look more tasty to global investors and the hopeless Brits look insanely overvalued?

If we have another year like we did in 2022 where high inflation outpacing nominal growth drives tangible asset investment we should see an outperformance from the US vs. Europe as the currencies collapse and the ECB’s tools prove inadequate. Emerging Markets, depending on their proximity to China and the US may have banner years, especially those that underperformed in 2022.

10) Biden is Impeached

This looks like the long-shot of 2023, but I think we are very close to the moment where Sen. Joe Manchin (D-WV) goes one step further than Kyrsten Sinema (I-AZ) and not only leaves the Democrats but flips to the GOP, giving them the outright majority in the Senate (50-49-1)

Even though Kevin McCarthy didn’t lose his bid for re-election as House Speaker, which has turned CSPAN into must-see TV these past few days, the fight itself is indicative of serious change coming to Capitol Hill.

This is the essence of the ‘counter-revolution’ in the US I wrote about a few weeks ago.

The soft underbelly for Biden at this point is FTX and divulsions of the US Gov’t’s censorship activities on Twitter.  All of these things, along with corruption in Ukraine, can easily be tied back to Biden.  

The majority of people are so black-pilled at this point that they believe nothing will ever change on Capitol Hill.  But the first rule of good investing is remembering that the majority is almost always wrong.

And it is the sudden realization of their real power by a critical mass of people that alter the landscape literally overnight. So, while it looks like Matt Gaetz (R-FL) and Lauren Boebert (R-CO) tilted at windmills against a terminally corrupt Uniparty, they are simply fanning the smoldering embers of long-thought-dead principles on Capitol Hill.

This was the subject of my latest podcast with Bill Fawell, the state of the revolution in the US. {N.B. Bill and I discussed his Cycle of Revolutions in Episode #110 last summer}

And when you read the rules deal that McCarthy signed to get elected, this is a recipe for the weakest Speaker from a Uniparty perspective we’ve had in decades. It’s a win. A small win but a win nonetheless.

Since the mid-terms, this transition period has exposed yet even more malfeasance by GOP leadership and the natives are more than restless.  They are angry.  There is no appetite for what the GOPe is selling (out) anymore.  

The façade of the two-party system is over. 

The 2024 election cycle begins in a few months and the mood of the country will tell you which of those up for re-election that will happily cross party lines to save their skins.

It still leaves open the idea of Donald Trump swooping in after McCarthy tries to betray this deal. Matt Gaetz told you the plan when he nominated Trump from the floor.

Embedded in the deal crafted are sincere nods to exactly the kind of signals to fiscal conservatism – halting the budget at FY 2022 levels, balanced budget in 10 years, 3/5ths vote on tax increases, etc. — that I’ve argued is needed to back up Powell and the Fed’s monetary tightening.

Congress has a bigger wall of worry to climb to regain its credibility than the Fed does, but this is a good first step. It’s the step the world wants as well.

Whether it will hold together or not is absolutely up for grabs. But more weakening of the Uniparty in the coming weeks sets the stage for getting rid of Biden and the rest of the vandals on Capitol Hill.

There are a ton of ‘manilla envelopes’ being passed out right now. There is a lot of arm-twisting and overt threats happening. The Davos Mafiosi on The Hill will call in every marker.  We will see a lot of surprising behavior from unlikely sources in 2023.  The energy is there for something big and the incentives are lining up.

Sacrificing “Biden” on this altar may be a small price to pay.

In closing I want you to remember that few of America’s “enemies” want the US to collapse in a disorderly manner, not even China.  

Davos is the only one with that agenda in mind because it fuels their megalomania.

The strident anti-US commentariat is a curious mix at this point of shills for foreign powers, egoists who can’t bare to be wrong, and anti-capitalist ideologues talking their book.  The thoughtful are few and far between and I fear they’ve been gaslit into making huge analytic errors about what’s really going on.

But when you think through what’s happening right now, everyone wants a rational, less arrogant US to settle down, accept a smaller piece of the future pie, and get back to business.  Our criticisms leveled at both Europe and the US is their colonial behavior and their imperial attitude.  

So many will ‘lose their religions’ in 2023 that the changes which come will blindside people, including me.  Honestly, looking at this list, I think many of these predictions err on the side of caution.

That’s the core issue driving all of these trends and my predictions stem from it.

*  *  *

Join my Patreon if you are the change you want to believe in.

The rally in US index futures paused after Wall Street stocks posted their best week in several months, following comments from a Federal Reserve official that the fight against inflation has further to run. Contracts on the S&P 500 were down 0.3% at 7:30 a.m. ET...

... while Nasdaq 100 futures fell 0.7%, after Fed Governor Christopher Waller said on Sunday that policymakers had “a ways to go” before ending interest-rate hikes. His comments also lifted 10-year Treasury yields by 9 basis points.

