On to this week.
The big news to hit was that the Bank of England did over a $70bln bond purchase to provide liquidity to overleveraged pension funds. These funds were margin called and would have gone under if the BOE did not intervene. The bank said that they are prepared to do whatever is needed to stabilize the markets.
The investment community is looking at this as the first domino to fall. It’s just a matter of time until other funds, institutions, banks, etc. follow suit and will require help to survive. In fact, many are speculating that Credit Suisse and/or Deutsche Bank may be next.
Should this happen, there will be panic in the markets. Investors will dash to cash (think March 2020) and the money will wait on the sidelines until they see how the Fed responds. Fed will most likely bail them out, the “pivot” will have begun, and then it’s off to the races. The “recession” story will replace the “inflation” one.
The Bank of England news coupled with a general fear of the state of the global financial system has caused the Fed to host an immediate, closed meeting tomorrow. Click HERE for more details.
We have a busy week that ends with the unemployment rate report. We also hear from a lot of Fed members.
Monday
- Construction Spending
- NY Fed President Williams Speaks
- Manufacturing Data
- Fed Closed Door Meeting
Tuesday
- Cleveland Fed President Mester Speaks
- Job Openings / Quits
- Fed Gov Jefferson Speaks
- SF Fed President Daly Speaks
Wednesday
- ADP Employment Data
- International Trade Balance
- Atlanta Fed President Bostic Speaks
Thursday
- Initial and Continuing Jobless Claims
- Cleveland Fed President Mester Speaks twice today
- Fed Gov Cook Speaks
Friday
- Unemployment Rate
- NY Fed President Williams Speaks
- Minneapolis Fed President Kashkari Speaks
- Fed Gov Waller Speaks
Chart Check (see above)
September held on to its reputation of being a horrible month for markets. The panic from last week helped set a new low for the 30yr MBS.
Without the Fed being dovish, I would expect more pain before things get better. However, with everything that has transpired this past week, it’s just a matter of time until we see more bond purchases, stimulus, and rate cuts.
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