In his preview of the week’s economic calendar, DB’s Jim Reid writes that maybe the most interesting data this week comes on Friday with the Q3 employment cost index (exp. at +1.2% vs. +1.3% last month) and the September personal income (+0.4% vs. +0.3%) and consumption (+0.4% vs. +0.4%) report, including the core PCE deflator (+0.5% vs. +0.56%). Q3 GDP will also be closed watched, with consensus expecting a bounce from -0.6% to 2.3%. With respect to core PCE, economists expect the Fed’s preferred measure of inflation to rise by 30bps to 5.2%. DB economists highlight that as the median forecast for 2022 core PCE inflation in the Fed’s Summary of Economic Projections from the September 21st meeting was 4.5%, it’s going to be tough to signal a downshift in December.

Elsewhere this week the main highlights are the ECB (Thursday) and the BoJ (Friday) decisions and a huge round of earnings with big Tech the highlight. We also have a new UK Prime Minister as of this moment, after ex-Chancellor Sunak was effectively declared PM tonight. We’ll also see US Q3 GDP (Thursday) and flash PMIs in the US and Europe (today) and October CPIs and GDP for many European countries (Friday). There are other data which are in the day by day guide at the end as usual for a Monday but let’s take a brief look at the highlights outside the already discussed PCE. The ECB’s decision on Thursday will be a big event with our European economists expecting another +75bps hike (72.3bp priced in), followed by +75bps in December (c.62bps priced in), +50bps in February (c.38bps priced), and +25bps in March, reaching a terminal rate of 3%. The press conference as ever will be a focal point and there’ll be lots of attention on technical things surrounding TLTROs and excess reserves. For more on the options here see our fixed income strategists blog from Friday here.

Staying with central banks, over in Japan, the BoJ announces its decision on Friday amidst continued downward pressure on the yen, which hit a 32-year low against the dollar of 151.95 on Friday before surging again to end the week at 147.65 – c.3.5% swing while the Japanese slept after Nikkei reported fresh intervention from the Japanese authorities. The Yen has again seen a wild session in Asia. After falling again to 149.67 it surged to 145.65 and now trades at 148.88 as we go to press with no clarity on if and what intervention has been done.

For US Q3 GDP this week, DB’s US economists expect real growth to rebound to +3.0% from Q2’s -0.6%. Q3 GDP figures will also be out for European countries on Friday, including for Germany and France with the former likely to be slightly negative and the latter slightly positive. Overall it’s likely to be the start of growth grinding towards or below zero and then staying negative for a few quarters. On European CPI on Friday remember September readings saw Germany’s CPI reaching 10% for the first time since 1950.

Finally, earnings will come thick and fast this week, featuring the big tech, oil majors and key automakers and staples. In tech alone we have Microsoft, Alphabet (tomorrow), Meta (Wednesday) and Apple and Amazon (Thursday). A huge slug (20% by market cap) of the S&P 500 in 48 hours. One thing to not: The GAMMA stocks (Google, Apple, Microsoft, Meta, Amazon) have lost $3 trillion in market cap this year and yet they are still larger than the utilities, energy and consumer sectors combined. Other notable tech firms reporting results will include Intel, Twitter, SAP and Samsung. The other main reporters are in the day by day week ahead at the end.

Day-by-day calendar of events

Monday October 24

• Data: US October PMIs, September Chicago Fed national activity index, Japan, UK, Germany, France and the Eurozone October PMIs

Tuesday October 25

• Data: US October Conference Board consumer confidence index, Richmond Fed manufacturing index, August FHFA house price index, Japan September nationwide department store sales, Germany October Ifo survey
• Central banks: Eurozone bank lending survey, Fed’s Waller speaks, BoE’s Pill speaks
• Earnings: Microsoft, Alphabet, Visa, Coca-Cola, Novartis, UPS, Texas Instruments, Raytheon Technologies, HSBC, SAP, General Electric, 3M, UBS, General Motors, ADM, Valero Energy, Chipotle, Biogen, Halliburton, Spotify, Norsk Hydro

Wednesday October 26

• Data: US September wholesale inventories, retail inventories, new home sales, advance goods trade balance, Japan September PPI services, France October consumer confidence, Eurozone September M3
• Central banks: BoC decision
• Earnings: Meta, Thermo Fisher Scientific, Bristol-Myers Squibb, Boeing, Canadian Pacific, Iberdrola, Boston Scientific, Mercedes-Benz, Heineken, SK Hynix, Ford, Kraft Heinz, Santander, BASF, Twitter, Barclays, Telenor, Puma

Thursday October 27

• Data: US Q3 GDP, September durable goods orders, October Kansas City Fed manufacturing activity, initial jobless claims, China September industrial profits, Germany November GfK consumer confidence, Italy October consumer confidence index, manufacturing confidence, economic sentiment, August industrial sales
• Central banks: ECB decision, BoE’s Woods speaks, ECB’s Villeroy speaks
• Earnings: Apple, Amazon, Mastercard, Samsung, Merck, Shell, McDonald’s, T-Mobile, Linde, TotalEnergies, Comcast, Honeywell, Intel, S&P Global, Caterpillar, AB InBev, American Tower, Gilead Sciences, EDF, Neste, STMicroelectronics, Shopify, PG&E, Repsol, EDP, Pinterest, First Solar, Credit Suisse, Deutsche Lufthansa, Hertz, Ubisoft, Spirit Airlines

Friday October 28

• Data: US Q3 employment cost index, September personal income, personal spending, PCE deflator, pending home sales, Japan September jobless rate, Germany, France, Q3 GDP, October CPI, Italy October CPI, France September consumer spending, PPI, Italy September PPI, hourly wages, Eurozone October economic and industrial confidence, Canada August GDP
• Central banks: BoJ decision, ECB Survey of Professional Forecasters
• Earnings: Exxon Mobil, Chevron, AbbVie, NextEra Energy, Equinor, Sanofi, Porsche, Airbus, Volkswagen, Colgate-Palmolive, Eni SpA, BBVA, LyondellBasell

* *  *

Finally, looking at just the US, Goldman writes that the key economic data releases this week are the Q3 GDP advance release on Thursday, and the employment cost index, core PCE, and University of Michigan consumer sentiment reports on Friday. There are no scheduled speaking engagements from Fed officials on monetary policy this week, reflecting the FOMC blackout period.

