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Lehman season in London

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05.10.2022 – British capers: Under pressure from domestic pension funds, the new British Prime Minister Liz Truss has again capped her just-announced tax plans. As it stands, the British financial system was on the verge of collapse last week.

Sterling currently offers a laid table for traders with the right nose – here is the four-hour chart. 10 Downing Street has just reversed the abolition of the top tax rate under pressure from its own party. The problem for the market with the Mini Budget presented by Truss was this: It was not clear from the government’s proposals exactly how the plans to cut taxes and the £45 billion in lost government revenue were to be counter-financed. In other words: new debts.

 

 

Source: Bernstein Bank GmbH

Now the prime minister is taking the plunge. According to the BBC, the presentation of the budget is to be brought forward from the end of November to October. This is intended to reverse the decline in the value of British gilts and stabilize the pound. The market urgently needs new confidence now.

London on the brink of financial meltdown
According to “Wirtschaftswoche,” the City of London was on the verge of a Lehman moment last week: pension funds, as a mainstay of retirement provision, often promise investors a fixed annual payout. And to be able to afford this, the funds usually invest a good portion of their assets in domestic fixed-income securities. In addition, they hedge with swaps. In technical jargon, this is called liability-driven investing (LDI).

Margin calls at pension funds
The problem: Many pension funds additionally leverage their LDI with debt. And this leverage almost became the undoing of large funds: If the prices of government bonds fall too quickly and too deeply, the funds have to add collateral because leveraged positions are then in the red. That’s exactly what happened after the tax cut plans were announced in the Mini Budget: the yield on ten-year gilts shot up from around 3.5 to around 4.5 percent. Ergo, according to British media, at least three pension funds suddenly faced margin calls of around 100 million pounds each. But no one wanted to buy up repossessed bonds, which were supposed to be used to raise money for the LDI.

Massive intervention
Finance Minister Kwasi Kwarteng therefore gave the green light for a larger intervention than previously known, according to Bloomberg. The Bank of England wanted to use only 65 billion pounds, ultimately it shot 100 billion pounds into the market.
The conclusion for traders and investors is that the events in London may be a beacon for the rest of the world. De facto, the Bank of England has returned to quantitative easing by buying bonds. Other central banks could follow suit. After all, no one wants to risk systemic collapse. Tax cuts and the end to bond purchases are unlikely to go away until inflation has been tamed and the risk of recession has been averted, according to the market. That is unlikely to be the case in the UK for a long time yet. Just as an aside, there is the question of how long Truss can hold on – she is not an Iron Lady after all, although she invoked a new Thatcherism. Now Britain is threatened with a return to a socialist debt policy. We’ll keep an eye on the Sterling situation and wish her every success!

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 81% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

The quake

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04.10.2022 – The political tectonics in Russia have begun to slip. The cracks in the Putin system are now unmistakable. We warn of violent geopolitical tremors and consequences for the global financial market. And we strongly recommend hedging with puts.

Not only the USDRUB – here the weekly chart – could soon be shaken considerably. The central bank has stabilized the ruble after the initial panic of the Ukraine invasion through interventions as well as drastic repression. For example, Russian exporters were required to exchange 80 percent of their foreign exchange earnings into rubles. Foreign investors were no longer allowed to conduct transactions. Russian citizens were not allowed to bring more than $10,000 out of the country. Remittances abroad were capped at $5,000 per month. Commercial banks were not allowed to sell foreign currency for rubles. Ultimately, the fact that Russia was importing fewer Western goods also had an impact. The question is whether things won’t soon go round again here – and whether we are heading for a system collapse.

 

 

Source: Bernstein Bank GmbH

There are some arguments for a big quake: 1): War has entered the consciousness of the masses. For example, we see an unprecedented flight from Russia: apparently a quarter of a million young men have fled abroad to escape mobilization. In the regime-critical “Moscow Times”, a few high-ranking veterans have just openly opposed the war.

