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  • Bank of England matches Fed with 75 basis point hike in biggest move in three decades

    Bank of England matches Fed with 75 basis point hike in biggest move in three decades

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    The Bank of England made its largest interest-rate increase in three decades in response to inflation that the central bank still expects to accelerate.

    By a 7-to-2 vote, the U.K. central bank voted to lift rates by a three-quarters percentage point to 3%, as inflation hit a 40-year high in September. The central bank said inflation will further accelerate to 11% in the fourth quarter.

    There was one vote, from Swati Dhingra, for a half-point increase, and another, from Silvana Tenreyro, for a quarter-point rise. Both are external members of the central bank’s monetary policy committee.

    It was the first gyrations since the turmoil in financial markets that prompted the BOE to step in with a temporary bond purchase program.

    “These had partly reflected global developments, although U.K.-specific factors had played a very significant role during this period,” the central bank dryly said of the market reaction to the tax-cut proposals produced by Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng, both of whom have resigned.

    The U.K. central bank has now started a delayed bond selling program, and Chancellor Jeremy Hunt has backtracked on the tax-cut proposals as he readies a new “autumn statement” due in mid-November.

    The pound dropped despite the central bank matching the Fed’s three-quarter point rate hike. That’s because of a comment found within the minutes of the meeting, that a majority felt rates would not have to go as high as the implied 5.25% path in financial markets.

    The pound
    GBPUSD,
    -1.92%

    was weaker on the day at $1.1235 from $1.1392 — though much of that move came before the actual BOE decision — while the 2-year gilt
    TMBMKGB-02Y,
    3.029%

    rose 10 basis points to 3.08%.

    “This will most likely mark the peak in pace of tightening, especially with the Bank highlighting financial markets are pricing too much too soon. Next up for the U.K. will see the focus shift to the autumn statement to see what the chancellor’s fiscal plans are, but in the meantime the headlines point to gilts being relatively more supported, however the currency less so,” said Edward Hutchings, head of rates at Aviva Investors.

    Tim Graf, head of EMEA macro strategy at State Street, said the peak rate is likely to be closer to 4% to 4.25%.

    “The accompanying messaging was clearly dovish, with the MPC noting the economy was already in the midst of a recession it expects to last into 2023, that inflation will likely fall sharply over the next two years and citing pricing for terminal rates as likely too high, limiting the need to hike aggressively,” he said.

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  • What NASA knows about soft landings that the Federal Reserve doesn’t

    What NASA knows about soft landings that the Federal Reserve doesn’t

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    The Federal Reserve still has a chance to meet both of its main goals — strong economic growth and stable prices — but time is running out to achieve a soft landing.

    The problem is that Fed officials are fixated on raising interest rates
    FF00,
    +0.00%

    several more times, including another supersize increase at their meeting Tuesday and Wednesday. They don’t seem to notice that inflation is already retreating significantly, while growth is dangerously close to stalling out.

    They have a blind spot because they are looking at the past.

    Greg Robb: Another jumbo Fed rate hike is expected this week — and then life gets difficult for Chairman Powell

    Fed officials ought to reach out to another government agency that has had remarkable success in achieving soft landings: The National Aeronautics and Space Administration.

    NASA’s scientists know something the Fed has forgotten: It takes a long time to send and receive messages from space, so they need to account for those delays when sending instructions to their spacecraft so they can land safely on Mars, or orbit Saturn or the moons of Jupiter.

    Compounding errors

    It’s the same way with the economy. The signals that the Fed receives from the economy are often delayed, sometimes by months. Unfortunately, one of the main signals the Fed is relying upon right now to decide how much to raise interest rates is delayed by a year or more.

    I’m talking about inflation in the price of putting a roof over our heads. Shelter prices are now the leading contributor to increases in the consumer price index (CPI) and the personal consumption expenditure (PCE) price index. But because of the way the CPI for shelter is constructed — for very good reasons — the inflation reported today reflects conditions as they were 12 to 18 months ago.

    The error is compounded because shelter prices are by far the largest component of the CPI, at more than 30%.

    The Fed is disappointed that inflation hasn’t declined more since it began raising interest rates in March, but how could it when the signals about shelter prices were sent last summer and fall, long before the housing market began to cool in response to higher interest rates
    TMUBMUSD10Y,
    4.049%

    and the reductions in the Fed’s holdings of mortgage-backed securities?

    According to real-time data, shelter prices are no longer rising at a near-10% annual rate as the CPI and PCE price index claim. Growth in rents and house prices has slowed since the first rate hikes in March. House prices are actually falling in most regions of the country, and private-sector measures of rents show that landlords are now dropping rents in many cities.

    Just like a radio signal from Jupiter, it takes time for that message to be received by the CPI. It will be received and incorporated into the CPI eventually, but by then it may be too late for the Fed to react. The Fed might crash the spacecraft because it mistakenly believes the messages it gets are in real time.

    Growth is slowing

    The Fed’s blind spot puts the economy in peril. Recent data show that growth is naturally slowing from the breakneck pace following the pandemic shutdowns but also from the Fed’s relentless squeeze on financial conditions.

    It’s very hard to argue that the economy is still overheating. Domestic demand has stalled out since the spring. Final sales to domestic purchasers — which covers consumer spending and business investment — has grown at a 0.3% annual pace over the past two quarters.

    Real disposable incomes are growing at less than 1% annualized. Household wealth has fallen off a cliff, with the stock market
    SPX,
    -0.41%

    DJIA,
    -0.24%

    in a bear market and home equity beginning to fall. Wage growth is beginning to slow. Supply chains are improving.

    And the CPI excluding shelter has gone from rising at a 14% annual pace in the spring when the tightening began, to falling at a 1% annual pace over the past three months. Rate hikes are working!

    This benign picture on inflation may not persist. Inflation is still worrisome, particularly for essentials such as food, health care, new vehicles and utilities.

    But the Fed should adopt a more balanced view of the economy, no matter what the signals from the past say. No one wants a hard landing.

    Just ask NASA.

    More reported analysis from Rex Nutting

    Everybody is looking at the CPI through the wrong lens. Inflation fell to the Fed’s target in the past three months, according to the best measure.

    The Federal Reserve risks driving the economy into a ditch because it’s not looking at where inflation is heading

    Americans are feeling poorer for good reason: Household wealth was shredded by inflation and soaring interest rates

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  • Why the Dow is having a killer month as it heads for best October ever

    Why the Dow is having a killer month as it heads for best October ever

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    The Dow Jones Industrial Average has been criticized by some market watchers for being a poor barometer of equity-market performance given its relatively small sample size of just 30 stocks.

    But this quality, along with the paucity of megacap technology names, has helped shepherd the index toward what’s expected to be its biggest October gain in its 126-year history.

    With a month-to-date gain of 14.40% through Friday, the Dow
    DJIA,
    +2.59%

    is on track for its best monthly performance since January 1976, when it rose 14.41%, according to Dow Jones Market Data. To clinch its best October ever, it only needs to hang on to a month-to-date gain of 10.65% by the time the U.S. market closes on Monday.

    The Dow is still in a bear market, but is now down less than 10% for the year to date. That compares, however, with year-to-date losses of 18.2% for the S&P 500
    SPX,
    +2.46%

    and 29% for the Nasdaq Composite
    COMP,
    -8.39%
    .

    Read: What the Dow’s stellar October and Big Tech’s ugly rout say about the stock market right now

    What exactly has made the Dow’s October performance so stellar?

     The blue-chip gauge is packed with energy and industrials stocks, which have been among the best performing sectors for the stock market since the start of the year, noted Art Hogan, chief market strategist at B. Riley Wealth Management. 

