Month: October 2023

As we start October, DB’s Jim Reid asks whether we can power out of the gravitational pull of bad September seasonals. He notes that September 2023 was the 4th year in a row that the S&P 500 and the STOXX 600 were down for the month, as well as the 7th year in a row that Bloomberg’s global bond aggregate was down for the month. The damage in bonds has been more severe and more sustained than for equities and you can’t help wondering where the real damage is. The bottom line as the strategist puts it, is that “you can’t have this much value destruction in bonds without there being some stress somewhere. However, it’s near impossible to work out where exactly it might come to the surface.”

One thing that is certain is that it will, just give it time.

The good news as we start the week and the new business month is that the US averted a shutdown just before the deadline on Saturday night which will keep the government running until November 17th. This gives negotiators more time to pass something more long standing. We will see if we’re in the same position in six weeks’ time though.

For now no shutdown means that US data will get published on time this week. The highlight is clearly Friday’s payrolls. Before that, the JOLTS (tomorrow) and ADP (Wednesday) data will give us some early clues. The former is a month behind but is obviously a key report to assess labour market tightness by looking at the quits rate, hirings and vacancies etc.

The highlights for the rest of the week are the US ISM and a Powell roundtable discussion today, an expected hold from the RBA tomorrow, US services PMI, Euro Zone retail sales, Euro Zone PPI and a Lagarde speech on Wednesday, French IP on Thursday with German factory orders on Friday. The full week ahead is at the end, including a bevy of central bank speakers, but we’ll quickly preview today’s ISM and Friday’s payrolls below.

Going back to the main events, DB’s economists and the consensus are expecting +165k for headline payrolls (+187k previously) with the unemployment rate expected to dip back down a tenth to 3.7% after surprisingly increasing three tenths last month. A reminder that every headline payroll number has now been revised lower in 2023. In early summer we were on a run of 13 successive beats but some of that has now gone with revisions.

Today’s US manufacturing ISM (47.5 expected at DB vs. 47.6 last) and Wednesday’s services ISM (54.1 vs. 54.5) are expected to be fairly stable. For the former our economists’ models suggest an uptick but the UAW strikes could offset that as perhaps foretold by a weak Chicago PMI last week. Note that it’s likely too early for this strike to impact payrolls but it could make a sizeable impact next month. For services watch for the employment index as this surprisingly soared 4 points to 54.7 last month.

Talking of such indices, the official China manufacturing PMI edged up to 50.2 (50.1 expected) over the weekend from 49.7 in August. Services also beat by a tenth to 51.7 from 51.0 in August. The private Caixin equivalents were at 50.6 and 50.2 respectively, below the 51.2 and 52.0 expected. So a mixed set of data as China starts a holiday week.

Courtesy of DB, here is a day-by-day calendar of events

Monday October 2

• Data: US September ISM index, August construction spending, UK September Nationwide house price index, Japan Q3 Tankan indices, Italy September manufacturing PMI, new car registrations, budget balance, August unemployment rate, Eurozone August unemployment rate, Canada September manufacturing PMI
• Central banks: Fed Powell, Harker and Williams speak, BoJ Summary of Opinions September MPM, ECB’s Centeno and de Cos speak, BoE’s Mann speaks

Tuesday October 3

• Data: US September total vehicle sales, August JOLTS, Japan September monetary base, France August budget balance
• Central banks: Fed’s Mester and Bostic speak, ECB’s Simkus, Lane and Villeroy speak, RBA decision

Wednesday October 4

• Data: US September ISM services, ADP report, August factory orders, UK September official reserves changes, Italy September services PMI, Q2 deficit to GDP, Eurozone August retail sales, PPI
• Central banks: Fed’s Bowman and Goolsbee speak, ECB’s Lagarde, Guindos, Centeno and Panetta speak
• Earnings: Tesco

Thursday October 5

• Data: US August trade balance, initial jobless claims, UK September construction PMI, new car registrations, Germany September construction PMI, August trade balance, France August industrial and manufacturing production, Canada August international merchandise trade
• Central banks: Fed’s Daly, Barr and Mester speak, ECB’s Nagel, Villeroy, Guindos and Lane speak, BoE DMP survey, Broadbent speaks
• Earnings: Constellation Brands

Friday October 6

• Data: US September jobs report, August consumer credit, Japan August leading and coincident indices, labor cash earnings, household spending, Italy August retail sales, Germany August factory orders, France August trade balance, current account balance, Canada September jobs report
• Central banks: Fed’s Waller speaks

* * *

Turning to just the US, Goldman writes that the key economic data releases this week are JOLTS job openings on Tuesday, the ISM services report on Wednesday, and the employment report on Friday. There are many speaking engagements from Fed officials this week, including Chair Powell, governors Bowman and Waller, Vice Chair for Supervision Barr, and presidents Harker, Williams, Mester, Bostic, Goolsbee, and Daly.

Monday, October 2

• 10:00 AM Construction spending, August (GS +0.8%, consensus +0.6%, last +0.7%)
• 10:00 AM ISM manufacturing index, September (GS 48.5, consensus 47.7, last 47.6): We estimate the ISM manufacturing index rebounded by 0.9pt to 48.5 in September, reflecting the rebound in East Asian industrial activity and upward convergence towards other business surveys. Our GS manufacturing tracker was unchanged on net at 49.1.
• 11:00 AM Fed Chair Powell and Philadelphia Fed President Harker (FOMC non-voter) speak: Fed Chair Jerome Powell and Philadelphia Fed President Patrick Harker will participate in a roundtable discussion with workers, small business owners and community leaders in York, Pennsylvania. A Q&A is expected. On August 25 Harker said, “right now, I think that we’ve probably done enough… I’m in the camp of, let the restrictive stance work for a while… and that should bring inflation down.”
• 01:30 PM New York Fed President Williams (FOMC voter) moderates discussion: Federal Reserve Bank of New York President John Williams will moderate a discussion with Columbia University professor Joseph Stiglitz at 2023 Environmental Economics and Policy Conference: Measuring and Adapting to Climate Risk, hosted by the New York Fed and Columbia SIPA. Text is not expected. On September 29 Williams said, “my current assessment is that we are at, or near, the peak level of the target range for the federal funds rate. I expect we will need to maintain a restrictive stance of monetary policy for some time to fully restore balance to demand and supply and bring inflation back to our 2% longer-run goal.”
• 07:30 PM Cleveland Fed President Mester (FOMC non-voter) speaks: Federal Reserve Bank of Cleveland President Loretta Mester will speak on the economic outlook at the 50 Club of Cleveland monthly meeting. Text and audience Q&A are expected. On September 1 Mester said, “In the labor market, some progress is being made in bringing demand and supply into better balance, but the job market is still strong.”

Tuesday, October 3

• 08:00 AM Atlanta Fed President Bostic (FOMC non-voter) speaks: Federal Reserve Bank of Atlanta President Raphael Bostic will take part in a moderated conversation at Leadership Atlanta’s alumni roundtable. He will discuss the economic outlook for 2024, inflation, interest rates, the labor market, and sources of uncertainty. Audience Q&A is expected. On September 4 Bostic said, “I think that it’s appropriate to just be cautious at this stage. We don’t have to rush and we can let our policy do its work and continue to slow the economy down and continue us on that road to the 2% target.”
• 08:15 AM ADP employment change, September (GS +190k, consensus +158k, last +177k): We estimate a 190k rise in ADP payroll employment in September, reflecting stronger Big Data employment indicators.
• 10:00 AM JOLTS job openings, August (GS 8,800k, consensus 8,830K, last 8,827k)
• 05:00 PM Lightweight motor vehicle sales, September (GS 15.5mn, consensus 15.4mn, last 15.0mn)

Wednesday, October 4

• 10:00 AM Factory orders, August (GS +0.3%, consensus +0.3%, last -2.1%)
• 10:00 AM ISM services index, September (GS 53.5, consensus 53.5, last 54.5): We estimate that the ISM services index deletion declined to 53.5 in September. Our forecast reflects a net decline in business surveys (our nonmanufacturing tracker fell 0.4pt to 52.6) and our GSAI.
• 10:25 AM Fed Governor Bowman speaks: Fed Governor Michelle Bowman will deliver the keynote address at a community banking research conference at the St. Louis Fed. Text is expected. On September 22 Bowman said, “I expect it will likely be appropriate for the Committee to raise rates further and hold them at a restrictive level for some time to return inflation to our 2 percent goal in a timely way.”
• 10:30 AM Chicago Fed President Goolsbee (FOMC voter) speaks: Chicago Fed President Austan Goolsbee will deliver welcoming remarks at the Chicago Payments Symposium. On September 7 Goolsbee said, “we are very rapidly approaching the time when our argument is not going to be about how high should the rates go; it’s going to be an argument about how long do we need to keep the rates at this position.”
• 03:00 PM Chicago Fed President Goolsbee (FOMC voter) moderates discussion: Chicago Fed President Austan Goolsbee will moderate a discussion with former Reserve Bank of India Governor Raghuram Rajan, the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago’s Booth School. Q&A is expected.