Waller: The FOMC statement in November was designed to signal a potential step down to 50 basis points.

"We knew the markets were going to jump for joy."

So the Fed used Powell's press conference to "drive the point home" that it's the ultimate level for rates that matters.

— Nick Timiraos (@NickTimiraos) November 13, 2022

In premarket trading, beside the surge of Chinese stocks listed in the US following China's announcement of a "rescue package", Advanced Micro Devices shares also rose after brokers UBS and Baird upgraded the chipmaker to buy and outperform, respectively. Biogen (BIIB US) shares rise as much as 5% in premarket trading, after Roche’s Alzheimer’s drug, a potential competitor to Biogen’s, failed a pair of large studies.

On Monday, the dollar traded near its best levels of the day, pressuring all of its Group-of-10 counterparts. Treasury yields rose across the curve, led by 10-year rates that climbed for the first time in a week.  Oil fell with gold, while Bitcoin gains exceeded 2% after earlier sliding more than 3%; the drop in crypto was halted after Binance CEO Changpeng Zhao said the world’s largest digital-asset exchange plans to set up an industry recovery fund.

Last week, a big miss across the board in CPI data fueled bets that the US central bank would temper its hawkish narrative. The Dow Jones Industrial Average ended the week 2.1% short of recording a 20% gain off its Sept. 30 low -- the technical definition of a bull market. The S&P 500 chalked up its biggest weekly rise since June, while the tech-heavy Nasdaq 100 climbed 1.9% for its best two-day gain since 2008.

“The burst of euphoria which erupted over US markets and spread more widely at the end of last week is ebbing away after fresh warnings that the fight against inflation is still a hard slog yet to be won,” said Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown.

That comes after a tumultuous weekend for rival FTX, which was once seen as among the best-run exchanges but has filed for Chapter 11 bankruptcy. Worrying details that have emerged include the fact that just before filing for bankruptcy, FTX Trading International held just $900 million in liquid assets against $9 billion of liabilities, according to sources familiar with the matter.

Chinese stocks listed in the US also were also higher, and were set to extend their rally to a third day, after Beijing issued a 16-point plan to boost the real-estate market on Friday, the strongest sign yet that President Xi Jinping is turning his attention toward shoring up the world’s second-largest economy. The move pushed Chinese stocks into a bull market, even as the Hang Seng China gauge holds on to a loss of more than 25% this year.

After a dismal earnings season, which saw mega-cap tech stocks underperform while earnings growth waned, some are skeptical about the earnings outlook. “Investor euphoria over the prospect of a ‘Fed pivot’ contrasts with the deteriorating profit margins and darkening business outlook expressed by many S&P 500 firms,” Goldman Sachs Group Inc. strategists led by David Kostin said in a note.

In Europe, stocks are steady, holding on to early session gains as personal care, telecoms and media outperform while travel and real estate lag. The Stoxx 600 rose 0.1%; Roche dropped after the news on its much-awaited experimental Alzheimer’s drug. Here are the most notable market movers:

• Informa shares jump as much as 8.8%, the most in two years, after the company raised full-year revenue and operating-profit guidance, despite assuming zero revenue from live and on-demand events in China in November and December
• German pharmaceuticals giant Merck KGaA rises as much as 6.4% after Bank of America upgraded to buy from neutral, flagging Phase III data for multiple sclerosis drug Evobrutinib which it says could be a “game-changer” for the company’s “perceived lackluster pharma business.”
• Pepco Group soars as much as 19% in Warsaw after the discount retailer was added to MSCI’s global standard indexes in a semi-annual review published after markets closed on Nov. 10.
• Teleperformance rises as much as 5.6%, clawing back more ground following the slump it suffered last week sparked by a report involving its Content Moderation unit in Colombia.
• Rheinmetall climbs as much as 5.2%, touching the highest since Aug. 18, following the German defense company’s acquisition of Spanish ammunition maker Expal in a deal that Warburg says looks like a “good strategic fit.”
• Close Brothers falls as much as 6.5% as the UK financial services firm is cut to sell from hold at Investec, which says the shares now look “a little too expensive.”
• Tremor falls as much as 27%, the most since Aug. 16, after a “challenging 3Q market” led to reported revenue missing analyst estimates.
• Ferrexpo slumps as much as 9.7%, the most since Oct. 24, after Credit Suisse downgrades the stock to neutral from outperform, citing a deteriorating operating environment in Ukraine.
• Roche falls as much as 5.7%, the most since May, after the Swiss pharmaceutical company said its long-awaited Alzheimer’s treatment failed its phase 3 trial, with its research partner MorphoSys plunging as much as 33%, the most in two decades.