Beacon off Bornholm
Of particular interest is 2) the ominous attack on the Nordstream gas pipelines in the Baltic Sea. If it was the Kremlin, one wonders why it went that way. Gazprom could have just turned off the gas tap. Or it could have been Russian coup plotters who disagree with the gas supply. In that case, it would be a declaration of war against Vladimir Putin. Or it was the West trying to keep Germany from sucking up to Russia again. The Kremlin would have to consider such an attack a declaration of war – but Vladimir Putin has so far only complained that the U.S. was behind it.

Bare nerves in the Kremlin
3): Boris Reitschuster, one of Germany’s best Russia experts, has stated that there are “bare nerves” and “spooky scenes” in the Kremlin. Thus, the ex-“Focus” correspondent in Moscow commented on the annexation celebration: “The system is close to the end, there are signs of decay. To put it bluntly, many of those present seemed like hostages who had to participate in an event against their will and were forced to join in and applaud. Yes, they almost gave the impression of being traumatized.” Moreover, Patriarch Kirill, who recently proclaimed that death in war would free from all sins, was absent; he fell ill “in time” with corona.
The journalist further analyzed, “Not to be seen was Chief of General Staff Gerasimov, the supreme military: either he was not there or was hidden from the cameras. Only at the very back and placed so inconspicuously that it almost amounted to a demotion: Defense Minister Sergei Shoygu.” And further, “At the later concert in Red Square, a brief overlay revealed that apparently many of those present had left before Putin’s speech.”

Resentment among hardliners
Most importantly, “Nikolai Patrushev, head of the powerful Security Council and informally number two in the state, demonstratively applauded very cautiously after Putin’s speech, then stopped clapping as the others continued to applaud.” We think: This is a challenge to the voskhd – the leader at the top – in front of running cameras in a totalitarian inner circle. Patrushev is our number one candidate for a coup against Putin.
The observations of the Institute for the Studies of War (ISW) fit this: According to them, the screwed-up partial mobilization and the defeat in Kharkiv and Lyman have shaken up the hardliners. The public criticism of army commander Alexander Lapin and General Valery Gerasimov by Ramzan Kadyrov and Yevgeny Prigozhin, head of the Wagner mercenary force, is astonishing. In doing so, they also indirectly attacked Putin, ISW stated. Further, aggressive Russian milbloggers were increasingly getting a hearing in the state media. Their calls for all-out war plus nuclear strike and occupation of all of Ukraine heated up the atmosphere considerably.

Impending III. World War
What a Western response might look like has just been mapped out by former CIA chief and General David Petraeus. He told U.S. television station ABC that U.S.-led NATO could conventionally take out all Russian troops in Ukraine and the Black Sea. A nuclear attack should not go unanswered, he added. Well then – just eliminate a whole Russian army, the world war is waiting.

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 81% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Upset in aluminum

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30.09.2022 – Potential game changer for aluminum: the London Metal Exchange is considering a boycott of Russian imports. This is apparently in response to the aggravation of the situation in Ukraine and perhaps also to pressure from the new British government at 10 Downing Street. The price of aluminum has thus received a strong boost.

Tension in the metal market: the Bloomberg news agency reported that the London Metal Exchange is discussing a ban on new Russian goods. The LME was preparing a directive clarifying under which circumstances metal from Rossia could no longer be imported. The exchange itself said, “The LME continues to take the required action to ensure market stability in response to sanctions.” The price of aluminum then jumped 8.5 percent – the biggest daily gain ever recorded. Nickel also rose by 5 percent and zinc by just over 4 percent. No wonder, the London Stock Exchange is after all the world’s largest marketplace for futures and forwards. In any case, the market is shaken up, as you can see in the hourly chart.

 

 

Source: Bernstein Bank GmbH

A look back shows how things could develop further for aluminum: In February and March, prices for the light metal rose sharply to new record levels. This is because around six months ago, fears circulated for the first time that Russian metal would be excluded from the market as a result of the Ukraine invasion. In addition, demand picked up in the wake of the Corona opening.

Change of position of the LME
Now the Ukraine war is again the dominant topic. Admittedly, no final decision has yet been made in London. But there are signs of a significant change in position. Up to now, the trading center has always pointed out that it does not want to become active beyond the scope of the Western sanctions. This means that business with Rusal or Norilsk Nickel remains largely untouched. Incidentally, Rusal had announced almost two weeks ago that it would supply LME warehouses in Asia directly, probably in an attempt to circumvent Western sanctions.

