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The US Debt Ceiling: The Only Way Is Up
With Democratic lawmakers currently working to pass a multi-trillion dollar infrastructure bill, Republican senators have rediscovered their fiscal conservatism, which appeared to temporarily desert them during the Trump era. Given their minority status in both Congressional chambers, McConnell and co are relying on a tool that served them well under the Obama administration – the debt ceiling.
Republicans are demanding that Democrats reduce the scale of their planned infrastructure bill, whose price tag could be as high as $3.5 trillion. Without cooperation on that issue, Republican senators say they will refuse to cooperate on the issue of the debt ceiling. With Senate Majority Leader Schumer already ruling out the use of the reconciliation workaround, which allows for a simple majority for a bill to pass, the only path to resolution on this issue is through a normal Senate vote. This is critical, given the 60-vote requirement for regular bills to pass in the Senate – any debt ceiling resolution will require at least 10 red-state senators to break ranks and vote aye. The achievement of 60 votes is made yet more difficult by the potential for moderate Democrats to join their Republican colleagues in blocking action on the debt ceiling, with Joe Manchin having previously expressed his discomfort with the national debt.
Secretary Yellen now says that the US is likely to hit its debt ceiling on the 18th of October, meaning the federal government will be unable to fulfil its financial obligations after this date unless the ceiling is raised or suspended. This latter point is crucial and has been somewhat muddied by Republican spin on this issue. In reality, the debt ceiling is not about new government spending at all, it is about the government’s ability to fulfil spending promises that it has already made. Such obligations include both welfare payments and the maintenance of the national debt, meaning the potential economic consequences of this saga go far beyond the passage or non-passage of Biden’s infrastructure plan.
This is not the first time that Republican lawmakers have employed such a strategy, using it in both 2011 and 2013 to extract concessions from President Obama. In both of these cases, the concessions achieved were relatively minor, and the Republicans were eventually forced to settle for a moral victory at best. On top of that, the Democrats were able to avoid the bulk of the political backlash, with only 31% of the country saying that they were to blame for the crisis in 2011. So why use such a tactic again, given that it appears on the surface to have been so unsuccessful in times past?
- Firstly, the political landscape has shifted drastically since episodes one and two of this trilogy. President Biden is a far less formidable political adversary than his former boss, particularly with regards to charisma and control over the media narrative. McConnell will be betting that his party can do a better job of deflecting blame towards the Democrats now they don’t have to compete with Obama’s overwhelming political celebrity. This strategy already appears to be paying off, with just 16% of poll respondents blaming the Republicans for the potential default.
- Secondly, let us not forget who the intended audience of this political stunt really is – the Republican base. Having the support of even just 31% of the country is more than enough to achieve success in US elections given their historically low turnout, especially in the midterms which are now on the horizon. Turnout will be key in 2022 and this savvy political ploy will increase Republican chances of breaking the Democratic stranglehold on Washington next year by enticing conservative voters to the polls.
With all of this being said, the actual probability of US debt default is virtually zero. This Republican routine would be much more convincing if we hadn’t seen it twice before already. Does anyone really believe that it is a coincidence that all three debt crises have come in the year prior to a midterm election? Or that lawmakers (and their donors) with combined stock portfolios in the billions would seriously allow the devastating economic damage such a default would guarantee? The final nail in the coffin for the convincingness of such a threat is the Republican voters themselves. One of the best-kept secrets in Washington is that red states receive far more in net federal spending per capita than blue states. Whilst conservative voters may love the idea of national fiscal responsibility in theory, they are far more attached to personal financial solvency in practice. If the Republicans actually allowed this debacle to get to a point where the government stopped sending welfare checks, it would be their voters who would suffer the most, and the potential political benefits of this gambit would be nowhere to be seen.
This is not to say that no economic damage will be done or that no panic will occur. In 2011 a resolution was agreed just two days before the debt ceiling was due to be reached and resulted in a US credit rating downgrade and the loss of 1.2 million jobs by 2015. Rather, the very worst fears of the financial markets will not be realised – the debt ceiling will be raised and the infrastructure bill will pass in one form or another. But it’s going to get very messy and very noisy before we get there.
- The panic and political manoeuvring will continue, and may even stretch beyond the October 18th date stated by Yellen, if the Treasury gets creative with their accounting. This uncertainty will hit markets and the real economy but this is a sacrifice Republicans are willing to make. McConnell looks set to trade a few points in the S&P 500 for a few points at the polls in the midterms – a bit of a bargain in political terms.
- Moderate Democrats will use this pressure as leverage against the left in their own party who are pushing for the headline $3.5 trillion bill to be realised. This will lead to further infighting among the Democrats which the left will likely lose, meaning a smaller infrastructure package than initially intended.
- The chances of the Democrats maintaining or expanding their control in Washington just went down.