In Asia, Chinese stocks extended recent gains on hints of shifting Covid policy along with more support heading toward the property sector. US chipmakers could be in focus, with President Joe Biden and Chinese leader Xi Jinping meeting in Bali, Indonesia, on the sidelines of the Group of 20 summit.

Asian stocks were steady as weakness in markets such as Japan countered gains in China, where authorities issued a sweeping rescue package to bail out the property sector. The MSCI Asia Pacific Index pared an earlier gain of as much as 0.8% to trade flat. While gauges in China pared a bulk of their early gains, the Hang Seng China Enterprises Index closed up nearly 2%, taking its surge this month to 21%.

Vietnam’s benchmark was the worst performer in the region, while Japanese shares also slipped. SoftBank Group’s plunge weighed the most on the regional benchmark. China’s property stocks surged as financial regulators issued a 16-point plan to boost the real estate market. Along with Friday’s easing of some Covid controls, the measures gave traders confidence that China is finally taking concrete steps to tackle the two biggest sore points for its economy and markets -- Covid Zero and the property crisis. READ: Chinese Stocks Storm Into Bull Market on Covid, Property Shifts The MSCI Asia index is up about 11% so far in November, heading for its first monthly gain since July. It is still down more than 21% this year. Traders will be closely watching any further progress on China’s reopening and whether the downshift in US inflation paves the way for a moderation in future Fed interest rate hikes. “We see next year as a much better one for Asia/EM equities, following the longest bear market in history,” Morgan Stanley strategists including Jonathan Garner wrote in a note. The softer-than-expected US inflation will allow the Fed to finish hiking in January, while growth in the region will likely pick up from the second quarter of 2023 helped by China’s reopening, they added

Japanese equities ended lower as investors worried over the strengthening yen and possible cryptocurrency contagion risk amid FTX’s deepening woes.  The two factors overpowered the initial optimism over China’s moves to support eventual reopening and beleaguered property sector. The Topix Index fell 1.1% to 1,956.90 as of market close Tokyo time, while the Nikkei declined by a similar magnitude to 27,963.47.  SoftBank Group Corp. contributed the most to the Topix Index decline as it plunged 13%, the most since March 2020 after disappointing second quarter results. Out of 2,165 Topix members, 575 rose and 1,524 fell, while 66 were unchanged. “The Nikkei Stock Average last week rose sharply and recovered to the 28,000 yen level, and stocks are being sold off for profit-taking,” said Hitoshi Asaoka, strategist at Asset Management One. The strengthening of the yen is also playing into today’s move, he added. 

Key stocks gauges in India fell after benchmark Sensex surged to a record high on Friday, weighed by fast-moving consumer-goods companies while the country’s earnings season nears completion. The S&P BSE Sensex fell 0.3% to 61,624.15 in Mumbai, while the NSE Nifty 50 Index dropped 0.1%. The 50-stock Nifty index is still less than 1% short of its record level seen in October last year.  Volatility in local stocks surged 3%, the most since Oct. 11, while the benchmark Sensex is trading at 14-day RSI of 66, close to levels that traders consider as overbought. Of 49 Nifty companies, which have so far reported earnings, 32 have reported profit in-line or above consensus estimates while 14 have missed. Oil & Natural Gas Corp will be releasing its number later today. ICICI Bank contributed the most to the Sensex’s decline, decreasing 1.3%. FMCG firms ITC and Hindustan Unilever were also among prominent decliners

In FX, the Bloomberg dollar resumed its ascent after crashing last week, rising 0.5% as the greenback gained versus all of its Group-of-10 peers. CAD and EUR are the strongest performers in G-10 FX, JPY underperforms, breaking above 140.40/USD.

• The euro fell to trade around $1.03 after earlier rising to $1.0367, the highest level since Aug. 10. Yields on Bunds and Italian bonds fell. ECB’s Guindos, Centeno and Nagel speak later. The new Italian government will likely miss its fiscal targets amid headwinds to growth, Moody’s said in a statement last week; Fitch reviews Italy, Moody’s reviews Portugal and S&P reviews Ireland on Friday
• The pound pulled back from a 2 1/2-month high versus the greenback. The gilt curve bull-flattened ahead of the UK government’s Autumn Statement due later in the week The Office for Budget Responsibility expects government borrowing to rise to nearly £100b in 2026-27, Financial Times reported on Sunday, citing an “ally” of UK Chancellor Jeremy Hunt
• Australian and New Zealand sovereign bonds fall across the curve on the hawkish Fed comments. The Aussie and kiwi both weakened on the back of broad-based US dollar strength
• The yen was the worst G-10 performer and fell below 140 per dollar. Bank of Japan Governor Haruhiko Kuroda said it’s “very good” that rapid weakening of the yen has halted for now after one-sided moves

