News

08.11.2022 – Will Republicans win the midterms convincingly or not? And how will the possible Red Wave affect Wall Street? We analyze the political situation in the USA.

There are two main issues at stake in the midterm elections: On the one hand, the question of inflation and the growing fear of impoverishment in large parts of the population. Plus the violence fueled by radical left-wing groups like Antifa and BLM amid rising conventional crime and accompanying cozying up by the judiciary in Democratic-ruled areas. Which plays into the hands of Republicans. On the other hand, the abortion issue, which draws young voters in particular to the Democrats. The one-sidedness of the mainstream media also leads votes to the Dems.

Source: Bernstein Bank GmbH

The stock market has been rather bullish lately. Pictured here is the daily chart of the S&P 500. According to most polls, Republicans will win the House of Congress by a wide margin and the Senate by a narrow margin. Incidentally, such a reversal is by no means rare in the USA.
Bonds and stocks up
Perma-bear Michael Wilson of Morgan Stanley has also recently shown himself to be increasingly in a buying mood in view of a possible Republican victory. Should the Reps win at least one chamber, this would be a possible catalyst for lower bond yields and higher stock prices – the rally in the bear market could then continue for the time being. This is because a sweep by the Reps would likely lead to a freeze in government spending and debt, which would create a buying mood in 10-year Treasuries. In tow of the Bonds, Wilson sees upside potential for the S&P 500 to 4,000/4,150, setting his stop-loss target at 3,625 to 3,650.
Rising vola on doubts
Public Policy Strategist Michael Zezas, also of Morgan Stanley, on the other hand, sees a risk of no quick result after the midterms – which would likely lead to increased volatility and provide ammunition for both bulls and bears. Vola will also rise if the Dems win unexpectedly, he said. That’s because it would mean the Democrats would throw off the shackles on inflation – and de facto work against the Federal Reserve with new government spending. Result: higher Treasury yields, stronger dollar a higher peak in the U.S. federal funds rate.
A sure victory for the Reps, on the other hand, could lead to new budget stalemates in the wake of the Budget Control Act and weigh on markets – less growth, delay in rate hikes, but then all the stronger, delayed effect. Zezas also warned against deceptive signals – just as in the previous election, it will take a while to count absentee ballots, which mostly go to the Dems.
New lows possible
And another look at history: analyst Julian Emanuel of Evercore ISI noted that after 19 midterms since 1946, stock prices have climbed. There was only one exception in 2018. But then he too provides a caveat: Uncertainty about the election outcome could weigh on stock prices. “The recent asset-market instability from politics in the UK and China” shows that short-term political risks exist, the Evercore expert wrote to clients. An unclear outcome or new allegations of election fraud could lead the S&P 500 to join the Nasdaq 100 in testing old lows. We are curious how the congressional election will turn out and keep an eye on the situation for you!

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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. 68% 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

03.11.2022 – In, up, down, out: As expected, the Federal Reserve has shaken the markets vigorously. The reason for the great devouring of the stop-loss marks: A violent turnaround in the tonality of the Fed between press release and press conference. One could almost suspect a deliberate slaughter of the bulls behind yesterday. Or we are dealing with a horrendous case of split personality.

First the euphoria, then the cold shower. After the press release on the interest rate move, things initially went up. During Jerome Powell’s press conference, nervousness increased. And ultimately it went south. You can see the Fed surprise very nicely in the 15-minute chart of the Nasdaq 100.

Source: Bernstein Bank GmbH

First the facts: The central bank again raised the key interest rate significantly. The key rate rose by 0.75 percent to a range of 3.75 to 4 percent. This is the Fed’s fourth major rate hike since March. Powell admitted admitted that the central bank was considering a smaller interest rate step in December. Thus, that could have been the last jumbo rate move this year. However, this does not mean a pause in the rate hike. So the interest rate will rise, come what may.

The horror of Mr. Hyde
Now for the background: The most interesting explanation for the drama yesterday we found at the brilliant financial blog “ZeroHedge”, which referred to trader John Flood of Goldman Sachs. According to this, the affair played out yesterday like the horror classic Dr. Jekyll and Mr. Hyde. Apparently, the Fed press release had been written by Fed Vice Chair Lael Brainard, known as a dove, this had triggered a small buying frenzy. And then the evil Mr. Powell stepped to the microphone: “incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.”

