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As stocks soar on the day after The Fed, yesterday's bid for the long-end of the bond curve has been eviscerated...

Source: Bloomberg

With The Fed's hawkish comments sending real yields soaring...

Source: Bloomberg

...and nominal yields explode higher today...

Source: Bloomberg

All of this is happening as we noted earlier that the market is pricing 'liftoff' for rates by the end of 2022...

Yesterday's signal of 'policy error' - the crash flattening of the yield curve - has almost entirely been reversed....

Source: Bloomberg

We do note that the long-end (30Y) yields have merely surged to a key technical resistance level (the pre-payrolls puke)...

Source: Bloomberg

When will this explosive rate expansion volatility start to bleed into equity risk assessments?

Meanwhile, traders ain't buying what Pelosi is selling with regard a debt ceiling deal...

Source: Bloomberg

Gold is also getting clubbed like a baby seal...

But hey, for now, "just keep buying stonks"

In a time of soaring prices, central bank tightening has now become all the rage (except in Turkey of course which just surprised markets with a 1% rate cut, sending the lira plunging to all time lows), and one day after Brazil hiked rates by 1% to 6.25% with promises to do the same next month and even the Fed turning hawkish and revealing the taper will start "soon", most likely in November (even if the first US rate hike is expected to come well in late 2022), overnight Norway's central bank, the Norges Bank, become the first major Western central bank to raise interest rates following the onset of the coronavirus pandemic.

After cutting rates three times in 2020 due the economic fallout from the crisis, on Thursday Norway’s central bank unanimously decided to raise rates to 0.25% from zero, in line with expectations.

“The reopening of society has led to a marked upswing in the Norwegian economy, and activity is now higher than its pre-pandemic level. Unemployment has fallen further, and capacity utilisation appears to be close to a normal level,” the bank said in the statement.

"A normalising economy now suggests that it is appropriate to begin a gradual normalisation of the policy rate,” said Governor Oystein Olsen in a statement, adding that another rate hike is likely coming in December: “Based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in December”.

The projected policy rate path was revised up from late-2022 onward, rising to 1.7% at end-2024. The decomposition shows higher inflation on the back of higher capacity utilization and a weaker krone accounting for most of the change since June (Exhibit 1). The Committee stressed that longer-term inflation expectations remain anchored and that the risk of inflation becoming too high is limited.

The updated economic projections in the Monetary Policy Report (MPR), which was also published today, show a larger positive output gap from 2022 onward, and the inflation outlook was revised up accordingly. Norges Bank now forecasts core inflation to reach 1.9% at the end of the forecast horizon, up from 1.6% in the June MPR.

Norway’s currency rallied to its highest levels since June, gaining 0.7% against the U.S. dollar.

New York's first female governor Kathy Hochul, who took the reins in the Empire State after her predecessor and former boss, Andrew Cuomo, finally resigned, is showing the state's recalcitrant healthcare workers just how understanding and progressive she can be.

During a press briefing with reporters in Rochester Wednesday, Hochul told a group of reporters that she hoped all unvaccinated workers would meet Monday's deadline to get the jab, or lose their jobs.

For those who continue to resist - including nearly 20% of the state's hospital and nursing-home workers - they will be replaced. Possibly by foreign workers.

Faced with this, it makes sense to wonder how NY State, which has no immigration-related authority, could even credibly make such a threat? But Hochul says there have been conversations with the Department of State (albeit on a "limited basis") about the possibility of doling out emergency visas to foreign workers.

"To those who won’t, we’ll be replacing people. And I have a plan that’s going to be announced very shortly," she said.

"We’ve identified a whole range of opportunities we have to help supplement them."

Hochul said state officials were “working closely with various hospital systems to find out where we can get other individuals to come in and supplement places like nursing homes."

"We’re also reaching out to the Department of State to find out about visas for foreign workers, on a limited basis, to bring more nurses over here," she said.

Per the Department of Health's records, 19% of the state's hospital workers remained unvaccinated as of Sept. 15, and 18% of nursing home employees remained unvaccinated as of Wednesday.

Starting Monday, employers can fire unvaccinated workers who don't have a "valid medical exemption" (though employees who claim religious exemption are also immune until Oct. 12 due to a temporary injunction issued by a federal judge in Utica).

