Fresh inflation concerns, oil release underwhelms, and Covid surges again.
Remember transitory?
The latest inflation newsflow: Federal Reserve Chair Jerome Powell pledged to use the bank’s policy tools to stop higher inflation from becoming entrenched. European Central Bank Vice President Luis de Guindos warned that the factors stoking inflation are starting to be more structural. Wall Street banks projected average inflation in Latin America will end the year above 10% with more to come in 2022. Meanwhile, the supply-chain mess continues as raw material costs rise again. With all this in mind, there will be a close focus on this morning’s PCE data, with the core deflator — the Fed’s preferred inflation measure — expected to accelerate to 4.1%.
Crude measure
Yesterday’s announcement of a coordinated release of oil reserves by the U.S., Japan, India, South Korea, China and the U.K. only very briefly moved the price of crude lower. The details of the move from the Biden administration showed the majority of sales from the Strategic Petroleum Reserve would be bought back later, meaning the net increase in supply was smaller than expected. Oil is holding steady today close to $78.50 a barrel as focus shifts to how OPEC and its allies will respond to the move from their biggest customers. The cartel seems to be up for a fight for control of the global energy market, with delegates suggesting they may have to reconsider plans to increase production at next week’s monthly meeting.
Covid
The wave of the pandemic in Europe is pushing governments in the region towards imposing more curbs. Germany reported record new cases, while Italy and France are debating new measures. In Asia, South Korea also reported record infections while Philippine President Rodrigo Duterte ordered the government to “ use all available resources” to push vaccinations. In the U.S., Michigan is the latest hotspot with Governor Gretchen Whitmer asking the U.S. Department of Defense to provide emergency staff.
Markets drop
The resurgence of Covid in Europe is adding to growth concerns as inflation remains stubbornly high, all of which is damaging risk appetite. Overnight the MSCI Asia Pacific Index slipped 0.6% while Japan’s Topix index closed 1.2% lower. In Europe the Stoxx 600 was 0.2% lower by 5:50 a.m. Eastern Time as investors assessed the effect from new virus measures. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 1.65% and gold was broadly unchanged.
Data dump
Tomorrow’s Thanksgiving holiday means there is a packed economic data calendar today. Weekly jobless claims data at 8:30 a.m. is accompanied by the second reading of third-quarter GDP and October durable goods orders. The closely watched PCE report is at 10:00 a.m. New home sales numbers for October and the latest University of Michigan sentiment gauge are also at that time. Crude oil inventories data is at 10:30 a.m. and the EIA natural gas storage report is at 12:00 p.m. The minutes of this month’s Federal Reserve meeting are published at 2:00 p.m. Deere & Co. reports earnings.
What we've been reading
Here's what caught our eye over the last 24 hours.
And finally, here’s what Joe’s interested in this morning
Good morning. We're one day away from Thanksgiving, the biggest day for family discourse and debate all year. Of course in recent years, crypto has been a big topic around the table. And it will definitely be so this year. But the tables have turned. It's not just the young kid who's gotten into it. It's super mainstream. So you never know which random aunt or uncle made a fortune this year, buying some coin nobody else ever heard of. Oh, and it's not crypto anymore either. We're supposed to call it "Web 3.0" now. So without further ado, and in homage to Freddy Gray's excellent bluffers’ guides, I've assembled 10 phrases that will help you BS your way through this year's Thanksgiving dinner conversation.
1. "The internet is at a fork in the road: Do we want a future on Mark Zuckerberg's servers, or do we want to build on top of networks with data we own and identities that we control? Because that is precisely what's at stake here."
Put your cards right out on the table. This is what it's all about. Of course this has been a table stakes crypto talking point for years now. But with perceptions of Facebook deteriorating, and Zuckerberg giving us his vision of living in a cartoon metaverse where we don't have legs, the tension is greater and the divide feels sharper. How buying random coins — whose main value is that they allow you to borrow and buy more coins — gets you to that is a totally separate question. But you can skip over that and if pressed, just point out that the coin represents some kind of control in the network.
2. "Imagine never having to come up with a username or password ever again. Your crypto wallet *is* your sign-in."