Higher for longer
Powell actually spoke unusually plainly: “the labor market continues to be out of balance, with demand substantially exceeding the supply of available workers.” Looking at inflation plus the labor market, the Fed has two reasons at once to continue tightening. And further, “We have some ways to go. (…) “The question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive.” The bottom line for the market: higher for longer. Not good for stocks, especially growth stocks.

No reliance
And another take-home message: not only is the Fed as a body no longer reliable because it disagrees. But the Fed chief also has a deficit. Powell has basically done an about-face, as commentator Ye Xie of Bloomberg put it: “Prior to the pandemic, the Fed’s story line has been that they’d rather let inflation run hot, than allowing inflation to stay too low for too long. It’s easier to deal with inflation than deflation, so goes the argument. Today, Powell says it’s the other way around.” He said the Fed has the tools necessary to clean up over-tightening rather than those to allow inflation to run for too long.
Our Bottom Line: Times have changed. Inflation appears more dangerous to the Fed than deflation, read: recession. Moreover, a power struggle between doves and hawks is apparently raging within the Fed. The trouble is that there is no unified line of communication. But how should traders and investors position themselves when even the Fed is constantly pivoting? We keep the matter on our radar for you and wish good luck despite everything!

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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. 68% 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

01.11.2022 – The Federal Reserve casts its shadow ahead: tomorrow, the masters of money will speak out again. JPMorgan has drawn up six scenarios. These range from a massive rally if the Fed is tame and raises interest rates only moderately. At the other end of the scale, however, a massive sell-off is also possible. We look into the crystal ball with the investment bank.

Now it’s getting exciting again on Wall Street. JPMorgan believes that even the massive S&P 500 could be whirled around violently tomorrow, Wednesday, here the hourly chart. Wall Street apparently assumes that the Fed will not spark the Democrats in the midterms. In addition, China supports.

Source: Bernstein Bank GmbH

But let’s let the trading desk at JPMorgan Chase &. Co. to have its say. The has just come forward with a bouquet of possible scenarios based on combinations of the actual rate move and the choice of words in Fed Chairman Jerome Powell’s statement. We don’t want to deprive you of that.

1) Interest rate move of only 0.5 percent, dovish press conference: “It is difficult to conceive of a scenario where this outcome occurs given inflation levels and a tight labor market,” analysts wrote. However, “Should this outcome occur, the immediate reaction could produce a double-digit one-day return for equities.” Result: the S&P 500 shoots up 10 to 12 percent. However, this is the least likely option, albeit the most bullish, Andrew Tyler’s team wrote.

2) Interest rate move of just 0.5 percent, hawkish statement: if the Fed only moderately raises rates but becomes increasingly concerned about inflation and financial instability, this would likely happen, “S&P 500 up 4% to 5%.”

3) Fed rate up 75 basis points and a tame press conference: this would be the second most likely scenario. “If you saw the Fed give explicit guidance for the December meeting, then that is likely viewed as a dovish outcome.” That would mean: S&P 500 up 2.5 to 3 percent.

4) And here’s the most likely outcome: rate move of 75 basis points and a press event full of warnings of further moves. “This is the most likely outcome with Powell retaining optionality for December and 2023 meetings while emphasizing the current risks to inflation moving higher.” He said the SPX would respond by falling 1 percent to rising 0.5 percent.

5) 100 basis point rate hike and conciliatory press conference: just as unlikely as a small 50-point rate hike, according to JPMorgan. Moreover, if the Fed were to announce that it would complete the tightening cycle at the end of this year, the market would interpret this as a signal that the Fed already knew about the coming Consumer Price Index. We add: It would probably be disastrous. Result for the S&P 500 according to JP Morgan: minus 4 to minus 5 percent.

6) Interest rate move of 100 basis points and a hawkish conference: the best outcome for bears waiting for the recent rally to die down. The investment bank stated, “Here this would seem to be a Fed reassessing its own inflation forecasts, which some investors feel is too optimistic.” Presumed result on Wall Street: a drop for the SPX of 6 to 8 percent, followed by a presumed test of the lows for the year.

