Midday Macro – 9/20/2022
Market Recap:
Price Action and Headlines:
Equities are lower, with all sectors down as markets await tomorrow’s FOMC meeting results to gauge how hawkish the Fed intends to get
Treasuries are lower, with the curve flattening further and ten-year yields briefly touching 3.60% before falling as a more risk-off tone gained traction throughout the morning session
WTI is lower, although off session lows but continuing to trend lower since late August, with $80 having increasing levels of gravity while SPR releases continue
Narrative Analysis:
We are back after a long break, and unfortunately, the narrative can be summed up in one word: Red, which is what we see across the screens today. The Fed has convinced markets it will keep its policy in restrictive territory for longer, and their “pain” threshold is higher than thought. Tomorrow’s FOMC SEPs should confirm Powell’s J-hole message, but a less hawkish outcome than some fear may help alleviate recent pressures on equities, rates, and credit, all of which are at or near lows for the year. As a result, it's hard to read too much into today's price action, given tomorrow's risk event. September’s large OPEX last Friday has failed to deliver a relief rally in equities as expected, and sector/factor leadership is a little disjointed this week. Treasury yields continue to tightly trend higher across the curve, with the front-end clearly in worse shape, inverting the curve further into negative territory. To make matters worse, break-evens have cooled, leading real rates to rise to highs of the year. Oil and the energy complex more generally continue to weaken with expectations that the end of SPR releases may change that trend. However, uncertainty is high given the multitude of diverging global supply/demand factors. The agg complex continues to grind higher as weather dampens U.S. crop yields, and recent gains by the Ukrainians on the battlefield increase the risk that exports there will stop there. Finally, King Dollar remains, well, king. The $DXY is pushing above 110, with the Yen, Euro, Pound, and now Canadian Dollar continuing to trend lower. Gone a month and how things have changed.
The Nasdaq is outperforming the S&P and Russell with Momentum, Growth, and Low Volatility factors, and Consumer Staples, Technology, and Energy sectors are outperforming on the day. There has been a mix of sectors and factors (Discretionary & Staples and Momentum & Small-Cap) outperforming over the last week with no clear leadership or cyclical/defensive rotation.
@KoyfinCharts
S&P optionality strike levels have the Zero-Gamma Level at 4042 while the Call Wall is 4000. Support is around 3850, with resistance at 3920. Expectations were for a rally above 3900 due to the large level of puts expiring in last Friday’s OPEX. This has clearly failed to materialize with yesterday’s push higher reversing today and current price levels near recent lows. The market has a bearish edge below 4000, and a sustained move (higher or lower) post tomorrow's FOMC (depending on reaction) into the month's end is expected.
@spotgamma
S&P technical levels have support at 3850, then 3835, and resistance at 3870, then 3900. CPI last week triggered the biggest one-day selloff since March 2020, and the last four FOMC days delivered 2.58%, 1.52%, 3%, and 1.12% daily moves higher. Importantly, these moves (on Wednesdays) triggered significant moves for the remainder of the week. In the case of the last FOMC, there were big up days the rest of the week. In the case of May and June’s FOMC meetings, -3%+ red reversal days. Given we are at a strong resistance level now, the loss of it post-FOMC would signal additional selling to retest previous June lows is likely.
@AdamMancini4
Treasuries are lower, with the 10yr yield at 3.54%, higher by 5bps on the session, while the 5s30s curve is flatter by 1.7 bps, moving to -19 bps.
Deeper Dive:
After a month away due to traveling/holidays and family obligations, we find ourselves refreshed and ready for the drive to year-end. Two things were very apparent during our time away. It sure doesn’t feel like a recession is occurring out in the real world, and the temperament of an 18-month-year-old and financial markets are very similar, quickly changing from happy to upset for dubious reasons. With that said, last week’s higher-than-expected core CPI data was a game changer, crushing our view that inflation would fall faster than expected into year-end and the Fed could lower rates as soon as the second half of 2023. It also sent real rates higher and financial conditions tighter, reducing the degree to which risk assets can recover when the current seasonally weak period ends in mid-October. However, given the overly negative positioning/sentiment and our expectations for this week’s FOMC meeting, one that will reaffirm the J-Hole message of keeping policy restrictive for some time but not being meaningfully more hawkish, we still believe a Q4 rally is in the cards as investors continue to see an earnings backdrop that has not been obliterated, an inflation picture continuing to improve, and a Fed policy front that has done the majority of the heavy lifting already. As a result, we will add a new S&P long position to the mock portfolio today with the goal of growing it into year-end. Stepping back, this is simply a tactical call as we believe the pendulum will swing back to the greed side of things after being driven by fear since the June bear market rally reversed at the end of August. Longer-term, we, like the Fed, are at the mercy of the data, and the fog-of-war is thick, meaning our forecasting conviction is low, keeping us cash-heavy, tactical, and patient. Since we have been gone a while, we will use today’s “Deeper Dive” section to recap what has been happening in markets and where we see things in regard to the economy, inflation, and Fed. Finally, we will make a few additional changes to the mock portfolio.
