Tag: news

by Michael Every of Rabobank

Inflation [ɪnˈfleɪʃ(ə)n]

Noun

1. the action of inflating something or the condition of being inflated. “the inflation of a balloon”
2. a general increase in prices and fall in the purchasing value of money. “policies aimed at controlling inflation”

Hobby [ˈhɒbi]

Noun

an activity done regularly in one’s leisure time for pleasure. “her hobbies are reading and gardening”

Hobby horse [ˈhɒbi hɔː(r)s]

Noun

1. a child’s toy consisting of a stick with a model of a horse’s head at one end.
2. a preoccupation or favourite topic. “Brennan admits that the greenhouse effect is a hobby horse of his”

Yesterday’s FOMC meeting, very much as expected, made clear that US rates are on hold until the end of 2023 at the very least, even as the economic projections were actually upgraded relative to the depths they plunged to in June. (Indeed, Q3 GDP is still apparently tracking above 30% q/q annualized.) For Philip Marey’s coverage of the meeting, please see here.

In short, the Fed, like all central banks, does not understand inflation and cannot control it to either the upside or the downside of any possible target over any credible timeframe. Indeed, it no longer seems to have a theory of inflation: inflation just is; or rather isn’t. We can therefore expect rates to be on hold longer than just flagged. And not just in the US, of course. Japan and Europe, the UK, Australia, and New Zealand – all face the same fate. Zero (or lower) rates and zero ideas about how things will get better.

Emerging markets like Brazil have also moved rates to incredibly low levels. Several are already monetizing debt too. The only major central bank that is not openly easing is China, where ‘rates are set’ in three days as per the new normal: but that is only because the level of rates doesn’t matter in traditional market terms (look at the USD500bn in new lending in August); which is now true in the West too, just at a lower nominal level, at least until deflation kicks in, and with none of the same kind of finesse. They have de facto state planning with a market on top: we have state planning with no plan and markets always coming out on top.

Of course, these views are a favorite hobby horse here. Yet after the Fed has made clear what we had long expected to eventually happen, let me offer some suggestions of worthwhile hobbies for central banks and those who watch them to more usefully spend their time on for the next five years:

• 3D printing (which they do already); Acrobatics ; Acting; Amateur radio (all three are already normal at their press conferences); Animation (they have little of that); Aquascaping (well, liquidity is their thing); Astrology (see their economic forecasts); Astronomy (they are space cadets); Baking (failure into the cake); Baton twirling (for sure!); Blogging (absolutely, and boringly).

• Building (not so much); Board/tabletop games (Dungeons & Draghis); Book discussion clubs (try Kalecki); Book restoration (their copies of Friedman and Hayek are tatty); Bowling (they can’t pick up that spare); Brazilian jiu-jitsu (they don’t lack muscle, just brain); Breadmaking (for the 1%); Bullet journaling (they are out of them); Cabaret (I can almost see Lagarde open the next ECB meeting with the appropriately fin-de-regime “Willkommen, bienvenue, welcome”: yet note that movie then descends to the always-terrifying “Tomorrow Belongs to Me” **Shudder**).

• Calligraphy (make their irrelevance look pretty); Candle making (to not light in the darkness); Candy making (for the 1%); Car fixing & building (outsource it!); Card games (3-card Monty); Cardistry (see press conferences); Cheesemaking (so, so much cheese); Cleaning (this is a hobby?!); Clothesmaking (offshore it!); Coffee roasting (more millennial barista jobs!); Collecting (financial assets); Coloring (green, not red); Computer programming (algos!); Confectionery (for the 1%); Cooking (the books); Cosplaying (which is what this whole sham is, just in the drabbest possible costumes); Couponing (which millions are relying on); Craft(y); Creative writing (not the RBA, obviously); Crocheting (see forecasting); Cross-stitch (see FX forecasting); Crossword puzzles (see central bank minutes); Cryptography (see previous); Cue sports (think ‘The Hustler’).

• Dance (anything that gets actual circulation going would be good); Digital arts (cryptos!); Distro Hopping (fiddling with computers: HFT); DJing (they only have one tune: “The sun will come out tomorrow”); Do it yourself (which is what we will eventually see governments return to as policy); Drama (of the drawn-out, tragi-comic variety); Drawing (see dot plots); Drink mixing (toxic cocktails); Drinking (and boy are they driving us all to that!)

That just covers A-D. But don’t worry, I have five years of the Daily to kill before a rate hike – we will get to the rest.

Of course, the Fed did make clear that the way to avoid me having to write about Zumba is for the government to spend more money, which they will then monetize (even if they won’t say so out loud). On that front, US President Trump is now all in favor of thinking big, reportedly backing at least USD1.5 trillion in further stimulus, and noting “…it all comes back to the USA anyway (one way or another)”.

Which it actually does, apart from the portion that flows to all the countries that produce things that you used to make yourself. So do we have an evolving pro-MMT position from the White House by any other name? That is another hobby horse here, but a discussion with far more relevance to markets than anything major central banks will, or rather won’t, be doing in the next few years. Indeed, imagine the US reflating but not letting those USD flow out to others: and isn’t that what China is trying in some ways and is being cheer-led?