Stocks firm in Europe after US selloff
The rise in global bond yields that’s been gathering pace since the delayed reaction to last week’s Fed meeting saw US indices finally crack properly. Mega cap growth took a pounding, sending the Nasdaq down 2.8%, whilst the heavy weighting of these stocks on the S&P 500 sent the broader market lower by 2%. Jay Powell, facing scrutiny from lawmakers in Congress, said inflation could stay „elevated“ for longer than previously predicted. Investors are also paying close attention to events in Washington as Republicans once again blocked efforts to raise the debt ceiling and avoid a government shutdown and potential default. European stock markets were firmer in early trade, tracking the middle of the recent ranges. The FTSE 100 continues to trade in a range of a little over 100pts.
Next rose 2.5% as it once again raised its full-year outlook. In the six months to July, brand full-price sales were +8.8% versus 2019 and +62% against 2020. Profit before tax rose to £347m, up +5.9% versus 2019. Full-price sales in the last eight weeks were up +20% versus 2019, which management said ‘materially’ exceeded expectations. The strong outrun means Next is raising full-price sales guidance for the rest of the year to be up +10% versus 2019. And its forecast profit before tax has been raised to £800m, up +6.9% versus 2019 and +£36m ahead of previous guidance of £764m.
The dollar is making new highs, hitting its best since Nov 2020 even as the bond selling takes a pause. US 10yr rates have edged back to around 1.51%. Elsewhere, Citi cited Evergrande as it cut its China 2022 GDP forecast to 4.9% from 5.5%. A key gauge of long-term Eurozone inflation expectations rose to the highest since 2015.
Sterling moved to fresh YTD lows, with GBPUSD touching the 1.350 support. Some have pinned this on fuel (lorry driver) shortages and panic buying. Others have raised the stagflation klaxon because of the fuel problems. This looks like finding a narrative to suit the price action. Nothing changed yesterday relative to the day before. Much like we saw in the bond and equity markets, things move. And cable maybe is seeing a flushing out of some weak hands post the BoE hawkishness. What we have seen is the way sterling moves in a risk-on, risk-off fashion and yesterday was clearly risk off. Expectations for the BoE to raise rates before the Fed may create problems if the BoE has to walk that back in the face of a tougher economic backdrop. Clearly, bulls were caught in a bit of a trap last week and we need to see a bottom formed before we get excited again.
Stocks ease back at the open, oil and yields higher still
Yields are popping, as a bond market selloff that started last week in the wake of the Fed meeting gathers steam. US 20yr and 30yr paper is yielding the most since July, both above 2%, whilst the benchmark 10yr note has jumped above the psychologically important 1.5% level to 1.53%, its highest since June. Bets on central banks tightening monetary policy more swiftly than previously thought are fuelling the selling in rates as investors also focus in on the wrangling in Washington over the US debt ceiling. Whether we are talking reflation or stagflation, the ‘flation part of the equation is clear and yields need to rise as a corollary. If the Fed is buying $120bn a month in debt today, but buying less tomorrow, it makes sense that rates will inevitably rise.
Senate Republicans on Monday were true to their word and blocked a House bill that would avert a government shutdown and potential default on US debt. Democrats have until Friday to pass legislation that will avoid a shutdown, whilst it’s likely that the debt ceiling must be raised by the middle of October to prevent the US government defaulting on its debt. This pantomime must play out, but it seems impossible that the debt ceiling won’t be raised. A shutdown is possible, however default is unthinkable. Two Fed officials warned of extreme market reaction in the event of a default. Whilst this extreme tail risk is in any way ‘on the table’, Treasuries can expect to go through a period of further volatility.
And with rates on the rise the reflation-value play in the stock market is back on. Energy and financials and stocks tied to the reopening of the economy did well, mega-cap tech and growth was generally weaker as yields rose. Real estate, healthcare and utilities stocks also fell. That mix left the Dow higher but the S&P 500 and Nasdaq lower for the day. We await to see whether the rotation stardust can power further returns for the broad market – as happened at points earlier this year – or if the heavy weighting of the mega cap tech names will weigh further still. European stock markets are a touch lighter in early trade following Monday’s session which was a story of declining risk appetite throughout the session after a pop at the open. Oil keeps heading in one direction, with WTI above $76 and Brent touching $80.
Time to redo the dot plot: Whilst the Fed has started to sound a tad more willing to raise rates, two of its most hawkish members are on the way out. Boston Fed chief Eric Rosengren and Dallas Fed boss Robert Kaplan announced they will be stepping down shortly. “Unfortunately, the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve’s execution of that vital work,” Kaplan said in a statement. “For that reason, I have decided to retire.”
This does three things. One, it draws a line under the recent trading disclosure furore. It shows that the Fed under Powell won’t suspect behaviour. Two, it’s going to lower the chances of the insider trading story scuppering Powell’s renomination as Fed chair. Three, it removes two of the more hawkish members from the committee, which could have some implications for monetary policy depending on who replaces them. In the meantime vice presidents Meredith Black (Dallas) and Kenneth Montgomery (Boston) will stand in as interim presidents.
Powell and Yellen testify before a Senate Banking Committee today – the timing of Kaplan and Rosengren stepping down should allow Powell to easily bat away some potentially touch questions over their trading. We also have the Fed’s Evans, Bostic and Bowman on the tape later.
