Who is The House?

00:00:00: Rising oil prices are fueling inflation fears, pushing global yields higher and weighing on equities even with the US Treasury announcing to triple the size of today's ten-and twenty year bond buybacks in the U.S.. Meanwhile The European Central Bank is about raise its interest rates for second time since June this year as Europe also confronts another energy driven inflation shock that no one wants.

00:00:25: But there is so much politicians and central bankers could do, obviously when the fundamentals are not going toward their... right direction.

00:00:33: So let's talk about who is in the house now, ladies and gentlemen!

00:00:37: And what's in store?

00:00:38: Welcome to Swiss Coats Daily Market Talk this Thursday, the tenth of September.

00:00:43: I'm Ipekos Karadishkeya.

00:00:45: i will dive into the kymic stuff that matters for financial markets.

00:00:49: but before we do as always please keep in mind opinions are my own not financial advice.

00:01:04: Yesterday was not a great day in the financial markets.

00:01:08: Crude oil prices kept rising, fueling inflation.

00:01:11: expectations around fight rising inflation and equities fell as a result of it.

00:01:25: US technology

00:01:25: fair actually better

00:01:26: through the shock than their European stocks, for example that printed the strongest losses yesterday with the French catch on diving nearly two percent in yesterday's trading session.

00:01:37: And guess what?

00:01:38: The U.S.

00:01:39: Treasury has announced me yesterday That It would triple the size off the initial bond buybacks to buy up to six billion us dollar worth Of outstanding securities set to major into ten to twenty year sector did nothing to improve the mood.

00:01:54: Absolutely NOTHING!

00:01:55: The US Ten-Year Yield Despite passed a four point eighty three percent level yesterday, To the highest levels since November.

00:02:01: two thousand twenty three and third of your yield hovers around five point thirty percent mark Around the Levels where the U.S Treasury Secretary Mr Scott Bessons came up with that brilliant idea that They would at least double the size of their bond buybacks to tame pressures on a longer and off-the-us yield curve.

00:02:21: So in summary, I have to say this... Besson is now the house ladies & gentlemen!

00:02:25: And his own humble words regarding the Yen intervention that he conducted with the Bank of Japan.

00:02:31: He's got firepower.

00:02:33: His belief could manipulate the markets as he wants too.

00:02:37: Let us see if he is the House in US Treasuries too.

00:02:40: As for Will will be today In just few hours.

00:02:43: But the fact that yesterday, Bond traders didn't really play along.

00:02:46: Besson was a pure irony because back in nineteen ninety-two, Bessond was sitting on other side of table.

00:02:54: He was one running George Soros London office when Soros fund management famously bet against the British pound and run up to Black Wednesday.

00:03:02: So that was the day UK had to withdraw sterling from European exchange rate mechanism called ERM.

00:03:09: At a time, the UK tried to keep sterling within EU exchange rate effectively tying the pound today Deutsche Mark in Germany.

00:03:18: But the fundamentals of two countries were walking against that policy because Germany needed high interest rates at that time to fight inflation, in Germany following reunification while Britain on its end was in recession and it had a highly leveraged housing market.

00:03:35: around ninety percent yes around ninety per cent of British mortgages will link short term rates.

00:03:42: That meant if the Bank of England raised their interest rate pound while households in the UK weren't collapsed under rising mortgage costs.

00:03:56: As a result, the British economy would suffer far worse recession.

00:04:00: The Soros team concluded that there was no way the UK could defend sterling by raising interest rates and bet against it.

00:04:08: And on that famous day of Plague Wednesday, British authorities did try to defend Stirling by announcing rate hikes from ten-to-twelve percent and then to fifteen percent.

00:04:19: but guess what?

00:04:20: Marcus didn't buy it!

00:04:22: Britain eventually withdrew form the ERM and Stirlin collapsed.

00:04:28: So voilà... That was a glorious time off Bessent.

00:04:31: Today thirty four years later Bessend finds himself being exact same Mistake that the UK politicians won't stay.

00:04:37: he actually thinks at the US treasury could tamed longer and off to us killed curve by buying more buns.

