“The tipping point is not a question of if, but when”
The number of threats facing markets; from inflation, central bank hikes, war, geopolitics, recession risks, corporate earnings and bond liquidity are legion. The big risk is they combine into a chaotic tipping point, at which moment we will just have to pick up the pieces…. Again.
Its Monday morning again, so time for a quick snapshot of where the merry dance of markets shall lead us this week. The sun is shining, a heat dome approaches, but I can’t help but worry about the coming storm…
The summer somnambulance should be upon us – investment desks and traders sitting back to watch their carefully composed portfolios and positions cruise through the summer before the markets get hot again in September. At least, that’s how I remember the long-balmy days of my market childhood back when I was a young banker….
Not this year. Too many fundamental tremblors threaten to rock the markets:
Inflation, Inflation, Inflation
Supply Chains, Covid and China
Europe and the ECB
War vs Jaw
Central Banks tightening
Stock Resets and Earnings
Bond Market Meltdown
Global Trade Reset and De-Globalisation
The US, The Dollar and Trump
I predict a stormy Q3 – the usually calm languid dog-day markets of July and August being replaced by lumpy seas of bad numbers, grey storm skies as markets struggle with the acceleration of negative news-flow on inflation, corporate earnings, markets and increasingly wobbly politics, and few sharp pointy rocks of financial destruction.
It feels like we are spiralling into something messy.
Inflation headlines dominate this morning. As the Fed gets ready to hike rates to combat the highest inflation in 40 years, the FT reports the US is likely to plunge into recession next year, citing the FT-IGM survey of academic economists. (Really… who listens to economists?) The UK economy actually shrank in April because of surging prices hitting the economy.
It’s at times like this when markets become vulnerable to an increasingly chaotic narrative. Chaos quickly becomes chaotic as surprises and unexpected events spin up instability and feed each other. Suddenly we get the chaos moment, the tipping point, where markets jump out their expected ranges and become impossible to rationalise.
Maybe the straw that triggers the breakout will be an unexpected corporate event like a default, failed acquisition or profit warning? Maybe it will be something in Ukraine or the South China seas? Maybe it will be elsewhere completely? It will come on the back of a stream of reinforcing bad news, then another and suddenly the whole edifice of markets is on the slide. Maybe it will be something from the televised inquiry into the Jan 6th 2021 US capital riots? It will happen, and the next day or whenever the hurly burlys done, we try to put it back together again.
As the stronger-than expected US inflation number showed on Friday, no amount of central bank steers on supposedly “transitory” inflation adjustments to the post pandemic supply chain reopening are going to steady this market. Negative news – whether its Russian gains in Ukraine, renewed lockdown in Shanghai, or the Fed tightening US rates at this week’s FOMC by 50 bp are unlikely to support markets. They are more likely to test further downside.
There is also a certain amount of hope prevalent in this market – that central banks will step into stabilise markets, to bail out crisis and restore calm in their usual way…. throwing more money via QE at an enfolding crisis. The market knows this is possible, even probable in some cases, so it is prepared and ready to buy the moment.
While the Fed will Hike on Wednesday, and the Bank of England on Thursday, the ability of the ECB to follow through with a 25 bp hike in July is being questioned around the market. Italy is seen as the crisis point – no surprise. Fragmentation – European bond yields widening dramatically to Germany, illustrating the respective and relative economic weaknesses of each nation – is the new buzz-word in Yoorp’s bond markets.
Christine Lagarde, the ECB President and French politician, has made clear “new instruments will be made available” if “fragmentation” might “prevent adequate monetary policy transmission” – which, when translated means: if Italian bond spreads widen to Germany and threaten any kind of crisis, the ECB will act to tighten them…. By reopening Italian bond buying. Whatever it takes remains just that – which rather suggests a buy European sov bonds moment is coming. Italy bonds are currently 224 bp over Bunds. Get your buying boots ready to buy at 250.
The War in Ukraine looks stalemated, with little prospect the West will do more to supply the oomph Ukraine needs to avoid an attritional Russian win. There is an increasing sense the West’s appetite for a punishing economic war is fading – especially in Southern Europe. That wavering support will have all kinds of geopolitical consequences in terms of oil prices, growth, commodities, and the lacklustre global support vs Putin we’ve seen outside Europe and the US. (Later this week I will risk a comment on why the US is losing the plot.)
