Friday, November 5, 2021

Weekly Commentary: Dow 36,000 and Policy Mistakes

More evidence this week of a historic mania running unchecked. 1999 was crazy, but at least that mania was relatively contained within Internet and technology stocks. It wasn’t fueled by Trillions of central bank monetary inflation. These days, manias are everywhere – at home and abroad, stocks, bonds, derivatives, crypto, houses, etc. The small cap Russell 2000 jumped 6.1% this week, with the Semiconductors (SOX) up 8.8%. The Goldman Sachs Most Short Index surged 11.7%. The Dow powered past 36,000 – and it was Deja Vu All Over Again.

Bloomberg Television’s Romaine Bostick (November 1, 2021): “When you talk about buying and holding, are you doing it within the context of the risk/reward that stocks on their own offer… or are you also looking at it with respect to the type of support – whether implicit or explicit – by monetary policymakers, by fiscal policymakers that has led us to where we are today - where a lot of folks feel like we can’t really go down as long as the Fed is there.”

James A. Glassman, co-author “Dow 36,000…”: “Well, certainly I couldn’t have predicted zero interest rates… My feeling, certainly in the short term and maybe even the medium term, that we ought to pay attention to Fed policy. But if you look at the whole scope of American history, the fact is that the U.S. economy has done consistently well – over and over again. And we make policy mistakes all the time. But markets react, businesses react, and we do really well. And, essentially, an investment in stocks is a bet on the U.S. economy and that has turned out to be a really good bet - no matter who’s in charge – whether it’s Democrats or Republicans. I hate to say, as someone who has devoted his life to policy issues, that policy doesn’t matter. And I think it does. But there’s a certain equilibrium that we come back to. And for investors – long-term investors if you’re thinking about retirement – for you to worry about what Fed policy is today or tomorrow – or what Congress is going to do passing this or that bill – I think that’s a mistake. I really do. Just putting money in on a regular basis and keeping it there makes a whole lot sense… I would have to tell you that I would push for high proportions of stocks in a portfolio… In general, if you’re a long-term investor – and I mean by that ten years or more – I would be as aggressive as possible with owning stocks in a diversified portfolio.”

As Glassman and Kevin Hassett were (in the thick of 1999’s mania) about to publish “Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market,” I began posting the Credit Bubble Bulletin. I was convinced a major Bubble had overtaken U.S. finance and securities markets – a Bubble fueled by a precarious shift to market-based “Wall Street Finance,” including the GSEs, MBS, ABS, derivatives, the broker/dealers and hedge funds. Moreover, the Fed failed to respond to a momentous loosening of finance and proliferation of leveraged speculation. Indeed, Greenspan’s shift in monetary policy doctrine toward underpinning market-based finance was integral to Bubble development.

From "Dow 36,000's" introduction: “Single most important fact about stocks at the dawn of the twenty-first century: They are cheap... If you are worried about missing the market's big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground – to the neighborhood of 36,000 on the Dow Jones industrial average.

In 1999, I viewed “Dow 36,000” as emblematic of the period - a testament to the euphoria of the times and reminiscent of Irving Fisher’s “stock prices have reached what looks like a permanently high plateau” (just weeks ahead of the 1929 Crash). With parallels to the “Roaring Twenties”, the technology revolution had nurtured a powerfully captivating bullish narrative. And along with the marketplace and Federal Reserve officials, Glassman and Hassett ignored mounting risks associated with Credit and speculative excess.

My interest was piqued when informed Glassman was to be interviewed Monday in commemoration of the Dow’s ascent to 36,000. After publishing a hyper-bullish book at a major market Bubble peak, would he convey a more cautious approach in today’s manic market backdrop? Definitely not. In a sign of these manic times, Glassman has become only more confident in equities and the buy and hold mantra.

I am fascinated by Glassman’s dismissiveness of Policy Mistakes. “We make policy mistakes all the time. But markets react, businesses react, and we do really well.” Glassman believes it’s a mistake to worry about Fed policy. He admits being surprised by zero rates. Curiously, no mention of QE. Federal Reserve Assets were $669 billion when “Dow 36,000” was published. Holdings have reached $8.575 TN, having ballooned almost 12-fold (1,200%). I wouldn’t extrapolate.

They aren’t and won’t, but investors should be keenly focused on Policy Mistakes. Granted, open-ended QE to this point has ensured that every Mistake is followed by greater Mistakes – only more aggressive monetary stimulus ensuring a Fed balance sheet that will approach $9 TN over the coming months. With the Federal Reserve as vanguard, global central bankers are in the throes of a monumental Policy Mistake.

As expected, the Fed Wednesday announced details of its taper strategy, which is essentially starting with a $15 billion reduction. They will take a flexible approach with tapering, while penciling in this pace monthly. Meanwhile, Powell and the FOMC believe it’s much too early to discuss raising rates from zero.

It was the Fed’s big, much anticipated week. And it was overshadowed by a bigger story. A Bloomberg host asked guests why U.S. yields were more impacted by Thursday’s Bank of England (BOE) policy announcement than by the Fed. He didn’t get a satisfactory answer.

Ten-year UK yields sank 19 bps this week to 0.85%, with yields dropping a notable 35 bps in 12 sessions (from October 21st highs). Australian yields sank 28 bps this week to 1.81%. German yields dropped 17 bps (negative 0.28%), with French yields down 21 bps (0.06%), Spain 21 bps (0.40%), and Portugal 21 bps (0.31%). Italian yields sank 29 bps (0.88%) and Greek yields fell 24 bps (1.07%). Ten-year Treasury yields dropped 10 bps this week to 1.46%, with a two-week drop of 18 bps. Two-year and five-year Treasury yields fell 10 bps (0.40%) and 13 bps (1.06%).

It was a huge week for the major global central banks. Clearly not ready to take a backseat following last week’s ECB meeting, Christine Lagarde “doubled down” in a speech ahead of the Fed announcement, saying the ECB was “very unlikely” to raise rates next year – a 2022 hike being “off the charts.” “Despite the current inflation surge, the outlook for inflation over the medium term remains subdued, and thus these three conditions are very unlikely to be satisfied next year.” Calling her “Madam Inflation,” “Germany's best-selling tabloid Bild scathingly criticised European Central Bank (ECB) President Christine Lagarde…, accusing her of destroying the earnings and savings of ordinary people…” (from Reuters). Little wonder Jens Weidmann threw in the towel.

Tuesday had the Reserve Bank of Australia (RBA) also downplaying inflation risk, shelving yield curve control measures, but sticking with its monthly QE program. RBA Governor Philip Lowe: “The latest data and forecasts do not warrant an increase in the cash rate in 2022. The Board is prepared to be patient."

Following Thursday’s Bank of England meeting, Bloomberg went with the headline, “BOE Shocks Markets by Keeping Rates on Hold.” Recent hawkish comments from BOE officials had markets anticipating an imminent shift in rate policy. Why did Treasury and global yields notably respond to the BOE? Because the Bank of England caving on inflation risks signaled a unified central bank front in pushing back against market expectations for rising rates and higher market yields.

November 4 – Financial Times (Chris Giles and Delphine Strauss): “Bank of England governor Andrew Bailey had a Herculean three-card trick to pull off on Thursday when presenting the central bank’s new inflation forecast and decision to hold back on immediately raising interest rates. Bailey, who fuelled expectations of a rate rise last month by saying the BoE ‘will have to act’ to tackle surging inflation, wanted those listening to accept three different messages — which to many in the audience may have appeared contradictory. First, that the BoE Monetary Policy Committee is much more concerned about inflation than it was previously and interest rates really are going to rise ‘over coming months’. Second, that it was good to wait and see before taking action because the outlook for economic growth had darkened and the overall picture was terribly uncertain. And third that people should continue to heed his words even though he acknowledged that his comments last month about taming inflation had been ‘truisms’ and therefore empty of meaning.”

A plethora of rationalization and justification from the global central bank community – much stretching credulity. And it’s difficult not to see this week’s developments as important confirmation of a concerted strategy from key global central banks. They’re in this mess together; created it together; and are now trapped together. As a group, they will dismiss rapidly mounting inflationary risks, choosing to remain locked in ultra-stimulative monetary policies. And together they will disregard manic markets and precarious financial imbalances.

It’s not difficult to discern why they would adopt such an approach. Global fragilities have turned acute. China’s Bubble is faltering, with contagion spreading to key EM markets. And last week, we observed acute instability afflict developed bond markets, including the UK, Australia, New Zealand, Canada and even U.S. Treasuries. They’re petrified of bursting Bubbles.

It’s like the stock market. If you’re going to be wrong, much better to be wrong with the group. And I could only chuckle. It’s virtually become a ritual. In analysis prior to Wednesday’s release of the Fed’s policy statement, commentators on Bloomberg Television again recalled the infamous Policy Mistake committed by the ECB when they raised the deposit rate 25 bps to 3.25% on July 3, 2008. According to Wall Street, they perpetrated the cardinal sin of contemporary central banking: they parted company with a dovish Fed (that commenced rate cuts in Sept. ‘07) and tightened policy only weeks before the start of the “great financial crisis.” Listening to the pundits, one is left with the impression that the ECB’s hike actually contributed to the mayhem.

For starters, it’s silly to assert that a small 25 bps rate increase is such a big deal. If it causes significant market reaction, odds are that rates were held too low for too long. And indeed, that is the story of the mortgage finance Bubble period. Despite double-digit mortgage Credit growth, Fed funds ended 2002 at 1.25%. After averaging $268 billion annually during the nineties, mortgage Credit expanded an unprecedented $1.001 TN in 2003. The Fed funds rate was reduced 25 bps in 2003 to end the year at 1.00%. Mortgage Credit was up to $1.466 TN in 2005, yet rates had only been increased to 4.25%. 2006 saw growth of another $1.4 TN, along with $1 TN of subprime derivatives. Financial conditions remained ultra-loose until the subprime eruption in the summer of 2007.