    These stocks have performed particularly well since the start of the latest quarterly earnings season, while megacap technology names like Meta Platforms Inc.
    META,
    +1.29%
    ,
    Amazon.com Inc.
    AMZN,
    -6.80%

    and Alphabet Inc.
    GOOG,
    +4.30%

    have sputtered after delivering results and guidance that disappointed Wall Street this week.

    “It’s very tech-light, and it’s very heavy in energy and industrials, and those have been the winners,” Hogan said. “The Dow just has more of the winners embedded in it and that has been the secret to its success.”

    See: Live markets coverage

    The Dow is on track to log its highest close in at least two months on Friday as it outperforms both the S&P 500
    SPX,
    +2.46%

    and Nasdaq Composite
    COMP,
    -8.39%
    .
    Furthermore, it’s on track to climb for a sixth straight session, what would be its longest winning streak since May 27, according to DJMD. 

    Adding to the list of notable factoids, the average is also on track to log a fourth straight weekly gain, which would cement its longest winning streak since Nov. 5, 2021, when the index rose for five straight weeks. 

    Caterpillar Inc.
    CAT,
    +3.39%
    ,
    Chevron Corp.
    CVX,
    +1.17%

    And Amgen Inc.
    AMGN,
    +2.46%

    are the top-performing Dow stocks so far this month, having gained 29.3%, 21.2% and 18.3%, respectively, as of Friday.  

    In recent trade, the blue-chip average was up around 700 points, or 2.2%, on track for its biggest daily point and percentage gain in exactly one week.  

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  • Lula wins Brazil’s presidential runoff in rebuke of far-right Bolsonaro

    Lula wins Brazil’s presidential runoff in rebuke of far-right Bolsonaro

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    SAO PAULO — Luiz Inácio Lula da Silva has done it again: Twenty years after first winning the Brazilian presidency, the leftist defeated incumbent Jair Bolsonaro Sunday in an extremely tight election that marks an about-face for the country after four years of far-right politics.

    With 99.9% of the votes tallied in the runoff vote, da Silva had 50.9% and Bolsonaro 49.1%, and the election authority said da Silva’s victory was a mathematical certainty. At about 10 p.m. local time, three hours after the results were in, the lights went out in the presidential palace and Bolsonaro had not conceded nor reacted in any way.

    Before the vote, Bolsonaro’s campaign had made repeated — unproven — claims of possible electoral manipulation, raising fears that he would not accept defeat and would challenge the results if he lost.

    The high-stakes election was a stunning reversal for da Silva, 77, whose imprisonment for corruption sidelined him from the 2018 election that brought Bolsonaro, a defender of conservative social values, to power.

    “Today the only winner is the Brazilian people,” da Silva said in a speech at a hotel in downtown Sao Paulo. “This isn’t a victory of mine or the Workers’ Party, nor the parties that supported me in campaign. It’s the victory of a democratic movement that formed above political parties, personal interests and ideologies so that democracy came out victorious.”

    Da Silva is promising to govern beyond his party. He wants to bring in centrists and even some leaning to the right who voted for him for the first time, and to restore the country’s more prosperous past. Yet he faces headwinds in a politically polarized society where economic growth is slowing and inflation is soaring.

    This was the country’s tightest election since its return to democracy in 1985, and the first time since then that the sitting president failed to win reelection. Just over 2 million votes separated the two candidates; the previous closest race, in 2014, was decided by a margin of roughly 3.5 million votes.

    The highly polarized election in Latin America’s biggest economy extended a wave of recent leftist victories in the region, including Chile, Colombia and Argentina.

    As Lula spoke to his supporters — promising to “govern a country in a very difficult situation” — Bolsonaro had yet to concede.

    Da Silva’s inauguration is scheduled to take place on Jan. 1. He last served as president from 2003-2010.

    Thomas Traumann, an independent political analyst, compared the results to Biden’s 2020 victory, saying da Silva is inheriting an extremely divided nation.

    “The huge challenge that Lula has will be to pacify the country,” he said. “People are not only polarized on political matters, but also have different values, identity and opinions. What’s more, they don’t care what the other side’s values, identities and opinions are.”

    Congratulations for da Silva — and Brazil — began to pour in from around Latin America and across the world Sunday evening, including from U.S. President Joe Biden, who highlighted the country’s “free, fair, and credible elections.” The European Union also congratulated da Silva in a statement, commending the electoral authority for its effectiveness and transparency throughout the campaign.

    Bolsonaro had been leading throughout the first half of the count and, as soon as da Silva overtook him, cars in the streets of downtown Sao Paulo began honking their horns. People in the streets of Rio de Janeiro’s Ipanema neighborhood could be heard shouting, “It turned!”

    Da Silva’s headquarters in downtown Sao Paulo hotel only erupted once the final result was announced, underscoring the tension that was a hallmark of this race.

    “Four years waiting for this,” said Gabriela Souto, one of the few supporters allowed in due to heavy security.

    Outside Bolsonaro’s home in Rio, ground-zero for his support base, a woman atop a truck delivered a prayer over a speaker, then sang excitedly, trying to generate some energy as the tally grew for da Silva. But supporters decked out in the green and yellow of the flag barely responded. Many perked up when the national anthem played, singing along loudly with hands over their hearts.

    For months, it appeared that da Silva was headed for easy victory as he kindled nostalgia for his presidency, when Brazil’s economy was booming and welfare helped tens of millions join the middle class.

    But while da Silva topped the Oct. 2 first-round elections with 48% of the vote, Bolsonaro was a strong second at 43%, showing opinion polls significantly had underestimated his popularity.

    Bolsonaro’s administration has been marked by incendiary speech, his testing of democratic institutions, his widely criticized handling of the COVID-19 pandemic and the worst deforestation in the Amazon rainforest in 15 years. But he has built a devoted base by defending conservative values and presenting himself as protection from leftist policies that he says infringe on personal liberties and produce economic turmoil. And he shored up support in an election year with vast government spending.

    “We did not face an opponent, a candidate. We faced the machine of the Brazilian state put at his service so we could not win the election,” da Silva told the crowd in Sao Paulo.

    Da Silva built an extensive social welfare program during his tenure that helped lift tens of millions into the middle class. The man universally known as Lula also presided over an economic boom, leaving office with an approval rating above 80%, prompting then U.S. President Barack Obama to call him “the most popular politician on Earth.”

    But he is also remembered for his administration’s involvement in vast corruption revealed by sprawling investigations. Da Silva’s arrest in 2018 kept him out of that year’s race against Bolsonaro, a fringe lawmaker at the time who was an outspoken fan of former U.S. President Donald Trump.

    Da Silva was jailed for for 580 days for corruption and money laundering. His convictions were later annulled by Brazil’s top court, which ruled the presiding judge had been biased and colluded with prosecutors. That enabled da Silva to run for the nation’s highest office for the sixth time.

    Da Silva has pledged to boost spending on the poor, reestablish relationships with foreign governments and take bold action to eliminate illegal clear-cutting in the Amazon rainforest.

    “We will once again monitor and do surveillance in the Amazon. We will fight every illegal activity,” da Silva said in his acceptance speech. “At the same time we will promote sustainable development of the communities of the Amazon.”

    The president-elect has pledged to install a ministry for Brazil’s original peoples, which will be run by an Indigenous person.

    But as da Silva tries to achieve these and other goals, he will be confronted by strong opposition from conservative lawmakers likely to take their cues from Bolsonaro.

    Carlos Melo, a political science professor at Insper University in Sao Paulo, compared the likely political climate to that experienced by former President Dilma Rousseff, da Silva’s hand-picked successor after his second term.

    “Lula’s victory means Brazil is trying to overcome years of turbulence since the reelection of President Dilma Rousseff in 2014. That election never ended; the opposition asked for a recount, she governed under pressure and was impeached two years later,” said Melo. “The divide became huge and then made Bolsonaro.”

