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Futures Jump, Yields And Dollar Slide After Gundlach Says He’s A “Buyer” Of Treasuries

Futures Jump, Yields And Dollar Slide After Gundlach Says He’s A "Buyer" Of Treasuries

US equity futures and European stocks staged a solid…

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Futures Jump, Yields And Dollar Slide After Gundlach Says He's A "Buyer" Of Treasuries

US equity futures and European stocks staged a solid rebound after the recent rout which saw the S&P close at a fresh 2022 low on Monday, as the dollar finally weakened against all of G-10 peers, snapping a five-day gain of new record highs as Treasury yields fell and the pound rebounded from a record low, even as (or perhaps because) Goldman Sachs and BlackRock soured on equities for the short term and Citigroup said bearish positioning continues to rise. As of 715am, S&P Futures traded 43 points, or 1.2% higher, at 3,714 while Nasdaq futures were 1.3% higher. 10Y yields dropped to 3.80% after rising above 3.90% late on Monday.

The dollar gauge dipped but held near the record high set Monday, when a barrage of Fed officials repeated hawkish comments on policy. Meanwhile, European authorities are probing “unprecedented” damage to the Nord Stream pipeline system that transports Russian gas to the region. Benchmark European gas prices climbed as much as 12% on Tuesday, after four days of losses. Oil and gold also rose.

One potential catalyst for the bounce in risk sentiment, and drop in TSY yields, was a tweet from bond king Jeff Gundlach just after midnight EDT, in which we said that "the U.S. Treasury Bond market is rallying tonight.  Been a long time.  I have been a buyer recently."

Which is good- it means that there’s at least one major investor who thinks the worst global bond rout in decades is creating a buying opportunity. Now if only all the others shared his sentiment. In any case, his contrarian position was enough to avoid 10Y yields surging above 4% tonight... it remains to be seen if this persists tomorrow and subsequently.

In premarket trading, tech giants such as Apple, Amazon.com and Alphabet advanced more than 1% in premarket trading as US index futures rebounded with Europe’s Stoxx 600. Here are some other notable premarket movers:

  • Cryptocurrency-exposed shares rise in premarket trading, as Bitcoin jumped to breach the closely watched $20,000 level. MicroStrategy (MSTR US) +4.9%, Marathon Digital (MARA US) +5.8%, Hut 8 Mining (HUT US) +6.4%, Coinbase (COIN US) +5%, Riot Blockchain (RIOT US) +4.8%.
  • Shares in 9 Meters Biopharma (NMTR US) jump as much as 40% in premarket trading, with Oppenheimer raising its price target on the biotech to a Street-high after the company reported data from a Phase 2 study of vurolenatide.
  • US-listed Macau casino and China travel stocks are on track to rise for a second day, after those listed in Hong Kong extended gains on growing optimism in a tourism revival. Wynn Resorts (WYNN US) +1.8% and Melco Resorts (MLCO US) +2% in premarket trading.
  • Grab (GRAB US) stock climbed 1.1% in premarket trading after the Southeast Asian internet giant said it pursues profitability in 2024, though expects revenue to slow significantly.
  • Keep an eye on Keurig Dr Pepper (KDP US) as Goldman Sachs downgraded the stock to neutral, saying that the company is still executing well in a tough environment, but the risk-reward seems more balanced from here.
  • Keep an eye on Arcos Dorados (ARCO US) as the stock was initiated with an overweight rating at Barclays, with broker saying that the McDonald’s franchisee is solidly positioned amid headwinds.

Even as dip buyers emerged on Tuesday, global markets remained on edge as investors braced for a heightened risk of global recession.  Volatility across markets was also reflected by the risk of future price swings, which reached the highest since the beginning of the pandemic, as shown by a Bank of America index.

Despite today's bounce, the turmoil in markets shows little sign of turning Fed officials away from hawkish rhetoric. Boston Fed President Susan Collins and her Cleveland counterpart Loretta Mester said additional tightening is needed to rein in stubbornly high inflation and Atlanta Fed President Raphael Bostic also said the central bank still has a ways to go to control inflation.

“The market is pricing in some Fed increases, but we’re a bit worried that it might not be pricing in everything,” Laila Pence, president of Pence Wealth Management, said on Bloomberg Television. “Everyone is nervous.”

In Europe, the Stoxx 50 rose 0.6%, also bouncing after a rout, but traded off session highs as risk sentiment took a small hit after Nord Stream said the damage to the Russian gas pipeline is unprecedented, even as the pullback of the dollar gave some relief to assets. Travel, miners and tech are the strongest performing sectors. Italy’s FTSE MIB index fell 0.9% as of 11:16am, the worst performer among major European stock markets on Tuesday, with utilities and financials dragging the benchmark lower. The BTP-bund spread widens as much as 256bps, climbing above 250bps for the first time since May 2020. FTSE MIB had climbed as much as 1.4% in early trading. Worst performers on the index include: Terna -3.9%, Enel -3.4%, FinecoBank -3.3%, Saipem -2.8%, A2A -2.3%, Generali -2.2%, Intesa Sanpaolo -1.3%. UK markets clawed back some losses after a meltdown triggered by the government’s fiscal plan late last week. Here are some of the biggest European movers this morning:

  • Nexi shares jump as much as 8%, the largest intraday advance in two months, after announcing net revenue and Ebitda growth goals for 2021-2025, which analysts said are ahead of or meet their expectations. Payment peers Adyen, Worldline and Network International also rise
  • Biffa shares rise as much as 29% after investment firm ECP agrees to buy the UK waste-management company at 410p/share in cash
  • SSP rises as much as 6.8% after the company boosted its full-year forecast, which Goodbody says should provide some near-term relief
  • Quadient gains as much as 6.8% after the French postal- and document-services company reported 1H results that Portzamparc says show recovery
  • Vitrolife drops as much as 20%, its largest intra-day decline since February, as Bank of America-Merrill Lynch initiates coverage calling the share overvalued, while spotting risks on the horizon
  • Close Brothers shares decline as much as 8.1% after the financial services group reported adjusted operating profit for the full year that missed the average analyst estimate
  • Akzo Nobel shares slide as much as 3.3% after the company reported preliminary 3Q adjusted operating profit that was well below estimates. Analysts notied that raw material cost inflation is expected to peak in 3Q
  • Real estate was the worst performing European equity sector for a second day, dragged down by UK and Swedish property stocks. Segro -3.3%, Rightmove -5.1%, LXI REIT -3.3% and Samhallsbyggnadsbolaget i Norden -4.7%, Fabege -2.9%, Castellum -2.5%

Earlier in the session, Asian stocks rose from their lowest level in more than two years as equities in China and Japan advanced.    The MSCI Asia Pacific Index added as much as 0.5%, poised to snap four-days of losses. Consumer staples and materials led the measure higher as Meituan, BHP and Toyota gave the biggest boosts to the measure.  Equities in mainland China were notable winners, with the CSI 300 Index finishing 1.5% higher. Several big mutual funds and brokers were asked by Chinese regulators to refrain from large sales of stocks before the party congress in October, Bloomberg News reported. The Hang Seng Tech Index gained, erasing a loss of as much as 1.8%.  The region’s stocks suffered days of selling after the Federal Reserve last week signaled more interest-rate hikes are in store, further strengthening the dollar and tightening global finances. Asian currencies tumbled, raising capital outflow risks and driving key equity gauges lower. 

“Although we could see quant traders likely to swoop and trigger a rally, we emphasize that headwinds still remain in place,” including higher bond yields as well as the dollar, Saxo Capital Markets analysts including Redmond Wong wrote in a note.   Japan’s stocks were among Tuesday’s biggest gainers as the yen weakened, bolstering the profit outlook for exporters. The Philippine benchmark fell to a two-year low, approaching a bear market, as trading resumed after one-day closure due to a typhoon. Key stock gauges in Hong Kong, China, South Korea, Taiwan and Vietnam are all down more than 20% so far this year, along with MSCI’s broadest regional measure.  Tech-heavy markets have suffered as rising rates and a stronger dollar fan valuation concerns. Taiwan will evaluate stock-stabilizing measures cautiously as they are a double-edged sword that may help prices but hurt liquidity, the Financial Supervisory Commission chief said Tuesday. 

Japanese equities climbed, rebounding from a three day drop, as a weaker yen boosted shares of exporters.  The Topix rose 0.5% to close at 1,873.01, while the Nikkei advanced 0.5% to 26,571.87. The yen strengthened slightly after dropping 1% against the dollar Monday. Toyota Motor Corp. contributed the most to the Topix gain, increasing 1.2%. Out of 2,169 stocks in the index, 1,245 rose and 785 fell, while 139 were unchanged. “As long as US stocks don’t fall drastically, Japanese shares have shown an ability to be resilient,” said Hideyuki Suzuki, a general manager at SBI Securities. Japanese stocks have been supported by low valuations as well as Prime Minister Kishida’s moves to raise the limit for tax breaks on individual investment and relax border controls.

In Australia, the S&P/ASX 200 index rose 0.4% to close at 6,496.20, boosted by gains in mining and energy stocks.  In New Zealand, the S&P/NZX 50 index fell 1.9% to 11,214.49.

In FX, the Bloomberg Dollar Spot Index retreats as all G-10 peers advance and as treasuries gained led by the belly as Fed tightening wagers were pared.

  • The pound bounced, reclaiming 1.08 against the dollar and trading around where it closed Friday against both the euro and dollar, with measures of implied volatility remaining elevated as investors brace for more swings. Focus on possible action from policy makers and a speech by the Bank of England’s Huw Pill. Overnight volatility in cable traded earlier at 44.76%, its strongest level since March 2020. Gilts traded higher led by the front-end of the curve as traders trimmed BOE tightening bets amid UK currency gains
  • The euro pared some gains against the US dollar, after Nord Stream reported “unprecedented” damage to the Russian gas pipeline. The common currency still traded above $0.96. Italian bonds extended their underperformance against German peers to a third day, the longest streak since the beginning of the month, as investors continued to digest the right-wing coalition’s election win
  • Japan’s yield curve bear steepens as the BOJ’s unscheduled bond purchases are dwarfed by a deepening selloff in global debt. Japan’s 20-year bond yields rose to the highest level since 2015 as global debt markets come under increasing pressure due to expectations of further monetary-policy tightening. The yen rises for the first time in three days as the dollar weakens. Forget the risk of intervention by Japanese officials in the spot market. Yen traders are more concerned over a potential pivot by the Bank of Japan. The volatility term structures in the euro, the pound and the Swiss franc are fully inverted whereas the one in the yen peaks on the two-month tenor

In rates, treasuries rebounded in Asian trading after 10-year yields jumped the most since March 2020 on Monday.  Japan 10-year yields edge up to 0.25%, the top of BOJ’s tolerated range, prompting the BOJ to enact another unscheduled bond-buying operation. 10-Year Treasury yields were  down 11bps to 3.81%; the 10-year yield surged 24bps Monday, the most since March 2020, after poor demand for a two-year auction triggered renewed selling across the curve. One catalyst for the move was Doubleline’s Gundlach who tweeted that he has been a recent buyer. Still, the selloff is seeing few signs of ending, with UK notes losing a stunning 27% this year.  The “bond vigilantes” are back in the saddle, according to the veteran economist credited with coining the term in the 1980s. Gilt yields slid following the biggest-ever surge and the pound rose about 1% after falling to a record low. Traders remained wary of the risk that the currency could slump to parity with the dollar after the Bank of England indicated it may not act before November to stem the rout. Peripheral spreads widen to Germany with 10y BTP/bund widening 10.3bps to 254.1bps.

