Soaring energy prices raise yields, weigh on equities, and the greenback bursts

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Rising energy prices and yields are contributing to the upside and weighing on equities. November topped $ 76, as it traded above $ 80, and is up for the fourth session in a row, during which it rose about 25%.

The US yield jumped to nearly 1.53%, up more than 20bp since the middle of last week. Near 32bp, the US rate is at a new 18-month high. European yields are up 3 to 5 bps, with benchmark yields from UK, Sweden and Switzerland hitting new three-month highs. Outside of China and Hong Kong, most Asia-Pacific stock exchanges ended lower. Declines of over 1% were recorded in Australia, South Korea and the Indian market.

The Dow Jones in Europe is also down more than 1.5% today, its third consecutive decline. Futures are down 1.6% around noon in Europe, while futures are trading almost 1% down. The dollar jumped higher. The dollar approached the low of the year (~ $ 1.1665), and the greenback approached the high of the year against the (~ 111.65 JPY). The Antipodes and are the weakest of the majors. The euro and are the most resistant today. The emerging market monetary complex is under pressure, and the JP Morgan EM FX index is down in the third session and seven of the last 10 to approach the year’s low.

The rise in yields sapped, trading at around $ 20 from yesterday’s high near $ 1,760. Iron ore lost yesterday’s 2.8% gain and fell 1%. The CRB yesterday hit new five-year highs and extended their lead for the fifth consecutive session.

Asia Pacific

Industrial profits in China rose 10.1% year-on-year in August, from 16.4% in July. It corresponds to the lowest since May 2020. Commodity producers in the coal and oil / gas sectors reported profits of over 200% compared to a year ago. In contrast, electricity and heat producers reported a 15.3% drop in profits from January to August. With the economy losing momentum, the arguments for an easier PBOC policy have been heard, and squeezing industrial profits adds to the argument, with a reduction in reserve requirements being the preferred tool.

Local governments have reportedly taken more control of parts of Evergranda, and many observers are shifting the focus from debt to energy. Power outages, higher prices and factory closures are believed to be straining the property developer’s finances to disrupt Beijing and investors. Two major forces are at work. The first is Beijing’s attempt to meet emissions targets, and that means cutting production in energy-intensive and polluting sectors, like steel, cement and cement. The second is rising prices to spread the scarcity of oil and gas. Utilities were not allowed to pass higher coal prices on to households. It is estimated that around 2/3 of China’s electricity comes from coal and 70% of electricity for industry.

Australia fell for the third consecutive month in August. However, the The 1.7% month-over-month decline was smaller than expected, and lockdowns are wreaking havoc. Department stores and cafes / restaurants saw sharp declines, while food and other retail (online?) Held up better. Sydney is in week 14 of its lockdown, for example. Australia is ranked 58th for the percentage of complete vaccines, just ahead of the United States (58th place). New South Wales and Victoria have ramped up their vaccination efforts as they prepare to reopen. Portugal is the most vaccinated country with around 84% coverage, and Canada has exceeded the vaccination rate by 70%. Meetings next week. Earlier this month, it cut it, but extended its bond purchases until mid-February, which is a three-month extension.

Rising US yields push the dollar up against the yen for the fifth consecutive session. The high, slightly above JPY111.40, was set in late Asia / early Europe which is best since early July (year high ~ JPY111.65) . For the third consecutive session, momentum carried the greenback through the upper Bollinger Band (two standard deviations above the 20-day moving average). It is close to JPY111.00, which had served as resistance but is now serving as support. The $ 630 million option there that expires today has likely been cleared.

After closing solid yesterday, the offer attempted to test last week’s high near $ 0.7315 and was greeted by new sales which brought it down to near $ 0.7260 at the start of the market. European session. Yesterday’s low was set at around $ 0.7245. There are around A $ 1.4 billion of options in the $ 0.7250 to $ 0.7255 area that expire today, and another close to A $ 440 million at $ 0.7235 will be also deleted. A shelf close to $ 0.7220 was carved last week. The rest within an extremely narrow range (`CNY6.4525-CNY6.4600). It is virtually unchanged and officials seem to appreciate its stability rather than being another shock absorber to the system. The PBOC fix was close to expectations (CNY6.4808 vs. CNY6.4607). The PBOC continued its campaign to inject liquidity into the banking system before the end of the month and quarter, the long vacations (1 Oct-7 Oct) and the financial dislocation emanating from the real estate development sector. It is difficult to distinguish between these three considerations.

