Ian Reynolds
News Flash
US Congress poised to narrowly avert government shutdown with just hours to go [BBC]
Systemic Risk Rising - Flashback to GFC ?
The rapid rise in global sovereign debt, along with speculator positions, has raised alarm bells with regulators. Combined with US Government's inability to fund itself for more than 60 days at a time, the associated risk of Government debt downgrade and US regional banks in a precarious balance sheet situation, is an explosive cocktail for financial markets. And a colossal amount of US debt being issued before the end of the year......
Remember that in crashes, everything gets sold, and crashes comprise of lots of small issues all arising at the same time- everyone loses apart from some smart speculators. Crashes are system issues.
True black swan events, like COVID, are calamitous but manageable (eventually) because it's not the system that's causing it.
The Bank for International Settlements (BIS) is the Central Banks' Central Bank. It rarely says anything to markets but here it is in the FT. Circulated to trading desks and FT readership privately this week.
Hedge fund bets could spark turmoil in US Treasuries, BIS warns [FT]
'"Unwinding those leveraged short positions in U.S. Treasury futures, "if disorderly, has the potential to dislocate core fixed income markets," the BIS said in its Quarterly Review."
Click here if you don't have a FT subscription
Top financial regulator seeks global clampdown on hedge fund borrowing [FT]
The Financial Stability Board is an international body that monitors and makes recommendations about the global financial system. It was established after the G20 London summit in April 2009 as a successor to the Financial Stability Forum.
US Government Shutdown Live [CNN]
A government shutdown happens when Congress does not approve discretionary spending for the upcoming fiscal year, which begins on October 1.
A shutdown affects nearly every corner of the US government, from the delivery of welfare cheques and publishing of national economic data to the operation of federal courts, museums and national parks.
Hundreds of thousands of federal workers likely would be furloughed – temporarily forced to leave work without pay – while workers deemed essential would remain on the job but continue without a paycheque.
It's not just regulators getting scared. Systemically Important Banks are sounds the alarm too
Jamie Dimon: World May Not be Prepared For FED at 7% [Bloomberg]
Systemically Important Banks are a real thing, regulators protect them before all else. Lehman and Bear Stearns were not SIBs and neither are regional US banks.
Here's the Financial Stability Board on SIBs [FSB]
Bond yields rising
Apart from the systemic risk, higher bond yields cause a lot of pain for consumers, or anyone with debt, and for risk assets, in that bonds at a higher yield look more attractive than stocks, commodities, Bitcoin etc
In the US pandemic helicopter money has been used up, credit card debt is ballooning, housing market is teetering and car loans are hitting default records.
US mortgage rates climb to 7.31%, hitting their highest level in nearly 23 years
European bond market hit by Italy’s plans for higher borrowing [FT]
In the background
Global trade falls at fastest pace since pandemic [FT]
World trade volumes fell at their fastest annual pace for almost three years in July, according to closely watched figures that signal rising interest rates are beginning to affect global demand for goods.
In Case You Missed It
Europe
Euro’s Use in International Payments Drops to Three-Year Low [Bloomberg]
Germany
German retail sales fall unexpectedly in August [Reuters]
US
A benign PCE reading will keep bond markets subdued for a few days hopefully.
US PCE August 2023
Australia
Signs of consumer savings on sidelines being exhausted although we're some way behind the US in that cycle.
Dan Andrews (Premier of Victoria) resigns unexpectedly.
The RBA meeting next week, the first for new Governor Bullock, will be a real mix.
Sheep prices plunge to $1 a head as farmers flood market [AFR]
RBA squeezed by oil, spending, $A shocks [AFR]
Australia YoY Weighted Mean CPI August 2023, expected but higher.
Meriton swoops on $50m Sydney site as receivership sales flood market [AFR]
More than one in 10 development sites for sale in western Sydney are being sold by receivers, Peter Vines of Ray White Commercial says.
Shares of China Evergrande suspended as chairman under police watch [Reuters]
China’s economic malaise hits efforts to raise $41bn chip fund [FT]
Australian yields scream higher, curve now nearly normalised
Australian 10 year yields
Market very short of AUD / USD
CFTC AUD speculative net positions
Currency spikes but very poor close.
This Week's Important Economic Indicators [London time]
Key Economic Indicators Week Commencing 2 October 2023