Monday, October 24

• 09:45 AM S&P Global US manufacturing PMI, October preliminary (consensus 51.0, last 52.0): S&P Global US services PMI, October preliminary (consensus 49.5, last 49.3)

Tuesday, October 25

• 09:00 AM FHFA house price index, August (consensus -0.6%, last -0.6%)
• 09:00 AM S&P/Case-Shiller 20-city home price index, August (GS -0.7%, consensus -0.70%, last -0.44%): We estimate that the S&P/Case-Shiller 20-city home price index declined 0.7% in August, following a 0.44% decline in July.
• 10:00 AM Conference Board consumer confidence, October (GS 106.0, consensus 105.3, last 108.0): We estimate that the Conference Board consumer confidence index decreased to 106.0 in October.
• 10:00 AM Richmond Fed manufacturing index, October (consensus -5, last 0)
• 01:55 PM Fed Governor Waller speaks: Governor Christopher Waller will discuss FedNow at an event hosted by Money20/20. A moderated Q&A is expected; however, he is not expected to comment on monetary policy, reflecting the FOMC blackout period.

Wednesday, October 26

• 08:30 AM Advance goods trade balance, September (GS -$87.0bn, consensus -$87.5bn, last -$87.3bn): We estimate that the goods trade deficit narrowed by $0.3bn to $87.0bn in September compared to the final August report, reflecting a larger drop in imports than in exports.
• 08:30 AM Wholesale inventories, September preliminary (consensus +1.0%, last +1.3%)
• 10:00 AM New home sales, September (GS -17.0%, consensus -15.3%, last +28.8%): We estimate that new home sales declined 17.0% in September, following a 28.8% increase in August.

Thursday, October 27

• 08:30 AM GDP, Q3 advance (GS +2.4%, consensus +2.3%, last -0.6%): Personal consumption, Q3 advance (GS +1.4%, consensus +0.9%, last +2.0%): We estimate that GDP growth rose +2.4% annualized in the advance reading for Q3, following the 0.6% annualized decline in Q2. Our forecast reflects a slowdown in consumption growth (to +1.4% qoq ar) and large declines in structures investment (residential -23%, nonresidential -6%). We also expect a negative contribution to GDP growth from inventories (-0.7pp) but estimate a large boost from normalization in net exports (+3.1pp contribution). We estimate domestic final sales rose just 0.3% annualized. We will finalize our forecast after Wednesday’s foreign trade and inventory data.
• 08:30 AM Durable goods orders, September preliminary (GS +1.2%, consensus +0.6%, last -0.2%); Durable goods orders ex-transportation, September preliminary (GS flat, consensus +0.1%, last +0.3%); Core capital goods orders, September preliminary (GS flat, consensus +0.3%, last +1.4%); Core capital goods shipments, September preliminary (GS +0.2%, consensus +0.3%, last +0.4%): We estimate that durable goods orders rebounded 1.2% in the preliminary September report, reflecting strength in commercial aircraft orders but a possible pullback in defense orders. We expect softness elsewhere in the report, including a slowdown in growth for shipments of core capital goods (+0.2%) and unchanged core capital goods orders, reflecting weaker foreign demand and some softening in domestic industrial data.
• 08:30 AM Initial jobless claims, week ended October 22 (GS 215k, consensus 220k, last 214k); Continuing jobless claims, week ended October 15 (consensus 1,383k, last 1,385k): We estimate initial jobless claims edged up to 215k in the week ended October 22.
• 11:00 AM Kansas City Fed manufacturing index, October (consensus -2, last +1)

Friday, October 28

• 08:30 AM Employment cost index, Q3 (GS +1.2%, consensus +1.2%, prior +1.3%): We estimate that the employment cost index (ECI) rose 1.2% in Q3 (qoq sa), which would lower the year-on-year rate by one tenth to 5.0%. Our forecast reflects sequential slowing in the private wages ex-incentives category, based on slowing growth in the Atlanta Fed wage tracker and in production and nonsupervisory average hourly earnings. However, we expect another strong reading for the benefits category as firms expand health insurance and supplemental pay programs in order to attract and retain talent. We see two-sided risk from incentive-paid industries, as fewer home sales commissions (and production bonuses more generally) could be offset by rebounding commissions on home equity loans and HELOCs.
• 08:30 AM Personal income, September (GS +0.4%, consensus +0.4%, last +0.3%): Personal spending, September (GS +0.6%, consensus +0.4%, last +0.4%); PCE price index, September (GS +0.26%, consensus +0.3%, last +0.29%); PCE price index (yoy), September (GS +6.19%, consensus +6.3%, last +6.25%); Core PCE price index, September (GS +0.36%, consensus +0.5%, last +0.56%); Core PCE price index (yoy), September (GS +5.07%, consensus +5.2%, last +4.91%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose by 0.36% month-over-month in September, corresponding to a 5.07% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.26% in September, corresponding to a 6.19% increase from a year earlier. We expect that personal income increased by 0.4% and personal spending increased by 0.6% in September.
• 10:00 AM Pending home sales, September (GS -7.5%, consensus -5.0%, last -2.0%): We estimate pending home sales declined 7.5% in September, following a 2.0% decline in August.
• 10:00 AM University of Michigan consumer sentiment, October final (GS 59.3, consensus 59.6, last 59.8); University of Michigan 5–10-year inflation expectations, October final (GS 2.9%, consensus 2.9%, last 2.9%): We expect the University of Michigan consumer sentiment index decreased by 0.5pt to 59.3 in the final October reading.

Source: DB, BofA, Goldman

Shares in Chinese companies crashed Monday morning as traders were spooked by the consolidation of power by President Xi Jinping. After a weeklong Party Congress, Xi was confirmed for a third presidential term on Saturday.