Increasingly the unwillingness of the oil producers to favour the West vs Putin highlights how the role of the US as global hegemon has broken down. Around the globe, the geopolitical trend is to look past the US and figure out the new fault-lines. Yet, the dollar remains the de-facto safe-haven trade. Last week I cited US Treasuries as the safety trade when it all goes wrong. Just how quickly could that change? When the pound sterling was knocked off the perch decades ago the dollar was the clear successor… today? Not so clear. I am favouring gold in the meantime.
In China, renewed lockdowns and the sense Covid controls have become permanent has confirmed a massive internal consumption shift has occurred. I really don’t expect to visit China any time soon, if ever again. However the XI ascendency paint it, the economy has been locked and will become increasingly internalised – and that’s just one sign of how the global economy is de-globalising.
Back in the real world of markets, I’m wondering what Q2 earnings will reveal. Just how strongly will they illustrate how inflation is beginning to snipe down retailers? How much of the pandemic economy was built on foundations of sand? (Great piece in the WSJ about how the pet-care business will prove to be a lastingly solid pandemic investment – other sectors? No so much.)
When the central banks stop buying corporate bonds, and big funds are publicly announcing they are short credit markets and long corporate default swaps, you can feel the liquidity drain out the fixed income credit market. (Fortunately, should you find yourself in need of shifting large corporate and bank debt positions – give me a call.. I have a plan. It’s as cunning as a cunning fox with a spade outside the chicken coop.)
My conclusion – whatever the market commentators are saying about a summer slowdown, don’t listen to them.
This market has so many hot-buttons with Don’t Panic printed on them, primed and ready to fire, its looking close to a chaotic breakout. Which will hurt, but spell opportunity. The problem will be acting on opportunities when a liquidity crisis in corporate bonds locks down all markets.
Remember that in market crisis its not what you want to sell, but what you can sell that matters.. (Might have to add that to my list of market mantras!)
Yom Kippur is coming soon – what does Judaism actually say about forgiveness?
Many religions value forgiveness, but the details of their teachings differ. A psychologist of religion explains how Christian and Jewish attitudes co…
The Jewish High Holidays are fast approaching: Rosh Hashana and Yom Kippur. While the first really commemorates the creation of the world, Jews view both holidays as a chance to reflect on our shortcomings, make amends and seek forgiveness, both from other people and from the Almighty.
Jews pray and fast on Yom Kippur to demonstrate their remorse and to focus on reconciliation. According to Jewish tradition, it is at the end of this solemn period that God seals his decision about each person’s fate for the coming year. Congregations recite a prayer called the “Unetanah Tokef,” which recalls God’s power to decide “who shall live and who shall die, who shall reach the ends of his days and who shall not” – an ancient text that Leonard Cohen popularized with his song “Who by Fire.”
Forgiveness and related concepts, such as compassion, are central virtues in many religions. What’s more, research has shown that it is psychologically beneficial.
But each religious tradition has its own particular views about forgiveness, as well, including Judaism. As a psychologist of religion, I have done research on these similarities and differences when it comes to forgiveness.
Person to person
Several specific attitudes about forgiveness are reflected in the liturgy of the Jewish High Holidays, so those who go to services are likely to be aware of them – even if they skip out for a snack.
In Jewish theology, only the victim has the right to forgive an offense against another person, and an offender should repent toward the victim before forgiveness can take place. Someone who has hurt another person must sincerely apologize three times. If the victim still withholds forgiveness, the offender is considered forgiven, and the victim now shares the blame.
The 10-day period known as the “Days of Awe” – Rosh Hashana, Yom Kippur and the days between – is a popular time for forgiveness. Observant Jews reach out to friends and family they have wronged over the past year so that they can enter Yom Kippur services with a clean conscience and hope they have done all they can to mitigate God’s judgment.
The teaching that only a victim can forgive someone implies that God cannot forgive offenses between people until the relevant people have forgiven each other. It also means that some offenses, such as the Holocaust, can never be forgiven, because those martyred are dead and unable to forgive.
To forgive or not to forgive?
In psychological research, I have found that most Jewish and Christian participants endorse the views of forgiveness espoused by their religions.
As in Judaism, most Christian teachings encourage people to ask and give forgiveness for harms done to one another. But they tend to teach that more sins should be forgiven – and can be, by God, because Jesus’ death atoned vicariously for people’s sins.
