It’s time to kick the can again!

Thoughts of the Day

As the US government approaches its funding deadline, expect politicians from both parties to engage in familiar blame games. They shouldn’t risk a shutdown but they love taking these negotiations to the brink before reaching a compromise. Expect the days ahead to be filled with much-publicized political bickering.

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Day Ahead

The Euro Area Consumer Price Index is expected to show that prices rose +5.3% Year-on-Year, as it was in July. The core index is expected to moderate to +5.3% YoY from +5.5%.

The Canadian Consumer Price Index is expected to show that prices rose +3.8% Year-on-Year, higher than +3.3% in July.

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What Happened Yesterday

Market Movements as of New York Close 18 Sep 23
  • The US Treasury Yield curve widened to 0.73% as the US 2 year bond yield rose +0.03% to 5.05% while the 10 year bond yield fell -0.01% to 4.32%.
  • The US stock futures traded sideways through the Asian and early London trading hours. However, it started to become more volatile as the New York session approached with the S&P 500 down slightly (-0.11%) before the New York session began.
  • The US stock market opened lower from Friday. The US stock market then started to trade higher in the early New York session but soon made a u-turn by midday. Consequently, the S&P 500 closed the day almost flat at +0.07% (intraday high: +0.31%, low: -0.18%) the Dow Jones was up by merely +0.02% (intraday high: +0.31%, low: -0.21%) while the Nasdaq eked out a small +0.15% again (intraday high: +0.44%, low: -0.31%).
  • The crypto market saw a whipsaw yesterday with Bitcoin breaking above the 27,000 level yesterday to 27,442 (+3.6%) before settling at 26,800 (+1.0% on the day). Ether exhibited a similar behaviour as well, hitting a peak of 1670 (+2.9%) before settling at +0.9% on the day.
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Headlines & Market Impact

Yellen: No signs US economy in downturn, warns against gov’t shutdown

Notable Snippet: U.S. Treasury Secretary Janet Yellen on Monday said she saw no signs the U.S. economy is entering a downturn but warned that failure by Congress to pass legislation to keep the government running risked slowing momentum in the economy.

“I don’t see any signs that the economy is at risk of a downturn,” Yellen told CNBC, noting that the U.S. labor market also remained strong and inflation was coming down.

“There’s absolutely no reason for a shutdown,” she said. “Creating … a situation that could cause a loss of momentum is something we don’t need as a risk at this point.”

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ECB to tackle excess liquidity in next stage of inflation fight -sources

Notable Snippet: European Central Bank policymakers want to soon start discussing how to tackle the multi-trillion-euro pool of excess liquidity sloshing around banks, with raising reserve requirements a possible first move, six sources told Reuters.

With rates likely on hold at least until December, policymakers are now starting to shift their focus to the cash that they injected into the banking system over a decade of bond purchases.

This stash of money dulls the impact of their rate hikes by reducing competition for deposits and results in hefty interest payments — and ensuing losses — by some central banks.

Discussions on how to reduce excess liquidity will focus on three areas, the sources said: the amount of reserves banks must keep at the ECB, the unwinding of its bond-buying programmes and a new framework for steering short-term interest rates.

ECB President Christine Lagarde said last week that policymakers had not discussed the bond-buying schemes at their latest policy meeting. She described the PEPP as the ECB’s “first line of defence” to preserve policy transmission – central bank jargon for bond market stability in the most indebted countries.

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China and EU hold talks on AI, cross-border data flow amid renewed tensions

Notable Snippet: China and the European Union held talks on topics including artificial intelligence and cross-border data flows on Monday (Sep 18) in Beijing, amid disputes over an EU probe into China’s electric vehicle (EV) subsidies.

The talks were part of an EU-China High-level Digital Dialogue co-chaired by China’s Vice Premier Zhang Guoqing and the European Commission Vice-President for Values and Transparency Vera Jourova, the first of such dialogue in three years, the European Commission said in a statement.

The talks on Monday covered key issues including platforms and data regulation, AI, and cross-border flow of industrial data, China and the EU said.

The European Commission conveyed concerns about “difficulties faced by EU companies in China to make use of their industrial data, as a result of the application of recent legislation”.

The statement did not elaborate on which legislation it was referring to. China expanded its counter-espionage law in July, with wide-ranging updates including banning the transfer of any information related to national security and broadening the definition of spying.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord