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Spot Markets Live Transcript: 03/10/22

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Today’s Spot Markets live session is with Anjuli Davies, formerly of the Telegraph and Reuters, Davies’ last posting was as Senior City Editor for the Telegraph, moving there from her role as Acting Chief UK Financial Correspondent for Reuters.

Comments addressing audience statements are in bold.


Izabella Kaminska 11:59

Hello everyone…

Starting 1 min early today, instead of 2 min.

Morning everyone

Btw – quick reminder, if you want to use a pseudonym, you just need to add a handle in your user profile section.

Izabella Kaminska 12:00

So hello and welcome to Spot Markets Live, the real-time markets chat that takes you on a whirlwind tour of the markets.

Join us tomorrow at 11am for a special guest who hails from the rates markets, with regulatory experience. That’s all I can say at this point.

Today, we’re joined by Anjuli Davies again

hello Anjuli

Anjuli Davies 12:02

Morning

Izabella Kaminska 12:02

Did you get any rest?

Anjuli Davies 12:02

Drank too much wine…

Izabella Kaminska 12:02

I’m sure that’s not going to be frowned upon here.

I must say I’m a bit pooped.

I have to apologise to subscribers as the piece I was meant to send out on Sunday about intraday funding got delayed due to me succumbing to some out-of-the-blue ear infection.

But it will be out later today instead. I PROMISE. Straight after we finish this.

Hope everyone else’s weekends weren’t as stressful as those of Liz Truss and senior Credit Suisse bankers?

Anjuli Davies 12:03

I have a very unfortunate acquaintance who just accepted a job at Credit Suisse from Deutsche Bank because they DOUBLED his salary…how can this still be going on?

Izabella Kaminska 12:04

I have an interesting situation myself. Back in August, I was invited to take part in this panel at CS in November:

It’s about the new monetary forces we are facing and it’s being organised by Credit Suisse’ star plumbing and liquidity voice Zoltan Pozsar.

[Big fan of ZP’s take on most things myself, but I appreciate some consider him Marmite.]

I was about to book flights to Zurich to get there, but now I have a dilemma.

Because I don’t want to end up inadvertently becoming an unsecured creditor to Credit Suisse. ?

What do you reckon Anjuli?

Anjuli Davies 12:05

BUY THE FLIGHTS

Izabella Kaminska 12:05

Yeah, I think so too. ***We are standing with GBP and buying flights exposed to CS credit risk ***

But perhaps one of the rabble might want to underwrite my expenses exposure at this point?

Anjuli Davies 12:05

A new CDS-type instrument?

Izabella Kaminska 12:05

Quite.

What’s more embarrassing is that in the mania of starting the Blind Spot back in February and being spread entirely too thinly, I didn’t realise that Axel Lehmann had been appointed Chairman of Credit Suisse at roughly the same time.

Anjuli Davies 12:06

I think a few people are commenting on the unfortunate coincidence of the name.

Izabella Kaminska 12:06

But worse than that, not in a million years did I think a senior executive would be dispatching an invite to a panel event personally.

I don’t usually do the corporate banking speaker rounds.

Also, the whole thing had been well-flagged to me by Zoltan, so I was expecting an email coming from a conference organiser or comms person.

Teaches me to skim-read these conference preparation things.

How embarrassing is this?

????

I would like to take this opportunity to formally apologise to Mr. Lehmann for confusing him for a comms person.

It was a mistake.

I didn’t mean it.

And all I can say is, it’s just a tad less embarrassing than the time I asked Tidjane Thiam what exactly he did for Prudential during a Poland vs England match in the Prudential corporate box which I got invited to as Paul Murphy’s plus one.

Anjuli Davies 12:08

At least you didn’t ask for a selfie with him

Izabella Kaminska 12:08

(Look I’ve never really covered insurers. They’re a bit of a mystery to me. And I had no idea of the main personalities in that field.)

Anjuli Davies 12:08

Though clearly now is the time to school up on the sector. Since the way banking resolution works, the pain gets shifted to the asset managers.

Izabella Kaminska 12:08

That’s all my bad press out in a controlled way.

Let’s get to the nitty gritty

The good news is that while I was sick I did get to watch the Netflix doc on Gamestop, which is useful because the Wall Street Bets degens are BACK.

And they’ve decided to take down Credit Suisse. The memes are strong today:

Ay-ay-ay

Anjuli, as former banking correspondent what’s your take on all this?

Anjuli Davies 12:10

Feeling a bit deja vu…. But what’s scary is the fact that people are now going on Twitter with their “I hear rumours of an international bank collapse” tales. The self-fulfilling prophecy doom loop. At one point over the weeked #credit suisse and #DB were trending on Twitter

Mark Di Stefano

@MarkDiStef

The Australian reporter behind that tweet about a bank collapsing which kickstarted madness over the weekend has deleted the tweet.