We are curious to see whether the forecasts come true. And we wish you, as always, that you are right with your trades and investments. Further, we warn you that it is best to stay away from the market during the Fed festivities – because any puzzling half-sentence from Powell can swirl the prices around. Bernstein Bank is keeping an eye on the situation for you!

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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. 68% 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

31.10.2022 – The time has come: Russia has stopped grain exports from Ukraine. In addition, a drought report from the USA is unsettling the market. The uncertainty is growing.

About two weeks ago, we warned you here of a coming wheat crisis. Since the weekend, nervousness has been on the rise, as a look at the hourly chart shows. The calm after the Ukrainian-Russian export agreement in July with the subsequent price plunge is in any case partially gone.

Quelle: Bernstein Bank GmbH

The reason: over the weekend, Moscow indefinitely suspended the grain deal brokered by the United Nations and Turkey. We had anticipated the move, which most media are calling “surprising.” Russia now justified the action by saying that possibly the attack with floating drones on the Russian fleet off Sevastopol was launched by a civilian Ukrainian step in the security corridor. However, the matter may have been planned for some time, as suggested by statements from Russian politicians two or three weeks ago.

Grain as a weapon

The consequences of the new Russian embargo are not yet being felt. According to media reports, dozens of grain freighters have wisely set sail for the Black Sea in recent days. Even this Monday morning, a dozen ships are said to have left the Ukrainian coast, according to the Ministry of Infrastructure in Kiev. We wonder if the Russians will attack these convoys.

In the medium term, however, the supply is likely to be in jeopardy. We suspect that we are in for a new major offensive by the Ukrainian army in the coming weeks. Winter is the best time for motorized attacks because of the frozen ground. Maybe the Ukrainians will even receive battle tanks from the West, who knows. The possible consequences for the wheat market: Russia will increasingly attack export routes over land in Ukraine in revenge for its own setbacks. Just as energy supplies are already being increasingly targeted to break Ukrainian morale. Moreover, the calling up of reservists does not suggest that Russian President Vladimir Putin is seeking a negotiated settlement.

Drought in the U.S.

Worrisome news for the grain market is also coming from the West. According to the USDA Drought Monitor, about 75 percent of U.S. winter wheat acreage is currently in drought. Gary Millershaski, head of the Kansas Wheat Commission, told the Bloomberg news agency that he himself has planted 4,000 acres to winter wheat, but will likely harvest only 1,500 acres – less than half – because of the drought. And there’s another worrying stressor for the coming months: the artificial fertilizer that is normally applied to fields now so it can soak in during the wet season is not being used by many farmers this time (yet), Millershaski added. That’s because it’s so dry that the fertilizer just disappears – “evaporate and disappear.”

Our conclusion from all this is that the stress factors for the grain market are growing. The unusually warm fall and the hope of a good harvest in Europe are still keeping a lid on prices. But it is quite possible that we will soon turn into a panic. Bernstein Bank is keeping an eye on the matter for you!

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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. 68% 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

28.10.2022 – The parent company Meta has reported gruesome figures. The Facebook share lost about a quarter of its value in a very short time. Experienced traders know that such violent reactions sometimes offer the best opportunities for counter-movements. The question is whether the fundamentals will allow for a turnaround.

Massive price gap at Facebook: The stock has torn a gigantic gap. According to the rules of chart analysis, this will be closed again at some point. But when? In any case, the title has fallen out of the downward channel, as you can see in the daily chart.