In commodities, WTI climbed 1.6% to below $78, within Monday’s range. Spot gold rises roughly $15 to trade near $1,638/oz.  There has been focus this morning on Nord Stream 1 & 2 damage with the cause currently unknown and fresh reporting around a potential EU gas price cap, to be discussed on Friday. The German network regulator later stated that it did not know the cause of the Nord Stream 1 pressure drop but didn't see any impact on the security of supply, according to Reuters. At least 12 countries have signed a letter which calls on the EU to propose a gas price cap at this week's Energy Ministers meeting via Politico citing a letter; proposals will be discussed on Friday, September 30th. A completely clueless President Biden said companies running gas stations need to bring down gasoline prices at the pump now,. BP (BP/ LN) halted production and evacuated staff at two offshore oil platforms in the US Gulf of Mexico ahead of Hurricane Ian.  Intercontinental Exchange is reportedly planning to accept allowances generated by the carbon market as collateral in its European futures market to ease the pressure on utilities and traders amid the energy crisis, according to FT.

Looking at the day ahead, data releases from the US include the Conference Board’s consumer confidence for September, the preliminary reading for durable goods orders and core capital goods orders for August, the FHFA house price index for July, and new home sales for August. Meanwhile in the Euro Area, we’ll get the M3 money supply for August. Central bank speakers include Fed Chair Powell, as well as the Fed’s Evans, Bullard and Kashkari, ECB Vice President de Guindos, the ECB’s Centeno, Villeroy and Panetta, as well as BoE chief economist Pill.

Market Snapshot

  • S&P 500 futures up 1.2% to 3,715.75
  • STOXX Europe 600 up 0.8% to 391.77
  • MXAP up 0.5% to 142.53
  • MXAPJ up 0.4% to 464.38
  • Nikkei up 0.5% to 26,571.87
  • Topix up 0.5% to 1,873.01
  • Hang Seng Index little changed at 17,860.31
  • Shanghai Composite up 1.4% to 3,093.86
  • Sensex up 0.4% to 57,399.07
  • Australia S&P/ASX 200 up 0.4% to 6,496.16
  • Kospi up 0.1% to 2,223.86
  • German 10Y yield little changed at 2.11%
  • Euro up 0.3% to $0.9637
  • Brent Futures up 1.8% to $85.61/bbl
  • Gold spot up 0.9% to $1,637.52
  • U.S. Dollar Index down 0.43% to 113.62

Top Overnight News from Bloomberg

  • Options traders haven’t been this busy since the pandemic mayhem in March 2020, according to data from the Depository Trust & Clearing Corporation
  • Speculators are betting the UK’s pound will slide to a level that was virtually unthinkable in recent decades: $1 or less. After the pound tumbled as low as $1.0350 Monday, the weakest on record, options markets show traders expect it to keep falling
  • The worst bond selloff in decades is seeing few signs of ending, with UK notes losing a stunning 27% this year, as central banks battle to stamp out the strongest inflationary pressures in decades
  • “Bond vigilantes” are back in the saddle and riding high again having mostly been on hiatus since the early 1990s, according to the veteran economist credited with coining the term in the 1980s
  • Traders are bracing for more pushback from China’s central bank as the yuan approaches the lowest level in 14 years. The onshore yuan has lost about 4% over the past month, trading within 1% of 7.2 per dollar, a level it hasn’t reached since 2008
  • China’s shaky recovery continued in September, with a pickup in car and homes sales in the biggest cities compensating for weaker global demand and falling business confidence
  • Japan looks to have spent more supporting the yen on Thursday alone than it did during the entire period of boosting its currency during the Asian financial crisis in 1998

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were mostly higher in which the majority of indices shrugged off the negative lead from Wall St as the overhang from the recent FX turmoil dissipated but with the recovery somewhat contained by the higher yield environment. ASX 200 eked slight gains led by the commodity-related sectors as they atoned for yesterday’s underperformance. Nikkei 225 gained after recent comments from BoJ Governor Kuroda who reaffirmed his commitment to maintaining easy monetary policy, while the central bank also announced unscheduled purchase operations. Hang Seng and Shanghai Comp were mixed with the mainland underpinned amid reports that China is to ramp up financial support for new types of infrastructure, while the PBoC conducted its largest cash injection in seven months ahead of next week’s National Day holiday. However, growth concerns lingered with the World Bank forecasting China’s economic growth to lag behind the rest of Asia for the first time since 1990. India will likely be included in the JP Morgan Emerging Market Index early 2023, according to Reuters sources.

Top Asian News

  • India Unwilling to Relent on Tax Stance for Debt Index Inclusion
  • Australia’s Pinnacle Looks for Deals in Stressed UK and Europe
  • Macau Casino, China Travel Stocks in US Extend Gains
  • India Mulls $2.5 Billion Aid to Manufacture Grid-Scale Batteries
  • Geely’s EV Truck Farizon Said to Seek $300 Million Funding Round
  • Jinke Smart Services Jumps 33% After Boyu’s Share Purchase Offer
  • TikTok Steers Its Charm Offensive Around Loudest Critics in D.C.

