Russia and Ukraine remain mired in conflict. Ukraine is able to defend itself, with new and better weapons coming in almost daily, but Russia has the resources to grind out "victory" in a war of attrition.
No signs that the situation gets better before the winter.
Europe is facing energy problems this coming winter. They are not filling their storage fast enough, and that is without "obvious" disruptions in supply from Russia. French nuclear reactors have been having some issues (water too warm to run at full capacity, and allegedly some earlier-than-expected repairs being required).
I don't see how Europe, especially Germany, avoids some sort of energy restrictions this winter, which is only going to make the already weak economy, worse. I continue to watch the bank stocks in Europe -- those need to bounce to get a good investible signal.
China
China has ramped up their posturing and rhetoric around Taiwan. Not only are they continuing live-fire exercises longer than originally planned, which has caused Taiwan to carry out its own, but they are applying economic pressure.
They plan to enforce rules stating that anything imported from Taiwan into China has to be labelled as being made in "Chinese Taipei" or "Taiwan, China." That diminishes their independence in subtle ways and is non-trivial as I'm told about 40% of Taiwan's exports go to China and Hong Kong.
Also, by effectively "embargoing" Taiwan, it sends a message to every company in the world: Be careful about where you locate your supply chains.
In the meantime, the Chinese property market continues to show signs of worsening. Not good for China, or the world's economy.
Inflation
Expect CPI to be better Wednesday, but more importantly, expect the narrative to shift dramatically from inflation to recession. Sales are dropping. Prices paid are dropping. Commodities are rolling over.
I am in the "beware what you wish for" camp as I think the Fed has taken the inflation fight too far already, but I think at least for a bit, we can see yields lower again
The inverted yield curve, not something I usually fixate on, has moved so far (-40 basis points on 2s vs. 10s) that I cannot ignore the message bonds are sending.
Bottom Line
Bonds and income are good.
I want to go "all in" on commodities, and emerging markets, but the price action is still too awful. I'm comfortable nibbling, but cannot get more aggressive than that.
The big tech, small tech, disruptive tech, most shorted stock, meme stock and crypto rally has been fun to watch but I think is nearly over. My view is we get one last gasp after we get a good CPI number, and then we can get back to worrying about the global economy and the risks we are facing -- both domestically and internationally.
Once we get past CPI, I think the inflation discussion will shift and it won't shift to soft landing, rather it will shift to hard landing.
Maybe I will be surprised, but that is the shift in the narrative I'm looking for over the coming days.