Rising Treasury yields offered support to the US dollar. EUR/USD is down to 1.1670 area, through some big Fib zones and near to the key support at 1.1664-66, while USD/JPY above 111.30 with the YTDS high at 111.64-66. Dollar index is north of 93.60 and towards the very top of the range of the last 11 months – big test here to see if the dollar is going to exert more strength into the back end of the year.
Gold struggling, making new lows this morning with rates on the march.
Stocks up as markets look to Berlin & Washington
Stocks are higher in early trade in Europe, with the DAX jumping 1% at the open as it looks as though Germany is heading for a traffic light coalition – more left, more green. Deadlock for now but it’s all much of the same pro-Europe, pro-tax, pro-windmills type affair so who ultimately becomes Chancellor probably shouldn’t matter too much. Stocks in London was also up close to 1% and the FTSE 100 trades further to the top of the range above 7,100. Stocks pared some gains within the first half-hour of trading. Following a two-month struck last week it’s been a solid turnaround and shows there is not a lot of alternatives (TINA) still, though that starts to look like a different equation should bond yields continue to pick up. US futures are also pointing to a positive open on Wall Street later after last week’s rollercoaster saw the S&P 500 rise 0.5% and the Dow Jones 0.6%, breaking a three-week losing streak. I’d expect near-term volatility to persist, further chop and change and rotation as markets price for tighter monetary policy, with hikes in 2022, as well as persistent inflation. US 10 year yields trade above 1.44% this morning having touched the highest since the start of July, end of June last week.
Apart from Berlin, markets will be keeping an eye on Washington with the utterly ridiculous idea of a default on US debt, an unlikely government shutdown and a plausible collapse of Biden’s economic plans all being discussed. Speaker Nancy Pelosi said she expects the $1 trillion bipartisan infrastructure bill to pass this week, but also indicated that the $3.5 stimulus programme was almost certain to be watered down. Expect haggling aplenty and markets could be moving on headlines.
The Fed blackout period is over – so we can expect lots of jawboning from policymakers this week. On the slate today are Evans, Williams and Brainard. ECB chief Christine Lagarde (the Lady is not for tapering, the Lady is for recalibrating) is on the taper before them. Also watch for durable goods orders (seen +0.7%, core +0.5%).
Rolls-Royce shares on the up again, rallying 5%, after securing the mega US government contract to power the B-52 Stratofortress for the next 30 years. The F-130 engine will be manufactured at the company’s Indianapolis site, which has recently had a $600m makeover. On the back of some decent price action for the stock, the move confirms the breakout of the 2021 range can calls for further gains for the stock now the worst of the pandemic is behind.
BP trades 2% higher – I wouldn’t be tying this to panic buying and shortages on the forecourts, More likely down to continued rally for oil prices that has seen WTI touch $75 this morning.
Did the BoE really mean to suggest it could raise rates this year, before the end of the QE programme? That statement from the MPC last week, above all the other hawkish hints dropped, was the reason Sterling rallied, before easing back. If the markets are getting ahead of themselves with regards the timing of a rate hike , then Andrew Bailey can row it back when he speaks this evening.
GBPUSD traded around the 61.8% retracement of last week’s BoE-inspired rally, with the 50% area offering resistance to give us a range marker for this session. That 50% area coincides with the longer-term 23.6% retracement area at 1.3680. At the open we saw some bid come through for sterling as it broke free from this overnight range, hitting 1.3690 and looking for a breach of the 38.2% retracement of the near-term range at 1.370, before easing back.
Crude oil keeps on rallying, with WTI (Nov) breaking above $75. This move has real momentum behind it, as well as solid fundamental rationale as oil markets tighten. The tightness in the physical market means inventories are being drawn down around the world. That said, money managers trimmed their net long futures and options positions in the week to Sep 21st, according to the latest CFTC data. This is overall a positive for the duration of the rally since it indicates the price action is driven by more fundamental factors than just a speculative blitz. Goldman Sachs has raised its year-end Brent crude price target to $90, and $87 for WTI.
They say: “While we have long held a bullish oil view, the current global oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above consensus forecast and with global supply remaining short of our below consensus forecasts.
“The current oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts.”
July 13th peak at $75.50 offers the first test before we see another ascent at $77. Near-term support seen at the daily low at $74.70.
Wochenausblick: Könnten PCE-Zahlen für die USA die Fed zum Zurückfahren bringen?
Auf dem Plan stehen diese Woche: Wir verabschieden Angela Merkel und schauen, was die Zukunft für Deutschland bringt, das zum ersten mal seit 10 Jahren nicht unter ihrer Führung ist. Uns erwarten außerdem große Veröffentlichungen von Daten aus den USA, unter anderem die Lieblingsmetrik der Fed zur Inflation und Zahlen zum kanadischen BIP. Wird sie rückfällig werden?
Wir wissen alle, dass die Fed PCE-Zahlen liebt. Personal Consumption Expenditures (also persönliche Konsumausgaben) ist ihre Lieblingsmetrik für Inflation – und eine, die das viel diskutierte Zurückfahren früher herbeiführen könnte, je nach dem wie die Zahlen für August aussehen.