    Unemployment this year has fallen to its lowest level since 2015 and, although overall inflation has slowed during the campaign, food prices are increasing at a double-digit rate. Bolsonaro’s welfare payments helped many Brazilians get by, but da Silva has been presenting himself as the candidate more willing to sustain aid going forward and raise the minimum wage.

    In April, he tapped center-right Geraldo Alckmin, a former rival, to be his running mate. It was another key part of an effort to create a broad, pro-democracy front to not just unseat Bolsonaro, but to make it easier to govern.

    “If Lula manages to talk to voters who didn’t vote for him, which Bolsonaro never tried, and seeks negotiated solutions to the economic, social and political crisis we have, and links with other nations that were lost, then he could reconnect Brazil to a time in which people could disagree and still get some things done,” Melo said.

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  • Why the Dow is having a killer month as it heads for best October ever

    Why the Dow is having a killer month as it heads for best October ever

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    The Dow Jones Industrial Average has been criticized by some market watchers for being a poor barometer of equity-market performance given its relatively small sample size of just 30 stocks.

    But this quality, along with the paucity of megacap technology names, has helped shepherd the index toward what’s expected to be its biggest October gain in its 126-year history.

    With a month-to-date gain of 14%, the Dow
    DJIA,
    +2.57%

    is on track for its best monthly performance since January 1976, when it rose 14.4%, according to Dow Jones Market Data. To clinch its best October ever, it only needs to hang on to a month-to-date gain of 10.65% by the time the U.S. market closes on Monday.

    The Dow is still in a bear market and remains down more than 10% for the year to date. That compares, however, with year-to-date losses of 18.6% for the S&P 500
    SPX,
    +2.40%

    and 29.6% for the Nasdaq Composite
    COMP,
    +2.74%
    .

    What exactly has made the Dow’s October performance so stellar?

     The blue-chip gauge is packed with energy and industrials stocks, which have been among the best performing sectors for the stock market since the start of the year, noted Art Hogan, chief market strategist at B. Riley Wealth Management. 

    These stocks have performed particularly well since the start of the latest quarterly earnings season, while megacap technology names like Meta Platforms Inc.
    META,
    +1.14%
    ,
    Amazon.com Inc.
    AMZN,
    -7.41%

    and Alphabet Inc.
    GOOG,
    +4.28%

    have sputtered after delivering results and guidance that disappointed Wall Street this week.

    “It’s very tech-light, and it’s very heavy in energy and industrials, and those have been the winners,” Hogan said. “The Dow just has more of the winners embedded in it and that has been the secret to its success.”

    See: Live markets coverage

    The Dow is on track to log its highest close in at least two months on Friday as it outperforms both the S&P 500
    SPX,
    +2.40%

    and Nasdaq Composite
    COMP,
    +2.74%
    .
    Furthermore, it’s on track to climb for a sixth straight session, what would be its longest winning streak since May 27, according to DJMD. 

    Adding to the list of notable factoids, the average is also on track to log a fourth straight weekly gain, which would cement its longest winning streak since Nov. 5, 2021, when the index rose for five straight weeks. 

    Caterpillar Inc.
    CAT,
    +3.22%
    ,
    Chevron Corp.
    CVX,
    +0.75%

    And Amgen Inc.
    AMGN,
    +2.21%

    are the top-performing Dow stocks so far this month, having gained 29.3%, 21.2% and 18.3%, respectively, as of Friday.  

    In recent trade, the blue-chip average was up around 700 points, or 2.2%, on track for its biggest daily point and percentage gain in exactly one week.  

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  • Stocks are having a stellar October. Why the bear-market rally may have more room to run.

    Stocks are having a stellar October. Why the bear-market rally may have more room to run.

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    An earlier version of this story misstated the date of the U.S. midterm elections. They will be held Nov. 8, not Nov. 9.

    Despite a raft of risky events that investors must face down over the coming weeks, some on Wall Street believe that the latest bear-market rally in stocks has more room to run.

    Although the S&P 500
    SPX,
    +1.50%
    ,
    Dow Jones Industrial Average
    DJIA,
    +0.97%

    and Nasdaq Composite
    COMP,
    +16.23%

    remain mired in bear markets, stocks have been bouncing back from the “oversold” levels when the major indexes fell to their lowest levels in two years. Bear markets are known for sharp bounces, such as the rebound that took the S&P 500 up more than 17% from its mid-June low before sliding back down to set a new 2022 low on Oct. 12.

    With that said, here are a few things for investors to keep in mind.

    There’s plenty of event risk facing markets

    On top of a deluge of corporate earnings this week, including some of the biggest megacap tech stocks like Microsoft Corp.
    MSFT,
    +1.07%

    and Amazom.com Inc.
    AMZN,
    +0.64%
    ,
    investors will also receive some key economic data reports over the next couple of weeks — including a reading from the Fed’s preferred inflation gauge on Friday, and the October jobs numbers, set to be released on Nov. 4.

    Beyond that, there’s also the Fed’s next policy meeting that concludes on Nov. 2. The Fed is widely expected to hike interest rates by another 75 basis points, the fourth “jumbo” hike this year.

    Midterm U.S. elections, which will determine which party controls the House and Senate in the U.S. are slated to take place Nov. 8.

    Investors are still trying to parse the Fed’s latest messaging shift

    Investors cheered what some market watchers described as a coordinated shift in messaging from the Fed last week, conveyed via an Oct. 21 report from The Wall Street Journal that indicated the size of a December Fed rate increase would be up for debate, along with comments from San Francisco Fed President Mary Daly.

    Still, the Fed isn’t expected to materially pivot any time soon.

    Because the fact remains: there’s plenty of froth that needs to be squeezed out of markets after nearly two years of extraordinary monetary and fiscal stimulus unleashed in the wake of the COVID-19 pandemic, according to Steve Sosnick, chief strategist at Interactive Brokers.

    “It’s easier to inflate a bubble than to pop it, and I’m not using the term ‘bubble’ facetiously,” he said during a phone interview with MarketWatch.

    Richard Farr, chief market strategist at Merion Capital Group, played down the impact of the Fed’s latest “coordinated” shift in guidance during an interview with MarketWatch, saying the impact on the terminal fed-funds rate is relatively immaterial.

    Fed-funds futures traders anticipate the upper end of the central bank’s key target rate will rise to 5% before the end of the first quarter of next year, and remain there potentially into the fourth quarter, although an earlier cut wouldn’t be a complete surprise, according to the CME’s FedWatch tool.

    Market technicians believe stocks might move a little higher

    So far, October isn’t shaping up to be anything like September, when stocks fell 9.3% to polish off the worst first nine months of a calendar year in two decades.

    Instead, the S&P 500 has already risen more than 5.5% since the start of October despite briefly crashing to its lowest intraday level in more than two years following the release of the September consumer-price index report earlier this month.

    Read: ‘Bear killers’ and crashes: What investors need to know about October’s complicated stock-market history

    Technical indicators suggest the S&P 500 can continue to build on last week’s gain, said Katie Stockton, a market strategist at Fairlead Strategies, in a note she shared with clients and MarketWatch.

    According to her, the next key level to watch out for on the S&P 500 is north of 3,900, more than 100 points above where the index closed on Monday.

    “Short-term momentum remains to the upside within the context of the year-to-date downtrend. Support near 3,505 was a natural staging ground for a relief rally, and initial resistance is near 3,914,” she said.

    A key bear sees a tradeable opportunity

    Mike Wilson, Morgan Stanley’s chief U.S. equity strategist and chief investment officer, has been one of Wall Street’s most outspoken bears for more than a year now.

    But in a note to clients early this week, he reiterated that stocks were looking ripe for a bounce.

    “Last week’s tactical bullish call was met with doubt from clients, which means there is still upside as we transition from Fire to Ice — falling inflation expectations can lead to lower rates and higher stock prices in the absence of capitulation from companies on 2023 EPS guidance,” Wilson said.