In rates, the Treasury yield curve steepened after the hawkish Fed comments and Friday’s moves in Bunds. The 10-year yield rose 6 bps after earlier adding 9bps to touch 3.90%, erasing a portion of Thursday’s historic gains sparked by softer-than-expected October CPI data. Treasury futures had erased a portion of the gains on Friday when the cash bond market was closed for US Veterans Day. Yields are higher by 5bp-8bp Monday, little changed from where they began the Asia session, after Fed Governor Waller, speaking during US evening hours on Nov. 13, said the central bank still has “a ways to go” before it stops raising interest rates, and that the market got “way out in front” after the inflation data. The 5-year TSY, higher by 7bp at 4%, is back in line with its 50-DMA after falling below it Thursday for the first time since Aug. 19. Interest-rate strategists at Goldman Sachs were among those saying the market reaction to October CPI was excessive; the yield declines are “likely overdone,” as risks remain skewed toward an extended Fed tightening cycle, they wrote. Gilts lead latest push, 10-year yields outperform bunds by about a basis point; USTs 10-year yields lag, rising 7bps as they catch up after being closed on Friday.

In commodities, WTI crude futures fall below $88 as initial upside on the USD’s pullback dissipated with the DXY now back above 107.00. Benchmarks are near session lows on the above action and also amid a further strengthening of COVID measures within Beijing after the city reports the highest number of cases in a year. Janet Yellen said India can buy Russian oil at any price if it does not use Western insurance or maritime services, according to a Reuters interview, and said the existence of a G7 oil price cap will give India and other developing countries leverage in bargaining with Russia on oil. Yellen said they are happy for India, China, and Africa to get a "bargain" on Russian oil, inside or outside the price cap. An Indian government official said they do not believe India will follow the price cap mechanism and have communicated that to the countries. OPEC+ "may discuss adjustments to members' oil production baselines in early December as many of them struggle to meet their agreed quotas", according to Energy Intel. "Delegates said it is too early to predict what might happen in Vienna in terms of any potential changes to the alliance's production policy or baseline adjustments. "

There is nothing on today's economic calendar; we get earnings from Tyson Foods; Fed's Williams and Brainard speak, ECB's Panetta, Centeno and Guindos speak

Market snapshot

• S&P 500 futures down 0.5% to 3,981.25
• STOXX Europe 600 up 0.2% to 433.04
• MXAP down 0.1% to 151.66
• MXAPJ up 0.7% to 490.04
• Nikkei down 1.1% to 27,963.47
• Topix down 1.1% to 1,956.90
• Hang Seng Index up 1.7% to 17,619.71
• Shanghai Composite down 0.1% to 3,083.40
• Sensex down 0.1% to 61,714.09
• Australia S&P/ASX 200 down 0.2% to 7,146.35
• Kospi down 0.3% to 2,474.65
• German 10Y yield down 0.9% to 2.14%
• Euro down 0.2% to $1.0323
• Brent Futures down 0.6% to $95.38/bbl
• Gold spot down 0.7% to $1,759.48
• U.S. Dollar Index up 0.51% to 106.84

Top Overnight News from Bloomberg

• Further interest rate hikes are expected to ensure inflation’s return to our medium-term target of 2%, ECB’s governing council member Constantinos Herodotou says in an interview with Greece’s Naftemporiki website
• Germany’s biggest labor union is locked in talks with employers over a pay deal for about 3.9 million workers, in one of the most significant domestic showdowns of Europe’s energy crisis so far
• The ECB will probably receive several hundreds of billions of euros in early repayments of long-term loans this year after officials toughened the terms of the program to aid their fight against inflation
• China issued sweeping directives to rescue its property sector, adding to a major recalibration of its pandemic response in the strongest signs yet that President Xi Jinping is turning his attention toward shoring up the world’s second-largest economy
• The EU is “ready to go” with an effort to impose a price cap on Russian oil, Ursula von der Leyen, the president of its executive arm, said Mondayd

A more detailed look at global markets courtesy of Newqsuawk

APAC stocks eventually traded mostly lower despite the positive lead from Wall Street on Friday.     ASX 200 was contained on either side of the flat mark with losses in Industrials, Telecoms and Healthcare offsetting the gains from the Metals, Mining, and Materials sectors. Nikkei 225 saw its losses lead by Softbank shares tumbling over 12% following its earnings on Friday, which saw the Co’s Vision Fund post a quarterly net loss. KOSPI eventually faded earlier gains following the trilateral meeting between the US, Japan, and South Korea over the weekend, in which White House National Security Adviser Sullivan said the US, Japan, and South Korea have a coordinated response if North Korea carries out its 7th nuclear test. Hang Seng and Shanghai Comp traded in the green for most of the session, with Hong Kong outperforming following source reports that the PBoC and China's Banking and Insurance Regulator told financial institutions to extend support for property firms, with the Hang Seng Property index surging over 15% in early trade, but traders remain cognizant of the Biden-Xi meeting poised to take place on Monday at 09:30GMT/04:30EST.