Traders fear more stringent regulations on technology companies pushing these stocks very deep into the red. The Hang Seng Index plunged to a 13-year low, dropping more than 1,000 points before closing around 15,180. The index saw a 6.4% drop, the most significant one-day drop since 2008. 

The Hang Seng Tech Index dropped as much as 9%. The index is down more than 74% since peaking in 1Q21.

The offshore yen resumed its decline, tumbling by 1.3% – the biggest one-day slide since August 2019, to a record of 7.31. 

China tech companies such as Alibaba and Tencent plummeted more than 11% in Asia. Internet search company Baidu closed down 12% while Meituan plunged 14%. BABA shares listed in the US are down more than 11%, trading at 2016 lows. 

Nasdaq Golden Dragon China Index slumped 12%. 

Downward press in Chinese stocks comes at the end of the 20th Chinese Communist Party Congress, which has solidified Xi’s third term, surpassing the historical precedent of a two-term limit and is now the longest leader since Mao Zedong. This has undoubtedly alarmed investors with more political uncertainty and regulatory headwinds. 

“While Chinese politics have long been opaque, this sharp consolidation of power is adding to investor unease. Equity valuations, already near a 10-year trough, will likely face more pressure if international investors demand a higher risk premium,” Mark Haefele, CIO at UBS Global Wealth Management, said. 

Xi’s consolidation of power also suggests an end to zero-Covid restrictions seemed less likely, while the latest economic data shows a weak recovery. 

“Now that the new Politburo standing committee is packed with Xi’s own picks and those in rival factions … were all out, it becomes clear that no other political elite dares to challenge his policy mistakes or even deviate however slightly from his preferred policy agenda, which of course over the past few years has focused on favoring the state sector at the expense of the private one,” Xin Sun, senior lecturer in Chinese and East Asian business, at King’s College London, told CNBC via email. 

Marvin Chen, a strategist at Bloomberg Intelligence, said after the leadership transition is finalized, traders will “focus on the economy and mending the property sector.” He said the property market is a fragile sector of the economy, adding, “still, these may take time. We may not see much change to Covid policies in the near term.” 

The selloff in Chinese stocks is appealing to some investors though they said an inflection point of when to buy is still unknown. This was explained by Xiadong Bao, fund manager at Edmond de Rothschild Asset Management in Paris: 

“A lot of bad news have been baked in and the market correction is clearly overshooting, but we’re still looking for an inflection point which is unclear for now.” 

Besides leadership fears and a souring economic outlook, traders avoid Chinese stocks. One reason is because of the Biden administration’s economic war on Beijing. Then the Federal Reserve’s aggressive monetary tightening made emerging market equities unappealing. 

“Foreigners are selling out of tech now,” said Hao Hong, partner and chief economist at Grow Investment Group. “Right now, except the historical precedents and cheap valuation, there is nothing working for Chinese tech.”

So with China stocks set for the most significant drop since the global financial crisis — traders and asset managers continue to shun these stocks as there are too many overhangs and not enough positive upside catalysts in the near term. 

Following September’s surprise rebound, analysts expected US preliminary October PMIs to be mixed this morning (with Manufacturing slowing while Services ticks slightly higher), but they were very wrong.

Both US Manufacturing and Services surveys shoiwed significant decline in early October, both tumbling into contraction.

• US Manufacturing 49.9 (contraction), below 51.0 exp and down from 52.0 prior

• US Services 46.6 (contraction), below 49.5 exp and down from 49.3 prior.

Despite better than expected macro signals…

Source: Bloomberg

New orders fell back into contraction territory following a marginal expansion in September. The decrease in client demand was solid and the sharpest since May 2020.

The drop sent the composite index back down to 47.3, in line with the weakness in EU and UK…

Source: Bloomberg

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

“The US economic downturn gathered significant momentum in October, while confidence in the outlook also deteriorated sharply. The decline was led by a downward lurch in services activity, fuelled by the rising cost of living and tightening financial conditions. While output in manufacturing remains more resilient for now, October saw a steep drop in demand for goods, meaning current output is only being maintained by firms eating into backlogs of previously placed orders. Clearly this is unsustainable absent of a revival in demand, and it’s no surprise to see firms cutting back sharply on their input buying to prepare for lower output in coming months.

“One upside of this drop in input buying has been a further alleviation of supply constraints, which alongside the stronger dollar have helped cool price pressures in the manufacturing sector.

“Although price pressures picked up slightly in the service sector due to high food, energy and staff costs, as well as rising borrowing costs, increased competitive forces meant average prices charged for services grew at only a fractionally faster rate. Combined with the easing of price pressures in the goods-producing sector, this adds to evidence that consumer price inflation should cool in coming months.

“The surveys therefore present a picture of the economy at increased risk of contracting in the fourth quarter at the same time that inflationary pressures remain stubbornly high. However, there are clearly signs that weakening demand is helping to moderate the overall rate of inflation, which should continue to fall in the coming months, especially if interest rates continue to rise.”

All of which implies yet another quarter of contraction…

Just don’t call it a recession.

By Eric Peters, CIO of One River Asset Management

“The North American economy is making choices for the sake of attractiveness, which I respect, but they create a double standard,” said Emmanuel Macron, a nervous sickness rising, his Gallic hope for Liberty, Equality, and Fraternity slipping away.

“In addition, they allow state aid going to up to 80% on some sectors while it’s banned here — you get a double standard,” added France’s President. “It comes down to the sincerity of transatlantic trade.”

But of course, trade is neither sincere nor insincere. Trade is trade. Or at least, free trade is free trade. It is an arrangement between two parties to exchange one thing for another at a mutually agreed upon price — this is how markets clear.

Macron called out both the US and Norway for making “the real super-profits” from their energy exports, benefitting from “geopolitical war unearned income.”

And no doubt, this is true. In times of rising conflict, nations that control strategically vital assets profit in outsized ways. France controls few. The US controls many. But since the last world war, America’s global security guarantee leveled the playing field to allow nations with few or even no strategically vital assets to nevertheless prosper, participating in ever-deepening globalization, specialization, integration.

