Month: September 2022

by Michael Msika and Jan-Patrick Barnert, Bloomberg Market Live commentators and analysts

After August’s selloff, there are plenty of signs to suggest that September may be even worse for equity markets.

Until now, heavy selling by long-only funds and retail investors has been absent, meaning full capitulation has yet to be reached. To that can be added above-average investor positioning, a bunch of upcoming risk events, and September’s historically weak seasonality.

“Given the near-term risks, we continue to recommend investors keep a defensive tilt,” says Mathieu Racheter, head of equity strategy at Julius Baer. He’s overweight on Swiss, health care, and high-dividend stocks, but also sees a “good tactical opportunity” in selective growth names after the style underperformed significantly in August.

Seasonally, the coming month is the worst of the year for equities. Over the past quarter of a century, the Stoxx 600 Index has shown a negative average return of 1.3% in September.

Meanwhile, risks are piling up. With inflation showing no sign of peaking in Europe after a record print yesterday, ECB hawkishness is unlikely to change, mirroring last week’s Jackson Hole reality check. And according to Barclays strategists, investors aren’t positioned for it, with equity allocation above average for mutual funds and retail.

“Central banks’ acceptance of economic pain as the price to pay in exchange for lower inflation may accelerate the rotation from equities to bonds and cash, while quantitative tightening is about to gather pace too,” say the strategists led by Emmanuel Cau.

Julius Baer’s Racheter says weakness could be further accentuated by an upcoming blackout period for buybacks, which starts in mid-September and will last about four weeks. Especially as stock repurchases have been a large source of equity demand this year.

Technically, the picture is far from rosy. Stocks have surrendered more than half of the summer rally, while Euro Stoxx 50 futures trade back inside their 2022 downtrend, removing all upside momentum. 

Talking of oversold, a look at the Stoxx 600 Index’s market breadth suggests that the relative strength of index members is not yet at a point that signaled a bottom during earlier declines of this year.

A pivot point for markets might come toward the middle of September with US jobs data and a scheduled speech from Fed Chair Jerome Powell on Sept. 8, followed by the next CPI print just five days later.

“There’s a confluence of negative factors that are all hitting the market at the same time, and it’s timed with the September seasonality,” says Standard Chartered chief strategist Eric Robertsen.

Most major Wall Street firms are officially “over” Covid and are setting Labor Day 2022 as the deadline for workers returning to the office.

Morgan Stanley has been leading the push this week, with Fox Business’ Charlie Gasparino reporting on Tuesday that the company is ending all Covid testing and other monitoring/mitigation requirements by September 5. 

A company-wide memo recommended that “all employees return to the office, barring certain individual health situations,” according to Fox News. It was also reported this week by the NY Post that Goldman Sachs was taking similar measures. 

Goldman Sachs “told workers it will no longer require vaccines, COVID testing or masks,” the Post wrote.

A bank memo to employees read: “There is significantly less risk of severe illness. In line with [the CDC’s] updated protocols, if you have not been coming in to the office, please speak with your manager to ensure that you understand and adhere to your division’s current return to office expectations.”

Wells Fargo bank analyst Mike Mayo told The Post: “This is another way of Goldman Sachs saying, ‘School’s in session and we want you in person’ after Labor Day. Goldman is the ultimate customer-facing firm and it’s tough to face customers remotely.”

“We continue to make steady progress bringing our people together in the office, which is core to Goldman Sachs apprenticeship culture and client-centric business,” a Goldman spokesperson said. 

Goldman CEO David Solomon had said last year at a Credit Suisse conference that working from home was “an aberration that we are going to correct as quickly as possible” and “not a new normal”, the Post reminded readers. 

Gary Goldstein, founder of the Whitney Group, an executive search firm, concluded to Fox News: “I think the CEOs are really worried … employees have become less efficient as a result of not having that discipline of working in the office.”

(2/2) that Wall Street is seeking to fully bring back its office workforce as the pandemic wanes and the declining severity of the current strain, which was cited by $MS for the new rules. @nypost reported @GoldmanSachs has mandated a full return to the office. Story developing

— Charles Gasparino (@CGasparino) August 30, 2022

Authored by Jesse Felder via TheFelderReport.com,

A little over a year ago, I had the pleasure of interviewing Michael Oliver in person at his home in Colorado (listen to that interview here).

While he shared a great deal about his unique methods, the main focus of our discussion was the “massive momentum structure” that had been building for years in the stock market, specifically in the Nasdaq 100 Index.

Below is an updated version of that chart which plots the index on a monthly timeframe along with another plot of the index relative to its 36-month moving average.

It is this second chart, which isolates the price momentum of the index, that has formed a long-term structure of some significance.