European bourses are mixed, Euro Stoxx 50 +0.2%, as the complex wanes from best levels ahead of a packed Central Bank agenda. Catalysts behind the pullback have been sparse with newsflow focused on geopols/energy; though, GS and BlackRock are turning more bearings on equities in the short-term. Stateside, futures remain in positive territory though have similarly drifted from initial peaks, ES +0.8%.

Top European News

  • Euro Pares Gain Versus Dollar After Nord Stream Comments
  • Odey Says Pound Still ‘Vulnerable’ as His Hedge Fund Soars 140%
  • Kwarteng Heads for a Difficult Meeting With London’s Top Bankers
  • Deutsche Bank’s Chief Economist Sees ‘Painful’ UK Recession
  • UK Labour Surges to Record 17-point Poll Lead Amid Pound Selloff
  • UniCredit Gains as JPMorgan Upgrades on Attractive Risk Reward
  • Akzo Nobel Reverses Drop as Analysts See Long-Term Opportunity

Central Banks

  • Fed's Mester (2022, 2024 voter) said further rate hikes will be needed and will need a restrictive stance for some time, while she added it can be better to act more aggressively in an uncertain environment and that pre-emptive action can prevent the worst-case outcome. Mester said this is the time to be decisive and the Fed policy rate may be right below the restrictive level, as well as noted that they are not at neutral yet and need to get above that. Furthermore, Mester said rates are not coming down next year and that at some point they would have done enough and it will be a case of balancing risk at some point, but this is not that moment, according to Reuters.
  • Fed's Evans (non-voter, departing) says US inflation is high, getting it under control is the number one job, via CNBC; Real rate could be around 1.5% by next spring, in Evans' judgement. By this period, can perhaps sit and wait on rates; end-2022 consensus view on rates is 4.25-4.50%. Tougher rate environment is here for a while.

Geopolitics

  • Nord Stream says it has detected damage at three lines of the Nord Stream gas pipeline system; damages are unprecedented and is impossible to estimate when gas transportation infrastructure will be restored. Subsequently, Russia's Kremlin said pipeline damage is a very concerning development; cannot rule out sabotage.
  • Russian Head of Security Council says Russia has the right to use nuclear weapons if necessary, says it is not a bluff, via Reuters.
  • US State Department Spokesman Price said the US does not see an Iran deal coming together soon.

FX

  • DXY has eased from newly formed peaks as yields ease from highs and broader sentiment stages a modest recovery.
  • A pullback that is benefitting GBP in particular, with Cable outperforming after recent pressure as the Pound manages to gain some composure ahead of BoE's Pill.
  • Similarly, NZD is among the best performers following RBNZ Governor Orr stating that further tightening is likely required.
  • More broadly, G10 peers are taking advantage of the USD's pullback though the magnitude of this does differ somewhat; on the flip side, Yuan remains under pressure following a weaker fix, soft data and World Bank updates.

Fixed Income

  • Core benchmarks are mixed and feature 'outperformance' in Gilts after yesterday's heft losses with the morning's I/L relatively robust.
  • More broadly, Bunds initially waned a touch from a 138.75 best, though have reverted back towards the top-end of parameters as broader sentiment slips.
  • Stateside, USTs are holding firm and similarly at the top-end of ranges ahead of numerous Fed officials and 5yr issuance.
  • UK DMO intends to hold 19 Gilt auctions in October through December, now plans three syndications for remainder of year.

Commodities

  • Crude benchmarks have been meandering higher throughout the session, after yesterday's lower settlement.
  • Focus on Nord Stream 1 & 2 damage with the cause currently unknown and fresh reporting around a potential EU gas price cap, to be discussed on Friday.
  • At least 12 countries have signed a letter which calls on the EU to propose a gas price cap at this week's Energy Ministers meeting via Politico citing a letter; proposals will be discussed on Friday, September 30th
  • US President Biden said companies running gas stations need to bring down gasoline prices at the pump now, according to Reuters.
  • German network regulator later stated that it did not know the cause of the Nord Stream 1 pressure drop but didn't see any impact on the security of supply, according to Reuters.
  • BP (BP/ LN) halted production and evacuated staff at two offshore oil platforms in the US Gulf of Mexico ahead of Hurricane Ian.
  • Intercontinental Exchange is reportedly planning to accept allowances generated by the carbon market as collateral in its European futures market to ease the pressure on utilities and traders amid the energy crisis, according to FT.
  • Hurricane Ian has strengthened to a Category 3 storm (major hurricane), via NHC; expected to strengthen further today, has made landfall.
  • UBS says that only a production cut by OPEC+ can break the negative momentum within oil in the short-term, adding that to provide a stronger floor in oil prices, Saudi would need to make extra voluntary cuts.
  • Metals are deriving support from the USDs relative pullback, though spot gold for instance remains within yesterday's parameters.

US Event Calendar

  • 08:30: Aug. Durable Goods Orders, est. -0.3%, prior -0.1%;
    • Aug. -Less Transportation, est. 0.2%, prior 0.2%
  • 08:30: Aug. Cap Goods Orders Nondef Ex Air, est. 0.2%, prior 0.3%
    • Aug. Cap Goods Ship Nondef Ex Air, est. 0.3%, prior 0.5%
  • 09:00: July S&P CS Composite-20 YoY, est. 17.10%, prior 18.65%
    • July S&P/CS 20 City MoM SA, est. 0.20%, prior 0.44%
    • July S&P/Case-Shiller US HPI YoY, prior 17.96%
  • 10:00: Sept. Conf. Board Consumer Confidence, est. 104.5, prior 103.2
    • Sept. Conf. Board Expectations, prior 75.1
    • Sept. Conf. Board Present Situation, prior 145.4
  • 10:00: Aug. New Home Sales, est. 500,000, prior 511,000
    • Aug. New Home Sales MoM, est. -2.1%, prior -12.6%
  • 10:00: Sept. Richmond Fed Index, est. -10, prior -8

DB's Jim Reid concludes the overnight wrap

Yesterday I published my annual long-term study. It contains over 200 years of nominal and real returns across global bonds, equities, commodities and other assets. We also look at structural themes and this year we put 2022’s terrible year for financial markets into some historical context and try to understand “How we got here and where we’re going”. This year we have also launched it as a presentation pack simultaneously for those who want to flick through the broad themes. You can see the link to this in the executive summary of the full report which you can find here.