The plaintiffs in that case, almost all of them Catholic, oppose vaccines because they "employ aborted fetus cell lines in their testing, development, or production."

Though the US Conference of Bishops says it's okay for Catholics to take these vaccines if no alternatives are available, and Pope Francis has of course spoken out in favor of vaccination.

Circling back to the situation in New York, while Hochul is probably reveling in her first opportunity to play "hardball" - a game for which her predecessor was famous - New York health workers can probably rest easy - at least when it comes to the foreign worker threat.

The State Department couldn't process all those SIVs for Afghan collaborators in a timely manner. What makes you think they'll be able to dole them out to foreign workers, who probably also haven't been vaccinated. Where does Hochul think these foreign workers are going to come from? Europe?

By Michael Every of Rabobank

We're in a Charlton Heston movie: which one?

A reference to Charlton Heston means I lose readers who, despite having the sum of human knowledge at their fingertips, don’t know much recent history. Yet we are all in a Heston movie regardless – we just don’t know which one yet. That’s because markets, who also have the sum of human knowledge at their fingertips, don’t know much recent history either. I will run through the news Heston-ally, and suggest what that means for the movie we are all in.

Let’s start with the good news on Covid. Bad as it gets, we are not in 1971’s ‘The Omega Man’, about the last-survivor of a Sino-Soviet biological war.

However, the Fed flagged QE tapering. Philip Marey expects a formal announcement in November, with the actual start in December. FOMC Chair Powell expects tapering to end around mid-2022, implying a $20bn reduction in QE per meeting. The Fed’s dot plot shifted upward and moved closer to a first rate hike in 2022, with the participants evenly split between zero and 1-2 hikes; after 2022, it’s a steady pace of 3 hikes per year. The economic projections suggest the FOMC is still confident inflation spikes will be over by Q4 2022 – despite a record 73 ships waiting at LA/LB ports. (For the full report, please see here.) The market reaction, after initial confusion, was short US yields up,…and longer yields down and USD up. Recall how Minsky debt dynamics work - the change in the change is what matters; recall how pyramid schemes work; and recall how each previous attempt to normalize away from QE in an economy stronger than it is now has worked out. Taper tantrum fears? Not in DM, because there is no sign of any strength – thus the flattening curve. But for EM, inflation, stagflation, and policy-error deflation all now stalk the land. (Brazil just hiked rates to 6.25%, as expected: see here for more). See the key scene of 1968’s ‘The Planet of the Apes’ – with a lag.

In October we could also see both a US government shutdown and a debt default if the spending and debt bill approved by the House of Representatives yesterday does not pass the Senate. As Philip also notes, this is a game of chicken in which the Democrats try to force the Republicans to share the blame for suspending the debt limit in light of the midterm elections in 2022. He adds that this stand-off is completely unnecessary, and if the Republicans don’t blink, the Democrats can still raise the debt limit and adopt a spending patch through budget reconciliation. However, this will raise the internal pressure in the Democratic Party regarding Biden’s legislative agenda by adding another time constraint (see here). See the chariot race in 1959’s ‘Ben Hur’- but which charioteer is President Biden?

“China’s Evergrande to be saved!” says Bloomberg, quoting someone else. “Saved” means being split into three firms and nationalized, with no indication of which investors get how much money back. Given today the struggling firm has to repay $83.5m to USD debt holders, who won’t want cement, unfinished flats, or a nudge-nudge-wink-wink, we shall soon find out. Few observers saw a direct risk of a Lehman moment, despite the dynamic referred to above at play, because there are no truly free actors in Chinese markets. However, this ‘salvation’ is in line with a “Marxification” of the economy. The implications for China and the world are something markets refuse to consider because it would give them indigestion. See the end of 1973’s ‘Soylent Green’ - when markets prefer to see the ‘soy’ and the ‘green’.

Energy prices continue to soar, despite official assurances the authorities saw this coming, aren’t surprised, and have clear plans for what to do about it. UK energy firms are toppling, and European economies that were preaching the need for immediate shifts in climate policy are suddenly subsidizing fossil fuels again to prevent a looming 1970’s recessionary-style energy-price shock. Which means other people have to pay more instead. Russia is meanwhile laughing all the way to the bank. See 1976’s ‘The Two-Minute Warning’ - and if you are conversant in Cockney, see 1953’s ‘The Pony Express’.