Thursday, October 5

• 08:30 AM Initial jobless claims, week ended September 30 (GS 210k, consensus 210k, last 204k): Continuing jobless claims, week ended September 23 (last 1,670k)
• 08:30 AM Trade balance, August (GS -$59.7bn, consensus -$64.3bn, last -$65.0bn)
• 09:00 Cleveland Fed President Mester (FOMC non-voter) speaks: Cleveland Fed President Loretta Mester will introduce a keynote speaker presenting on cybersecurity trends at the Chicago Payments Symposium.
• 12:00 PM San Francisco Fed President Daly (FOMC non-voter) speaks: San Francisco Fed President Mary Daly will speak at the Economic Club of New York. Q&A is expected. On September 22 Daly said, “the thing that would be a problem is if we decided that we wanted to call it done we’d say we’re done, we say definitely one more, when we actually don’t know. Patience is a prudent strategy.”
• 12:15 PM Fed Vice Chair for Supervision Barr speaks: Fed Vice Chair for Supervision Michael Barr will speak on cyber risk in the banking sector at the Cleveland Fed’s Large and Foreign Banking Organizations Cyber Conference. Q&A and livestream are expected.

Friday, October 6

• 08:30 AM Nonfarm payroll employment, September (GS +200k, consensus +168k, last +187k); Private payroll employment, September (GS +180k, consensus +150k, last +179k); Average hourly earnings (mom), September (GS +0.30%, consensus +0.3%, last +0.2%); Average hourly earnings (yoy), September (GS +4.28%, consensus +4.3%, last +4.3%); Unemployment rate, September (GS 3.7%, consensus 3.7%, last 3.8%); Labor force participation rate, September (GS 62.8%, consensus 62.7%, last 62.8%): We estimate nonfarm payrolls rose by 200k in September (mom sa). Big Data indicators indicate strong job growth, consistent with the further decline in initial jobless claims and fewer end-of-summer layoffs than usual. We do not assume a drag from labor disputes, because the United Auto Workers strike started after the beginning of the survey week. On the negative side, September payrolls exhibit a negative bias in the initial prints, with payroll growth subsequently revised higher in eight of the last ten years (we assume a 40-50k headwind in Friday’s report). We estimate that the unemployment rate declined to 3.7%, reflecting a rise in household employment and unchanged labor force participation at 62.8% (we do not expect the August rise in the foreign-born labor force to reverse). We estimate a 0.30% increase in average hourly earnings (mom sa) that edges the year-on-year rate lower by 1bp to 4.28%, reflecting waning wage pressures but positive calendar effects (the latter worth +5bps month-over-month, on our estimates).
• 12:00 PM Fed Governor Waller speaks: Fed Governor Christopher Waller will participate in a moderated discussion about the payments system at a Brookings Institution event. Q&A is expected. On September 5 Waller said, “I don’t think one more hike would necessarily throw the economy into recession if we did feel that we needed to do one. It’s not obvious that we’re in real danger of doing a lot of damage to the job market, even if we raise rates one more time.”

Source: DB, Goldman. BofA

This morning Tesla released its production and delivery numbers for Q3, stating it delivered 435,059 vehicles and produced 430,488 vehicles, missing consensus delivery estimates of 456,722, according to Bloomberg.

Shares were down as much as 3.5% in pre-market trading on Monday before slightly paring losses. The market had expected lackluster numbers for the quarter, but Tesla’s report still missed the street’s most modest of estimates. 

A consensus of analysts polled by StreetAccount and cited by CNBC had even higher estimates for the quarter of 461,640 deliveries. The company appears to have sent out a consensus of 455,000 for the quarter, per social media posts last week. 

The quarter marked the first sequential drop in total deliveries since Q2 2022. Prior to that, the last sequential drop in total deliveries occurred in early 2020, as the chart below shows. 

The company acknowledged the miss and chalked it up to downtime, stating in its press release the “sequential decline in volumes was caused by planned downtimes for factory upgrades, as discussed on the most recent earnings call.”

CEO Elon Musk had said on the company’s last conference call that it would “continue to target 1.8 million vehicle deliveries this year.” However, he also warned about production numbers dwindling due to “summer shutdowns for a lot of factory upgrades.”

The company delivered 15,985 Model S/X vehicles, missing estimates of 17,721 vehicles.

And Tesla delivered 419,074 Model 3/Y vehicles, missing estimates of 439,362. 

Despite the Q3 miss, Tesla claims that its 2023 “volume target of around 1.8 million vehicles remains unchanged”. Tesla didn’t weigh in on sales of its semi or its Cybertruck yet and says it will report earnings on October 18. 

This quarter’s earnings will be the first with Chief Accounting Officer Vaibhav Taneja in the CFO role. 

Via SchiffGold.com,

The markets seem to think that everything is fine. They believe the Fed has effectively beat price inflation and it can mop it up without crashing the economy. In his podcast, Peter Schiff said in reality the Fed is at a fork in the road, and there is an imminent disaster waiting no matter which way it goes. He also warned that the biggest crisis is the one nobody sees coming.

The bond selloff continued last week. With yields rising coupled with dollar strength, gold got clobbered, closing the week below $1,850. That represented about a 4% drop in the price last week. Gold stocks fared even worse with the GDX dropping about 8%.

Peter said that it wasn’t the move he would expect given what’s going on.

Although I understand it because you have so many people that don’t get what’s going on. They look at this rise in interest rates, and they look at persistent inflation, and I’m going to get to the economic news in a bit, but the news that came out again was consistent with more inflation and the Fed being higher for longer. And that narrative is what’s driving gold prices down.”

Peter said the market has this completely wrong.

This is all bullish for gold and it’s bearish for the dollar. It’s not a sign that the Fed is going to have to fight harder to win the fight against inflation. It’s a sign that the Fed has already lost the fight against inflation. It doesn’t matter if it fights harder. It can’t win. And in the meantime, if it keeps on fighting, it is going to collapse the economy.”

Every element of the economy will be subject to the collapse from governments, to corporations to individuals.

Everybody that’s been borrowing money for the past 15 years – there is going to be a crisis if the Fed keeps interest rates at this level or raises them.”

That’s the position the Fed is in, but the markets seem to think the Fed can manage it without collapsing everything.

But Peter said we’ve reached a fork in the highway.

The Fed has been able to successfully kick the can down the road, and we’ve now caught up with the can and there’s a fork in the road at this point. But no matter which direction the Fed kicks that can, there’s an imminent disaster waiting.”

Either the Fed keeps fighting inflation and causes an economic meltdown, or it tries to avoid the meltdown in the economy and the banking sector by pivoting and cutting rates. That would mean even more inflation.

They have to do one of these two things, but either way, there’s a disaster. There’s no policy choice this time, I think, where you don’t have an imminent disaster.”

The markets see rising interest rates and they are reacting based on their perception that it’s bearish for gold. Peter said the problem is they’re not looking beyond one move ahead.