Der breite Marktkonsens ist, dass die Fed im November oder Dezember beginnen wird, ihre wirtschaftliche Unterstützung zurückzuziehen, die Frage jetzt ist also der Anstieg des Leitzins’. Die Fed hat bereits im Juni ihre Vorhersagen zur Kern-PCE-Inflation für 2021 von 3,7% auf 3% zurückgefahren – sie wissen, dass es heiß ist. Vorsitzender Powell hat außerdem bekanntgegeben, dass die Fed dieses Jahr anfangen wird, Maßnahmen zurückzufahren. Die Frage ist jetzt, ob die Fed diese Erwartungen noch weiter nach oben korrigieren muss und was das für steigende Leitzinsen bedeuten könnte. Ein die Erwartungen übertreffender Wert diese Woche, könnte die Sorge schüren, dass dies der Fall ist.
Natürlich spielen da auch externe Faktoren noch eine Rolle. Es sollte außerdem erwähnt werden, dass 0,4%-Sprung im Juli den Erwartungen entsprach und eine Abkühlung im Vergleich zu den Zahlen vom Juni zeigte.
Im Juli hatte die Gesamtinflation 4,2% erreicht. Den jüngsten VPI-Zahlen zufolge stieg der Preis von Konsumgütern im August um 5,3%. Das entspricht den Erwartungen. Es könnte außerdem Hinweise darauf geben, in welche Richtung sich die PCE-Zahlen bewegen.
Die Fed hat zu Protokoll gegeben, dass sie kein Problem damit habe, die Inflation über dem Ziel von 2% laufen zu lassen, da sie diese Höhen für nur von vorübergehender Natur halten.
Die Vereinigten Staaten versucht wie alle großen Volkswirtschaften ihren Weg aus der Pandemie-Wirtschaft zurück zur Normalität zu finden. Es könnte der Fall sein, dass eine heiße Inflation die Wirtschaft weiterhin versengt, bevor sie 2022 ausbrennt und verblasst.
Die jüngsten PCE-Zahlen kommen am Freitag.
Daran gebunden ist das US-Verbrauchervertrauen. Logischerweise deuten höhere Preise auf eine schlechtere Konsumstimmung hin. Das kann man auch in den Zahlen vom August sehen und es könnte sein, dass sich das in den Zahlen für September, die wir Dienstag Nachmittag erhalten, fortsetzt.
Im August sank das Verbrauchervertrauen auf ein Sechs-Monatstief. Der Conference Board Index fiel im Juli auf 113,8 von einem angepassten Wert von 125,1.
„Besorgnis über die Delta-Variante – und in geringerem Maße steigende Gas- und Lebensmittelpreise – führten zu einer ungünstigeren Einschätzung der aktuellen Wirtschaftslage und der kurzfristigen Wachstumsaussichten“, sagte Lynn Franco, Senior Director of Economic Indicators beim Conference Board , in einer Erklärung zum Rückgang.
Mehr als 39 Millionen COVID-19-Fälle wurden bisher in im Laufe der Pandemie in den USA gemeldet.
Weg von den USA, schließt Deutschland das Kapitel Angela Merkel mit Ende ihrer Kanzlerschaft. Nach 16 Jahren tritt Merkel zurück, was dem aktuellen Wahlkampf einen Hauch spannender Veränderung bringt.
Nach Heute wird Deutschland einen brandneuen Kanzler haben. Vorsitzender der SPD Olaf Scholz war im Wahlkampf der Spitzenreiter vor den Konkurrenten von CDU und den Grünen.
Man geht davon aus, dass die Grünen, denen Umfragen zufolge das beste Wahlergebnis ihrer Geschichte bevorsteht, der Hauptpartner der SPD in einer neuen Koalition werden könnten.
Unsere Volkswirtschaftsexpertin und Politik-Guru Helen Thomas hat sich mit dem möglichen Ergebnis der aktuellen Bundestagswahl beschäftigt. Haben sich ihre Vorhersagen bewahrheitet?
Da wir gerade von Wahlen sprechen, die Kanadier haben vor kurzem für eine Reihe politischer Veränderungen gestimmt, mit PM Trudeau im Sattel für eine dritte Amtszeit. Die Mehrheit der Liberalen ist geschrumpft – was die wirtschaftlichen Schritte der Nation interessant lassen werden könnten.
Nach einem Rückgang von 1,1%, werden diesen Monat die monatlichen BIP-Zahlen für Kanada veröffentlicht. Schätzungen gingen von 2,5% Wachstum aus, als selbst wenn die vorgezogenen Wahlen Trudeau weiterhin im Amt lassen, wird er die gleichen Herausforderungen meistern müssen wie zuvor.