Market expectations for a Fed pivot next year have evaporated, with the Fed Funds Futures curve, already pricing higher rates for longer following Jackson Hole, now moving the terminal rate higher following last week’s higher-than-expected core CPI print. Increased worries about tighter monetary policy for longer have renewed rising real rate pressures on growth multiples and driven financial conditions tighter through multiple channels. The dollar is at a twenty-year high, real yields are close to a four-year high, and the Treasury curve is near new cycle “bear flattening” inversion lows as the front-end continues to move higher as the market-implied Fed “terminal rate” projections push to around 4.5%. At the same time, the long-end reflects growing recessionary “hard-landing” fears, but nominal yields are still rising to post-pandemic highs. The bottom line is that the knife is falling, mainly driven by the high level of inflation (expectations) uncertainty and how aggressive the Fed will have to get to fight it. Finally, there have been no positive international developments, as the energy crisis in Europe, the war in Ukraine, and the zero-Covid policy in China have not materially improved (although not worsened either).
*The higher-than-expected August core CPI monthly increase added around 50 bp of rate hikes to the Fed’s expected eventual terminal rate level
*Although measured in various ways, financial conditions are certainly tightening again, and when using Goldman’s index, have now risen above their prior June peak
With only a few months left in the year, it is clear that overall growth will remain below trend into year-end. At the highest level, inflation has caused consumers and businesses to become pessimistic and reduce activity due to weaker real purchasing power and higher financing costs. Not surprisingly, housing continues to suffer the most, hurting residential construction and its multiplier effect on growth. The negative wealth channel from losses in financial assets and now falling housing prices also continue to weigh on consumer confidence/activity. This is despite cheaper gasoline prices helping consumers since June. Looking forward, and assuming inflation trends lower, real disposable income should now be stabilizing and could become increasingly more positive next year. If financial conditions and real rates can stabilize as the Fed reaches its terminal rate around year-end, the drag on consumption from this year’s negative wealth effect should fall next year just as real disposable income begins to improve.
*Goldman sees growth below trend every quarter of this year with drags varying
*With headline inflation looking to have peaked and wage growth historically stickier, 2023 should see an improvement in real disposable income
The labor market continues to be encouraging, with the supply-demand balance slowly improving, reducing capacity constraints and inflationary pressures. There was a notable jump in the participation rate for key groups in last month's jobs report, and despite a renewed increase in job openings, as seen in the JOLTs data, labor tightness is improving. Regional and small-business surveys continue to show improvements in the “availability of skilled workers” (all be it mixed regionally) while hiring intentions and compensation plans have cooled back to more normal levels. Finally, the ongoing debate about whether the UER has to rise for inflation to fall continues to favor the soft landing camp with initial claims, an early indicator, yet increasing.
*The increased participation level of 25 to 54-year-olds, the core working age group, reduces labor tightness brought on by increased levels of retirement
*Monthly gains in AHE look to be stabilizing, with other measures such as the Atlanta Fed’s Wage Growth Tracker also stable the last three months, all be it still highly elevated
Despite the higher-than-expected monthly increase in August’s core CPI reading, the overall inflation picture continues to improve. Over the last few months, lower commodity prices, a stronger dollar, and large improvements in supply-chain disruptions suggest that goods price inflation will continue to decrease. A disinflation pulse should occur in finished goods prices into year-end as business survey readings and the recent drops in non-fuel import prices point to a moderation ahead. Service-orientated inflation will be slower to fall due to its more sticky nature, as evident in the Service ISM Price Sub-index falling less than the manufacturing side. However, the reopening wave that led consumers to favor services over goods this spring and summer should increasingly fade into the holiday period as families get back to a routine of work and school. We are less worried about OER pressures continuing at this pace and expect it to be peaking. Zillow is showing declines in recent rental agreements as the rush to get into a place after “work from home” ended is abating. We also expect increased supply as would-be home sellers increasingly turn their properties into rentals due to affordability constraints (in buying a new place) or dissatisfaction over falling prices. Finally, inflation expectations continue to fall, giving the Fed some comfort it is not losing credibility (despite inflation uncertainty still near highs). We expect this lower inflation expectation trend to continue, helped by a split congress following the midterms, which should materially alter overall consumer confidence higher too.