They’re all playing checkers. I’m playing chess. I see this through to the checkmate. I know how this game is going to end. I know that ultimately, everything that is happening right now, is bullish for gold, and it’s bearish for the dollar.”

Peter said most of the mainstream people have no idea what’s right around the corner. These are the same people who had no idea that the 2008 financial crisis was right around the corner.

It’s the same people making the same mistakes.”

And he reminds us that the worst crisis is the one nobody sees coming.

Peter said he took advantage of the selloff and bought more gold stocks.

I’m happy that gold sold off because it gives me a chance to buy more gold stocks at a better price, and I think everybody else should be viewing it the same way. When this thing changes — when the people who don’t have any idea what’s about to happen find out, when they’re blindsided by what happens, then they’re going to be rushing to buy gold.”

In 2021, California Governor Gavin Newsom (D) vowed to replace any Senate vacancies with a black woman.

On Sunday, he did just that following the death of Sen. Dianne Feinstein (D), appointing the first black lesbian to ever openly serve in Congress.

Laphonza Butler, president of of pro-abortion organization EMILY’s List who served as a senior adviser to Kamala Harris’ very failed 2020 presidential campaign, and currently a resident of Maryland, was announced as Feinstein’s replacement in a Sunday night announcement by Newsom.

Butler will finish Feinstein’s term, which runs until 2024, after which she may face off with Rep. Adam Schiff (D-CA), who had been hoping Feinstein would live till the election so he could slide into the Senate.

“As we mourn the enormous loss of Senator Feinstein, the very freedoms she fought for — reproductive freedom, equal protection, and safety from gun violence — have never been under greater assault,” said Newsom, adding “Laphonza will carry the baton left by Senator Feinstein, continue to break glass ceilings, and fight for all Californians in Washington D.C.”

I’m proud to announce California’s new United States Senator — Laphonza Butler.

As we mourn the enormous loss of Sen. Feinstein, the very freedoms she fought for — reproductive freedom, equal protection, and safety from gun violence — have never been under greater assault.… pic.twitter.com/SOnbfVPmXj

— Gavin Newsom (@GavinNewsom) October 2, 2023

Butler was born in Magnolia, Mississippi, where she began her career as a union organizer. In 2009, she moved to California, where she served as president of SEIU United Long Term Care Workers, where she was instrumental in raising minimum wage, and hiking taxes on wealthy Californians. She also served as a University of California regent for three years, until she moved to Maryland in 2001.

After advising Kamala Harris on her 2020 campaign, Butler left SCRB strategies to become Airbnb’s director of public policy and campaigns in North America. Wile working for Harris, she was hired by Uber during an organized labor dispute – when Harris’s brother-in-law, Tony West, was Uber’s chief legal officer.

Many have made light of the fact that Butler doesn’t actually live in California.

FPPC and FEC filings indicate that soon-to-be California Senator Laphonza Butler hasn’t been a resident of the state for over two years. pic.twitter.com/IejF3ndnPO

— Rob Pyers (@rpyers) October 2, 2023

Are Californians so awful that you couldn’t even find one of them to Rep their own state? Had to outsource to the president of a PAC 3000 miles away? Something tells me the people of CA will not be her priority, just like Dianne Feinstein. pic.twitter.com/RUwJatDlhM

— The Redheaded libertarian (@TRHLofficial) October 2, 2023

Congrats to the state of Maryland on finally obtaining three Senators.https://t.co/FuEm8IWa8u

— Ben Shapiro (@benshapiro) October 2, 2023

Newsom’s pick of Laphonza Butler will be celebrated around identity (as a Black LGBT woman) but she also worked as a lobbyist for many corporate consultants. PG&E paid her firm to help fight regulation and Uber when it waged war on workers attempting to organize for better pay.

— Lee Fang (@lhfang) October 2, 2023

On Sunday the Trump administration’s pandemic-era student loan pause officially ended, re-saddling more than 28 million borrowers with the consequences of their own actions (granted, colleges virtually assured 18-year-olds six-figure salaries amid ridiculous tuition hikes before ‘bidenomics’ and the Ukraine war resulted in scorching inflation).

Despite pleadings from advocates, the Biden administration has reactivated payment requirements, The Hill reports.

“It’s a sad day for student loan borrowers and for the country that student loans have to come back on, especially with the threat of a looming government shutdown, potentially on the same day. It’s just wild,” said the president and founder of the Student Debt Crisis Center, Natalia Abrams, apparently unaware that nobody forced anyone to take on all that debt.

According to a July survey by Life and My Finances, half of borrowers don’t make enough to afford their student loan payments, while 22% had a plan on how they would make ends meet once payments resume.

Some borrowers are going on a “student debt strike” and refusing to make payments as a way to show their discontent with the system. 

Meanwhile, President Biden, who had made relief a key pledge of his 2020 campaign, has released an “on-ramp” repayment plan that allows borrowers to miss their monthly payments for the next year with fewer consequences than before. The Department of Education will not put borrowers in delinquent status if they miss payments, garnish their wages or send them to debt collectors. 

But borrowers will still see interest accrue on their loans, and their credit score could be affected, despite the department saying they won’t report the missed payments to credit card companies. -The Hill

“There could be situations where potentially because you’re not making your payments, the value of your loan is increasing because it’s collecting interest, so you will owe more money. The credit bureau takes that into account, and maybe your credit score gets dinged a little bit,” said Lending Tree senior economist and student loan repayment expert, Jacob Channel.

As we’ve noted for years, student loans were an albatross around the necks of young borrowers even before the pandemic pause, delaying home ownership and throwing retirement savings plans into disarray. In 2019, nearly half of student loan borrowers delayed a home purchase due to educational debt, according to real estate site Cleaver.

“In typical pre-COVID times, when people are paying their student loans, they’re not buying their children’s medication, they’re not able to save for a house or retirement. We know from polling borrowers for so many years that they were using their COVID pandemic money to pay for basic needs, and so the worry is that now they won’t be able to,” according to Abrams.

In June, the Biden administration took the flatly unconstitutional step of forgiving at least $10,000 in student debt for all 45 million borrowers, however it was (predictably) struck down by the Supreme Court in June. The reason only 28 million borrowers will be affected by the resumption is because the rest are either paused because the borrowers are in school, in default, or waiting in the hopes that their debt will be discharged.

That said, the administration was able to create a new income-driven repayment program known as SAVE (Saving on Valuable Education), which rolls out in two phases. In the first phase coming later this year, the income exemption is raised from 150% to 225% above the federal poverty guidelines, which grants an individual borrower making up to $32,800 per year a $0 monthly payment on their student loans. The same $0 payment scales to a family of four making under $67,500.

Next year, monthly payments will be cut in half, moving from 10% of discretionary income to 5%.

“The SAVE plan is a lifeline if you’re able to get on a $0 payment, and we have worked with some borrowers, especially older borrowers on Social Security” to get on that plan,” said Abrams.

“But the folks that we’re seeing it harm or not be helpful for is our folks that may have seen an increase in their income during the pandemic. And then when they go to apply, the people who were on a previous IDR plan … they realize they have to pay a much higher payment.”

According to Republicans, none of this addresses the root of the problem.

“This conversation distracts us from the core problem, which is making student loan money too easy, which causes tuition to rise and does not address what’s needed, which is that colleges need tough love to end their addiction to tuition,” according to Adam Kissel, a visiting fellow in the Heritage Foundation’s Center for Education Policy. 

“Republicans have brought forth a solution that holds colleges accountable for rising costs and empowers students and families to make the best decisions for their college careers and beyond. But if Congress fails to act, students will continue to drown in debt without a path to success,” said Sen. Bill Cassidy (R-LA), ranking member of the Health, Education, Labor and Pensions Committee.

And then there’s the economy

As we noted last week, personal consumption collapsed in the latest GDP revision – in fact, printing at 0.8%, down 80% from 3.8% in Q1, it was a downright disaster. As shown in the chart below, Personal Consumption was expected to print unchanged from the 1st revision to Q2 GDP at 1.7%. Instead, it came in less than half at 0.8%, a 9-sigma miss to expectations!