Die wirtschaftliche Erholung wird „weiterhin das gleiche Maß außergewöhnlicher Unterstützung erfordern“, sagte der Gouverneur der Bank of Canada Tiff Macklem. Es werden keine Anpassungen der Wirtschaftspolitik erwartet – trotz enttäuschender BIP-Zahlen im letzten Monat. Vielleicht sehen wir diesen Monat eine Trendwende oder verschwindet das Thema möglicherweise hinter dem Wahlkampf-Getöse?
|Sun 26-Sep||All Day||EUR||German Federal Elections|
|Tue 28-Sep||2.30am||AUD||Core Retail Sales m/m|
|3.00pm||USD||CB Consumer Confidence|
|Wed 29-Sep||3.30pm||OIL||US Crude Oil Inventories|
|Thu 30-Sep||2.00am||CNH||China Manufacturing PMI|
|Fri 01-Oct||8.55am||EUR||German Final Manufactuing PMI|
|1.30pm||USD||Core PCE Index m/m|
|3.00pm||USD||ISM Manufacturing PMI|
Yields and central banks on the move
Central banks on the move: Norway’s central bank became the first in the G10 to raise rates after the pandemic, Turkey’s central bank – an outlier – lowered rates (to 18%), whilst the Bank of England and Federal Reserve sat on their hands but indicated they too are about to start moving. Yields are on the move too as bonds sell off on tightening expectations. Something has clearly changed and positioning on rates is shifting. US 10yr yields jumped to 1.44%, posting their biggest one-day gain since March, whilst 30yr bond yields jumped the most in a single day since March 2020. European bond yields are also marching higher.
Although the Fed and BoE remain fairly cautious and the dogma of transitory inflation persists, they’re starting to move beyond pandemic-era emergency mode. Investors see this and are moving too – rates steepening again as they did earlier this year. As we noted yesterday morning, whilst the initial reaction to the Fed’s announcement on Wednesday saw the yield curve flatten, the steepening as the long end picks up is the natural response to the Fed turning more hawkish – it was not just earlier for lift-off but also more hikes in 2023/24. Investors are also betting on higher inflation for longer. US inflation expectations ticked higher too, hitting a month high, helping gold to fend off the move in nominal rates to trade around $1,750, having put in a near-term low at $1,737. The dollar also made a strong move lower yesterday, adding further support.
Stocks rallied on Wall Street, mega cap growth just underperforming a bit as yields rose, helping financials do well. The S&P 500 recovered the 50-day SMA at 4,437 and closed above at 4,448.98. Small caps outperformed with the Russell 2000 picking up almost 2% as reflation trade thinking resurfaced. Energy was the top performer on the S&P 500 again as crude oil (Nov) broke through $73, whilst Brent is testing a 3-year high. Natural gas is back above $5 this morning.
Stocks trade weaker in the early part of the session in Europe as investors digest the selloff in global bonds and look ahead to the uncertainty of the German election on Sunday, which may be a factor for the DAX today. Helen Thomas of BlondeMoney has an excellent preview on the topic for us. The FTSE 100 sits around 7,050, slap in the middle of the range it’s treaded since April. AstraZeneca shares rose 3% as its Lynparza cancer drug performed well in its PROpel Phase III trials. Shares in Hong Kong fell over 1% with Evergrande down 13% as it apparently missed a deadline for an interest payment of $83.5m on an offshore bond.
The US dollar is drifting higher this morning after yesterday’s selloff with near-term momentum positive having briefly hit its highest since Aug 20th. Tweeted yesterday about topping pattern for USD and yesterday’s (just about) outside day candle could be the reversal signal.
GBPUSD is holding most of yesterday’s gains but has just pared back a touch to trade at 1.3710 after hitting 1.3750.
Stocks rise after Fed walks fine line on tapering, rate hikes
European markets trading higher after the Fed delivered another lesson in how to gently massage markets into accepting that tightening is on its way. The FTSE 100 has recovered all its losses this week, back to the 7,100 area. Wall Street rallied on the Fed’s apparent lack of haste to taper, and didn’t worry that policymakers see rates lifting off sooner than previously indicated. The S&P 500, Nasdaq and Dow Jones all rose 1%, whilst small caps rallied 1.5%. Benchmark 10yrTreasury yields initially softened on the release but have since recovered to around 1.34%. Gold initially rallied but has since pulled back. The dollar fell at first but after a brief rally to its highest since Aug 20th is back to where it was before the statement.
More liquidity from the PBOC eased worries, Evergrande shares rallied 17% in Hong Kong, where the broad index rose 1%. The Bank of England later today will be the main focus for markets, particularly UK assets. The Old Lady will need to respond to the biggest jump in inflation on record and worries that it could lose credibility if it allows longer-term inflation expectations to slip their anchors. UK 1-yr inflation expectations shot up to 4.1% in September from 3.1% in August, according to the Citi survey, which also showed longer-term inflation expectations drifting higher. Although well into a taper of its own, the BoE would be well justified in ending QE today.
The Federal Reserve gave the market plenty to think about but didn’t cause a tantrum. Jay Powell continues to walk the line between guiding the market to expect tightening without unduly worrying investors. The overall feeling was giving with one hand and taking with the other; for instance, inflation was revised higher but unemployment and growth moderating. The Fed is hedging its bets a bit but overall it’s leaning in towards tightening – the question is whether it starts to lean in more as inflation sticks.
• Tapering coming soon: “Participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate”. Likely to be announced in Nov, commence in Dec.
• Tapering could be conducted at a quicker pace than the market thought before. „Taper could conclude around the middle of next year.“ This implies a rate of $20bn monthly, which arguably, by getting the tapering done early, offers the Fed more scope to raise rates sooner without alarming markets yet.