During the bull market that dated back to the 2009 low, the Nasdaq 100 Index formed a clear momentum range between roughly 40% (above the 36-month moving average) on the high side and 10% on the low side.

The post-Covid rally saw a breakout above the upper end of that range, which represents the final “blow-off phase” of the bull market.

This year’s reversal is notable in that not only did momentum fail to hold support at the 10% level for the first time in over a decade, it also failed to hold the 0% level, a “declarative first leg of decline,” in Michael’s words.

And even to the untrained eye, it should be quite obvious that a major change in character is now underway.

UN inspectors with the International Atomic Energy Agency (IAEA) have arrived Thursday to the Russian-controlled Zaporizhzhia nuclear plant in southeastern Ukraine, after their mission was earlier approved by both the Ukrainian side and Russian President Vladimir Putin.

“A Reuters reporter saw the IAEA team arrive at the plant in a large convoy with a heavy presence of Russian soldiers nearby,” Al Jazeera writes, noting that the convoy had been slightly delayed due to fresh shelling in the area. The inspectors also confirmed their safe arrival on Twitter.

The IAEA mission has reached the Vasilyevka checkpoint in Russian-controlled territory, around 60km from the Zaporozhye NPP pic.twitter.com/tRR9W58N7U

— Russians With Attitude (@RWApodcast) September 1, 2022

The UN-IAEA convoy was seen being waved through Russian checkpoints in the Russian-controlled town of Enerhodar en route to the site amid “increased military activity in the area”. Each side is blaming the other for the fresh shelling. An IAEA spokesperson said the mission had been delayed for three hours as the team was held up on the Ukrainian side of the frontline before being given permission to pass.

In its latest statement, Russia’s defense ministry has denounced the efforts of Ukrainian “saboteurs” alleged to have attempted to seize the plant just as the IAEA was en route.

The New York Times has since confirmed the team is at the site, which is Europe’s largest nuclear power station, but which has been under control of some 500 Russian troops since March: 

“The I.A.E.A. mission arrived” at the plant, the Ukrainian nuclear power company, Energoatom, said on the Telegram messaging app. A convoy of nine vehicles entered the complex around 2:15 p.m. local time, Russia’s Interfax news agency reported.

As the U.N. experts set off on Thursday morning in a convoy of armored S.U.V.s toward the dangerous buffer zone separating the two armies in southern Ukraine, Russian mortar shells struck the plant, Energoatom said, causing equipment failures that forced the shutdown of one reactor and the activation of backup generators at another.

A key aspect of the UN team’s mission is to gather accurate technical data and to interview the Ukrainian technicians and engineers who have been keeping it operational. Further they will assess the extent of damage after the complex has been impact by shelling on multiple occasions.

“The extent of damage from the strikes was not immediately clear, and there were no reports of heightened radiation levels around the facility,” the NY Times observed of Thursday’s fighting in the area.

The Times described further that the team being led by agency chief Rafael Grossi proceeded even as artillery fire was exchanged nearby: “The urgency of the threat prompted the U.N. team, which includes 14 experts with the International Atomic Energy Agency, to make the last-minute decision to proceed to the plant even as the thud of artillery strikes was heard in the parking lot of their hotel 30 miles away,” according to the report.

Grossi has emphasized that the mission will proceed as planned despite the “inherent risks”. At the same time, the risk of some kind of catastrophic nuclear or radiation event grows by the day, per CNN:

The fifth reactor at the nuclear power plant was shut down and its emergency protection system activated on Thursday due to shelling, Ukraine’s nuclear operator Energoatom said in a statement. The plant, which was disconnected from the country’s power grid last Thursday, has six reactors, only two of which have been functioning.

Meanwhile, the Ukrainian government is accusing the Russians of trying disrupt the IAEA visit, also following accusations that Ukrainian personnel at Zaporizhzhia were tortured in order to cover up the true status of the plant’s operations.

By Michael Every of Rabobank

EU wholesale electricity prices have collapsed a staggering 50% in a week – but that only takes them from “nobody can pay” to “very few can afford to pay” territory. Gazprom has turned off EU gas flow through Nord Stream 1, again. Europe claims it has stored 80% of the gas it needs for winter, cheering markets. Yet analysts point out Germany needs much more than it stores each year, and with no flow, huge problems – or very high LNG import prices. The colder this winter gets, the more so. German industry is already responding by closing down: and if it sees there is no power resolution possible for 2023, 2024, or 2025 (or longer), where might all that mighty production muscle be transplanted to?