But, but, but… The ‘very successful’ IPO of Snowflake now has everyone who bought after its release yesterday now underwater…

The Nasdaq is leading the plunge post-Powell…

And bond yields are tumbling

And don’t forget, tomorrow is quad-witch options expiry so hold on to your hats for a gamma-geddon in stocks and vol.

One day after crossing the 5 million-case threshold, India has reported yet another record single-day jump in coronavirus cases, with 97,894 reported in the last 24 hours, bringing the country’s total to 5.12 million, as the world is roughly one day away from topping the 30 million case mark.

Indian cases are now climbing at roughly double the rate of the US.

Perhaps the biggest news on Thursday is that Chinese vaccine maker Sinovac Biotech plans to start a clinical trial of its experimental coronavirus vaccine with children and adolescents later this month, yet another round of final-stage testing, as China races to beat both the US and Russia in the race to a mass-produced, internationally-accepted vaccine. In the US, Moderna CEO Stephan Bancel appeared on CNBC’s “Squawk Box” once again Thursday morning as vaccine-makers generally engage in a PR campaign to try and ‘rebuild trust with the public’ after a patient was reportedly sickened during Phase 3 trials of the AstraZeneca-Oxford vaccine candidate. US authorities are looking into the issue, but Oxforx said earlier this week that the patient wasn’t sickened during the trial.

“We care deeply that this vaccine is trusted by the public, clinician and nurses around the country,” says @Moderna CEO Stephane Bancel. pic.twitter.com/ohsowfd6yv

— Squawk Box (@SquawkCNBC) September 17, 2020

China reported nine new cases on Wednesday, down from 12 a day earlier, as the border city of Ruili, situated near Myanmar, remains on lockdown.

In a note to clients published Thursday, analysts at JPM noted that the rise in daily confirmed coronavirus cases in Europe has not shown signs of leading to a rapid increase in hospitalizations across the continent, which is an important sign that this wave likely won’t be anywhere near as deadly.

As is the case in the US and elsewhere around the world, more young people are becoming infected as older individuals keep contact with others to a minimum.

“The disconnect between new cases on the one hand, and hospitalisations and deaths on the other, remains very evident everywhere,” said JPM economist David Mackie.

Finally, South Korea confirmed 153 new coronavirus cases on Thursday, up from 113 a day eariler, bringing the country’s total infections to 22,657, along with 372 deaths. Kia Motors suspended operations at two plants in its Sohari Factory near Seoul, as 10 cases were confirmed among the automaker’s employees and families.

After yesterday’s record-high homebuilder sentiment, it may seem odd that analysts’ expectations were for a small drop MoM in Housing Starts (and only a modest rise MoM in Building Permits) in August. July’s massive rebounds in both housing market measures may just have been the peak in the ‘v’-shaped pent-up supply as Housing Starts plunged 5.1% MoM (-0.6% MoM exp) and Building Permits dropped 0.9% MoM (versus +2.0% MoM exp).

Source: Bloomberg

Additionally, the data for July was revised notably lower…

Source: Bloomberg

While single-family home starts rose, the rental units crashed in August…

• 4.1% jump in single family units from 981K to 1021M

• 25.4% drop in multi-family units from 503K to 375K

Similar pattern played out in Permits with rental units crashing…

• 6.0% jump in single-family units to 1.036MM, highest since 2007

• -17.4% drop in multi-family (rental) units to 381K

Finally, as a reminder, while homebuilders are exuberant about the future, homebuyers (despite a rebound) remain notably less enthused…

Source: Bloomberg

No matter how much the homebuilders build, perhaps the buyers won’t come this time?

While some may celebrate the fact that initial jobless claims was below 1 million for the 3rd week in a row, the fact remains that a stunning 860,000 Americans filed for first time unemployment benefits last week…

Source: Bloomberg

That is more than four times the pre-COVID ‘normal’ and well above any peak week during the great financial crisis collapse.

And this is 7 months after the lockdowns began! Maybe it’s time for Governors to start opening these states!!

Authored by Bill Blain via MorningPorridge.com,

“Central bankers all acknowledge in private that low rates are like rocket fuel for asset prices; indeed, this is considered a key transmission channel for monetary policy.”

Yesterday the Fed communicated clearly(ish) saying the recovery is strong but the outlook uncertain. It confirmed Zero Interest Rates for the next three years. The yield curve steepened and stocks wobbled badly. It is slightly worrying how the market didn’t rally on central bank largesse – confirming its more worried about delays in terms of when the next big government cheque is coming…

Give us more money or we shall scweam and scweam and scweam…

The US central bank will keep the accelerator pressed hard to the floor on corporate bond buying.  It confirms what we feared: the economy is effectively stalled and even 50,000 volts on a thundery evening ain’t going to sort it. QE Infinity Bond buying will continue to juice the equity markets, but will also allow the ravening hordes of Zombie US corporates to stalk the land – blocking the conventional creative destruction process of bad failing companies being replaced by nimble younger, economically fit competitors. Mwha ha ha!..… Indeed.

But even as the US corporate landscape turns to wrack and ruin… there are a few bright spots. Like anything Tech.. apparently, despite some recent weakness. 

