Spot Markets Live, 30/10/23 (Central Banks, Turkish Century, Argentina)

Monday 30th Oct. It’s been an execrable month for stocks but it’s all season of mists and mellow fruitfulness as we begin our daily passegiata around financial markets

we shall be peering down narrow alleys, sauntering along the tree-lined boulevards, walking up then back down no end of one-way streets and window-shopping for whatever catches our eye.

Izabella is not with us today

Don’t worry, she’s not suffering from liver failure after eating poisonous mushrooms.

She’s reliving scenes from her Polish childhood by standing in a very long queue in poor weather conditions in East London, I believe.

She’s attending something called the Arc Forum which my computer, a notoriously rigid censor of moral laxity, won’t even allow me to explore.

Izzy explained

‘It’s this alternative vision for tomorrow thing’

which for me might be waking up in a Hawaiian hammock, chugging on a pina colada while girls in grass skirts are doing the hula

(puts me in mind of Larkin’s Breadfruit

but for the Arc Forum, an alternative vision for tomorrow seems to involve Niall Ferguson and Jordan Peterson and a long wait for security below the lowering skies

the opening speaker said: “We are all here because we have been personally invited because we are all people of courage and vision who are convinced there is a better story”

No wonder I wasn’t invited.

I am joined again then by the exotically- monikered Dario Garcia Giner, Don Giovanni to this Leporello

^^ I aspire to this

Bussin – awesome

Sus – suspicious.

but as one of my favourite authors wrote ‘For things to stay the same, everything must change’.

Well actually he wrote ‘Se vogliamo che tutto rimanga com’è bisogna che tutto cambi” because he was Italian – that was Lampedusa from the Leopard

It’s the central paradox of history.

^ This is a Zoomer summary of what we will shortly see

§§ TRANSLATION FOR LOST BOOMERS §§

On god: I promise

Bussin’: Excellent/amazing

Mid: Not great/bad news

No cap: I’m not lying

Fr: For real

That must be one of those there memes I hear young people discussing earnestly…

the BoJ on Tues: Is it the end of the road for YCC? Several houses expect the BoJ to scrap YCC, Barc esp and Deutsche Bank.

Fiscal policy continues to show an expansionary bias even amid a phase of economic recovery and inflation. And with monetary policy headed toward normalisation, the demand-side structure in the long end appears prone to change. We continue to expect the yield curve to retain a bear-steepening bias.

USDJPY has broken the 150 threshold on higher yields and month-end dollar-buying.

BoJ changes to YCC could contain the upside by reducing the ‘yen-depreciation procyclicality of the policy’, while a dovish stance could fuel JPY weakness and trigger FX intervention.

‘yen-depreciation procyclicality of the policy’ – I love that phrase.

We interrupt this discussion to bring you the news that Izzy has just been introduced to John Howard, former PM of Australia

She doesn’t want anyone to know this.

FOMC is Weds

Where no change is expected as Jerome Powell hopes against hope that tighter financial conditions will head off inflation and slow the economy.

Payrolls data Friday, mkt expecting 190k jobs to have been added in Sept, so lower than last time but still pretty strong, leading consensus and pushing the spectre of 2024 recession further away.

Is this basically it?

They weren’t in B&W.

 We’ve written extensively in this parish of late about how yields have been rising due to supply concerns rather than inflationary fears.

This road leads us, as all roads do, to the dollar.

What will end the dollar rally redux? What ends US exceptionalism?

Geopolitical volatility and China’s slowdown undergird DXY around 106

We’re probably yet the apogee of the dollar’s hegemony but it could well stay here for a good while yet.

And while the Fed sticks, the Asian central banks, China excepted,  are obliged to keep a tightening bias.

And the BOE on Thurs:

with the body set to revise down UK GDP again. The UK may just about avoid a technical recession in 2024 but it’s going to be a close-run thing and it will feel like a recession even if it isn’t

It already feels like a recession in this parish

The UNR is heading up towards 5% and house prices are falling in most areas of the UK as high mortgage costs hit values, according to a Zoopla report.