One of the key themes I pick up in the report is that we’re in the first global bear market for government bonds in over 70 years, using the yardstick of a -20% decline from their recent peak. This has also been a disaster for split bond-equity portfolios given the equity selloff as well this year.

When it comes to the last 24 hours, UK assets have remained at the eye of the storm as the negative reaction to the government’s mini-budget on Friday continued. The country’s government bonds were completely routed for a second day, with yields on 5yr gilts up by +47.8bps to a post-2008 high of 4.52%. Bear in mind that follows on from the +51.0bps move on Friday, which itself was the largest daily rise since January 1985 when there was a 200bps rate hike, so these are not the sort of moves we’re used to seeing every day. Indeed as I showed in an extra CoTD last night (link here) this is now the largest 5 day rolling move for 5yr gilts since our daily data starts in 1979 and the largest 5 day rolling move in 10yr gilts since 1976 (around the IMF loan) and the 5th largest such move since our daily data starts in 1934 (other 4 all around this mid-1970s period). So the global fixed income VAR shocks of the last 12 months keep on coming.

Furthermore, the gap between UK 10yr gilt yields and German 10yr bunds widened to more than 212bps by the close yesterday, which is the biggest spread in available Bloomberg data going back to the early 1990s. We'll have a look at longer data later.

During yesterday’s session there was much speculation as to whether there might be an intervention or perhaps even an emergency intermeeting hike from the BoE. But it wasn’t until just before European markets closed that we finally heard from the UK Treasury, who put out a statement with a number of lines that looked designed to ease investors’ fears. In particular, there was confirmation that Chancellor Kwarteng would be setting out a “Medium-Term Fiscal Plan” on November 23, which would include details of the government’s fiscal rules and ensure that the debt-to-GDP ratio falls in the medium term. Furthermore, there would be a full forecast from the Office for Budget Responsibility (the government’s independent fiscal watchdog) alongside that fiscal plan in November 23. That contrasts with Friday’s mini-budget, where there wasn’t an independent forecast alongside the announcements.

Shortly after the Treasury statement, BoE Governor Bailey released his own statement, in which he said that the Monetary Policy Committee would “make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly.” It further said that they would “not hesitate to change interest rates as necessary to return inflation to the 2% target sustainable in the medium term”. But in spite of those two statements, sterling actually lost ground afterwards since investors slashed the odds of an emergency inter-meeting hike. After hitting an all time low in Asia at $1.0392 it rallied to just above $1.09 by early afternoon and slightly higher on a hugely volatile day. After Bailey’s statement, it fell from just over $1.08 to just beneath $1.07, where it ended the day (up at $1.078 in Asia). In the meantime, the selloff in gilts resumed and they hit their lows for the session around the close. Looking forward, markets are still expecting an incredibly fast pace rate hikes ahead, with around 150bps priced in by the time of the next policy meeting on November 3, albeit that was down from 200bps at one point in the day.

The UK may have been the epicentre for yesterday’s moves, but the global bond selloff showed no sign of abating elsewhere, with yields rising to fresh multi-year highs on both sides of the Atlantic. In the US, 10yr Treasury yields were up +24.0bps on the day to 3.92%, their highest since 2010, which came as investors continued to ratchet up their expectations for how hawkish the Fed would be over the coming year.This morning in Asia, yields have pulled back with 10yr USTs (-5.28 bps) at 3.87% and 2yrs (-4.12 bps) at 4.30%, as we go to press. Indeed, markets are getting the message that the Fed will have to be restrictive for longer, and instead of pricing insurance cuts through next year, the spread between December 2023 and December 2022 policy rates reached their steepest point yet at 22.3bps. The focus on tighter Fed policy also meant that yesterday’s rise in 10yr yields was driven by real rates, which saw an outsize +30.6bps move up to 1.55% (remarkably, only their largest move since June, a sign of how volatile markets have been this year), thus leaving them at levels not seen since 2010. Over in Europe, mounting expectations that the ECB would hike by 75bps in October helped to send yields on 10yr bunds (+9.1bps) and OATs (+11.5bps) higher on the day. In particular, Italian BTPs were a key underperformer following their election, and the spread of 10yr yields over bunds widened by +9.9bps on the day to 242bps, taking them to their widest level since May 2020. That widening in peripheral spreads was also echoed on the credit side, with iTraxx Crossover widening +18.0bps on the day to 655bps, marking its highest closing level since March 2020 during the initial phase of the Covid crisis.

This global risk-off move was evident across asset classes, as the S&P 500 (-1.03%) fell for a 5th consecutive session to close at its lowest level so far this year. That takes it beneath the June lows to levels not seen since late 2020, and leaves the index down by over -23% on a YTD basis, where energy remains the only sector in the green for the year. European equities followed a similar pattern, and the STOXX 600 (-0.42%) fell for the 9th time in the last 10 sessions to also hit levels unseen since late 2020. This widespread selloff was seen amongst commodities, with Brent crude oil prices (-2.43%) closing beneath $85/bbl for the first time since January, and even the classic safe haven of gold (-1.31%) slumped to a 2-year low.