The Fed’s failure to tighten policy and rein in mortgage-related excess was a monumental Policy Mistake – one that led directly to the post-Bubble introduction of QE. And then the Fed stuck with zero rates until the end of 2015. Rather than “exiting” its bloated post-crisis balance sheet, the Fed had doubled holdings again by 2014 to $4.5 TN. And despite booming markets and a recharged economic expansion, Fed funds didn’t return to 1% until mid-2017. By September 2019, with record stock prices and multi-decade low unemployment, the Fed reinstituted QE. The epitome of a Policy Mistake begetting only greater Policy Mistakes.

It’s easy to brush off this week. Contemporary central bankers simply partaking in contemporary central banking. No harm, no foul. But I see it much differently, with central bankers out this week with the huge backhoe digging a hole so deep we’ll never find our way out. I was reminded of Bernanke back in 2013 “pushing back against a tightening of financial conditions” – signaling to markets that the Federal Reserve would not tolerate weakness or corrections.

The big central banks this week signaled they will push back again rising rate expectations and market yields – essentially intervening in the markets to quash market adjustment to surging inflation risk. I have major issues with this. For one, market discipline is today all we have between reckless fiscal and monetary policies and any hope for a future without financial and economic chaos. Financial conditions must tighten, or inflation will run wild. Secondly, today’s artificially low rates and manipulated market yields are fueling precarious Bubbles and market manias. There is no justification for continuing with zero rates and huge monthly QE liquidity injections.

It’s tiring to hear chair Powell repeatedly fall back on the Fed’s “dual mandate of stable prices and full employment”. Give us a break.

“In 1977, Congress amended the Federal Reserve Act, directing the Board of Governors of the Federal Reserve System and the Federal Open Market Committee to ‘maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.’”

In no way did this amendment grant the Fed carte blanch to print Trillions. The crafters of this legislation had in mind the Fed restraining money and Credit growth to ensure monetary and price stability. And for the Fed to use its full-employment mandate these days as justification for zero rates and QE is also making a mockery out of that mandate.

The economy created 843,000 new jobs over the past two months. October’s 4.6% Unemployment Rate is down from June’s 5.9% and the year ago 6.9%. Average hourly earnings were up 4.9% y-o-y. The September trade deficit surged to a record $80.9 billion. And for a services-dominated U.S. economic structure, this week’s ISM data confirmed an overheated economy. Exceeding estimates by almost five points, the ISM Services Index surged to an all-time high 66.7 (data back to 1997). New Orders and Business Activity components also jumped to record highs. Backlogs and Export Orders jumped. Prices Paid rose to the high since 2005. “Demand shows no signs of slowing.”

Powell: “We have not focused on whether we need to [discuss the] liftoff test, because we don’t meet the liftoff test now because we’re not at maximum employment. What I’m saying is, when – given where inflation is and where it's projected to be, let’s say we do meet the maximum employment test, then the question for the committee at that time will be “has the inflation test been met”, and I don’t want to get ahead of the committee on that.

Bloomberg’s Matthew Boesler: “So, when you’re looking at this question of assessing whether or not the U.S. economy is at maximum employment, do you have a framework for making that judgment that is independent of what inflation is doing? And if not, does it complicate that assessment given all of the uncertainty about inflation right now and the inclination to believe that the high inflation we’re seeing is not related to capacity utilization in the labor market?

Powell: “So, we don’t actually define maximum employment in terms of inflation. Of course, there’s a connection there. Maximum employment has to be a level that is consistent with stable prices. But that’s not really how we think about it. We think about maximum employment as looking at a broad range of things. You can’t just look at, unlike inflation where you can have a number, but with maximum employment you could be in a situation hypothetically where the unemployment rate is low, but there are many people who are out of the labor force and will come back in. And so, you wouldn’t really be at maximum employment because there’s this group that isn’t counted as unemployed. So, we look at a range of things, and by many measures we are at a very tight labor market.”

I’m not sure why Powell used “hypothetically.” The Fed today disregards its stable prices mandate in favor of some nebulous full employment concept, specifically focused on the unusually large number of workers who left the workforce during the pandemic. Powell: “They’re holding themselves out of the labor market because of caretaking needs or because of fear of COVID or for whatever reason.” That’s an issue, of course. And how many millions are enjoying working from home at their new careers as online traders of meme stocks, ETFs, options and cryptocurrencies? How many have retired early after seeing their investment and trading accounts inflate spectacularly? It is a grievous Policy Mistake to disregard inflation while focusing on labor market holdouts.

I was again this week reminded of Adam Fergusson’s masterpiece, “When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany.” On my initial reading, I was struck by how Reichsbank officials held to the belief that they were responding to outside forces and were not responsible for surging prices. The Fed blames COVID, global supply shocks and other factors beyond its control for temporarily elevated inflation. Do they honestly believe they can print $4.8 TN in 112 weeks without unleashing powerful inflationary dynamics?

Matthew Boesler: “And if I could just follow-up briefly… You talked a little bit about this possibility that the two goals might be in tension and how you would have to balance those two things. Could you talk a little bit about what the Fed’s process for balancing those two goals would be in an event that, say come next year you decide there’s a serious risk of persistent inflationary pressures…?

Powell: “It’s a risk management thing. I can’t reduce it to an equation. But, ultimately, it’s about risk management. So, you want to be in a position to act to cover the full range of plausible outcomes, not just the base case. And in this case, the risk is skewed for now; it appears to be skewed toward higher inflation. So, we need to be in a position to act in case it becomes necessary to do so or appropriate to do so. And we think we will be. So that’s how we’re thinking about it, and I think through that, judgmentally too, it’s appropriately to be patient. It’s appropriate for us to see what the labor market and what the economy look like when they heal further.”

Euro zone CPI hit 4.1% (y-o-y) back in July 2008, boosted by crude that had skyrocketed to $140. The ECB in July 2008 couldn’t anticipate that Lehman and crude would soon commence epic collapses. They adopted a risk management approach, moving incrementally to tighten policy – to push back against elevated inflation - and then reversed course with rates down to 2.0% by December. The profound impact monetary stability has on all aspects of financial, economic, social and political wellbeing demands conservative central banking doctrine and cautious policymaking. Do no harm. Above all, no big Mistakes.

The Fed and the global central banking community today inflict great harm as they proceed on the greatest monetary policy blunder the world has ever experienced.

The Wall Street Journal’s Michael Derby: “I wonder if the Fed has given any thought yet to the end game for the balance sheet, in terms of once you get the taper process complete. Will you hold the balance sheet steady or will you allow it to start passively winding down? And then in a related question, do you have any greater insight into what Fed bond buying actually does for the economy in terms of its economic impact?”

Powell: “So in terms of the balance sheet, those questions that you mentioned. We haven’t gone back to them… In terms of the effect of asset purchases on the economy, so there’s a tremendous amount of research and scholarship on this and… you can find different people coming out with different views. But I would say the most mainstream view would be that you’re at the effective lower bound, so how do you affect longer-term rates. There are two ways, one – so… let’s say you can’t lower rates any further hypothetically. So, you can give forward guidance, you can say we’re going to keep rates low for a period of time… The other thing you can do is just go buy those securities, buy longer-term securities. That will drive down longer-term rates and hold them lower, and rates right across the rates spectrum matter for borrowers. So lower rates encourage more borrowing, encourage more economic activity…”

It’s readily apparent what Trillions of monetary inflation do for securities, crypto, and other asset prices – for speculation and feeding a mania. The euphoria of a record equities market run and Dow 36,000. It’s easy. Buy and hold. Never get shaken out. Don’t worry about Mistakes. Don’t worry about anything. And by the end of the week, market pundits celebrated how adeptly Powell had orchestrated a taper without even a whiff of tantrum. As the arbiter of Fed policies, markets exclaimed, “Brilliant, no Mistake here!”

I would worry about the dynamics fueling this market Bubble. Below the surface, it’s turning messy. Another big short squeeze melt-up in equities, along with another painful bond market squeeze. Scores of levered trades and strategies in mayhem. Dangerous market dysfunction. And there’ll be a huge price to pay for ongoing aggressive Fed support for manic markets. Perhaps even a larger cost to a bond market that cannot adjust to surging inflation because central banks believe it’s within their mandate to manipulate markets. This week’s market action only solidifies my view that when markets eventually do adjust, it’s bound to be violent.

November 5 – Financial Times (Laurence Fletcher, Tommy Stubbington and Kate Duguid): “The era of unlimited central bank largesse is drawing to a close, injecting intense volatility in to government bonds and inflicting heavy damage on a clutch of high-profile hedge funds. Superstars of the industry have been left nursing billions of dollars in losses after an abrupt rethink on how and when central banks will reverse the huge wave of support they provided to markets when the pandemic hit last year. Initially, central banks said that process would be very slow, despite soaring inflation, and hedge funds believed them. But markets began to fret last month that the US Federal Reserve and other central banks would have to raise interest rates more quickly, wrongfooting high-profile traders including Chris Rokos and Crispin Odey. An intense sell-off in short-term government debt upended some of these funds’ biggest bets…”

For the Week:

The S&P500 gained 2.0% (up 25.1% y-t-d), and the Dow rose 1.4% (up 18.7%). The Transports surged 5.9% (up 34.7%). The Utilities added 0.5% (up 7.7%). The Banks increased 0.4% (up 42.2%), and the Broker/Dealers gained 2.0% (up 32.7%). The S&P 400 Midcaps jumped 4.0% (up 25.7%), and the small cap Russell 2000 surged 6.1% (up 23.4%). The Nasdaq100 advanced 3.2% (up 26.9%). The Semiconductors rose 8.8% (up 34.4%). The Biotechs declined 1.1% (down 2.1%). With bullion jumping $35, the HUI gold index rallied 4.0% (down 13.6%).