• Quicker pace to taper could suggest faster rate hike cycle, curve flatter but long-end rates should start to pick up and steepen
• Employment goal all but there – Powell: “My own view is the test for substantial further progress on employment is all but met”. This somewhat begs the question as to why the Fed is not already tapering and on course to raise rates in order to temper inflation expectations that are running wild.
• So the Oct 8th NFP report will be of great importance – “The test is accumulated progress. For me, it wouldn’t take a knock-out, great, super strong employment report”
• Inflation is stickier and far less transient than previously thought. Core PCE revised up 70bps to 3.7% this year, also revised up next year.
The core PCE inflation number for this year was hiked to 3.7% from 3.0%, the 2022 figure to 2.3% from 2.1%. They’re pulling out the ‚transitory but not quite as transitory as we thought‘ line. I called 3.5% for 2021 and 2.5% for 2022 – so Fed still frontloading inflation expectations here – more in 2021, cooling sharply next year. The question is whether these will need to be revised higher again and what this could mean for rate hikes.
More policymakers see rates rising in 2022 and near-term inflation forecasts are being revised higher. On the other hand, growth and unemployment forecasts are not as bullish and the Fed has not tied its colours to a particular date to begin tapering asset purchases.
Since June, policymakers have become noticeably more hawkish, partly due to the recovery – Delta concerns have greatly eased since then – and partly due to the persistent inflation narrative. Nine policymakers see rate rising next year, whilst the median dot sees three hikes each in 2023 and 2024.
Big tech facing a watershed? Every action has an equal and opposite reaction – and I sense we are ready to see that reaction for some key momentum-mega cap growth names.
Facebook is facing a stern test with some major new allegations filed in a Rhode Island lawsuit. In summary, the plaintiffs allege FB spent billions to protect boss Mark Zuckerberg personally. Specifically, they claim the company paid $4.9 billion more the Federal Trade Commission sought in relation to the Cambridge Analytica scandal in order to shield its CEO from being held personally liable for “failing to oversee privacy at Facebook”. The suits also allege that there were „epic corporate governance breakdown“ and details massive „insider trading“, whilst also claiming Zuck misled Congress. Anyway. it’s a hornets’ nest of SEC-related failures.
The insider trading bit relates to hundreds of millions to billions made by corporate insiders who would have been aware that the ‘hypothetical’ risks to the company were in fact fully realised harms. For more read this excellent thread. Facebook shares fell 4%.
I don’t know if it gets anywhere. But I sense winds of change for big tech. Tesla is being investigated at long last over autopilot, Gensler has taken a hard line on cryptos and put Coinbase back in its box. The laissez-faire approach under the Trump administration looks like a thing of the past.
• Robinhood shares rallied 10% on news it will launch its own crypto wallet for users to hold physical Bitcoin etc
• Cathie Wood reiterated her $3,000 PT on Tesla, says she would sell out if it hit that level next year.
• Royal Mail shares flat to negative despite growing revenues almost 18% over 2019 levels. Outlook maintained with group adjusted operating profit for the first half of 2021-22 is expected to be £395 to £400 million.
The Federal Reserve is playing for time – more certainty from Washington as much as inflation and the path of growth are needed before they really start to move, but the consensus is clearly tilting towards a marginally more hawkish view with rate hikes now pencilled in for 2022. Market reading this as marginally dovish since the taper was not announced but this is balanced by the more hawkish dots. On balance market reaction seems a little off kilter but we await chairman Powell next.
On tapering – if economic progress continues then reducing asset purchases would be warranted. It’s a prewarning but they are not tying themselves to any date just yet. Still set to taper this year but the absence of a clear signal in the statement indicates it’s more likely to be Dec after being announced in Nov.
On lift for rates – median hike brough forward to 2022 from 2023 previously. Markets had already been pricing Dec 2022 as the lift-off for rates so this is well anticipated. Dot plots are firming up the shorter maturities as investors price in the Fed raising rates in the near future but the long end is not playing ball as no one sees long-term growth picking up massively – so more curve flattening, not the big steepener we’d thought earlier this year – but that is just for the time being. 10s are weaker around 1.305%, down heavily from the 1.34% area traded earlier today. Gold is firmer and the dollar weaker, though the kneejerk in the seconds after the release was the reverse. The Dow trades firmer and the S&P 500 rallied to session highs in the wake of the release. So far the market is buying the Fed’s line that tapering ain’t tightening and that it will do all it can to avoid a tantrum in the bond market.
On inflation – the core PCE inflation number for this year was hiked to 3.7% from 3.0%, the 2022 figure to 2.3% from 2.1%. They’re pulling out the ‚transitory but not quite as transitory as we thought‘ line. I called 3.5% for 2021 and 2.5% for 2022 – so Fed still frontloading inflation expectations here – more in 2021, cooling sharply next year. Still not the ‘substantial further progress’ because it’s transitory – go figure.
On growth – hotter this year, cooler next, reflecting the slowdown in the reopening burst and also the problems in global supply chains, labour shortages leaving the economy running below potential and the impact of inflation.
