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Wall Street Continues Writing “Inception” Sequel

Wall Street Continues Writing “Inception” Sequel



For those of you who have never seen the original Leonardo DiCaprio film, firstly you should. The film itself is a sci-fi thriller involving Mr DiCaprio sneaking into people’s minds to steal commercial secrets. Not in itself relevant to anyone except law enforcement authorities on the hill. The challenge for viewers is the multiple levels of reality that poor Leo must navigate inside the consciousness. Stunning visual effects aside, viewers, along with the cast, are left wondering what is real and what is not, with only a spinning top to guide them.

No matter how many times you spin a top now, the risk-on price action of the world’s financial markets, led by the perpetual v-shaped optimists of Wall Street, has left many of us wondering which reality we might actually be in? That is a fair question, and one that I ask myself, and am being asked many times each day by others. Wall Street posted another outsized performance on equities and oil overnight, but it was the US Dollar that commanded attention.

After being laggards to the global recovery rally seen elsewhere, currency markets appear to be accelerating their participation. The rotation out of haven US Dollar long positioning gained more momentum overnight, with trade-centric currencies such as the Australian Dollar again, notable outperformers. I note that one of the favourite ways for markets to express a bullish sentiment, AUD/JPY, also rose by more than 2.0% overnight. That implies that plenty of momentum remains with the global recovery trade, even if it is a reality that is counterintuitive to most of us. But then, I have needed to use tear gas to go to church, yet here we are.

The two critical drivers of the global markets buy everything rally are the volume of monetary policy easing by the world’s central banks, and the relaxation of nationwide COVID-19 lockdowns across the globe. Interest rates are now zero or less in most of the developed world, meaning the search for yield, any yield, will continue. That is unlikely to change anytime soon. The ending of COVID-19 lockdown across the globe has bought hope that economic activity will sharply rebound. This thesis is full of holes; not least the chance that secondary outbreaks reversing the process, hoped for vaccines not appearing, and that international travel, the lifeblood of multiple sectors, is not returning anytime soon.

Until one or both changes, and realistically it will be firmly with the COVID-19 side of the equation, momentum is unlikely to wane as global markets look for yield and recovery opportunities. That reality is rather like arguing having a discussion with Mrs Halley. Somehow your point of view is always heard, but in the end, subsumed by the other side. It may not be a reality you agree or understand with, but it is what it is.

Circling back to economic recoveries though, China appears to be turning a corner, having bought COVID-19 under control some time ago. China’s Caixin Services PMI posted a much larger than expected jump into expansionary territory, printing an impressive 55.0. Even Hong Kong’s May PMI lifted itself off the floor, climbing to 43.9 from 36.9 previously, continuing the trend of higher lows seen from global releases on Monday across Asia. China’s numbers are particularly pleasing, following a move into expansionary territory earlier this week by the manufacturing number. Taken as a whole, it suggests that China, and Asia, are continuing to recover slowly from the pandemic shutdown. That should give Asian equity markets an extra boost today.

Asia equities power higher.

Wall Street’s positive session overnight has overflowed into Asia this morning, as the global recovery trade continues to gather steam. An excellent Caixin Services PMI from China has reinforced the view regionally, that a modest recovery is underway, further boosting regional stocks.

The Nikkei 225 has risen 1.60% today. The South Korean Kospi, with its high beta to China and the global recovery, powering higher by 2.60%. Mainland markets are also rising with the Shanghai Composite up 0.40% and the CSI 300 up 0.65%. The Hang Seng has jumped 1.50% with security concerns temporarily pushed from the front pages. The Straits Times is also 1.50% higher. A similar story is being told across Australasian and South-East Asian markets.

With no data of note likely to affect sentiment, the bullish mode is set to continue in Asia, with only unexpected negative headlines likely to upset the apple cart, and then only temporarily. For now, US-China trade fears have been collectively vanquished from the street’s thoughts.

The US Dollar’s tumble continues.

The momentum of the rotation out of haven US Dollars and into more risk-seeking recovery positioning shows no signs of abating. Overnight the greenback suffered a series of setbacks, notably again against the commodity currencies, but also versus developed markets.

The only notable exception was against the Japanese Yen. USD/JPY powered 1.0% higher to 108.65, smashing through its 100 and 200-day moving averages (DMA) at 108.30. The rally though was a function of healthy buying in Yen cross positions such as AUD/JPY, CAD/JPY and NZD/JPY, and not a function of the Yen falling out of favour versus the Dollar. Nevertheless, the USD/JPY, after slumbering between 107.00 and 108.00 for a month, now looks set to test 109.50 initially, possibly as high as 111.50.