Oil prices closed down another 2.3% yesterday with Brent at $96.50 – but there is a broadening public admittance from key players that financial markets are not reflecting physical reality and, as with many other commodities, are becoming less liquid and more volatile. Indeed, after US Energy Secretary Granholm recently implied the States may stop exporting diesel within months, and the ongoing decline in the US Strategic Petroleum Reserve, OPEC+ just tightened its outlook for the physical oil market for 2022 and 2023: the expected surplus for this year was cut in half to 400,000 barrels a day, and for 2023 it flipped from a projected surplus of 900,000 to a deficit of 300,000 barrels a day. Worse, OPEC+’s Joint Technical Committee has endorsed a Saudi recommendation to soon cut physical supply. Fortunately, the oil tanker that got stuck in the Suez Canal was quickly refloated: but it underlined again we are in truly Deep Ship given how easily such an ‘accident’ could happen, crippling global commodity and physical supply chains, should somebody want it to. (If rolling strike action doesn’t do the trick endogenously.)

Our agri-commodity team has tamed their longstanding bullish expectations on grains and oilseeds on the back of a stronger US dollar and specific supply and demand (destruction, as wheat consumption heads for its biggest annual decline in decades: and that’s a euphemism I despise given it means ‘hunger’.); yet they also acknowledge that any price rises from here will be about energy – which is likely to stay high/higher. Those life-time neck-deep in commodities trading also admit transparent, liquid, dollar-based markets are far less so, and parallel barter is all over – exactly as was warned alongside ‘Why Bretton Woods 3 Won’t Work’ several months ago. What you see on a screen is only part of what is happening.

The accusation of markets failing to reflect reality can also be leveled at financial assets. Equities’ critics point out the army of sell and buy analysts saying stocks only go up, as they keep going down. Yet even the global benchmark US Treasury market is not proving immune to whispers of lower liquidity and rising volatility as participants begin to realize that rates are going up and aren’t going down again fast, because supply-side inflation may be very sticky.

On which note, Eurozone inflation yesterday was 9.1% y-o-y and core inflation accelerated 0.3ppts to 4.3%. On the same day, a Financial Times interview with a UK construction CEO underlined while the initial shock from energy prices had already hit his firm, it is still filtering downstream through other inputs, and on into wage demands. He expects inflation to level off at 4-5% for 3-4 years after the peak (of maybe 20%?!) in early 2023. Which bond market is correctly pricing that coal-face (tin-foil hat?) view, even given eruptions like 20-year Gilt yields surging 20bps intra-day yesterday, before retracing to just 10bps?

It seems we all need to go back to Maslow’s 1943 paper “A Theory of Human Motivation”. This argues all humans have a hierarchy of needs. The ‘Maslow pyramid’ has “physiological” at its base, then “safety”, “belonging and love”, “social needs”, “self-actualization”, and finally “transcendence”. “Physiological” means FOOD (which is now becoming too expensive for many) and SHELTER (which does not mean unaffordable property prices, and unaffordable energy bills for owners and renters alike). “Safety” ranges from the individual, and their community, to national security and not being, well, invaded or co-opted, or forced to kow-tow.

Modern economics –with its math wizardry and real-world stupidity– and modern Western leadership –who listened to it– have ignored the “physiological” and “safety” in favor of “transcendence”, defined as “the very highest and most inclusive or holistic levels of human consciousness, behaving and relating, as ends rather than means, to oneself, to significant others, to human beings in general, to other species, to nature, and to the cosmos.” (Maslow really was able to project 2022 Twitter, wasn’t he?)

Or, to put it another way, the global neoliberal model dug a basement level under the pyramid called “because markets”, which is now causing it all to fall down on us.

There is also irony in that the pyramid appears on the US dollar, which is still king through all this chaos, even if one day in a smaller kingdom, if only because the only alternative, sadly, *is* this chaos. Furthermore, the pyramid is one of the key ‘new world order’ memes, for those who like that kind of thing.  

However you want to look at, or however you choose to ignore it, the painful facts of the matter are that all rules of the game, institutional architecture, and physical supply chains will now have to change: either be ahead of that curve, or be crushed by it.

We need to focus on the Maslow pyramid, not pyramid schemes.

We are not ‘lower for longer’. We are ‘Maslow-er for longer.’       

S&P Global’s Manufacturing surveys for August have not been pretty. Turkey, Italy, Germany, UK, the Eurozone aggregate, and Canada all printed below 50 this morning (in contraction) but US Manufacturing was expected to hold just above the Maginot Line at 51.3 and it did. However, the final August print of 51.5 (small improvement over the flash print) is the weakest since July 2020. The ISM Manufacturing survey was flat at 52.8 from July (better than the 51.9 expected)…

Source: Bloomberg

Interestingly, S&P Global notes that ‘delivery delays are the least extensive since October 2020’ – which in our new normal is actually a good sign that supply chain disruptions are easing, BUT – just as it impacted the index on the way up, the PMI model sees this as a negative since in the old normal this would imply a weakening of demand.