*Numerous measures of both consumer and market-derived inflation expectations look to have peaked over the summer before the actual level of headline CPI potentially did, this should continue
When we bring it all together and combine the current slowdown in growth, reduced tightness in labor markets, and belief inflation is peaking, it seems like the market’s read on how hawkish the Fed will get following Jackson Hole and August’s CPI data may be overdone. At this point, the biggest question is whether you think the Fed has to eviscerate the economy to get inflation back down. We don’t believe that it does and, as often highlighted here, see inflation as mainly a supply-side issue that is increasingly healing. As a result, we continue to question the longevity of an overly restrictive policy stance into the second half of next year, especially with QT having an exponentially increasing effect on financial conditions once excess liquidity begins to normalize (watch the RRP facility). We also have no confidence in the Fed’s forward guidance at this point, as seen through the SEPs or heard in speeches. Just three months ago, Powell told us not to expect 75 bps hikes as the new norm, and here they are about to do their third one. Their track record of forecasting is laughable, and for good reasons, we had a massive never experienced shock (and recovery) to the global economy as well as a number of other unforeseen developments (Ukraine, zero-Covid), and things continue to change fast. In the end, these aggressive rate hikes are more geared toward making sure the Fed doesn’t lose its inflation-fighting credibility, and we don’t see any evidence that is occurring. The bottom line is we believe the Fed will change its tune the first chance it gets, but this will likely only occur in the first half of next year as they continue to jawbone financial conditions tighter and press real rates higher into year-end.
*The market implied terminal Fed Funds rate is now just shy of 4.5%, with the futures curve also showing a higher likelihood the Fed keeps rates higher for longer
With the above all said, we want to conclude by saying that it is still not a good time to add significant risk to portfolios due to negative seasonalities and high levels of market uncertainty. However, we see the current level of the S&P as an area we believe has support from both a technical perspective and negative optionality positioning, increasing the odds of a short squeeze bear market rally. As a result, we are adding a 5% long position in the S&P through the $SPY ETF with the plan to increase it in October. We believe the passage of tomorrow’s FOMC meeting, the coming mid-term elections, and increased flows into equities at the start of Q4 make this a good tactical trade. We are also increasing our natural gas short position to 10%. This is due to our belief that the worst of the global energy crisis may be passing, and fundamentally, the U.S. does not have a natural gas shortage problem equivalent to what the current price tells us. Technically we see a head and shoulder formation forming as well. Finally, we are moving down our $FXI long stop level slightly. We continue to be patient with Chinese equities and growth more generally but are admittedly losing our patience and are blown away by the insanity of the zero-Covid policy there.
*Our mock portfolio is now down -2.77% since its inception and is 55% invested
In summary, into year-end, we see tactical trading conditions in range-bound markets due to continued macro headwinds, much like most of this year. Fed intentions, recession risk, inflation persistency, and geopolitics continue to dominate conversations. Large rallies will be capped by the same factors that recently occurred, but the risk-reward has improved at current levels in equities and rates. Buy-side is leveraging up, CTAs will need to change to a more neutral positioning, and vol will fall after last week's large Sept OPEX and tomorrow’s FOMC meeting, helping risk parity funds become more involved if a range-bound rising channel emerges.
Econ Data:
Housing starts unexpectedly jumped 12.2% in August to an annualized rate of 1.575 million units, beating market expectations of 1.445 million. Single-family housing starts were up 3.4% to 935 thousand, and starts for multi-units rose 28.6% to 621 thousand. Starts were higher in the Midwest (19.3%), the South (24.5%), and the West (1.1%) but fell in the Northeast (-17.3%). Building permits fell by -10% to an annualized rate of 1.517 million in August, well below market expectations of 1.61 million. Single-family authorizations dropped by -3.5% to 899 thousand units, while approvals of multi-unit declined by -18.5% to 571 thousand. Permits fell in the Northeast (-15.2%), the Midwest (-6.5%), the South (-13.5%), and the West (-1.1%).