The Australian Dollar continued its strong rally versus the greenback, jumping by 1.50% again overnight to 0.6900. AUD/JPY buying has seen another 0.60% gain to 0.6940 this morning. AUD/USD looks likely to test 0.7000 and 0.7100 sooner rather than later. The strong performance by commodity currencies such as AUD and CAD appear to be undiminished for now.

Across regional Asia, local currencies have made further gains versus the Dollar. The Singapore Dollar has rallied nearly 1.0% in the last 24 hours, with USD/SGD falling through its 100 DMA at 1.4050 overnight, on the way to 1.3970 this morning. USD/SGD now targets a return to 1.3800 initially assuming the rally in developed market currencies and the CNY continues elsewhere.

The Indonesian Rupiah continues its remarkable comeback this morning, after the extended Eid holidays. The IDR has been a quiet, yet steady global recovery proxy for some weeks now, following the carnage of March. USD/IDR has fallen from 14,750 yesterday, to 14,200 today with government COVID-19 lockdowns set to end tomorrow night. In the process falling through the USD/IDR 200-DMA at 14,420, a bullish technical development.

Most importantly, for Asia, the rally strengthening of local currencies will give the central banks in the region breathing room to further ease monetary policy if needed.

Oil continues to recover losses.

Oil’s rally shows no signs of slowing down, as it rides the coattails of the global recovery trade by equity and currency markets, with OPEC+ likely to extend the 10 million barrel a day cuts for at least another month. Brent crude rose 3.50% to $39.50 a barrel, and WTI rose 4.0% to $36.80 a barrel.

Asia has continued probing higher following the positive Caixin PMI data this morning, with Brent crude rising 1.30% to $40.00 a barrel, and WTI rallying 2.0% to $37.60 a barrel. A close above $40.00 a barrel on Brent crude is a particularly bullish technical development. That sets up further gains to $45.00 a barrel to close the $5.0 gap in prices on the daily charts.

The first US crude inventory number for the week is released tonight, with EIA Crude Inventories expected to fall to 3 million barrels from 7 million last week. In the present climate though, even an unexpectedly high number will probably only see a pause in the rally. Only a severe disagreement emerging from OPEC+ this week is likely to sap oil’s strength.

Gold falls on surging recovery sentiment.

Gold gave up all its recent gains overnight, as the surging recovery sentiment elsewhere, and no new trade US-China trade developments saw investors reduce haven positions. Even a much lower US Dollar gave gold no solace, it fell by 0.80% to $1725.00 an ounce, where it remains unchanged in directionless Asian trade.

Gold failed at its ascending trend-line resistance, located at $1741.00 an ounce overnight, its second failure in as many days. That line is at $1743.00 an ounce today, and with multiple failures above $1755.00 an ounce in May, resistance is increasingly formidable.

Assuming the global recovery rally maintains its strength in other markets, gold looks increasingly likely to return to the lower end of its recent $1695.00 to $1645.00 range. Beleaguered bullish gold traders can take some comfort in the fact that momentum remains weak in either direction. Thus, a large downside breakout is as unlikely as a large topside one now.

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Russia’s energy war: Putin’s unpredictable actions and looming sanctions could further disrupt oil and gas markets

Russian President Vladimir Putin has not hesitated to use energy as a weapon. An expert on global energy markets analyzes what could come next.




The new Baltic Pipe natural gas pipeline connects Norwegian natural gas fields in the North Sea with Denmark and Poland, offering an alternative to Russian gas. Sean Gallup/Getty Images

Russia’s effort to conscript 300,000 reservists to counter Ukraine’s military advances in Kharkiv has drawn a lot of attention from military and political analysts. But there’s also a potential energy angle. Energy conflicts between Russia and Europe are escalating and likely could worsen as winter approaches.

One might assume that energy workers, who provide fuel and export revenue that Russia desperately needs, are too valuable to the war effort to be conscripted. So far, banking and information technology workers have received an official nod to stay in their jobs.

The situation for oil and gas workers is murkier, including swirling bits of Russian media disinformation about whether the sector will or won’t be targeted for mobilization. Either way, I expect Russia’s oil and gas operations to be destabilized by the next phase of the war.

The explosions in September 2022 that damaged the Nord Stream 1 and 2 gas pipelines from Russia to Europe, and that may have been sabotage, are just the latest developments in this complex and unstable arena. As an analyst of global energy policy, I expect that more energy cutoffs could be in the cards – either directly ordered by the Kremlin to escalate economic pressure on European governments or as a result of new sabotage, or even because shortages of specialized equipment and trained Russian manpower lead to accidents or stoppages.