This period was an historical anomaly, utterly extraordinary. And it is ending.

Macron knows this. As does Xi Jinping, with insufficient domestic energy to power his economy, too little home-grown food to feed his people, and now facing new restrictions on strategically vital American technology exports.

In fact, every leader on the planet knows this now. Even those who desperately cling to the hope that this is not so, are quietly putting in place contingencies if they are wrong.

This new operating environment is entirely foreign to any investor alive today. So, we must unanchor ourselves from a past that is no longer and proceed with open minds.

Authored by Connor Freeman via AntiWar.com,

European Union Commission President Ursula von der Leyen announced that the bloc would give Kiev 18 billion euros next year while it continues fighting Russia, Reuters reported on Friday.

The latest  pledge was made during the second day of the EU leaders’ summit in Brussels, where further support for Ukraine is being discussed. According to von der Leyen, Kiev estimates that, to run the country, it requires 3-4 billion euros every month “for the basics.”

So far, this year the bloc has provided Kiev with 19 billion euros. Looking ahead to 2023, the EU is committing to give Kiev 1.5 billion euros per month. The remaining monthly welfare for Ukraine’s government is expected to come out of the American taxpayers’ pockets and international institutions, according to von der Leyen.

As Americans and Europeans alike struggle amid skyrocketing inflation and soaring energy prices, their governments appear dead set on continuing to pour tens of billions of dollars into Ukraine to fund its corrupt government and keep NATO’s proxy war going. “It is very important for Ukraine to have a predictable and stable flow of income,” von der Leyen declared.

Ukrainian President Volodymyr Zelensky addressed the EU leaders at the summit and made several demands. He wants “new powerful” sanctions levied against Russia and Iran. Zelensky blames Tehran for Moscow’s drone attacks, but there is no definitive evidence that the Iranians have sold Moscow these weapons. Despite repeated denials from Russia and Iran, the EU as well as the UK imposed fresh sanctions on Iran this week over the allegations of Russia bombing Ukraine with Iranian drones.

Moreover, Zelensky asked the EU for more air and missile defense systems. In recent weeks, Berlin sent the first of four IRIS-T air defense systems and Paris pledged more anti-aircraft systems. Zelensky also warned that Moscow’s increased air attacks on civilian infrastructure in Ukraine, which is being provoked by repeated Ukrainian terror attacks and shelling inside Russia, will lead to a refugee crisis in Europe.

“Russian terror against our energy facilities is aimed at creating as many problems as possible with electricity and heat for Ukraine this fall and winter so that as many Ukrainians as possible move to your countries,” Zelensky told the summit. The EU is now looking at ways to assist Ukraine to restore power, electricity, and water supplies, von der Leyen said.

Concurrently, the German parliament approved a massive 200 billion euro ($195 billion) rescue package to help households and companies as they endure the energy crisis caused by the Washington-led sanctions blitz on Russia. Before the war began, Russia provided roughly a third of Europe’s gas and Germany depended on Moscow for more than half of its gas supplies. After the Nord Stream pipelines were sabotaged, Russian President Vladimir Putin offered to ship gas to Europe via an undamaged line in Nord Stream 2. This offer was quickly rejected by Berlin.

There are current rumblings that GOP House members are getting frustrated with a “blank check” mentality toward Ukraine…

Tucker Carlson on Zelensky calling for more funding from the US: “Some uppity foreigner in a t-shirt demanding money for his ‘critical economic needs’? We have critical economic needs too, buddy. Who are you troll? Go away.” pic.twitter.com/pJvtjoqDl4

— The Post Millennial (@TPostMillennial) October 14, 2022

Secretary of State Antony Blinken celebrated the explosions in the Baltic Sea, which caused possibly the largest ever leak of methane gas, describing the attack as a “tremendous strategic opportunity for the years to come.”

Before incumbents are replaced after the midterms in January, members of both parties in the U.S. Congress reportedly plan to pass another gargantuan Ukraine aid package. The number being floated is $50 billion. This is supposed to keep Kiev’s war going for another year, but that number will likely increase. Washington has already funded Ukraine’s war with more than $67 billion this year, in mostly military aid, this would raise that figure to more than $115 billion.

Authored by Wesley Thysse via DecentralizedLegalSystem.com,

The War on Crypto Privacy Intensifies. Automatic Reporting of All Trades and Transactions Soon Mandatory.

Massive overreach of international regulators to force all service providers in the industry to:

• Record ALL crypto trades on exchanges, DEFI and DEXs;

• Record (large) purchases from private wallets;

• Record all transfers to cold storage and make lists with private wallet addresses;

• Send all this info annually to the (tax) authorities;

• And finally, force governments to pass these rules into domestic law.

The war on privacy continues. The aim: to tackle anonymous spending and exchanging of crypto.

As you’ll discover, these new regulations force upon us a system of complete surveillance and control.

This report explains exactly what to expect from the latest developments launched in October 2022…

What is Going On?

​Last year, the crypto world was shaken to its core when the Financial Action Task Force (FATF), acting in behalf of the G20, released their guidance on virtual assets.1)

This document laid out a set of rules regarding stablecoins, distinctions between private and hosted wallets, extensive KYC requirements, the tackling of privacy tools, and more.2) FATF has also provided a final definition of the type of service provider tasked with reporting on crypto: the Virtual Asset Service Provider.

Fast forward to today, and these rules are quickly being implemented across the world.3) But as usual, it didn’t stop there. Another international regulator, the OECD, is already building on this framework in an attempt to massively increase the grip of authorities on crypo.

What is the OECD?

The Organisation for Economic Co-operation and Development (OECD) is a Paris-based international organisation that works to “build better policies for better lives.” Its goal is to shape policies that foster prosperity, equality, opportunity and well-being for all.4)

Together with governments, policy makers and citizens, the OECD works on finding solutions to a range of social, economic and environmental challenges. From improving economic performance and creating jobs, to fostering strong education and fighting international tax evasion. The organisation provides a unique forum and knowledge hub within which to discuss and develop public policies and international standard setting.5)

This “international standard” setting is what we will look at next.