Top Asian News

• eijing authorities stated on Monday to further strengthen COVID prevention and control measures and reminded residents not to go out unless necessary. The measures are seen as a response to the mounting pressure of soaring cases in the city, according to Global Times.
• China reported 1,794 new confirmed COVID cases in the Mainland on Nov 13th (vs 1,711 on Nov 12).
• Beijing reported the highest number of local COVID cases in over a year, reporting 404 cases on Sunday, according to Bloomberg.
• The PBoC and China's Banking and Insurance Regulator told financial institutions to extend support for property firms, according to Reuters sources. Bloomberg reported that China's real estate rescue package consists of a 16-point playbook for finance officials across the country, according to sources.
• China's Securities Journal noted that China is expected to inject liquidity via a new MFL (unverified).
• PBoC injected CNY 5bln via 7-day reverse repos with the rate at 2.00% for a CNY 3bln net drain.
• PBoC issues a notice to further support the extension of loan repayments for small firms.
• BoJ Governor Kuroda said the Japanese economy is picking up; now is the stage to continue monetary easing to support the economy, according to Reuters. Kuroda said they are closely watching the impact of raw material inflation and currency moves on firms and households. Kuroda said the BoJ and the government are closely monitoring the impact of FX, and market moves on the economy and prices; and said abnormally one-sided sharp JPY weakening appears to have paused, partly thanks to the government's FX intervention.
• Earthquake shakes buildings in Tokyo, Japan, via Reuters; prelim. magnitude of 6.1 via NIED. Magnitude 5.6 earthquake near the S. Coast of Honshu, Japan, via EMSC

European bourses are posting mild gains, Euro Stoxx 50 +0.2%, with participants awaiting the conclusion of the Biden-Xi meeting.
Sectors were predominantly in the green, though performance has turned more mixed as the session progresses.
Stateside, futures are pressured as the recent rally seemingly runs out of steam and also following Fed's Waller pushing back on the post-CPI reaction, ES -0.4%.

Top European News

• UK Chancellor Hunt said he will set out a long-term plan for energy, and said we do have to increase taxes and cut spending. He said he wants to make sure a recession is as short and shallow as possible if the UK falls into one. He added that he will be talking about constraints on the labour force in the budget plan, via Reuters.
• UK Chancellor Hunt said the OBR forecasts will likely present a similar picture to recent BoE forecasts of a recession. Hunt plans to commit around GBP 20bln to extend the energy price guarantee scheme by six months from April and is eyeing a multi-billion-pound package to shield pensioners and benefit claimants from the increases in power bills, according to The Times.
• UK Treasury discussing raising energy price cap from April; department considers making policy announcement in the autumn statement rather than waiting until spring, according to Guardian sources. It is understood that continuing some universal level of support, possibly in the form of a higher energy cap, is also on the table.
• Germany's IG Metall union has called for further strike action on Monday. Strikes will take place at targeted locations in the states of Hesse, Thuringia and Rhineland-Palatinate, according to the union cited by Reuters.
• ECB's Panetta says monetary policy needs to tighten so that inflation does not become entrenched, the consequences of possible errors may not be perceptible today, but they would become evident over time. It may then be too late to fully reverse them.

FX

• DXY spent much of the morning attempting to reclaim the 107.00 mark, with peers deriving modest upside as such though this was mixed with EUR and GBP a touch softer, for instance.
• However, the index has since surpassed the 107.00 handle and lifted to a 107.19 peak to the detriment of peers across the board, though EUR and GBP haven't slipped much further and reside around 1.03 and 1.1750 respectively.
• Traditional havens CHF and JPY are the current laggards, with the JPY particularly impaired and USD/JPY above 140.50 as such and was perhaps spurred by Governor Kuroda reminding that they are to continue with monetary easing.
• Yuan drew much of the focus overnight after the PBoC set its strongest fix since late-September and amid two-way newsflow for the region regarding property support and COVID controls; CNY concluded the domestic session at 7.0378.
• PBoC set USD/CNY mid-point at 7.0899 vs exp. 7.0896 (prev. 7.1907); strongest fix since Sep 27th
• RBI Governor Das said India has a major challenge with regard to inflation. He added that the RBI's FX interventions are impacted by day-to-day developments, and the objective is to prevent excessive volatility. Das added that the RBI's reserves are very comfortable, via Reuters.