Dwindling natural gas flows

Russia has significantly reduced natural gas shipments to Europe in an effort to pressure European nations who are siding with Ukraine. In May 2022, the state-owned energy company Gazprom closed a key pipeline that runs through Belarus and Poland.

In June, the company reduced shipments to Germany via the Nord Stream 1 pipeline, which has a capacity of 170 million cubic meters per day, to only 40 million cubic meters per day. A few months later, Gazprom announced that Nord Stream 1 needed repairs and shut it down completely. Now U.S. and European leaders charge that Russia deliberately damaged the pipeline to further disrupt European energy supplies. The timing of the pipeline explosion coincided with the start up of a major new natural gas pipeline from Norway to Poland.

Russia has very limited alternative export infrastructure that can move Siberian natural gas to other customers, like China, so most of the gas it would normally be selling to Europe cannot be shifted to other markets. Natural gas wells in Siberia may need to be taken out of production, or shut in, in energy-speak, which could free up workers for conscription.

European dependence on Russian oil and gas evolved over decades. Now, reducing it is posing hard choices for EU countries.

Restricting Russian oil profits

Russia’s call-up of reservists also includes workers from companies specifically focused on oil. This has led some seasoned analysts to question whether supply disruptions might spread to oil, either by accident or on purpose.

One potential trigger is the Dec. 5, 2022, deadline for the start of phase six of European Union energy sanctions against Russia. Confusion about the package of restrictions and how they will relate to a cap on what buyers will pay for Russian crude oil has muted market volatility so far. But when the measures go into effect, they could initiate a new spike in oil prices.

Under this sanctions package, Europe will completely stop buying seaborne Russian crude oil. This step isn’t as damaging as it sounds, since many buyers in Europe have already shifted to alternative oil sources.

Before Russia invaded Ukraine, it exported roughly 1.4 million barrels per day of crude oil to Europe by sea, divided between Black Sea and Baltic routes. In recent months, European purchases have fallen below 1 million barrels per day. But Russia has actually been able to increase total flows from Black Sea and Baltic ports by redirecting crude oil exports to China, India and Turkey.

Russia has limited access to tankers, insurance and other services associated with moving oil by ship. Until recently, it acquired such services mainly from Europe. The change means that customers like China, India and Turkey have to transfer some of their purchases of Russian oil at sea from Russian-owned or chartered ships to ships sailing under other nations’ flags, whose services might not be covered by the European bans. This process is common and not always illegal, but often is used to evade sanctions by obscuring where shipments from Russia are ending up.

To compensate for this costly process, Russia is discounting its exports by US$40 per barrel. Observers generally assume that whatever Russian crude oil European buyers relinquish this winter will gradually find alternative outlets.

Where is Russian oil going?

The U.S. and its European allies aim to discourage this increased outflow of Russian crude by further limiting Moscow’s access to maritime services, such as tanker chartering, insurance and pilots licensed and trained to handle oil tankers, for any crude oil exports to third parties outside of the G-7 who pay rates above the U.S.-EU price cap. In my view, it will be relatively easy to game this policy and obscure how much Russia’s customers are paying.

On Sept. 9, 2022, the U.S. Treasury Department’s Office of Foreign Assets Control issued new guidance for the Dec. 5 sanctions regime. The policy aims to limit the revenue Russia can earn from its oil while keeping it flowing. It requires that unless buyers of Russian oil can certify that oil cargoes were bought for reduced prices, they will be barred from obtaining European maritime services.

However, this new strategy seems to be failing even before it begins. Denmark is still making Danish pilots available to move tankers through its precarious straits, which are a vital conduit for shipments of Russian crude and refined products. Russia has also found oil tankers that aren’t subject to European oversight to move over a third of the volume that it needs transported, and it will likely obtain more.

Traders have been getting around these sorts of oil sanctions for decades. Tricks of the trade include blending banned oil into other kinds of oil, turning off ship transponders to avoid detection of ship-to-ship transfers, falsifying documentation and delivering oil into and then later out of major storage hubs in remote parts of the globe. This explains why markets have been sanguine about the looming European sanctions deadline.

One fuel at a time

But Russian President Vladimir Putin may have other ideas. Putin has already threatened a larger oil cutoff if the G-7 tries to impose its price cap, warning that Europe will be “as frozen as a wolf’s tail,” referencing a Russian fairy tale.