Source: Bernstein Bank GmbH

What happened: Facebook parent Meta Platforms reported a grotty quarterly balance sheet on Wednesday after the U.S. stock market closed. According to the report, earnings per share of $1.64 missed even the pessimistic consensus estimate of $1.89, although that forecast was already down 49 percent year-over-year. Further, the decline in revenue accelerated, while the cost of developing virtual metaverse worlds increased. Investors were and are shocked.
Inflation and recession
As a result, net income plunged 52 percent to about $4.4 billion, while revenue slipped a modest 4 percent year over year to $27.7 billion. In the second quarter, Meta had reported its first-ever revenue decline. Now Meta blamed the revenue decline on the dollar being too strong. The company fears a revenue decline of up to 10 percent in the current quarter. Meta also blamed advertiser frugality in the face of high inflation and the threat of recession – with online ad spending, Google’s business and photo app Snapchat suffering.
Get woke – go broke
We add: Apparently Facebook is feeling the same headwinds as Twitter – people are increasingly fed up with opinion censorship and are turning away. For example, a few weeks ago it came out that Facebook had buried the story about Hunter Biden’s “laptop from hell” in the middle of the 2020 election campaign after a warning from the Democrat-dominated FBI. According to opposition U.S. media, the data recovered there proves crooked dealings of the son-man in China, among other places; this could also be dangerous for Joe Biden. Who knows what we don’t know. So Facebook has made itself the government’s stirrup holder. In Germany, too, accounts critical of the government are being shut down again and again. Facebook is still growing moderately among users, but hardly in the U.S. or Europe, where the political culture war is raging.
Home-made misery
Zuckerberg has also been adamant about virtual worlds, which are currently the biggest cost factor. Last quarter, for example, the Reality Labs division, where the so-called Metaverse is built, posted an operating loss of just under $3.7 billion. Since the beginning of this year, a loss of $9.4 billion has built up here – on revenue of $1.4 billion. Zuckerberg announced that the Reality Labs deficit would “grow significantly” in the coming year. Now Facebook is looking to cut back on office space and employees, both moves always an early indicator of crisis.
The conclusion from all this: Perhaps the Metaverse will eventually become the philosopher’s stone. But at the moment, virtual reality, in which people communicate directly with computers, is just an orchid garden for hardcore techies. Investors in the normal world only see the immense costs and risks. We are curious to see whether Facebook will turn the tide and are keeping an eye on the matter for you!

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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. 68% 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

28.10.2022 – Just in time for Halloween, Elon Musk is delivering great cinema in Silicon Valley: he’s pulling off a major purge at Twitter. And he’s doing it right before the final takeover of the Twitter company. What reminds us of the horror movie “The Purge” makes the cultural chic cry out. And investors rejoice.

This is how a turnaround works: Elon Musk has bought Twitter after all. And now he’s cleaning up and getting rid of all those who drove Twitter into the abyss with their left-wing censorship. Applause, applause from our side. Of course, the stock market caught the scent early on. Some time ago, we also dealt with exactly this development: told you so… But we believe that there is still more to come for Twitter bulls.

Source: Bernstein Bank GmbH

What had happened: Musk fired key executives immediately after taking office. This was reported by the news channel CNBC, the financial blog “ZeroHedge” and the “Wall Street Journal”, among others.

Ejection of the censors
So, in particular, the top do-gooder Vijaya Gadde had to go – she was responsible for the policy against misinformation. Whereby mostly conservatives like Donald Trump had been censored, but rarely to never Islam-fascists or left-wing radicals. The latter are now experiencing in a lighter form what Stalin already went through in 1937: the Great Terror, whereby of course no one has to die. On the contrary, the arrogant guardians of virtue leave with millions in compensation. Their job had to give up in the night to this Friday the past company boss Parag Agrawal, general Counsel Sean Edgett and finance boss Ned Segal. According to media reports, at least one of the dismissed managers was escorted out of the office by security guards.

The bird is freed
Elon Musk, of course, shared the happy news on Twitter: “The bird is freed” – alluding to Twitter’s logo, the blue bird. The Tesla billionaire now wants to take over the chief executive position himself first, as the Bloomberg news agency reported. He also wants to immediately abolish lifetime blocks for users on Twitter. The Donald will thus probably soon tweet vigorously again; however, Bloomberg said that this case is still unclear. On Wednesday, Musk had appeared at the company’s headquarters in San Francisco, calling himself “Chief Twit.” Then on Thursday afternoon, he announced on Twitter that he had taken over the service.

Get woke – go broke
We expect further price-driving news as early as today, Friday – because Musk wants to introduce himself to employees, according to US media. Speculation that he wants to kick out three-quarters of the workforce is said to have been dismissed by him at headquarters this week. However, many sensitive, gender-sensitive, eco-conscious Islam-understanders are now likely to be allowed to look for a new job elsewhere on the fly. Which should also drive the share price. We are sure that the woke crowd will find a job at CNN, the “New York Times” or at German public broadcasters. However, Twitter has already rid itself of an obstructive morale ballast with the dismissals of its top managers: People don’t want to be constantly censored by neo-jacobins, but want to speak, discuss and argue freely. And that includes a dissenting voice. Anyone who eliminates this voice will go down in flames, as evidenced by the decline in readership of German newspapers.

