Navigating The Narrow Path

Navigating the narrow path towards a soft landing seems more elusive than ever. Gone is the deflationary bust leading to recession, we're now presented with an inevitable stagflationary global economy. Persistently higher inflation and low growth, and global trade is dramatically slowing already.

The narrative from central banks and economists:

Top economist Mohamed El-Erian says interest rates could be higher, faster, and last longer ahead of today’s Fed announcement [Fortune]

Central banks must keep rates high until inflation is tamed, says OECD [FT]

Roubini says BoE, ECB must raise rates to avoid stagflation [AFR]

See below for J Powell FED speech.

Trouble in US Government Debt

The relentless rise in long-term US Government debt, a whopping 4% in one year for the 10 year note, confirms the market's belief for lower inflation, and therefore short-term interest rates, is over. The US Bond curve is in motion and if it normalises with the 30 year at 7% plus, there is going to be a load of pain in corporate debt and Government interest payments in the US, and significant demand destruction in Australia and Canada where floating rate mortgages are much more common than in the US.

Global debt pile hits record high of $307tn [FT]

Bill Ackman says he’s shorting 30-year Treasury bills, and yields could hit 5.5% ‘soon’

Central bank body sees new unpredictability in interest rate markets [AFR]

Hedge fund bets could spark turmoil in US Treasuries, BIS warns [FT]

Liquidity in Markets

There are lots of contradictory comments of the liquidity of markets and the economy.?

Liquidity of collateral is the key domino in a crash. Who owns the collateral in a credit crunch. That collateral is US Government bonds.

• Reverse Repo Operations in US have dropped from US$ 2.1T daily to US$ 1.6T.
• Federal Reserve's liquidity program sees surge amid high Treasury yields
• Stealth money printing from Biden
• Bank credit contracting
• Student loans revert to being due
• FED balance sheet is shrinking but nowhere near as quickly as J. Powell seems to suggest. That's millions of millions of dollars on the Y axis.

Japan

BOJ keeps ultra-loose policy, dovish guidance on outlook [Reuters]

With the FED's higher for longer and BoJ's looser for longer policies, we're looking at USD/YEN where is what back in 1998. The MoF and BoJ will be intervening soon but can it be anything more than a smoothing operation ?

Canada / India

Trudeau says India may have been involved in murder of Sikh leader [FT]

Joe Biden raised issue of Canadian Sikh’s death with India’s Modi [FT]

Watch this. A lot of people paying very close attention. India, a formation BRIC's member but also a big consumer of coal and supposedly the world new economic driver, now China has blown up.

In Case You Missed It

Us Federal Reserve,? Bank Of England and the? Bank of Japan all met this week to set rates, FED and The Old Lady held and BoJ kept loose policy until inflation stays consistently above the BoJ target. Watch Powell below for the language of of a body not wanting to lose face by losing control of inflation.

Japan's imports in August support the slowing global trade narrative.

Japan CPI August 2023 higher then expected.

Canadian CPI surprised the upside as well

Australia

The RBA Latest Minutes [RBA] are full of the price of oil and the state of the Chinese economy. There are record A$ shorts on CFTC, A$ futures, and with the increase in the price of iron ore, don't be surprised if we get a big squeeze higher.

The restructuring of the RBA board is a cause for concern, as is the Government's failing referendum.?

Costello warns on ‘watering down’ RBA inflation goal [AFR]

The Reserve Bank board restructure is a dangerous mistake [AFR]

Bullock’s power hinges on RBA appointments [AFR}

This Week's Important Economic Indicators [London time]

Key Economic Releases:?https://suberia.capital/economic-indicators-by-country

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