Three-month Treasury bill rates ended the week at 0.0375%. Two-year government yields dropped 10 bps to 0.40% (up 28bps y-t-d). Five-year T-note yields sank 13 bps to 1.06% (up 70bps). Ten-year Treasury yields fell 10 bps to 1.45% (up 54bps). Long bond yields declined five bps to 1.89% (up 24bps). Benchmark Fannie Mae MBS yields dropped 11 bps to 1.90% (up 55bps).

Greek 10-year yields dropped 24 bps to 1.07% (up 45bps y-t-d). Ten-year Portuguese yields fell 21 bps to 0.31% (up 28bps). Italian 10-year yields sank 29 bps to 0.88% (up 33bps). Spain's 10-year yields fell 21 bps to 0.40% (up 35bps). German bund yields declined 17 bps to negative 0.28% (up 29bps). French yields sank 21 bps to 0.06% (up 40bps). The French to German 10-year bond spread widened four to 34 bps. U.K. 10-year gilt yields fell 19 bps to 0.85% (up 65bps). U.K.'s FTSE equities index added 0.9% (up 13.1% y-t-d).

Japan's Nikkei Equities Index jumped 2.5% (up 7.9% y-t-d). Japanese 10-year "JGB" yields fell four bps to 0.06% (up 4bps y-t-d). France's CAC40 surged 3.1% (up 26.8%). The German DAX equities index rose 2.3% (up 17.0%). Spain's IBEX 35 equities index increased 0.8% (up 13.1%). Italy's FTSE MIB index jumped 3.4% (up 25.0%). EM equities were mostly higher. Brazil's Bovespa index gained 1.3% (down 11.9%), and Mexico's Bolsa rose 1.3% (up 18.0%). South Korea's Kospi index was unchanged (up 3.3%). India's Sensex equities index increased 1.3% (up 25.8%). China's Shanghai Exchange dropped 1.6% (up 0.5%). Turkey's Borsa Istanbul National 100 index surged 4.0% (up 7.2%). Russia's MICEX equities index added 0.6% (up 26.9%).

Investment-grade bond funds saw inflows of $429 million, while junk bond funds posted negative flows of $1.268 billion (from Lipper).

Federal Reserve Credit last week declined $7.6bn to $8.531 TN. Over the past 112 weeks, Fed Credit expanded $4.804 TN, or 129%. Fed Credit inflated $5.720 Trillion, or 203%, over the past 469 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week fell $5.7bn to $3.481 TN. "Custody holdings" were up $66bn, or 1.9%, y-o-y.

Total money market fund assets slipped $4.6bn to $4.555 TN. Total money funds increased $219bn y-o-y, or 5.1%.

Total Commercial Paper dropped $26.3bn to $1.153 TN. CP was up $202bn, or 21.3%, year-over-year.

Freddie Mac 30-year fixed mortgage rates fell five bps to 3.09% (up 31bps y-o-y). Fifteen-year rates slipped two bps to 2.35% (up 3bps). Five-year hybrid ARM rates declined two bps to 2.54% (down 35bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up four bps to 3.17% (up 19bps).

Currency Watch:

For the week, the U.S. Dollar Index added 0.2% to 94.32 (up 4.9% y-t-d). For the week on the upside, the Brazilian real increased 1.7%, the South African rand 1.3%, the Mexican peso 1.1%, the Japanese yen 0.5%, the Swiss franc 0.4%, the Swedish krona 0.3% and the euro 0.1%. For the week on the downside, the Australian dollar declined 1.6%, the South Korean won 1.4%, the Norwegian krone 1.4%, the British pound 1.3%, the New Zealand dollar 0.8%, the Canadian dollar 0.6%, and the Singapore dollar 0.1%. The Chinese renminbi increased 0.11% versus the dollar (up 2.01% y-t-d).

Commodities Watch:

November 1 – Bloomberg (Grant Smith and Julian Lee): “OPEC delivered barely half the oil-production increase it had planned for October as African members continued to struggle with output losses. The Organization of Petroleum Exporting Countries is reviving supplies halted during the pandemic, but added only 140,000 barrels a day last month because of the difficulties faced by Angola and Nigeria…”

October 31 – Bloomberg: “China may be forced to start buying crude at elevated prices to replenish its thinning crude stockpiles, adding more pressure to a nation that’s facing energy shortages and seeking to avert a diesel crisis. Commercial and strategic oil inventories have shrunk to the lowest level since November 2018 in terms of filled capacity… China attempted to cool prices this year by releasing crude reserves, but that had little impact, and only exacerbated the steady decline in overall stockpiles.”

October 31 – Wall Street Journal (Anna Hirtenstein): “Luc Filip doesn’t work at a big energy company or an industrial manufacturer. He isn’t a day trader or an OPEC official. But he is still helping drive the surge in oil prices. Mr. Filip is head of investments at SYZ Private Banking in Switzerland, and his big concern is inflation taking a bite out of the $28.5 billion of clients’ investments he manages. So he has been buying oil.”

November 2 – Bloomberg (Megan Durisin): “Wheat prices have surged from the U.S. to Russia, hitting a record in Europe and raising bread costs all over the world. And there may not be much relief soon. The crop -- grown on more land than any other -- was hit by droughts, frost and heavy rain this year in key exporters. That’s curbed supplies used in everything from pizza crusts and French baguettes to Asian noodles and African couscous, pushing benchmark prices in Chicago to an almost nine-year high. That’s not just threatening higher grocery bills -- it’s giving central banks a bigger inflation headache and risks worsening global hunger that’s already at a multiyear high.”

The Bloomberg Commodities Index slipped 0.6% (up 31.6% y-t-d). Spot Gold jumped $35 to $1,818 (down 4.2%). Silver rallied 1.1% to $24.16 (down 8.5%). WTI crude retreated $2.30 to $81.27 (up 68%). Gasoline fell 2.1% (up 65%), while Natural Gas advanced 1.7% (up 117%). Copper declined 0.6% (up 23%). Wheat dipped 0.8% (up 20%), and Corn fell 2.7% (up 14%). Bitcoin dropped $1,219, or 2.0%, this week to $61,192 (up 111%).

Coronavirus Watch:

November 2 – Reuters (Tina Bellon and Eric M. Johnson): “In Wichita, Kansas, nearly half of the roughly 10,000 employees at aircraft companies Textron Inc and Spirit AeroSystems remain unvaccinated against COVID-19, risking their jobs in defiance of a federal mandate, according to a union official. ‘We're going to lose a lot of employees over this,’ said Cornell Beard, head of the local Machinists union district. Many workers did not object to the vaccines as such, he said, but were staunchly opposed to what they see as government meddling in personal health decisions.”

November 2 – Bloomberg: “More provinces in China are fighting Covid-19 than at any time since the deadly pathogen first emerged in Wuhan in 2019. The highly-infectious delta variant is hurtling across the country despite the increasingly aggressive measures that officials have enacted in a bid to thwart it. More than 600 locally-transmitted infections have been found in 19 of 31 provinces in the latest outbreak… China reported 93 new local cases on Wednesday, and 11 asymptomatic infections. Three more provinces detected cases: central Chongqing, Henan, and Jiangsu on the eastern coast. Officials in China say they are committed to maintaining a so-called Covid Zero approach, even though flare-ups are coming faster, spreading further and evading many of the measures that previously controlled the virus.”

November 4 – Reuters (Krisztina Than and Nikolaj Skydsgaard): “Coronavirus infections are hitting record levels in many countries across Europe as winter takes hold, prompting a call for action from the World Health Organization which described the new wave as a ‘grave concern’. Soaring numbers of cases, especially in Eastern Europe, have prompted debate on whether to reintroduce curbs on movement before the Christmas holiday season and on how to persuade more people to get vaccinated.”

Market Mania Watch:

November 1 – Bloomberg (Emily Graffeo): “In a year already packed with superlatives, the fund industry has a new milestone to celebrate. Inflows into exchange-traded products across the world have just surpassed $1 trillion in 2021… The $3.9 billion added by investors in the latest data carried the sum past the magic mark. Even with two months left to go, 2021 marks the first calendar year where ETPs have reeled in over $1 trillion. A record-topping rally in the stock market and soaring commodity prices have helped propel a more than 30% increase over last year’s all-time high. An ETP is the catch-all term for a family of products including ETFs that can track the performance of stocks, bonds, commodities or currencies. ‘Although it’s a new record, I can’t say I’m surprised,’ said Liz Young, head of investment strategy at SoFi. ‘One, we’ve had this huge wave of TINA -- there is no alternative -- so people are just hungry for equities. And two, we have a lot of new entrants into investing, and people are cost conscious. So when they’re DIY-investing and they’re on a platform trying to save on commission, an ETF is a lot cheaper than a mutual fund.”

October 31 – Wall Street Journal (Alexander Osipovich and Gunjan Banerji): “High-speed trading firms are paying brokers billions of dollars a year to execute options orders, leading them to promote the risky trades whose popularity has boomed among small investors. The practice, called payment for order flow, has made options a cash cow for brokerages such as Robinhood Markets Inc. and TD Ameritrade. They can make twice as much or more from selling customers’ options orders as they do from selling order flow for stocks. In the 12 months through June, the 11 largest U.S. retail brokerages collected $2.2 billion for selling customers’ options orders, according to Larry Tabb… at Bloomberg Intelligence. That was about 60% higher than their take from selling equities orders.”

