Florida is preparing for the arrival of Hurricane Ian after the intensifying storm knocked out Cuba’s entire electric grid early on Tuesday. About 2.5M people along the U.S. Gulf coast have been urged to evacuate, with forecasts calling for winds of up to 130 mph and a 6-foot storm surge, potentially leaving some places uninhabitable for weeks or even months. While estimates are being revised by the hour, Ian will likely crash ashore this evening south of Tampa Bay – somewhere between Sarasota and Naples – as a potentially deadly Category 4 hurricane.
Catastrophic damage: Economic losses in the area could exceed $45B if the current forecast comes to pass, ranking Ian as the eighth-costliest U.S. hurricane. It could also exacerbate food inflation if the storm takes a direct hit on key orange-growing producers, so keep an eye on Orange Juice Futures (JO1:COM) and the nation’s largest distributors – Tropicana (NASDAQ:PEP) and Minute Maid (NYSE:KO). Fertilizer-manufacturing zones are also at risk, like Mosaic’s (NYSE:MOS) phosphate facilities east of Tampa, which could further drive up the cost of growing food.
“I do have concerns about complacency,” said U.S. Federal Emergency Management Agency chief Deanne Criswell. “We’re talking about impacts in a part of Florida that hasn’t seen a major direct impact in nearly 100 years. There’s also parts of Florida where there’s a lot of new residents.”
Outlook: Walt Disney World (NYSE:DIS) said its theme parks would close Wednesday and Thursday, while SeaWorld Entertainment (NYSE:SEAS) shuttered Busch Gardens in Tampa through Sept. 29. Commercial airlines also reported more than 2,000 storm-related flight cancellations, heavily impacting carriers like JetBlue (NASDAQ:JBLU), Spirit (NYSE:SAVE) and American Airlines (NASDAQ:AAL). On the energy front, personnel have been evacuated from 14 Gulf Coast rigs, halting about 11% of the region’s oil output. Meanwhile, Duke Energy (NYSE:DUK), which supplies electricity to 1.9M customers in the state, warned of widespread power outages, as well as Florida Power & Light Co., a subsidiary of NextEra Energy (NYSE:NEE). (9 comments)
In case investors didn’t get the message yet, the “Fed put” has officially been retired. As Jerome Powell looks set on vanquishing soaring inflation and entrenched expectations, economic growth and hopes of a soft landing have been thrown into the back seat, with some arguing – maybe a bit too strongly. The crew at the central bank has even promised more rate hikes in November and December, after accelerating the unwinding of its balance sheet this month, and there are fears that the real effects could soon start rippling through the economy.
The latest: The 10-year Treasury climbed 4 basis points overnight to breach the key 4% level. The last time that happened was in 2008, at the height of the global financial crisis. It’s even more astonishing when considering the pace of the yield’s ascent, with the benchmark sitting at only 1.50% at the start of the year.
“Bond yields gravitating toward or above 4% means markets are pricing in tighter policies for longer,” noted Daniel Tenengauzer, head of markets strategy at BNY Mellon. “In my opinion, it’s the realization that bond yields are highly unlikely to revert to a lower range in the medium to longer term, given higher inflation and tighter policy for longer, that’s having an impact.”
Everything bubble deflates: The Dow Jones slipped further into a bear market and the S&P 500 fell to its lowest level in almost two years on Tuesday, while the Nasdaq Composite inched higher, but is still off nearly 32% YTD. Meanwhile, home prices were shown to have fallen for the first time in a decade as demand gets dented amid soaring rates. In another indicator of the times, reports now suggest that Apple (AAPL) is pulling plans to boost production despite raising projections as it headed into the September launch event for the iPhone 14. (10 comments)
Bond turmoil in the U.K. has forced the the Bank of England to step into the market as government borrowing costs surge amid fears of the government’s tax-cutting plans. The central bank will suspend the planned start of its gilt selling next week and temporarily buy long-dated bonds, scooping up “whatever scale is necessary.” The yield on the 10-year gilt tumbled in response, falling 36 basis points to 4.15%, while pound sterling rose above $1.08, before quickly wiping out those gains.
Backdrop: Gilt yields were on track for their sharpest monthly rise since at least 1957 after Prime Minister Liz Truss unveiled her so-called “mini-budget.” The plan included sweeping tax cuts for individuals, businesses and house purchases, while subsidizing soaring energy costs. The Treasury even forecast that it would wipe £45B off government revenues over the next five years, sending shock waves through financial markets.
“Were dysfunction in this market to continue or worsen, there would be a material risk to U.K. financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy,” the Bank of England said in a statement. “In line with its financial stability objective, the BoE stands ready to restore market functioning and reduce any risks from contagion to credit conditions for U.K. households and businesses.”
Go deeper: In a rare rebuke of a G7 country, the IMF is urging Truss to “re-evaluate” the tax cuts, warning that the new measures are likely to fuel a cost-of-living crisis. “Given elevated inflation pressures in many countries, including the U.K., we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy. Furthermore, the nature of the UK measures will likely increase inequality.” (29 comments)
The Nord Stream pipeline system that transports Russian gas to Europe has reported “unprecedented” damage, with management saying it was impossible to predict when operations would resume. Both Europe and Russia said sabotage cannot be ruled out for the cause of the destruction, and Swedish authorities said two powerful underwater explosions were detected in the same area of the Baltic Sea where gas had bubbled to the surface.
Price movement: Benchmark Dutch natural gas front-month futures closed up 7% to €186.10/Mwh on Tuesday, while U.K. natural gas futures jumped by as much as 34% before settling 6.2% higher at £255.65/MWh. European leaders have previously accused Moscow of weaponizing energy – citing the use of maintenance issues as pretexts for limiting flows – while the new leaks guarantee a shutdown of gas flows to Germany this winter.
The developments follow an escalation of the war in Ukraine, with Vladimir Putin announcing a “partial mobilization” that will conscript as many as 300,000 additional troops. Russia has also declared victory in a series of referendums that took place over the past week in the Donetsk, Luhansk, Kherson and Zaporizhzhia regions. The U.S. is busy preparing a new round of sanctions against Russia should it annex the territories, as well as another $1.1B arms package to aid Kyiv.
Note: Nord Stream 1 had stopped pumping gas earlier this month, claiming sanctions on Russia prevented it from carrying out vital maintenance work,while Nord Stream 2 has never officially opened, as Germany did not certify it for commercial operations due to Russia’s invasion of Ukraine. (94 comments)
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