Tug of war over the aluminum price
Does this signal a trend reversal in the market price? The answer to this question is difficult. After all, the market has recently also been dragged down by concerns that a recession is choking off demand. The industry service “Metal Miner” just pointed out a few contradictory facts. Supply is shrinking because of smelter closures in Europe and China, triggered by rising energy prices. In addition, demand is falling, especially in the People’s Republic of China and particularly in the construction sector. However, there is already too low a supply of beverage cans in the USA, so that delivery times and soon also prices are likely to increase – which speaks in favor of increased demand for aluminum.

Our conclusion: the determining factors for aluminum are a possible recession, problems in manufacturing due to high energy costs and sanctions in the wake of the Ukraine war. So keep an eye on the real-time news in this mixed situation – Bernstein Bank wishes successful trades and investments!

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 81% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Pension fund panic

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29.09.2022 – Continuing the sterling story: we have just seen another intervention. This time the Bank of England has supported the British pound by buying government bonds. And the British financial market along with it. Because apparently panic was running rampant among pension funds. The situation in the UK is so interesting because it could provide a lesson for what is flourishing in Euroland or the USA.

Powerful movement in the currency market: “Cable” has made an impressive turnaround, as you can see in the hourly chart. The reason: The Bank of England announced that it would ensure stability on the financial markets with a temporary programme to buy government bonds. The aim is to avert “material risks to the financial stability of the United Kingdom”. We had recently said in this space that it smelled like an intervention.

 

 

Source: Bernstein Bank GmbH

No wonder, it’s all about the big picture – systemic stability. The backdrop is the plans announced before the weekend to cut taxes, to the tune of £45 billion, to boost economic growth. We had just reported on this. London did not announce parallel spending cuts, which is why the planned measures are likely to push up the national debt.

Flight from Gilts
Investors reacted and fled from British bonds. Indeed, yields on British gilts have recently shot up sharply. The US television channel CNBC reported that the real reason for the intervention was the fact that pension funds were simply panicking. Some of the bonds held had lost about half their value in a few days. And the situation has not yet been cleared up for many fund managers – we suspect further intervention from Westminster or the BoE. Or a change in policy.

Away with QT
Antoine Bouvet, James Smith and Chris Turner, economists at the bank ING, expressed this view: “It would definitely be better if the central bank bought gilts in the long term and suspended quantitative tightening. This is exactly what the global financial market is hoping for, as the global chain reaction showed. US equities, for example, gained because the danger of contagion from Great Britain seems to have been averted for the time being. Commodities also benefited from the rising appetite for risk and the dollar pulled back.
The moral of the story: quantitative tightening and recession don’t mix. Perhaps we have just seen the first evidence from London that central banks will change course if necessary. After all, QT actually means the end of bond purchases so as not to inject capital into the market and thus fuel inflation. Bernstein Bank is keeping an eye on the situation for you!

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 81% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Turbo-Thatcherism from Truss

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26.09.2022 – Great Britain presents an ambitious tax cut. The market fears too much government debt in the middle of a recession. The pound plummets. Now it smells of a Bank of England backlash. And in the long run, the foolhardy plan of the new Iron Lady Liz Truss could well prove its worth.

Fierce, fierce, what’s going on with “Cable.” The pound just crashed to its lowest level since 1985, and there’s also a recovery underway, as you can see in the four-hour chart of GBPUSD.

 

Source: Bernstein Bank GmbH

The trigger for the recent flash crash was the new UK finance minister, Kwasi Kwarteng. He shook traders awake with the presentation of his ‘mini-budget’. He proclaimed: “turn the vicious cycle of stagnation into a virtuous cycle of growth”.

Relief for companies and top earners
In other words, the UK economy is to get a shock start by the state foregoing 30 billion pounds in taxes per year. The minister announced that the basic income tax rate would be cut from the current 20 percent to 19 percent next year. The top tax rate on incomes of 150,000 pounds and above will drop from 45 percent to 40 percent. The planned six percentage point increase in corporate income tax will be dropped, leaving it at 19 percent. This is the biggest cut since the 1970s.
The Chancellor rejoiced: “That means a tax cut for over 31 million people in just a few months’ time,” he told parliament. “That means we will have one of the most competitive and pro-growth income tax systems in the world.” In addition, the bonus cap for bankers will be abolished. Furthermore, nearly 40 new “investment zones” with low taxes and low requirements will be created. At the same time, the state is to distribute energy assistance for consumers and companies amounting to 150 billion pounds.

