Into The Twilight Zone
Ian Reynolds
Investing and Trading | Capital Markets | Macroeconomics| Bitcoin & Decentralised Finance | Helping to Find the Money Flow | Commentator | Speaker
A terminator or twilight zone is a moving line that divides the daylit side and the dark night side of a planetary body. The terminator is defined as the locus of points on a planet or moon where the line through the center of its parent star is tangent. An observer on the terminator of such an orbiting body with an atmosphere would experience twilight due to light scattering by particles in the gaseous layer. Wikipedia
It's going to be a humdinger of a week with the RBA, US election, BoE and FED all in 4 fun packed days.
The big unknown is the US election
Unless one side wins by a landslide there is a distinct possibility of a period of unrest as the political fighting intensifies.
And markets won't like it. And already the US Treasury market is wobbling, yields having risen 75bps since the last FED meeting (they cut 50bps). The Treasury is buying off-the-run bonds in a weekly program which may help stabilise prices, although their actions are more of a liquidity play - in a sell-off no-one wants to own off-the run issues.
This week we had a slew of data ending with Nonfarm payroll posting a mere 12k gain for October. The Government hired 40k and -28k for the private sector. Finally some unbiased statistics showing the real state of the US labour market
Breaking
In Focus
CRE / Banks / CLOs
China
China is considering approving next week the issuance of over 10 trillion yuan ($1.4 trillion) in extra debt in the next few years to revive its fragile economy
In reality something has to give if all this stimulus doesn't work and that means de-pegging the Yuan and letting the markets decide it's rate. That would be dangerous as a sharp correction would damage investor confidence and rates might have to rise to defend the inflationary forces.
A more measured approach might be linking the Yuan's value to gold.
Japan
The Bank of Japan meeting on 31st October told us;
You can read it all here [BoJ]. So much of the future of Japan's economy is dependent on outside forces. After some weeks of Ministry of Finance and BoJ Ueda telling us they want to hike rates further, there's still no action ( they don't dare ).
The IMF stuck the boot in about the Debt to GDP ratio
Japan election results echoed the economic and fiscal mess, and now a coalition government (not very Japanese).
With cross currents in the USD, USD / YEN closed at 153.00 Friday, it was the stock market that capitulated. ?
US
The tone of the treasury market got even worse with some sloppy auction results.
领英推荐
And Treasury Secretary Yellen telling us there was an increase in fraud in the banking system is forewarning us that a bank is going to have to be sacrificed to maintain the system.
Markets were talking about the commercial real estate crisis reportedly threatening a big Wisconsin Bank.
Economically a big miss in JOLTS and Nonfarm Payroll shows the labour markets true colours with GDP supported by insane government spending . Inflation seems to have bottomed out above the FED's target and it could be said that the federal government is actually keeping inflation higher.?
So much of the US economy is distorted by out-of-control government spending.
"Treasury anticipates that?over the course of the upcoming quarter it will purchase up to $30 billion in off-the-run securities across buckets for liquidity support and up to $22.5 billion in the 1-month to 2-year bucket for cash management purposes." Quarterly Refunding Statement [US Treasury]
In fact US$4 billion every week for the quarter
In The Background
Bitcoin | US Election
Trump is flirting with the idea of making crypto tax free
Canada
After signs of improvement in the last month or so, the GDP report showed a stagnant economy with rising wage prices. And the currency got the message, closing sharply lower with September's bull trap (CAD) a distant memory.
England
The UK Budget finally arrived and Gilt yields climbed. It hasn't been a Liz Truss moment yet though.
Farmers were the big losers and they're planning to blockade Whitehall.
Europe
As Ms Lagarde forewarned us last week, EU CPI rose but GDP is barely positive, showing that stagflation has really got hold. Volkswagen is the first of many economic victims.
Australia
Australia is just about the only country with both elevated PPI and CPI numbers. What are Australian companies buying where input prices are rising this fast ??
What's Next ?
RBA will be no change, BoE might be a small cut, the US election will be a nighmare, leading the FED to do what?
This Week's Important Economic Indicators [London time]