Automated Exchange of Financial Information with Authorities Since 2014

In 2014, the OECD published the Standard for Automatic Exchange of Financial Account Information in Tax Matters.6) This publication created a “Common Reporting Standard” (CRS), which forces financial institutions to automatically exchange account information with the authorities of the country of residence of their account holders. The goal: to prevent persons from holding financial accounts in offshore jurisdictions and not reporting them back home.

This is why all financial service providers request utility bills: they prove where you live, and hence where they have to report to.

All financial institutions that are subjected to these regulations are forced to automatically report to the authorities the name, address, Tax Identification Number(s), date and place of birth, the account number, and the account value as of the end of the relevant calendar year (or other appropriate reporting period).7)

Now, there is no more hiding of accounts held with a foreign financial institutions. The authorities enlisted all financial institutions as involuntary (but powerful) assistants in collecting facts and evidence needed for tax compliance.

The Panama Papers; Just in Time to Boost Worldwide Implementation of Automated Reporting…

After publishing their standards in 2014, the OECD needed to get countries and their financial institutions in line. By August 2015, the OECD had released the first version of a CRS Implementation Handbook.8) It provided practical guidance to assist government officials and financial institutions in implementing CRS.

But while the standards set by the OECD came into force in 2016 in early-adopting states, by March of that year these standards were still far from being fully integrated into the global financial system.9) This was especially true in the offshore jurisdictions that were the main target. What was needed was a shift in conscience…

On April 3rd, 2016, the International Consortium of Investigative Journalists published a giant leak of offshore financial records, better known as the Panama Papers.10) These revelations caused public outrage.

The G5, the five largest Western European countries, were quick to jump on the bandwagon and call for more international cooperation to tackle “tax dodging and illicit finance.”11) The message did not fall on deaf ears; the next day, on April 15th, G20 Finance Ministers and Central Bank Governors met in Washington and issued the following Communiqué:

“…we call on all relevant countries including all financial centers and jurisdictions, which have not committed to implement the standard on automatic exchange of information by 2017 or 2018 to do so without delay and to sign the Multilateral Convention. We expect that by the 2017 G20 Summit all countries and jurisdictions will upgrade their Global Forum rating to a satisfactory level. We mandate the OECD working with G20 countries to establish objective criteria by our July meeting to identify non-cooperative jurisdictions with respect to tax transparency. Defensive measures will be considered by G20 members against non-cooperative jurisdictions if progress as assessed by the Global Forum is not made.”12)

Thus, within 12 days of the publication of the Panama Papers, the world’s 20 most powerful governments had collectively agreed to start pushing CRS reporting requirements aggressively, and to punish non-cooperative (offshore) jurisdictions—regardless of their local laws.

This is how offshore finance was brought into the fold, and financial privacy died.

Why Can the OECD Regulate Financial Institutions Around the World? Isn’t this a Task of Democracy?

The OECD isn’t a government agency of any individual country. As such, it cannot create law. It issues what is known as “soft laws,” or “recommendations” and “guidance.” Only when this guidance is transposed into the laws of individual countries does it becomes “hard” law, with real world power.

In theory, this process is subjected to the formal (democratic) law-making processes of the implementing countries. However, countries that don’t participate face restricted access to the financial system and ostracism from the international community. For this reason, almost all nations are compelled to implement these recommendations.

It must also be said that national governments, especially in the Western world, highly value this kind of international cooperation, and the control it gives them without the need to deal with the “inconveniences” of democracy. They simply hide behind the fact that these are “international standards” which they have to follow because “everybody” does.

Neither does it help that few of our representatives, journalists and fellow citizens seem to understand the impact of these treaties. Those in the legal industry who do understand the implications just look at it as “business as usual” and a new way to generate income. As such, most standards are passed into domestic law with little opposition or delay.

International Standards Aim to Supersede National Law

Once these treaties are accepted, they become part of a body of law called “international law,” which in many cases supersedes national laws. Unknown to the general public, international law is increasingly being used as a backdoor for passing invasive regulations such as those we are discussing here, and establishing a global bureaucracy with real power over our (financial) lives.

It is also worth noting that the people working for this Paris-based institution have not been elected, their procedures and budget are not subjected to democratic oversight, and they are almost impossible to remove from power.

Like most international organizations, their operations fall under the Vienna Conference on Diplomatic Intercourse and Immunities.13) As such, they enjoy immunity for their actions taken whilst in office, are exempt from administrative burdens (such as taxes and fines), and enjoy less stringent (COVID) travel restrictions.

AUTOMATIC Exchange of Transaction Info For Crypto

Last October 10th, the OECD published the “Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard.”14) This applies the tax reporting guidance of the existing CRS to crypto―and makes it FAR more invasive…

The OECD first published a public consultation version of the document on 22nd March 2022.15) The deadline for feedback from the public was 29th April 2022. This gave the public just over a month to analyze a 101-page document, figure out what it meant for them and their clients in multiple jurisdictions, and formulate a public statement on company letterhead.

This is not a sign that the OECD takes public input seriously. When comparing the two documents, there is no material difference between the public consultation and the final version in the section that matters most, the actual rules…16)

Public consultations give these recommendations the appearance of being widely supported by “stakeholders.” It creates the illusion that the public has a say in the matter. It doesn’t. When you read the questions carefully, they only seek feedback on details, such as which intermediaries are to be included or excluded, which type of NFTs are to be in scope, what reporting thresholds there should be, and how much time should be reserved for implementation.17)

Furthermore, if you read the commentaries submitted, which can be downloaded here, most respondents just talk their own book, trying to elicit amendments that perhaps exempt them from a specific reporting requirement, or trying to get a longer time-frame for implementation. In all fairness, there were also a number of industry insiders who highlighted the double standards created for the crypto industry, and how much of a burden the regulations would represent. In the end, none of this mattered. The regulations have been published and are now the new worldwide standard.

What Are The New Guidelines for Crypto?

​ As was the case with earlier regulations, Bitcoin will not be banned. Instead, the OECD builds on the approach set by FATF: to regulate the service providers who facilitate transactions.

