Ahead of Target

The European Union is set to meet its gas storage goal two months ahead of target as the bloc braces for a tough winter. Reserves were filled up to 79.4% as of Aug. 27 with a target of 80% by Nov. 1. The EU bolstered its storage rules earlier this year after levels last winter turned out lower than in past years, particularly in German sites controlled by Russian exporter Gazprom. Still, the bloc is preparing emergency steps to fix its power market and the French government urged businesses to cut energy use or face possible rationing.

QT Time

The Fed will finally begin unloading the Treasury bills it started amassing almost three years ago as it ramps up unwinding its $9 trillion portfolio. It plans to boost its monthly caps for Treasuries and holdings of mortgage-backed securities that it will let mature to $60 billion and $35 billion, respectively. There’s been keen interest in the Fed’s bill holdings because it didn’t own any of the securities the last time it undertook so-called quantitative tightening. It’s also critical for money-market traders who have been struggling to find assets in which to invest. 

Not Panicking

Investors have showed few signs of panic during a stock rout wiping out $3 trillion, going by everything from fund flows to options trading. One sign nerves are in check: As the S&P 500 dropped more than 3% Friday, the Cboe Volatility Index, a measure of options cost that’s also known as VIX, was stuck near 25, lower than in the six other instances this year when stocks sold off like this. Light positioning among professional investors has helped keep emotions in check. Mutual funds are in defensive postures, while hedge funds cut exposure ahead of market catalysts. The lack of full-blown capitulation is a sign the carnage is not over. 

More Aid

UK Chancellor of the Exchequer Nadhim Zahawi said he’s working on additional measures to help households and businesses with soaring energy bills. The proposals will help the incoming prime minister “hit the ground running” after a leadership vote in the governing party concludes next week, Zahawi said in an interview with Bloomberg Television. Smaller businesses, in particular, will likely need assistance as a result of the energy crisis. Zahawi’s remarks come as economic headwinds build against the UK, with the Bank of England predicting a recession lasting more than a year.

Coming Up…

European shares are poised to edge higher, while Asian stocks stalled as investors continue to digest the Fed’s outlook. ECB Governing Council members participate in an event in Austria. New York Fed President John Williams also speaks. Europe’s energy crisis will be high on the agenda when German Chancellor Olaf Scholz and his ministers meet for a two-day cabinet retreat. Expected data include Swedish manufacturing confidence as well as inflation from Spain and Germany. Partners Group, Bank of Montreal and CrowdStrike are among companies on tap for earnings.

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(Source: Bloomberg, August 30-2022)