Everyone can close your eyes and imagine whatever this looks like to them. It will sound nice.
3. "Could bad actors use the technology? Sure. But that's the case with any technology. The opportunity now is for the U.S. government to embrace it!"
Obviously someone is going to bring up terrorist financing, or maybe they'll worry about the threat to the dollar. But you're a realist, and you don't deny the risks. Turn it around though and tell them about how freely traded stablecoins could actually help extend the reach of the dollar, cementing its global reserve status further. And as for terrorists? Remind them that we already had this entire debate when the U.S. government tried to ban export of encryption technology up until 1992, but that now encryption technology is crucial for the web to function. But ultimately you can't ban math. Show them that picture of the T-shirt with the RSA encryption source code. Embrace and use the power, don't be threatened by it!
4. "The huge energy consumption of crypto is undoubtedly a problem. But some networks are using something called proof-of-stake, which requires much less electricity. And Ethereum plans to transition to that eventually."
Some salty no-coiners are going to insist that they love the idea of all this, but can't abide by destroying the environment. Good news for them you say! Those visions they have of huge coal-powered Bitcoin mining rigs are a thing of the past. (PS: Definitely don't bring up that Ethereum has been talking about making this transition for years and years and it still hasn't happened, with no clear timeline for when exactly it will). BTW, if you're coming at the environment question from the Bitcoin angle your work is a bit more cut out for you.
Say something about mining with renewable or stranded or wasted energy, or how load balancing the grid can actually make some types of energy production more sustainable. Don't be the loser who turns red-faced and blurts out something about how much energy watching TV or cooking turkey for dinner costs, as if that's some kind of solid turnaround. It's not.
5. "Memetic reproduction has always been the essence of culture. NFTs simply make this more explicit."
This is mostly just an excuse to use the term memetic reproduction. But for real, this line probably has the benefit of being true.
6. "It's all about the Elon Markets Hypothesis. If Elon tweets about it, it's valuable." Just say this to establish that you read Matt Levine and then move on with a chuckle.
7. "Sorry, but there's only one coin that's actually doing what it's set out to accomplish and that's Bitcoin. Millions around the world are using it as a decentralized store of value, while political dissidents across the globe see it as a tool to escape authoritarianism. Every other coin is simply a centralized project attempting to separate gamblers from their money."
Sorry Bitcoiners, you're down badly this year. Sure you're up a bit in fiat terms, but if there's anyone else at the table who had other coins this year, your returns are getting obliterated. So there's only one thing to do: Establish that you're morally superior to everyone else. Talk about the people living under hyperinflation. Talk about political prisoners. Talk about El Salvador and Bitcoin Beach. Are any of these groups adopting the Floki Inu token? Didn't think so. The degenerates may be having fun now, but just wait! In a few years, they'll be crawling back, knocking on the door or your citadel asking for a spare couch to crash on. It'll happen. Just a matter of time. Seriously. For real. One day.
8."The fees are high, because space on the blockchain is valuable and worth paying up for."
Whatever the fees are in crypto, it means crypto is succeeding. If fees are cheap, it's an open internet of money that anyone can use. Hooray. If fees are expensive (particularly as they are right now on Ethereum), then it's a success because it means that the service is in high demand. Hooray. Add that it's like paying rent. The better the city, the more rent costs. Want cheap rent? Move to the middle of nowhere.
9. "Owning your own vault is cool. Owning your own liquidity is cooler."
Mumble something about DeFi 2.0. Talk about the corner of the game theory payoff matrix, where everyone wins if they cooperate (3, 3). Honestly this just a desperate ploy to get people into some Ponzu with a 2 million% APY that you've discovered.
10. "Not everyone needs to use crypto. But I've never met anyone who started using it and didn't immediately grasp its value. Whether its sending money across the world, playing a game against someone in the Philippines, or joining an NFT community, the only way to get it is to try it, and us talking about it isn't going to get very far. Look if you want, you can just set up a Phantom Wallet, I'll happily send you some Sol."
This is your final pitch. Hopefully this finishes the job and you've reeled them in.
Good luck tomorrow!
Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart
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