Meanwhile, S&P Global reports that employment rose at the second-slowest rate in over two years as new orders fell for the third successive month.

Under the hood of the ISM print, Prices Paid plunged but this survey claims employment and new orders improved

Source: Bloomberg

The picture remains very murky however, as one ISM respondent:

“Demand from customers is still strong, but much of that is because there is still fear of not getting product due to constraints. They are stocking up. There will be a reckoning in the market when the music stops, and everyone’s inventories are bloated.”

Additional comments are mixed:

“Sales in target business softening month-over-month, down 12 percent by revenue. Inventory days are increasing.” [Chemical Products]

“Inventories are far too high, and we are on pins and needles to see how quickly and at what magnitude our busy season begins. We will start seeing that in the next few weeks.” [Food, Beverage & Tobacco Products]

“Demand is softening; however, we are continuing to produce to replenish inventory.” [Primary Metals]

“Orders are still strong through the end of the year, but there is a feeling that customers may start pulling back on orders, either cancelling them or pushing them into 2023.” [Plastics & Rubber Products]

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“US factory production was down for a second month running in August, with demand for goods having now fallen for three straight months amid the ongoing impact of soaring inflation, supply constraints, rising interest rates and growing economic uncertainty about the economic outlook.

“Worryingly, the sharpest drop in demand was recorded for business equipment and machinery, which points to falling investment spending and heightened risk aversion. Similarly, payroll growth slowed close to stalling, reflecting a growing reticence to expand workforce numbers in the face of a deteriorating demand environment.

“Falling demand for raw materials has, however, taken pressure off supply chains and helped shift some of the pricing power away from sellers towards buyers. Likewise, we are seeing more manufacturers reduce their selling prices to drive sales. Although still elevated by historical standards, the survey’s inflation gauges are now at their lowest for one and a half years, which should help to bring consumer price inflation down in the coming months.”

Finally, we note that barring the initial pandemic lockdowns months, this is the steepest downturn in US manufacturing seen since the global financial crisis in 2009.

After years of pleading and internal debate, Twitter is finally launching an edit button for the first time for users who pay $4.99 per month for a “Twitter Blue” subscription.

The feature, called “Edit Tweet,” will let users make changes to tweets for up to 30 minutes after its original publication. Edited tweets will carry a label, which people can click to see what’s changed.

The company is now testing the feature among a small group of users to address any possible issues, according to Bloomberg, citing a Twitter blog post. The company will roll the feature out over the next few weeks.

if you see an edited Tweet it’s because we’re testing the edit button

this is happening and you’ll be okay

— Twitter (@Twitter) September 1, 2022

“It’s true: Edit Tweet is being tested by our team internally. The test will then be initially expanded to Twitter Blue subscribers in the coming weeks. Given that this is our most requested feature to date, we wanted to both update you on our progress and give you and a heads up that, even if you’re not in a test group, everyone will still be able to see if a Tweet has been edited.” – Twitter

The feature has been under internal debate for years – with some expressing concerns that it will be abused by people trying to push content to go viral, only to change the content of a message after it’s been retweeted, according to Bloomberg. 

Twitter says that the test has been localized to a single country, and will be expanded as the company ‘learns and observes’ how people use the feature. “We’ll also be paying close attention to how the feature impacts the way people read, write, and engage with Tweets.”

Former CEO Jack Dorsey said as recently as January 2020 that an edit button was highly unlikely, but it was so widely requested that the company never made a definitive call on whether it would launch something.

That debate snowballed earlier this year when Tesla Inc. CEO Elon Musk took a large ownership stake in the company, then polled his followers on whether they wanted an edit button. The majority of those who voted said yes. -Bloomberg

The consequences of this poll will be important. Please vote carefully. https://t.co/UDJIvznALB

— Parag Agrawal (@paraga) April 5, 2022

Following the April poll, Twitter confirmed that it had been testing the feature internally, and that it had started work on it before Musk’s poll. 

And some hot takes:

edit your censorship policy

— Abby Libby stands with Libs of Tiktok (@abbythelibb_) September 1, 2022

The way screenshotting tweets, RTs, and Liked tweets work on this app, someone will definitely be losing their job because of this feature.

— Katelyn Burns (@transscribe) September 1, 2022

pic.twitter.com/dTUUMxryfi

— HappyToast ★ (@IamHappyToast) September 1, 2022