The new Thatcher revolution
The new boss at Number 10 Downing Street had already announced her plans: Liz Truss announced nothing less than a second “Thatcher revolution” on the fringes of the UN General Assembly. The problem is that the market fears more inflation because everything is being financed on credit. Inflation on the island is already at 9.9 percent. Cable is only likely to gain convincingly against the dollar again in the long term as soon as the Bank of England takes drastic steps and closes the interest rate differential with America. Currently, the key interest rate in the UK is 2.25 percent. In the U.S., it is 3 to 3.25 percent, with new U.S. interest rate steps already announced.

The bulls are lurking
There is already talk in the financial market of an emergency meeting of the Bank of England called at short notice. Perhaps we are also seeing a favorable entry opportunity. Ultimately, Truss’ economic policy is likely to achieve exactly what Margaret Thatcher did. The Iron Lady had taken office in 1979 to end the strangulation of a socialist policy. A number of things had been nationalized on the island: the health care system; the steel industry and coal mining, parts of the retail trade, hotels and even travel agencies. All-encompassing welfare, high taxes, sluggish bureaucracy and powerful unions. The island lost competitiveness, the industry hardly played a role in global business, and the pound was in free fall.
Then came the turnaround. Then, as now, successful companies and professionals are likely to move to England in droves. Industry will boom; top earners, who will treat themselves to a cottage or a good life, will bring a lot of taxes into the state coffers. We are curious to see how the situation will develop – and wish you successful trades and investments!

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 81% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Yentervention

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23.09.2022 – Major event on the currency market: The Japanese central bank intervened and supported the yen. USDJPY reacted immediately and violently. However, we wonder whether the desired result – a stronger yen – will hold.

What a week: several central banks raised interest rates at once. And the biggest event on this “Super Bank Thursday” was the intervention in Tokyo. The first move of its kind in 24 years – selling dollars, buying yen; in 2011 it was the other way around – caught many traders on the wrong foot. Many had assumed that Tokyo was just bluffing. Thus, things went violently downhill, as you can see in the hourly chart of USDJPY. However, after the presentation of the US unemployment figures, the greenback recovered somewhat. Thus, the new applications for unemployment benefits were 213,000, had been expected 218,000. And in the meantime, the effect seems to have already evaporated again.

 

Source: Bernstein Bank GmbH

The intervention was quite tricky and was obviously intended to mow down as many speculators as possible. For now, the Bank of Japan did nothing at all – it left short-term interest rates at minus 0.1 percent on Thursday and its target for the yield on ten-year Japan bonds at 0.25 percent. Central bank governor Haruhiko Kuroda announced that he does not think tightening monetary policy is an appropriate way to stabilize the yen. And the market assumed that everything would stay that way for the next two to three years. As a result, the yen slid to a 24-year low.
And then came the turnaround. Masato Kanda, vice finance minister for international affairs, told reporters that Japan had intervened in the market with a bold move.

Central Bank vs. Ministry of Finance
Many traders had previously written off recent warnings from politicians as cheap bluff. For example, recently Finance Minister Shunichi Suzuki had said Tokyo was not ruling out any steps to stop the yen’s fall, including government intervention. But after the central bank’s statement, traders assumed that the yen would continue to falter. From a distance, it all looks like a conflict between the Ministry of Finance and the monetary watchdogs.

Inflation not a problem?
Central bank chief Kuroda, for example, downplayed inflation. He had recently stated that inflation would likely fall to 1.5 percent by 2023. However, consumer inflation in Japan had reached 3 percent in August, exceeding the bank’s target of 2 percent for the fifth month in a row. Presumably, the BoJ sees an end to external shocks such as the Ukraine war or disrupted supply chains in the wake of Corona. Plus a pickup in the export engine, which would support the yen.
The Finance Ministry probably sees things differently. The problem: With the yen weak, imports are getting more expensive, since the Nippon is largely dependent on imports for food and energy. And here, prices are climbing rapidly. Thus, policymakers enforced intervention.