November 2 – Bloomberg (Sabrina Willmer and Melissa Karsh): “Apollo Global Management Inc., Blackstone Inc. and their rivals handed back $45 billion to investors last quarter as they reported record earnings in a hot market for deals. Rising markets fueled the industry’s frenzied pace. Exits by private equity in the U.S. reached a record $638 billion this year through September… And firms including Carlyle Group Inc. and KKR & Co. are rapidly spending current funds as they prepare to return to the market with bigger buyout pools. ‘It is a perfect storm right now,’ said Patrick Davitt, an analyst at Autonomous Research. ‘The IPO markets are open, the debt markets are open. Pretty much every avenue for exiting positions is.’”

November 3 – CNBC (Yun Li): “The SPAC market could be staging a comeback with issuance hitting an eight-month high as the industry continues to ride out regulatory challenges. A total of 57 special purpose acquisition companies began trading in October, the highest amount since March when a record of 109 SPACs were issued, according to SPACInsider... The number of new deals in October nearly doubled that in September and was also higher than the total during the same time last year…”

November 2 – Bloomberg (Zijia Song): “Goldman Sachs Group Inc.’s new class of managing directors is its biggest ever, with women accounting for fewer than one in three of the promotions. The firm named 643 members in its biennial announcement, a nearly 40% increase from two years ago…”

Market Instability Watch:

November 4 – Bloomberg (Garfield Reynolds): “The calm market reaction to the Federal Reserve’s taper announcement could well be the eye of a storm as traders refuse to back down from betting that central bankers are too complacent about the threat of out-of-control inflation… ‘The FOMC’s insistence that this is still just a temporary shock ‘related to the pandemic and the reopening of the economy’ looks to be dangerously behind the curve,’ said Capital Economics’ Paul Ashworth of the inflationary spike. ‘But it could be some considerable time before the Fed is willing to admit that elevated inflation is likely to be more persistent.’”

November 1 – Bloomberg (Brody Ford): “By the standards of March 2020, last week’s whiplash in the U.S. Treasury market may not look like much, but it’s a mistake to ignore it, Bank of America strategists are warning. The extreme yield-curve flattening that occurred as short-term rates soared -- pricing in an earlier start to Federal Reserve rate increases in response to elevated consumer inflation -- caused sharp losses for several rates-focused leveraged funds, impairing their risk-taking capacity, Mark Cabana, Ralph Axel, and Meghan Swiber wrote… ‘Liquidity strains are currently localized to the Treasury market but could spillover into other markets,’ they wrote. Illiquidity in inflation-protected Treasuries is particularly worrisome, as ‘sharply higher real rates may pose a threat to risky asset values.’”

November 4 – Bloomberg (Rebecca Choong Wilkins and Ailing Tan): “For nearly a decade, it was one of the most profitable trades in global credit. Now junk-rated Chinese debt is sliding from boom to bust in spectacular fashion… The selloff that began with China Evergrande Group five months ago is spreading rapidly… Even by the volatile standards of Chinese markets, the superlatives are striking. A developer-packed index of the country’s junk-rated dollar bonds has lost about 26% since the end of May, the steepest decline in a decade. New issuance from builders has dwindled to the lowest level in 18 months, and even some investment-grade property giants are facing sharply higher borrowing costs. High-profile Chinese bond funds managed by Fidelity and Value Partners are headed for record annual losses… The stress is most acute in the $870 billion offshore market…”

October 31 – Financial Times (Tommy Stubbington): “Central banks normally dictate to the bond market. But now, investors are ramping up bets that policymakers have got inflation all wrong, and are forcing some to change tack. For much of this year, investors had swallowed central bankers’ mantra that there was no need to raise interest rates to combat a ‘transitory’ burst of inflation. But an autumn surge in energy prices and the surprising persistence of supply bottlenecks in the global economy have sparked an increase in bets on earlier increases in borrowing costs.”

November 1 – Financial Times (Robin Wigglesworth and Nicholas Megaw): “Volatility in US bonds is surging in stark contrast to the relatively placid run for equities, leading some analysts to warn over the danger that central banks trigger a spasm of volatility in Wall Street’s stock market. Fixed income markets have been jolted by fears that rising inflation will force monetary policymakers into scaling back stimulus programmes, but stocks have largely shrugged off these concerns… The gap between measures of the near-term, derivatives-implied volatility of the S&P 500 benchmark and US Treasury bonds has widened at its fastest rate in a decade, according to Bank of America. Some analysts now warn that the divergence indicates investors are complacent about the risks posed by more hawkish central banks.”

November 1 – Financial Times (Tommy Stubbington): “A key gauge of the risk associated with holding Italian bonds climbed on Monday to its highest in a year, a rise fuelled by questions over the strength of the European Central Bank’s backing of riskier government debt. Eurozone bonds have been swept up in a global debt sell-off over the past week as traders bet that persistently high inflation will force the ECB to lift interest rates from record lows as soon as next year.”

October 31 – Bloomberg (Cormac Mullen): “Hedge funds dumped benchmark Treasury futures positions last week at close to the fastest pace in three years. Leveraged funds sold a net 177,126 10-year futures contracts, almost matching an outflow seen in March that was the biggest since 2018, according to the latest Commodity Futures Trading Commission data.”

Inflation Watch:

November 4 – Reuters (Chris Kahn): “Americans are increasingly turning away from the coronavirus and focusing their attention elsewhere, especially toward rising consumer prices and other economic areas where Democrats are less trusted, Reuters/Ipsos polling shows… While COVID-19 continues to claim more than 1,000 lives a day in the United States, the Oct. 18-22 national opinion survey shows the country's fixation on public health and diseases has faded since the beginning of the year. In October, just 12% of U.S. adults rated public health issues like the coronavirus as a top national priority, down from 20% in February. Meantime, two-thirds of the country, including majorities of Democrats, Republicans and independents, say that ‘inflation is a very big concern for me.’”

November 1 – Bloomberg (Bjorn Van Roye, Brendan Murray and Tom Orlik): “Last year the global economy came juddering to a halt. This year it got moving again, only to become stuck in one of history’s biggest traffic jams. New indicators developed by Bloomberg Economics underscore the extremity of the problem, the world’s failure to find a quick fix, and how in some regions the Big Crunch of 2021 is still getting worse. The research quantifies what’s apparent to the naked eye across much of the planet — in supermarkets with empty shelves, ports where ships are backed up far offshore, or car plants where output is held back by a lack of microchips. Looming over all of these: rising price tags on almost everything.”

November 4 – Reuters (Francesco Guarascio): “World food prices rose for a third straight month in October to reach a fresh 10-year peak, led again by increases in cereals and vegetable oils, the UN food agency said… The October reading was the highest for the index since July 2011. On a year-on-year basis, the index was up 31.3% in October.”

November 4 – Bloomberg (William Horobin): “The global surge in energy prices pushed inflation in the OECD area to 4.6% in September, the highest rate since 2008. The report on the 38-member group adds pressure to major central banks that have said the situation is largely transitory and shied from any sudden tightening of policy to contain prices.”

November 3 – Financial Times (John Redwood): “In a world of disrupted supply chains and marked shortages of energy, products and transport capacity, there is a lot of inflation about. In Germany, it has hit 4.5%, Spain 5.5%, the US 5.4% and in Brazil more than 10%... The central banks told us price rises would be modest as lockdowns ended. They expected inflation to retreat quickly as economies returned to normal. At the end of last year the US Fed thought it would rise to just 1.8% this year. In March they adjusted that up to 2.4%. Today’s rate is more than double that. The European Central Bank in December 2020 thought EU inflation would only by 1% this year, but eurozone inflation is currently four times that.”

November 4 – Bloomberg (Ryan Dezember): “A poor harvest of spring wheat and concern over the winter crop have pushed prices for the grain to their highest levels in years and signal more food inflation ahead. Drought across the Northern Hemisphere is the main culprit. Strong demand around the world, snarled supply lines and rising costs of farm inputs, like fertilizer and fuel, are contributing. Futures prices for hard-red spring wheat… this week hit their highest price on the Minneapolis Grain Exchange since the 2008 planting season. At $10.44 a bushel, spring wheat costs roughly twice what it did the past two autumns.”

November 1 – Bloomberg (Kim Chipman and Megan Durisin): “Benchmark wheat in Chicago climbed above $8 a bushel for the first time in almost nine years as importers boost purchases amid adverse weather conditions and soaring fertilizer prices that risk denting next year’s harvests. The advance may ramp up already high food costs worldwide… Some farmers are now contending with dry soil at planting time, as well as a run up in fertilizer prices. Wheat is on its longest streak of monthly gains since 2007.”

November 4 – Bloomberg (Elizabeth Elkin): “A shortage of nitrogen fertilizer is getting so bad that farmers won’t be able to get what they need for their fields in the near future. That’s according to executives at CF Industries Holdings Inc... If the owner of the world’s largest nitrogen facility is right and farmers have to scale back fertilizer applications, that could lower corn yields, pushing up the price of food even further.”

November 1 – Bloomberg (Marvin G. Perez): “Cotton prices surged near a 10-year high as forecasts for lower Indian supply heightened concern that a global deficit will get worse, threatening to increase costs for clothing… Prices have jumped more than 45% this year, cutting into margins for apparel makers and threatening to raise prices for everything from t-shirts to jeans.”