There are two stories in Tech. What is real, and what folk hope might be real. There is good tech and there is hype. And Hope and Hype are really not great investment strategies. Solid performance is.

Good stuff includes Tech names that are making real profits, delivering real returns, adding daily to growth and justifying their stellar stock prices. 

What might be real is a much wider range of hopes. Some of these might be fulfilled – maybe Snowflake’s whatever-it-does in cloud computing does justify it being about the richest soft-tech IPO in history. And maybe Tesla’s patents and “leadership” in the battery-space means it’s maybe worth even a fraction of its current stock price? (That will be a bigger number than I think its worth… because I think know Battery day will just be hype-wypey nonsense – It’s a competitive space.) 

There is something deeply confusing about Snowflake’s successful IPO. It seems one major reason for its record software debut is due to Warren Buffet being a buyer. Hang-on. This is the same Warren Buffet that hasn’t bought into an IPO since Ford in 1955 (check it out). The same Warren Buffer who warned last year about the dangers of investing in Hot-Unicorn IPOs? His participation is either the worst or best reason to buy..

Buffet also said last year: “You can go around making dumb bets and win.. but its not something you want to make a lifetime policy..” So that means Snowflake is really special? The Nebraska sage missed firms like Amazon in the early stages.. But he is now the largest investor in Apple – holding $90 bln.

Let me admit up front Apple is a stock I hold in my personal account. It is among my largest positions – but a tad smaller than Warren’s. However, Warren and I both get it – it doesn’t matter Apple hasn’t invented, innovated, and launched nothing new since Steve Jobs passed on to take the big gig upstairs. What we get is the fact that Apple sells more and more Bright Shiny Things to legions of addicted fans who are happy to buy the latest upgraded improved iPad, Phone, Watch or whatever… Its the genuine Goose that lays the proverbial eggs..

It’s a brilliant business model based on hype, fashion, and obsolescence. IOS and Mac and Apple do exactly the same things other software and hardware makers do – but differently and with more panache. The product ecosystem they create is beautiful, alluring and insanely addictive. And now they are creating a better crack delivery service… I’ve been thinking about the new Apple One Subscription Bundle announced earlier this week.. It got me thinking, and that’s never a good thing… 

The Apple subscription bundle will mean the whole Blain family – Me, She and the Two fridge emptying machines could get news, views, music, video and fitness on a cheap and easy to use subscription bundle. That’s … well… that’s absolutely average.

I have i-Tunes, but also Spotify which is much better than I-tunes, (and has Snake-Jazz). Although the kids could get iTunes for free from me, neither of them is particularly interested. 

Apple TV hasn’t anything like the depth of Netflix or Amazon Prime. When we recently had to buy a new TV, we discovered A-TV is the only streaming service that isn’t standard on most new units. (Only Samsung carries it as standard) You have to buy a separate unit – which we did.  The programmes are all right – The Morning Show was ok, Raven’s Quest very amusing, while Greyhound was a bit U-571 (although it’s based on a book by an English writer.) To be honest, I might pay the subscription just to watch the uplifting premier-league football comedy Ted Lasso (seriously brilliant… but). For every click on Apple TV, Netflix, Prime and Disney get three or four more because they have much more and better content. – 

And do I need a fitness app? Well. Yes. But that’s why I already have step-counters and all kinds of apps that tell me how far I walked. To be fair my attempt to do “Couch-Potato to 5K” resulted in my mate Jonnie (best physio in Hamble) telling me I was idiot and my knee was f****d because Blain is not designed to jog. I more a slow-amble body shape. 

The bottom line is the Blain family is drowning in Apps and subscriptions…  but.. I’ll probably get sucked into the Apple One Bundle as well…. 

And, than I had my epiphany moment. 

Last week I was sailing and trimming the sails when my iWatch strap parted and £500 of prime tech sploshed into the Solent – joining the many other phones, blackberries (call and I will tell younger readers what it was) and GPS units I’ve lost overboard over the years. 

Yesterday I picked up my iPhone and it wouldn’t start. I tried powering it up. Nothing. I managed to get an appointment at the Apple Store in Southampton. Very nice chap took a look and told me it was dead. No I]idea why.. but “it’s dead Jim” was the verdict. My Apple-care package on the phone expired last month. I was offered a “reconditioned phone” for £600 or a new one for £999. I am not buying this old model phone when a new one comes out next month.

And that’s when I realised.. I am an addict. 

Here I am in the “bright shiny thing store” about to be fleeced for a new phone. Vodaphone is just across the hall. I could step in and buy a Samsung Universe (or whatever it’s called) for a fraction of the price, that does exactly the same thing… but no.. it might not seamlessly connect with my Airpod, my i-Mac, my Mac-Pro, my iPad and the ridiculously expensive i-Pencil that I’ve never ever used.

And this is why Apple is the most valuable company on the planet. They are the crack cocaine of Tech. They empty my wallet faster than my wife in a shoe shop. And they are inevitably going to trap me into their monopoly of Apple subscription services and Apps that will collect lots of data on me, which they will use to sell me yet more subscription services and expensive Apps that learn yet more ways to bankrupt me. Eventually they will launch a medical app and I will have to pay them for owning my DNA – which they will use to rocket up my insurance, making me bankrupt and Tim Cook a gazillionaire..

