Happy morning. The euro loses parity. Twitter is in legal danger. German assistance to Ukraine. US utility bills are piling up. Here is the topic of conversation.
Below Parity
Businesses in the eurozone wished for a weaker euro for years. It arrived just in time and couldn’t have come at a worse moment. For the first time in twenty years, the currency has fallen below parity as a result of this year’s more than 12% decline versus the dollar. The economy is currently being battered by a devastating rise in energy prices, a record inflation spike, and an increase in import expenses as a result of this drop.
For margins, all of this is bad news. German companies issued a warning that they continue to be under “severe cost constraints.” Furthermore, the consumer inflation rate in the euro zone is already close to 9%, which restrains demand and has an adverse effect on sales and profitability.
Twitter’s Whistle Blower
Wide-ranging repercussions will result from a whistleblower claim made by Twitter’s former head of security, who alleges serious flaws in the social media company’s management of users’ personal data. The legal team for Elon Musk, who is attempting to renegotiate his agreement to acquire Twitter, was encouraged by the allegations, and US senators promised to look into them.
According to a copy of the complaint examined by Bloomberg, the former executive, Peiter Zatko, claimed “egregious failures” in Twitter’s defences against hackers and other sloppy security practises. The memo claimed, among other things, that Twitter prioritised growth over lowering the number of spam accounts.
Aid For Ukraine
According to government officials acquainted with the plans, German Chancellor Olaf Scholz has finalised a planned shipment of extra weapons and ammunition to Ukraine for more than 500 million euros ($499 million). In the upcoming weeks, it will provide a brand-new package that includes more ammo, anti-drone technology, and armoured recovery vehicles. According to the Kiel Institute for the World Economy, Germany has already committed 700 million euros worth of weaponry and equipment to Ukraine, with another 500 million euros set aside to finance military hardware.
Falling Behind
The National Energy Assistance Directors Association estimates that around 20 million US households, or roughly 1 in 6 American homes, are behind on their power payments, making this the largest crisis the organisation has ever recorded. These figures are supported by a sharp rise in energy costs, driven by the skyrocketing price of natural gas.
The situation with electricity prices is even worse in Europe since there, as a result of Russia’s invasion of Ukraine, natural gas prices have risen much more sharply. While there, decision-makers acted quickly to support struggling families by providing billions of euros in aid, there has been no substantive discussion of taking equivalent action in the US.
Coming Up…
The outlook for the Federal Reserve and the global economy weighed on investors, causing European market futures to eke out a slight decline as Asian stocks fell. Martin Floden, deputy governor of the Riksbank, discusses monetary policy in Sweden and abroad in Stockholm. Emmanuel Macron, the president of France, is joined by his cabinet for their first meeting following the summer recess. Mario Draghi, the acting prime minister of Italy, is present at the Rimini conference. Data like the Finnish PPI are anticipated. Nvidia, Salesforce, and the Royal Bank of Canada are all expected to announce earnings.
Readings that We Have Conducted
- This is what has captured our attention during the last day.
- The worst drought in Europe in 500 years.
- Like Russian gems, shine brilliantly.
- The nation of coffee snobs experiences inflation.
- the nation with the lowest fertility rate in the world.
- Canada and Germany sign a hydrogen agreement.
- Death of Julian Robertson, the “Tiger Cubs” hedge fund expert.
- The blue-chip status of Abrdn may now be in risk after the vowels.
And Finally, Here’s What Cormac Is Interested In This Morning
Even the contrarians have plenty of company because the mood music is so depressing in favor of the pound. Leveraged funds increased their bullish bets to the biggest level since March 2020 even though Citigroup’s pain index for sterling, a measure of overall trader posture, touched a two-year low this month and was heavily pessimistic.
Rising rates are in the bull’s corner, but in the bear’s, pretty much everything but the kitchen sink is present, including a doomsday stagflationary outlook, record-low consumer confidence, an unsettling budgetary trajectory, and the uncertainty that comes with new political leadership. The fact that the pound, after a 13% decline, is only third-worst among the Group of 10 currencies behind the yen and the Swedish krona may be the only surprise.
This week, cable dropped near to $1.17, and according to market chatter, investors believe it may at least reach its 2020 low of $1.14. But with the significant hedge fund bullish bets and a Bloomberg analyst survey that predicts it will reach $1.22 by the beginning of next year, it may be wise to remain with the bears and avoid engaging in the contrarian play. Cormac Mullen works at Bloomberg News in Tokyo as a Deputy Managing Editor on the Markets division.
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