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Breakfast Bites - Tue Sep 26, 2023

Rise and shine everyone

A few things grabbing our attention this morning:

  • US Government shutdown would be “negative” for US Rating according Moody’s. They are the last agency to assign the highest rating of Aaa to the US. Fitch and S&P Global are one notch lower now. Remember what happened when Fitch hit the downgrade button in August. It certainly was not positive for the markets.

  • USD / JPY is pushing past 149. We’re getting closer to intervention levels at 150. This comes after Governor Ueda’s comments yesterday that easing will continue for a while. An intervention will see the USD Index decline as we saw in Sep-Oct 2022, the last time Japan intervened.

  • A lot of talk about rates - Jamie Dimon is making headlines saying that the world is not ready for a 7% Fed Funds Rate, which is where things could be headed. (This is a tough call). And the Fed’s Kashkari reiterated the higher-for-longer message saying he expects one more hike.

S&P futures down 0.5% in Tuesday morning trading after US equities finished mostly higher in fairly uneventful trading on Monday with upside leadership from energy and materials, while big tech also moved higher. Markets were quiet for Yom Kippur.

Crude Oil is pulling back while the US Dollar, Gold and Bitcoin all remain largely flat. Yields are pulling back as well but the 10Y still remains above 4.5% and the 30Y at 4.635%. The Yield Curve is at -0.61%.

Important earnings today include Cintas & TD Synnex before market and Costco after market close. We also have a US 2Y note auction at 1pm ET.

Asia and Australia

  • Asian equities ended weaker almost everywhere Tuesday. Further losses in Greater China with more bad news for the property sector sending the Hang Seng to 10-month lows. Australia led lower by its miners, Taiwan and South Korea also saw 1%-plus drops.

  • A Shenzhen exchange filing issued Monday shows that China Evergrande subsidiary Hengda Real Estate defaulted on CNY4B ($547M) in principal and interest due 25-Sep. Recalled the unit missed an interest payment on this bond in March.

  • Bond yields continuing to scale new highs in Asian trade Tuesday. Treasury curve bear flattening with 10Y yield at 16-year high, JGB 10Y yield highest in 10-years and Australian 10Y rate nearing highest level since mid-2011.

  • Finance Minister Suzuki latest to add to FX verbal intervention, reiterating willingness to respond to excess volatility "without ruling out any options”. Follows Prime Minister Kishida's comments Monday that authorities continue to monitor FX developments with high level of urgency as excessive volatility is undesirable

Europe, Middle East, Africa

  • The ECB's bond reinvestment plan may become the next front in battle to curb inflation. While there was no discussion on its PEPP reinvestment at the last meeting earlier this month, comments from ECB officials suggest this might be the next point of focus in policy discussions, as it keeps rates in restrictive territory.

  • ECB President Lagarde said in a hearing to EU lawmakers that recent economic indicators point to further weakness in activity in third quarter. Noted that while headline inflation has come down, domestic price pressures remain strong. Inflation to reach target by end of 2025.

  • The BoE published terms of reference for its review on Monday, which showed it is prepared to consider reforms that might include an approach like the Fed’s Summary of Economic Projections.

  • The Italian Treasury is due to publish its new economic targets on Wednesday, which will provide a framework for PM Meloni's budget. Sources said Monday that the 2024 budget deficit target will be raised to between 4.1% and 4.3% versus April's forecast of 3.7%.

  • The London Times cited data from BNP Paribas, which showed London offices have lost almost a fifth of their value over the past year, much more than most other European countries. On average, London values have dropped 17.1% since summer 2022, having fallen in past five quarters.

The Americas

  • We’re almost 2 weeks from the start of earnings season so companies go into a blackout period - lower buybacks. 84% have already started their blackout period and 90% will be in blackout by the end of the week.

  • Yesterday, the Dallas Fed Manufacturing Index came in at -18.1 vs. -17.2 in the prior month. “Uncertainty regarding outlooks picked up notably, with the corresponding index pushing up 14 points to 27.0, its highest reading in nearly a year”.

  • Fed study shows bottom 80% of earners have exhausted cash savings, now have less cash than pre-pandemic.

  • There’s been increased interest in tax loss harvesting, particularly from the Mutual Funds, according to Goldman Sachs. $925B of Mutual Funds report their year-end at the end of Oct so there will be some booking gains before that.


(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)


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