    This earnings season is off to an good start

    At this point, it’s safe to say that the third-quarter earnings season has vanquished fears that the Fed’s interest-rate hikes and gnawing inflation had already dramatically eroded profit margins, market strategists said.

    The quality of earnings reported already has surpassed some of the early “whisper numbers” bandied about by traders and strategists, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

    In aggregate, companies are reporting earnings 5.4% above expectations, according to data from Refinitiv shared with the media on Monday. This compares to a long-term average — since 1994 — of 4.1%.

    However, when the energy sector is removed from the equation, expectations seem much more grim. The blended year-to-year earnings estimate for the third quarter is -3.6%, according to the Refinitiv data.

    While investors are still waiting on earnings from roughly three-quarters of S&P 500 firms, according to FactSet data, some — like Morgan Stanley’s Wilson — are already looking toward next year as they expect the outlook for profits will darken substantially, possibly leading to an earnings recession — when corporate earnings shrink for two quarters in a row.

    The outlook for the global economy remains dim

    Speaking of energy, crude oil prices are flashing an ominous warning about expectations for the global economy.

    “A lot of the weak oil reflects expectations that the global economy will be in recession and near recession,” said Steve Englander, global head of G-10 currency strategy at Standard Chartered.

    West Texas Intermediate crude-oil futures
    CLZ22,
    +0.48%

     settled lower on Monday, as lackluster import data from China and the end of the Communist Party’s leadership conference hinted at softening demand in the world’s second-largest oil consumer. Prices continued to decline early Tuesday.

    Be wary of ‘fighting the Fed’

    Investors remain worried that “something else might break” in markets, as MarketWatch reported over the weekend.

    It’s possible that such fears inspired the Fed’s apparent guidance shift, Sosnick said. But the fact remains: anybody buying stocks while the Fed is aggressively tightening monetary policy should be prepared to tolerate losses, at least in the near term, he said.

    “Simplest thing of all is: ‘don’t fight the Fed.’ If you’re trying to buy stocks now, what are you doing? It doesn’t mean you can’t buy stocks overall. But it means you’re fighting an uphill battle,” he said.

    The VIX is signaling that investors expect a wild ride

    Even as stocks extended their October rebound for another session on Monday, the Cboe Volatility Index
    VIX,
    -4.49%

    remained conspicuously elevated, reflecting the notion that investors don’t anticipate the market’s wild ride will end any time soon.

    The Wall Street “fear gauge” finished Monday’s session up 0.5% at 29.85 and it was trading just shy of the 30 level early Tuesday.

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  • Rishi Sunak the favorite as Boris Johnson drops out of the running for Britain’s prime minister

    Rishi Sunak the favorite as Boris Johnson drops out of the running for Britain’s prime minister

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    LONDON — Former British Prime Minister Boris Johnson announced Sunday he will not run to lead the Conservative Party, ending a short-lived, high-profile attempt to return to the prime minister’s job he was ousted from little more than three months ago.

    His withdrawal leaves former Treasury chief Rishi Sunak the strong favorite to become Britain’s next prime minister — the third this year — at a time of political turmoil and severe economic challenges. He could win the contest as soon as Monday.

    The British pound
    GBPUSD,
    +0.42%

    advanced Sunday on hopes Sunak would be more fiscally austere.

    Read more: Who is Rishi Sunak, now the front-runner for U.K. prime minister?

    Johnson, who was ousted in July amid ethics scandals, had been widely expected to run to replace Liz Truss, who quit last week after her tax-cutting economic package caused turmoil in financial markets, was rapidly abandoned and and obliterated her authority inside the governing party.

    Johnson spent the weekend trying to gain support from fellow Conservative lawmakers after flying back from a Caribbean vacation and held talks with the two other contenders, Sunak and House of Commons Leader Penny Mordaunt.

    Late Sunday he said he had amassed the backing of 102 colleagues, more than the threshold of 100 needed to make a ballot of lawmakers on Monday.

    But he was far behind Sunak in support, and said he had concluded that “you can’t govern effectively unless you have a united party in Parliament.”

    The prospect of a return by Johnson had thrown the already divided Conservative Party into further turmoil. He led the party to a thumping election victory in 2019, but his premiership was clouded by scandals over money and ethics that eventually became too much for the party to bear.

    In his Sunday statement, Johnson insisted he was “well placed to deliver a Conservative victory” in the next national election, due by 2024. And he said that he likely would have won a ballot of Conservative Party members against either of his rivals.

    “But in the course of the last days I have sadly come to the conclusion that this would simply not be the right thing to do,” he said. “Therefore I am afraid the best thing is that I do not allow my nomination to go forward and commit my support to whoever succeeds.”

    But he hinted he might be back, saying: “I believe I have much to offer but I am afraid that this is simply not the right time.”

    After Truss quit on Thursday, the Conservative Party hastily ordered a contest that aims to finalize nominations Monday and install a new prime minister — its third this year — within a week.

    The clear favorite now is Sunak, who has support from more than 140 lawmakers, according to unofficial tallies. Mordaunt is backed by fewer than 30.

    If both make the ballot, the 357 Conservative lawmakers will hold an indicative vote on Monday to show their preference before the choice goes to the 172,000 party members around the country. If Mordaunt does not reach 100 nominations, Sunak will win by acclamation.

    Sunak, 42, was runner-up after Truss in this summer’s Tory leadership race to replace Johnson. On Sunday, he confirmed he was running again in the latest leadership contest.

    “There will be integrity, professionalism and accountability at every level of the government I lead and I will work day in and day out to get the job done,” Sunak said in a statement.

    Johnson’s exit came only hours after allies insisted he would run. Business Secretary Jacob Rees-Mogg told the BBC on Sunday that he spoke with Johnson and “clearly he’s going to stand” after flying back to London Saturday from a vacation in the Dominican Republic.

    But Northern Ireland minister Steve Baker, a former backer of Johnson and an influential politician within the Conservative Party, warned a Johnson comeback would be a “guaranteed disaster.” Baker noted that Johnson still faces an investigation into whether he lied to Parliament while in office about breaking his government’s own coronavirus restrictions during parties at Downing Street.

    If found guilty, Johnson could be suspended as a lawmaker.

    “This isn’t the time for Boris and his style,” Baker told Sky News on Sunday. “What we can’t do is have him as prime minister in circumstances where he’s bound to implode, taking down the whole government … and we just can’t do that again.”

    Truss quit Thursday after a turbulent 45 days, conceding that she could not deliver on her botched tax-cutting economic package, which she was forced to abandon after it sparked fury within her party and weeks of turmoil in financial markets.

    Sunak, who was Treasury chief from 2020 until this summer, steered Britain’s slumping economy through the coronavirus pandemic. He quit in July in protest at Johnson’s leadership.

    In the summer contest to replace Johnson, Sunak called promises by Truss and other rivals to immediately slash taxes reckless “fairy tales” and argued that soaring inflation must be controlled first.

    Tory voters backed Truss over Sunak, but he was proved right when Truss’ unfunded tax-cutting package triggered chaos in the markets in September. Now the task of stabilizing Britain’s wobbling economy is likely to fall to him.

    MarketWatch contributed to this report.

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  • Federal appeals court temporarily blocks Biden’s student loan forgiveness program

    Federal appeals court temporarily blocks Biden’s student loan forgiveness program

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    ST. LOUIS (AP) — A federal appeals court late Friday issued an administrative stay temporarily blocking President Joe Biden’s plan to cancel billions of dollars in federal student loans.

    The Eighth Circuit Court of Appeals issued the stay while it considers a motion from six Republican-led states to block the loan cancellation program. The stay ordered the Biden administration not to act on the program while it considers the appeal.

    The order came just days after people began applying for loan forgiveness. It was not immediately clear how the stay would impact those have already applied.