US Yield vs. Forex Reserves
The question now is how to proceed. Tokyo has forex reserves equivalent to $1.3 trillion – the second largest in the world after China. That’s a lot of ammunition to prop up the yen every now and then. However, the Japanese currency is being dragged down by a huge current – and that is the interest rate differential with the US. The need for yield from institutional investors all over the world, and not least in Japan, who are currently buying U.S. bonds en masse, is likely to hit the yen again soon. We are curious to see what happens next – Bernstein Bank wishes successful trades and investments!

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 81% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

The Fed stays the course

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22.09.2022 – The market is sorting itself out after the Federal Reserve’s interest rate decision. It is clear that the Fed will continue to tighten. We take a look at what this could mean for some assets.

This much in advance: The US dollar remains the big winner. U.S. government bonds are yielding attractive returns, and investors are borrowing large amounts of greenbacks to buy U.S. bonds. Only when the other central banks in the world also drastically turn the interest rate screw, other weakening currencies are likely to catch up again. Here’s EURUSD in a weekly chart.

 

Quelle: Bernstein Bank GmbH

So to the facts: The Fed has raised the key interest rate for the third time in a row by 0.75 percentage points. The interest rates for overnight loans from banks are now in the corridor of 3 and 3.25 percent.

Higher for longer
There’s probably more to come: Fed Chairman Jerome Powell stressed that the central bank will continue to tighten monetary policy until there is convincing evidence that inflation is easing. Reducing inflation, he said, requires a longer period in which economic growth is below the growth trend and potential of the economy. In addition, he said, the labor market must cool. Powell again announced pain for the economy and consumers. Thus, he held out the prospect of further interest rate steps.
The belief in a turnaround – English: pivot – has now disappeared from the market almost everywhere. The expectation for the upper end of the interest rate corridor is 4.4 percent by the end of 2022. And that brings us to the likely consequences for some assets.

Equities more likely to be short
The matter is bearish for high-tech stocks in particular. First, because borrowing from young companies is becoming more expensive. Second, because interest rates play a role in the most important model for valuing stocks, discounted cash flow. Higher interest rates equal lower valuation.
But cyclicals and defensive stocks are also likely to be hit by the general risk aversion. High inflation is already making consumers cautious – especially if they are afraid of losing their jobs in a recession. Goldman Sachs, for example, just suggested that the Fed could beat the S&P 500 down to 2,900 points.

Unclear situation for gold
The situation with gold is trickier. The price has been trending south despite rising inflation in anticipation of interest rate hikes. In addition, new competition from cryptocurrencies stopped the buying mood. When interest rates rise, that’s usually a stopper for precious metals as well – because if someone gets an attractive coupon on bonds, that’s an argument against gold. Especially since there are still bank fees to pay for the safe deposit box or costs to have your own safe at home.
But many experts fear a recession due to the increased interest rates. And tangible assets not only protect against a decline in purchasing power. But also against deflation – in other words, the total collapse of the economy. When banks collapse and cash is no longer accepted, gold and silver coins are the saving alternative for many.
We hope that we have been able to shed some light on the fog of the market for you with this brief analysis. We stay on the ball for you – Bernstein Bank wishes successful trades and investments!

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 81% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Escalation and implosion

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21.09.2022 – Red alert for traders and investors: Russia escalates the Ukraine war. Added to this is the Federal Reserve with its interest rate decision.

We cannot imagine a scenario more bearish for equities than the current one – and more bullish for energy and the dollar. Vladimir Putin is taking flight after the successful Ukrainian counter-offensive around Kharkiv. With this morning’s partial mobilisation and indirect threat of a nuclear strike, Putin has brought the world closer to nuclear war. What is clear is that the so-called Luhansk and Donetsk People’s Republics are to be incorporated into the Russian Federation through sham referendums. And thus a war against them would also be a war against Russia. The first reaction on the oil market to Putin’s speech can already be seen in the hourly chart of WTI oil.