Sell the News?
Now, however, a teeny restriction for the bulls: The official announcement on the completion of the roughly $44 billion takeover is still pending. The legal deadline for an agreement between Musk and Twitter is officially this Friday at 5 p.m. Eastern time (11 p.m. CEST). We may well see a “sell the news” after consummation. Musk had announced in April that he wanted to buy Twitter for 44 billion dollars – in July, however, the role backwards followed, mainly because of too many fake accounts. If the deal falls through in the last few meters or Musk disappoints investors with his announcements, the share price is likely to fall. However, if the purchase and the purge are rigorously carried out, we see further potential for the share after a possible short cash pile-up. After all, in addition to those preventing free speech, the fake accounts are likely to be weeded out. Which is attractive to advertisers and users. Bernstein Bank keeps them up to date!

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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. 68% 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

18.10.2022 – Big clearing in Britain: The new finance minister cuts “trussonomics” – Sterling recovers. And the global financial market right along with it.

Yesterday, Monday, the new British Chancellor of the Exchequer, Jeremy Hunt, reversed almost all of the announcements made by Prime Minister Liz Truss and his predecessor as Chancellor of the Exchequer, Kwasi Kwarteng. Ten-year government bond yields fell by as much as 41 basis points. “Cable” has recovered since dipping in the wake of the Truss plans, as you can see in the daily chart of GBPUSD.

Source: Bernstein Bank GmbH

The change of course in the UK was also an important boost for the world stock markets. Recently, Matt Fleury of Goldman Sachs had said that this time the UK could trigger a global financial crisis: “The Fed’s continued aggressive pace of hikes is causing unexpected knock on effects. I was certainly not aware of how levered the UK LDI pensions were.” LDI stands for liability-driven investing. This means that pension funds speculate on credit with the underlyings as collateral – and if the price of their investments falls, they have to inject fresh money in margin calls. This is usually done by selling underlyings, such as British gilts.

Away with it
So now British government bonds are recovering. That’s because Hunt left virtually nothing of his predecessor’s growth plan: Corporation tax is to rise from 19 to 25 percent in April. Boris Johnson’s Chancellor of the Exchequer Rishi Sunak had already planned this, but Prime Minister Liz Truss and Kwarteng wanted to boost the economy by cutting taxes instead. Hunt has now cancelled the one percentage point reduction in the income tax entry rate that they had planned. The alcohol tax is no longer frozen. The idea of allowing foreign tourists to store VAT-free is off the table. A reduction in the taxation of dividends and relief for the self-employed are again capped.
Hunt is sticking to neo-Thatcherism on only a few minor points: what remains is the reversal of the increase in social security contributions. And the cap on bankers’ bonuses is still to be abolished, according to the Telegraph. Hunt also left in place the changes to stamp duty for homebuyers introduced by his predecessor.

Warning from Morgan Stanley
However, the situation is not yet completely cleared. Morgan Stanley over the weekend saw the UK facing an almost impenetrable web of problems. Andrew Sheets, chief cross-asset strategist at Morgan Stanley, judged that the island, as the world’s sixth-largest economy, faces a “volatile and fascinating cross-asset story.” The first problem, he said, is high inflation, with a core rate of 6.3 percent. With a current account deficit of 5.5 percent of gross domestic product, Brexit has tightened the supply of labor and increased labor costs and import prices, he said. As a result, “high inflation drives currency weakness, and vice versa.”
The Bank of England had also not raised interest rates as much as investors had expected – since the BoE had not delivered, but the Federal Reserve had, investors expected further weakness. The BoE’s hesitation is understandable, he said, and is due to the domestic housing market – most loans are for two to five years. Most households are already burdened enough by rising energy costs. We add: After all, with Hunt’s about-face, the government has now addressed a second part of the problems noted by Morgan Stanley.