Asian equity markets are mixed this morning with the Nikkei (+0.83%), Shanghai Composite (+0.26%) and the CSI (+0.18%) on the positive side. Meanwhile, the Hang Seng (-1.05%) is trading lower, pulling back from some brief opening gains while the Kospi (-0.74%) is also weak. Across DMs, equity futures are pointing to a positive start with contracts on the S&P 500 (+0.68%), NASDAQ 100 (+0.76%) and DAX (+0.55%) all edging higher.

Elsewhere, yields on 20-yr Japanese government bonds jumped to its highest level since 2015, moving above 1% level and trading at 1.029% (+3.8bps) as the upward surge in global yields is adding pressure on super-long JGBs.

Back to yesterday and the limited data did nothing to help sentiment, with the Ifo’s business climate indicator from Germany falling more than expected to 84.3 in September (vs. 87.0 expected). With the exception of April and May 2020 during the Covid lockdowns, that means the index is at its lowest level since 2009 as the economy was recovering from the GFC. Otherwise in the US, the Dallas Fed’s manufacturing index fell to -17.2 in September (vs. -9.0 expected).

To the day ahead now, and data releases from the US include the Conference Board’s consumer confidence for September, the preliminary reading for durable goods orders and core capital goods orders for August, the FHFA house price index for July, and new home sales for August. Meanwhile in the Euro Area, we’ll get the M3 money supply for August. Central bank speakers include Fed Chair Powell, as well as the Fed’s Evans, Bullard and Kashkari, ECB Vice President de Guindos, the ECB’s Centeno, Villeroy and Panetta, as well as BoE chief economist Pill.

Tyler Durden Tue, 09/27/2022 - 07:58

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Expanding the arsenal of drugs against COVID-19

Researchers from Tokyo Medical and Dental University (TMDU) have developed novel compounds with potential as drug treatments for COVID-19 by modifying…

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Researchers from Tokyo Medical and Dental University (TMDU) have developed novel compounds with potential as drug treatments for COVID-19 by modifying a previous “hit” compound that was active against the SARS-CoV virus

Credit: Department of Medicinal Chemistry, TMDU

Researchers from Tokyo Medical and Dental University (TMDU) have developed novel compounds with potential as drug treatments for COVID-19 by modifying a previous “hit” compound that was active against the SARS-CoV virus

Tokyo, Japan – The ongoing COVID-19 pandemic, caused by the SARS-CoV-2 virus, has been devastating the entire world. While the vaccination program is advancing, drug treatments for COVID-19 are still highly important for those who become infected. Now, a team at Tokyo Medical and Dental University (TMDU), National Center for Global Health and Medicine (NCGM), Tohoku University, NCI/NIH, and Kumamoto University has designed and synthesized compounds that have the potential to be novel drugs targeting SARS-CoV-2.

The SARS-CoV-2 virus contains an enzyme called the “main protease”, or Mpro, that cleaves other proteins encoded in the SARS-CoV-2 genome as part of viral activity and replication. Mpro is an important and appealing target for drugs treating COVID-19 because it is both essential for viral replication and very different from any human molecules, so drugs targeting Mpro are likely to have few side effects and be very effective.

When testing a panel of compounds known to have inhibitory activity against SARS-CoV, the virus responsible for the 2002 SARS outbreak, the team identified a compound named 5h/YH-53 that showed some activity inhibiting SARS-CoV-2 Mpro, but was inefficient and unstable. Therefore, they used 5h as a starting point to develop other compounds with increased efficiency and stability. “Our strategy involved introducing fluorine atoms into the part of the molecule responsible for inhibiting Mpro to increase its binding affinity, as well as replacing a bond within 5h that is easily broken down by the liver with a different structure to increase biostability,” explains lead author Kohei Tsuji.

“Of the compounds we developed, compound 3 showed high potency and was able to block SARS-CoV-2 infection in vitro without any viral breakthrough,” explains senior author Hirokazu Tamamura. “Compound 4, a derivative of compound 3 in which an easily broken-down amide bond had been replaced with a stable thioamide bond, also showed remarkable anti-SARS-CoV-2 activity.” Although compound 4 had lower Mpro inhibitory activity than compound 3, the increased stability meant that the overall activity of compound 4 was comparable to that of compound 3.

When they tested these novel compounds on a variety of strains of SARS-CoV-2, compound 3 was as effective on mutant strains of the virus as on the ancestral Wuhan strain. Additionally, neither compound 3 or 4 showed any toxicity to cultured cells. These data suggest that these compounds show high potential as drug treatments for COVID-19.

A repertory of drug choice is important for treating disease, and so the development of efficient drugs to target the novel SARS-CoV-2 virus is highly important. This work identifies two compounds as potential drugs, and further development of these compounds continues. It also proves the principle that easily broken-down amide bonds can be replaced with thioamide bonds in drug development to increase the stability of the resulting compounds. Taken together, this is an important advance in both the wider drug development field as well as for drugs to treat COVID-19.

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The article, “Potent and Biostable Inhibitors of the Main Protease of SARS-CoV-2”, was published in iScience at DOI: 10.1016/j.isci.2022.105365
 


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Government

Sinema out, Warnock in – Democrats narrowly control the Senate and Republicans the House, but gridlock won’t be the biggest problem for the new Congress

With Democrats running the Senate and the GOP in control of the House, there’s concern that Congress won’t get anything done. Turns out, unified government…

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Will gridlock mean the new Congress won't get anything done? mathisworks/Getty Images

In the wake of the 2022 U.S. midterm elections, a general sense of the political landscape in the upcoming 118th Congress has taken shape. With Sen. Kyrsten Sinema’s announcement that she is leaving the Democratic Party and Sen. Raphael Warnock’s victory in Georgia’s runoff, Democrats will maintain control in the Senate, while Republicans will take control of the House.