Yesterday I could easily have spent £1000 on a phone, a further £600 on a watch and probably more – knowing I will be back in October to buy the new phone… Because I am worth it, and I am a smart sophisticated Apple user.. you can see that by my state-of-the-art Mac-Pro and new phone… 

Bollchocks to that.

I did a Google-search and walked out. I paid £400 for the cheapest iPhone SE in John Lewis… It was £20 cheaper than in the Apple Store. I will be sending the old phone to Music Magpie in return for £120 (Apple offered to dispose of it for free.) I will be spending the next few weeks trying to wean myself off the idea of the New iPhone in October. Maybe I buy a Galaxy instead.. 

But what about the stock? If Tim Cook and Apple get it right, the subscription bundles are just a way to sustain the Apple illusion, and extract value from their ecosystem and product upgrade money machine for years to come… Will it work? Probably. Check out what Henry Ford said about customers. 

It all started just before 3pm on Wednesday, when during his press conference, Fed chair Jerome Powell said that “more fiscal support is likely to be needed”, sparking concerns that the Fed’s monetary toolkit is running dry and that the next move will be a massive $1.5+ trillion fiscal injection from Congress (not surprisingly, Trump also flipped yesterday and advised Senate republicans to agree with Democrat demands for “much higher numbers.” It also launched a cascade of complaints that the Fed was “not dovish enough” (just as we warned would happen), and as JPM said “there may be increasing calls for the Fed to do more” as the stocks are now habituated to a Fed that constantly caters to their every whim.

What happened next was that stocks, which had just hit session highs just before Powell’s statement, tumbled led by tech names on fears a “growth to value” reflation rotation was imminent should Congress kickstart inflation. Emini futures continued to selloff all night, and dropped as much as 100 points sliding as low as 3,310 before rebounding modestly once Europe reopened.

“The market was probably hoping for something more tangible on QE,” said Chris Chapman, a portfolio manager at Manulife Investment. “But overall this should be supportive for risk assets longer term.”

Jitters persisted on Thursday when investors braced for data expected to show persistently high levels of weekly jobless claims: the Labor Department’s weekly Initial Claims report, due at 8:30 a.m. ET, was expected to show about 850,000 Americans filing for unemployment benefits in the week ended Sept. 12, a touch lower than 884,000 in the previous week, but still suggesting the labor market’s recovery from the COVID-19 pandemic was stalling. On Wednesday, in justifying the need for trillions in fiscal stimulus, Powell also indicated a long road to “maximum employment” and said the central bank was limited in its capacity to address some of the gaps around wage growth and workforce participation.

As futures dropped, so did Treasury yields, which hammered the big U.S. banks including Goldman Sachs Group, Bank of America Corp, Citigroup and Wells Fargo all of which fell about 1% in thin premarket trading. Carnival dropped 3.8% after its British cruiseline P&O Cruises extended a cancellation in sailings until early 2021. Other cruise operators such as Royal Caribbean Cruises and Norwegian Cruise Line Holdings shed about 2%. On Wednesday, the Nasdaq 100 Index fell 1.7%; Facebook’s 3.3% drop was among the worst amid reports about a potential FTC antitrust lawsuit and more user boycotts; Apple closed down 3%.

It wasn’t just US futures: global equities were in retreat after the Fed’s last policy decision before the US presidential election on Nov. 3 (the next Fed meeting is on Nov 5). In Europe, the Stoxx 600 Technology index declined as much as 2%, among the worst-performing subgroups on the wider benchmark, after U.S. tech giants dropped late Wednesday amid regulatory scrutiny and after the abovementioned Fed disappointment. ASML, SAP and Infineon are the biggest contributors to the sector drop, all down more than 2%. Elsewhere, European automakers slumped after data showed European car sales plunged by nearly a fifth in August. U.K. retailers today warned of grim signs for the economy.

Earlier in the session, Asian stocks also fell, led by materials and IT. All markets in the region were down, with Hong Kong’s Hang Seng Index dropping 1.6% and Australia’s S&P/ASX 200 falling 1.2%. The Topix declined 0.4%, with Diamond Electric Holdings and Shin Nippon Bio falling the most. The Shanghai Composite Index retreated 0.4%, with KraussMaffei and Beijing Dahao Technology posting the biggest slides.

And so, in a world that is now centrally-planned by a handful of clueless technocrats, all eyes remain on central bankers and their role in propping up economies, pardon markets. Cable tumbled after the Bank of England surprised traders when it said they were exploring negative rates to counter ongoing risks to the labor market after voting unanimously to maintain their key interest rate at 0.1%. Earlier the Bank of Japan kept its asset-purchases and bond-yield targets in place.

In FX, the Bloomberg Dollar Spot Index steadied after giving back Asia session gains. The Aussie edged lower after earlier rallying following a strong jobs report. Scandinavian currencies slipped amid a declines in European equities and a dip in oil prices. The yen led G-10 gains against the dollar, with the USDJPY sluiding below 105 overnight.

Elsewhere, weakness spread to commodities as WTI crude oil slipped to around $40 a barrel. Gold declined.