Of course, when it comes to the US economy which is 70% spending-driven, all that matters is consumer spending, and the sudden collapse there confirms what we have been saying: the US is about to careen into economic contraction once the various factors that will slam Q4 GDP come into play including:

• the resumption of student loan payments, which will subtract (at least) 0.5% (and likely much more) from quarterly annualized GDP growth
• the federal government shutdown, which will reduce quarterly annualized growth by around 0.2% for each week it lasts
• reduced auto production from the ongoing UAW strike which will reduce quarterly annualized growth by 0.05-0.10% for each week it lasts.

Hey, at least the government averted a shutdown, so at least we’ve got that going for us.

Authored by Simon White, Bloomberg macro strategist,

An inability to rally on a stronger ISM number today would indicate the US stock market remains at a vulnerable juncture. This would raise the risk of a deeper selloff prompted by the gamma-related selling of option dealers.

Both the September ISM and S&P PMI manufacturing indices will be released today. Each is expected to remain basically unchanged from last month (the ISM slightly stronger, the PMI exactly the same), and both remaining under the 50 demarcation level between expansion and contraction.

The new orders-to-inventories ratio gives a short-term (~3m) lead on the headline index. The ratio is turning up for the ISM and the PMI.

It is a different story for the services ISM and PMI released on October 4 (Wednesday). The two surveys are diverging, with the ISM turning up and the PMI turning down.

As I showed in a recent column, global manufacturing, and especially US manufacturing, has an undue influence on the global economy and equity markets given its small size of the economy.

That’s why it would be revealing if the manufacturing ISM or PMI surprised to the upside today, but there was no follow through in equities. S&P gamma (the second derivative of how an option price varies with the underlying) remains still in or very close to negative territory (depending on what measure you follow).

This leaves the market exposed to bigger swings, but with a bias to the downside as there remains a wall of out-of-the-money puts that dealers are likely short of (and therefore they have to sell more S&P to hedge as the market falls).

Credit should be watched closely too. High-yield debt is functionally similar to an equity put-writing strategy; therefore, any rise in vol from a stock-market selloff threatens to lead to wider credit spreads. Spreads remain unreflective of underlying credit conditions, and are prone to an abrupt repricing wider.

Stocks tried to stage a modest rally overnight after the US government shutdown was postponed by 45 days, but failed after the global bond selloff resumed on Monday, with 10-year Treasury yields back to the highest since 2007, as investors waited for another speech by Fed chair Jerome Powell to provide clues on the direction of interest rates. As of 7:30am ET, S&P futures traded unchanged from Friday’s close after earlier gaining as much as 0.6% and following a September to forget in which they lost 4.7%; Nasdaq futures were 0.2% higher and continue to be disconnected with tighter financial conditions in rates as Treasury 10-year yields rose five basis points to 4.62% and back to the 16-year highs seen on Friday. The US dollar rose against most Group-of-10 currencies. Brent edged higher and traded around $92 buoyed by widespread bets that global demand will continue to run ahead of supply. Gold fell and Bitcoin gained for a third-straight day, surging above $28K. This week, we will have a busy calendar for macro data with ISMs and NFP being the focus; we will hear from 10 Fed speakers.

In premarket trading, cryptocurrency-exposed stocks rose as Bitcoin advanced to a six-week high as inflows picked up at the start of October. Riot Platforms +9%, Marathon Digital +8%. Here are some other notable premarket movers:

• Clorox rises 0.7% ahead of the bell after D.A. Davidson & Co. analyst Linda Bolton Weiser raised her recommendation on the household products company to buy from neutral.
• FedEx shares are up 0.9% after Susquehanna Financial upgraded the package-shipping company to positive from neutral.
• Invitation Homes gains 1.1% after analysts at Evercore ISI upgrade the company to outperform from in line, citing better supply and demand trends coupled with the recent pullback in shares.
• Invitae jumps as much as 58% after the US FDA granted a marketing authorization for the firm’s test to help detect genetic variants linked with higher risk for certain cancers.
• Insulet is upgraded to buy from hold at Jefferies with analyst Matthew Taylor saying he only sees the potential for GLP-1 weight-loss drugs to have “a modest drag or no drag” on the insulin-pump opportunity. Shares rise 4.1% ahead of the open.
• Macerich rose 1.3% in premarket trading as Piper Sandler raised the recommendation on the real estate investment trust’s stock to neutral from underweight, saying the “strong labor market is key to economic growth, driving real estate demand.”
• Rivian rose 3.6% as Evercore ISI raised the recommendation on the electric-vehicle maker to outperform from inline.
• SmileDirectClub declines 57% after the maker of dental aligners filed for Chapter 11 bankruptcy protection.
• Sphere Entertainment rose 6.1% after the company’s Sphere venue in Las Vegas opened on Friday with a show by rock band U2. If the gains hold, the stock will be set for its biggest rise in over a year.
• Syndax Pharmaceuticals rose as much as 24% after the drug developer scheduled an event to reveal clinical data.
• US-listed shares of Nio, XPeng and Li Auto climbed after the Chinese electric-vehicle makers reported September delivery figures. Meanwhile, Tesla was up 0.8% ahead of its monthly delivery announcement.

Stocks got a boost earlier in the session, when investors briefly felt optimistic after US lawmakers reached a deal over the weekend to avoid a government shutdown. US lawmakers passed a last-minute spending deal on Saturday to keep the government running until mid-November. Sentiment was also helped by Chinese manufacturing PMI returning to expansion for the first time in six months, although the data was mixed suggesting there’s still room for caution despite green shoots in the economy.

However, the focus in markets quickly shifted back to interest rates, especially as rising oil threaten to fan inflation. Potentially adding fuel to the fire, Powell is due to speak at a roundtable discussion alongside Philadelphia Fed President Patrick Harker. Their views will be of particular interest after New York Fed boss John Williams suggested Friday interest rates should stay high for some time.

“Financial markets were bracing for a shutdown, so there’s an element of relief, but it’s only a temporary lifting of one of the clouds hanging over the markets now,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management. “Interest rates and Fed hawkishness remain the name of the game and the main driver of the markets over the next few weeks.”

In Europe, benchmark indexes retreated, weighed down by losses in drugmaker stocks. The Stoxx 600 traded down 0.3% after earlier rising 0.4%. Asset manager Mandatum debuted on Helsinki’s stock market, the biggest listing in five years. here are some other notable European movers:

• Vivendi shares rose as much as 4.7%, briefly enjoying their highest jump since April after Barclays strategists upgraded their rating and said it was one of their favorite media stocks.
• BAE Systems rise as much as 3.4% after it was awarded almost £4 billion in funding from Britain’s Ministry of Defence for the next phase of the UK’s nuclear-powered attack submarine program.
• Pennon Group and United Utilities lead advances in the Stoxx 600 Utilities Index on Monday after the UK companies submitted their five-year business plans for the period 2025-2030. Pennon shares rose as much as +5.1%, United Utilities +3.5%
• XP Power slumps as much as 42%, the most on record, after the electrical components company warns on profit, citing weaker end-market demand. Jefferies says this may lead to a cut of about 15% to full-year consensus Ebit expectations.
• Fresenius SE drops as much as 3.8% after Reuters reported at the weekend that the German healthcare group is examining whether the state aid it received to offset high energy costs at its hospitals business would bar it from making management bonus and dividend payments.
• Teleperformance falls as much as 3.6% as Deutsche Bank cuts its recommendation on the French call center operator to hold from buy due to the rise of generative artificial intelligence.
• Flow Traders falls 8% to record low after Oddo BHF cut the recommendation on the market maker to neutral from outperform. The broker says Flow Traders is lacking short-term catalysts as it also sees sluggish exchange traded product and corporate credit market limiting the company’s earnings power.