    The court set a deadline of Monday at 5 p.m. CDT for a response for a response from the Biden administration and a 5 p.m. Central Tuesday deadline for any replay from the appellants.

    See also: What are Pell grants? Biden student-loan forgiveness climbs to $20,000 for recipients of Pell grants.

    See also: ‘It’s $10,000 that’s on the line.’ Borrowers who used Pell grants decades ago can’t find proof and worry they will lose Biden’s relief.

    The attorneys for the Republican-led states had asked the court to reconsider their effort to block the Biden administration’s program to forgive the student loan debt.

    A notice of appeal to the Eighth U.S. Circuit Court of Appeals was filed late Thursday, hours after U.S. District Judge Henry Autrey in St. Louis ruled that since the states of Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina failed to establish standing, “the Court lacks jurisdiction to hear this case.”

    Separately, the six states also asked the district court for an injunction prohibiting the administration from implementing the debt cancellation plan until the appeals process plays out.

    Speaking at Delaware State University, a historically Black university where the majority of students receive federal Pell Grants, Biden on Friday said nearly 22 million people have applied for the loan relief in the week since his administration made its online application available.

    Also see: How to avoid being scammed when you apply for student-loan forgiveness

    The plan, announced in August, would cancel $10,000 in student loan debt for those making less than $125,000 or households with less than $250,000 in income. Pell Grant recipients, who typically demonstrate more financial need, will get an additional $10,000 in debt forgiven.

    The Congressional Budget Office has said the program will cost about $400 billion over the next three decades. James Campbell, an attorney for the Nebraska attorney general’s office, told Autrey at an Oct. 12 hearing that the administration is acting outside its authorities in a way that will cost states millions of dollars.

    The cancellation applies to federal student loans used to attend undergraduate and graduate school, along with Parent Plus loans. Current college students qualify if their loans were disbursed before July 1. The plan makes 43 million borrowers eligible for some debt forgiveness, with 20 million who could get their debt erased entirely, according to the administration.

    The announcement immediately became a major political issue ahead of the November midterm elections.

    Conservative attorneys, Republican lawmakers and business-oriented groups have asserted that Biden overstepped his authority in taking such sweeping action without the assent of Congress. They called it an unfair government giveaway for relatively affluent people at the expense of taxpayers who didn’t pursue higher education.

    Many Democratic lawmakers facing tough reelection contests have distanced themselves from the plan.

    Biden on Friday blasted Republicans who have criticized his relief program, saying “their outrage is wrong and it’s hypocritical.” He noted that some Republican officials had debt and pandemic relief loans forgiven.

    The six states sued in September. Lawyers for the administration countered that the Department of Education has “broad authority to manage the federal student financial aid programs.” A court filing stated that the 2003 Higher Education Relief Opportunities for Students Act, or HEROES Act, allows the secretary of education to waive or modify terms of federal student loans in times of war or national emergency.

    “COVID-19 is such an emergency,” the filing stated.

    The HEROES Act was enacted after the Sept. 11, 2001, terrorist attacks to help members of the military. The Justice Department says the law allows Biden to reduce or erase student loan debt during a national emergency. Republicans argue the administration is misinterpreting the law, in part because the pandemic no longer qualifies as a national emergency.

    Justice Department attorney Brian Netter told Autrey at the Oct. 12 hearing that fallout from the COVID-19 pandemic is still rippling. He said student loan defaults have skyrocketed over the past 2 1/2 years.

    Other lawsuits also have sought to stop the program. Earlier Thursday, Supreme Court Justice Amy Coney Barrett rejected an appeal from a Wisconsin taxpayers group seeking to stop the debt cancellation program.

    Barrett, who oversees emergency appeals from Wisconsin and neighboring states, did not comment in turning away the appeal from the Brown County Taxpayers Association. The group wrote in its Supreme Court filing that it needed an emergency order because the administration could begin canceling outstanding student debt as soon as Sunday.

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  • U.S. budget deficit halved in fiscal 2022 as receipts surge, COVID spending fades

    U.S. budget deficit halved in fiscal 2022 as receipts surge, COVID spending fades

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    The numbers: The U.S. federal budget deficit fell to $1.37 trillion in the just-ended fiscal year, the Treasury Department said Friday, half the amount of last year’s shortfall.

    Key details: The Treasury said the deficit fell by $1.4 trillion in fiscal 2022, the largest one-year decrease on record. Surging tax receipts totaling $4.9 trillion helped cut the deficit, as did falling outlays.

    Spending was $6.3 trillion for the fiscal year, a drop of 8.1%. That partly reflects reductions in COVID-related spending.

    The deficit would have been lower had student loan cancelation costs not been included. President Joe Biden in August announced $10,000 in federal debt cancelation for those with incomes less than $125,000 a year, or households making less than $250,000. Those who received federal Pell Grants are eligible for extra forgiveness.

    The loan-cancelation costs contributed to a 562% increase in the monthly deficit for September. The government’s fiscal year runs October through September.

    Big picture: Treasury Secretary Janet Yellen said in a statement that the report “provides further evidence of our historic economic recovery, driven by our vaccination effort and the American Rescue Plan.”

    Meanwhile, a budget watchdog said the figure was no cause for celebration.

    “We borrowed $1.4 trillion last year. That is not an accomplishment — it’s a reminder of how precarious our fiscal situation remains,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

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  • Sen. Lindsey Graham must testify in Georgia election probe, appeals court says

    Sen. Lindsey Graham must testify in Georgia election probe, appeals court says

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    COLUMBIA, S.C. — U.S. Sen. Lindsey Graham must testify before a special grand jury investigating whether then-President Donald Trump and others illegally tried to influence the 2020 election in Georgia, a federal appeals court said Thursday.

    The ruling by a three-judge panel of the 11th U.S. Circuit Court of Appeals paves the way for Fulton County District Attorney Fani Willis to bring Graham in for questioning as she tries to wrap up the investigation. She has said she hopes to be able to “send the grand jury on their way” by the end of the year.

    Graham could appeal the ruling to the full appellate court. An attorney for Graham deferred comment to a spokesman for the senator’s office, which did not immediately comment on the ruling.

    Willis has said she wants to question the South Carolina Republican about phone calls he made to Georgia Secretary of State Brad Raffensperger, the state’s top elections official, in the weeks after the 2020 election. Raffensperger has said he interpreted questions about whether he could reject certain absentee ballots as a suggestion to reject legally cast votes.

    Graham has challenged his subpoena, saying his position as a U.S. senator protects him from having to testify in the state investigation. He has denied any wrongdoing.

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  • Federal judge dismisses effort by 6 states to halt student-debt forgiveness plan

    Federal judge dismisses effort by 6 states to halt student-debt forgiveness plan

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    ST. LOUIS — A federal judge in St. Louis on Thursday dismissed an effort by six Republican-led states to block the Biden administration’s plan to forgive student loan debt for tens of millions of Americans.

    U.S. District Judge Henry Autrey wrote that because the six states — Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina — failed to establish they had standing, “the Court lacks jurisdiction to hear this case.”

    Suzanne Gage, spokeswoman for Nebraska Attorney General Doug Peterson, said the states will appeal. She said in a statement that the states “continue to believe that they do in fact have standing to raise their important legal challenges.”

    Democratic President Joe Biden announced in August that his administration would cancel up to $20,000 in education debt for huge numbers of borrowers. The announcement immediately became a major political issue ahead of the November midterm elections.

    The states’ lawsuit is among a few that have been filed. Earlier Thursday, Supreme Court Justice Amy Coney Barrett rejected an appeal from a Wisconsin taxpayers group seeking to stop the debt cancellation program.

    Barrett, who oversees emergency appeals from Wisconsin and neighboring states, did not comment in turning away the appeal from the Brown County Taxpayers Association. The group wrote in its Supreme Court filing that it needed an emergency order because the administration could begin canceling outstanding student debt as soon as Sunday.