Why it Matters: The rise in housing starts was the biggest increase since March last year, although figures for the previous months were revised lower to show starts fell at a faster -10.9% in July. The unexpected rise was due to homebuilders' progress in reducing the construction backlog as some materials became more available. On the other side, the decline in building permits was the biggest drop since April 2020 and the lowest level since June 2020. The housing market continues to be at the mercy of material and labor availability on the supply side and poor affordability on the demand side.
*A tale of two cities, with starts up but permits down, showing that pipeline pressure is still strong, but future demand continues to weaken
The NAHB housing market index fell to 46 in September, below market forecasts of 47. All three HMI components posted declines in September. Current sales conditions dropped three points to 54, sales expectations in the next six months declined one point to 46, and traffic of prospective buyers fell one point to 31. Around 24% of builders reported reducing home prices, up from 19% last month.
Why it Matters: It was the ninth straight monthly decline and the lowest level since May 2020 for the NAHB housing market index as the combination of elevated interest rates, persistent building material supply chain disruptions, and high home prices continue to take a toll on affordability. “Builder sentiment has declined every month in 2022, and the housing recession shows no signs of abating as builders continue to grapple with elevated construction costs and an aggressive monetary policy from the Federal Reserve that helped push mortgage rates above 6% last week, the highest level since 2008,” said NAHB Chief Economist Robert Dietz. “In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buydowns, free amenities, and price reductions.”
*“The National Association of Home Builders (NAHB) Market Index just fell below breakeven for the first time since the pandemic onset.” - @M_McDonough
*“NAHB homebuilder sentiment hit a fresh low of 46, net pessimism. Excluding the pandemic, this was the weakest level since 2014. As the figure shows, we expect residential investment to be a significant weight on Q3 GDP growth. Atlanta Fed tracking just over a full percentage point drag.” - @RenMacLLC
Technicals and Charts:
Four Key Macro House Charts:
Growth/Value Ratio: Growth is higher on the day and the week. Small-Cap Value is the best performing size/factor on the day.
Chinese Iron Ore Future Price: Iron Ore futures are lower on the day and on the week but generally flat. Housing activity continues to slow, and worries about property developers grow while infrastructure investment elsewhere is rising, giving a mixed picture for materials demand.
5yr-30yr Treasury Spread: The curve is flatter on the day and the week and back to the most invert4ed levels of the year as expectations for Fed policy remain extremely hawkish.
EUR/JPY FX Cross: The Euro is stronger on the day and the week. Traders await the BoJ meeting this week but expectations for any material change in policy is low.
Other Charts:
GS provided a look at how the recent June Bear Market Rally measured against others in the past.
“As the S&P500 earnings season comes to a close, earnings ‘beats’ are back at ‘normal’ levels, with the pandemic having distorted the earnings picture.” - @Lvieweconomics
“While yields “are weighing on risk assets, .. there are .. mitigating factors likely to limit the downside. .. Better than expected earnings growth is reminding investors that equities represent a real asset class that offers protection against inflation ..” – JPM’s Kolanovic
Sentiment continues to be the best feature of this market (for bulls). Friday's equity put/call ratio $SPX got thru our threshold level, matched only by the levels seen at the June lows. Momentum and trends are not supportive, but positioning appears to be. - @RenMacLLC
“S&P 500’s drawdown this year was mostly accompanied by rising gasoline prices; the reverse took hold from mid-June to mid-August, but now both are falling - @LizAnnSonders
“.. yields are getting more and more ‘out of bounds’ with historical norms, and a ‘rate peak’ is probably nearing. .. today, the real yield is far above average .. and verging on ridiculously high.” - @LeutholdGroup
Credit spreads in the U.S. and Europe are approaching their widest levels in a decade.
“Inflation from supply-constrained categories has eased up. But there’s still further to go. The GS forecasts seem to suggest a meaningful decline by Q3, 2023.” - @ayeshatariq
GDP forecasts across the street were again revised lower after the August CPI data as additional tightening by the Fed increases the likelihood of a recession.
@LongviewEconomics expects OPEC+ production has peaked given recent cuts and general production capacity questions. It is likely not much more additional supply will materialize this year.