The Biden administration is reportedly to nominate Saule Omarova to run the Office of the Comptroller of the Currency, the bureau within the Treasury that charters, regulates, and supervises all national banks and thrift institutions and the federally licensed branches and agencies of foreign banks in the US. Omarova is a law professor who has criticized crypto, and advocates for the government to have a much larger role in banking. That comes after the SEC’s Gensler’s comments this week on stablecoins. See 1974’s ‘Earthquake’ or 1975’s imaginatively titled ‘Airport 1975’.

US President Biden and French President Macron are attempting to build bridges burned over AUKUS. The French ambassador is now to return to DC, and Biden to come to Europe for talks next month. However, word on the street is that France, and French agriculture, now have the excuse to kick the planned Australia – EU FTA into the long grass even if the rest of the EU is in favour. The UK has also been sent scuttling from any thoughts of joining the USMCA. However, geopolitics leads and trade usually follows in today’s atmosphere. Japan’s outgoing PM Suga has also been exceptionally forthright, stating China’s rapidly growing military influence and unilateral changing of the status quo could present a risk to Japan. That’s ahead of a first in-person Quad meeting to be held on Friday at the White House. See 1976’s ‘The Last Hard Men’ (and for those who prefer fantasy to Western, see ‘“Orcs”, Elves/Hobbits, and Dragons’).

In short, the overall market backdrop is perfect for Heston. Yes, the world has changed dramatically from the epoch where a card-carrying member of the NRA and the Republican Party could be a major Hollywood celebrity. But today is again epic; and gritty; and dystopian; with disease; and economic crises; energy crises; political crises; geopolitical crises; ideological crises; inflation; stagflation; and the backdrop of a shift in the global financial architecture. Not that this doesn’t mean most markets, and modern movies, don’t want to ignore it all and keep partying on as in 1992’s “Wayne’s World”, in which Heston also made a guest-appearance. Try doing that with less QE, less gas, less crypto, and more Marxism and geopolitical risks though.

“It's been quite a ride. I loved every minute of it.” Charlton Heston (1923 - 2008)

A sudden wave of panic-buying took over the stonk markets this morning after they faded overnight gains.

This sent the majors up to critical technical levels.

The S&P is back at its 50DMA (having bounced off its 100DMA)...

The Dow is back up to its 100DMA...

And Small Caps are back up their 50DMA...

...what happens next?

After August's surprising tumble in Markit's PMIs (Services much more so than Manufacturing), analysts expected that trend to continue in preliminary September data (albeit at a far more gradual rates), all of which fits with the ongoing trend of collapse in actual macro-economic data relative to over-optimistic expectations.

The actual prints were worse than expected:

• Markit US Manufacturing fell to 60.5 in early Sept from 61.1 in August (below the 61.0 expected)

• Markit US Services fell to 54.4 in early Sept from 55.1 in August (below the 54.9 expected) - a 14-month low

Source: Bloomberg

On the price front, input costs rose at a sharper pace during September.

The rate of cost inflation was the quickest for four months, and the second-highest on record, as supply chain disruptions and material shortages pushed prices and transportation costs up.

Output charges continued to increase markedly, continuing to rise at a pace far outstripping anything seen in the survey’s history prior to May, as firms sought to pass on higher costs to clients where possible.

The flash US Composite PMI tumbled to 54.5 (below expectations) - its weakest in 12 months...

Source: Bloomberg

Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said:

“The pace of US economic growth cooled further in September, having soared in the second quarter, reflecting a combination of peaking demand, supply chain delays and labour shortages.

“The slowdown was led by a cooling of demand in the service sector, linked in part to the Delta variant spread. However, while manufacturers have seen far more resilient demand, factories face growing problems in sourcing enough supplies and labour to meet orders. Supply chain delays show no signs of easing, with another near-record lengthening of delivery times in September. Hence factory output growth also weakened and order book backlogs rose at a record pace in September.

“The upshot is yet another month of sharply rising prices charged for goods and services as demand outpaces supply, and higher costs are passed on to customers.”

So economic growth is cooling but prices are still soaring...

Cough "stagflation" cough.