Waiting for the interest rate hike
This puts the onus on the Bank of England. Governor Andrew Bailey had said at the IMF meeting in Washington that inflationary pressures may require “a stronger response” from monetary policy than was expected a few months ago. Our conclusion from the mix: this looks like a new interest rate move. And things get really exciting on October 31 – on Halloween, the government presents its medium-term budget plan. Bernstein Bank keeps an eye on the situation for you!

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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. 68% 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

17.10.2022 – Traders, listen to the signals: fierce rally, massive sell-off. The market is becoming increasingly unpredictable, nerves are on edge. And already Goldman Sachs is warning of a new global financial crisis.

Gobstopper for all traders with the right nose: Violent volatility on Wall Street. We hope that you always found yourself on the right side of this turbulence. Pars pro Toto we have picked out the daily chart of JPMorgan – you can see that even this heavyweight has recently been whirled around violently.

Source: Bernstein Bank GmbH

And this was the reason for the recent roller coaster ride: last week, something unique apparently happened in the entire options market. Jason Goepfert of Sundial Capital pointed out that in the retail market, the volume of puts bought tripled the volume of calls bought for the first time ever: “Last week, retail traders bought $19.9 billion worth of puts to open. They bought only $6.5 billion in calls to open. This is the first time in history that puts were 3x calls.”

Short-Covering

This was of course an invitation for large hedge funds to trigger a short squeeze. They obviously still have some ammunition, because according to the financial blog “ZeroHedge”, the net investment ratio is at its lowest level since March 2020. The result: despite the horrible consumer prices, futures had shot up in a massive short covering, only to be shot down again on Friday. In other words, the short rally had no sustainable fundamental bottom. There could be more to come.

The mother of all crashes

If Goldman Sachs super-bear Matt Fleury has his way, the mother of all crashes is yet to come – the Global Financial Crisis. The trader just released a report titled “Adult Swim” – and in it, he conjures up a new 2008. Specifically, Fleury warned: “I said ‘this reminds me of 2008’ more times this week than I can remember. The velocity of moves is increasing. The pace of tremors quickening.” Meaning: In a normal bear market, there is only a slight current, the feet can still reach the bottom and there is a lifeguard on the shore – the Federal Reserve. In this market, however, there are violent currents in deep water, he said, and the Fed will not intervene. That’s because the Fed’s hands are tied because of high inflation, the Goldman expert judged.

Cardiac arrest

The Fed will eventually make a U-turn on tightening – but that pivot won’t happen until the economy has gone into cardiac arrest. The worst is yet to come, according to Fleury: “Where are the bankruptcies? Where are the private mark downs? Who owns too much illiquid assets that haven’t had a real mark in years? Where are the over leveraged homebuilders going under?” Especially since, for the first time ever, OPEC is no longer an ally of the U.S.; tensions with China also rose. We are curious to see if this gloomy prediction will become reality – good thing you can make money short with CFDs during the crisis. Berstein Bank keeps an eye on the situation for you!

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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. 68% 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

14.10.2022 – Two pieces of news have caused new nervousness in the market for wheat. One comes from Russia, the other from the United States. We shed light on the background.

First, Russia’s ambassador to the United Nations in Geneva, Gennady Gatilov, threatened that the agreement to export Ukrainian grain through the Black Sea could well be revoked. On the other hand, data from the U.S. Department of Agriculture indicate that American farmers are likely to export less wheat than they have in about half a century. The four-hour chart of wheat speaks a clear language: the market is assuming a severe shortage.

Source: Bernstein Bank GmbH

First to Russia. Gatilov, according to the Reuters news agency, said he had handed over a letter to UN Secretary-General Antonio Guterres listing concerns about extending the wheat deal brokered by Turkey. Thus, next month, an extension of the agreement may fail to materialize if Russia’s demands are not met. Specifically, the Russian diplomat is calling for better conditions for Russian exporters on grain and fertilizer. The agreement had provided reassurance on prices in July. Rabobank speculated that the breach of the deal was already priced into the market.

Ukraine harvest at risk

However, consultancy McKinsey continued to see problems in the market regardless of the export agreement. Because of the fighting and the minefields, the coming harvest in Ukraine will be 35 to 45 percent lower. Whereas, again, the U.S. Department of Agriculture, in its World Agricultural Demand and Supply Estimates a month ago, sees an increase in the global crop – which is mainly due to Russia. Our take: Russian grain might not reach the West because of sanctions.