Fixed Income

• Core benchmarks were relatively rangebound in the European morning, with the benchmarks struggling to derive any lasting traction from brief forays some 30/40 ticks either side of the unchanged mark.
• However, a concerted bid has been seen most recently in EGBs and Gilts; perhaps spurred by ECB's Panetta who placed emphasis on the risk of policy errors.
• Stateside, USTs are a touch softer and are playing catchup to the Veteran’s Day holiday on Friday and also conscious of remarks from Fed’s Waller who has pushed-back on the post-CPI pricing.
• As such, USTs are lower by a handful of ticks towards the mid-point of 111.27+ to 112.06+ parameters with yields elevated though the 10yr is sub-4.00% and significantly shy of last week’s 4.24% peak.

In commodities

• Crude benchmarks have been slipping throughout the European morning as initial upside on the USD’s pullback dissipated with the DXY now back above 107.00.
• Benchmarks are near session lows on the above action and also amid a further strengthening of COVID measures within Beijing after the city reports the highest number of cases in a year.
• US Treasury Secretary Yellen said India can buy Russian oil at any price if it does not use Western insurance or maritime services, according to a Reuters interview, and said the existence of a G7 oil price cap will give India and other developing countries leverage in bargaining with Russia on oil. Yellen said they are happy for India, China, and Africa to get a "bargain" on Russian oil, inside or outside the price cap. An Indian government official said they do not believe India will follow the price cap mechanism and have communicated that to the countries.
• OPEC+ "may discuss adjustments to members' oil production baselines in early December as many of them struggle to meet their agreed quotas", according to Energy Intel. "Delegates said it is too early to predict what might happen in Vienna in terms of any potential changes to the alliance's production policy or baseline adjustments. "
• Iraq's Prime Minister said Iraq is keen to commit to OPEC policies and decisions but the OPEC production quota should be reconsidered by OPEC members. Iraqi PM added that Iraq needs to raise its oil production to generate more revenues and is keen to maintain stable oil prices of "not above USD 100/bbl". Iraq said it will have a discussion with OPEC members to increase its production quota, via Reuters.
• ExxonMobil (XOM) announced the first LNG cargo from the Coral South FLNG project in Mozambique, the floating production vessel is expected to produce up to 3.4mln metric tons of LNG per annum, via Reuters.
• JPMorgan expects Brent to re-test USD 100/bbl in Q4-2022 and average USD 98/bbl in 2023, via Reuters.
• Earthquake magnitude 6.4 hit around 20km North-west of Lebu, Chile, according to EMSC.
• Both precious and base metals have succumbed to the USD’s relative resurgence with additional headwinds from the mentioned COVID controls. Specifically, spot gold has slipped back towards the USD 1750/oz mark.

Crypto

• FTX was subject to a hack with "mysterious" outflows totalling over USD 600mln, according to CoinDesk. FTX said it has been hacked and instructed users not to install new updates and to delete all FTX apps.
• FTX CEO John Ray said unauthorised access to certain assets has occurred. FTX is in the process of removing trading and withdrawal function to a new cold wallet custodian, via Reuters.
• Hedge fund Galois Capital said that close to half of its capital is stuck on the FTX Exchange, according to FT.
• Hong Kong's AAX Exchange is suspending withdrawals for up to 10 days, as the failure of FTX reverberates through crypto markets, according to CoinDesk.
• Crypto lender BlockFi has paused withdrawals and limited platform activity amid FTX collapse, according to Bloomberg
• Crypto Exchange Huobi says it will continue to take all appropriate steps to withdraw crypto assets from FTX as soon as possible; the incident does not currently affect normal business operations of the group, according to Reuters.
• Visa (V) has terminated its global debit card agreement with FTX, according to a Visa spokesperson via Reuters.
• Binance CEO, on crypto exchanges, said there are still quite a lot of players that cut corners, via Reuters. Subsequently, says they are forming an industry recovery fund, to assist projects which are otherwise strong but are in a liquidity crisis.

Geopolitics

• Ukrainian Foreign Minister said Russian counterpart Lavrov has not asked for a meeting, according to Reuters.
• Ukrainian President Zelensky said Kyiv's forces have taken control of over 60 settlements in the Kherson region. He added that Ukrainian forces are holding firm as brutal battles take place every day in the Donetsk region, via Reuters.
• US President Biden and Russian Foreign Minister Lavrov arrived in Indonesia for the G20 Summit, according to Reuters.
• US Treasury Secretary Yellen said some Russian sanctions could be extended beyond the end of the war in Ukraine, according to WSJ.
• US Treasury Secretary Yellen said they will determine the price level for the Russian oil price cap in the coming weeks, via Reuters.