Divided government sparks fears of gridlock, a legislative standstill. At face value, this makes sense. Given the different policy priorities of the two major parties, you might expect to see each party passing legislation out of the chamber it controls that has little chance in the other chamber - and thus no chance of becoming law.

Logically, this means a less productive legislature than one in which a single party with a unified agenda controls both chambers and the presidency.

But as a political scientist who studies partisanship, I believe that divided government – including during the upcoming legislative session – will not produce greatly different legislative results than unified government.

This isn’t exactly a hopeful story, though.

Not much passes

The first reason that divided government isn’t less productive than unified government is because unified government isn’t very productive in the first place. It’s really hard to get things done even when the same party controls both chambers and the presidency.

Most legislation only clears the Senate if it has the 60 votes needed to break a filibuster. Neither party has come close to a so-called “filibuster-proof majority” of 60 seats since 2010, when Democrats briefly held 60 seats prior to Massachusetts Sen. Ted Kennedy’s death and the election of Republican Scott Brown to that seat. Thus, even a unified government is likely only passing measures that have some degree of minority party support.

A bunch of tired-looking men in suits at a meeting.
It can take a lot of talking and listening to get legislation passed in Congress. Here, a meeting of the Senate Foreign Relations Committee on Nov. 30, 2022. Chip Somodevilla/Getty Images

There are ways to force passage of legislation when one party doesn’t want it to pass. A process called budget reconciliation is not subject to filibuster, but it can only be used on provisions that deal directly with changes in revenues or spending. This is what happened with the Inflation Reduction Act of 2022, which Democrats were able to pass via reconciliation, with Vice President Kamala Harris casting the tiebreaking vote.

Further, legislative success under unified government assumes that the majority party is united. There is no guarantee of this, as seen in 2017 when Republican senators John McCain, Lisa Murkowski and Susan Collins joined Democrats in blocking the repeal of the Affordable Care Act.

Between 2011 and 2020 the vast majority of new laws clearing the House – roughly 90% – and the Senate – roughly 75% –did so with a majority of minority party members in support.

Even landmark legislation usually has support from most minority party members in at least one chamber. For example, the substantial 2020 revision of the North American Free Trade Agreement, or NAFTA, passed the House and Senate with overwhelming bipartisan support, as did the defense bill that created the Space Force.

A group of people going down the stairs of the US Capitol building on a sunny day.
While Congress is not that productive, sometimes it passes legislation. In 2020, lawmakers stream out of the Capitol after passing the Coronavirus Aid, Relief, and Economic Security Act. Bill Clark/CQ-Roll Call, Inc via Getty Images

Rewards – and risks – in crossing lines

On a more positive note, divided government may still provide opportunities for legislative breakthroughs.

The reason? The local orientation of Congress – lawmakers need to respond to their district’s voters.

In the House, according to a New York Times analysis, Republicans won 10 of the most competitive districts, including five in New York state alone. But the Cook Partisan Voting Index, which measures how strongly a district leans in favor of one party or the other, scores some of these districts as tilting Democratic – potentially giving these Republican members of Congress reason to reach across the aisle. The same goes for Democratic lawmakers whose districts tilt Republican.

But these kinds of mixed districts can also make it hard for sitting lawmakers to vote with their own party. While parties will work to keep a united front, research suggests that voters may punish those members of Congress who toe the party line too closely – providing a potential incentive for crossing party lines. Democratic legislators in Republican-leaning districts who voted for the Affordable Care Act, the Dodd-Frank financial regulation bill, or the stimulus bill, all Democratic Party priorities, suffered electorally in the 2010 midterms, receiving a lower vote share than those who voted against the legislation. In many cases, these lawmakers lost their seats.

Still, defections may be more likely given weak leadership, and currently it’s not certain who will fill the speaker’s role in the next Congress.

More consequential aspects

You don’t have to search for long to see examples of large legislative achievements produced during periods of divided government.

Divided government produced welfare reform in the 1990s and Social Security reform in the 1980s. The Coronavirus Aid, Relief and Economic Security (CARES) Act passed a Republican Senate and a Democratic House overwhelmingly in March 2020.

Certainly, there have been times during which unified governments have pushed legislation through with little minority party support. The Affordable Care Act and the Trump tax cuts were among them. But bipartisan legislative victories are much more common.

There are probably more consequential aspects to the GOP’s takeover of the House of Representatives than concerns over legislative gridlock.

House Republicans have already talked about using the investigatory powers of the chamber to investigate everyone from Hunter Biden to Anthony Fauci. A debt ceiling showdown, in which the GOP might use the threat of default on the U.S. government’s debt to force spending cuts, looms for what feels like the dozenth time in the past several years.

Matt Harris 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.

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Spread & Containment

Team undertakes study of two-dimensional transition metal chalcogenides

Two-dimensional materials, like transition metal dichalcogenide, have applications in public health because of their large surface area and high surface…

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Two-dimensional materials, like transition metal dichalcogenide, have applications in public health because of their large surface area and high surface sensitivities, along with their unique electrical, optical, and electrochemical properties. A research team has undertaken a review study of methods used to modulate the properties of two-dimensional transition metal dichalcogenide (TMD). These methods have important biomedical applications, including biosensing.

Credit: Nano Research Energy, Tsinghua University Press

Two-dimensional materials, like transition metal dichalcogenide, have applications in public health because of their large surface area and high surface sensitivities, along with their unique electrical, optical, and electrochemical properties. A research team has undertaken a review study of methods used to modulate the properties of two-dimensional transition metal dichalcogenide (TMD). These methods have important biomedical applications, including biosensing.