    In the lawsuit brought by the states, lawyers for the administration said the Department of Education has “broad authority to manage the federal student financial aid programs.” A court filing stated that the 2003 Higher Education Relief Opportunities for Students Act, or HEROES Act, allows the secretary of education to waive or modify terms of federal student loans in times of war or national emergency.

    “COVID-19 is such an emergency,” the filing stated.

    The Congressional Budget Office has said the program will cost about $400 billion over the next three decades. James Campbell, an attorney for the Nebraska attorney general’s office, told Autrey at an Oct. 12 hearing that the administration is acting outside its authorities in a way that will cost states millions of dollars.

    The plan would cancel $10,000 in student loan debt for those making less than $125,000 or households with less than $250,000 in income. Pell Grant recipients, who typically demonstrate more financial need, will get an additional $10,000 in debt forgiven.

    Conservative attorneys, Republican lawmakers and business-oriented groups have asserted that Biden overstepped his authority in taking such sweeping action without the assent of Congress. They called it an unfair government giveaway for relatively affluent people at the expense of taxpayers who didn’t pursue higher education.

    Chris Nuelle, spokesman for Missouri Attorney General Eric Schmitt, said the plan “will unfairly burden working class families with even more economic woes.”

    Many Democratic lawmakers facing tough reelection contests have distanced themselves from the plan.

    The HEROES Act was enacted after 9/11 to help members of the military. The Justice Department says the law allows Biden to reduce or erase student loan debt during a national emergency. Republicans argue the administration is misinterpreting the law, in part because the pandemic no longer qualifies as a national emergency.

    Justice Department attorney Brian Netter told Autrey that fallout from the COVID-19 pandemic is still rippling. He said student loan defaults have skyrocketed over the past 2 1/2 years.

    The cancellation applies to federal student loans used to attend undergraduate and graduate school, along with Parent Plus loans. Current college students qualify if their loans were disbursed before July 1.

    The plan makes 43 million borrowers eligible for some debt forgiveness, with 20 million who could get their debt erased entirely, according to the administration.

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  • It’s the 35th anniversary of the 1987 stock-market crash: What investors need to know

    It’s the 35th anniversary of the 1987 stock-market crash: What investors need to know

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    Investors suffering motion sickness from the stock market’s wild October swings probably don’t want to hear about it, but Wednesday marks the 35th anniversary of the single ugliest day in stock-market history.

    On Oct. 19, 1987, the Dow Jones Industrial Average
    DJIA,
    +0.01%

    plunged 508 points, a decline of almost 23%, in a daylong selling frenzy that ricocheted around the world and tested the limits of the financial system. The S&P 500
    SPX,
    -0.37%

    dropped more than 20%. At current levels, an equivalent percentage drop would translate into a one-day loss of over 7,000 points for the Dow.

    Read: Wall Street pros recall ‘sheer panic’ of October 1987 stock-market crash

    Could it happen again? There are some important differences between the 1987 and 2022 market environment.

    Marketwide circuit breakers put in place following the crash force 15-minute trading halts after declines of 7% and 13% and then close the market for the day after a drop of 20%.

    “Is it possible to be down 20% in a day? Sure, but not before we have to check our wits a couple of times first,” Liz Young, head of investment strategy at SoFi, told MarketWatch in a phone interview.

    Those circuit breakers were last triggered in March 2020, when stocks plunged sharply at the onset of the COVID-19 pandemic.

    See: Here’s one key factor that amplified the 1987 stock-market crash

    “The other big difference is that we’ve already gone down 20% this year,” Young said. While there may be more downside, it’s difficult to see what could trigger a comparable one-day downdraft.

    Black Monday didn’t come out of the blue. The S&P 500 fell 3% on Oct. 14, 2.3% on Oct. 15, and 5.2% on Oct. 16, the Wednesday-Friday stretch before the fateful day, recalled Nicholas Colas, co-founder of DataTrek Research, in a note earlier this week.

    But the S&P 500 had gained 32.9% from January through September 1987, while it’s been downhill for stocks this year since the large-cap benchmark scored a record finish on Jan. 3.

    It’s also a reminder that stock-market drops don’t have to happen all at once. 2008 was a “longer slog lower with bouts of deep selling,” noted Ross Mayfield, investment strategy analyst at Baird, in a phone interview.

    And while risk versus return dynamics are starting to look more attractive for long-term investors, the market can still go lower from here, he said.

    The Dow and S&P 500 ended Friday at their lowest levels since 2020. They’ve bounced back over the first two trading sessions of this week, leaving the S&P 500 down 22% year to date through Tuesday’s close, the Dow down 16% and the tech-heavy Nasdaq Composite
    COMP,
    -0.60%

    off more than 30%. All three major indexes are mired in bear markets.

    Stock-index futures pointed to moderate losses for major indexes Wednesday morning.

    Aggressive tightening of monetary policy by the Federal Reserve in an effort to rein in persistently hot inflation has sparked a sharp rise in Treasury yields, unsettling stocks as investors fear the effort will push the economy into recession.

    Read: Why stock market investors should wait for the 10-year Treasury to ‘blink’

    This October, however, has certainly been volatile. The S&P 500 has finished with a gain or loss of more than 1% in 8 of the 12 trading days seen so far this month. The Cboe Volatility Index
    VIX,
    +3.25%
    ,
    an options-based measure of expected volatility over the next 30 days, remains elevated above 30, signaling investors expect choppy trading to continue.

    The 1987 crash remains a “relevant case study in extreme volatility,” Colas wrote.

    The S&P 500 bounced back the next two days following the Oct. 19 crash by 5.3% and 9.1%, but stumbled 8.3% the following Monday, leaving it essentially unchanged from its Black Monday close to its closing level a week later, he observed. The S&P 500 didn’t bottom until Dec. 4, then went on to rally 10.3% into year-end.

    That shows that buying the close of an outsize “dip” may yield good short-term trading returns, but the market might still need to retest the lows before moving sustainably higher, Colas said.

    It’s also worth noting that the 1987 crash is often described as the origin of the so-called Fed “put,” he said. That’s the idea that the Fed will respond to plunging asset prices with extraordinary measures.

    With inflation soaring, the Fed is widely seen as unable or unwilling to ride to the market’s rescue, with some arguing that the central bank may actually be cheering for market-based pain to tighten financial conditions and help get inflation under control. The analyst noted that year-over-year inflation as measured by the consumer-price index was 4.4% in October 1987, around half its September 2022 level of 8.2%.

    “Just to be clear, we don’t think there is a another 1987-style crash in the offing, but the current economic environment certainly leaves the Fed with fewer options and less desire to support equity prices than 35 years ago,” Colas said.

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  • Remote employees are working less, sleeping and playing more, Fed study finds

    Remote employees are working less, sleeping and playing more, Fed study finds

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    The COVID-19 pandemic catalyzed a major shift in the way Americans live and work, and a new analysis from the Federal Reserve Bank of New York shows that workers in the U.S. are taking advantage of a widespread shift toward remote work to spend more time sleeping and engaging in leisure activities.

    “One of the most enduring shifts [resulting from the pandemic] has occurred in the workplace, with millions of employees making the switch to work from home,” wrote David Dam, a former New York Fed research analyst, in a Tuesday blog post.

    “Even as the pandemic has waned, more than 15 percent of full-time employees remain fully remote and an additional 30 percent work in hybrid arrangements,” he wrote. “These changes have substantially reduced time spent commuting to work; in the aggregate, Americans now spend 60 million fewer hours traveling to work each day.”

    Dam and his colleagues drew on the American Time Use Survey to better understand how remote workers are using the time saved on commutes. They found “a substantial fall in time spent working,” with the “decrease in hours worked away from home only partially offset by an increase in working at home,” according to the post.