In this instance, the OECD developed a new global tax transparency framework which provides for the automatic exchange of tax info on transactions in a standardised manner. This is the “Crypto-Asset Reporting Framework” or “CARF.”18)

As previously mentioned, automatic exchange of information used to contain only the details of the individual and the account value. New reporting obligations, however, apply to all transactions in an account. This is a major extension of the reporting obligations that currently exist for non-crypto financial services.

Reporting of Transactions (and their Nature) by VASPS

The OECD proposes that those providing crypto transaction services, for or on behalf of customers, are to report under the CARF. We are talking here about the reporting entities that are defined by FATF, i.e. “Virtual Asset Service Providers,” or “VASPs.”19)

Before we look at the details of the information that is going to be exchanged, let us remind ourselves of what a VASP is:

“VASP: Virtual asset service provider means any natural or legal person who is not covered elsewhere under the Recommendations, and as a business conducts one or more of the following activities or operations for or on behalf of another natural or legal person:

i. exchange between virtual assets and fiat currencies;
ii. exchange between one or more forms of virtual assets;
iii. transfer of virtual assets;
iv. safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
v. participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.”20)

As you can see, the definition of VASP is so wide that it covers many of projects currently operating in the crypto space. According to the OECD, reporting obligations also apply to companies facilitating Decentralized Finance and Decentralized Exchanges.21)

What Type of Transactions are to be Reported?

What needs to be reported? In particular, the following three types of transactions:

• Exchanges between Crypto Assets and Fiat Currencies;

• Exchanges between one or more form(s) of Crypto Assets;

• Transfers of Crypto Assets (including Reportable Retail Payment Transactions).22)

Transactions will be reported by type of Crypto Asset, and will distinguish between outward and inward transactions. In order to enhance the usability of the data for tax administrations, the reporting is to be split out between Crypto-to-Crypto and Crypto Asset-to-fiat transactions. Reporting service providers will also be forced to label transfers (e.g. airdrops, income derived from staking or a loan), in instances where they have such knowledge.23)

In short, the CARF mandates that information an all trades, including the type of coin, the amount of coins, the market value, and what was paid, be submitted. This info is then aggregated and automatically exchanged.24) The goal is to inform the tax authorities of how much you own and what kind of income you generated from your holdings.

And if that is not enough, the OECD allows lawmakers the option to request lists of private wallet addresses of users.25)

Reporting of Retail Transactions from Private Wallets

On a final note, the OECD has come up with a trick to limit the opportunity for crypto users to spend their coins anonymously. The CARF also applies to merchant providers facilitating crypto payment for goods or services. In such instances, the merchant provider is required to treat the customer of their customer as its own customer, and report the value of the transaction to the tax authorities of the buyer.26)

For now, this only applies to “large” purchases of over USD 50,000.27)

What About US Citizens and Green-Card Holders?

The CRS has been implemented worldwide. All developed nations and all international financial centers have been included in the list, leaving few of the world’s financial highways untouched.28)

Surprisingly, the United States is not on that list. The reason is that the US came up with their own automatic reporting framework even before the OECD did. It is called the Foreign Account Tax Compliance Act, or FATCA, and requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders.29)

Up until now, FATCA did not directly apply to crypto. But the new 2023 budget proposal seeks to amend section 6038D(b) of the Internal Revenue Code to require reporting for a new third category, namely any account that holds digital assets maintained by a foreign digital asset exchange or other foreign digital asset service provider (a “foreign digital asset account”).30)

There is also another US-specific reporting obligation, the Report of Foreign Bank and Financial Accounts. Regarding FBAR, FinCEN has issued Notice 2020-2, stating that it also intends to make reporting foreign virtual currency accounts mandatory.31) Moreover, US tax payers are already required to report their crypto transactions on their tax returns.32)

The question is, will the United States also implement a CARF like system, as in the automatic reporting of all transactions? This question remains unanswered for now. But President Biden’s Executive Order from earlier this year clearly stated that the current administration is committed to these international standards, including those commissioned by the G20 and FATF, and that the US has a leading role in developing and adopting these international standards on digital assets.33)

Despite all this, it is still unclear what the regulatory landscape in the US will look like. Regardless, US-based companies with clients in other countries (i.e. most of them) will have to implement these policies. It is hard to imagine the US government not wanting to have this information for itself, especially since the legal framework is largely in place. But we will have to wait and see.

What Will Be the Outcome of These Regulations?

​The outcome of these new international standards will be full transparency towards tax authorities. The aim of these standards is to get automatic insight into all your trades, even laying the foundation to prevent you from spending coins anonymously with retailers that use a third party payment provider.

This means in practice that although you can hold coins in your private wallet, you cannot easily spend or exchange them anonymously. In short: no more privacy when you use third party services.

One might say this will be the death of third party services, because accepting online payments is as simple as installing a piece of code on your website and taking the payments yourself. But most companies do not have the capacity to run their own payment system, and are likely going to require payments through a regulated merchant.

As long as there isn’t a Bitcoin standard, meaning accounting and payments regularly done in Bitcoin, there will be a need for fiat on- and off ramps. As such, even when you do business in crypto, your suppliers or clients are likely to make use of a service provider with reporting obligations.

As a result, expect far more scrutiny on transactions; from exchanges, but also from the people and businesses you are dealing with in everyday crypto activity. Even if you do not need to report on certain transactions, they might be forced to do so.

You might be okay with accepting direct peer-to-peer transactions, but could run into issues later when you are obliged to prove where the payments came from.

Regulators Are Out of Control

The reality is that these regulators are out of our control. Without (direct) democratic mandates or oversight they are flooding the world with regulation. Just like totalitarian regimes, they effectively force private parties to police each other.

The service providers, forced into unpaid financial surveillance, carry the rising compliance costs. Obliged to make hard decisions as to whom they can take on as customers, they are likely to cut services to those they consider not worth the compliance costs, such as small or “high risk” businesses, and people in developing nations.

