October 22, 2023

Oil Hits 90 USD on War Escalation Fear as Stocks Drop

📰 News Organizations

  • Oil Hits $90 on War Escalation Fear as Stocks Drop. Stocks fell around the globe, bonds rose and oil hit $90 a barrel on concern that the Israel war with Hamas will escalate into a wider conflict in the Middle East. The S&P 500 dropped for a fourth straight session.

  • Bank Stocks Take Another Hit After Weak Earnings. The KBW Nasdaq Bank Index, which includes the largest U.S. banks, was down more than 3%, while an index of smaller regional banks was down by a similar amount.

  • X to Launch Two New Tiers of X Premium. Elon Musk tweeted that one is lower cost with all features, but no reduction in ads, and the other is more expensive but has no ads. It’s unclear if the $1 annual subscription is one of the two new subscription tiers.

  • China to Curb Graphite Exports. China said on Friday it will require export permits for some graphite products to protect national security, in its latest move to control supplies of critical minerals in response to challenges over its global manufacturing dominance.

  • Credit Suisse Readies for More Job Cuts. The Swiss bank informed employees the reductions will start Nov. 6, targeting 10% of its support staff, likely in areas such as compliance, risk and marketing.

  • Big Banks Are Quietly Cutting Thousands Of Employees. The next five largest U.S. banks cut a combined 20,000 positions so far this year. A key factor driving the cuts is that job-hopping in finance slowed drastically from earlier years.

🐦 Twitter

  • There’s very little housing market churn (i.e. someone selling their home to buy something new) happening right now. Essentially, many homeowners are hesitant to sell their properties and buy something new because of the financial shock of the payment. Source.

  • The government can't keep exponentially worsening its debt problem while the Fed deliberately increases the cost to service it. We are facing a trifecta of macro imbalances, and ultimately, financial repression must be restored. Source.

  • While many emerging FX have sold off as US yields and the dollar have risen, it is notable that spreads have not done so (outside of Turkey). EM countries often bear the biggest brunt as liquidity recedes, but many of today's EMs are in better shape than in past cycles. Source.

  • The Fed is losing control over the bond market. This is partly by design, but I wonder how much more discussion there'll be about the Fed's balance sheet over the next 6-12 months as it keeps shrinking and long-term bond yields keep swinging. Source.

  • Supply-and price-related stress eased in October per the Philadelphia Fed Manufacturing Index update. Delivery times remain in contraction and are hovering near the lower end of the historical range. Source.

The key point that investors need to understand is while economists used to quip that central banks were the "only game in town" because markets danced to their tune, now they are being eclipsed by geopolitics.

Jesse Felder

📓 Online Publications

  • NMHC: Apartment Market Continues to Loosen. The Market Tightness Index came in at 21 this quarter—below the breakeven level 50—indicating looser market conditions for the fifth consecutive quarter.

  • Dollar at Risk. The US dollar can’t hold its value while the debt continues to accelerate at such an incredible pace. The national debt has increased by more than $600 billion in the last month. That is $20 billion every day or $833 million every hour.

  • U.S. Tightens Curbs on AI Chip Exports to China. The updated rules expand the U.S. government’s authority to determine what products U.S. companies can and can’t sell. Shipments of high-end AI chips by Nvidia and Intel for the Chinese market are banned without a license.

  • Despite a Harsh Market, Homes are Selling Faster. For the week ending Oct. 14, homes spent one day less on the market than the same week last year. In other words, there are still eager homebuyers ready to pounce on decent properties.

🎧 Podcasts

  • Supply Driven Inflation to Persist. Michael Nicolettos says supply-driven inflation persists with rates on the rise, expected to stabilize around 3%. Despite the global economic slowdown, resilient markets are buoyant thanks to sustained liquidity from central bank policies. Source(5:35)

  • Energy Inflationary Impulse Ahead. Darius Dale expects significant energy-driven inflation in the coming months, with escalating geopolitical tension in the Middle East and the potential for a broader proxy war involving the US, Iran, and other Arab nations. Source(10:14)

  • X Tests $1 Subscriptions. X announced it will begin a test that charges users $1 per year in New Zealand and the Philippines in order to “post and interact with other posts.” X said it is part of a program designed to fight spam and bot activity. Source(33:56)

  • Mortgage Rates Surging Amid Uncertainty. Housing is not overheating because there is a supply shortage structurally. The opposite is happening. Mortgage rates have reached 8%, indicating heightened uncertainty among issuers. Source(40:51)

  • Technology Likely to Become 50% of S&P 500. Periods of labor shortage historically drove technology stock surges, notably in 1948-1967 and 1991-1999. The ongoing labor shortage aligns with a rise in tech stocks and new technology, suggesting a trend possibly extending beyond the 2030s. Source(54:38)