There are signs that natural gas prices in Europe have peaked
Ukrainian exports continue to grow, but with Russia losing ground, will the trade corridor stay open?
China has significantly integrated itself into the extraction and processing of most of the “clean” energy metals leaving Western nations scrabbling to secure future supplies.
Article by Macro Themes:
Medium-term Themes:
Real Supply-Side Situation:
Slowing: No. 2 U.S. Port Sees Consumer Demand Easing From Covid-Era Surge – Bloomberg
The head of the second-biggest U.S. port expects the pandemic-era surge in consumer demand that snarled supply chains will start to cool, with evidence of a deceleration already reflected in weaker inbound container arrivals. Imports into Long Beach have now fallen for two months. Meanwhile, the neighboring port of Los Angeles registered the biggest decline in inbound cargo since the early days of the Covid-19 pandemic in August. Together, the twin operations handle about 40% of containerized trade with Asia.
Why it Matters:
Ports had for months been overwhelmed by an influx of goods that triggered supply-chain logjams and delivery delays, but that is showing signs of abating due to logistics improvements and cooling consumer demand. Port of Long Beach Executive Director Mario Cordero and other U.S. port directors forecast an earlier-than-normal peak season in July as retailers raced around the clock to avoid another logistics nightmare around the holidays.
China Macroprudential and Political Loosening:
Flooring: China’s Downturn Moderates, Though Property Woes Linger – WSJ
China released a raft of economic data on Friday, including figures showing that housing price declines accelerated and consumer spending remained weak. The data wasn’t all bad, as infrastructure investment picked up more quickly than expected, and China’s labor markets improved. Chinese fixed-asset investment rose 5.8% during the first eight months of the year compared with a year earlier. The pickup in investment was led by robust spending on infrastructure projects. Industrial production, a measure of factory output, held steady, too, as power shortages triggered by extreme heat waves and drought across swaths of the country eased. The rebound in these areas was mainly driven by momentum in automotive and equipment manufacturing, as well as in China’s economically stronger coastal provinces, though favorable comparisons to the year-ago period also helped flatter the numbers
Why it Matters:
Renewed Covid-19 curbs and a worsening property downturn continue to dampen the outlook for China’s economy, despite some modest signs of improvement as stimulus measures slowly kick in.The signs of improvement follow a number of steps that Chinese authorities unveiled last month to prop up growth, including extending hundreds of billions of yuan in credit to support infrastructure projects and support the power and agriculture sectors. The country’s central bank also unexpectedly cut two key interest rates in mid-August. Fitch Ratings this week said it expected Chinese GDP to expand by 2.8% in 2022, from an earlier forecast of 3.7%. The credit-ratings firm forecasts Chinese GDP to bounce back modestly to 4.5% next year, though that is down from a previous prediction of 5.3%.
Longer-term Themes:
National Security Assets in a Multipolar World:
Expand the Purview: Biden Orders Deeper Scrutiny of Foreign Investment in Tech and Supply Chains – WSJ
President Biden directed the Committee on Foreign Investment in the United States (CFIUS), the office which reviews foreign investment for national security risks for the Treasury Department, to heighten scrutiny of deals that may benefit China or other adversaries. The executive order directs the committee to consider whether a pending deal involves the purchase of a business with access to Americans’ sensitive data and whether a foreign company or government could exploit that information. The order also directs CFIUS to focus on transactions that would give foreign powers access to technologies including “microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaptation technologies.”
Why it Matters:
While the order doesn’t single out particular foreign countries, an explanation of the measure provided by the White House mentions the risks presented by foreign investors from “competitor or adversary nations.” Its specifics of protecting supply chains, Americans’ data, and technologies like semiconductors, artificial intelligence, and biotechnology are areas where the administration and other U.S. officials have previously raised concerns about Chinese investment and espionage.
Electrification and Digitalization Policy:
Going Up: Appeals Court Upholds Texas Law Regulating Social-Media Platforms – WSJ
A federal appeals court on Friday upheld a Texas law that seeks to prohibit social-media platforms from blocking or removing posts based on the speaker’s viewpoint, a decision that could set the stage for the Supreme Court to resolve a case with broad ramifications for online discourse. Texas Republicans enacted the law, known as HB 20, last year, a response to what they said were concerns about the suppression of conservative political views. The law, which has been on hold for now, allows Texas residents, or anyone doing business in the state, to sue platforms for injunctive relief and attorneys’ fees and seek court orders against content removal. It also gives enforcement powers to the state attorney general.