Earlier in the session, Asian stocks gained as sentiment was buoyed by a temporary resolution to the US government shutdown situation, while many regional markets including China and South Korea were closed for holidays. The MSCI Asia Pacific Index rose as much as 0.4% on Monday, led by real estate and technology shares. Japanese equities led gains in the region after sentiment for non-manufacturers soared to the highest in 32 years as the economy continued to recover. Australian and Taiwanese stocks also advanced.

• Hang Seng and Shanghai Comp. were shut alongside closures in South Korea and India, with mainland China away the entire week for the National Day Golden Week celebrations.
• ASX 200 was lacklustre with many domestic participants absent in observance of Labour Day in Australia’s most populous state of New South Wales and ahead of tomorrow’s RBA meeting which is the first under Governor Bullock’s tenure.
• Nikkei 225 opened above 32,000 with the index boosted by a weaker currency and an encouraging Tankan survey which showed Large Manufacturers’ Sentiment at its highest since June last year and the Non-Manufacturing at its highest in over three decades, although the index later pared most of the gains and eventually slipped back beneath the aforementioned key level.

In FX, the dollar edged higher versus its Group-of-10 peers, after enjoying its best quarter in a year.  Trading in most G-10 currencies was subdued with several markets including China and South Korea closed for holidays. The Swiss franc led Group-of-10 currency gains. The euro and sterling both fell as much as 0.2% against the dollar. USD/JPY briefly extended gains and touched a year-to-date high of 149.82 after the Bank of Japan said it would conduct an additional buying operation for five- to 10-year Japanese government bonds on Oct. 4

In rates, treasury futures remain near session lows into early US session after gapping down at the open, spurred by weekend accord by US lawmakers averting a government shutdown. Rate-hike premium also edged up, with around 15bp priced into the December policy meeting vs 11bp at Friday’s close. US session includes an appearance by Fed Chair Powell, slated to take part in a roundtable discussion alongside Philadelphia Fed President Patrick Harker at 11am New York time. US yields cheaper by 4bp-7bp across the curve with belly leading losses on the day, flattening 5s30s spread by ~2bp; 10-year yields around 4.63%, cheaper by ~5bp with bunds and gilts outperforming by 2bp in the sector. Treasury coupon auctions on hiatus until 3-year note sale on Oct. 10; dollar IG issuance slate empty so far; consensus forecast is for ~$85b of new bond sales for October, with projections wide ranging between $66b and $100b.

In commodities, crude futures advance, with WTI rising 0.4% to trade near $91. Spot gold falls 0.9%.

Bitcoin is firmer on the session continuing the marked gains seen at the commencement of APAC trade despite a lack of specifics. Action which has lifted BTC to a circa. USD 28.5k high, surpassing levels from the last few weeks with the next mark around USD 29k from mid-August.

Looking ahead, investors will focus on Fed Chief Jerome Powell’s speech later Monday; US economic data slate includes September S&P manufacturing PMI (9:45am), August construction spending and September ISM manufacturing (10am)

Market Snapshot

• S&P 500 futures up 0.5% to 4,349.25
• MXAP down 0.2% to 156.97
• MXAPJ little changed at 492.07
• Nikkei down 0.3% to 31,759.88
• Topix down 0.4% to 2,314.44
• Hang Seng Index up 2.5% to 17,809.66
• Shanghai Composite up 0.1% to 3,110.48
• Sensex up 0.5% to 65,828.41
• Australia S&P/ASX 200 down 0.2% to 7,033.21
• Kospi little changed at 2,465.07
• STOXX Europe 600 up 0.2% to 450.96
• German 10Y yield little changed at 2.87%
• Euro little changed at $1.0564
• Brent Futures up 0.4% to $92.54/bbl
• Gold spot down 0.3% to $1,842.73
• U.S. Dollar Index little changed at 106.28

Top Overnight News

• BOJ announced an extra bond-buying plan for this week following the unscheduled purchase on Friday as the central bank battles back against the recent yield rise. BBG
• Asia faces one of its worst growth outlooks in 50 years according to a new World Bank update, amid concerns that China’s slowdown could spill over into other countries. FT
• China’s economic momentum continued in September, with the NBS PMIs exceeding expectations: manufacturing was 50.2 (up from 49.7 in Aug and ahead of the Street’s 50.1 forecast) with non-manufacturing of 51.7 (up from 51 in Aug and ahead of the Street’s 51.6 forecast). While the NBS PMIs were solid, the Caixin PMIs fell short for September: manufacturing was 50.6 (down from 51 in Aug and below the Street’s 51.2 forecast) with services of 50.2 (down from 51.8 in Aug and below the Street’s 52 forecast). China’s new home prices rose slightly in Sept, ending a four-month streak of declines. RTRS
• ‘Last mile’ of disinflation the hardest, warns ECB deputy head. Luis de Guindos dismisses rates cuts and says getting back to 2% target will not be easy. FT
• Fed’s Barkin warns that strength in the housing sector means other parts of the economy may need to slow more in order to win the war on inflation. BBG
• Bill Ackman is “absolutely” interested in pursuing a deal with Elon Musk’s X through a new investment vehicle, the WSJ reported. Pershing Square received regulatory approval Friday for a SPARC, a blank-check firm which targets a company before raising funds, with the intention of taking it public. WSJ
• Nearly 4,000 UAW members at Volvo-owned Mack Trucks reached a tentative pact to avoid a strike, the union said. BBG
• In a surprise move, House Speaker McCarthy reversed course and brought a “clean” extension of spending authority up for a vote on Sep. 30, after avoiding this course of action for weeks. Now that this extension has become law, federal agencies have funding until Nov. 17. A shutdown at that point is still a clear risk, though we think the odds of a shutdown at the next deadline are lower than they seemed heading into the Sep. 30 fiscal year end. GIR
• Regulators around the world are stepping up their campaign to reign in and regulate “shadow banks” (hedge funds, PE firms, etc.) as this part of the financial system captures a growing amount of market share from traditional banks. FT
• Mega-cap tech has struggled relative to the broader market in recent months despite improving earnings estimates. However, history suggests that the upcoming 3Q results may catalyze a momentum reversal in the largest tech stocks. Since 4Q16, the mega caps in aggregate have beaten consensus sales growth expectations 81% of the time and have outperformed in two-thirds of earnings seasons, typically by 3pp. Goldman

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed in severely holiday-quietened conditions amid the mass closures in the region, while participants digested the key weekend developments including the US averting a government shutdown and mixed Chinese PMI data. ASX 200 was lacklustre with many domestic participants absent in observance of Labour Day in Australia’s most populous state of New South Wales and ahead of tomorrow’s RBA meeting which is the first under Governor Bullock’s tenure. Nikkei 225 opened above 32,000 with the index boosted by a weaker currency and an encouraging Tankan survey which showed Large Manufacturers’ Sentiment at its highest since June last year and the Non-Manufacturing at its highest in over three decades, although the index later pared most of the gains and eventually slipped back beneath the aforementioned key level. Hang Seng and Shanghai Comp. were shut alongside closures in South Korea and India, with mainland China away the entire week for the National Day Golden Week celebrations.

Top Asian News

• German Finance Minister Lindner said at the third German-Chinese financial dialogue in Frankfurt which was attended by Chinese Vice Premier He Lifeng that Germany and China are keen to further strengthen their cooperation on financial and economic issues, while he added that both sides want to create a fair and non-discriminatory market environment and strengthen the security of global supply chains. Lindner also pledged that Germany will continue supporting a Chinese state-backed development bank despite Canada’s decision to freeze ties, according to AA and Politico.
• BoJ Summary of Opinions from the September meeting noted a member stated they need to continue easing patiently and a member said they should maintain easy policy for now but in future exit, must consider what to do with non-JGB asset holdings. Furthermore, there was an opinion that there is no need to make additional YCC tweaks as long-term rates are moving fairly stably and it was also stated that they cannot currently determine the timing of the policy tweak as that would depend on economic and price conditions at the time, while a member said it is important to prepare for exit from a risk management perspective as they could have clarity around January-March next year on whether the 2% inflation target can be met in a sustained and stable fashion.
• BoJ Governor Ueda said the sustainable and stable achievement of the BoJ’s 2% inflation target is not yet in sight and there is still some distance before reaching an exit from easy policy. Ueda stated that the BoJ’s ability to conduct monetary policy is not impaired by a temporary decrease in profits and capital as long as it conducts appropriate monetary policy, while he added that given the current distance to exit, he believes it is the right time to discuss the topic of central bank finances and monetary policy conduct from an objective perspective.
• Japan reportedly put the brakes on the lucrative used-car trade with Russia which is valued at nearly USD 2bln annually, according to Reuters.