    Federal Reserve Bank of New York

    Changes in behavior differ among age groups, with younger Americans using the saved commuting time to engage in leisure activities like eating out, exercising or attending social events. Americans over the age of 30 spent more time on childcare, home maintenance and meal preparation.

    The flexibility of remote working arrangements, and the apparent fact that remote workers are able to spend less time overall working, will likely mean that workers will bargain hard to maintain the ability to work from home, Dam said.

    “The findings lend credence to the various reports on employees’ preferences for flexible work arrangements, given that cutting the commute enables people to spend their time on other activities, such as childcare or leisure,” he wrote. “This added benefit of working from home — for those who want it — will be an important consideration for the future of flexible work arrangements.”

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  • Why Kwasi Kwarteng could not survive the battle with the Bank of England

    Why Kwasi Kwarteng could not survive the battle with the Bank of England

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    Jeremy Hunt was appointed U.K. chancellor of the exchequer on Friday after Kwasi Kwarteng was sacked in response to the market’s rebellion over his tax-cutting budget.

    Kwarteng lasted just 38 days, the second shortest tenure for the office in history. It was Prime Minister Liz Truss who wielded the knife. But, arguably, it was Bank of England Governor Andrew Bailey who set up the hit.

    Simply put, in the fight between monetary and fiscal policy, Threadneedle Street has taken out Downing Street. Once Bailey stood his ground, Kwarteng was toast.

    To explain, a quick recap. Kwarteng’s recent budget containing £45 billion in tax cuts, mainly funded by more debt issuance, came at a time when government borrowing costs were already rising as the Bank of England raised interest rates to combat inflation at 40-year highs around 10%.

    Indeed, Kwarteng’s proposals were seen juicing up spending just as the BoE was trying to damp demand in its efforts to push inflation back to the 2% target. The market recognized this dichotomy and rebelled, realizing that it faced more debt sales and even tighter monetary policy.

    The resulting selling by over-leveraged pension funds caused a crash in gilt prices and surging yields to multi-decade highs, threatening to break the U.K pension system. Bailey stepped in to calm the markets by pledging a bond buying package of up to £65 billion — right around the time when he had planned to actually sell gilts as part of quantitative tightening.

    It worked, mostly. But, keen to ensure the City of London would undertake the necessary deleveraging quickly, and it would not be infected with moral hazard, Bailey said the support would end on Friday October 14th.

    And this week he stressed it would definitely end on Friday.

    So, to the present. What Bailey’s insistence meant was that the BoE, via monetary policy, was done helping. If the bond market was still to be worried about the situation when it opened on Monday, then it would have to be the fiscal side that changed.

    And for the fiscal side to shift it would mean the removal of the tax-cutting elements that so rattled investors. Some, like the axing of the top rate of personal tax, had already been reversed. But more needed to be done to try and recover a sense of fiscal prudence.

    And that, inevitably, meant the removal of the author of the budget: Kwarteng.

    Shortly after his departure, Truss announced that she was seeking to calm markets and had decided to cancel the corporation tax cut that had been a cornerstone of the budget. The proposal, delivered just 21 days ago, was now an ideological husk.

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  • Inflation expectations rise in October as consumer mood stays somber

    Inflation expectations rise in October as consumer mood stays somber

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    The numbers: Consumer sentiment rose slightly to 59.8 in October even as Americans’ expectations for inflation worsened, according to a Friday survey.

    The University of Michigan’s gauge of consumer attitudes added 1.2 index points from 58.6 in September.

    Economists were expecting a reading of 59, according to a Wall Street Journal poll.

    Consumer expectations for inflation over the next year rose to 5.1% from September’s one-year low of 4.7%, while expectations for inflation over the next 5 years ticked up to 2.9% from 2.7% last month.

    Big picture: Americans are facing rising costs for key items like food and shelter as well as the impact of higher interest rates and the growing chance of a serious economic slowdown.

    “Sentiment is now 9.8 points above the all-time low reached in June, but this improvement remains tentative, as the expectations index declined by 3% from last month,” wrote Joanne Hsu, director of the survey, on Friday. “Continued uncertainty over the future trajectory of prices, economies, and financial markets around the world indicate a bumpy road ahead for consumers.”

    Key details: A  gauge of consumer’s views of current conditions rose in October to 65.3 from 59.7 in September, while an indicator of expectations for the next six months fell to 56.2 from 58 last month.

    Market reaction: U.S. stocks were trading mixed Friday morning, with the Dow Jones Industrial Average
    DJIA,
    -1.34%

    posting gains and the S&P 500
    SPX,
    -2.37%

    index showing slight losses.

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  • U.K. bond yields continue to drop as Kwarteng set to be fired with further tax-cut reversals expected

    U.K. bond yields continue to drop as Kwarteng set to be fired with further tax-cut reversals expected

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    U.K. bond yields continued to drop on Friday, on expectations the U.K. government will further backtrack on its tax cut plans and that U.K. Prime Minister Liz Truss will fire Chancellor of the Exchequer Kwasi Kwarteng.

    Kwarteng was photographed entering Downing Street after flying home early from the International Monetary Fund meeting in Washington, D.C. Truss’s office has announced a press conference. Both The Times and the Financial Times newspapers reported Kwarteng will be fired.

    The yield on the 30 year gilt
    TMBMKGB-30Y,
    4.265%

    — which was high as 5.1% as recently as Wednesday — fell 28 basis points to 4.27%.

    The yield on the 10-year gilt
    TMBMKGB-10Y,
    3.947%

    dropped 25 basis points to 3.95%. Yields move in the opposite direction to prices.

    The pound
    GBPUSD,
    -0.75%

    fetched $1.1273, down from $1.1331 on Thursday.

    Kwarteng in recent interviews has done nothing to douse speculation the U.K. government will further pare its tax-cut plans.

    Speculation of further U-turns has centered around corporate tax cuts in particular. Other tax cuts that could be reversed include the planned personal income-tax reduction to 19% from 20%.

    The government has already relented on a planned cut for those making above £150,000. Financial markets gyrated after Kwarteng announced its mini-budget, which called for some £45 billion in tax cuts on top of capping energy prices. Investec Securities estimates the total cost of the stimulus to be on the order of £150 billion.

    A medium-term fiscal plan, as well as an independent forecast from the Office of Budget Responsibliitiy, is due at the end of October.

    The Bank of England’s emergency bond-buying plan — designed to ease tensions for pension funds — is due to expire on Friday.

    The central bank says it’s purchased £17.8 billion in securities.

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  • Supreme Court refuses to get involved in Trump’s Mar-a-Lago case

    Supreme Court refuses to get involved in Trump’s Mar-a-Lago case

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    WASHINGTON (AP) — The Supreme Court on Thursday rejected former President Donald Trump’s plea to step into the legal fight over the FBI search of his Florida estate.

    The justices did not otherwise comment in turning away Trump’s emergency appeal.

    Trump had pressed the court on an issue relating to classified documents seized in the search authorized by a federal judge of Mar-a-Lago.

    The Trump team was asking the justices to overturn a lower court ruling and permit an independent arbiter, or special master, to review the roughly 100 documents with classified markings that were taken in the Aug. 8 search of Mar-a-Lago.

    A three-judge panel from the Atlanta-based U.S. Court of Appeals for the 11th Circuit last month limited the special master’s review to the much larger tranche of non-classified documents. The judges, including two Trump appointees, sided with the Justice Department, which had argued there was no legal basis for the special master to conduct his own review of the classified records.

    But Trump’s lawyers said in their application to the Supreme Court that it was essential for the special master to have access to the classified records to “determine whether documents bearing classification markings are in fact classified, and regardless of classification, whether those records are personal records or Presidential records.”

    The Justice Department said in a Supreme Court filing that Trump’s request had no merit.

    The FBI says it seized roughly 11,000 documents, including about 100 with classification markings, during its search. The Trump team asked a judge in Florida, Aileen Cannon, to appoint a special master to do an independent review of the records.