UK mortgage approvals data were released today and showed a decline in September to the lowest level since January. Overall approvals fell to 43,328 in September compared to 45,447 in August

The UK mkt, though, may hold up despite the blizzard of bad news. The FTSE may yield 6% next year, (4% div yield, 2% from share buybacks) 15% of the index derives its earnings from energy. FTSE may be a decent place to hide

They had been rallied at first by rapid mortgage rate rises – because current homeowners with cheap fixed-rate loans were less willing to sell properties and buyers sought new houses as an alternative

But the higher rates are finally having an effect

“We don’t think this bounce in housing activity will persist,” said Oren Klachkin, financial market economist at Nationwide. “Builders won’t have an incentive to break ground on new projects so long as demand remains subdued, and we don’t see a sustained turnaround until credit becomes less restrictive and affordability improves.”

Chinese lenders had been forced to lower interest rates on existing mortgages in a bid by the CCP to revive the debt-laden real estate sector

But news has come out that four of China’s largest lenders have posted worryingly shrinking margins in Q3 as a result of renewed turmoil in Chinese property markets:

https://www.channelnewsasia.com/business/four-chinas-biggest-banks-post-shrinking-margins-q3-3877561

“We expect the sector’s net interest margins to narrow further in 2024, as the impact from this year’s loan prime rate and mortgage rate reductions kick in,

Further reductions in deposit rates and reserve requirement ratios may offset some of the margin pressure.”

Said Fitch’s Director of financial institutions.

Nabiullina was obliged to hike rates 200bp Friday to 15%. This follows 100bp in Sept and 350bp emergency hike in Aug.

Inflation refuses to be cowed and CBR’s official and v conservative forecast for 2023 is now 7-7.5% September’s inflation figure reached 14.6%.

Most analysts expected the bank to increase rates at its board meeting on Oct. 27, but only to 14%. CBR was more aggressive than expected. This is likely because the bank is not only looking at inflation and the exchange rate but also the 2024 budget, which signals an increase in record military expenditure.

“An additional pro-inflationary factor on the forecast horizon is the easing of budget policies. Thus, we need a more rigid monetary policy in response,” Nabilullina said.

(which goes nicely with their rigid militaristic imperialism)

It’s entirely possible that there will be further rises. Updated macroeconomic prognoses suggest the Central Bank is reviewing the possibility of taking rates to 16% at the year’s final board meeting in December.

Is the oil cap working?

It was but now it isn’t.

It’s obvious no one adheres to the $60 limit. Russia officially claims its Urals crude averages over $80.

U.S. officials insist the ceiling nonetheless works, albeit indirectly owing to increases in transport and higher insurance costs delivering oil to Asia. They were right but now they’re less so

(] interrupt this forum to announce Izzy has just seen Holly Vallance)

(whom I had to google)

It became clear almost immediately that Russian oil supplies could be successfully traded to Asia, evading the new rules, and neither India nor China observed the cap.

India was paying Russia $80 last month.

I understand the sanctions thing and I also understand how their efficacy deteriorates over time but you can’t blame the West for implementing them.

What other options are there?

While we’re on the subject, despite what’s happening in Gaza, Brent is still lower than at the end of Sept.

End of central banking as we know it.

Dario, do elections promise any better news? I know you were looking at Argentina again?

Now all Western watchers were treated to what seemed like a surprise first defeat for libertarian Javier Milei.

Who barely reached 30% in the recent election vs the Kirchenist and Economic minister Sergio Massa’s 36%

A series of viral tweets y’all may have seen yesterday suggested that Milei’s candidacy is over after a series of interview gaffes

Where he claimed to be hearing ‘voices’ in an otherwise quiet studio:

https://www.lapoliticaonline.com/politica/milei-aclara-que-no-esta-loco-y-se-quejo-que-traten-a-massa-de-sensato/

that would count as a gaffe.

Personally, it’s far too easy to say a man with gigantic mutton chops is descending into schizophrenia – even if he just meant voices in the studio, it really was an awkward interview.

But there’s been huge news coming over my Spanish telegrams this morning

Former President Mauricio Macri’s Pro Coalition, who is headed up by Patricia Bullrich (third place – 23.84%), has just imploded

This was after a shocking and secret decision by Bullrich and the former President to put all their support behind Milei with a ‘tabula rasa’:  “anything better than more Kirchenism”

https://elpais.com/argentina/2023-10-26/el-apoyo-electoral-de-bullrich-al-ultra-milei-dinamita-al-principal-frente-opositor-argentino.html

The centrist parties in Pro – which do NOT take kindly to Milei’s radical libertarianism, have vowed to not support their party leadership’s decision to back Milei against Massa

Hence, former President Macri’s once-vaunted anti-Kirchenerist coalition is now in shambles. But it means Milei still has a shot at the presidency

Remember in the election in 2015, Scioli had a lead on Macri of 3%.

