"It's Halloween And There's A Lot For Markets To Be Scared About"

10.31.22 - A Lot For Markets To Be Scared About

Gold last traded at $1,633 an ounce. Silver at $19.15 an ounce.

 Zero Hedge--It's Halloween and, cliched as it is, there is a lot for markets to be scared about.

Let's start off with the optimists, who, like Linus and his never-appearing Great Pumpkin, are waiting for a Fed pivot to bring them gifts. Yes, the RBA, BOE, BOC, and (on the surface) the ECB all backed off hawkishness to some degree, and the BOJ stuck to their guns on yield curve control on Friday.

However, the Japanese government is increasing stimulus by another $200bn to fight inflation(!) while insisting JPY cannot fall - something is going to break there; we don't think the ECB were as dovish as the market interpreted them; the RBA are seen going 50bp this week by at least one big name; the BOE are still likely to go 75bp; and not only is another 75bp from the Fed baked into the pumpkin pie too, but others just upgraded where it stops to 5%, which we said months ago.

However, the Japanese government is increasing stimulus by another $200bn to fight inflation(!) while insisting JPY cannot fall - something is going to break there; we don't think the ECB were as dovish as the market interpreted them; the RBA are seen going 50bp this week by at least one big name; the BOE are still likely to go 75bp; and not only is another 75bp from the Fed baked into the pumpkin pie too, but others just upgraded where it stops to 5%, which we said months ago.

Indeed, Eurozone inflation data on Friday will have made the ECB jump, as core inflation did too. The same scare was seen in US personal income and spending, while Bloomberg reports 'Wages are soaring in US cities with the highest inflation'. Even though we are in a blackout period ahead of the FOMC, the Fed Whisperer at the Wall Street Journal put out another article saying last week's data offered, "more questions to the Fed than answers about the true trajectory of the economy... But the compensation report... could keep the Fed raising interest rates slightly higher in 2023 than officials had anticipated at their meeting last month."

The depth of analysis on how we get out of this is also terrifying. Central banks are in the dark, with an inflation monster. "Inflation is going up due to Wall Street decisions", says Alexandria Ocasio-Cortez (whom Gad Saad dubs Occasional-Cortex). Stumbling Big Tech aside, Wall Street is going up due to official decisions, whisper some. Stocks have surged off lows and bond yields have tumbled, which the Fed has no desire to see given it loosens financial conditions - so they are more likely to raise rates further.

Worse, fears are soaring on the global supply-side inflation. Even as some FinTwit voices calling for looming deflation now underline that they think inflation will soar again afterwards, a see-saw assumption long floated as a risk here too, Russia cancelled the Ukraine Grain Deal.

As our Michael Magdovitz puts it, removing Ukraine's food supply from global markets will drive up food prices everywhere. The exception, perhaps, is Ukraine where there will be a glut, which will ultimately cause long-term scarring of the agri economy, because Ukrainians will refuse to produce things they cannot sell. Major improvements in westbound road, rail, and river transport can now handle 50%-60% of Ukraine's normal exports, which is not enough to stop food prices surging. Meanwhile, it is being reported Ukraine, Turkey, and the UN have notified Russia they are organizing a convoy of 14 grain ships with grain to sail despite the renewed Black Sea blockade. The tensions are palpable.