    Cannon subsequently assigned a veteran Brooklyn judge, Raymond Dearie, to review the records and segregate those that may be protected by claims of attorney-client privilege and executive privilege. The Justice Department objected to Dearie’s ability to review the classified records, prompting the 11th Circuit to side with the department.

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  • Fed more worried about risks of ‘unacceptably high’ inflation than overdoing rate hikes, meeting minutes show

    Fed more worried about risks of ‘unacceptably high’ inflation than overdoing rate hikes, meeting minutes show

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    Calling inflation “unacceptably high,” Federal Reserve leaders saw their strategy of fighting price pressures aggressively as less risky to the economy than doing too little, minutes of the bank’s last meeting show.

    The Fed approved another jumbo-size increase in U.S. interest rates at its Sept. 21-22 meeting. It also signaled plans for another pair of big increases before year-end in a surprise to Wall Street
    DJIA,
    -0.10%
    .

    The minutes of the Fed’s meeting underscore that top officials were disappointed and worried about persistently high inflation.

    “A sizable portion of the economic activity has yet to display much response,” the Fed minutes said. “Inflation had not yet responded appreciably to a policy tightening.”

    While some senior Fed officials also worried the bank could go too far and damage the economy, the majority appeared to believe it was vital for the central bank to squelch inflation, even if that meant keeping rates high for a prolonged period.

    “Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes said.

    The Fed predicts the economy will eventually slow as rates rise, but it noted the labor market remains extremely tight.

    Fed officials also expressed concern that oil prices could rise again, supply chains would not heal as quickly as expected and that rising wages could exacerbate inflation.

    “Inflation was declining more slowly than [Fed officials] had been anticipating,” the minutes said.

    The internal Fed debate has also playing out publicly since the last meeting.

    Some senior officials such as Atlanta Federal Reserve President Raphael Bostic hope the bank will make enough progress in its fight against inflation to “pause” rate hikes at the end of this year.

    Fed critics contend the bank is going to go too far and could plunge the economy into a second recession in four years. A pause would allow the Fed to see how much its prior rate hikes have succeeded in lowering the rate of inflation, they say.

    Others such as Minneapolis Fed chief Neel Kashkari and Cleveland Fed boss Loretta Mester say the Fed needs to take whatever steps necessary to quell inflation as soon as possible.

    Failing to do so, they contend, would make it even harder to get prices back under control if Americans come to view high inflation as the norm. That would do even more damage to the economy in the long run.

    Jennifer Lee, senior economist at BMO Capital Market, downplayed the debate and said the Fed in unified on its next few steps.

    “The Federal Reserve is pretty much in sync and is not going to be easing anytime soon,” she said.

    Since March the Fed has lifted a key short-term interest rate from near zero to an upper end of 3.25%. And the central bank has telegraphed plans to raise the so-called fed funds rate to as high as 4.75% by next year.

    Rising U.S. interest rates has done little so far to douse inflation.

    The rate of inflation, using the Fed’s preferred PCE price index, rose at a yearly rate of 6.2% as of August. That’s a long way off from the Fed’s forecast for inflation to fall to 2.8% in 2023 and 2.3% by 2024.

    The higher cost of borrowing has only chilled a few parts of the economy, most notably housing.

    The rate on a 30-year mortgage has surged above 7% to a 16-year high from less than 3% one year ago. The result has been a slowdown in home buying and construction and softer sales of home furnishings.

    Most consumer and business loans are influenced by the fed funds rate.

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  • Wall Street’s ‘fear gauge’ is flashing a warning that stocks could be about to fall off a cliff

    Wall Street’s ‘fear gauge’ is flashing a warning that stocks could be about to fall off a cliff

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    The CBOE Volatility Index has captured the attention of market analysts this year as a key relationship between Wall Street’s “fear gauge” and the S&P 500 index appears to have broken down.

    Typically, the VIX
    VIX,
    -0.27%
    ,
    a popular measure of the stock market’s expectation of volatility based on S&P 500 index options, and S&P 500 index itself
    SPX,
    -0.01%

    share an inverse correlation. When the S&P 500 falls to new multiyear lows, like it did early this week, the VIX climbs to new highs. However, this relationship has broken down this year. Most recently, the VIX failed to take out its highs from June as the S&P 500 logged its lowest closing low since September 2020 this week.

    A similar pattern emerged as stocks fell to what were then their lowest levels of the year in June.

    The dynamic can be seen in a chart produced by Katie Stockton, a market strategist at Fairlead Strategies, which can be found below.


    FAIRLEAD STRATEGIES

    But this trend of lower highs for the VIX isn’t the only technical indicator that has caught market strategists’ attention.

    The VIX is on the cusp of achieving a “golden cross” — a term used by market technicians to denote when the 50-day moving average of a given asset, exchange rate or index climbs above the 200-day moving average.

    In the past, these “golden crosses” have preceded sharp downturns in stocks. One occurred in September 2008, just before stock-market volatility exploded in response to Lehman Brothers’ bankruptcy, according to Tyler Richey, co-editor of the Sevens Report and a stock-market strategist who closely follows the Vix.

    “Using history as a guide, this is the kind of tipping point where things could get ugly,” Richey said.

    The previous VIX “golden cross” occurred nearly one year ago in December 2021. The S&P 500, Dow Jones Industrial Average
    DJIA,
    +0.19%

    and Nasdaq Composite
    COMP,
    -0.08%

    reached their cycle peaks little more than one month later.

    As of the close of trading on Tuesday, the 50-day moving average for the VIX stood at 25.76, while the 200-day moving average stood at 25.86.

    While they’re not as closely followed as the VIX, the CBOE Nasdaq Volatility Index and the CBOE Dow Jones Industrial Average Volatility Index are also on the cusp of reaching the “golden cross” milestone.

    Stockton said investors “shouldn’t find any solace” in the latest technical signals emanating from the VIX. However, she told MarketWatch that she doesn’t typically follow the golden cross indicator since the VIX is an “oscillating” gauge not a “trending” one.

    As for what might be driving the pattern of lower highs in the VIX, Richey said it could be a result of “real money” investors like mutual funds and pension funds liquidating their holdings, instead of using options-based hedging strategies to protect their downside risk.

    As of Wednesday morning, the Vix and other stock-market volatility gauges were mixed as the S&P 500 and the Dow
    DJIA,
    +0.19%

    shook off early losses, while the Nasdaq
    COMP,
    -0.08%

    remained mired in the red.

    Looking ahead, Stockton said she believes 35 is the next key “resistance” level for the VIX, which is just below the index’s highs from June.

    Should the volatility gauge surmount that level, Stockton said she wouldn’t expect the selling in stocks to stop until the VIX hits 50.

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  • Israel says it’s reached maritime border deal with Lebanon

    Israel says it’s reached maritime border deal with Lebanon

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    JERUSALEM (AP) — Israel’s prime minister said Tuesday that the country has reached an “historic agreement” with neighboring Lebanon over their shared maritime border after months of U.S.-brokered negotiations.

    At stake are rights over exploiting undersea natural gas reserves in areas of the eastern Mediterranean that the two countries — which do not have diplomatic relations — claim.

    Premier Yair Lapid called the deal an “historic achievement that will strengthen Israel’s security, inject billions into Israel’s economy, and ensure the stability of our northern border.”

    The agreement is expected to enable additional natural gas production in the Mediterranean. Lebanon hopes gas exploration will help lift its country out of its spiraling economic crisis.

    The final draft of the agreement will be brought before Israel’s caretaker government for approval, just weeks before the country goes to the polls for the fifth time in under four years.

    Lebanon and Israel have been officially at war since Israel’s creation in 1948 and both countries claim some 860 square kilometers (330 square miles) of the Mediterranean Sea.

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