November 1 – Bloomberg (Maxwell Adler): “New Yorkers are in for a 24% increase in their heating bills this winter as a global natural gas shortage is sending prices for the fuel surging. Utility Consolidated Edison Inc. is warning New York customers they’ll pay $341 per month on average to heat their homes from November through March 2022, marking a $66 increase from last winter…”

Biden Administration Watch:

November 1 – Bloomberg (Laura Litvan and Erik Wasson): “Senator Joe Manchin said Congress needs more time to assess the impact of President Joe Biden’s $1.75 trillion tax and spending package on the economy and the national debt, slamming the door on hopes by Democratic leaders for quick action on the plan. The West Virginia Democrat… refused to say whether he supports the outline Biden presented last week or whether there had been any progress in negotiations over the weekend. His remarks are a blow to Biden, who presented to House Democrats what he said was a compromise plan worked out over weeks of negotiations that would win support from all 50 senators who caucus with Democrats. Manchin also criticized progressive Democrats for holding up a bipartisan infrastructure bill until there’s full agreement on the larger economic package, adding to tension between the two wings of the party.”

November 2 – Reuters (Jeff Mason and Trevor Hunnicutt): “President Joe Biden said… the White House will be making an announcement about his nominations to lead the U.S. Federal Reserve ‘fairly quickly.’ Biden told reporters that he has been thinking about personnel decisions, including whether to re-nominate Fed Chair Jerome Powell, and that he expected there would be ‘plenty of time’ for his central bank nominees to be cleared by the Senate before current terms expire. A Fed chair nomination this week would have some recent historical precedent. Former president Donald Trump nominated Powell as chair on Nov 2, 2017, about a year after he won the election and the day after the Fed’s November policy meeting.”

November 1 – Reuters (Andrea Shalal): “U.S. Treasury Secretary Janet Yellen… said she does not think the U.S. economy is overheating and that while inflation is higher than in recent years, it is related to disruption from the COVID-19 pandemic… ‘I would not say the US economy is currently overheating, we're still 5 million jobs below where we were pre-pandemic and labor force participation has declined and the reasons relate to the pandemic,’ Yellen told a news conference…”

Federal Reserve Watch:

November 2 – Wall Street Journal (Nick Timiraos): “Federal Reserve Chairman Jerome Powell used the bulk of a widely anticipated speech in late August to explain why he was still confident that this year’s inflation surge would prove temporary. His remarks haven’t aged well. Economic data released over the past two months have cast doubt on parts of Mr. Powell’s thesis… In particular, recent data have pointed to some broadening in price pressures, a pickup in wage growth and a continued run of higher prices for certain goods that have already seen acute inflation this year. ‘It is increasingly clear that the Fed…is facing multiple, overlapping predominantly supply shocks, most of which are still largely pandemic-driven and ought in principle not to extend into the medium term,’ said Krishna Guha, vice chairman of Evercore ISI. ‘But [they] add up to a more complex as well as more extended phase of high inflation.’”

November 3 – Bloomberg (Craig Torres, Rich Miller, and Olivia Rockeman): “Federal Reserve Chair Jerome Powell is doubling down on the U.S. central bank’s new policy framework -- saying he won’t entertain interest-rate increases until the labor market heals further, even though inflation could run hot for months. ‘There is still ground to cover to reach maximum employment,’ Powell told reporters... ‘The inflation that we’re seeing is really not due to a tight labor market.’”

November 3 – Associated Press (Christopher Rugaber): “If you find the current economy a bit confusing, don’t worry: So does the nation’s top economic official, Federal Reserve Chair Jerome Powell. At a highly anticipated news conference…, Powell said the Fed was sticking by its bedrock economic forecast: COVID-19 will eventually fade, which, in turn, will enable supply chain bottlenecks to unsnarl. More people will return to the workforce, the economy will strengthen and inflation pressures will ease. And yet the nation’s leading economic figure acknowledged that it isn’t at all clear when or even whether things will play out the way he and other Fed officials hope. And so far, they haven’t.”

November 3 – Yahoo Finance (Brian Cheung): “The nation’s top economic policymaker acknowledged that inflationary pressures are impacting everyday Americans, but doubled down on his view that the hot pace of price increases should abate in time. ‘We understand the difficulties that high inflation poses for individuals and families, particularly those with limited means to absorb higher prices for essentials such as food and transportation,’ Federal Reserve Chairman Jerome Powell said…”

October 31 – Wall Street Journal (Mickey D. Levy): “Inflation is a bigger challenge than the Federal Reserve acknowledges. It has already risen dramatically, and it is suppressing real wages. Expectations of further inflation have begun to influence wage demands, costs of production, supply-chain estimates, and business pricing strategies. Lower-income earners are being squeezed the most. It isn’t enough that the Fed says it will begin tapering its asset purchases, while it continues to hope that inflation will recede to 2% when supply shortages dissipate. The Fed must acknowledge that its monetary policy has been a source of inflation, and that it will need to raise interest rates more quickly than it presumed.”

October 29 – Bloomberg (Simon Kennedy): “Goldman Sachs… economists said they now expect inflation will force the Federal Reserve to hike interest rates next July, a year earlier than previously expected… Economists led by Jan Hatzius said the Fed will raise its benchmark from a range of zero to 0.25% soon after it stops tapering its massive asset-purchase program. A second increase will follow in November 2022 and the central bank will then raise rates two times a year after that, they said.”

U.S. Bubble Watch:

November 4 – Associated Press (Martin Crutsinger): “The U.S. trade deficit hit an all-time high of $80.9 billion in September as American exports fell sharply while imports, even with supply chain problems at American ports, continue to climb. The September deficit topped the previous record of $73.2 billion set in June… The deficit is the gap between what the United States exports to the rest of the world and the imports it purchases from foreign nations. In September, exports plunged 3% to $207.6 billion while imports rose 0.6% to $288.5 billion.”

November 3 – Bloomberg (Vince Golle): “U.S. service providers expanded at a record pace in October… The Institute for Supply Management’s services index advanced to 66.7 last month, exceeding all projections, from 61.9 in September… The gauges of new orders and business activity also increased to the highest in data back to 1997, indicating the economy picked up steam… ‘Demand shows no signs of slowing,’ Anthony Nieves, chair of the ISM services business survey committee, said… ‘However, ongoing challenges -- including supply chain disruptions and shortages of labor and materials -- are constraining capacity and impacting overall business conditions.’ The ISM’s measure of prices paid by service providers for materials and services increased to the highest level since September 2005. An index of supplier delivery times climbed to the second highest on record, indicating extended delays and lingering capacity constraints.”

November 4 – Reuters (Lucia Mutikani): “The number of Americans filing new claims for unemployment benefits fell to the lowest level in nearly 20 months last week, suggesting the economy was regaining momentum… The tightening labor market is driving up wages as companies scramble for workers, contributing to keeping inflation high. Labor costs surged in the third quarter…, with productivity sinking at its steepest pace in 40 years… Initial claims for state unemployment benefits fell 14,000 to a seasonally adjusted 269,000 for the week ended Oct. 30…”

November 1 – Reuters (Lucia Mutikani): “U.S. manufacturing activity slowed in October, with all industries reporting record-long lead times for raw materials, indicating that stretched supply chains continued to constrain economic activity early in the fourth quarter. The Institute for Supply Management (ISM) survey… also hinted at some moderation in demand amid surging prices, with a measure of new orders dropping to a 16-month low. Still, demand remains strong as retail inventories continue to be depressed… According to the ISM, ‘companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand.’ ‘Stress in U.S. supply chains isn't abating, lending downside risk to our forecast for GDP growth in the near term and a clear upside risk to the forecast for inflation,’said Ryan Sweet, a senior economist at Moody's Analytics…”

November 1 – Wall Street Journal (Thomas Gryta and Chip Cutter): “With the machinery of international trade slowed, business leaders are ditching, at least temporarily, overseas partners and the conventional wisdom of the global economy in favor of reliability, even if it costs more. Some are moving workers and production facilities closer to home and relocating plants closer to suppliers… ‘It’s about control. I want to have more control in an uncertain world,’ said Ellen Kullman, chief executive of… Carbon Inc. and the former CEO of DuPont. For more than a generation, many executives at large multinationals have pursued a tested strategy: securing inexpensive manufacturing in distant locales, outsourcing many low-skill jobs and relying on just-in-time production and ocean transportation to grind down costs. But since the pandemic, many companies have had trouble getting raw materials as well as hiring production workers and booking space on shipping vessels. Input shortages and supply line bottlenecks are disrupting the availability and quality of goods and services for everything from sneakers to airline flights to breakfast hours at McDonald’s.”

November 1 – Associated Press (Ken Sweet and Emily Swanson): “Americans’ opinions on the U.S. economy have soured noticeably in the past month, a new poll finds, with nearly half expecting economic conditions to worsen in the next year. Just 35% of Americans now call the national economy good, while 65% call it poor, according to a poll by The Associated Press-NORC Center for Public Affairs Research. That’s a dip since September, when 45% of Americans called the economy good, and a return to about where views of the nation’s economy stood in January and February, when the pandemic was raging... The deterioration in Americans’ economic sentiments comes as the cost of goods is rising nationwide, particularly gas prices, and bottlenecks in the global supply chain have made purchasing everything from furniture to automobiles more difficult.”

October 31 – Wall Street Journal (Amara Omeokwe): “The Covid-19 pandemic has boosted retirements among baby boomers, further straining the tight labor supply and leaving a hole for employers to fill. Older workers who could least afford to retire early—those with lower incomes and less education—have been more likely to leave the workforce during the pandemic… The question is whether their retreat is temporary or permanent. Some retired because of Covid-19 fears, and others after failing to find suitable work. The rising value of stocks, homes and other assets also has prompted a group of more affluent boomers to also retire earlier than expected, economists said.”