U.S. officials are counting on the idea that Russia won’t want to damage its oil fields by turning off the taps, which in some cases might create long-term field pressurization problems. In my view, this is poor logic for multiple reasons, including Putin’s proclivity to sacrifice Russia’s economic future for geopolitical goals.

A woman walks past a billboard reading: Stop buying fossil fuels. End the war.
Stand With Ukraine campaign coordinator Svitlana Romanko demonstrates in front of the European Parliament on Sept. 27, 2022. Thierry Monasse/Getty Images

Russia managed to easily throttle back oil production when the COVID-19 pandemic destroyed world oil demand temporarily in 2020, and cutoffs of Russian natural gas exports to Europe have already greatly compromised Gazprom’s commercial future. Such actions show that commercial considerations are not a high priority in the Kremlin’s calculus.

How much oil would come off the market if Putin escalates his energy war? It’s an open question. Global oil demand has fallen sharply in recent months amid high prices and recessionary pressures. The potential loss of 1 million barrels per day of Russian crude oil shipments to Europe is unlikely to jack the price of oil back up the way it did initially in February 2022, when demand was still robust.

Speculators are betting that Putin will want to keep oil flowing to everyone else. China’s Russian crude imports surged as high as 2 million barrels per day following the Ukraine invasion, and India and Turkey are buying significant quantities.

Refined products like diesel fuel are due for further EU sanctions in February 2023. Russia supplies close to 40% of Europe’s diesel fuel at present, so that remains a significant economic lever.

The EU appears to know it must kick dependence on Russian energy completely, but its protected, one-product-at-a-time approach keeps Putin potentially in the driver’s seat. In the U.S., local diesel fuel prices are highly influenced by competition for seaborne cargoes from European buyers. So U.S. East Coast importers could also be in for a bumpy winter.

This article has been updated to reflect conflicting reports about the draft status of Russian oil and gas workers.

Amy Myers Jaffe 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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Industry groups call to block WTO IP waiver expansion to Covid-19 therapeutics

The WTO’s TRIPS Council in mid-October is expected to debate whether to extend the IP waiver for Covid-19 vaccines to therapeutics and diagnostics too.



The WTO’s TRIPS Council in mid-October is expected to debate whether to extend the IP waiver for Covid-19 vaccines to therapeutics and diagnostics too.

While the Biden administration backed the original vaccine waiver, which critics note has not done much to expand access to vaccines as demand has dried up, US trade officials haven’t offered any perspective yet on whether to expand the waiver to Covid treatments.

The US Chamber of Commerce, as well as industry groups BIO and EFPIA, this week expressed “strong opposition” to any expansion of the WTO TRIPS waiver to therapeutics or diagnostics, arguing that waived IP protections damage the nation’s ability to innovate and compete.

Kevin O’Connor

Illinois-based IP attorney Kevin O’Connor at Neal, Gerber & Eisenberg told Endpoints News in a phone interview that he doesn’t think the vaccine waiver has done much so far.

“I don’t think it was the right solution for a demand problem,” O’Connor said. And an extension to therapeutics “would double down” on the same concept, except small molecule manufacturing is more straightforward than vaccine manufacturing. There’s also the question of whether there is a need for an extension given the voluntary licensing already in place.

BIO also noted that the expansion of a TRIPS waiver to therapeutics can create problems for therapeutics used for other indications too as these other indications “may be their only path to financial viability and sustained investment to fund future R&D initiatives.”

The industry group also noted the lack of a “supply and demand challenge globally that justifies the extension of an IP waiver” considering the fact that manufacturers are supplying therapeutics at a rate that outpaces demand.

The US Chamber of Commerce also noted that in the case of Covid-19 vaccine IP, “the waiver’s realization came long after its ostensible purpose was mooted by a large and growing surplus of COVID-19 vaccine supplies.”

Peter Maybarduk

But Public Citizen’s Peter Maybarduk told Endpoints these are “specious arguments and scare tactics,” adding, “Pharma is worried and that is a good thing for people.”

WTO members and developing countries pledged support for the waiver extension last summer, according to a read out of a meeting. Some even called for this extension to be discussed “with a sense of urgency given the fact that many least developed countries (LDCs) lack access to life-saving drugs and testing therapeutics.”

But other member countries “cautioned that more time was needed to conduct domestic consultations on a possible extension of the waiver to therapeutics and diagnostics” while:

Some members also flagged the importance of an evidence-based negotiation as there was no evidence that intellectual property did indeed constitute a barrier to accessing COVID-19 vaccines. Some also reiterated the need for members to fully make use of all the flexibilities that already exist in the TRIPS Agreement (including compulsory licensing) before requesting new flexibilities.