Looking at today’s session, South Africa is expected to cut rates while initial jobless claims in the US are forecast to decelerate. Other data include housing starts and the Philadelphia Fed business outlook. The U.S. sells 4-week and 8-week bills and a 10-year TIPS auction re-opens.

Market Snapshot

• S&P 500 futures down 1.1% to 3,351.25
• STOXX Europe 600 down 0.8% to 370.30
• MXAP down 0.8% to 173.19
• MXAPJ down 1% to 568.14
• Nikkei down 0.7% to 23,319.37
• Topix down 0.4% to 1,638.40
• Hang Seng Index down 1.6% to 24,340.85
• Shanghai Composite down 0.4% to 3,270.44
• Sensex down 0.6% to 39,054.39
• Australia S&P/ASX 200 down 1.2% to 5,883.22
• Kospi down 1.2% to 2,406.17
• Brent Futures down 0.6% to $41.98/bbl
• Gold spot down 0.8% to $1,944.21
• U.S. Dollar Index down 0.02% to 93.19
• German 10Y yield rose 1.4 bps to -0.47%
• Euro down 0.09% to $1.1805
• Brent Futures down 0.6% to $41.98/bbl
• Italian 10Y yield fell 3.0 bps to 0.763%
• Spanish 10Y yield rose 3.0 bps to 0.291%

Top Overnight News from Bloomberg

• The ECB offered lenders another round of capital relief to help them maintain the flow of credit to the virus-struck economy
• Bank of England policy makers have the opportunity on Thursday to signal to investors and economists whether they’re right to predict more monetary stimulus this year
• After meeting Conservative MPs who were threatening to rebel against him, Boris Johnson agreed to give the House of Commons a veto over whether the government can exercise its proposed powers to override parts of the Brexit divorce treaty
• European car sales plunged by nearly a fifth in August, dashing hopes that the industry was starting to recover from the pandemic
• The ECB has to continue providing “ample” stimulus to support the pandemic- scarred euro-area economy, Governing Council member Olli Rehn said

Asian equity markets traded subdued as the soured mood rolled over into the region following the uninspiring finish on Wall St where the major indices whipsawed post-FOMC. At the meeting, the Fed kept rates at 0.00%-0.25% as expected, left its asset purchase schedule and median FFR dot plot forecasts unchanged, while it guided that it expects to maintain an accommodative stance of monetary policy until its goals of maximum employment and inflation at the rate of 2% over the longer run are achieved, which initially boosted risk appetite on the prospects that rates are to remain low for the years ahead. However, stocks then faltered during Fed Chair Powell’s press conference, where despite there being no specific trigger headline, he did suggest the pace of the recovery would slow and that the lack of fiscal aid will eventually hurt the economy, while the dot plots had earlier showed that some policymakers viewed a lift off in 2022 and 2023. As such, ASX 200 (-1.2%) and Nikkei 225 (-0.7%) were weaker as tech stocks succumbed to the underperformance of the sector stateside and with Tokyo trade lacklustre due to adverse currency effects, as well as tentativeness amid the BoJ policy announcement which failed to spark off any major fireworks as the central bank kept policy settings unchanged and although it upped its assessment of the economy, exports and output, this was widely anticipated. Hang Seng (-1.6%) and Shanghai Comp. (-0.4%) were also negative after the PBoC drained liquidity from the interbank market and as participants await TikTok’s fate with President Trump to review the deal on Thursday morning but noted that he doesn’t like that the US part of TikTok would not be sold to Oracle, while reports had also suggested that the proposal did not address US government security concerns. Finally, 10yr JGBs were flat with price action stuck once again at the 152.00 focal point and with a non-committal tone seen after the BoJ policy announcement proved to be a damp squib.

Top Asian News

• ByteDance Rival Kuaishou Said to Mull $5 Billion Hong Kong IPO
• Adelson Casino Hires Lawyer to Probe $1 Billion in Transfers
• Australian Employment Rose 111,000 in Aug.; Est. 35,000 Decline
• Virus Cases at Dorms Add to Singapore Construction Woes

Stocks in Europe remain in negative territory but have nursed some losses since the cash open (Euro Stoxx 50 -0.8%), in a continuation of the post-Fed global stocks slide. European bourses see broad-based losses with Italy’s FTSE MIB (-1.2%) modestly underperforming given its exposure to banks – with the sector weighed among the laggards, whilst Telecom Italia (-2.5%) resides at the foot of the Italian index after the EU regulator said it is likely to oppose Italy’s plan to create a single national broadband network. Back to sectors, material names are also pressured amid the USD-induced slide in base metal prices, subsequently cushioning losses for the industrial sector. In terms of individual movers, LSE (-1%) shares trade lower as Deutsche Boerse (-0.6%) and Six gear up to submit their bids for LSE’s Borsa Italiana, with reports stating that the exchanges reportedly launched a charm offensive to win the backing of Italian officials. Richemont (-1.6%) and Swatch (-0.9%) are pressured amid another MM contraction in Swiss watch exports; separately, European auto names see broad losses after dismal EU new car registration figures. On the flip side, Next (+6.1%) is among the top gainers in the region post-earnings after raising guidance, after which the CEO suggested profit would be resilient in the event of another national lockdown.