Izabella Kaminska 12:11

I put out a note at the weekend prepping the Blind Spot community for a potential defcon level markets week – chief amongst the tips was…

Always be sure to have a good supply of coffee (and in my house a good stash of kabanosy, the essential quick carb-lite snack.)

…but at the same time I noted very clearly that I was not too impressed by the likes of Dominic Cummings fanning the panic with irresponsible tweets like this:

Anjuli Davies 12:12

Pretty crazy. Dominic Cummings is starting to appear financially illiterate

Maybe not starting to …

Izabella Kaminska 12:12

Well, QUITE.

The Twittersphere clearly isn’t in the know about TLAC or banking resolution

let’s have a look at the latest from CS on that

This came out AS long ago as Sept 29:

Full presentation here:

Anjuli Davies 12:13

That hasn’t stopped the share price falling today…

Izabella Kaminska 12:13

We don’t have live charts – SORRY – so that was about 30 mins ago

Context here

As far as I can see, Credit Suisse is the pits in so many ways (from Archegos to Greensill and more), and the CDS are currently out of the park – but its demise is not going to lead to the sort of chaotic GFC mess we saw in 2008.

This financial crisis – if there is one – is going to be very different this time around I suspect. Slow burning.

Anjuli Davies 12:15

The fact is, Europeans banks never really moved on from the last crisis, they’ve seen stagnant growth, low RoEs, balkanisation of the market, inability to compete in investment banking with the Americans…now an interest rate shock…plus ca change

Izabella Kaminska 12:15

Banking resolution can take ages. Lehman’s apparently was only completed last Wednesday… it took 14 years to sort that mess out:

NEW YORK (Reuters) – The liquidation of Lehman Brothers’ brokerage unit has ended, 14 years and 13 days after its parent’s bankruptcy helped trigger a market freefall and global financial crisis.

U.S. Bankruptcy Judge Shelley Chapman in Manhattan closed the brokerage’s estate on Wednesday and awarded final payments to the trustee who oversaw its liquidation and his law firm.

More than $115 billion was paid out.

Lehman’s 111,000 customers received all $106 billion they were owed, and secured creditors also received full payouts.

The Swiss market is broadly in line with others. Swiss Franc is steady-ish:

Down about 1.35 percent last I looked

Anjuli Davies 12:16

Interested what the rabble think happens to CS?

Izabella Kaminska 12:16

Are we being too optimistic?

The FT has the classic “Credit Suisse reassures investors story” here….

Anjuli Davies 12:17

They have some experienced hands on the board…Richard Meddings, Michael Klein, Blythe Masters

Izabella Kaminska 12:18

The way banking resolution works is that it basically turns insolvent banks into slow-burn wealth entrapment zones while protecting normal deposits as well as the impact on the payment system.

At1 debt is the issue, and Credit Suisse has gone to great lengths to ensure it can buy back the debt as a message to the market.

Anjuli Davies 12:18

@Clement…banking M&A has been “on the horizon” for decades…

Izabella Kaminska 12:19

(We could go full WSB and have live commentary with the big Roaring Kitty earphones)

@Bruce – good point about the creditors. Would have been surprised otherwise.

One of the issues that Credit Suisse like other banks is facing is exposure to the strong dollar. Much of this will have been well understood and flagged internally, but it’s more of an issue for Swiss and european banks than many others. I think…

Regarding the dollar…


Anjuli Davies 12:20

Any plans on going to the States?

Izabella Kaminska 12:20

Not currently!

However, had I listened to my own advice, I might have been able to afford a US trip.

I know, I know… I’ve made a big deal of my #standwithGBP call which I put out at exactly 11.30am on Sept 29.

 But, as Joe Biden might say: “Come on man!”

Anjuli Davies 12:22

Kwasi has been on the airwaves again…

Izabella Kaminska12:22

oh yeah. Total reverse ferret

Embarrassing

Anjuli Davies 12:22

Apparently, U-turns maketh a man these days

Izabella Kaminska 12:22

Have to say, I’m torn on this. On the one hand, I think it’s the right move to drop the cut. On the other hand, revealing the government is basically directed by Twitter, is not good.

We are in the hands of social media mob rule.

Anjuli Davies 12:23

There’s already a petition calling for a general election

Izabella Kaminska 12:23

Wait until the Wall Street Bets community finds out.

Anjuli Davies 12:24

So what’s the latest on the LDI storm? (which everyone is now an expert on )

Izabella Kaminska 12:24

I think by and large it’s all been well managed.