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Three reasons a weak pound is bad news for the environment

Financial turmoil will make it harder to invest in climate action on a massive scale.




Dragon Claws / shutterstock

The day before new UK chancellor Kwasi Kwarteng’s mini-budget plan for economic growth, a pound would buy you about $1.13. After financial markets rejected the plan, the pound suddenly sunk to around $1.07. Though it has since rallied thanks to major intervention from the Bank of England, the currency remains volatile and far below its value earlier this year.

A lot has been written about how this will affect people’s incomes, the housing market or overall political and economic conditions. But we want to look at why the weak pound is bad news for the UK’s natural environment and its ability to hit climate targets.

1. The low-carbon economy just became a lot more expensive

The fall in sterling’s value partly signals a loss in confidence in the value of UK assets following the unfunded tax commitments contained in the mini-budget. The government’s aim to achieve net zero by 2050 requires substantial public and private investment in energy technologies such as solar and wind as well as carbon storage, insulation and electric cars.

But the loss in investor confidence threatens to derail these investments, because firms may be unwilling to commit the substantial budgets required in an uncertain economic environment. The cost of these investments may also rise as a result of the falling pound because many of the materials and inputs needed for these technologies, such as batteries, are imported and a falling pound increases their prices.

Aerial view of wind farm with forest and fields in background
UK wind power relies on lots of imported parts. Richard Whitcombe / shutterstock

2. High interest rates may rule out large investment

To support the pound and to control inflation, interest rates are expected to rise further. The UK is already experiencing record levels of inflation, fuelled by pandemic-related spending and Russia’s war on Ukraine. Rising consumer prices developed into a full-blown cost of living crisis, with fuel and food poverty, financial hardship and the collapse of businesses looming large on this winter’s horizon.

While the anticipated increase in interest rates might ease the cost of living crisis, it also increases the cost of government borrowing at a time when we rapidly need to increase low-carbon investment for net zero by 2050. The government’s official climate change advisory committee estimates that an additional £4 billion to £6 billion of annual public spending will be needed by 2030.

Some of this money should be raised through carbon taxes. But in reality, at least for as long as the cost of living crisis is ongoing, if the government is serious about green investment it will have to borrow.

Rising interest rates will push up the cost of borrowing relentlessly and present a tough political choice that seemingly pits the environment against economic recovery. As any future incoming government will inherit these same rates, a falling pound threatens to make it much harder to take large-scale, rapid environmental action.

3. Imports will become pricier

In addition to increased supply prices for firms and rising borrowing costs, it will lead to a significant rise in import prices for consumers. Given the UK’s reliance on imports, this is likely to affect prices for food, clothing and manufactured goods.

At the consumer level, this will immediately impact marginal spending as necessary expenditures (housing, energy, basic food and so on) lower the budget available for products such as eco-friendly cleaning products, organic foods or ethically made clothes. Buying “greener” products typically cost a family of four around £2,000 a year.

Instead, people may have to rely on cheaper goods that also come with larger greenhouse gas footprints and wider impacts on the environment through pollution and increased waste. See this calculator for direct comparisons.

Of course, some spending changes will be positive for the environment, for example if people use their cars less or take fewer holidays abroad. However, high-income individuals who will benefit the most from the mini-budget tax cuts will be less affected by the falling pound and they tend to fly more, buy more things, and have multiple cars and bigger homes to heat.

This raises profound questions about inequality and injustice in UK society. Alongside increased fuel poverty and foodbank use, we will see an uptick in the purchasing power of the wealthiest.

What’s next

Interest rate rises increase the cost of servicing government debt as well as the cost of new borrowing. One estimate says that the combined cost to government of the new tax cuts and higher cost of borrowing is around £250 billion. This substantial loss in government income reduces the budget available for climate change mitigation and improvements to infrastructure.

The government’s growth plan also seems to be based on an increased use of fossil fuels through technologies such as fracking. Given the scant evidence for absolutely decoupling economic growth from resource use, the opposition’s “green growth” proposal is also unlikely to decarbonise at the rate required to get to net zero by 2050 and avert catastrophic climate change.

Therefore, rather than increasing the energy and materials going into the economy for the sake of GDP growth, we would argue the UK needs an economic reorientation that questions the need of growth for its own sake and orients it instead towards social equality and ecological sustainability.

The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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