 

Source: Bernstein Bank GmbH

Now the West has the choice between two extremely unpleasant options: Either it drops Ukraine, freezes arms deliveries and relies on appeasement. This line is likely to be favoured in Rome, Berlin or Madrid. But then there could be a change of government in Germany, for example. Or else Ukraine will finally be effectively supplied with large quantities of modern weapons and Russia will be brought to its knees. This is the line we see in Washington, Warsaw or London.

Possible panic over oil and gas
The situation is also precarious for Putin. In the event of a defeat in Ukraine, he and his siloviki are likely to be history. And an implosion of the Russian Federation will follow. At the end of February, we wrote here that Vladimir Putin had launched his Afghanistan with the invasion of Ukraine. The failure of the Soviets in the Hindu Kush was the harbinger of the end of the Soviet Union. The same could happen to Russia now. With consequences for the stock markets and also for the energy market. With around 5 million barrels per day, Russia is one of the largest exporters of crude oil. The market for natural gas would then also panic.

How stable is Russia?
In fact, the Kremlin’s power seems to be waning. In the course of the counter-offensive, for example, the Ukrainian leadership just reported the flight of some 13,000 Russian-born collaborators – mainly from the administration. The Russian Belgorod confirmed such a wave of refugees. Thus, the local stalwarts seem to have lost faith in a Russian victory. The neighbours are getting bolder. The recent invasion of Armenia by Azerbaijan is certainly no coincidence – after all, Yerevan is under Russian protection. The predominantly Islamic republics in the south of Russia could strive more strongly for independence, above all Chechnya.

The big danger is China
Kazakhstan has refused to recognise the pro-Russian separatist republics under international law and is putting out feelers to Beijing. China itself is in desperate need of farmland and could one day annex Siberia if chaos rages in Russia – with exactly the same justification Russia has just used in Ukraine. Namely, that millions of Chinese migrant workers are being oppressed in the Russian Far East.

Smouldering conflicts
Georgia might be tempted to wipe out the two Moscow-backed pseudo-republics on its territory. Moldova, with Ukraine’s help, could wipe out the Russian enclave of Transnistria. Belarus, the last Russian ally in Europe, is tottering – in the event of an overthrow, Moscow would have to intervene. The same applies if Ukraine, Kazakhstan or even the Baltic states expel the Russian minorities as troublemakers. The Kremlin has just reaffirmed the protection of Russians abroad under the concept of Russki Mir (Russian World). A wave of refugees would also put a heavy strain on the Russian economy.
The conclusion to be drawn from all this is that, if our observations are correct, we are in for some turmoil on the stock markets and on the oil and gas markets. So keep an eye on the situation – and prepare yourself. Bernstein Bank wishes you successful trades and investments!

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 81% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

Risk Off

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20.09.2022 – Risk aversion in the financial market – the Federal Reserve is casting its shadow. High-tech stocks in particular have suffered recently. And cryptos with them, because Bitcoin is tech. Now BTC is testing an important chart mark.

Many investors are currently selling their savings and selling what they have. Bitcoin, for example. A quick, rough chart analysis looking at the daily chart does not bode well. For example, BTC has broken the support it has retracted since June, see the red line below. Although the price recovered, the line is perforated for now. Usually, this is a harbinger of a complete breakout to the downside.

 

Source: Bernstein Bank GmbH

The reason for the poor performance is mainly monetary policy and the macroeconomic situation. On Wall Street and the world stock markets, it is considered a foregone conclusion that the Fed will take an interest rate step of 75 basis points tomorrow, Wednesday. Some even expect 100 basis points. And an increase in key interest rates in a few months to 4.5 percent. Likewise, after the FedEx warning, the belief that a global recession is imminent has spread.

High yields on bonds
That’s why large addresses prefer to flee into safe U.S. government bonds, which promise attractive interest rates right now. The ten-year U.S. bond, for example, yields 3.489 percent if held to maturity – the highest yield in a decade. And two-year U.S. bonds are yielding 3.946 percent, the highest in 15 years. It’s not just in the United States that safety-minded investors are likely to flee into bonds. This week, central banks in Sweden, Switzerland, Norway and England could also raise interest rates. According to Bloomberg, we could see a combined rate hike of 500 basis points – that’s a lot of capital being sucked out of the market.