There’s actually a great piece by Dan Davies on FTAV today explaining how the circumstances of the intervention are a perfect example of the “Backstop Principle”.

Though this was kind of my point (once I had time to reflect on it all) on Thursday:

Anjuli Davies 12:25

Are you having a bit of a commentary war with FT Alphaville?

Izabella Kaminska 12:25

Possibly.

Healthy competition as far as I’m concerned.

I have the greatest respect for everyone there. Alex Scaggs, Bryce Elder, George Steer – top notch. Can’t fault them. (I’m sure they can fault me.) I just think the fintwit echo chamber sometimes gets the better of some of the err, more senior members.

Anyway, the latest from the BoE is this:

Anjuli Davies 12:26

Cats' Meowing: Why They Meow & What it REALLY Means! - YouTube

Izabella Kaminska 12:26

haha

Yes can see Andrew Bailey miaowing too

(unfortunate timimg)

Nothing really, but… I did note this

The Bank will continue to offer liquidity insurance via its other facilities, including its Liquidity Facility in Euros and US Dollar Repo operations. The indicative schedule of weekly Liquidity Facility in Euros and US Dollar Repo operations can be found here.

Reading a bit between the lines there…

But it’s a helpful reminder that the Bank will also be providing FX liquidity via its swap lines in euros and dollar repo operations.

(someone mentioned swap lines below)

Last I checked they had been tapped but not out of the norms.

Anjuli Davies 12:28

Izzy is searching for a chart

Izabella Kaminska 12:29

That’s from last week. I need to find the updated one

Good point to move on to how ze Germanz are doing.


Similar rumours are affecting Deutsche Bank, which has been a trainwreck of a bank for years now.

Currently down about 3.4%

Longer term trend is also clear here

Anjuli Davies 12:31

Another one that didn’t ever really recover from the last crisis despite numerous restructurings

Izabella Kaminska 12:31

So here we are now. Zombie bank land.

I guess similar arguments about bank resolution apply here, though my bigger concern is about how a general repricing of German bunds is going to impact the eurozone more widely.

This is based on the fact that the German manufacturing model is going to struggle without ze cheap russian gaz.

Speaking of German exposure, Bruce Packard has been in touch to flag something interesting.

He’s a former UK bank equity analyst, who predicted the whole fiasco back in 2008 but had trouble getting the message through because of institutional conflicts.

Ah, he’s popped into the comments. Hello Bruce!

Anyway, he alerts me to the debacle in the German property markets.

Introducing Vonvovia – down 55% YTD

Ever heard of it?

Anjuli Davies 12:33

Nein

Izabella Kaminska 12:33

Vonovia is a German real estate company which owns about 4,000,000 apartments in Germany, Sweden, and Austria.

It’s apparently Guy Hands’ old Deutsche Annington that merged with something else. They have ended up with 20% of Adler

You may have heard of Adler from classic FT stories by Rob Smith like …

Bruce notes if the German bond yield starts rising, all these listed property companies look like they’re broken.

Total Assets €106 billion (same size as Northern Rock)

Definitely one to watch.

Anjuli, you want to move on to telcos?


Anjuli Davies 12:35

Yep, Mark Kleinman’s Monday merger scoop has just been confirmed on RNS

Vodafone rising on the news

This was first mooted in May – came out in the FT

Izabella Kaminska 12:36

Up 2.37%

Anjuli Davies 12:36

There’s long been talk of consolidation in the UK market

But the regulator may not be on board.

Izabella Kaminska 12:36

Anjuli Davies 12:37

What will be interesting is what Vodafone’s new shareholder Frenchman Xavier Niel makes of the combination if it goes ahead

Izabella Kaminska 12:37

Jeez, that really doesn’t look like a great long-term investment.

Quite surprised actually. Though it’s been a while since I looked at telcos.

How do these established network operators deal in the future with competition from Starlink? Is it even competition? I actually don’t know.

Starlink seems more geared at serving last-mile-type locations, if I’m correct?

Anyway, it’s a good op to pivot to Mr. Musk.


Anjuli Davies 12:39

Tesla missed estimates of vehicle production by 14k, despite increasing deliveries of EVs by 42%.

Izabella Kaminska 12:40

Pre-market 253.57 −11.68 (4.40%)

Anjuli Davies 12:40

Rumours are swirling that Musks’ robot stunt was intentionally timed to distract bulls from further downturns in Tesla stock – and that strange language suggests used car deliveries are being counted as new deliveries

Izabella Kaminska12:41

What are your thoughts on Elon Anjuli?