US-China latest

• US President Biden says US and China can manage differences and stop competition from turning into conflict, expects US and China to play a role in address climate and food shortages.
• Chinese President Xi says has stayed in touch with US President Biden via video but it is no replacement for in-person meetings, both nations need to chart their course and find the right direction for the relationship and elevate it. Prepared to have a candid and in-depth exchange of views on the US-China relationship.
• The White House said further engagement after the Biden-Xi meeting could include face-to-face meetings, according to Reuters. Stated prior to the meeting
• US President Biden will make it clear in the meeting with Chinese President Xi that the US does not seek competition or conflict, and the meeting could last "a couple of hours", according to Reuters citing the White House National Security Adviser Sullivan. Stated prior to the meeting
• US President Biden underscored that freedom of navigation and overflight must be respected in the East China Sea and the South China Sea, via Reuters.
• US President Biden will raise the issue of North Korea with Chinese President Xi at the G20 Summit, according to the White House. Biden will tell Xi that if North Korea continues, there will be more enhanced US military presence in the region.
• Blackrock (BLK) has shelved its China bond ETF amid growing tensions between the US and China alongside a reversal in the China-US yield differential, according to FT.
• US Treasury Secretary Yellen will ask for clarity on China's plans to ease COVID restrictions alongside issues in the Chinese property market, in a meeting with the PBoC Governor, according to Treasury officials cited by Reuters.
• US Treasury Secretary Yellen said the US will likely discuss export controls with Chinese officials, according to Bloomberg.

US Event Calendar

• Nothing scheduled

Central Bank Speakers

• 11:30: Fed’s Brainard Discusses the Economic Outlook
• 18:30: Fed’s Williams Moderates Panel at the Economic Club of New York

DB's Jim Reid concludes the overnight wrap

It’s feels to me we’re in a race against time for markets and the global economy over the next 12 months. Can inflation slow quickly enough for central banks to be able to slow down their hiking cycles enough to avoid systemic accidents? Last week was a great mini case study of the race to come as the bankruptcy of crypto exchange FTX battled it out with a big downward surprise in US inflation. Ultimately the latter won out handsomely, but you can’t help thinking that the rate hiking cycle has claimed another victim with regards to FTX even if other things might also be at play with this company. In a world of free liquidity seen over the prior decade, lots of money has flowed into things that on the surface make little sense but have been transformed into multi-billion or even multi-trillion industries.

Most people I speak to don’t think the current crypto implosion is systemic and this could very well be correct. However, what’s next to unwind/unravel in a hiking cycle that’s not over yet even with slower US inflation last week? The way I like to think about it is that it’s much easier for things not to be systemic when US payrolls are still averaging +289k as they have been over the last 3 months. They averaged +444k in H1. Fast forward 6-9 months when they’re likely to be negative and things that break in the financial system could easily turn more systemic.

In the near-term the technicals and fundamentals continue to be more supportive. Impressive levels of European gas storage due to the weather, very short positioning in US equities, mid-terms being out the way, positive seasonals, less event risk in the Russian/Ukraine war, and now softer US inflation than expected are all helping. However, it’s completely feasible to see a year-end rally and still think risk markets will ultimately be a lot lower in 12 months' time. Indeed, this morning my new Credit Strategy team have just updated a tactical bullish piece (link here) we put out at the end of October (link to that piece here) suggesting that spreads have room to rally through year-end and early Q1'23, especially with investors bearishly positioned into a period of bullish seasonals. We prefer cash credit over synthetic with banks the favoured sector. Our bearish YE 2023 targets haven't changed since early April but we'll be updating this in our 2023 outlook next week.

The most interesting thing about Friday was that European yields, which rallied hard with the US on Thursday, reversed their entire gains on Friday with 10yr Bunds -15bps and then +15bps. The China 20-point Covid restriction easing plan released earlier that day seemed to help. As the US bond market was closed on Friday it’s only responded this morning and 2 and 10yr yields are both around 8bps higher, trading at 4.41% and 3.89%, respectively, as we go to press. Helping that move, this morning in Sydney, Fed Governor Christopher Waller stated that policy makers still had “a ways to go” before stopping interest-rate hikes despite inflation softening in October. He added that the Fed would like to see a similar run of soft CPI readings to take a foot off the brake. He also seemed worried that the market reaction last week was similar to that seen in July where financial conditions loosened more than the Fed wanted. We'll see how the other Fed speakers react to last week's CPI later this week.

Elsewhere in the overnight session, not content with a 20-point Covid plan, China also released a 16-point plan to support the fragile domestic property sector. This came public over the weekend. So it seems that the passing of the party congress has led to a loosening of both restrictions and policies. With the new composition of the ruling party it wasn't clear that this was going to be the case, so this is welcome news for anything China growth related, though the news need to be factored in against the increasing number of Covid cases recorded across the country.