Even in Christianity, not all offenses are forgivable. The New Testament describes blaspheming against the Holy Spirit as an unforgivable sin. And Catholicism teaches that there is a category called “mortal sins,” which cut off sinners from God’s grace unless they repent.
One of my research papers, consisting of three studies, shows that a majority of Jewish participants believe that some offenses are too severe to forgive; that it doesn’t make sense to ask someone other than the victim about forgiveness; and that forgiveness is not offered unconditionally, but after the offender has tried to make things right.
Take this specific example: In one of my research studies I asked Jewish and Christian participants if they thought a Jew should forgive a dying Nazi soldier who requested forgiveness for killing Jews. This scenario is described in “The Sunflower” by Simon Wiesenthal, a writer and Holocaust survivor famous for his efforts to prosecute German war criminals.
Jewish participants often didn’t think the question made sense: How could someone else – someone living – forgive the murder of another person? The Christian participants, on the other hand, who were all Protestants, usually said to forgive. They agreed more often with statements like “Mr. Wiesenthal should have forgiven the SS soldier” and “Mr. Wiesenthal would have done the virtuous thing if he forgave the soldier.”
It’s not just about the Holocaust. We also asked about a more everyday scenario – imagining that a student plagiarized a paper that participants’ friends had written, and then asked the participants for forgiveness – and saw similar results.
Jewish people have a wide variety of opinions on these topics, though, as they do in all things. “Two Jews, three opinions!” as the old saying goes. In other studies with my co-researchers, we showed that Holocaust survivors, as well as Jewish American college students born well after the Holocaust, vary widely in how tolerant they are of German people and products. Some are perfectly fine with traveling to Germany and having German friends, and others are unwilling to even listen to Beethoven.
In these studies, the key variable that seems to distinguish Jewish people who are OK with Germans and Germany from those who are not is to what extent they associate all Germans with Nazism. Among the Holocaust survivors, for example, survivors who had been born in Germany – and would have known German people before the war – were more tolerant than those whose first, perhaps only, exposure to Germans had been in the camps.
Forgiveness is good for you – or is it?
American society – where about 7 in 10 people identify as Christian – generally views forgiveness as a positive virtue. What’s more, research has found there are emotional and physical benefits to letting go of grudges.
But does this mean forgiveness is always the answer? To me, it’s an open question.
For example, future research could explore whether forgiveness is always psychologically beneficial, or only when it aligns with the would-be forgiver’s religious views.
If you are observing Yom Kippur, remember that – as with every topic – Judaism has a wide and, well, forgiving view of what is acceptable when it comes to forgiveness.
Adam B. Cohen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.white house pandemic covid-19 germany
EasyJet share price has collapsed by 53% in 2022. Is it a buy?
The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest…
The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest level since November 2011. It has plummeted by more than 82% from its all-time high, giving it a market cap of more than 2.5 billion pounds.
Is EasyJet a good buy?
EasyJet is a leading regional airline that operates mostly in Europe. It has hundreds of aircraft and thousands of employees. In 2021, the firm’s revenue jumped to more than 1.49 billion pounds, which was a strong recovery from what it made in the previous year.
EasyJet’s business is doing well as demand for flights rises. In the most recent results, the firm said that forward bookings for Q3 were 76% sold and 36% sold for Q4. For some destinations, bookings have been much higher than before the pandemic.
EasyJet’s business made more than 1.75 billion in revenue in the first half of the year. This happened as passenger revenue rose to 1.15 billion while ancillary revenue jumped to 603 million pounds. The firm managed to make a loss before tax of more than 114 million pounds. It attributed that loss to higher costs and forex conversions.
As I wrote on this article on IAG, EasyJet share price has collapsed as investors worry about the soaring cost of doing business. Besides, jet fuel and wages have jumped sharply in the past few months. Also, analysts and investors are concerned about flight cancellations in its key markets.
Still, there is are two key catalysts for EasyJet. For one, as the stock collapses, it could become a viable acquisition target. In 2021, the management rejected a relatively attractive bid from Wizz Air. Another bid could happen if the stock continues tumbling.
Further, the company could do well as the aviation industry stabilizes in the coming months. A key challenge is that confidence in Europe and the UK.