Top European News

• Europe Autos Index Declines After August Car-Market Setback
• German Coal-Plant Profit Jumps as Hot Weather Boosts Demand
• Unibail Raising $4 Billion as Covid Batters Mall Owners
• Rehn Sees Consequences For ECB Policy From Fed’s Goal Change

In FX, the Yen is back in the ascendency after conceding ground to the Dollar in wake of Fed and BoJ policy meetings, with Usd/Jpy briefly back above 105.00 before reversing to fresh September lows around 104.70. In truth, there was little new or unexpected from either Central Bank, but the former did upgrade its 2020 outlook and another tech-related retreat in US stocks exacerbated the broad Buck bounce that boosted the index beyond 93.500 at one stage. However, the DXY is already fading fast within a 93.614-93.140 range and the Yen has reclaimed safe-haven status following the Nikkei’s overnight decline and a degree of re-flattening along the Treasury curve. At this stage, hefty option expiry interest at the 105.00 strike (1.9 bn) may be losing influence, but could yet come back into play pending US housing data, IJC and the Philly Fed survey.

• CAD/NZD/GBP – All unwinding more of their pre-FOMC gains relative to the Greenback, as the Loonie extended its post-Canadian CPI downturn towards 1.3250, the Kiwi briefly relinquished 0.6700+ status in wake of Q2 NZ GDP confirming a technical recession, albeit not quite as contractionary as expected and Sterling failed to sustain momentum through 1.3000 in the run up to the BoE at midday (full preview of the event available via the Research Suite).
• CHF/AUD/EUR – Not much to be gleaned from Swiss trade that revealed a moderately wider surplus, but the Franc is trying to pare losses below 0.9100 against US Dollar and the Aussie is revisiting 0.7300 after holding just above 0.7250 and 1 bn expiries between 0.7240-35, with some underlying support via a significantly better than forecast jobs report. Elsewhere, the Euro has retested 1.1800+ from sub-1.1750 lows, but looking hampered by decent expiry interest at the round number and from 1.1845 to 1.1855 in 1 bn and 1.5 bn respectively, with little independent impetus from final Eurozone inflation data or ECB commentary.
• SCANDI/EM – Bearish risk sentiment and a pull-back in oil prices are weighing on the Sek and Nok, but the Try and Rub are also feeling increased investor angst over diplomatic issues as the Lira slides to new all time lows beneath 7.5000 and the Rouble is back under 75.0000. Similarly, the Zar is on the backfoot pre-SARB and Brl look set for corrective losses even though the BcB held the Selic rate at 2% as widely anticipated.

In commodities, WTI and Brent front month futures are attempting to nurse overnight losses which were induced by the sentiment deterioration post-Fed, alongside a firmer Dollar heading into today’s JMMC meeting due to commence at 1300BST/0800ET. In terms of the findings from yesterday’s JTC meeting, the OPEC+ panel sees initial signs of a decline in oil inventories and noted that the increase in COVID-19 cases may weigh on economic recovery and oil demand – comments that are in-line with the OPEC MOMR which stated that risks remain elevated and skewed to the downside, particularly in relation to the development of COVID-19 infection cases and potential vaccines. JMMC focus will fall on any commentary surrounding the recent oil price decline and demand outlook alongside compliance. Separately, in the Gulf of Mexico, Sally has weakened to a tropical storm but is still producing torrential rains, according to the NHC WTI Oct meanders around USD 40/bbl (vs. low 39.42/bbl) while its Brent counterpart hovers around USD 42.00/bbl (vs. low 41.50/bbl). Elsewhere, precious metals remain subdued by the USD in the aftermath of the FOMC, with spot gold flatlined throughout the European morning sub-USD 1950/oz (vs. overnight high 1960/oz), whilst spot silver surrendered its USD 27/oz status. In terms of base metals, LME copper also succumbs to the Dollar strength and broader losses in the stock markets, whilst Dalian iron ore futures dipped to the lowest level in over six weeks amid the USD’s movements and the growing prospect for further supply improvements, whilst steel demand in China was not as strong as some had expected.

US Event Calendar

• 8:30am: Initial Jobless Claims, est. 850,000, prior 884,000; Continuing Claims, est. 13m, prior 13.4m
• 8:30am: Housing Starts, est. 1.48m, prior 1.5m; Housing Starts MoM, est. -0.91%, prior 22.6%
• 8:30am: Building Permits, est. 1.51m, prior 1.5m; Building Permits MoM, est. 1.96%, prior 18.8%
• 8:30am: Philadelphia Fed Business Outlook, est. 15, prior 17.2

DB’s Jim Reid concludes the overnight wrap

Did the Fed glow last night? Well the initial market reaction was positive as the Fed verbally formalised their extended accommodation. However markets turned during Powell’s press conference. More on that later. As was universally expected, the committee signalled rates would remain near zero through 2023 while keeping QE, through Treasury and MBS purchases, at its current rate. In a slightly dovish development there were only two dissents and only one Fed official supporting rates rising before 2023. As was signalled at Jackson Hole the committee “expects to maintain an accommodative stance of monetary policy” until it achieves inflation averaging 2% over time and longer-term inflation expectations remain anchored at 2%. Therefore, it is noteworthy that in the Summary of Economic Projections inflation is only anticipated to reach 2.0% in 2023, indicating that even with average inflation targeting the committee is not expecting inflation to overshoot until sometime after that date. For more, please see our US economics team’s full review here.