November 3 – Bloomberg (Joe Deaux): “Deere & Co. said the new contract it provided to striking union employees is the company’s best and final offer, and they aren’t returning to the bargaining table. The world’s largest maker of farm equipment said it remains in contact with the United Auto Workers union that represents workers, but that it has nothing else to bargain about. The comments come a day after workers voted down a second tentative agreement, extending the strike by some 10,000 workers into a third week.”

November 3 – Yahoo Finance (Aarthi Swaminathan): “Supply chain disruptions are slamming business left and right as the holiday season nears. ‘You've got the proverbial softball through the snake right now,’ Generac CEO Aaron Jagdfeld said… ‘Christmas season demand, in particular, is exacerbating the problem. ... all signs kind of point to maybe by the second half of next year that some of these tougher supply chain challenges abate.’”

November 2 – Reuters (Lucia Mutikani): “The U.S. residential rental vacancy rate dropped further in the third quarter as the economy continued to normalize after severe disruptions caused by the COVID-19 pandemic, potentially indicating that high inflation could last for a while. The… rental vacancy rate fell to 5.8% last quarter, the lowest since the second quarter of 2020. That was down from 6.2% in the April-June period and 6.4% a year ago.”

November 2 – Wall Street Journal (Scott McCartney): “Going to Florida over the holidays? Everyone else is. Getting delayed going or coming from home? Everyone else might be. This won’t be a normal holiday travel season. Travelers had best plan accordingly. Multiple airlines have sold more tickets this year than they can accommodate. Normal weather disruptions or temporary hiccups have cascaded into major meltdowns because of staffing shortages. Airlines haven’t had enough spare crews to recover normally, so customers end up stranded for long periods. Any bad weather or other problems at the holidays could spell trouble for travelers.”

November 1 – CNBC (Leslie Josephs): “American Airlines on Monday canceled more than 460 flights, or 16% of its mainline schedule, as the carrier scrambled to stabilize its operation after reporting staffing shortages that led to travel disruptions for tens of thousands of people over the weekend. The… airline canceled more than 2,300 mainline flights since Friday, blaming the issues on high winds on Thursday and a shortfall of crews. On Sunday alone, it canceled more than 1,000 flights, or 30% of its operation… That affected more than 136,000 customers…”

October 31 – Financial Times (Obey Manayiti and Andrew Edgecliffe-Johnson): “Containers piled high at the Port of New York and New Jersey form an attention-grabbing view from the 115,000 square feet warehouse operated by Michael Sarcona, president of logistics company Sarcona Management. The facility is one of eight that Sarcona operates near the port with a combined capacity of almost 2m sq ft, but right now that is not nearly enough. He has a team of employees and real estate agents urgently searching for more space.”

November 2 – CNBC (Abigail Johnson Hess): “Today, typical college costs (including tuition and fees, room and board, and allowances for books and supplies, transportation and other personal expenses) range from $27,330 for public in-state university students to $55,800 for private nonprofit college students… According to the researchers’ analysis of… data for the years 1980 to 2019, college costs have increased by 169% over the past four decades — while earnings for workers between the ages of 22 and 27 have increased by just 19%.”

November 2 – Bloomberg (Patrick Clark): “Zillow Group Inc. is pulling the plug on its tech-powered home-flipping operation, after an ambitious effort to transform the company collapsed when its vaunted pricing algorithms proved unequal to the task. The company plans to take writedowns of as much as $569 million and reduce its workforce by 25% as it winds down the business in coming months…”

Fixed-Income Bubble Watch:

November 1 – Reuters (Karen Brettell): “The U.S. Treasury said… it plans to borrow $1.015 trillion in the fourth quarter, more than the August estimate of $703 billion, due to having a lower balance at the beginning of the quarter. This is somewhat offset by a lower end-of-quarter balance and higher receipts… The fourth-quarter estimate assumes an end-Dec. cash balance of $650 billion.”

November 1 – Wall Street Journal (Matt Wirz): “Mortgage companies in the U.S. issued $21 billion of mortgage-backed bonds in October, the second heaviest month of borrowing since the 2008-09 financial crisis, according to… Bank of America... One reason: It is cheaper for many companies to borrow in the ‘private-label’ market than to issue bonds guaranteed by government-sponsored enterprises Fannie Mae and Freddie Mac. The lower-cost funding is prompting home-loan originators such as loanDepot Inc., as well as real estate investment trusts to tap the market…”

November 1 – Bloomberg (Caleb Mutua and Brian Smith): “JPMorgan… sold $3 billion of bonds in the U.S. investment-grade market, adding to a streak of debt transactions from big Wall Street banks including Citigroup Inc., Goldman Sachs... and Bank of America Corp.”

November 1 – Bloomberg (Gowri Gurumurthy): “After two exceptionally elevated years for the U.S. investment-grade and high-yield primary debt offerings, issuance is expected to return to a more normal pattern in 2022, Goldman Sachs analyst Amanda Lynam writes. Goldman estimates U.S. high-yield bond supply of $325 billion for 2022…; this represents a sharp slowdown from the record-setting pace of the past two years and a more than 25% decline from the 2021 full-year forecast of $450 billion.”

China Watch:

October 31 – Bloomberg: “China’s economy showed signs of further weakness in October as power shortages and surging commodity prices weighed on manufacturing, while strict Covid controls put a brake on holiday spending. The official manufacturing purchasing managers’ index fell to 49.2…, the second month it was below the key 50-mark that signals a contraction in production… Another worrying sign in the data was the pick-up in inflationary pressure in October. Both input and output prices for manufacturers jumped, suggesting producers are passing on higher costs to customers. Producer-price inflation is already at its highest level in almost 26 years.”

November 1 – CNBC (Weizhen Tan): “There are signs of stagflation in China, as prices continue to rise while the latest manufacturing data show production slowing, economists say. China’s factory activity contracted more than expected in October, shrinking for a second month…The official manufacturing Purchasing Managers’ Index for October came in at 49.2, falling below the 50 level which separates expansion from contraction… In contrast, the output price index has risen to the highest level since it was published in 2016, Zhang said.”

November 3 – Reuters (Lucia Mutikani): “Activity in China's services sector expanded at a faster pace in October, buoyed by robust demand, although rising inflationary pressures weighed on business confidence for the year ahead, a private survey showed… The Caixin/Markit services Purchasing Managers' Index (PMI) rose to 53.8 in October - the highest since July - from 53.4 in September.”

November 2 – Reuters (Ryan Woo, Roxanne Liu and Liangping Gao): “China will not give up on its zero-tolerance policy towards local COVID-19 cases any time soon, some experts said, as the policy has allowed it to quickly quell local outbreaks, while the virus continues to spread outside its borders. To stop local cases from turning into wider outbreaks, China has developed and continually refined its COVID-fighting arsenal -- including mass testing, targeted lockdowns and travel restrictions - even when those anti-COVID measures occasionally disrupted local economies. ‘The policy (in China) will remain for a long time,’ Zhong Nanshan, a respiratory disease expert who helped formulate China's COVID strategy in early 2020, told state media. ‘How long it will last depends on the virus-control situation worldwide.’”

November 3 – Bloomberg: “Chinese Premier Li Keqiang said preemptive steps and fine-tuning of policies are needed to address challenges facing the economy, as concern builds over slowing growth. During a meeting… of the State Council, Li also called for authorities to ensure the supplies of major agricultural goods and improve capacity of reserves, according to state broadcaster CCTV.”

November 2 – Bloomberg: “China unexpectedly boosted the injection of short-term cash into the banking system as record amount of policy loans come due and Premier Li Keqiang flags challenges to the nation’s growth. The People’s Bank of China added 50 billion yuan ($7.8bn) in the financial system with seven-day reverse repurchase agreements, after injecting 10 billion yuan per day in the last two sessions. While the operation still led to a net liquidity drainage after considering maturities, it signals that authorities have grown concerned about a potential cash tightness in the coming weeks.”

November 1 – Bloomberg: “China’s fiscal policy will provide the main support to economic growth next year while significant monetary easing is unlikely, according to a former adviser to China’s central bank. ‘The economy overall really is still okay and we will see average growth this year at around 8%,’ Huang Yiping, a former member of the People’s Bank of China’s monetary policy committee, said… ‘So the need for aggressive easing is quite limited…’ ‘Monetary policy will probably remain flexible, and actions probably will be structural,’ he said, adding that this could mean targeted easing and lending to small businesses. ‘The main job for supporting growth, I think, will be with the fiscal policy next year.’”

October 31 – Bloomberg: “China’s major developers saw home sales tumble last month, prolonging the real estate slump and putting more pressure on growth in the world’s second-largest economy. New-home sales by area at the nation’s top 100 developers fell 32% in October from a year earlier, a report by… China Real Estate Information Corp. showed... Sales rose 1.4% from a month earlier. Both September and October are traditionally fast seasons for homebuying, but sentiment has evaporated amid the widening crisis…”

November 4 – Bloomberg: “The selloff in Chinese property dollar bonds intensified on Thursday amid signs of cracks emerging in the nation’s much larger onshore market. Kaisa Group… led declines in the nation’s offshore bonds as a financial product it guarantees missed a payment, while Shimao Group Holdings Ltd.’s 4.75% dollar note due 2022 was poised for its biggest drop on record. China’s dollar high-yield debt fell for the 10th day in 11 after yields climbed above 21%. Trading was halted in two yuan bonds after they plunged more than 20%. China’s property firms are caught in a vicious circle where surging borrowing costs make refinancing upcoming maturities prohibitively expensive, thereby triggering further losses in their bonds as traders price in potential haircuts.”