Why it Matters:
A pair of trade associations representing tech companies filed suit to challenge the law and warned that it could lead to a wave of harmful and offensive posts. In May, the Supreme Court granted an emergency request from those trade associations stopping the law from taking effect, but without explaining the reasoning for that decision.On Friday, a three-judge panel of the Fifth U.S. Circuit Court of Appeals in New Orleans issued a split ruling in the state’s favor. Writing for the majority, Judge Andrew Oldham, a Trump appointee, rejected the tech associations’ arguments that the law violated the First Amendment rights of social-media companies to exercise editorial discretion over the content published on their platforms. It is now likely the case will go back to the Supreme Court.
Finally: Biden administration targets crypto enforcement, digital asset rules - Reuters
U.S. government agencies must double down on digital asset sector enforcement and identify gaps in cryptocurrency regulation, the Biden administration said on Friday, citing their potential for misuse and harm even as it noted their growing role in global finance. The Treasury Department will also lead a group of government agencies that will consider a central bank digital currency, although the White House stopped short of endorsing a digital dollar.
Why it Matters:
The reports urged regulators like the SEC and the CFTC to issue guidance and rules for digital asset ecosystem risks, including the potential for cryptocurrencies to be used in money laundering or for fraud. The White House also said Biden would consider asking Congress to amend the Bank Secrecy Act (BSA) to apply to digital asset service providers, including cryptocurrency exchanges and platforms for non-fungible tokens, or NFTs. The BSA requires lenders to report suspicious transactions to the Treasury.
Transparency: UK forces crypto exchanges to report suspected sanction breaches – The Guardian
Crypto exchanges must report suspected sanctions breaches to UK authorities under new rules brought in amid concerns that bitcoin and other crypto assets are being used to dodge restrictions imposed in response to Russia’s invasion of Ukraine. Using cryptocurrencies to evade sanctions and move money around the world was already illegal in the UK under laws that cover all “economic resources.” However, the change underlines authorities’ concern about the relatively new assets, which could be useful for evading sanctions because users do not rely on regulated entities to make transactions.
Why it Matters:
The rules, set by the Treasury’s Office of Financial Sanctions Implementation, will mean crypto exchanges are committing a criminal offense if they fail to report clients designated for sanctions. Under the rules, crypto exchanges must immediately act if they suspect that one of their customers is under sanctions or if they suspect a breach of sanctions – giving them similar obligations to professionals such as estate agents, accountants, lawyers, and jewelers. The UK’s move was in line with the more general expansion of financial services and anti-financial crime regulation to the crypto sector.
Commodity Super Cycle Green.0:
Rising Again: Lithium Resumes Insane Gains to Add Pressure on Automakers – Bloomberg
Lithium carbonate jumped to a new record Friday of 500,500 yuan ($71,315) a ton in China, according to data from Asian Metal Inc. The battery material has roughly tripled in the past year and is more than 1,150% higher than a pandemic low touched in July 2020. Prices of lithium hydroxide are also gaining and closing in on an all-time high set in April. Global suppliers also expect the lithium rally to continue outside of China, indicating that the raw materials involved in battery production will prove an enduring headache for the EV industry.
Why it Matters:
Supply is continuing to lag behind rising forecasts for demand, and the resulting continual price increases in lithium threaten to extend a squeeze on battery manufacturers and car producers that’s already eroding profits and prompting some suppliers to hike their own rates. Fresh concerns over the supply and price outlook prompted Chinese authorities to haul in lithium miners, refiners, and other industry groups for a new meeting last week, according to the Ministry of Industry and Information Technology. Unlike an intervention in March, which at least stalled lithium’s surge, authorities aren’t likely to deliver an impact this time “unless more concrete price control measures are being introduced,” Daiwa Capital Markets wrote in a note Friday.
Not Enough: Food Supply Stays Tight as Disappointing U.S. Harvest Adds to Global Challenges - WSJ
A lackluster U.S. harvest this year is setting back efforts to relieve a global food supply that has been constrained by Russia’s war in Ukraine, agriculture-industry executives said. High temperatures this summer exacerbated drought conditions in the U.S. West and the country’s Great Plains. The intense heat in states such as Kansas, Nebraska, and Oklahoma set in as corn crops were pollinating in many parts of the Grain Belt when the plants require the most water. Some corn crops were also planted late this year after a wet spring, causing some yield loss, according to agriculture analysts.