On employment – like the more circumspect growth outlook the unemployment outlook for this year is not so good – 4.8% vs 4.5% in June. Slower growth, plus a less racy recovery in the labour market net out the inflation concerns – but it’s signalling stagflationary trouble ahead.
Fed to announce QE taper?
Whilst markets do not expect the Federal Reserve to race towards tapering asset purchases – the soft jobs report did for that – there is a broad consensus in the market that it will begin dialling back the pace of its QE programme from November. That means this week’s meeting may be an appropriate moment for the Fed to give the market fair warning. Or not. In a sense it doesn’t matter much what they say or don’t say on tapering – the risk lies in what the Fed does or doesn’t say about rate hikes. And though Monday’s market sell off may have caught the Fed off guard, with stocks just 4% off record highs and credit markets accommodative, there is not any reason for panic. Stocks have been rolling over since the weak jobs report, and Fed officials should be prepared to look through some softer data and mild pullbacks in equity markets.
Last week’s CPI inflation clouded the outlook a touch – it was a little softer than expected, giving the Fed some more breathing space. More importantly, the very weak August jobs report suggests the Fed might not want to nail its colours to a November taper launch just yet. It could signal it still believes that tapering is appropriate this year without giving a fixed schedule. But we’re talking on the margins here – expectations still squarely on the Fed to taper this year, November seems likeliest. And the bounce back in retail sales in August should give policymakers some confidence that the worst of the Delta effect – a notable chilling of confidence and spending (and hiring) – is over. So too the fact jobs openings are very high and business confidence is improving again.
Investors will be most interested in how policymakers assess the pace of the labour market recovery, and whether they believe inflationary pressures are becoming less transitory than they thought. Close attention will be paid the latest round of economic projections for a guide on whether the Fed is changing its mind on the pace of inflation and growth. My own view is that we get a Fed that is more ready to accept – at least in the projections and dots, if not Powell’s words – that inflation is stickier than they thought it would be.
And the dot plot will be scrutinised of course. The last round brought the first rate hike into 2023, but there could be an even more hawkish shift calling for lift-off sometime next year once the tapering is complete. We’ve been hearing a fair bit from some of the more hawkish members of the FOMC lately about getting on with it, but the central view of the Powell/Clarida/Williams ruling triumvirate is more dovish – so dots could offer a more hawkish outlook than is the case.
In March, 4 Fed officials expect hikes in 2022 and seven Fed officials in 2023. In June, 7 Fed officials see hikes in 2022, while 13 fed official see hikes in 2023.
On inflation – we surely have to see some uplift to the median forecasts for 2021/2022 which would accompany a more hawkish looking dot plot/communique. The forecasts just look plain wrong now.
Wochenausblick: Kündigt die Fed Rücknahmen ihrer Maßnahmen an?
Alle Blicke sind auf die Federal Reserve gerichtet und darauf, ob sie das FOMC-Treffen vom September dazu nutzen wird, die langerwartete Rücknahme der Anleihenkäufe zu verkünden. In der Zwischenzeit werden die heißen Inflations-Zahlen der letzten Woche die Bank of England zum Nachdenken gebracht haben, ob sie nicht eine falkenartigere Position beziehen sollte.
Kündigt die Fed eine Rücknahme der quantitative Lockerungen an?
Während die Märkte nicht erwarten, dass die Federal Reserve in Richtung einer Rücknahme der Anleihekäufe rast, besteht am Markt ein breiter Konsens darüber, dass sie ab November damit beginnen wird, das Tempo ihres QE-Programms zu reduzieren. Das bedeutet, dass das Treffen diese Woche ein geeigneter Moment für die Fed sein könnte, den Markt vorzuwarnen.
Die VPI-Inflation der letzten Woche trübte die Aussichten ein wenig – sie war etwas schwächer als erwartet, was der Fed etwas mehr Spielraum verschaffte. Die schwachen Arbeitsplatzzahlen für August könnten aber bedeuten, dass die Fed sich noch nicht zu einer Rücknahme im November verpflichten möchte. Sie könnten signalisieren, dass sie immer noch daran glauben, dass eine Rücknahme angemessen ist, ohne aber einen festen Zeitrahmen bekanntzugeben.
Die Anleger werden das größte Interesse daran haben, wie die politischen Entscheidungsträger das Tempo der Erholung am Arbeitsmarkt einschätzen und ob ihrer Meinung nach der Inflationsdruck permanenter ist als gedacht. Man wird die jüngsten Wirtschaftsaussichten genaustens auf Anzeichen dafür beobachten, ob die Fed ihre Meinung zur Geschwindigkeit der Inflation und zum Wachstum ändert.
Bank of England antwortet auf heiße Inflations-Zahlen
Die Bank of England wird beim Treffen diese Woche auf den größten je gemessenen Sprung der Inflation antworten müssen. Die Inflation beschleunigte sich von 2% im Juli auf 3,2% im August und liegt damit deutlich über dem Ziel der Zentralbank von 2%. Könnte das die BoE dazu zwingen, die Geldpolitik früher als erwartet anzuziehen? Eine falkenartige Bank of England wäre ein Schub für den Pfund Sterling.