Anjuli Davies 12:41

Are we allowed to be honest here?

Izabella Kaminska 12:41

We have the power of post-chat redaction if you have buyers’ remorse.

Anjuli Davies 12:42

Emperor’s new clothes

The latest from Mr. Musk.

He’s posting great wisdom.

Have to say, I’m very torn on Musk. Agree with you on emperors’ new clothes, but then sometimes his outrageousness is just too amusing.

I have compared him in the past to a lovable scoundrel like Han Solo.

And not just cause he has a falcon.

Did you see the robot presentation?

Anjuli Davies 12:43

No, I didn’t

Izabella Kaminska 12:43

Here’s the clip

My only two cents on this is…. the billionaires will eventually realise that manufacturing human meat bag equivalents is far cheaper and more cost-effective than building robots.

Anjuli Davies 12:45

What the hell are human meat bags?!

Izabella Kaminska 12:45

What I mean is that with genetic engineering it won’t be long before we are breeding lobotomized humans who are programmed to love their servitude.

(not that I endorse this! I’m just pointing out it’s more cost-effective than mining all the world’s limited resources to create robot slaves.)

(who will probably eventually rebel – haven’t you seen Blade Runner?).

Anjuli Davies 12:46

Who also won’t need temperature controls – solves the energy crisis in one go.

But back to the Tory party conference…we digress

How long before Kwasi goes?

Izabella Kaminska 12:47

Kwasi Kwarteng news live: Chancellor rules out resignation as Tories U-turn on 45p tax rate cut

That’s from the Telegraph

Anjuli Davies 12:49

Think it depends on what else Liz Truss decides to pin on him.

Izabella Kaminska 12:49

Just screening the flashes

seems there’s some news from eurozone finance ministers

EUROZONE FINANCE MINISTERS TO SAY THEY WILL SEEK TO AVOID THE ENERGY PRICE SHOCK DEVELOPING INTO SECOND-ROUND INFLATION EFFECTS – DRAFT STATEMENT.

Can’t find the full link though.

But it’s worth reminding everyone of the latest energy stuff…

Italy got its gas cut off at the weekend.

And OPEC ministers are looking to cut production to support oil prices.

So understandably there are ongoing concerns about second-order effects.

Although currently according to Reuters German bund yields are down on “signals that the ECB might be on top of surging inflation”

And if Reuters says so, it must be so…

In the time we have left, maybe, it could be fun for both Anjuli and I to explain how those market explanations are generated though? Both of us previously worked at Reuters.

Anjuli Davies 12:54

Basically, nobody knows and you phone around the market to try and get a consensus

But I’m not sure if that’s been outsourced to Bangalore as well now

Izabella Kaminska 12:54

Yeah. And some guy says something he thinks, and then you ask another guy if he thinks the same as the other guy, and then they say, “ah yes, that would explain it” —

And then very occasionally, somebody has a different thought and you structure the sentence as “Other market participants said xyz”

Anjuli Davies 12:55

In a nutshell

Izabella Kaminska 12:55

But the point is, nobody really knows.

To finish off in the last five mins …

Some talk about Kurdistan below. Worth noting that Turkish inflation is still on the rise.

Turkey’s inflation hits 83% as Erdogan vows to keep cutting interest rates

 Anjuli Davies 12:56

@Dario my brother-in-law is Kurdish and he won’t let my sister and their family step foot in Turkey

Izabella Kaminska12:57

That’s something for Liz Truss to aim for.

Anjuli Davies 12:57

It’s all relative

Izabella Kaminska 12:57

From CNBC

Consumer prices month on month grew by 3.08%, and annually by 83.45%. The domestic producer price index was up 4.78% from the previous month, and up a whopping 151.5% year on year.

Anjuli Davies 12:58

I think we finish off on that eye-watering statistic

Izabella Kaminska 12:59

Just checking in on the latest, and it all feels much calmer than the WSB people and Dominic Cummings were indicating. So that’s good news.

Tomorrow remember that we are joined by a proper interest rates pro, so keep your very esoteric questions about liquidity frameworks stored for then.

I’m off later tomorrow to the Tory Party conference for some panel event. So I will have some colour to report on from that for Wednesday’s session with Ben Harrington. If markets stay calm we’ll probably leave it to three sessions this week.

Anjuli Davies 13:01

Tschuss

Izabella Kaminska 13:01

Alright on that note, it’s auf wiedersehen from me…

Thank you for joining us.

And remember to check in tomorrow at the same time.

Anjuli Davies 13:02

Bye bye!

You can sign up to the live sessions here. We’re nearly at our free membership cap – you’ll have to have a sub to take part live from then on.

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