October 31 – Bloomberg (Alice Huang and Sofia Horta e Costa): “Who will survive in China’s property sector is becoming a key question for investors as the country’s credit market undergoes its biggest shakeout in years. A surge in Chinese junk dollar bond yields in October, briefly reaching 20%, has made it all but impossible for stressed developers to refinance their maturing debt. Such firms have just over $2 billion of onshore and dollar-bond payments due in November…”

November 4 – Bloomberg: “Chinese developer Kaisa Group… missed payments on wealth management products it guaranteed, the latest sign of stress in the nation’s beleaguered real estate industry. The company has faced ‘unprecedented pressure on its liquidity’ due to unfavorable factors such as credit rating downgrades and a challenging property market environment, Kaisa said…”

November 1 – Bloomberg (Rebecca Choong Wilkins and Alice Huang): “A selloff in Chinese developers’ debt is deepening, with one of the 20 biggest developers joining a host of firms looking to dodge defaults as debt crises effectively shut them out of the overseas financing market… Yango Group Co. has become the latest developer trying to improve its liquidity and avoid default by delaying near-term bond payments.”

November 2 – Financial Times (Thomas Hale and Andy Lin): “Evergrande faces rising repayment pressure on its dollar-denominated bonds in the coming months, despite making several last-minute transfers in October that allowed the heavily indebted Chinese property company to narrowly avoid a default. Investors and global markets will be watching for clues as to the eventual fate of the world’s most indebted property developer, which faces $8.1bn in interest and principal payments on its offshore bonds before the end of 2022 and has hundreds of projects across China.”

November 2 – Bloomberg: “Property developers in China looking to raise badly needed cash by selling assets are finding it hard to strike deals as potential buyers in the sector hoard funds after home sales plunged and Beijing stepped up its borrowing crackdown. China Evergrande Group last month ended discussions to sell a controlling stake in its property-management business that would have raised about $2.6 billion. A plan to unload a trophy office tower in Hong Kong also stumbled, while Modern Land China Co. defaulted on a $250 million bond last week after it was unable to sell some assets… Oceanwide Holdings Co. is seeking to offload its main office complex in Beijing after a unit defaulted. The failure to sell holdings exacerbates the cash squeeze for some of the nation’s property giants, many of which are shut out of financial markets… Falling home prices and a land sale slump further complicate asset sales.”

October 31 – Bloomberg (Olivia Tam and Adrian Leung): “China’s indebted developers are struggling to meet Beijing’s tighter financing rules. Two-thirds of the top 30 Chinese property firms by sales ranked by the China Real Estate Info Corp. have breached at least one of the metrics known as the ‘three red lines.’”

November 4 – Bloomberg (Venus Feng): “Hui Ka Yan’s 60-meter boat dwarfs almost everything around it in Hong Kong’s Gold Coast yacht club. Moored a short walk from one of China Evergrande Group’s massive apartment complexes, ‘Event’ is just one piece of Hui’s fortune that’s coming under increased scrutiny as his company struggles to make good on more than $300 billion of liabilities. With Chinese authorities urging Hui to use his own money to alleviate Evergrande’s market-roiling crisis, the property tycoon’s personal balance sheet has become a key variable for bond investors trying to game out how long the developer can stave off default.”

November 2 – Bloomberg (Jasmine Ng): “Army biscuits and luncheon meat are among the most searched items online by Chinese citizens after the government urged households this week to stock up on food and daily necessities. Orders for compressed biscuits, a common military ration, have soared on China’s e-commerce platforms… Other trending products include rice, soy sauce, chili sauce and noodles, Alibaba Group Holding Ltd.’s Taobao website shows. The top search on is ‘household stockpile list.’ The surge in interest follows a notice from the commerce ministry… asking local authorities to ensure adequate food supply and encouraging people to stock up on daily necessities for winter or emergencies. It sparked speculation online on whether the move was linked to a widening coronavirus outbreak, a cold snap, or even rising tensions with Taiwan.”

October 31 – Financial Times (Edward White and Thomas Hale): “A Chinese court has approved the $170bn restructuring of HNA Group, a victory for the conglomerate’s state controllers that could prove instructive for how Beijing deals with indebted property group Evergrande. HNA, formerly China’s most aggressive offshore dealmaker, said... a court in Hainan… had backed a plan to revamp more than 300 group companies into four new entities.”

November 3 – Bloomberg: “China’s lending to the real estate sector ‘basically recovered to normal’ levels in October following slow growth earlier this year, the Shanghai Securities Journal reported, citing an unidentified government agency. Lending scale picked up substantially in October, the newspaper says.”

November 1 – Financial Times (Edward White, Primrose Riordan and Demetri Sevastopulo): “The head of a leading American business lobby group in China has warned of an exodus of western executives from the world’s biggest consumer market as President Xi Jinping tightens coronavirus controls.”

Central Banker Watch:

November 4 – Financial Times (Chris Giles and Tommy Stubbington): “The Bank of England has backed away from an immediate rise in interest rates, leaving the central bank’s benchmark at the historic low of 0.1% even as it published its highest inflation forecast for a decade. Predicting inflation would reach 5% in the spring of next year, the BoE’s Monetary Policy Committee said… it was likely that rate rises would be needed ‘over coming months’. But the level of urgency on tackling inflation was dialled down compared with BoE governor Andrew Bailey’s comments last month that the MPC ‘will have to act’ to restrain rising prices.”

November 2 – Bloomberg (Swati Pandey and Garfield Reynolds): “The Reserve Bank of Australia bowed to market pressure…, abandoning a bond-yield target after an acceleration in inflation spurred traders to price in higher borrowing costs. The decision to scrap the 0.1% yield target on the April 2024 security comes after a bond market selloff last week and amid an improving domestic outlook underpinned by high vaccination rates. The RBA kept its cash rate at a record low 0.1%, as expected. ‘Given that other market interest rates have moved in response to the increased likelihood of higher inflation and lower unemployment, the effectiveness of the yield target in holding down the general structure of interest rates in Australia has diminished,’ Governor Philip Lowe said…”

November 2 – Bloomberg (Marcus Wong): “European Central Bank President Christine Lagarde renewed her pushback against market bets for an interest-rate increase in 2022 after an attempt last week left investors unimpressed. ‘In our forward guidance on interest rates, we have clearly articulated the three conditions that need to be satisfied before rates will start to rise,’ Lagarde said… ‘Despite the current inflation surge, the outlook for inflation over the medium term remains subdued, and thus these three conditions are very unlikely to be satisfied next year,’ she said.”

November 2 – Bloomberg (Swati Pandey and Garfield Reynolds): “Bond market one, central banks zero. That’s the headline score after a bruising week in global markets forced a policy change in Australia that’s sent ripples across the globe. But market moves in the wake of the decision suggest traders are unsure about just how far they can push the world’s central banks. Spiraling inflation set the ball rolling for Australia, sparking a selloff in local debt markets that boosted yields more than eight times higher than the central banks’s target. Reserve Bank of Australia Governor Philip Lowe ditched his 0.1% cap…, as central bankers worldwide struggle to convince traders and households that they won’t let inflation get out of control. The RBA’s climb down in the face of the biggest yield spikes since the 1990s shows how policy makers may struggle to stave off investor demands for action.”

November 1 – Bloomberg (Jiyeun Lee): “South Korea’s central bank said it’s on guard against stronger-than-expected price pressures after data showed inflation spiking to the fastest since 2012, boosting the case for another interest rate hike this month. In a statement… after data showed consumer prices jumping 3.2% in October, the Bank of Korea said it is closely monitoring the possibility of an upward trend in global commodity prices and supply chain bottlenecks lasting longer than expected, turning up inflationary pressure.”

November 2 – Bloomberg (Marcus Wong): “Traders have had a mixed view for most of this year about when emerging-Asia central banks will begin to normalize policy. Suddenly though, they are rushing to price in rate-hike bets across the region. The hawkish shift is most evident in South Korea and India, where markets are now anticipating at least a quarter-point increase in the next three months, while they are also building in Malaysia and Thailand over a two-year horizon. Expectations for tighter monetary policy are being driven higher around the world as surging energy costs and Covid-driven supply-chain disruptions are causing inflation to accelerate.”

Global Bubble Watch:

October 31 – Reuters (Jan Strupczewski, Crispian Balmer, Andrea Shalal and Jason Lange): “Leaders of the world's 20 biggest economies (G20) will endorse an OECD deal on a global minimum corporate tax of 15%..., with a view to have the rules in force in 2023. ‘We call on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting to swiftly develop the model rules and multilateral instruments as agreed in the Detailed Implementation Plan, with a view to ensure that the new rules will come into effect at global level in 2023,’ the draft conclusions… said.”

November 2 – Financial Times (Richard Milne): “Maersk said there was no end in sight to the global supply chain crisis as the world’s largest container shipping group enjoyed the most profitable quarter in its 117-year history and made a $1bn push deeper into air freight. Chief executive Soren Skou told the Financial Times that congestion outside ports such as Los Angeles and Long Beach was getting worse as retailers and manufacturers struggled to keep up with surging demand after the Covid-19 pandemic. ‘The ports are not working as well as they should do, so we can’t discharge containers as fast as we would like. It’s hard to see exactly when the situation will improve. Our customers are dealing with super high customer demand, and on top of that they have very low inventory,’ he added.”

November 1 – Reuters (Marc Jones and Tommy Wilkes): “China's property sector woes could spell trouble for prestige mega-projects in London, New York, Sydney and other top cities as the developers behind them scramble for cash. While China Evergrande Group's struggles have dominated the crisis, the risk to multi-trillion dollar global property markets stems from some of its rivals that have spent the last decade competing to build ever taller and grander skyscrapers. Shanghai-based Greenland Holdings, which breaches as many of China's debt ‘red lines’ as Evergrande, has just built Sydney's tallest residential tower, has plans to do the same in London and has billions of dollars worth of projects in Brooklyn, Los Angeles, Paris and Toronto.”