In terms of the overall economy, Chair Powell acknowledged that “the recovery has progressed more quickly than generally expected,” but did caution that the recent pace may slow as “the path ahead remains highly uncertain.” Within their SEP forecasts, they are essentially projecting the economy to reach Q4 2019 pre-covid levels by the end of 2021. The Chair once again stated that further fiscal stimulus would be needed to further support the recovery.

Prior to the FOMC, we got another flurry of fiscal news out of the White House, with the President’s Chief-of-Staff Meadows saying the administration was open to the $1.5 trillion bi-partisan compromise proposed by moderates in the House. This deal is far higher than what Senate Republican leaders have said they would support, with second-ranking GOP senator Thune saying that stimulus of that size would cause “a lot of heartburn” in his caucus. Speaker Pelosi and Senate Minority Leader Schumer were said to be “encouraged” by Trump’s endorsement of higher spending, though the negotiating window gets tighter the closer this drifts into the heart of election season for the President and lawmakers alike.

Prior to the policy decision and Chair Powell’s news conference, risk assets were trading slightly higher with the S&P 500 up +0.5%, climbing to +0.8% in the first few moments of the press conference before dropping around 1% as the chair spoke. Following the whipsaw, the index finished the session -0.46%. Tech in particular drove much of the selling, with the NASDAQ falling -1.25% on the day. While the broad index lagged there was a clear move into cyclical sectors as Financials (+1.01%), Energy (+4.04%) and Industrials (+0.99%) stocks finished higher – though energy was helped by rising crude prices as well. The dollar was flat when the committee decision was announced and rose moderately through the rest of the session to finish up +0.18%, but still below last Friday’s closing levels. On the other hand US 10yr Treasury yields rose +3.5bps after the decision to finish +1.8bps higher on the day at 0.697%.

Overnight in Asia, the Bank of Japan decided to maintain its current policy stance as expected, with the statement saying that “Japan’s economy has started to pick up with economic activity resuming gradually”. We should hear more this morning from Governor Kuroda, who’ll be holding a media briefing at 7:30 UK time. Meanwhile Asian equity markets followed the US lower, with the Nikkei (-0.71%), the Hang Seng (-1.59%), the Shanghai Comp (-0.99%) and the KOSPI (-1.30%) all losing ground. S&P 500 futures are also pointing to a weak session, and are currently -1.07% lower.

Attention will remain on central banks following the Fed and the BoJ, with the Bank of England announcing their latest decision at noon UK time. In terms of what to expect, our UK economist expects both rates and QE will remain on hold at this meeting, but there’s a big chance that today’s decision won’t be unanimous. Our base case is that there’ll be a further £60bn top-up to the QE program in December, though risks are rising that this might be announced slightly earlier at the November meeting. The meeting comes against the backdrop of rising Brexit uncertainty, which will only serve to heighten uncertainty and weaken confidence. Brexit wasn’t mentioned once in the minutes of the August meeting, but it’ll be interesting to see if this changes. Yesterday also saw a notable fall in CPI inflation to +0.2% in August (from +1.0% in July), which was its lowest level since December 2015, though it was a bit higher than the consensus expectation for a 0.0% reading. That fall was supported by the government’s Eat Out to Help Out Scheme, which offered a discount when eating out, along with a fall in air fares.

On the coronavirus, it was a mixed bag of news yesterday. On the positive side, it was reported that the illness which caused the pause in the Oxford vaccine trial was unlikely to be linked to the shot, according to documents that were sent to participants. Nevertheless, we got conflicting timetables as to when a vaccine might be available in the US. The director of the CDC, Robert Redfield, suggesting that “we’re probably looking at late second quarter, third quarter 2021” in terms of availability to the public, though the deputy chief of staff for policy at the Department of Health and Human Services said every American should be able to get one by the end of March. Dr Fauci then later said it was possible but tough to vaccinate everyone by April, and it was more likely there’d be broad access by the middle or end of 2021. This was all before President Trump then said a vaccine could be distributed as early as October, well ahead any of the previous timelines. Vice President Pence then said the administration’s goal is to have 100 million vaccine doses available by year-end.

Meanwhile the number of cases in Western Europe continued to rise, with the UK reporting a further 3,991 cases yesterday, which was the highest number of confirmed cases since May 8. And over in France, weekly cases have now exceeded 60,000 for the first time, compared to the April peak of just over 40,000 cases per week, albeit on lower testing levels. Optically new cases are likely to rival the first wave in many places over the next few weeks but it’s not really a fair comparison. It won’t stop it being made though. Weekly cases in the US have ticked higher over the past few days as well, with over 277,000 newly confirmed cases since last Wednesday compared to 242,000 weekly cases for the period prior. One place to keep an eye on is Wisconsin, a swing state that was very close in 2016 and in which both Mr Trump and Mr Biden are spending quite a lot of resources. The state has seen new cases double in the last week and are currently seeing their highest absolute levels since the start of the pandemic.