00:04:44: But the fundamentals are strongly playing against him doing so.

00:04:49: energy prices are soaring in the u.s And around-the-globe mainly due to a war that the U.S started it in the Middle East.

00:04:55: Inflation pressures or soaring around the world do two of the soaring energy prices.

00:04:59: after middle east The USA is soaring on its end due to fiscal policies, they currently administration is conducting any responsible and unsustainable expense of fiscal policy on the other hand with no end in sight.

00:05:11: Meanwhile, appetite for US treasuries are notably weaker today than they were say five years ago.

00:05:17: by repeated geopolitical and trade fiascos of the new administration.

00:05:22: international foreign institutions are fleeing to alternative assets.

00:05:26: goal being one could fix the problem.

00:05:34: So yesterday's market reaction was very clear and congratulations, bond traders.

00:05:39: Treasury can buy four billion six billion ten million or potentially more bonds back and temporarily improve liquidity at the long end of the US yield curve.

00:05:50: but it cannot make underlying reasons.

00:05:52: investors man higher yields for having these bonds disappear in a blink of an eye.

00:05:57: rising oil prices inflation concerns massive government borrowing.

00:06:01: on questions around this sustainability US fiscal trajectory is probably here to stay.

00:06:07: For energy prices, you might see easing if the Middle East tensions ease.

00:06:11: but for He knows, and he says it explicitly that he cannot change the equilibrium price of US treasuries but that he rather wants to slow things down.

00:06:24: But even though looks like is going be difficult so could eventually find out.

00:06:30: his success with Soros team against UK was because you can't fight the fundamentals not because they have.

00:06:39: I hated this sentence by the way Moving to Europe in a more humble display of policymaking.

00:06:45: European Central Bank officials are expected to raise interest rates today by another twenty-five basis points.

00:06:52: As a renewed surge in energy prices pushed the headline inflation in the euro area back above the three percent mark, that's well about two per cent target for the European central bank.

00:07:03: European politicians don't enjoy raising race either.

00:07:06: but what do you?

00:07:07: When inflation goes up, central bankers raise interest rates to tame pressures.

00:07:11: Even though in this particular situation, inflation is pushed higher due to external supply factors not due to demand and higher rates won't make inflation disappear.

00:07:23: but that's still what the policy makers are expected to do raising interest when inflation pressures go higher.

00:07:29: What makes matters worse today is that oil and gas prices in Europe only went higher after the latest headline inflation data came in, suggesting that whatever the European Central Bank does today.

00:07:41: The upcoming inflation ratings in Europe could only go higher from here In a longer run.

00:07:47: however ,the idea it's to slow economic growth enough To counter part of price pressures we see Pull the threshold for demand destruction, lower for oil prices and eventually limit the upside potential there.

00:08:05: So that's to thinking!

00:08:06: Slow down their economy to reverse or at least not add to inflationary pressures.

00:08:11: Now bad news is higher interest rates lead to higher bargain costs And they weigh on equity valuations.

00:08:18: But good news this week's potential of a twenty-five basis point rate hike in Europe Is almost entirely priced.

00:08:27: index gained more than seven percent in the two months.

00:08:30: Following the European Central Bank's latest interest rate hike decision, that was on June eleventh this year.

00:08:37: The second quarter earnings were just too strong for investors to worry about higher borrowing costs in Europe.

00:08:43: So at this point I can't say higher interest rates from the European central bank and higher European yields as a result of it will add more downside pressure on the SOC-SXIXONDER index That pulled back three percent since August peak due to rising energy prices.

00:09:00: But I could very well predict that rising oil prices will lead to growing divergences within the index keeping Oil energy mining companies who are supported while applying more pressure on industries that pay a high price To keep breathing.

00:09:15: So let's see what the ECB says today and how in the market reacts, but this is all for Today!

00:09:23: and it has been insightful to you.

00:09:32: So please do not hesitate to leave your comments, reactions or questions below.

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00:09:56: so I will meet again tomorrow and until then, good day

00:10:15: trading.