European bourses & US futures are a touch softer after starting the session with mild gains, though action overall is contained and tentative after a limited APAC handover ahead of data & Fed speak. Currently, Euro Stoxx 50 -0.3% with sectors mainly in the red and following suit to the above broader macro tone, but action the breadth of action is relatively modest. Stateside, futures are tilting into the red after faring marginally better than their European peers in the early part of the session; newsflow has been limited and focused on weekend fiscal developments ahead of Fed’s Powell and ISM metrics; ES +0.1%. EU antitrust regulators say there is no formal investigation into AI chips

Top European News

• UK PM Sunak said the government is making good progress on bringing down inflation, according to Reuters.
• UK Chancellor Hunt was reportedly caught in a secret recording suggesting that PM Sunak will call a general election once inflation falls below 3% which gives the strongest hint that the next general election could be held in Autumn next year, according to Sunday Times’ Wheeler.
• UK Housing Minister Gove said his opinion is wherever they can cut taxes that those cuts should fall on workers and he would like to see the tax burden reduced before the next election, while he added that they first need to be certain that inflation is coming down.
• England’s water companies are to pledge to invest GBP 90bln in water and sewerage networks in plans which would increase household bills, especially in the southeast, according to Sunday Times.
• ECB’s de Guindos dismissed talk of rate cuts and warned that getting back to 2% inflation will be difficult with the last mile of disinflation the hardest, according to FT.
• Slovakia’s former PM Fico’s leftist-populist Smer party won the election with 23.4% of votes, while the party is seen as pro-Russian after promising to stop sending weapons to Ukraine, according to Politico.
• Fitch raised Portugal’s sovereign rating from BBB+ to A-; Outlook Stable, while Moody’s raised Cyprus’s sovereign rating to investment grade of Baa2; Outlook Revised to Stable from Positive.
• Riksbank Minutes: prices are increasing at a rate that is not compatible with the inflation target; members emphasised the risks associated with the continued high underlying inflation and the weak krona; policy rate may need to be increased further.

FX

• DXY bid on dips within 106.040-490 range as Yen lags and offsets Franc outperformance, USD/JPY remains elevated after probing 149.80 as BoJ retains ultra-easy stance and Japanese officials stick to mere verbal intervention
• USD/CHF retreats from 0.9166 towards 0.9100 after better than forecast Swiss manufacturing PMI and not as weak as previous retail sales.
• Aussie and Kiwi cautious ahead of RBA and RBNZ policy meetings as AUD/USD probes 0.6400 from 0.6445 and NZD/USD touches 0.5975 from just over 0.6000.
• Euro, Pound and Loonie all lose ground vs Greenback within 1.0591-36, 1.2220-1.2162 and 1.3557-1.3612 respective ranges.

Fixed Income

• Bonds back in the firing line following a short squeeze into the end of September and Q3.
• Bunds hit buffers at 128.50 before testing psychological support at 128.00, Gilts retreat from 93.71 to 93.22 and T-note drifts back from 107-29+ to 107-19 awaiting US final manufacturing PMI, ISM and Construction Spending before Fed speakers including Chair Powell.
• Orders for the new BTP Valore 5yr hit EUR 1bln, via Reuters citing Bourse data.

Commodities

• WTI Nov and Brent Dec futures maintain modest gains but remain off best and worst levels within a tight consolidative range after the contracts settled lower by just under USD 1/bbl apiece on Friday.
• Spot gold remains shy of the USD 1850/oz mark though the recent modest deterioration in the risk tone has provided some slight assistance, while spot silver is the standout laggard with downside in excess of 2.5% intraday.
• Base metals are hampered by the USD, overall risk tone and the absence of Chinese participants for the regions week long holiday. Additionally, the mixed Chinese PMIs failed to provide any lasting support.
• Turkey’s Energy Minister says within the week they will recommence operating the Iraq-Turkey pipeline; subsequently, Iraq says the Kirkuk-Ceyhan oil pipeline cannot restart yet as there issues still need to be resolved on pipeline, according to an Iraqi official cited by Bloomberg
• India is not comfortable with current oil prices, according to the Indian Petroleum Secretary; OPEC has the right to cut output but it’s led to high prices.
• Iraq’s September oil exports averaged 3.4mln bpd and oil prices averaged USD 92.05/bbl.
• Five more cargo ships were reportedly headed towards Ukrainian Black Sea ports for further grain exports, according to Ukraine’s Deputy PM.
• UAE Energy Minister says they have decided to speed up the upstream expansion plan to reach 5mln/bpd by 2027 in order to counter for loss of supply from other producers; separately, says production capacity more than 4.2mln BPD and on track to produce 5mln BPD by 2027
• Morgan Stanley believes the oil market will be 1mln BPD undersupplied in Q4, according to CNBC.

Geopolitics

• UK Defence Secretary Shapps said UK troops will be deployed in Ukraine for the first time to start training Ukrainian soldiers on-site and not only at NATO bases under plans being discussed with military chiefs. Shapps also stated the UK signed contracts worth GBP 4bln to drive forward AUKUS submarines with the contracts signed with BAE Systems (BA/ LN), while the UK is deploying RAF typhoons to Poland and deploying forces to the UN peacekeeping mission in Kosovo, according to Reuters.
• US Central Command conducted a helicopter raid in Northern Syria on September 28th and captured ISIS facilitator Mamduh Ibrahim Al-Haji Shaykh, according to Reuters.
• Turkey’s Interior Minister said two terrorists attacked in front of the ministry building in which one was neutralised and the other blew himself, while Turkey stated that one of the attackers was a PKK member and Turkey later carried out air strikes in Northern Iraq and destroyed 20 targets of Kurdish militant group PKK, according to Reuters.
• Turkish President Erdogan said will continue the struggle against inflation, terror and the outlawed group FETO, while he also commented that Turkey has kept every promise to the EU although the EU did not, and Turkey does not have any expectations from the EU.

US Event Calendar

• 09:45: Sept. S&P Global US Manufacturing PM, est. 48.9, prior 48.9
• 10:00: Aug. Construction Spending MoM, est. 0.5%, prior 0.7%
• 10:00: Sept. ISM Manufacturing, est. 47.9, prior 47.6
  • ISM Employment, prior 48.5
  • ISM New Orders, prior 46.8
  • ISM Prices Paid, est. 49.0, prior 48.4

DB’s Jim Reid concludes the overnight wrap

Welcome to Q4 with the markets relieved to see the end of September, and for that matter Q3, after a tough latter half to a quarter that promised a lot after a buoyant July. Henry has just published our monthly and quarterly performance review (see here) but in short, of the 38 non-currency assets we look at, only 11 were up in total return terms in Q3 and only 7 in September making it the worst month of 2023 so far. Some highlights were the +28.5% increase in WTI oil and the +73.5bps rise in 10yr US yields over Q3. 30yr USTs were +83.9bps, the largest move since Q1 2009. The S&P 500 was -4.8% in September and -3.3% in Q3 on a total return basis. YTD the index is still at +13.1% but with the equal weight only up +1.8%, a handful of stocks are providing nearly all the gains. See Henry’s piece for more.

So as we start October can we power out of the gravitational pull of bad September seasonals? September 2023 was the 4th year in a row that the S&P 500 and the STOXX 600 were down for the month, as well as the 7th year in a row that Bloomberg’s global bond aggregate was down for the month. The damage in bonds has been more severe and more sustained than for equities and you can’t help wondering where the real damage is. You can’t have this much value destruction in bonds without there being some stress somewhere. However, it’s near impossible to work out where exactly it might come to the surface.