This is less than Massa’s 6.7% lead, but it’s certainly not a done deal for Massa.

Election polls are straight up 50/50 – it’s all down to the margin of error.

And other news:

Heavy fuel shortages continue in the country owing to government decisions done by Massa’s ministry (locking fuel prices under inflation, which lowered production – and not allowing USD transfers to import fuel).

Massa bungled the response, blaming people for “going on more holidays than usual” – almost the same as Maduro’s notorious response to food shortages in Venezuela.

And the last question is who the Governor of Cordoba province, Schiaretti, will back. Rumours say he will come down for Milei – which may give him the winning votes

(Cordoba made Macri win in 2015)

this weekend occasioned the centenary of the foundation of the Turkish Republic

Cue big celebrations all over Turkey.

(unless you happen to be an exile or a political prisoner or a Kurd etc)

It’s very clear what Ataturk would have thought about its present ruler, the Islamofascist, mentally inelastic, economically illiterate, jutting-jawed, cartoonishly corrupt, monstrously egotistic Erdogan.

Quote of the week from Erdogan, in an exultant mood ahead of the celebrations was this:

We as the Turkish nation are the only people in the world that has never practised racism,”

This may be newsworthy to the Armenians, the Kurds, the Syrians, the Greeks, the Bulgars, the Romanians, the Egyptians, the Ukrainians

etc etc

Just half a millennium of Ottoman imperialism to overlook before we even get to the neo-Ottoman imperialism…

That was my quote of the week, but my fact of the week was this one. A survey conducted on MAGA rednecks discovered that one in every three Trump supporters

Is just as stupid as the other two.

I give you the ever-swooning, intensely frangible Turkish lira.

At least, it’s certainly on the rise.

Especially the 50% of Turks who despise the man who is mentally unfit to handle cutlery.

And speaking of scandal-prone courts and economic catastrophes

Another week – another Hancock-linked disaster

An app promised to revolutionise the NHS. It was called Babylon

unsurprisingly, it has now Fallen

After millions in NHS contracts and a calamitous SPAC listing, the company once valued at $1.2bn has entered administration for little under $10mn.

he claimed Babylon’s groundbreaking AI would create a “doctor in your pocket.”

At his height, Parsa was worth an estimated £825mn in 2021, with Babylon employing 2,600 workers around the world.

I’m reminded of Theranos $700mn fraud. At $1.2bn, this makes Babylon an even greater collapse of Holmes’ legendary company.

 Parsa is not accused of criminal wrongdoing, but questions about how a $1.2bn company turned into less than $10mn abound. He’s not answering calls or emails about the business.

Theranos at least had a proper idea and tried to execute it. It doesn’t seem like Babylon ever did anything!

This won’t be the first – or last – time we hear about tech companies’ dodgy sales tactics used to inflate a paper company’s valuation to stratospheric heights.

A fraud with ambition!

This reminds me of when my mates worked for an AI company and realised some months in their clicking buttons that THEY were actually the AI being sold to clients.

True story!

All I ever see is a mixture of pity and contempt

Nothing fancy about this fraud. It just didn’t work.

But the episode doesn’t leave British public health regulators looking great either.

 An outspoken critic of the app in 2017 reported his concerns about Babylon to medical regulators.

While the Care Quality Commission (CQC) only raised concerns about potential misuse of the app and on how it shared information with GPs, the Medicines and Health Regulatory Agency said that:

“Babylon’s medical device did not require independent assessment, allowing the company to “self-declare” that it conformed with relevant standards.”

Babylon labelled the critic a “troll”, and moved on

I honestly feel like most of the tech we see online is just vapourware

How crazy is it that an Excel sheet managed to masquerade as an AI for ALMOST SEVEN YEARS

That tells me this is a story of the broader economy, the tech universe, calamitous procurement and lobbying procedures, rather than of a fraudster

The man, Paul Bate, now Chief Executive of the UK Space Agency

And with that, the two batsmen declare their innings over…

Remove their helmets, raise their bats in salute to the crowd’s rapturous applause from the stands, and make their way back up the pavilion steps to the tranquillity of the dressing room.