Fear of recession
So where do we go from here? We don’t see a trend toward risk appetite at the moment. The skepticism is palpable. “The aggressive tightening of policy in the coming 4-6 months, not just in the US but globally, increases the risk of a recession next year,” said Maria Landeborn, Senior Strategist at Danske Bank. And further: “We expect uncertainty will remain high surrounding inflation, rates and the overall economy, which is negative for market sentiment and risk assets.”

Fighting cyber crime
But perhaps that is precisely the opportunity. Once everyone is depressed and devastated, the tide will turn. But when will that be? Moreover, there is another factor in cryptos that you need to keep an eye on in the trade press: The Western developed world’s fight against cyber crime. “Follow the money” is the motto here – investigators are tracking down anonymous wallets in a big way right now, and many IT criminals are nervous and selling. See the self-shutdown and split-up of the Russian gang “Conti” after publication of internals in the wake of the Ukraine war and after the FBI declared a $10 million bounty. We keep an eye on the situation for you. And wish you successful trades and investments!

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 81% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

The maverick

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19.09.2022 – The yen continues to weaken unchecked. Which is due to the negative interest rate – Japan is the lone proponent of the ongoing flood of money. The question of all questions for the yen: Will the Bank of Japan change course or not?

How low can you go? The yen weakens unchecked, USDJPY runs up as if on rails. See our daily chart with the 50-day line. The yen has just marked its weakest level against the dollar in over two decades. Since 1998, to be exact.

 

 

Source: Bernstein Bank GmbH

 

No wonder: while the U.S. Federal Reserve is spiritedly implementing its interest rate turnaround, the Bank of Japan has kept its key rate at minus 0.1 percent since 2016. The Japanese central bank has instead opted to freeze the yield on ten-year Japan Bonds at around 0.25 percent. We are curious to see how the Bank of Japan positions itself at its next interest rate decision on September 22.

Tentative verbal intervention
The market has just taken notice. That’s because Hirokazu Matsuno, Japan’s top cabinet secretary, stated that the government is prepared to make any decision possible to stabilize the Japanese yen. The market has so far been unimpressed by the announcements and quickly shrugged off the verbal intervention.

Possible capital repatriation
But for the financial blog “ZeroHedge”, the current upward trend will soon be history. Japan is a net capital exporter, wants domestic investors increasingly invested abroad. Domestic investors had bought many foreign assets, international investors had held back in Japan. In addition, rising energy prices were causing an outflow of capital. In normal times, the weak yen would boost exports. However, imports had recently outweighed exports. Furthermore, tourism had slumped in the wake of Corona. Which could change now, however. We add: The same applies to exports – if the import situation stabilizes together with Corona in the rest of the world, cheap and high-quality Japanese goods could be in demand. Home electronics, cars, whatever.

The catapult
Thus, the yen could become a catapult, “ZeroHedge” continued. Any domestic crisis could immediately cause money to be repatriated. And with a net international investment position of the equivalent of $3.5 trillion, that would lead to a violent yen rally. To which we wonder what crisis that might be.

No inflation to speak of
Our countervailing view: Until the decades-long slump in Japanese productivity is eliminated, interest rates in Japan are unlikely to rise. This is because higher interest rates would weaken borrowing and slow economic performance. Furthermore, Japanese have no problem cutting back in times of rising inflation. Especially since the inflation rate on the Nippon is only 2.6 percent anyway. Therefore, things could well get worse for USDJPY from the bulls’ point of view: In the early 1970s, the yen stood at around 350 to the dollar.

Jesper Koll, a director at investment boutique Monex Group, also sees the yen heading for 150 to 160. Koll, speaking to CNBC a few days ago, saw two powerful forces at work: the widening of the interest rate differential with the U.S. and Japan’s current account deficit. The development of the currency is textbook and predictably based on fundamentals.
Again, it remains to be said that the Japanese central bank could surprise the stock market. Shorties could then be caught on the wrong foot. On the other hand, the expected turnaround could take forever. We hope that you are right in weighing the arguments. Bernstein Bank is keeping an eye on the situation for you!

 

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 81% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.