The good news as we start the week and the new business month is that the US averted a shutdown just before the deadline on Saturday night which will keep the government running until November 17th. This gives negotiators more time to pass something more long standing. We will see if we’re in the same position in six weeks’ time though. This has helped lift US equity futures by around half a percent and US bond yields are 3-4bps higher across the curve.

For now no shutdown means that US data will get published on time this week. The highlight is clearly Friday’s payrolls. Before that, the JOLTS (tomorrow) and ADP (Wednesday) data will give us some early clues. The former is a month behind but is obviously a key report to assess labour market tightness by looking at the quits rate, hirings and vacancies etc.

The highlights for the rest of the week are the US ISM and a Powell roundtable discussion today, an expected hold from the RBA tomorrow, US services PMI, Euro Zone retail sales, Euro Zone PPI and a Lagarde speech on Wednesday, French IP on Thursday with German factory orders on Friday. The full week ahead is at the end, including a bevy of central bank speakers, but we’ll quickly preview today’s ISM and Friday’s payrolls below.

Our economists and the consensus are expecting +165k for headline payrolls (+187k previously) with the unemployment rate expected to dip back down a tenth to 3.7% after surprisingly increasing three tenths last month. A reminder that every headline payroll number has now been revised lower in 2023. In early summer we were on a run of 13 successive beats but some of that has now gone with revisions. We’ll do a fuller preview in Friday’s EMR.

Today’s US manufacturing ISM (47.5 expected at DB vs. 47.6 last) and Wednesday’s services ISM (54.1 vs. 54.5) are expected to be fairly stable. For the former our economists’ models suggest an uptick but the UAW strikes could offset that as perhaps foretold by a weak Chicago PMI last week. Note that it’s likely too early for this strike to impact payrolls but it could make a sizeable impact next month. For services watch for the employment index as this surprisingly soared 4 points to 54.7 last month.

Talking of such indices, the official China manufacturing PMI edged up to 50.2 (50.1 expected) over the weekend from 49.7 in August. Services also beat by a tenth to 51.7 from 51.0 in August. The private Caixin equivalents were at 50.6 and 50.2 respectively, below the 51.2 and 52.0 expected. So a mixed set of data as China starts a holiday week.

Staying in Asia, the Nikkei 225 is leading the way this morning (+0.74%) helped by the US government staying open and due to an upbeat reading for the Japan Tankan indices this morning (9 vs 6 expected for large manufacturers and 27 vs 24 for large non-manufacturers). The rest of the session is quiet with many markets closed for holidays.

Turning back to last week now, on Friday we got some encouraging inflation news in what a challenging week for financial markets. On that inflation news, key metrics of monthly core inflation came in below 2% annualised on both sides of the Atlantic. In the US, the headline August PCE data release came in below expectations at 0.4% month-on-month (vs 0.5% expected). In year-on-year terms, the PCE result was as expected at 3.5%, up from 3.3% in July. Core PCE also surprised to the downside at 0.1% month-on-month (vs 0.2% expected). In year-on-year terms, core was at 3.9% as expected, down from 4.2% in the previous month.

The positive inflation news saw US 10yr Treasuries slightly pare back losses from earlier in the week, with 10yr yields down -0.4bps and 2yrs down -1.3bps. Week-on-week, 10yr yields gained +13.7bps to 4.57%, their highest weekly close since 2007. With short-end rates rallying over the week, the 2s10s curve steepened by +20.4bps week-on-week (and +0.9bps on Friday), reaching its least inverted since May (-47.6bps). It was 30yr Treasuries that underwent the greatest sell-off last week, rising +17.5bps to 4.70% (-0.5bps on Friday). Overall, it was frenetic week for US rates, with the MOVE index of rates volatility up +12.4pts (-1.7pts on Friday).

Meanwhile, in Europe, Euro Area September HICP came in below expectations at 4.3% year-on-year (vs 4.5% expected), down from 5.2% in August, while core inflation came in at 4.5% (vs 4.8% expected and 5.3% in July). Notably, the ECB’s estimate of the seasonally adjusted monthly core inflation rate was +0.1% mom, its lowest since spring 2021. This new evidence of slowing inflation momentum brought a breath of fresh air to the European fixed income market, with 10yr German bund yields down -9.0bps on Friday. They still rose +7.9xbps week-on-week to 2.84%, their highest weekly close since 2011. French OAT yields gained +11.2bps in weekly terms (-9.2bps on Friday) and Italian BTP yields were up +19.0bps (and -8.6bps on Friday) after concerns over their budget. 10yr gilt yields rose +18.8bps in their largest weekly increase since early July (-4.7bps Friday).

Rising rates were a dampener for equity markets, with the S&P 500 falling for the fourth week in a row, down -0.74%(and -0.27% on Friday) to its lowest since early June. Technology outperformed, with the NASDAQ seeing a marginal gain of +0.06% (+0.14% on Friday). NVIDIA spearheaded the tech resilience, gaining +4.54% last week (and +0.95% on Friday), with Tesla (+2.18%, and +1.56% on Friday) also helping. In Europe, the STOXX 600 gained +0.38% on Friday but fell back -0.67% in weekly terms to its lowest level since mid-August.

Over in commodities, the oil rally took a breather on Friday but remained elevated against a backdrop of tight supply. Oil product supply is also getting tighter as Russia plans near zero diesel exports next month following its temporary ban on gasoline exports. Accordingly, Brent crude traded flat on Friday (-0.07%) but was up +2.19% week-on-week to reach $95.31/bbl, its highest weekly level since last November. WTI crude slipped back more significantly on Friday (-1.00%) but was still up +0.84% on the week.

In other commodity news, gold fell back -3.98% last week (and -0.80% on Friday) to $1,849/ounce, hitting its lowest level since February after its largest weekly decline since 2021. The downward momentum comes after Fed policymakers indicated they intended to keep policy tight for a longer period, pushing gold prices below the $1,900/ounce support level that had largely held since March.

Apple is preparing to release a new iOS 17 update to address “a few conditions” it has “identified” that can cause the new iPhone 15 models with a titanium frame to run warmer than expected.

Days after the new iPhone release on Sept. 22, customers who stood in line at Apple stores complained their new phones were overheating to the point of being too hot to hold and even shutting down on their own, with some folks recording temperatures above 120 degrees. 

The complaints are mainly about the iPhone 15 Pro and Pro Max. Apple told CNET on Saturday that it’s working on a new iOS 17 system to prevent overheating when the phone runs certain apps. 

“We have identified a few conditions which can cause iPhone to run warmer than expected. 

“The device may feel warmer during the first few days after setting up or restoring the device because of increased background activity. We have also found a bug in iOS 17 that is impacting some users and will be addressed in a software update. Another issue involves some recent updates to third-party apps that are causing them to overload the system. We’re working with these app developers on fixes that are in the process of rolling out,” Apple said in a statement.

CNET pointed out Instagram, Asphalt 9, and Uber are some apps that “overload the A17 Pro chip’s CPU, causing the iPhone to get warmer than normal.” Apple said it’s working with third-party developers to develop fixes.

It wasn’t just apps. CNET’s Patrick Holland said, “The 15 Pro Max did become noticeably hot after I used my MacBook Pro’s 140W power adapter to charge it.” 

News of the iPhone 15 overheating has sent searches about the issue soaring in recent days. 

Several breakout search trends include “Why is my iPhone overheating?” and “iPhone hot” and “Apple iPhone overheating.” 

Negative press about the new iPhone could dampen sales as the company has experienced an overall year-over-year sales slump in the last three quarters. Apple is trying to sell the iPhone 15 Pro Max (1TB storage) for as much as a high-end laptop, around $1,600 (before taxes).

Authored by Michael Snyder via The Economic Collapse blog,

When are we going to wake up and admit that our system is failing?  If close to half of our young adults find themselves needing to live with their parents, we have a major crisis on our hands.  Yes, there are some young people that are simply lazy and don’t want to work hard enough.  I definitely understand that.  But most young adults in America today don’t actually want to live with their parents.  Given the opportunity, they would love to have their own homes.  Unfortunately, home prices have risen to absolutely absurd levels and housing in America is now more unaffordable than it has ever been before.