 

The team’s work is published in the journal Nano Research Energy on November 23, 2022.

 

The team’s goal is to present a comprehensive summarization of this promising field and show challenges and opportunities available in this research area. “In this review, we focus on the state-of-the-art methods to modulate properties of two-dimensional TMD and their applications in biosensing. In particular, we thoroughly discuss the structure, intrinsic properties, property modulation methods, and biosensing applications of TMD,” said Yu Lei, an assistant professor at the Institute of Materials Research, Shenzhen International Graduate School, Tsinghua University.

 

Since graphene was discovered in 2004, two-dimensional materials, such as TMD, have attracted significant attention. Because of its unique properties, two-dimensional TMD can serve as the atomically thin platforms for energy storage and conversion, photoelectric conversion, catalysis, and biosensing. TMD also displays a wide band structure and has unusual optical properties. Yet another benefit of two-dimensional TMD is that it can be produced in large quantities at a low cost.

 

In public health, reliable and affordable in vitro and in vivo detection of biomolecules is essential for disease prevention and diagnosis. Especially during the COVID-19 pandemic, people have suffered not only from the physical disease, but also from the psychological problems related to extensive exposure to stress. Extensive stress can result in abnormal levels in biomarkers such as serotonin, dopamine, cortisol, and epinephrine. So, it is essential that scientists find non-invasive ways to monitor these biomarkers in body fluids, such as sweat, tears, and saliva. In order for health care professionals to quickly and accurately assess a person’s stress and diagnose psychological disease, biosensors are of significant importance in the diagnostics, environmental monitoring, and forensic industries.

 

The team reviewed the use of two-dimensional TMD as the functional material for biosensing, the approaches to modulate the properties of TMD, and different types of TMD-based biosensors including electric, optical, and electrochemical sensors. “Public health study is always a major task in preventing, diagnosing, and fighting off the diseases. Developing ultrasensitive and selective biosensors is critical for diseases prevention and diagnosing,” said Bilu Liu, an associate professor and a principal investigator at Shenzhen Geim Graphene Center, Shenzhen International Graduate School, Tsinghua University.

 

Two-dimensional TMD is a very sensitive platform for biosensing. These two-dimensional TMD based electrical/optical/electrochemical sensors have been readily used for biosensors ranging from small ions and molecules, such as Ca2+, H+, H2O2, NO2, NH3, to biomolecules such as dopamine and cortisol, that are related to central nervous disease, and all the way to molecule complexities, such as bacteria, virus, and protein.

 

The research team determined that despite the remarkable potentials, many challenges related to TMD-based biosensors still need to be solved before they can make a real impact. They suggest several possible research directions. The team recommends that the feedback loop assisted by machine learning be used to reduce the testing time needed to build the database needed for finding the proper biomolecules and TMD pairs. Their second recommendation is the use of a feedback loop assisted by machine learning to achieve the on-demand property modulation and biomolecules/TMD database. Knowing that TMD-based composites exhibit excellent performance when constructed into devices, their third recommendation is that surface modifications, such as defects and vacancies, be adopted to improve the activity of the TMD-based composites. Their last recommendation is that low-cost manufacturing methods at low temperature be developed to prepare TMD. The current chemical vapor deposition method used to prepare TMD can lead to cracks and wrinkles. A low-cost, low-temperature method would improve the quality of the films. “As the key technical issues are solved, the devices based on two-dimensional TMD will be the overarching candidates for the new healthcare technologies,” said Lei.

 

The Tsinghua University team includes Yichao Bai and Linxuan Sun, and Yu Lei from the Institute of Materials Research, Tsinghua Shenzhen International Graduate School and the Guangdong Provincial Key Laboratory of Thermal Management Engineering and Materials, Tsinghua Shenzhen International Graduate School; along with Qiangmin Yu and Bilu Liu from the Institute of Materials Research, Tsinghua Shenzhen International Graduate School, and the Shenzhen Geim Graphene Center, Tsinghua-Berkeley Shenzhen Institute & Institute of Materials Research, Tsinghua Shenzhen International Graduate School.

 

This research is funded by the National Natural Science Foundation of China, the National Science Fund for Distinguished Young Scholars, Guangdong Innovative and Entrepreneurial Research Team Program, the Shenzhen Basic Research Project, the Scientific Research Start-up Funds at Tsinghua Shenzhen International Graduate School, and Shenzhen Basic Research Project.

 

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About Nano Research Energy 

 

Nano Research Energy is launched by Tsinghua University Press, aiming at being an international, open-access and interdisciplinary journal. We will publish research on cutting-edge advanced nanomaterials and nanotechnology for energy. It is dedicated to exploring various aspects of energy-related research that utilizes nanomaterials and nanotechnology, including but not limited to energy generation, conversion, storage, conservation, clean energy, etc. Nano Research Energy will publish four types of manuscripts, that is, Communications, Research Articles, Reviews, and Perspectives in an open-access form.

 

About SciOpen 

 

SciOpen is a professional open access resource for discovery of scientific and technical content published by the Tsinghua University Press and its publishing partners, providing the scholarly publishing community with innovative technology and market-leading capabilities. SciOpen provides end-to-end services across manuscript submission, peer review, content hosting, analytics, and identity management and expert advice to ensure each journal’s development by offering a range of options across all functions as Journal Layout, Production Services, Editorial Services, Marketing and Promotions, Online Functionality, etc. By digitalizing the publishing process, SciOpen widens the reach, deepens the impact, and accelerates the exchange of ideas.

 


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