Fewer U.S. exports

Further, financial blog ZeroHedge reported the U.S. Department of Agriculture has lowered its outlook for U.S. exports in the coming season by 50 million bushels to 775 million. This would be the lowest level since 1971. Already almost a month ago, several high-ranking agro-managers from Bayer, Corteva, Archer Daniels Midland and Bunge had sounded the alarm in the “Wall Street Journal”. According to them, it would take at least two good harvests in North and South America to relieve the supply pressure. Both regions went through extreme droughts in the summer.
The conclusion to be drawn from this mixed situation is that the supply of wheat to the Western world is probably facing some problems at the moment. Which should drive prices. Bernstein Bank is keeping an eye on the situation for you.

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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. 68% 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

13.10.2022 – It smells like a crash: The Federal Reserve has provided the Swiss National Bank with a short-term credit line. And to the European Central Bank at the same time. At the same time, the major Swiss bank Credit Suisse can’t get out of the headlines because of its problems. Is there a connection here?

The crisis signals in the financial system are piling up. First, the Japanese National Bank had to intervene to support the dollar. Then the British pound got into turmoil. These are not over yet: just now, Andrew Bailey, the governor of the Bank of England, tightened the situation. He announced that the purchase of British government bonds to prop up domestic pension funds would end this Friday. World stock markets reacted with dismay. It looks like the U.S. junk bond market is now sliding as well – collateralized loan obligations are selling off.
3.1 billion dollars from the Fed
And now a new crisis signal from Switzerland. According to the financial blog ZeroHedge, the Federal Reserve has transferred $3.1 billion to the Swiss National Bank to cover a dollar supply emergency. This is the first time the Fed has sent greenbacks to the SNB this year, it said. The maturity is scheduled for Oct. 13, and the interest rate is 3.33 percent. See here: Central Bank Liquidity Swap Operations – FEDERAL RESERVE BANK OF NEW YORK (newyorkfed.org) The blog asked whether a “funding panic” was imminent. That is, someone desperately needs money and no one is lending any. So the central bank has to step in as lender of last resort. The question is whether the Swiss stock market – the picture shows the daily chart of the SMI 20 – will just shrug it off. In any case, short-term support had better hold.

Source: Bernstein Bank GmbH

The more important question is whether and who is left high and dry. In the 2008 financial crisis, the shares of Lehman Brothers and Bear Stearns were signaling that something was violently out of control. Credit Suisse may have just taken on that role. Indeed, the bank has demanded a lot from its investors in recent weeks. Since the beginning of this year, Switzerland’s second-largest financial house has lost around half of its stock market value. The bank closed the first half of the year with a loss of 1.9 billion francs. For the full year, the rating agency Moody’s expects a minus of three billion dollars. Credit Suisse has announced a “comprehensive strategy review,” with the results to be presented on October 27.

Problems at Credit Suisse
Two hedge fund bankruptcies cost about six billion euros. A data leak exposed criminal dealings with war criminals, gangsters and autocrats. In addition, CS currently has to pay more money for so-called credit default swaps. This is how banks protect themselves against loans that are not repaid: If the debtor goes bankrupt, the insurance takes over. According to media reports, credit default swaps are three to four times more expensive at CS than at its competitors. CS also faces losses from discontinued business in and with Russia. In addition, the exit from the risky investment business will be expensive for years.

Feast for Shorties
Andreas Venditti, an analyst at Bank Vontobel, said in an interview with the “Frankfurter Allgemeine Zeitung” that the share price could continue to go wildly up and down for the time being, especially since short sellers apparently also have their fingers in the pie. Only when it is clear exactly what the – presumably very costly – corporate restructuring will look like and how it will be financed, can the value of the bank be determined.
Our conclusion: Perhaps CS will manage the turnaround and we will experience a short squeeze. Perhaps the Fed’s loan to the SNB should not be overestimated either. Possibly the money is not for Credit Suisse at all. But the bank definitely has some problems to deal with – and it is indeed systemically important for the Swiss financial center. In any case, there is a string of news that is making some investors extremely nervous, because it is reminiscent of the crash of 2008. Bernstein Bank advises increased vigilance – perhaps you should use part of your portfolio for Protective Puts.

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. 68% 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