Why it Matters:
The corn harvest this year is currently expected to come in below typical recent yields in North America and Europe, hindering 2022 from being a year of restocking worldwide supplies. This follows years of bad weather affecting big crop-producing regions, including South America, stretching global crop supplies even before Russia’s invasion of Ukraine disrupted shipments from one of the world’s top grain-exporting regions. The U.S. Agriculture Department lowered its nationwide corn production estimate to 13.9 billion bushels, 3% lower than its August projection and 8% below 2021’s total. If the winter harvests in the southern hemisphere are weaker than expected, food inflation will remain persistent.
ESG Monetary and Fiscal Policy Expansion:
Enough: EU proposes to suspend billions in funds to Hungary – AP News
On Sunday, the EU changed tack and threatened to freeze 7.5 billion euros ($7.5 billion) earmarked for Hungary unless it takes steps to curb fraud and corruption. The EU’s concerns include irregularities in Hungary’s public procurement system, conflicts of interest in public interest trusts, and the independence of the judiciary, according to a person familiar with the procedure. Budapest will inform the commission about progress in implementing remedial measures by Nov. 19. Separately, Hungary is still waiting for the commission to approve its pandemic recovery plan, which would allow the country to tap a separate 5.8 billion-euro pot of EU money.
Why it Matters:
Since coming to power in 2010, Orban challenged the EU’s democratic foundations with an unprecedented power grab that saw him rewrite the Hungarian constitution, overhaul election rules and extend government influence over the courts, the media, cultural institutions, and the education system. Under his leadership, Hungary has plunged in Transparency International’s Corruption Perceptions Index and now ranks second lowest in the EU, with only Bulgaria worse. The EU has unsuccessfully tried to keep Orban in the fold while mostly looking past his antagonistic approach to the bloc, including repeated efforts to hamper EU sanctions on Russia. “Hungary’s pro-Putin stand after the Russian invasion of Ukraine has made it obvious to the EU political class that Orban is not just a threat to Hungarian democracy but to the EU’s ability to respond to this war,” Jacek Kucharczyk, president of the Institute of Public Affairs think tank, wrote in Carnegie Europe last week.
Appendix:
Current Macro Theme Summaries:
VIEWS EXPRESSED IN "CONTENT" ON THIS WEBSITE OR POSTED IN SOCIAL MEDIA AND OTHER PLATFORMS (COLLECTIVELY, "CONTENT DISTRIBUTION OUTLETS") ARE MY OWN. THE POSTS ARE NOT DIRECTED TO ANY INVESTORS OR POTENTIAL INVESTORS, AND DO NOT CONSTITUTE AN OFFER TO SELL -- OR A SOLICITATION OF AN OFFER TO BUY -- ANY SECURITIES, AND MAY NOT BE USED OR RELIED UPON IN EVALUATING THE MERITS OF ANY INVESTMENT.
THE CONTENT SHOULD NOT BE CONSTRUED AS OR RELIED UPON IN ANY MANNER AS INVESTMENT, LEGAL, TAX, OR OTHER ADVICE. YOU SHOULD CONSULT YOUR OWN ADVISERS AS TO LEGAL, BUSINESS, TAX, AND OTHER RELATED MATTERS CONCERNING ANY INVESTMENT. ANY PROJECTIONS, ESTIMATES, FORECASTS, TARGETS, PROSPECTS AND/OR OPINIONS EXPRESSED IN THESE MATERIALS ARE SUBJECT TO CHANGE WITHOUT NOTICE AND MAY DIFFER OR BE CONTRARY TO OPINIONS EXPRESSED BY OTHERS. ANY CHARTS PROVIDED HERE ARE FOR INFORMATIONAL PURPOSES ONLY, AND SHOULD NOT BE RELIED UPON WHEN MAKING ANY INVESTMENT DECISION. CERTAIN INFORMATION CONTAINED IN HERE HAS BEEN OBTAINED FROM THIRD-PARTY SOURCES. WHILE TAKEN FROM SOURCES BELIEVED TO BE RELIABLE, I HAVE NOT INDEPENDENTLY VERIFIED SUCH INFORMATION AND MAKES NO REPRESENTATIONS ABOUT THE ENDURING ACCURACY OF THE INFORMATION