Support Package

Liz Truss promised a major package of support this week to tackle soaring UK energy bills, in her first national address as leader. Her speech was dominated by a cost-of-living crisis that is likely to make or break her premiership. She succeeds Boris Johnson with the country facing brutal economic headwinds that threaten to plunge millions of Britons into poverty this winter. Her team is expected to announce Thursday an economic intervention that could see the government spend as much as £200 billion over the next 18 months to contain energy prices, according to sources. If Truss does freeze energy bills for households and business, Britain’s inflation rate may have already peaked. 

Ruined Bets

After spending much of 2022 playing defense, hedge funds are reasserting themselves with aggressive equity bets on both the short and long side. Hedge funds have raised exposure in back-to-back weeks, data from Goldman Sachs’s prime brokerage show, increasing short sales via macro products such as index futures while buying shares of individual firms. The same trends were observed by Morgan Stanley. The data suggest that money mangers are both keen to pick up bargains and leery about the broader market’s direction. And so hedge funds are gearing up for  Sohn’s Hong Kong investment conference with 2021’s bullish bets in tatters.

Dollar Pain

Developed economies are taking a hit from the dollar’s appreciation to multi-decade highs in ways that were once more familiar to their emerging market peers. Fueled by the Federal Reserve’s most aggressive tightening cycle in more than a generation, the stronger greenback is pushing rival currencies lower, driving up the cost of imported goods, constricting financial conditions and feeding inflation in other economies. That’s ratcheting up pressure on central banks in Australia, Canada and New Zealand to raise interest rates just as an energy crisis and spiraling consumer prices hobble Europe’s economies. Yet their ability to influence the dollar’s strength is limited. While global ripples from Fed tightening aren’t new, this is the first episode in recent years where serious dollar strength has been more notable against developed-nation currencies as a group than versus emerging economies. 

New Market

Russia wants to buy millions of rockets and artillery shells from North Korea to use in its war against Ukraine, in a sign that Western sanctions on its military and economy are starting to bite, US officials said. The move would violate a United Nations arms embargo that Russia voted for. Meanwhile, one week into Ukraine’s counteroffensive, the operation’s limited scale and goals in the south are becoming clearer, as the two sides head toward a long and difficult winter. And Putin has a fresh battle on his hands — he now wants to win the global fight for “cultural supremacy.”

Coming Up…

European stocks are headed for losses as the dollar gained on bets for aggressive Fed tightening. Apple is expected to unveil the iPhone 14 and its next slate of smart watches at a launch event. Bank of England Governor Andrew Bailey appears before the Treasury Committee. The Fed releases its Beige Book of regional economic activity. The central bank’s vice chair for supervision Michael Barr participates in a Brookings Institution event, while Cleveland Fed President Loretta Mester also speaks. Expected data include industrial production from Sweden, Norway and Germany, as well as Italian retail sales. Nio, Copart and GameStop are among companies scheduled to report earnings.

————————————-

(Source: Bloomberg, Sept. 7-2022)