EasyJet share price forecast
The daily chart shows that the EasyJet stock price has been in a strong bearish trend in the past few months. During this time, the stock has tumbled below all moving averages. It has also formed what looks like a falling wedge pattern, which is usually a bullish sign.
The Relative Strength Index (RSI) has dropped below the oversold level while the Awesome Oscillator has moved below the neutral point.
Therefore, in the near term, the stock will likely continue falling as sellers target the support at 270p. In the long-term, however, the shares will likely rebound as the falling wedge reaches its confluence level.
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August data shows UK automotive sector heading for a “cliff-edge” in 2023
With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly…
With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly towards the tail end of the yield curve (details of which were reported on Invezz here).
Car manufacturing is a key industry in the UK. Recently, it registered a turnover of roughly £67 billion, provided direct employment to 182,000 people, and a total of nearly 800,000 jobs across the entire automotive supply chain, while contributing to 10% of exports.
Just after midnight GMT, data on fresh car production for the month of August was released by the Society of Motor Manufacturers and Traders Limited (SMMT).
Strong annual growth but monthly decline
Car production in the UK surged 34% year-over-year settling at just under 50,000 units. This marked the fourth consecutive month of positive growth on an annual basis.
However, twelve months ago, production was heavily dampened by a plethora of supply chain bottlenecks, work stoppages on account of the pandemic, and a worldwide shortage of microchips. The August 2021 output of 37,246 units was the lowest recorded August volume since way back in 1956.
Although the improvement in output is a good sign, equally it is on the back of a heavily depressed performance.
To place the latest data in its proper context, production is still 45.9% below August 2019 levels of 92,158 units, showing just how far adrift the industry is from the pre-pandemic period.
Since July, production in the sector fell 14%.
The fact that the UK is facing a deep economic malaise becomes even more evident when we look at full-year numbers for 2020 and 2021.
In 2020, total output came in at 920,928 units, while 2021 was even lower at 859,575. The last time that the UK automotive sector produced less than one million cars in a calendar year was 1986.
Unfortunately, 2022 has seen only 511,106 units produced thus far, a 13.3% decline compared to January to August 2021.
In contrast, the 5-year pre-pandemic average for January to August output from 2014 – 2019 stands well above this mark at 1,030,527 units.
With car manufacturers tending to pass price rises on to consumers, demand was dampened by surging costs of semiconductors, logistics and raw materials.
The SMMT noted,
The sector is now on course to produce fewer than a million cars for the third consecutive year.
Ian Henry, managing director of AutoAnalysis concurred with the SMMT’s analysis,
It is expected that by the end of this year car production will reach 825,000, compared to 850,000 a year ago, but that’s 35% down on 2019 and a whopping 50% on the high figure of 2017.
Other than the obvious fact that the UK’s economic atmosphere is in hot water, the automotive industry (including component manufacturers) has been struggling to stave off the high energy costs of doing business.
In a survey, 69% of respondents flagged energy costs as a key concern. Estimates suggest that the sector’s collective energy expenditure has gone up by 33% in the last 12 months reaching over £300 million, forcing several operations to become unviable.
Although the government enacted measures to cap the price of energy and ease obstacles to additional production, Mike Hawes, the CEO of SMMT, said,
This is a short-term fix, however, and to avoid a cliff-edge in six months’ time, it must be backed by a full package of measures that will sustain the sector.
Due to the meteoric rise in costs across the automotive supply chain, 13% of respondents were cutting shifts, 9% chose to downsize their workforce and 41% postponed further investments.
Uncertainties around Brexit and the EU trade deal are yet to be resolved.
Moreover, the energy crisis is poised to get even more acute unless Russia withdraws from the conflict, or international leaders ease restrictions on Moscow. Last week, I discussed the evolving energy crisis here.
With global central banks expected to tighten till at least the end of the year, demand is likely to be squeezed further pressurizing British car manufacturers.
Electric vehicles made up 71% of car exports from the UK in August, but robust growth in the sector looks challenging in the near term, in the absence of widespread charging infrastructure, high electricity prices and globally low consumer confidence.
Although energy subsidies could provide some relief in the immediate future, the industry will remain in dire straits while investments stay low and the shortage in human capital persists, particularly amid the push for EVs.
Given the prevailing macroeconomic environment, and severe market backlash to Truss’s mini-budget (which I discussed in an earlier article), the sector is unlikely to turn the corner any time soon.
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