I feel so badly for the millions upon millions of young people that are struggling so much right now.

We encourage them to pile up giant mountains of student loan debt without ever considering the consequences, and then once they get out into the real world they quickly discover that the cost of living has become extremely suffocating.

As a result, vast numbers of young adults are finding that it is necessary to move back in with their parents…

Nearly half of all young adults are living with their parents — and they’re not ashamed to say it.

Moving out and living on your own is often seen as a marker of adulthood. But dealt an onerous set of cards — including pandemic lockdowns, decades-high inflation, soaring student debt levels and a shaky job market — young people today are increasingly staying put. What’s more, it’s no longer seen as a sign of individual failure.

Needless to say, this is not a good thing for our society.

The last time that such a high percentage of young adults were living with their parents was during the aftermath of the Great Depression…

These days, about 23 million, or 45%, of all Americans ages 18 to 29 are living with family, roughly the same level as the 1940s, a time when women were more likely to remain at home until marriage and men too were lingering on family farms in the aftermath of the Great Depression.

So why is this happening?

One of the primary reasons why this is happening is because high interest rates have pushed housing costs to insane levels.

This week, the average rate on a 30 year fixed mortgage reached 7.19 percent…

US mortgage rates remained flat this week, hovering over 7%, where they’ve been for six consecutive weeks as inflation pressures persist.

The 30-year fixed-rate mortgage averaged 7.19% in the week ending September 21, a tick up from 7.18% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 6.29%.

“Mortgage rates continue to linger above 7% as the Federal Reserve paused their interest rate hikes,” Sam Khater, Freddie Mac’s chief economist, said. “Given these high rates, housing demand is cooling off and now homebuilders are feeling the effect,” he said. “Builder sentiment declined for the first time in several months and construction levels have dipped to a three-year low, which could have an impact on the already low housing supply,” Khater added.

And this isn’t even going to be the peak.

In fact, NAR chief economist Lawrence Yun is warning that “in the short run, it’s possible that mortgage rates may go up to 8%.”

8 percent?

Are you kidding me?

Even now, mortgage payments have escalated to absolutely crazy heights.  Earlier this week, the following example was posted on Twitter by Amy Nixon…

This home sold in 2021 for $685,000

Buyer’s monthly payment? $3526

Buyer’s monthly payment today? $8402

“But wages went up!”

“But people have cash now!”

NO—THIS IS COMPLETE INSANITY

STOP PRETENDING IT IS NOT

She is right.

This is nuts.

Only a very small percentage of the population can afford such monthly payments, and so millions of potential buyers are being sidelined.

And millions of potential sellers are being sidelined as well, because most of them would need to purchase another home if the current home they are living in was sold.

So the vast majority of us are trapped in our homes right now.

Most of us simply cannot afford to move because the mortgage payments would be way too high.

Obviously, this is one of the main things that is greatly depressing home sales right now.

Sales of previously owned homes declined again in August.

If you can believe it, they were actually down a whopping 15.3 percent from the already depressed level that we witnessed in August 2022.

If you want to thank someone, thank the officials at the Federal Reserve, because they created this mess.

Overall, Fannie Mae is projecting that this will be the worst year for home sales since 2011…

US home sales are headed for the biggest slowdown since 2011, according to Fannie Mae.

The government-sponsored mortgage finance company forecasted total home sales to slump to just 4.8 million this year, marking the slowest sales environment since 2011. That figure will only improve slightly in 2024, with total home sales expected to hit 4.9 million, Fannie Mae economists said.

If our young adults cannot afford to purchase homes, at least they can afford to rent places to live, right?

Wrong.

In recent years, rents have skyrocketed all over the country.

At this point, the national median asking rent in the U.S. is over $2,000 a month…

Landlords are continuing to ask near record-high rents amid a tight housing market, but tenants in some parts of the country are still finding deals, according to a new study from Redfin.

The asking rent in August was $2,052, up slightly (0.7%) from just a month earlier when the asking rent was $2,038.

When I was a young adult, I remember renting an apartment for $300 a month.

And I thought that was expensive.

Unfortunately, I don’t see much help for our young people on the horizon.

The Federal Reserve does not plan to cut interest rates any time soon.

And it will be quite some time before housing prices decline enough to be considered “affordable”.

So if you are a parent, please be patient with any young adults that you currently have living at home.

Factors outside of their control have made housing more unaffordable than it has ever been before, and economic conditions are going to continue to get harsher all around us.

*  *  *

Michael’s new book entitled “End Times” is now available in paperback and for the Kindle on Amazon.com, and you can check out his new Substack newsletter right here.

Authored by Ryan Morgan via The Epoch Times,

The Naval Special Warfare (NSW) Command will begin randomly testing its personnel for performance-enhancing drugs (PEDs), following allegations that such drugs are in widespread use among the Navy’s special warfare community.

Rear Adm. Keith Davids, the commander of NSW, announced the command will introduce incremental, random force-wide urinalysis testing starting in November.

“My intent is to ensure every NSW teammate operates at their innate best while preserving the distinguished standards of excellence that define NSW,” Rear Adm. Davids said in a Friday press statement.

NSW is most known for its Navy SEAL teams but the command is also responsible for training and deploying Special Warfare Combatant Crewmen and Explosive Ordnance Disposal technicians.

Illicit substances have been a persistent concern throughout the military, even in the special operations community. Some leaders have balked at testing regimens for performance-enhancing drugs because they are often highly specialized and costly and require contracting through a limited number of labs that do such work. The military services have done occasional tests when they perceive a problem with an individual service member, but they must get special permission from the Pentagon to do routine, random testing.

New Testing Regime Follows SEAL Training Death

The NSW’s new random uranalysis regimen comes on the heels of an investigation into the 2022 death of 24-year-old SEAL candidate Kyle Mullen, during his Basic Underwater Demolition/SEAL course. The SEAL candidate collapsed and died of acute pneumonia just hours after completing the infamous “Hell Week” portion of the course.

A May 2023 investigative report (pdf) states that investigators uncovered a bottle of pills marked as sildenafil in Mr. Mullen’s car following his death. Sildenafil is a substance used for erectile dysfunction treatments, but which can also be used to increase blood flow in strength training and can reduce the risk of swimmer’s induced pulmonary edema. Investigators also found vials labeled as testosterone and human growth hormone, and syringes.

It is unclear from the investigation whether Mr. Mullen used these PEDs, though it did determine that they were not the cause of his death. The investigation did find “strong indicators” of PED use among other members of Mr. Mullen’s class.

“While SN Mullen’s death was not caused by PED use, PEDs use must be eliminated from NSWC and other high risk training,” the command investigation states.

While these PEDs may give troops a competitive edge in the rigorous and highly selective special operations community, the command investigation states their use “creates significant, unquantified, and unmitigable risk to candidates going through the high intensity training.”

Misuse of phosphodiesterase inhibitors—the class of pharmaceutical compounds that includes Sildenafil—can result in severe low blood pressure, cardiovascular collapse, and death. Other PEDs pose risks of kidney and liver dysfunction, strokes, heart attacks, blood clots in the lung vasculature, high blood pressure, mood swings, and a risk of contracting HIV or hepatitis from non-sterile needle use.

In addition to the health risks, the command investigation said PED use is also “contrary to the SEAL ethos and the Navy’s core values.”

The May investigative report recommended expanded PED screening regimens as one of several ways to improve safety within the various Naval Special Warfare training pipelines. The investigation also called for more careful screening and training of the staff overseeing Naval Special Warfare training, and reducing the stigma candidates face to avoid disclosing injuries.

“We will honor Seaman Mullen’s memory by ensuring that the legacy of our fallen teammate guides us towards the best training program possible for our future Navy SEALs,” Rear Adm. Davids said in May, at the conclusion of the command investigation.