The cost of compliance might become so great that at least some of them might want to facilitate transactions only with fully-vetted wallets tied to a digital ID, such as the EU is implementing.34)

New Precedent: Centralized Surveillance of Individual Transactions

This is a good example of regulations being built on top of one another, and raising the bar with each step. It should not come as a surprise if at some point regular financial service providers are forced into similar obligations to get in line with these new “international standards.” This step might be taken with the introduction of Central Bank Digital Currencies, currently being developed all around the world.35)

Door Open to Further Monitoring and Restricting of Payments

It is not hard to imagine that once all transactions are transparent, more actions can be taken as to which type of payments and type of persons are allowed or not. We can see this financial “cancel culture” already happening around the world.36)

As a result of all this surveillance, it is not only privacy that is at risk right now; this starts to touch the very idea of maintaining a payment system where you can freely transact and engage in economic activity.

Only a massive and radical decentralization movement away from third party service providers can prevent this dystopia. Stay tuned for a next report and a roadmap for just that…

Update(1645ET): A major new and sensational charge of a Ukrainian false flag plot in the making issued by Russia’s defense chief has set off a string of tit-for-tat accusations and statements Sunday.

Russian Defense Minister Sergei Shoigu claimed in rare phone calls that included his counterparts from the United States, Britain, France, and Turkey that Ukrainian forces are preparing a “provocation” with a radioactive device. A Kremlin statement cited that he conveyed a warning over “possible Ukrainian provocations involving a ‘dirty bomb'”.

Shoigu’s office said in follow-up that he conveyed the warning to all the above-named countries’ defense chiefs. As for his conversation with Secretary of Defense Lloyd Austin, it was the second phone call in merely three days. The Pentagon in the hours after said Austin told Shoigu he “rejected any pretext for Russian escalation” – which strongly suggests the US perceives that Moscow is about to heighten attacks on Ukrainian cities further:

Russian authorities repeatedly have made allegations that Ukraine could detonate a dirty bomb in a false flag attack and blame it on Moscow. Ukrainian authorities, in turn, have accused the Kremlin of hatching such a plan.

The Kremlin is further charging that this low-intensity nuclear provocation is being prepared with the help of Great Britain; however, the Western allies have said no evidence whatsoever was presented in the phone calls alongside the accusations.

The UK defense ministry said in its statement following Shoigu’s phone call with Secretary Ben Wallace that the Russian side “alleged that Ukraine was planning actions facilitated by Western countries, including the UK, to escalate the conflict in Ukraine.”

“The Defense Secretary refuted these claims and cautioned that such allegations should not be used as a pretext for greater escalation,” the ministry said.

Russia is saying that such a ‘dirty bomb’ detonation, which would spread radioactive waste and potentially contaminate large urban areas, would then be blamed on Moscow in order to justify greater Western intervention.

Ukraine, for its part, blasted what the presidency’s office called an “absolute and quite predictable absurdity” and blatant “lie”. France too agreed with Ukraine’s assessment, and a statement from the French Foreign Ministry has ominously warned that the crisis is “trending towards uncontrollable escalation.” But Macron on Sunday admitted that “peace is possible” – yet it depends on when the Ukrainians “decide it”.

Who exactly endowed this person with the authority to decide when the US must launch World War III on his behalf https://t.co/GYc98QnH89

— Michael Tracey (@mtracey) October 23, 2022

Meanwhile, Zelensky’s own rhetoric urging Western military intervention has escalated as well, all of which strongly suggests the war will soon grow hotter.

* * *

earlier

Now much of Western Ukraine, which lies far away from the front lines of fighting with Russia in the east, is without power due to fresh weekend airstrikes across the country. 

Ukrainian President Volodymyr Zelensky in a Saturday night address said new “massive” strikes targeted Dnipropetrovsk, Khmelnytsky, Kirovohrad, Mykolaiv, Odessa, Rivne, Volyn and Zaporizhia regions.

“We continue eliminating the aftermath of today’s terrorist attacks on our infrastructure,” Zelensky said. “The geography of this new massive strike is very wide.”

The past days have already seen power outages in Kyiv, with energy grid authorities warning of rolling blackouts, and urging residents to take power-saving measures such as the avoidance of running large appliances. 

On Saturday the national power utility operator Ukrenergo said that damage from the latest round of Russian strikes set a new record. The Saturday air offensive by Russia was bigger than an initial major wave of strikes from earlier this month:

Over 1.4 million Ukrainian households have lost electricity after a morning of repeated Russian air raids, Ukraine President Volodymyr Zelenskyy’s office says.

The Ukrainian General Staff reported that 40 cruise missiles and 16 allegedly Iranian-made drones hit Ukraine throughout the day.

Oleksandr Kharchenko, a Ukrainian energy official, said in an interview with US media that national infrastructure vital for the people is facing “really huge trouble”.

“When you don’t have electricity in a city, it means you have no water, you have no supply of gas, you have nothing,” Kharchenko said. Days prior to the stepped-up Saturday assault the government said one-third of all power stations had been hit or damaged in Russian strikes. 

The right bank of Kyiv covered in darkness this evening as the Ukrainian authorities began to implement planned power outages to save energy, due to continued Russian strikes targeting Ukraine’s energy infrastructure. pic.twitter.com/QeR6AEvYwG

— Status-6 (@Archer83Able) October 20, 2022

Most new damage to energy has been recorded in the country’s west, south and center, with some hospitals since reporting they are running on backup generators. Reserves of oxygen and fresh water are also being tapped by hospitals. 

Ukrenegro has on Sunday introduced phased blackouts to “avoid accidents”, per The Guardian: 

The blackouts began at 11.13am local time (09.30am BST), with households in Kyiv divided into three groups that will be “disconnected for a certain period of time”, DTEK said.

It added that the blackouts should last “no more than four hours” but may be longer “due to the scale of damage to the power supply system”.

According to the latest estimate of the damage reported in Reuters, “Russia has hit at least half of Ukraine’s thermal generation capacity and caused billions of dollars of damage in attacks since Oct. 10, but not all stricken power units have stopped working completely, Ukraine’s energy minister said on Friday.”