Asian equity markets are mixed this morning, but with China risk leading the way. The Hang Seng (+2.92%) is leading gains with mainland Chinese equities also rallying with the Shanghai Composite (+0.75%) and the CSI (+1.16%) both edging higher. Elsewhere, the Nikkei (-0.82%) is trading in negative territory as heavyweight SoftBank plunged more than -10% after its Vision Fund posted further losses while failing to announce a widely expected share buyback. Meanwhile, the KOSPI (-0.02%) is struggling to find direction. Looking forward, US equity futures are pointing to a negative start today, with contracts tied to the S&P 500 (-0.29%) and the NASDAQ 100 (-0.49%) edging lower. Crypto has remained under pressure as Bitcoin fell as low as $15,846, recording its lowest levels in around two years amid FTX’s deepening woes. It was over $20,000 early last week.

Looking forward and it’s not a blockbuster week for data but there are still some important potential highlights. The US consumer will be in focus, with retail sales (Wednesday) and major retailers' earnings including Walmart and Home Depot (tomorrow) due amongst others. Other major US data releases will include housing market indicators and the PPI (tomorrow). In geopolitics, the G20 summit will run from Tuesday to Wednesday and the COP27 will end on Friday. The G20 will be watched closely for signs of how aligned the members are on the continued war in Ukraine and also for any headlines around Presidents Biden and President Xi's side meeting.

China macro and micro will also be in focus with industrial production and retail sales data (both tomorrow), as well as earnings from major tech firms like Tencent and Alibaba. Japan's GDP and inflation will also be due. In Europe, the UK will release inflation (Wednesday) and employment (tomorrow) data with the government's autumn statement is taking place on Thursday. The latter is less important now that policy credibility has been restored but will still give us a lot of info about the direction for travel in UK policy.

In more detail on some of the main events now. The US PPI tomorrow deserves some decent attention as it will give some insight into the upcoming core PCE which clearly remains the Fed’s preferred inflation measure. October’s headline (+0.4% forecast vs. +0.4% previously) and core PPI (+0.3% vs. +0.3%) are expected to show similar gains to the prior month but the real focus will be on health care services series, which is a direct input into the core PCE deflator. This series has been very volatile of late but has shown signs of easing. So all eyes on this. Heath care was a huge downside surprise in last week’s CPI.

Speaking of inflation, housing data will also be in focus after this week's CPI print showed some moderation in rental price pressures and also with mortgage rates having recently been at 22-year highs. Among indicators released will be housing starts and permits on Thursday and existing home sales on Friday.

In terms of corporate earnings, there won't be many major American companies reporting aside from the aforementioned retailers with over 90% of the S&P 500 members having already released results. In tech, we will get NVIDIA and Cisco on Wednesday and Applied Materials and Palo Alto Networks on Thursday. Over in Europe, notable companies reporting include Vodafone and Infineon on Tuesday and Siemens on Thursday.

The day-by-day calendar is at the end as usual and as you’ll see it also includes numerous ECB and Fed speakers throughout the week, including President Lagarde (Wednesday and Friday).

Recapping last week now and it was yet another wild week that saw a US election, major battleground advances for Ukrainian forces, a major crypto blowup, and a below expectations CPI report that gave the market signs of a potential Fed pivot that it has been desperately hoping for. All in four days on a holiday shortened week for fixed income markets in the US.

Starting with bonds, Treasury yields rallied big this week following the below expectations October CPI report. That saw 10yr yields down -34.6bps and 2yr yields -32.6bps lower, the largest weekly decline in both tenors since the initial Covid onset in March 2020, as pricing for the December meeting finished the week just shy of 50bps at 49.8bps, while terminal pricing ended the week at 4.89% for next spring, its first close below 4.9% in two weeks.

10yr yields also fell in Europe, but lagged the US move, where bunds fell -13.5bps (+15.1bps Friday) and gilts were -17.9bps lower (+6.6bps Friday). European yields sold off Friday when Treasury trading was closed, following reports that China was easing more of their Covid restrictions and with University of Michigan inflation expectations over the next 5 years hitting their highest level in 5 months at 3%. The S&P 500 gained +5.90% (+0.92% Friday) while the Nasdaq +8.1% (1.88% Friday) outperformed with the index being comfortably lower for the week before Thursday’s CPI. European shares also climbed, with the STOXX +3.66% higher (+0.09% Friday) and the Dax up +5.68% (+0.56% Friday).

Finally, reports that FTX, the second-largest crypto exchange was going under, drove a route in crypto assets, that saw Bitcoin fall -20.72% over the week and -5.95% on Friday.