Die wichtigsten Wirtschaftszahlen
Zusätzlich zum oben genannten warten die Märkte diese Woche gespannt auf eine Reihe wirtschaftlicher Daten, unter anderem eine neue Runde Flash-PMIs für die Euro-Zone, Großbritannien und die USA am Donnerstag. Die Bank of Japan wird sich auch bald wieder treffen. Gouverneur Kuroda merkte kürzlich an, dass die Zentralbank die Geldpolitik falls notwendig weiter lockern werde, etwa durch Zinssenkungen.
Geschäftsberichte von Nike und FedEx
Es stehen nicht mehr viele Geschäftsberichte im Kalender, aber es gibt Updates von Nike, FedEx und weiteren. Nike gab im Juni ein sehr starkes Q4-Ergebnis bekannt, was die Aktie auf Rekordhöhe schießen lies. Verkäufe im vierten Quartal stiegen 96% im Vergleich zum Vorjahr und 21% im Vergleich zu 2019. Die Gewinnmargen verbessern sich durch den greifenden Wandel des Unternehmens zu einer direkten Versorgung des Verbrauchers hin ebenfalls. „Das Finanzjahr 2021 war ein unglaublich wichtiges für NIKE, da wir unsere Consumer Direct Acceleration Strategy an den Markt gebracht haben,“ sagte CEO John Donahoe. Allerdings sind Aktien in letzter Zeit wegen Sorgen über Probleme bei den Lieferketten gefallen, so sind in der Produktion in Vietnam Millionen Einheiten durch Covid verloren gegangen.
„Im Laufe seiner Geschichte war die Aktie von Nike sehr eng mit dem Umsatzwachstum korreliert. Daher glauben wir, dass die Aktie von Nike mit zunehmenden Beweisen dafür, dass die Verkäufe wahrscheinlich ins Stocken geraten werden, bestenfalls Wasser treten wird, bis mehr Klarheit über die Produktionsprobleme besteht, und im schlimmsten Fall unter einer reduzierten Verkaufsprognose und der daraus resultierenden Mehrfachkompression leiden wird“, sagten BTIG-Analysten in einer Notiz, in der die Aktie auf neutral herabgestuft wurde.
Es erwarten uns außerdem Geschäftsberichte von Adobe, General Mills und Costco.
|Mon Sep 20||12:01am||GBP||Rightmove HPI m/m|
|All Day||JPY||Japan Bank Holiday|
|All Day||CNH||China Bank Holiday|
|7:00am||EUR||German PPI m/m|
|Tentative||EUR||German Buba Monthly Report|
|3:00pm||USD||NAHB Housing Market Index|
|All Day||CAD||Canada Federal Election|
|10:00pm||NZD||Westpac Consumer Sentiment|
|Tue Sep 21||All Day||CNH||China Bank Holiday|
|2:30am||AUD||Monetary Policy Meeting Minutes|
|GBP||Public Sector Net Borrowing|
|11:00am||GBP||CBI Industrial Order Expectations|
|2:00pm||CNH||CB Leading Index m/m|
|3:30pm||AUD||CB Leading Index m/m|
|Tentative||NZD||GDT Price Index|
|Wed Sep 22||Tentative||JPY||Monetary Policy Statement|
|Tentative||JPY||BOJ Policy Rate|
|Tentative||JPY||BOJ Press Conference|
|2:00pm||CHF||SNB Quarterly Bulletin|
|USD||Existing Home Sales|
|3:30pm||Oil||Crude Oil Inventories|
|7:00pm||USD||FOMC Economic Projections|
|USD||FOMC Monetary Policy Statement|
|7:30pm||USD||FOMC Press Conference|
|Thu Sep 23||12:00am||AUD||Flash Manufacturing PMI|
|AUD||Flash Services PMI|
|All Day||JPY||Japan Bank Holiday|
|Tentative||EUR||German Import Prices m/m|
|8:15am||EUR||French Flash Manufacturing PMI|
|EUR||French Flash Services PMI|
|8:30am||CHF||SNB Monetary Policy Assessment|
|CHF||SNB Policy Rate|
|EUR||German Flash Manufacturing PMI|
|EUR||German Flash Services PMI|
|9:00am||EUR||Flash Manufacturing PMI|
|EUR||Flash Services PMI|
|EUR||ECB Economic Bulletin|
|9:30am||GBP||UK Flash Manufacturing PMI|
|GBP||UK Flash Services PMI|
|12:00pm||GBP||Bank of England monetary policy decision|
|1:30pm||CAD||Core Retail Sales m/m|
|CAD||Retail Sales m/m|
|USD||US unemployment Claims|
|2:45pm||USD||US Flash Manufacturing PMI|
|USD||US Flash Services PMI|
|3:00pm||USD||CB Leading Index m/m|
|3:30pm||Nat Gas||Natural Gas Storage|
|Fri Sep 24||12:01am||GBP||GfK Consumer Confidence|
|12:30am||JPY||National Core CPI y/y|
|1:30am||JPY||Flash Manufacturing PMI|
|7:00am||EUR||German GfK Consumer Climate|
|9:00am||EUR||German ifo Business Climate|
|3:00pm||USD||New Home Sales|