Ahead of the Fed’s decision, European markets saw a variable performance yesterday. While the STOXX 600 climbed +0.58% to reach a 3-week high, that was in spite of declines in the UK, where the FTSE 100 (-0.44%) moved lower after paring back its gains from the start of the session. Oil continued its recovery however, with Brent crude up +4.17% to $42.22/bbl, while WTI also rose +4.91%. Finally in the fixed income space, sovereign bonds also performed positively, with yields on 10yr bunds (-0.5bps), OATs (-1.2bps) and BTPs (-2.9bps) all fell.

Looking at yesterday’s other data, the main highlight came from the US retail sales figures. They underperformed expectations, with a +0.6% rise in August (vs. +1.0% expected), as the previous month was revised down three-tenths to +0.9%. Otherwise, the NAHB housing market index rose to a record 83 (vs. 78 expected). Finally, the OECD upgraded their global growth projection for this year, now seeing a smaller contraction in the global economy of -4.5%.

To the day ahead now, and the highlights will include the aforementioned Bank of England decision, as well as monetary policy decisions from the South African Reserve Bank and Bank Indonesia. In terms of central bank speakers, we’ll also hear from the ECB’s de Guindos, Rehn and Muller. On the data front, today’s releases from the US include August’s housing starts and building permits, the weekly initial jobless claims, along with the Philadelphia Fed’s business outlook for September. Meanwhile in Europe, there’s the EU27 new car registrations for August and the Euro Area’s final CPI reading for August.

There were no initial surprises when the first headlines hit from the BOE’s decision this morning in which, just like the Fed and the BOJE hours before it, the central bank kept its rates on hold and its QE program unchanged at GBP745BN in a 9-0 decision, both as expected.

At its meeting ending on 16 September 2020, the MPC voted unanimously to maintain #BankRate at 0.1%. https://t.co/O37GrVu0La pic.twitter.com/1R1abGJjEr

— Bank of England (@bankofengland) September 17, 2020

Echoing the Fed, which pledged not to hike rates until at least 2023, the BOE repeated it pledge not to tighten until U.K. inflation, currently at 0.2%, is sustainably moving to its 2% target. Economists also predict the QE program will be expanded by 50 billion pounds in November.

However, after an initial kneejerk move higher, cable quickly tumbled after algos read all the way to the final bullet #52 in the Monetary Policy Minutes which revealed that the Monetary Policy Committee had been briefed on plans to explore how a negative rate could be implemented effectively should the outlook for inflation and output warrant at some point during this period of lower equilibrium. The Committee had discussed its policy toolkit, and the effectiveness of negative policy rates in particular, in the August Monetary Policy Report, in light of the decline in global equilibrium interest rates over a number of years. Here is the section in question:

The Committee had discussed its policy toolkit, and the effectiveness of negative policy rates in particular, in the August Monetary Policy Report, in light of the decline in global equilibrium interest rates over a number of years. Subsequently, the MPC had been briefed on the Bank of England’s plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates. The Bank of England and the Prudential Regulation Authority will begin structured engagement on the operational considerations in 2020 Q4

In response, the pound clumped to an intraday low, trading down 0.6% at $1.2892.

Officials also said that while recent data has been a little stronger than expected, they still think there is “a risk of a more persistent period of elevated unemployment than in the central projection.”

“The Committee will continue to monitor the situation closely and stands ready to adjust monetary policy accordingly to meet its remit,” the BOE said.

STIR traders were caught offside, as moments before the announcement money markets trimmed bets on interest rate, with traders pricing in the next 10bps rate cut in June compared with February on Wednesday just before the decision, and about 13bps of easing is priced at the end of 2021.

Some more highlights from the report, courtesy of NewsSquawk:

ECONOMIC DEVELOPMENTS

• 2020 Q3 as a whole, Bank staff expect GDP to be around 7% below its 2019 Q4 level, less weak than had been expected in the August Report
• CPI inflation is expected to remain below 1% until early 2021, albeit slightly higher than expected at the time of the August Report.
• Overall, the Committee judged that inflation expectations remained well anchored and consistent with inflation close to the 2% target.
• The outlook for the economy remains unusually uncertain. The MPC’s central projections in the August Monetary Policy Report assumed that the direct impact of Covid-19 on the economy would dissipate gradually

BREXIT

• Market contacts had also reported renewed concerns over recent Brexit developments.
• The sterling exchange rate index has fallen by around 2%, in part reflecting recent Brexit developments.
• The Committee would consider economic issues relating to Brexit within the context of its wider forecast discussions ahead of the November MPC meeting.

GUIDANCE

• As in the August Report, there remains a risk of a more persistent period of elevated unemployment than in the central projection.
• The Committee will continue to monitor the situation closely and stands ready to adjust monetary policy accordingly to meet its remit.
• The MPC will keep under review the range of actions that could be taken to deliver its objectives.
• The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

The U.K. has been facing a resurgence in virus infections and restrictions, as well as fears unemployment could spike when government aid programs are withdrawn next month. Concurrently, Prime Minister Boris Johnson’s threats to redraw his Brexit deal with the European Union could scupper any chance of a trade accord before the Dec. 31 deadline, further boosting economic turmoil.