October 31 – Bloomberg (Swati Pandey): “Australia’s housing market advanced for a 13th straight month, even as signs mounted of a potential cooling ahead in response to worsening affordability, increased supply and the withdrawal of government support. Residential property values in Australia’s major cities rose 1.4% in October, to be up almost 21% from a year earlier, according to CoreLogic… House prices are outpacing wages by a ‘ratio of about 12:1,’ it said.”

EM Watch:

October 31 – Bloomberg (Justin Villamil): “As semiconductor shortages roil global supply chains, few auto-parts suppliers have been as hard hit as those in Mexico. Nemak SAB and Metalsa SA -- makers of engine blocks, transmission cases, bumpers and fuel tanks that make their way into automobiles assembled around the world -- have seen their bonds post the worst returns among emerging-market peers over the past six weeks.”

Europe Watch:

October 30 – Reuters (Balazs Koranyi): “Germany's best-selling tabloid Bild scathingly criticised European Central Bank (ECB) President Christine Lagarde…, accusing her of destroying the earnings and savings of ordinary people by tolerating a rise in inflation. The article… may signal fresh hostility towards the ECB on the part of the German public, which has for a decade been sceptical of the bank's ultra-easy policy. Two days ago the bank left rates policy unchanged despite consumer price growth hitting a 13-year high. The newspaper called Lagarde ‘Madam Inflation,’ accusing her of being a high-earner who liked wearing luxury fashion and saying she didn't seem to care about ordinary people's difficulties. ‘Christine Lagarde is melting pensions, wages and savings,’ it said.”

November 4 – Reuters (Francesco Guarascio): “Euro zone producer prices jumped in September more than expected, driven by skyrocketing energy costs, recording their highest increase on record in a new sign of strong inflationary pressures in the bloc… The European Union's statistics office Eurostat estimated that prices at factory gates in the 19 countries sharing the euro rose 2.7% month-on-month in September for a 16.0% year-on-year jump, in the biggest increases ever recorded for the bloc.”

Japan Watch:

October 31 – Bloomberg (Isabel Reynolds): “Japanese Prime Minister Fumio Kishida firmed up his month-old government with an election that saw his Liberal Democratic Party avoid the worst-case scenarios that opinion polls had suggested beforehand. The LDP won 261 seats to preserve its outright majority in the 465-seat lower house, results on Monday showed, dropping from the 276 seats it held when parliament was dissolved.”

Social, Political, Environmental, Cybersecurity Instability Watch:

November 1 – Associated Press (Seth Borenstein): “World leaders turned up the heat and resorted to end-of-the-world rhetoric… in an attempt to bring new urgency to sputtering international climate negotiations. The metaphors were dramatic and mixed at the start of the talks, known as COP26. British Prime Minister Boris Johnson described global warming as ‘a doomsday device’ strapped to humanity. United Nations Secretary-General António Guterres told his colleagues that humans are ‘digging our own graves.’ And Barbados Prime Minister Mia Mottley, speaking for vulnerable island nations, added moral thunder, warning leaders not to ‘allow the path of greed and selfishness to sow the seeds of our common destruction.’”

November 3 – Wall Street Journal (David Benoit): “Most of the world’s big banks, its major investors and insurers, and its financial regulators have for the first time signed up to a coordinated pledge that will incorporate carbon emissions into their most fundamental decisions. The lenders and investors say they will help fund a shift that will reduce carbon emissions by businesses and spur the growth of industries that can help limit climate change. Regulators are putting in place new rules to oversee the shift. The United Nations’ Glasgow Financial Alliance for Net Zero says financial groups with assets of $130 trillion have committed to its program to cut emissions. That is enough scale to generate $100 trillion through 2050 to fund investments needed for new technologies, and enough reach to impose pathways for corporations and financial institutions to restructure themselves, the group said.”

October 31 – Financial Times (Edward White and Thomas Hale): “Up to 3bn out of the projected world population of about 9bn could be exposed to temperatures on a par with the hottest parts of the Sahara by 2070, according to research by scientists from China, US and Europe. However, rapid reductions in greenhouse gas emissions could halve the number of people exposed to such hot conditions. ‘The good news is that these impacts can be greatly reduced if humanity succeeds in curbing global warming,’ said study co-author Tim Lenton, climate specialist and director of the Global Systems Institute at Exeter university. The report highlights how the majority of humans live in a very narrow mean annual temperature band of 11C-15C (52F-59F).”

Leveraged Speculation Watch:

November 2 – Bloomberg (Nishant Kumar and Hema Parmar): “The hedge fund traders watched as a nightmare scenario played out in the world’s bond markets. From Australia to the U.K. to the U.S., government bond yields abruptly moved against them last week amid growing speculation that central banks will accelerate plans for raising interest rates in the face of persistent inflation. The losses piled up -- and for a few became so big that the firms halted some trading to contain the damage. Balyasny Asset Management, BlueCrest Capital Management and ExodusPoint Capital Management each curtailed the betting of two to four traders after they hit maximum loss levels…”

November 5 – Bloomberg (Nishant Kumar and Hema Parmar): “Chris Rokos’s hedge fund tumbled about 18% last month amid recent bond-market upheaval, putting it on track for its worst year ever, according to a person familiar with the matter. Rokos Capital Management is now down more than 26% in 2021, the person said. A spokesman for the London-based firm declined to comment. It’s one of several hedge funds hurt by last week’s unexpected bond-market volatility, prompted by growing speculation that central banks will raise rates faster than expected in order to contain inflation.”

November 2 – Bloomberg (Nishant Kumar): “Hedge fund Alphadyne Asset Management’s bad year is getting worse in a hurry. The macro strategy fund, which had $11 billion of assets at the start of last month, is down another 6.5% in October, bringing losses for the year to 17%... Without a dramatic turnaround, the… firm is facing the possibility of ending the year down for the first time since starting in 2006.”

Geopolitical Watch:

October 29 – Bloomberg: “Taiwan has no future prospect other than unification with China, Chinese Foreign Minister Wang Yi said in Rome at the G-20 summit. Wang was responding to questions on efforts by countries including the United States to support Taiwan’s greater participation in the United Nations and in the international community, according to a statement posted on China’s foreign ministry website... Chinese officials slammed the U.S. earlier in the week and warned its support for Taiwan could pose ‘huge risks’ to relations between Beijing and Washington.”

October 31 – Reuters (Andrea Shalal): “U.S. Secretary of State Antony Blinken and Chinese Foreign Minister Wang Yi locked horns over Taiwan on the sidelines of a Group of 20 summit on Sunday, trading warnings against moves that could further escalate tensions across the Taiwan Strait. In an hour-long meeting in Rome, Blinken made ‘crystal clear’ that Washington opposes any unilateral changes by Beijing to the status quo around Taiwan,a senior State Department official said.”

November 1 – Associated Press (Robert Burns): “China’s growing military muscle and its drive to end American predominance in the Asia-Pacific is rattling the U.S. defense establishment. American officials see trouble quickly accumulating on multiple fronts — Beijing’s expanding nuclear arsenal, its advances in space, cyber and missile technologies, and threats to Taiwan. ‘The pace at which China is moving is stunning,’ says Gen. John Hyten, the No. 2-ranking U.S. military officer, who previously commanded U.S. nuclear forces and oversaw Air Force space operations. At stake is a potential shift in the global balance of power that has favored the United States for decades.”

November 1 – Reuters (Maria Kiselyova): “Russia's foreign minister accused Ukrainian leaders… of trying to drag Moscow into the conflict in eastern Ukraine, following an escalation in fighting between government forces and rebels in the breakaway region. ‘We observe attempts to carry out provocations, elicit some reaction from the militia and drag Russia into some kind of combat action,’ Sergei Lavrov told Russia's state television. Russia accused Ukraine of destabilising the situation after government forces used a Turkish-made Bayraktar TB2 drone to strike a position controlled by Russian-backed separatists last week.”

November 4 – Bloomberg (Javier Blas, Grant Smith and Salma El Wardany): “OPEC+ is heading for a politically consequential showdown with President Joe Biden, as Saudi Arabia and its allies must choose whether to heed American demands for more oil. The cartel looked set to rebuff the request, triggering a bare-knuckle fight with the White House, which is worried that inflation caused by high energy prices could derail its economic agenda. ‘You take a look at oil prices,’ Biden told reporters… Fuel costs are high because of ‘the refusal of Russia or the OPEC nations to pump more oil.’”

Friday Evening Links

[Yahoo/Bloomberg] Reopening Trade Fuels Stock Gains; Yields Tumble: Markets Wrap

[Reuters] Wall St extends record rally on strong jobs report, Pfizer COVID-19 pill cheer

[Reuters] Treasuries - Yields fall, curve flattens after strong U.S. jobs data

[Reuters] Dollar soars to more than 1-year high after jobs data, then pulls back

[Reuters] U.S. House Democrats to delay vote on Biden's social-spending bill

[CNBC] Biden meets with Fed leaders Powell and Brainard as nomination decision nears

[Yahoo/Bloomberg] Biden ‘Looking At’ Oil-Stockpile Release After OPEC+ Rebuff

[Reuters] U.S. job growth picks up in October; unemployment rate falls to 4.6%

[Yahoo Finance] Supply chain issues see no relief in October: Oxford Economics

[FT] Central bank induced bond tumult stings big name hedge funds

[FT] Joe Biden meets Jay Powell as clock ticks on Fed chair decision

[FT] China turns inward: Xi Jinping, COP26 and the pandemic