⚠️ Confirmed: Live network data show internet outages in south #Ukraine corresponding to new Russian missile attacks this morning targeting critical infrastructure; the bombardment of civilian energy utilities has intensified since 10 Oct.

📰 Background: https://t.co/S0qJQ7CJD3 pic.twitter.com/M832lukdy5

— NetBlocks (@netblocks) October 22, 2022

Further, “Herman Halushchenko told Reuters in an interview that 30-40% of overall national power infrastructure had been hit in attacks that he depicted as intended to destroy Ukraine’s energy system — a goal that he said had not been achieved.”

After a near-apocalyptic 6 months for bitcoin and the broader digital token segment, which led to the now traditional spike in crypto obituaries, some are wondering if the crypto winter is starting to thaw and is sentiment is about to reverse.

One such tentative ray of hope comes from Bank of America’s latest Global Cryptocurrencies note, in which author Alkesh Shah paints a gloomy picture for most assets, yet one where cryptos may soon start diverging, to wit:

Higher rates, driven by inflation and budget deficits, continue to pressure risk assets including the digital assets sector. Our macro colleagues note early signs of capitulation given max bearishness (see this Oct 20 report) for the 5th consecutive week as hedge funds position less bearishly on equity and an S&P YE price forecast indicating 2% downside from current levels as client flows signal expectations of a potential market bottom. But, rate risks remain.

We expect blockchain and application development to drive token price divergence with blockchains exhibiting a growing application ecosystem and Web3 applications providing real-world functionality and capturing traditional company market share to outperform

Of course, we all know what they say about opinions… but what about other tangible indicators?

Let’s start with fund flows.

As Shah writes, BTC exchange outflows last week were the largest since mid-June, tight supply (tokens last moved over 1 yr ago remain near all-time highs) and whale accumulation indicate investor HODLing and limited near-term sell pressure (bullish). ETH saw its 3rd consecutive week of muted activity following large exchange inflows pre/post-Merge and as price headwinds continue (-23% since early Aug), signaling limited near-term buy pressure (bearish). Top 4 stablecoin exchange outflow over the last 2 weeks were 80% and 88% below the average weekly inflow/outflow over the prior 6 weeks, respectively, indicating that investors are moving to the sidelines (neutral).

But what was far more notable than flows, is the recent spike in bitcoin-gold correlation. Here again is BofA:

BTC exchange outflows over the last 4 weeks ($2.6bn) were 3.6x larger than exchange inflows over the prior 4 weeks. Exchange outflows for 3 of the prior 4 weeks (BTC +2% last 4 weeks) indicate that investors continue to HODL instead of selling into strength. A decelerating positive correlation with SPX/QQQ and a rapidly rising correlation with XAU indicate that investors may view bitcoin as a relative safe haven as macro uncertainty continues and a market bottom remains to be seen.

And some more observations:

The correlation between bitcoin and the S&P 500 (SPX) reached all-time highs on Sept 13 of this year and the correlation between bitcoin and the Nasdaq 100 (QQQ) reached all-time highs on Sept 13 as well.

The correlation between bitcoin and gold (XAU), which is commonly viewed as an inflation hedge/store of value, remained close to zero from Jun’21 through Feb’22 and turned negative on Mar 2, but the inverse correlation decreased from Apr’22 through Aug’22 before the correlation turned positive on Sept 5 and continued to increase. The inverse correlation between bitcoin and the dollar (DXY) has increased since Jul 14.”

Of course, such divergence in correlation between risk assets and bitcoin, and convergence between gold and bitcoin, is precisely what should be happening for an asset that was designed to be diversifying, and to hedge inflation, not to be an highly-levered beta on tech names. That said, it is still too soon to tell if bitcoin can move sharply higher as stocks continue to slide and the dollar surges. Incidentally, such a reversal in crypto, where it trade not as a high-beta tech stock, but as an actual alternative to the dollar would be the best news long-suffering crypto bulls will have gotten in a long time.

Housing bubbles are a tricky phenomenon. As a market gathers steam and prices increase, it remains a matter of debate whether that market is overvalued and flooded with speculation, or it’s simply experiencing robust demand.

Of course, once a bubble bursts, it’s all obvious in hindsight.

One common red flag is when prices decouple from local incomes and rents. As well, imbalances in the real economy, such as excessive construction activity and lending can signal a bubble in the making.

Visual Capitalist’s Nick Routley created the map below, based on data from the Real Estate Bubble Index by UBS, to examine 25 global cities, scoring them based on their bubble risk.

Overinflated Markets

In the 2022 edition of the Real Estate Bubble Index, nine of the cities covered were classified as having extreme bubble risk (1.5 or higher score).

Canada’s largest city finds itself at the top of a ranking no city wants to end up on. Toronto’s home prices have been rising steadily for years now, and many, including UBS, believe that the city is now firmly in bubble territory.

Vancouver also finds itself in a similar position. Both Canadian cities have a high quality of life and have thriving tech industries.

Notably, none of the U.S. cities analyzed find themselves in the most extreme bubble risk category. The closest scoring U.S. city was Miami, which sits firmly in overvalued territory (0.5-1.5 range) with a score of 1.39.

Examining the Trends

In recent years, low interest rates helped push home prices and incomes further apart.

For cities in the bubble risk zone, prices have climbed by an average of 60% in inflation-adjusted terms over the past decade, while rents and real incomes increased by just 12%. And, while COVID-19 briefly put a dent in urban demand, rents in the cities analyzed rose at around the same pace as pre-pandemic times.

As a result, all but three of the cities saw positive price growth over the past year from a nominal price perspective:

U.S. cities occupy a number of spots at the top of this chart. Miami, in particular, is seeing strong internal migration patterns, as well as renewed interest from foreign investors.

Hong Kong experienced the biggest one-year nominal drop of all the cities analyzed. The report notes that since around 2019 Hong Kong “has broadly stagnated as the lack of affordability, economic woes, and pandemic restrictions all took a major toll on demand.”

Prices can’t rise forever. According to UBS, most cities with high valuations, price corrections have already begun, or could be right around the corner.