Europe

Bank of England Governor Bailey makes no secret of it. Every MPC member, he boasted, is ready to hike rates this year if necessary. The implied yield on the December three-month interest rate contract rose slightly but appears to be capped at around 20bp. The hawkish rhetoric seems like a way to brandish anti-inflation references, but it sounds like rhetoric. Before the BOE meets again, the Chancellor of the Exchequer will unveil the budget, which is expected to be tight. The market expects next year’s budget deficit to be around half of this year’s 9.5%.

The UK appears to be suffering from two major shortages. First of all, the fuel and the drivers distribute the fuel. Several regions are said to be short of gasoline and natural gas. There could also be a strike later this week at a small supplier to BP (NYSE :). Second, the government is issuing 5,000 short-term visas to attract truckers and poultry houses (lack of gas used to freeze chicken). The problem, identified in press reports, is that many truck drivers in the EU (Central Europe) feel burnt by the way they were treated in Brexit and apply for more than a 12-month visa. weeks ending around Christmas. The UK government plans to use the military to “fix” the supply chain.

The EU-US Trade and Technology Council will meet tomorrow in Pittsburgh. The French ambassador back to the United States does not undo the implications of the sub-scam. The French ambassador to Australia has not returned. The French are opposed to the more ambitious project of the joint declaration and want a reference to the strategic autonomy of Europe. The next meeting is scheduled for March of next year when the French take over the rotating EU presidency. The TTC is far from the Trans-Pacific Partnership which seems to have died a vile death.

The Euro spends more time today below $ 1.17 and hasn’t even hit $ 1.1705 today. The low for the year was set on August 20 at near $ 1.1665, and below that is last November’s low, closer to $ 1.1600. The rally’s retracement (50%) from the March 2020 low sits a little below $ 1.15. The lower Bollinger Band is near $ 1.1655 today. The BOE’s warmongering did not bring much support. It is trading at a three-day low, just ahead of $ 1.3650. Last week’s low was near $ 1.3610, where the lower Bollinger Band is today. The British pound traded near $ 1.3570 on July 20, the lowest since early February. The low of the year was set on January 11 at $ 1.3450.

America

A few hours apart, the presidents of the Boston and Dallas Fed tendered their resignations. Rosengren of Boston has raised health concerns over his departure, which was expected next year anyway. Dallas Fed Chairman Kaplan will step down at the end of next week. He did not hesitate to the key question. While his trading activity followed Fed rules and regulations, they became a distraction. Regional presidents are chosen locally, but there has been greater involvement of the Board of Governors. We suspect that the decision to reduce, and it could take place at the next meeting in November, will be unanimous. The voting rotation goes to Cleveland, St. Louis, KC and Boston next year, which appears to be a more hawkish contingent than this year. Today six Fed officials are speaking, and the highlight is Powell (and Yellen) before the Senate Banking Committee.

As the market questions whether China’s power squeeze is a greater risk than Evergrande (OTC :), and UK truck drivers, a US government shutdown will take place at the end of the week unless Congress takes action and the debt ceiling could be reached by mid-October. Yesterday, the Democrats did not get enough votes in the Senate for their interim spending authorization and the extension of the debt ceiling. Democrats insist on a bipartisan effort to raise the debt ceiling, and Republicans wanted nothing to do with it because they see raising the debt ceiling as the Trojan horse of the $ 3.5 trillion spending plan. dollars.

Meanwhile, the media has covered the housing market bubble in China, while less attention is being paid to soaring house prices in the United States. The FHFA and S&P CoreLogic today report house prices in July and the record rise continues. The CoreLogic index of 20 cities is expected to have increased by 20% from a year ago. Separately, the United States reports the advanced August trade balance. The deficit up to July is about 20% larger than the same period last year. Growth differentials are expected to worsen it further in the coming period. The rise in imports is also intended to replenish stocks, and August and stocks will also be reported today. Canada’s calendar is light, while Mexico reports August.

The US dollar briefly dipped below CAD 1.2600 for the first time since September 10, but new buyers have emerged as the stock plummets. The greenback rebounded to around CAD 1.2655 in the early European hours and remains in a narrow range around there. A significant option of approximately $ 1.24 billion is closed at CAD 1.2675 and expires today. A move above may stimulate gains in the CAD1.2710-CAD1.2745 area. Stocks appear to trump oil as the engine of the exchange rate. Meanwhile, the US dollar is offered at new highs for the month against the, pushing above 20.20 MXN. A break out of MXN20.22 could signal a move towards MXN20.30. The greenback is higher for the third consecutive session.


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